USDX vs.GBPJPY Cross Rates

FX Timing USDJPY - Unilateral Intervention

With the GBPJPY - Pound vs. Yen Cross Rate

The unilateral intervention by the Bank of Japan could never have been timed better from their previous market interventions. As other central banks supported BoJ intervention during the Tsunami / Nuclear disaster; today's move was triggered more towards market's over speculation as they have claimed that distorts with the economic fundamentals. The spike, as we termed it, then and now have been pricing in the 79.18/50 high and is maintaining at this levels.

The trading culture of Asian traders/strategist particularly the Bank of Japan has been known for their intervention skills of timing the market participants at the least expected time. Although, there is no real pattern that can be pin-pointed as to when such actions would be done, it is merely based on speculation as other traders would. However, with the length of trading experience these could be narrowed down with the kind of market behavior and price movement that currency pairs shows. 

With that said, the GBPJPY was amongst the least expected cross rate pairs to move in closest line and correlation with the Japanese Yen. And obviously was not in the radars or market limelight during this time. This is simultaneously traded with the EURGBP cross rate as a cross trade from our long position as of the Oct 10 market view analysis. By following the sequential market analysis from October 10 to the 31th would provide a better understanding of our trade outlook and strategies applied.

As the Euro has been the dominant market moving pair due to the back and forth crisis between the sovereign debt and the US economy. Currently, the GBPJPY was the preferred pair even comparing it with the EURJPY, as most have stayed away from a bias bull market for the Euro especially with the G20 meeting thereafter.

Opening with the new month of November, overlay with the opening of the wee and closing day for the October month now stands to be volatile by the time US institutional players would come in after this Halloween weekend. The surprising move is what we have been anticipating and with some good choices between these currency pairs the GBPJPY couldn't have been a better choice. Please refer to our previous market view analysis dated 10.27 - Mid-Week Analysis.

  

Mid-week Market Analysis 2

The market's increase volatility have shown price movements on both directions of the market place. As money flows between equities, asset class precious metals market, and the foreign currencies among institutional players. This has not been favorable with the US Dollar. As the US dollar index have now registered 75.75 low as of the Asian trading sessions towards the opening of European trading. Our opening market outlook dated the 24th of October have stated that the momentum would readily build-up as a probable break below the 75.85-76.05 range would cause prices for the EURUSD to make a follow-through heading higher when it has broken the intermediate resistance of 1.3880. Currently touching the 1.4014 high and is at the higher levels as of this writing. 

EURUSD WEEKLKY CHART
As of 10.27

Apparently, as the market prices for the EURUSD and the EURGBP cross rates would now move higher throughout the coming sessions towards the American trading where we do expect a continuation of increase market price action and volatility to be aggressive. Daily price extensions and trading range for the EURUSD would be between the current levels with 1.4080-1.4110 range and as for the EURGBP cross would be seen at the extension range levels of 0.8750-0.8870 respectively. 

These current two days of trading activity to follow will culminate higher as the upcoming report this Friday would also be the catalyst in the final direction for the US Dollar moving forward. However, a word of caution should be properly exercised from hereunto. As these are the typical market conditions where 'bait & trade' are done amongst the bigger institutional / hedge funds prior to closing of the week & turnover positions of the month.  

In essence, watch for the market sentiments and volumes from the European trading hours that may trade the major pairs to their extreme extensions, then spill-over towards the American trading session before the major report on Friday would be release. By then the total opposite would get unsuspecting main street investors what hit them only after the market has moved opposite of the current market price swing.

Notable, compare the price behavior between the USD, Gold prices and oil as their correlation may also weigh for the USDX to move towards the end and opening of the new month by next week. 

Market Analysis & Outllook

The overall fundamental reports towards the end of the week between consumer confidence, rate decisions, US GDP ( Gross Domestic Product ) and the 2nd bout of G20 head of states meeting have moved the market almost in a speculative stance. Speculation has prevailed the market sentiments not to mention the position adjustments being made towards the end of the week and month of trading volatility. Risk appetite has remained with bias bullish for the European majors despite of the overwhelming sentiments of uncertainty contrary to a positive outlook that there will be a compromised resolution to the sovereign debt crisis.



US Dollar Index Daily Chart 10.24



The lack of conviction to re-establish its trend for the US Dollar remains in the market. The US Dollar Index has maintained its lower price levels as seen at the 76.14 basis point, relatively too close for comfort and the likely scenario as some traders may retest its lower band purely on a technical basis. The Daily candlestick formation shows the complex head and shoulders formation with the support levels found at the 75.85 - 76.05 daily range extensions. Take a closer look at the rising channel from its previous low where a consolidation was made prior to the rally that the US Dollar did before changing its course lower from the top.

However, who would take up the risk of selling the US Dollar at this levels is the question. The USDX does have an extension below the 76.05 which apparently would cause some probable market capitulation for short-sellers of the Euro. As the EURUSD have extended its price levels from the important 1.3880 and is now at the 1.3915 a slight break of its resistance line as indicated on the chart. Expect a volatile end of the week & month trading as position adjustments would be made. Volumes would suddenly appear within this period of trading sessions with investors makes and shift funds between asset class and liquidity positions by then.

Meanwhile the continued strength of the Japanese has been in the limelight although subdued by the European debt crisis and the rescheduled meeting this o|ct 26 from the G20 leaders. Currently, at the 76.05 levels with a registered low at 75.78 last Oct. 21; the sustaining imbalance between bulls and bears do remain as reluctance prevails in the Asia Pacific region of the outcome of the coming meeting. The bias technical bulls for the Yen to appreciate remains a stronghold by speculative institutions / banks in the market place. The technical configuration remains to the downside for the USDJPY as momentum deteriates and not a lot of speculative positions establish at this level.

