Currencies: 29MayWith this week's Employment report, there is some doubt as to how much directional action the FX markets will present. With all kinds of bad issues now coming forth from the Euro-zone, this morning's rally in risk-on currencies was somewhat surprising. However, continuing bad news tended to push the risk-off bias later in the morning. This bias has accumulated as the continuing crappy housing numbers from the US were joined by a horrendous Consumer Confidence miss. A worrisome observation we’re seeing again is one where the risks are seen as “well contained”, a constant comment for the last several years. As risks bubbles up, it is commented on as “manageable” or “nothing to worry about”, and then at some later point, it is seen as out of control in some way.
Aussie: 29May With indications of slowing economic activity in Asia, the Aussie is likely to remain under some pressure.
Today's failed breakout rally seems to have the Aussie back under some pressure. The early rally failed to make it to .9900 and the 5/22 high. If this failure holds, look for the Aussie to trade under .9800,and test the bear flag formation from last week. Support should be at about .9775, which is near today's low. It was also the support and resistance from the previous 6 sessions, acting as a high or low trading area. The next major support area should come in near .9705-.9710, where the market found traction from 5/23-5/25.
Resistance is seen at .9885, just above today's high, and near the 5/15 low and the 5/21 high.
Seasonal Snapshot (cash): The 5-year pattern’s upward bias extends until the end of July.
The 15&30yr patterns chop much higher until 20June, and then both fall out of bed throughout the rest of the month.
British: 29May Today's action is seen as intra-day bearish failure. Failed to breakout above yesterday's and Friday's highs and subsequently headed materially lower.
We continue to see the previously noted flag/pennant formation, with several possibilities for future developments. Both levels project measured moves to technically significant areas:
Based on either the 3-day plunge (350 points) the move could project to 1.5425. This level roughly correlates to where support was prevalent in late November through mid-December.
Based on the complete decline from the 4/30 peak (550 points), the move could project a move to near 1.5225. This is where support held on reversal moves in early October and mid-January.
In either case, this market seems to be setting up for a material move to the downside.
We took a short position last week at 1.5700, using risk at a 1.5755 stop.
Volume continues its tendency to be stronger on the move to the downside. It broke below the 1.5635 support, and since making new lows has rebounded to just below that level.
Failure to get back above1.5635, makes it likely we'll see one of the above bearish formation scenarios play out.
Seasonal Snapshot (cash): All three patterns have a quite negative bias until the end of May.
Canadian: 29May Today's action, despite the higher trade and settlement, retains its negative profile with the market clearly failing by not remaining above .9775.
Se see the .9775 level as significant resistance level as the Loonie has traded around this level since first finding support there on 5/18. We believe resistance will be seen at .9700, bot a round number psychological level and where the market bounced off from 5/23-5/25.
Failure to hold there and the Loonie is likely start pressuring the falling -2 STD below the 21-day moving average, currently at .9645. This is whee the market has found a “brake” on further action to the downside.
Our technicals remain quite negatively biased, with Trend and Momentum both clearly negative. Our Oversold measure has bounced from 10 to 21 and should still be watched closely. To this end, the Loonie bounced off a probe to the –2 STD (0.9710) below the 21-day moving average (0.9985) again.
On more weakness, watch the series of previous lows: 9711 on 13Jan; 9675 on 9Jan; 9582 on 19Dec; 9497 on 25 Nov and finally, 9367 on 04Oct.
Seasonal Snapshot (cash): All three patterns have a choppy, negative bias until 26May. The 30yr’s is more protracted than its shorter-term counterparts.
Dollar Index: 29May Another probe to new highs as the DX failed to succumb to early selling and ended up modestly higher on the day. The chatter is now on the news about there being a lack of dollar based high quality investments due to capital leaving Europe with their ongoing debt crisis. Any further deterioration of the Euro-zone crisis will add to the safe-haven demand for Treasuries and US Dollars.
Again, our technicals remain quite positive, but another leap higher in our already toasty Overbought measure (currently 90) is still well short of the 97 registered on 16&17May.
Support below 81.00 is difficult to see with clarity, as there are so many trade gaps below the market since the latest rally began. 80.35-80.40 would be the first level we’d recommend watching. This is where the market failed to go higher in early/mid-April.
Bigger picture, we remind readers of our past comments:
“Watch for any evidence the Dollar is not the safe haven under crisis market conditions. This would change existing assumptions dramatically.”
Seasonal Snapshot: The 15&30yr patterns consolidate in choppy fashion until the end of May. The 5yr declines during this period.
Euro-FX: 29May General debt crisis conditions abound. Greek exit issues are now joined by stories of a feared bank run starting in Greece and spreading to Spain.
Quite negative technicals are now joined by today's bearish reversal action. Early highs were firmly rejected and materially lower levels, both relative and nominal, prevailing. Ominously, today's highs failed just 2 ticks from the January lows. Today's lows are quite close the highs from way back in June 2010. That should suffice for near-term support at this juncture. Below that look for the -2 STD below the 21-day moving average(currently 1.2397).
As we have noted, the break below 1.2700, has given way to much lower pricing. A sustained move lower should first target psychological support at the round pennies down to 1.2000, maybe as low as 1.1500. The June 2010 low was 1.1874.
Resistance lies above near 1.2800. This is both a psychological level and the recent highs..
As we stated on 5/10, the Euro has and probably will probably remain under pressure so long as the political crises continue to roil the Euro-zone.
Seasonal Snapshot: The 5&15yr patterns consolidate and the 30yr pushes lower until the end of June.
Yen: 29May The Yen again assumes the mantle of safe-haven as it has for several months now. Today's action is indecisive on a directional basis and its RSI bears this out, sitting at 53. Pricing levels are basically sideways with a very modest upward bias since 5/1.
If the Dollar Index’s behavior last Summer is any indication of the Yen’s future, the BOJ will likely be back at the window in the near future. Last Summer’s S&P downgrade of US debt was followed by a 9% rise in the DX.
Support remains near the 12465 level, resistance going back to late February. Resistance is just below at old support and the recent highs (1.2600).
Seasonal Snapshot: Modest weakness in all three patterns will turn positive for a week on 1May, then consolidation into the first part of June.
Disclaimer: The information presented in this report is taken from sources we believe to be reliable and accurate. This information is not guaranteed as to accuracy or completeness. The opinions expressed are based on our best judgment at the time of writing and are subject to change without notice. These opinions should not be construed as an inducement or advice to enter into any Futures or Options on Futures transaction except where explicitly stated. There is risk of substantial loss in trading futures and options. One's financial suitability should be considered carefully before placing any trades. Past performance is not indicative of future results.
This post has been edited by providiotrading: May 30 2012, 03:19 AM