Trend Following EURGBP Cross

The recent Euro recovery from its lows were simply a relief short lived rally with supporting evidence of Euro Zone leaders to support Greece and neighboring countries necessary to sustain stability in a crucial financial crisis that would reverberate throughout the financial markets.

The upward Euro extension to as high as 1.3689 met its 1st R1 in line with its 21 day moving average where certain pull backs as the corrective US dollar found some support at the 77.30/45 basis point pivotal price reversal. Currently at the 78.29 recovery level as of this writing.

The relative price reaction seen from the EURGBP cross came about when the price levels came touching the 0.8738/50 range resistance and currently working its way back south at the 0.8667 price level where a second attempt to the downside would occur as the end of the month liquidation and position adjustment for the third quarter of the year ends in a negative tone for the Euro Pound cross. Which so happens as the continuing down trend re-establishes its footing. There is no real sign of a continuing rally as almost all indicators have reaffirmed their bearish sentiments remain in the market place.

The daily chart configuration is a small version of the overall picture and likewise the inverse relation of the Euro vs. the US Dollar when considering the weekly candlestick formation. The monthly even looks better and more defined as the position for the next coming month for the fourth quarter would still continue. However, the opening of the new month would find some volatility that would hinder swing short term trades critical. Meaning, that to be able to successfully trade this market, one should bear the volatilty and account size as tolerance levels to remain in position would depend on the ability to define entry and exit points from wider price swings of the market.

Targets levels for the EURGBP cross would be prices much lower than what we currently are trading till the first week of October. The levels where it would meet some longer term support would be at the 0.8550/80 range unless any new incentives to perk the EURO higher says otherwise from hereunto.

Follow-Up Market Analysis as of 9.27

Listed below are significant issues that best describes the Forex market on our perspective:
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* Based from our USDX 09.19 market view, the US dollar index met its initial R1/R2 at the 78.08 / 78.85. A wider price swing is expected in both directions as it makes its way back higher with increasing volatility ahead of the end of the month position adjustments. However, we do expect a ladder-like upswing for the US dollar moving forward to complete its second daily leg higher to the 81.10 or better in spite of the mix reports for the US economy.
* The precious metal's corrective and dramatic move lower down to the 1532.59 liquidation levels with increased volumes have met renewed exchange / arbitrary position adjustments from Euro denominated Gold positions to flight to quality US dollar denominated assets. This also prompted US Stocks to change in both directions in spite of some mix reports also coming from the Euro zone. Although, a price and trend reversal had been previously called the USD1510/50 range is an established support for the time being. 
* Euro zone's relentless efforts of perking the deteriorating EURUSD would have a lifeline of relief efforts European leaders in supporting the Debt crisis as the Euro's short stemmed recovery may prove to be just a mid-week effort to support it. A further extension would have prompted an all important price level of 1.3180 which was a striking distance from its previous low of 1.3361 extension that met some short-covering from efforts made by Germany's Angela Merkell. On a technical perspective though, the 1.3350 support price seems to be holding a fresh incentives from that effort brought about some slightly bullish players in the market. As the chart formation shows a parallel channel support at the said price levels. And a daily buying divergence occurred at these levels while it was moving lower. Do not discount the probability of a return to the lower prices for the next few days prior to the end of the month. Otherwise, any move higher would only be a corrective mode as the continuing pattern of bearishness still prevails in the market sentiments.

USDX 0919. Market Analysis / 8 Technical Tools Applied

Gap Strategy for USD-EUR-AUD

The opening gap for the US Dollar showed it strength on the backdrop of the European crisis which also prompted the Euro and the Pound to open with a convincing gap that accelerated the continuation of the US dollar. In spite of the lower closing at the 76.54 and opened at 77.16 on a weekly basis would seem to be a corrective move before a downturn would continue. However, the daily open would fill-in that particular gap but the bulls would at the forefront as it looks on the European and American trading sessions.

Indeed, the third quarter of the the year would be identified as the price reversal phase for the USD. As the established low is currently at the 72.90-73.85 (S1-S2) trading range and the resistance levels would be at the 78.05-78.85 levels (R1-R2). The sideways consolidation of the USDX from the past several months would be the length of its corrective move and a secondary leg higher is currently in the making. However, these formations which can only be established on a technical formation may take some time to form. But the rally would continue after every lower price made before the upturn would re-establish its trend.

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FX Analytics - EUR/GBP/AUD

The dynamics of the currency market has now proven to be continuing where we have actually left off from May of this year. with the EURUSD pair; from a registered high last May at 1.4940 was a first signal of a Price & Trend Reversal followed by a series of weekly volatility until a corrective move from the middle of July through the 3rd week of August, which showed a wide trading range from a low of 1.3836 to 1.4550.

