The EUR/USD is pushing at resistance between 1.2900-1.2930 – this level was tested multiple times intra-day between early and mid-August.  During the mid-August push higher the highest close remained below 1.2850 therefore this weeks close at 1.2894 indicates buying pressure in this region.  A close above the intra-day highs would confirm the strength and could see the rate rally into 1.3200.

Weekly average (14) movement is 322 pips.

Support comes in just below 1.2800 followed by 1.2630 to 1.2600.  Resistance is the intra-day highs between 1.2900 and 1.2935.  Movement beyond is likely to test resistance just beyond 1.3100 followed by the 1.3200 target.

Chart below.

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EUR/USD Daily, FreeStockCharts

The USD/CAD is in a long term range with the rate currently edging towards the upper band.  Ranges can last a long time, yet going back over the last 10 years we have not seen a range hold for much longer than this one has.  The range is by no means perfectly defined, yet prices have still been contained and the pair has been trendless (for the most part) in 2010.

Since the pair now seems to be “on the clock” to do something based price action over the last 10 years, it is worth keeping an eye on.  Currently the Canadian dollar trend, relative to the US dollar, is flat.  But a substantial move is expected from this pair.  This is a longer-term trade, therefore jumping the gun and picking a direction at this point is not recommended -the potential additional gain does not really offset the possibility the pair could remain range bound for some time still.

USD/CAD - Weekly

~Cory Mitchell, CMT

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Quadrillion Dollar Debt: ‘Day of Reckoning’ Looms
What Will Happen as $1,000,000,000,000,000 in Global Debt Winds Down?
By Elliott Wave International

A thousand trillion in debt can’t be wished away or swept under the rug. No one can “forgive” the debt. The consequences of unwinding this debt could be as massive as the dollar figure itself… Read more.

Enjoy!

What are your thoughts on this?  Do you agree or disagree?

Cheers,

Cory Mitchell, CMT

~Know your risks in trading, and see our Legal Disclaimer page.

This is your longer term outlook of the EUR/USD.  We will look at the daily chart in this analysis, and what can be expected over the next week.

Despite having having a “It might actually breakout!” moment, ultimately that breakout was short lived as we traded well within the former range most of last week.

The trend remains down on the longer time frames, but remains in a sideways correction.  Trading was not as choppy as we had seen in the weeks past, but a renewed push in the trend we did not see.  The breakout downward was false, at least for now, and can be deemed so until the pair drops below 1.3400.  A move back below that point would be our first indication of another downward move, and would be confirmed by a penetration of the lows at 1.3265.  That would indicate another leg down in the downtrend.  A target remains as 1.3060.  Support along the way is at 1.3270 and 1.3200.

EUR/USD Daily, FreeStockCharts

The daily downward trendline currently crosses at 1.3600.  A move above this would be first indication of a reversal higher.    There is a bit of “no mans land” between this point and 1.3800.  A daily close above 1.3800 would confirm the reversal.  Targets on the upside are also marked at 1.4030, 1.4170 and 1.4300.

Keep in mind also the small upward sloping trendline which has developed over the last 8 days.  A break of that trendline can also give early signals of a decline.  Given it’s small length it is a not a pivotal signal, but can be used if desired.

Cory Mitchell, CMT

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If you look at a short-term chart of the AUD/CAD you will see a lot of “chop”.  Zoom out to the daily and you see more of an uptrend that has flatlined.  Zoom out further, to a weekly chart, and we see what could be a cycle top being put in.  This is not confirmed yet, but at this point is just something to watch.  A drop below 0.9200 indicates a downtrend, and there are two basic ways to play it – the short-term and long-term.

The short-term trade is to place a profit target just above 0.88, or more conservatively near 0.8950.  These are targets for the breakout based on the last several months for price action.

The longer term play is to assume that if the pair breaks below 0.9200, then a cyclical top is in place, and targets would be placed just above 0.80, with aggresive targets at 0.78 and 0.76.

If trading multiple lots, then the possibility exists to exit a portion of the position at each target, but that is up to the trader and their trading plan.

This set-up remains a “wait and see.”  Until the pair breaks below 0.9200, which could take a while, I will not be doing anything with it.  Right now the pair trades at 0.9338

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Cory Mitchell, CMT

~Know your risks when trading. Please read the Legal Disclaimer page.

This is your weekly analysis of the EUR/USD.  This is a longer term view of the major currency pair than what is analyzed in the (posted) daily analysis.

On Thursday and Friday in the daily analysis, I said that we needed confirmation for the breakout.  False breakouts remain a high probability thus confirmation is needed.  The pair did no confirm the break and finished the week well off the high.  Thus the pair remains within the range.

The EUR/USD is not a high probability to range trade, even though over the past weeks range trading would have been profitable.  This is because the USD is a trending currency, which means ranges within pairs which contain the USD are unlikely to be sustained for long periods of time.  Most traders, especially longer term traders, will find it beneficial to back off during times such as these and wait for a trending move to occur.

From the daily chart we can see that the trend is still down.  A confirmed break above 1.3750 has a target of 1.4030.  This would serve in breaking the downward trendline and potentially setting up a larger reversal…but price action in between will determine that and if it occurs we will analyze that next week.

