Market's Price Behavior 5.31

Understanding & Knowing how it works! 

The recovery of the US Dollar have was renewed and accelerated after stronger Chicago PMI numbers. Today's economic reports were obviously mixed. Meaning that the Fed would remain on its path to taper-off asset purchases for the year.

The recovery in the USD was likewise supported by the upward revision of the University of Michigan's Consumer Confidence index. Although, the preliminary numbers showed that consumer sentiment improved significantly in May. But the other story affecting the euro today were Bank of Italy Governor Visco's comments on the potential for another rate cut which affected the EURUSD more than the disappointing umeployment data earlier during the European session.

As the Euro dropped to as low as 1.2943 after the statements; affecting the EURGBP cross rates to move lower as well @0.8527. Although, a slight recovery did occur after the news, but the USDx recovered from its lows @83.00 levels and currently working its price back up to the all important levels @83.50 basis point. Meanwhile, the EURGBP cross have likewise recovered from a low @0.8527 and is currently @0.8550 to this writing. Click to continue

Trend Following: Chart OVERLAY ANALYSIS: EUR GBP USD.5 31

This is an update supporting our Market view analysis: OVERLAY ANALYSIS: EURGBP Cross-EURO vs. USD Index Confirms: Breakout dated: May 21,2013

Trading Consistency:

USD Overlay USDCHF:
The chart below represents the Dow Jones - FXCM USDollar (Japanese Candlestick) and an overlay line chart (Black) of the USDCHF-currency pair that has the closest correlation with the USDx.

At first glance, the upward trend has been defined after breaking away from the consolidation and thereafter rallied to its high. However, the volatility of price action hear the highs have reflected a "Tug of War" between bull & bear players as prices went in both directions several times. And currently the Dow Jones-FXCM USDOLLAR reflected two(2) DARK CLOUD clusters indicating a negative (bear) signal.
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Perception Vs. Deception: USDOLLAR-FXCM

At times what is seen and reflected onscreen from candlestick bar formation are quite deceiving. And provide some premature / false signals especially during major Trend markets such as the US Dollar in this typical set-up.

As we have indicted in our previous market view analysis; that the makings of a bull trap can be identified whenever a market squeeze occurs. Price action moves in both directions giving at least two contrary outlooks that would confuse both market participants if not careful enough with their trades. The two candlestick bar formation as shown on this figure chart reflects as "Dark Cloud" bearish signal provided just that. Prices thereafter resumed higher setting newer prices heading North of the chart. There are times during uncertainty that this occurs. Stick with the Major Trend as this is typical of a sentiment based market rather than a technically driven one. Click to continue

Expect Increase Volatility

A short trading week after a US long Memorial weekend & UK holiday would provide a sentiment- based volatile market, a wider price activity towards the end of the month. Although, the Yen's dominating performance in the currency market have influenced the EURJPY & GBPJPY crosses more with its recent move as its gained back its strength.

GBPJPY registered a low @151.77 while the EURJPY reached a 129.95 low before retrieving back their losses at the current market prices @154.00 & 131.68 respectively. Price action at the recent lows have given the currency pairs a technical relief from an oversold area, the same way such a corrective move have given the USDJPY some elbow room in search of a tentative support level before the next leg could be establish. Click here

A Structured Trading Strategy: Classic Set-ups

 Where Price Action, Trend & Proper Market Timing delivers an effective trade

The continuing market set-up that built a structured trading strategy for the EURGBP have started from the consolidation period since April 2013, towards the first week of May to the current corrective movement of the USD today the 24th of May, that provided the additional lift that can best be described as a follow-through registering a 0.8595 High.

As the USDx declined before the North American trading session to as low as 83.50 where its support level would stall its decline since its resting just above its rising secondary channel. Pullbacks such as this is very typical and healthy during the end of a Friday trading activity; but not necessarily a trend reversal that can only best described as a temporary price reversal which would very well finish at the support levels. The weekly closing and candlestick bar configuration is always critical as it would dictate the outlook for the trading week ahead. For now, the weekly bar is within the previous week's higher band signifying an intra-week bar suggesting a pause for some fresh incentives.

Watch for the opening price in the Asian trading session for a glimpse of the first 3 days of trading activity. So far the chosen currency pair for the EURGBP cross rate has delivered the necessary gains to stay within a structured trading strategy.Click to continue

T-Perspective: EURGBP Cross

An Effective Strategy:

The EURGBP cross rate moved higher before Chairman Ben Bernanke's congressional testimony was delivered. It registered a recent high @0.8590 when the EURUSD moved to 1.2997 before it fizzled out to its intraday low of 1.2866.