This corresponded with the US dollar weakness only until the last week of August. The irony of the matter, was that the signal for a continuing bearish directional trend can only be identified on an overall monthly chart formation. However, the back and forth fundamentals between the US and Europe has made it difficult to find a perfectly good timing for traders meeting a wider trading range each day that almost averaged between 150-250 pips on both directions of the market. Where short term trades would easily be taken out.

EURUSD Weekly Chart

With that said, the EURUSD & GBPUSD has finally gave way to the downside with more velocity setting the pace for the US Dollar to really get a new lifeline for its recovery. The 72.90 basis point proved to be quite supportive in spite of the several attempts reaching the 73.40/50 levels before the much awaited recovery working at the 77.38 basis point as of this writing. Although, support prices for both pairs have come to a slight corrective mode where certain buyers have emerged from the past couple of weeks price drop. This correction would be short-lived while the fundamentals this week would dictate the immediate price direction. The GBP & EU zone core consumer price index for August followed by Jobless claims, and the US retail sales for the earlier part of the week may provide some hints before the US University of Michigan confidence report would be coming out.

 

Aussie Dollar Daily Chart

Meanwhile, the Aussie dollar has dropped to its lower levels currently at the 1.0280 and would be re-attempting to reach its previous low parity levels again within the next couple of weeks ahead or even earlier. The technical candlestick formation for the AUDUSD thus far shows its bearish signal as indicated on the left hand figure.

The probability to reach parity levels would be attempted in the next trading days ahead as it levels off while the US Dollar Index continues its rally.

Directional Trend EUR-GBP & Cross Rate.LIVE

SNB EURCHF move effects on FX Prices...

and its market behavior.

With the not surprising move by the SNB; market participants were simply caught flat-footed as the timing would not have been perfect for US Traders & institutional players by this move. The typical market behavior for a London shake/fake-out that we have been anticipating; but nearly came from the Swiss National Bank's move. This has been reflected from our previous market view post on the market price behavior. Although, there were already statements made prior to the move but the unexpected move was one over the speculative trades by the Swiss National Bank traders. Surely, some talk would give rise with the BOJ may follow suite with a similar strategy which may not likely occur. 

But what does this all mean to the market's current behavior and effects after the fact?

As a matter of market analysis, price behavior would now depend on the volume and open interest entry on the financial futures by hedgers and options traders with a cross trade between the Euro vs. Swiss Franc. The relative cross trade since the present ceiling has been set; others would simply say... a pegged vs. Euro would favor major investments in Europe as a way to protect their interest; in case such news would emerge back from the European crisis would snowball towards this quarter ending.

Fact 1: EURCHF currently at the 1.2022 from a low of 1.0030 last Aug. 08, 2011 is in place. Extensions would be a small variable price level of 1.2335+/-, however such move would make the USDCHF more stable after the fact and remain at bay for the time being while waiting for some fresh news on the US side for a continued rally for the US Dollar Index. USDCHF is currently at the 0.8573 from a low of the day's opening at 0.7849 levels. Initially the good numbers from the ISM-US Manufacturing was another fundamental providing a new lifeline for the USD rally other than the flight to quality /safe haven investor's mindset. 

The SNB move sent the USDX higher to its current levels and spill over effects continued for the European majors as the GBPUSD sets a low at the 1.5950 as of this writing. Coming through our initial market objective set between the 1.5870-1.5990 trading range. Overall short trade on the GBPUSD set previously dated last 08.25 Sell @1.6269 is currently net positive on the balance sheet. The continuing market sentiments would hold for now as the USDX continues to gather some more positive breath for a rally. This would only hold true to its form above the 75.50 levels to maintain.   

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FX Analysis-Labor Day spill-over!

Thin Labor holiday trading would simply mean a spill over of the closing sentiments and continuing trading activity from last Friday's closing. This would be a lowering price for the European majors as seen with today's price movements. The opening prices across the board already indicated an a gap where some players would take advantage of the US market holiday with just a few traders left over for position adjustment as the new month opens its trading towards the second week of trading activities. Re-emerging European contagion on the debt crisis has somehow been weighing in on the European currencies as it moves further lower beyond their active support levels.

With the Euro currently at the 1.4080 low attempting to cover an extension through the 1.3989-1.4010 initial objective at the start of the trading week. And the follow through price reaction by the GBPUSD at the 1.6089 working price from an initial low of 1.6060; whereas the extension of a low towards the 1.5875-1.5990 trading range that would be attempted for the week.

However, volumes and momentum would dictate the price movement and volatility after the North American sessions open after the holiday. However, the recent indication of a rally with the US Dollar Index showing its colors by bullish traders taking the risk of earlier longs from the start of the week registers a number above the 75.05-10 basis points. With a slight advantage on the opening prices and above its 75.10 levels of resistance. European institutions may figure a way to push USD higher even before the North American opens catching their counterparts flat-footed before then. But this is purely speculative as it could be a shakeout for bearish players still calling for that illusive double dip recession to make it official.