Futures Last Trade: June 18June; Sep: 17Sep
Opions Last Trade: July: 06July; Aug: 03Aug; Sep: 07Sep
13June We shorted the June British contract after strength dissipated at our noted falling trend line resistance (1.5600) that extends back to 24May high (1.5725), a brief stopping point in the decline. We are risking to last Thursday's high (1.5635).
Another relatively quiet consolidation day ahead of what we mostly see as "event risk". We seem to be back at the mercy of the headlines with events in Europe unfolding at a torrid pace and the FOMC meeting on 20June.
Our rising Rate of Change indicators have flipped many of our Momentum to a more US Dollar negative dynamic. This should be watched closely. We add another factor (or in this case, "formations") to yesterday's list of dynamics across the sector that has us tilting US Dollar bullish:
· NEW: We are starting to see some evidence of flag, pennant or triangle formations. This typically indicates a continuation of the larger move if prices can break out on stronger Volume.
· Volumes are stronger on the moves to the upside.
· The recent strength has taken most of our tracked majors off extreme Oversold conditions. The "middling" nature of our indicators may open the door for another round of selling.
· The last time our Momentum indicators turned (US Dollar negative; FX positive), it was a short-lived consolidation that gave way to a continuation of the previous trend.
See below for specific market details, although they have not changed much.
AUSSIE$: 13June A Doji Candle, consolidation of the recent gains today.
Today's high registers a triple top since 07June, or if extended back to 16May, a rising wedge in a falling market, although rising trend line support is rather steep (current level 0.9870). In any case, the par (0.1000) level looms as resistance.
This area also aligns with our noted 38.2% retracement (1.0005) of the Mar-May decline and has fallen back toward recent settlement levels around 0.9900. Old support from mid April (1.0142) should offer new resistance and also aligns with a 50% retracement.
Our Rate of Change continues to rise, turning back a very early hint that the recent positive turn in our Momentum indicator may be slowing. We remind readers that the last time we saw a positive turn in our Momentum indicator, in mid April, the currency essentially consolidated with a modest upward bias before another substantial leg to the downside. Our Rate of Change should offer initial signs when/if this may be happening again. The one difference that we will note this time around is that the "turn" has been much steeper.
In what is becoming bigger picture, the recent lows (0.9565 on 01June) lie in a zone that traces back to support from last November. If it the previous negative tone reinstates itself, look for a sustained move lower on stronger Volume to break this major support area and target the 0.9000 level.
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.
We shorted the June contract after strength dissipated at our noted falling trend line resistance (1.5600) that extends back to 24May high (1.5725), a brief stopping point in the decline. We are risking to last Thursday's high (1.5635).
The 1.5600 level aligns with old support (now new resistance) from mid March, then again in late May and also clusters with the 38.2% retracement (1.5660) of the April to May decline.
A break below rising trend line support (1.5450) that from the recent low (1.5267 on 01June) that forms the lower end of what may be a pennant, may kick off another large move to the downside, perhaps as low as 1.4600.
The falling 21-day moving average (1.5610) crossed below the falling 200-day (1.5750) and should be a drag going forward and cap strength. A sustained rally through this area targets the series of previous highs (1.5715 on 29May and 1.5847 on 22May).
We remind readers that our Momentum indicator has flipped positive this morning after being negative since early May, the first sustained period of our previously unstable indicator since the positive turn from mid Jan to mid Feb. We are watching our Rate of Change indicator closely.
Seasonal Snapshot (cash): The 15yr pattern rallies until 20June while the 5&30yr patterns consolidate with an upward bias.
CANADIAN$: 13June Quiet consolidation of the recent gains that have probed above, but are still generally capped by the falling 21-day moving average (0.9740). The fact that this average has crossed below the now falling 200-day (0.9880) should continue to offer pressure.
Sunday night's rally probed above (0.9792), but leaves a triple top in place that extends back to 29May. Rising trend line support forms the lower boundary (0.9670) of an ascending triangle. A sustained break below targets the 0.9200 area. Initial stops should be around the series of previous lows: 9497 on 25 Nov and finally, 9367 on 04Oct.
Our shorter-term charts show that Volume has been stronger on the spikes down.
Seasonal Snaphot (cash): All three patterns consolidate wildly until the end of June.
DOLLAR INDEX: 13June A first glimpse shows us that the Dollar Index is the only currency product we see with stronger Volume today.
That said, the market is still in our noted bull flag formation, bound by 81.25-82.70. A break out below reveals two potential outcomes:
1. The shorter-term rally from 81.025 (21May) may continue to 83.70.
2. The longer-term rally from 78.685 (30Apr) may continue to 87.70.
Sunday night's dip found support at our noted previous peak (81.93), which also aligns with a 38.2% retracement of the Apr-May rally.
Our Rate of Change, which pulled our Momentum indicator negative last week, is still falling. If this indicator acts like it did throughout the first part of the year, it may mean instability (for the indicator) and consolidation (for the index) lie ahead.
We remind readers that downside risks include plenty of gaps to fill all the way down to 79.615 (04May).
Seasonal Snapshot (cash):: All three patterns exhibit a positive bias until15June. Then the 5yr's weakness until early Aug is much more pronounced than the 15&30yr's consolidation with a downward bias.
EURO-FX: 13June Euro Industrial Production was better, but still negative and there is no inflation. A subsequent lurch higher prolongs the recent period of wild consolidation. Volume seems to have fallen off again today.
Unfortunately, borrowing costs rose at European debt auctions. The currency has struggled with the falling 21-day moving average (currently 1.2565) and may cap more strength. Falling trend line resistance comes in at 1.2670 and the previous highs (1.2826) were made on 21May.
The 01June bullish engulfing pattern, signaling a potential reversal of the recent large losses, is still in effect. The trouble is that the prior day was a Doji Candle, which waters down the pattern. The possibility of more bailouts (is Italy next?) and more stimulus has been doing hand-to-hand combat with the recent weak data. Quite frankly, all eyes may very well be on Sunday's Greek election.
A break out below the lows (1.2288 on 01June) should target psychological support at the round pennies down to 1.2000. The June 2010 low was 1.1874 and the lower boundary of the falling channel that has been in place since May 2011 is at 1.1770.
Seasonal Snapshot (cash): The 5&15yr patterns consolidate and the 30yr pushes lower until the end of June.
YEN: 13June More quiet consolidation... perhaps in anticipation of this tonight's BOJ meeting which may yield some ideas about future asset purchases. Meanwhile, the IMF weighed in on the issue, noting that the Yen is overvalued and their economy needs more stimulus:
Support lies at the recent consolidation lows (1.2540), then near the 12465 level, which was resistance going back to late February.
Our technicals are still tilting negative, but we are on guard for the recent highly correlated environment where US Equities rise and the Yen loses... and vice versa.
Seasonal Snapshot (cash): All three patterns consolidate with an upward bias until 20uly.
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.