This gave the EURGBP some breathing room as its corrective mode have been more in line with the EURUSD for now. However, during such time the USD Index moved lower @83.46 and worked its way back higher as of this writing @84.18 attempting to recover back what it lost during the mid-American session. The chart comparison we have applied was an extensive due diligence that have led us to execute our earlier trades dated the 10th and 15th of May. And this is described in our sequencetial market view analysis since the start of May in anticipating a probable breakout for the US Dollar Index and tightining price action of the EURGBP Cross. Since we have missed out of the Aussie decline we in turn have been able to execute and long position for the USDCHF as a counter-trade strategy.

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Overlay Analysis: EURGBP Cross-EURO vs. USD Index

Confirms: Breakout

To identify a probable breakout is as challenging as ever due to the degree of trading difficulty from the market's reaction. Although, what drives an establish trend is weighed by the current indicators, but more specifically persitent market sentiments that reflects the true price action after the fact. However, major participants and traders with the ability to maintain consistency still has the upper hand contrary to speculative trader/investors to withstand market swings even contrary to their active positions.

In our sequence of market view analysis, we have made mentioned that the USD was one of the best trades before and after the fact. The bullish sentiments and data released favoring the USD rally has provided traders and investors the leverage of finding high probability trades thereafter. Although, going through some analysis most traders had some lingering doubts for the USD to continue its rally after a string of good economic reports trailing the market.

Price action from the earlier highs followed by a slight weakness for the USD indeed provided some market relief which is currently being made. Click here to continue

Reconcile: DXY vs. DX-FXCM

As a matter of due diligence, we have decided to reconcile the DX-FXCM price chart and its significance in market analysis which we have identified has distinct markings of trend price signals that may be quite useful. Especially for those who trades the US dollar Index on the FXCM platform with relative comparison in our most recent article on the USDx- traded in the Inter-Continental Exchange and the New York Board of Trade respectively.

Spot and Futures do have a direct & indirect relationship when trading the currency market. However, at this point we would like to show the relative distinction simply based on the current chart below; where we find the similar trading pattern of the USD opening higher from their previous daily closing prices that likewise have directed the price trend of its directional move higher. Please review candlestick bar chart paying attention to the daily opening prices which have been extended higher. Although, the current opening in the European market have been quite cautiously making some daily corrective moves lower.

The previous daily formation

Forex: Price Benchmarks:

Critical Levels:

Reiterating this case scenario can be defined as an equalizing factor between an over-valued Stock market adjusting itself with the fundamentals comparing with the mixed economic data coming from the different sectors.

While the US Dollar price recovery have been slow inspite of being able to gather some earlier momentum. Relatively, the USDx price behavior has bestowed some lingering doubts amongst analyst and traders where the recent declines were attributed to negative reports from another increase in Jobless claims and a lower housing starts that pushed some corrective declines for the USDx @83.44 during the midweek trading session.

Apparently, such behavior can be seen as price action of opening high with a daily price gap against the previous closing and have been driven down in between trading sessions. This typical price action amongst traders have been a market squeeze and/or sometimes referred by major bull participants as a bull-trap. And a market recovery happens before the New York closing hours.The daily candle-bar would reflect a negative signal since most smaller day-trade speculators would unwind some intra-day positions. A true example is the daily candlestick bar on May 16 - Thursday closing @83.75 with a subsequent opening price gap @83.90. Pay particular attention with these bar formations, chart set-up and price action which will dictate the next directional price movement before it happens. There would be some instance that the closing prices may eventually close higher /lower than the opening price gaps at the end of the trading sessions.

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Midweek Price Reaction

USDx Breaks Primary R1

Earlier reports for the week with a positive US Retail Sales sustained the USD while adding fuel from the negative data coming from the Euro zone has fueled the rise for the USD to continue reaching relatively a high for the USDx @84.09 basis point. Bullish sentiments still prevail the market while the Dow and SP500 has continued to make newer highs registering the strength of market activity with investors looking for mild setbacks within a bullish trend.

The start of the week's trading have provided a softer yet gradual decline for the EURUSD before the German GDP data came out and currently working @1.2972 from a registered low @1.2942 to this writing. However, as most analyst have been watching price action across the board touching their respective support levels while waiting for a technical break lower for most majors. While maintaining a watchful eye on the USDJPY nearing its resistance level of around the 103.30; most traders were reluctant to establish any fresh new positions as probable risk on exist as prices continue to move higher.

