Weekly FX : Technical Reversal in Euro May Be Signaling a Top
March 09, 2008
Technical Reversal in Euro May Be Signaling a Top
By James A. Hyerczyk
Commodity Trading Advisor registered with the National Futures Association
EURUSD: The EURUSD moved to a new all-time high early Friday following the release of the U.S. Employment data. The report indicated a substantial loss of jobs in February thereby locking in a 50 to 75 bp cut at the next Fed meeting on March 18. Following the rally the EUR stalled as profit takers came in. The fundamentals did not change; however, the steepness of the recent rally has caused an overbought situation. Look for a break to be technical in nature. Fundamentally, the ECB held rates steady, and showed no signs it would intervene or cut rates in the near-term.
Technically, the main trend is still up; however, the market posted a daily close price reversal top. A trade through 1.5313 confirms the top and could trigger some profit-taking and selling pressure. In addition to the bearish closing price reversal top, the market is poised to take out up trending Gann angle support at 1.5317. A break of both Friday's low and the Gann angle is likely to start a big correction back to 1.4952 1.4830. Counter-trend traders should start looking for a place to get short. Longs should tighten up their stops. GBP/USD: ...
GBPUSD: Recapping the week, the BoE decided to leave interest rates alone. This immediately brought support to the market. Continue to monitor the news for bank problems and economic slowdowns. Any sign of market turmoil is likely to indicate a rate cut further down the line. Word is that the BoE may look to change rates quarterly instead of month-to-month.
The main trend remains up as the GBPUSD traded relatively firm throughout the session on Friday. The upside objective of 2.0249 still has to be met. The market backed off a little at 2.0219; however, it was not enough to signal a top. Breaking 2.0249 indicates strength with 2.04 the next upside target. There is also down trending resistance at 2.03. Play the long side cautiously inside 2.02 to 2.04. It is definitely not a value zone to be adding on to any longs. Look to buy breaks back to 1.9880 if given the opportunity.
JPY: This past week, the BoJ left rates alone and remained relatively quiet about the Yen's strength against the USD. Traders are looking for a test of 100. Others are talking possible intervention should the market go through 100 with vigor. Weakness in U.S. equities markets is likely to continue to put downside pressure on the USDJPY.
The USDJPY tried to make a reversal bottom, but the bearish U.S. equity market seemed to hold it back near the close. If Fridays low holds, then the market could retrace back to 105.01 to 105.86 before new sellers emerge. There is also down trending resistance that may stop the market at 104.36 and 106.49. So far, all we are looking at is a temporary low. Aggressive traders can play the long side with the retracement zones as objectives. The safest long will come after the market tests 101.40 one more time.
USDCHF: During the week, the USDCHF broke to multi-year lows because of a flight to quality situation caused by the weak U.S. equities markets. Watch the stock markets for direction. Also, monitor Swiss banks as the credit problems seem to be circulating around the world.
The USDCHF made a new low for the year, but reversed up on the close. Based on the current set-up, there may be a retracement back to 1.06 to 1.07 before new sellers arrive. The first hurdle, however, is to overcome the down trending resistance at 1.0387. Be patient and let the market retrace before initiating new shorts. Aggressive traders can play the long side for the retracement. Existing shorts should bring down stops above Fridays high at 1.028.
USDCAD: The BOC cut rates 25 bp earlier in the week sending the CAD lower, however, strong oil and gold markets supported Canadian exports causing a rise in the CAD. The market is expected to continue to trade this way until it can regain par. The BOC also hinted at further cuts later in the year should the weakness in the U.S. economy spillover into Canada. If commodity markets begin to top out, look for strength in the USD vs. CAD.
The USDCAD started the day in a bearish mode as the market looked like it was ready to break through support at .9709. Instead, aggressive buying came in and the market closed higher. The strong close puts the market in a position to change the main trend to up following a break out rally over .9976. The tough area to clear is 1.00. Overcoming this price sets up a further rally to 1.01. Trend traders can continue to look at the short side, but be prepared to flip to the long side on a break out through .9976.
AUDUSD: This week the RBA raised rates 25 bp, but strong language suggested that this might be the last hike for a while. News of a slowing economy also filtered into the market and buying dried up at 23-year highs. Without the bullish fundamentals to drive this currency, start to look at the short side. The down move may accelerate if the Australian economy begins to show strong signs of slowing down.
The AUDUSD failed to rally through down trending resistance at .9485. The pattern still looks like a short-term top is forming. The recent rally was from .8873 to .9499. Any more weakness sets up a further decline to the retracement zone at .9186 to .9112. Additional up trending support comes in at .9190. Longs should tighten stops. Aggressive traders should start to look at the short side at current levels. Whatever you do, do not sell into the retracement zone at .9186 to .9112, or you may be caught in a vicious short-covering rally. Trend traders should look to buy at the retracement zone for a rally that tests the top at .9499.
NZDUSD: By leaving rates unchanged this week, the Bank of New Zealand sent a signal that the economy may be cooling. Since the NZD piggybacked the AUD on this last rally, expect the break in this market to be more severe given the bearish comments about the AUD. The fundamentals support the start of a decline. Look to get short using the charts.
The NZDUSD looks like it is forming a short-term top. The charts indicate that there is likely to be selling pressure on rallies to .8055. In addition, traders are likely to push this market all the way down to .7722 to .7719. Look to buy a break back to this area.