USDX.1017 Follow-up Market Analysis

Strategic Opening Week Analysis for the FX Market Oct. 17

The highlight of the G20 meeting which may or may really not dictate the pace of the market will soon be seen this mid-trading week. Whereas the rescue package that may bring to a closing of the European Debt crisis is in full swing. Of course this is based on those reported issues that came about to even expand the bailout, an establishment of a recapitalization package and more importantly a reduction of as much as 50% of the Greek sovereign debt problem.

This has led some strategist and financial analyst to digest and course a plan of action especially for the FX market. The time frame we are looking at is the price behavior of the major pairs before the Oct. 23 and Nov. 03 where it is expected to be unveiled at the next G20 heads of state meeting.

Now between now and then, the initial market movement we have seen so far has been an overall corrective movement for the US Dollar and a considerable rally of the Euro from last week's trading. Except that the pullback of the US Dollar has been extended down to its previous low of 76.44 based on the US Dollar Index low establish at the opening of this week's trading. Pls. compare the inverse chart relation of these two pairs and see what you can derive from the market psychology of their market behavior at this early trading week.

The technical configuration of the USDX from the chart's perspective, as we have mentioned then on our 09.27 market view analysis, that the expected Ladder-like upward movement for the USD Index came true to its form. And completing the measurement of the previous consolidation channel and breaking away from the channel. Pls. refer to the Daily USDX Candlestick  chart formation. Wile reaching a high at the 79.70/84 basis point on Oct. 04 trading. Had it not been for the fundamental news of Chancellor Merkel & Pres. Sarkozy support for the Euro, the rally would have found some impetus to move on but it did not.

EURO & EURGBP Cross-Key Price Levels

The focus is on these two major pairs as the key pivotal and key prices established is well defined in spite of the market's volatility and wild price action from last week's trading. The 1.3345/50 levels for the EURUSD is a major support (S1) at this point of time. We have called a price objective on our 09.27 amrket view analysis at the 1.3180; although the extensions were set at the 1.3144/60 spread that moved last Oct. 03/04 daily price low. Henceforth, the current price levels now at 1.3650 has proven that these key prices to be supportive. A 500 pips move difference from the low from just a week ago. 



The correlation on the EURGBP cross at those low prices were  registered at the 0.8528/32 levels and a turn around has been seen This prompted our position to be adjusted prior to today's movement. With closing and taking our gains from our previous shorts dated 09.29 as shown on the left hand side and subsequently creating a long prior to today's price action higher has been quite fruitful. As the strategies applied were executed properly as the chart formation on the lower side proved to be quite profitable. And the current price for the EURGBP cross rate is at the 0.8710 as of this writing. As the weekly candlestick from last week's closing pulled back lower from liquidations of positions.

This is an encouraging signal where an inverted hammer resting on the weekly trend line support would be supportive at the early trading of the coming week. Cross trading between the Euro major and the EURGBP cross rate is an applied strategy that may be quite expensive to maintain but the trades and risk factors are well defined whenever an executed trade turns to be positive. However, not all spread trades would result to be a gain. Proper discretion should always be exercised when trading the Forex market.

FX Prices Spills-over EUR-GBP-AUD

The USD's ability to hold as an alternativeflight to quality investment has not failed so far, as the contagion over the European Debt crisis weighed heavier. Although with some modest gains in the US economy, the serious threat for a slow down prevails in the mind of the investors and mainstreet.

The spill over effects on prices can be seen and felt as stocks deteriorating over confidence and the Foreign exchange market has affected the much of the Euro and Cable. EURUSD low has reached its extensions at the 1.3236 nearing our target objective of 1.3180 as written on our Follow-up Analysis 09.27 market view report.

In essence, our outlook remains well in place as we pursue our remaining positions on the EURGBP cross rate shown on the left hand side figure. Whereas the opening of the new month for the fourth quarter of the year would carry the negative market sentiments from last week's closing for the third quarter and for the month of September. The two earlier positions on the figure shows the the target objective at the 0.8550 which has been achieved as of this writing. We shall be assessing the volatility index, volumes and open interest on the futures inverse price chart and compare its configuration with the Inverse relation with the USD vs. the EURO. However, the next S2 target levels would well be at the 0.8405/10 range and extensions lower depending on the velocity of short-covering and speculative trades.

The current working price for the EURUSD at 1.3250 rests on an extension support from the previous week's low on January 16, 2011. Will extensions may trigger 1.3180 may find some light liquidation and speculateive longs merely based on oversold market conditons. This goes the same with Cable except that a probable corrective movement higher should not be discounted on a daily basis. A steadier market tone for Cable may well be investor's reluctance to follow through with speculative shorts at current market conditions.

Nonetheless, sustaining our AUDUSD call to continue it's downward trigectory since last month remains intact with the continued strength of the USDX as it gains momentum higher. The Ladder-like manner on the chart formation as we have aslo indicated from the above link report has shown its true colors. The daily candlestick bar formation on the US Dollar Index have shown as the support level S1 now would stand put at the 78.80 while gaining its strength towards the next R2 range levels of 81.05/10 basis point. Please visit our video support on the USDX 0919 Market Analysis / 8 Technical tools Applied on Youtube.