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A Constructive Approach

Forex Trading: The USD is the best trade even before & after the fact.

The responsibility of a currency strategist through the course of trading the currency market is to establish a well constructive analysis to overcome a certain degree of trading difficulty during market uncertainty. In addition, coming up with a rational and conclusive market outlook to spot a high probability trade potential or where a price range breakout could possibly occur before the fact.

The latest scheduled economic reports ending the weeks of the 3rd & 10th of May can be considered as a classic example. Where market conditions have squeezed price action between currency pairs contrary to market sentiments that have caused a mix price reaction before and after the reports. A string of data followed during the release of a negative Chicago PMI figure have initially drove the USD lower, which in turn then was contradicted by a more positive Non-Farms Payroll followed by the 5-1/2 year low for the Jobless claims report that fueled a price reversal for the USD to move higher. The sequence of reports have kept most analyst at bay and tried to dissect the full effects of these reports while monitoring price action.

However, with the USDx retesting its primary resistance @83.50; the threat for higher risk aversion comes into play whenever trades made after the event of a price breakout and a subsequent follow-through has been made.

Therefore, a constructive approach can be followed in the event that such trade set-ups could be identified not only on a fundamental or technical stand point, but by comparing price activity among majors and crosses with actual market sentiments before and after a major event.

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Confirms: USD into Positive Territory

Contrary to JPY, CHF, EURO & CABLE

The remarkable price performance of the USD supported by the 5-1/2 lowest Jobless claim report is currently above the 82.10/20 basis point resistance level. This fresh catalyst have finally reinforced the USD market into the bull territory after gaining back its previous decline. 

After digesting mixed reports for the past couple of weeks, the market's price reaction effectively reflects a positive USD rally in continuation focused mainly on the USDJPY finally breaching the 100.00 levels made mention in our market view report dated the 6th of May, 2013. It obviously didn't take the market that long to actually penetrate this price level moving forward especially in the Asian trading session where the traders have aggressively maintained their objectives alongside with the BOJ stance of attaining a 2% inflation target. USDJPY is currently @101.00 as of this writing; likewise influencing the GBPJPY & EURJPY crosses higher with prices @155.98 & @131.72 respectively. 

Although, there were typical price moves and set-ups contrary to the prevailing market sentiments with the USD pullbacks while testing its lows several times. But these set-ups simply were just waiting for some fresh incentives to generate a follow-through. Easily said after the fact, however these price action now confirms our mid-term outlook for a positive USD while the USD-Index maintains above its higher secondary support. Click here to continue.

Market SRO Perspective:

USDx-EURO-CHF-GBP & EURGBP cross

Renewed confidence for bullish players after the fact, seemed to ignite the market today with some limited traction for the USD as it moves slightly higher to its current levels @82.50 high in the early trading session.

The limited trading time that occurred last Friday after the jobs report have left the USD market players in a wait and see attitude for a follow-through, while the Dow and SP500 continues to make remarkable price records inspite of the continued uncertainty where traders are still expecting a valid correction for the stocks to move lower as a healthy sign for a bullish market.

However, the psychology behind the market that this is a clear and typical example where price action is squeezed between economic indicators versus market sentiments that may limit market movements as each and every trader tries to feel through what the market would actually do. Where investors shift real money flows between markets would provide some indication for the prices directional move for the week. This now considered the real activity monitor as price action swings to where a more probable trade could be spotted. Spread betting between currency pairs with stocks would be a bit complicated for some as other traders would not to spread their wings so thinly that results to over-leveraging their trading accounts. Click here to continue.

Bottomline: NFP & Unemployment Rallies USD & Stocks

Economic Indicators vs. Market Sentiment & Activity indicators: Summary

On the back of shockingly weak Chicago PMI numbers have led the Euro to initially move higher during the earlier trading week above the 1.3150 and pushed the USDx towards the low nearest to the 81.30 basis point levels. Although, consumer confidence rose rose to 68.1 from an upwardly revised 61.9 in March. Economists had expected a reading of 60.8, according to a Reuters poll.

The market is generally convinced that the European Central Bank (ECB) will lower the benchmark rate by 25 basis points, which it did alongside the remarks by Mario Draghi on negative rates which analyst have stated that it was premature to talk about. And the market on the EURUSD have initially stalled as it has been widely expected and even yet have been built-in to the market prices for several days.

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