James A. Hyerczyk is a registered Commodity Trading Advisor with the National Futures Association. He has been actively involved in the futures markets since 1982, working in various capacities within the futures industry from technical analyst to commodity trading advisor. He has provided technical analysis for The Hightower Report, eSignal, FuturesSource and CQG, and has presented seminars for Futures Magazine and Reuters
By James A. Hyerczyk
Commodity Trading Advisor registered with the National Futures Association
EURUSD: The EURUSD moved to a new all-time high early Friday following the release of the U.S. Employment data. The report indicated a substantial loss of jobs in February thereby locking in a 50 to 75 bp cut at the next Fed meeting on March 18. Following the rally the EUR stalled as profit takers came in. The fundamentals did not change; however, the steepness of the recent rally has caused an overbought situation. Look for a break to be technical in nature. Fundamentally, the ECB held rates steady, and showed no signs it would intervene or cut rates in the near-term.
Technically, the main trend is still up; however, the market posted a daily close price reversal top. A trade through 1.5313 confirms the top and could trigger some profit-taking and selling pressure. In addition to the bearish closing price reversal top, the market is poised to take out up trending Gann angle support at 1.5317. A break of both Friday's low and the Gann angle is likely to start a big correction back to 1.4952 1.4830. Counter-trend traders should start looking for a place to get short. Longs should tighten up their stops. GBP/USD: ...
GBPUSD: Recapping the week, the BoE decided to leave interest rates alone. This immediately brought support to the market. Continue to monitor the news for bank problems and economic slowdowns. Any sign of market turmoil is likely to indicate a rate cut further down the line. Word is that the BoE may look to change rates quarterly instead of month-to-month.
The main trend remains up as the GBPUSD traded relatively firm throughout the session on Friday. The upside objective of 2.0249 still has to be met. The market backed off a little at 2.0219; however, it was not enough to signal a top. Breaking 2.0249 indicates strength with 2.04 the next upside target. There is also down trending resistance at 2.03. Play the long side cautiously inside 2.02 to 2.04. It is definitely not a value zone to be adding on to any longs. Look to buy breaks back to 1.9880 if given the opportunity.
JPY: This past week, the BoJ left rates alone and remained relatively quiet about the Yen's strength against the USD. Traders are looking for a test of 100. Others are talking possible intervention should the market go through 100 with vigor. Weakness in U.S. equities markets is likely to continue to put downside pressure on the USDJPY.
The USDJPY tried to make a reversal bottom, but the bearish U.S. equity market seemed to hold it back near the close. If Fridays low holds, then the market could retrace back to 105.01 to 105.86 before new sellers emerge. There is also down trending resistance that may stop the market at 104.36 and 106.49. So far, all we are looking at is a temporary low. Aggressive traders can play the long side with the retracement zones as objectives. The safest long will come after the market tests 101.40 one more time.
USDCHF: During the week, the USDCHF broke to multi-year lows because of a flight to quality situation caused by the weak U.S. equities markets. Watch the stock markets for direction. Also, monitor Swiss banks as the credit problems seem to be circulating around the world.
The USDCHF made a new low for the year, but reversed up on the close. Based on the current set-up, there may be a retracement back to 1.06 to 1.07 before new sellers arrive. The first hurdle, however, is to overcome the down trending resistance at 1.0387. Be patient and let the market retrace before initiating new shorts. Aggressive traders can play the long side for the retracement. Existing shorts should bring down stops above Fridays high at 1.028.
USDCAD: The BOC cut rates 25 bp earlier in the week sending the CAD lower, however, strong oil and gold markets supported Canadian exports causing a rise in the CAD. The market is expected to continue to trade this way until it can regain par. The BOC also hinted at further cuts later in the year should the weakness in the U.S. economy spillover into Canada. If commodity markets begin to top out, look for strength in the USD vs. CAD.
The USDCAD started the day in a bearish mode as the market looked like it was ready to break through support at .9709. Instead, aggressive buying came in and the market closed higher. The strong close puts the market in a position to change the main trend to up following a break out rally over .9976. The tough area to clear is 1.00. Overcoming this price sets up a further rally to 1.01. Trend traders can continue to look at the short side, but be prepared to flip to the long side on a break out through .9976.
AUDUSD: This week the RBA raised rates 25 bp, but strong language suggested that this might be the last hike for a while. News of a slowing economy also filtered into the market and buying dried up at 23-year highs. Without the bullish fundamentals to drive this currency, start to look at the short side. The down move may accelerate if the Australian economy begins to show strong signs of slowing down.
The AUDUSD failed to rally through down trending resistance at .9485. The pattern still looks like a short-term top is forming. The recent rally was from .8873 to .9499. Any more weakness sets up a further decline to the retracement zone at .9186 to .9112. Additional up trending support comes in at .9190. Longs should tighten stops. Aggressive traders should start to look at the short side at current levels. Whatever you do, do not sell into the retracement zone at .9186 to .9112, or you may be caught in a vicious short-covering rally. Trend traders should look to buy at the retracement zone for a rally that tests the top at .9499.
NZDUSD: By leaving rates unchanged this week, the Bank of New Zealand sent a signal that the economy may be cooling. Since the NZD piggybacked the AUD on this last rally, expect the break in this market to be more severe given the bearish comments about the AUD. The fundamentals support the start of a decline. Look to get short using the charts.
The NZDUSD looks like it is forming a short-term top. The charts indicate that there is likely to be selling pressure on rallies to .8055. In addition, traders are likely to push this market all the way down to .7722 to .7719. Look to buy a break back to this area.
James A. Hyerczyk is a registered Commodity Trading Advisor with the National Futures Association. He has been actively involved in the futures markets since 1982, working in various capacities within the futures industry from technical analyst to commodity trading advisor. He has provided technical analysis for The Hightower Report, eSignal, FuturesSource and CQG, and has presented seminars for Futures Magazine and Reuters
Labels: Markets, Technical Analysis
