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Dollar Advance Fades as Scheduled Event Risk Evaporates

Dollar Advance Fades as Scheduled Event Risk Evaporates

2011-02-08 02:38:00
John Kicklighter, Chief Currency Strategist

The potential in the EURUSD reversal I was watching through the second half of last week is looking suspicously thin this week. The dollar maintained its bearings through the first half of the opening trading session Monday; but follow through was visibly absent. I can't say I'm surprised. Looking at the scheduled docket, there aren't many top tier economic indicators to encourage the dollar to a dramatic run; and more importantly, there isn't anything we could definitively point to as a catalyst for underlying fundamental themes. That means no clear drive for risk appetite trends, European financial uncertainties, US debt concerns, overheated Chinese markets and any number of these heavy-hitting concerns. For traders, this translates into difficult jump starting medium or long-term trends. That said, technical levels will have greater influence in holding back progress and breakouts.


Given this questionable backdrop for momentum, I've turned into a skeptic with this EURUSD reversal from 1.3860. The pullback from that swing high has already been significant; but there looked to be potential for a deeper reversal below an important Fib and short-term support at 1.3575. Yet momentum has clearly dissipated; leaving follow through much more difficult to accomplish. As such, I'll wait until there is better evidence for this trend to really take root. On the other hand, curbed momentum offers a unique setup for USDCHF which has run into a confluence of resistance in a Fib, trendline and 50-day SMA around 0.9600/575. I have put a short limit entry order at 0.9575 (and will keep a 75 point stop and 100 point target); but I will cancel it should it not trigger before I turn in for the day.


Looking elsewhere, I am still holding with the long-term, low-leverage USDJPY long setup; but I'm starting to see the short-term technical implications of the wedge with the daily chart. A breakout from this congestion pattern may draw me into action. GBPUSD in the meantime has moved lower down my list of appealing majors largely because of its sloppy volatility as it tries to carve out a short-term correction. And, though we are seeing a steady advance from equities, I'm taking note of the decelerating advance of AUDUSD. If the pair is performing this way with traditional risk trends supposedly supporting the pair; what would happen if sentiment faltered? And, finally for the majors, USDCAD is offering an appealing range between 1.0025 and 0.9850. I don't like this pair out of principle; but playing the boundaries on this congestion pattern given current market conditions seems reasonable.


Amongst the crosses, there are early breakout and reversal opportunities to keep our eyes on (though we need maintain realistic expectations - once again because of market conditions). AUDJPY has moved back up to its swing high and threatens a serious trend. CADJPY is at the board er of its 83.50 / 81.75 trend of the past three weeks. Similarly, EURCHF and EURNZD are near the boundaries of congestion patterns (1.30 and 1.7550 respectively).

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