The weekly average range for the pair is about 300 pips, so with a close of 1.3602 we would need to see an above average move to reach the target this week.

A confirmed break below 1.3430 would target 1.3140.  This would mean a 5th wave (third leg) down and a continuation of the downtrend.

Based on the price action we have seen, this market is very choppy and there is no need to anticipate which direction the market will go.  Wait for a breakout and then a confirmation (a retest or pullback towards the breakout point, the level holds up and a renewed push in the breakout direction occurs).  The targets are not likely to be seen this week so patience is the key in this market.

EUR/USD - Daily - FreeStockCharts.com

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~Know your risks when trading. Please read the Legal Disclaimer page.

It was not a pretty day for the longs in the markets today.  Equities fell off aggressively as the day drew to a close.  The bulls did pour in after the morning selling off, taking the S&P back to test the days high, but the buying was short lived as bulls were swarmed.  The major US indexes finished down more than 2%.  Asia had already seen selling in their sessions with differing Asian/Pacific indexes down between -0.65% and -2.56%.

The following is an article by Colin Twiggs which looks at the current Asian market situation.  Keep in mind that with markets so interlinked today, the potential fallout in one country affects multiple markets around the globe.

The Next Asian Crisis

By Colin Twiggs
January 22, 2010 9:30 p.m. ET (1:30 p.m. AET)

These extracts from my trading diary are for educational purposes and should not be interpreted as investment or trading advice. Full terms and conditions can be found at Terms of Use-Incrediblecharts.com.

China: Red Star About To Implode? (Tradable via FXI <—–Instant Analysis)

China’s reaction to the global financial crisis was to stimulate domestic demand in an attempt to make up for the sharp contraction in export orders, primarily from the US. The strategy was twofold: a $586 billion stimulus plan and to stimulate private demand by quantitative easing. At a staggering 20 percent of GDP, the stimulus plan boasts a massive infrasture spending program including construction of new railways, environmental protection and investment in new technology. Aggressive quantative easing aimed to boost private borrowing by lowering finance costs and easing credit standards.

The resurgence, with GDP growth reaching 10.7 percent in the fourth quarter (WSJ) appears to vindicate the strategy, but the true cost of the plan lies ahead. Bank loans grew by $1.4 trillion in 2009, or 29 percent percent of GDP. That is madness — and likely to cause a massive speculative bubble in real estate, the stock market, and to some extent commodities. Inflation is also starting to bite, with the consumer price index up by 1.9 percent in the last month.

A sharp cut-back in bank lending, however, will cause a contraction in private demand, sending the manufacturing industry back to where they started — with a large hole in their order books. Welcome to the real world.

Japan: How To Turn A Financial Crisis Into A Total Disaster (Tradable via EWJ <—–Instant Analysis)

Japan is a lot farther down the track than China. In an attempt to avoid the collapse of its banking system after the implosion of an enormous real estate and stock market bubble in the early 1990s, Japan embarked on a similar strategy to the one now pursued by China. Massive infrastructure spending and aggressive quantative easing, with the BOJ maintaining interest rates near zero for most of the last two decades failed to restore the economy to its former growth path. The new government now finds itself painted into a corner, inheriting massive public debt as a result of the failed stimulus program. The IMF expects Japan’s gross public debt to reach 218pc of gross domestic product (GDP) this year, 227pc next year, and 246pc by 2014 (Daily Telegraph). With savings rates falling, further stimulus spending is no longer an option and the pigeons of the 1990s will finally come home to roost. Except they now closer resemble pterodactyls.

USA: The Dow Retreats

The Dow retreated by more than 5 percent after the voters of Massachusetts sent a clear message to the White House: either p… or get off the pot. The cosy relationship between Washington and Wall Street is coming to an end as elected leaders scramble to preserve their seats. Expect more legislation to curb the excesses of Wall Street, restricting remuneration and imposing taxes or levies to recover some of the cost of the financial collapse. Treasury has to raise taxes in order to restrict public debt growth and the obvious target is Wall Street.

Financial stocks are worst affected by the retreat, but sectors such as Energy and Materials also display a sharp fall — indicating that a contraction of financial stocks is likely to impact on the broader economy.

Avoiding Japan II

The voter backlash is likely to restrict the Fed’s ability to pursue further quantitative easing. Re-election of Ben Bernanke as Fed Chairman is going to be a close-fought affair with even Democrat senators, like Barbara Boxer of California, whose seat is under threat, calling for a new candidate who represents “a clean break from the failed policies of the past”. Also, expect increased reluctance from Congress to fund further deficits by increasing public debt — curtailing government spending and increasing pressure to raise taxes.

…………………………….

Hope you found that interesting and insightful.  Tomorrow I will post the technical outlook for the US markets and what we can expect going into next week.

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Cory Mitchell, CMT

~Know your risks when trading. Please read the Legal Disclaimer page.

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Cory Mitchell, CMT
Chief Market Strategist
-Know your risks when trading. Please read my Legal Disclaimer page.

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Happy Trading,
Cory Mitchell, CMT
Chief Market Strategist
-Please read the Legal Disclaimer page.