Support & Resistance

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EUR/USD Technical Analysis: Pivotal Resistance Pressured

Fundamental analysis, economic and market themes

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Talking Points:

  • EUR/USD Technical Strategy: Flat
  • Euro rises to challenge trend-defining former support set from mid-March
  • Waiting for reversal confirmation to enter short in line with long-term bias

The Euro finds itself at trend-definingtechnical resistance after rising to the highest level in four months against the US Dollar. Prices are testing rising trend line support-turned-resistance set from mid-March, with behavior at this juncture potentially defining for trend development in the weeks and months ahead.

A daily close above the intersection of the trend line and the 50% Fibonacci expansion at 1.1354 opens the door for a test of the 61.8% level at 1.1417. Alternatively, a reversal below the 38.2% Fib at 1.1291 paves the way for a challenge of the 23.6% expansion at 1.1213.

We are keen to enter short EUR/USD in line with our 2016 fundamental outlook. An actionable bearish reversal signal is absent for now however, warning that pulling the trigger on a trade is premature. With that in mind, we will remain on the sidelines for now and wait for further confirmation.

How are FXCM traders positioned in the Euro? Find out here.

EUR/USD Technical Analysis: Pivotal Resistance Pressured




USD/JPY Technical Analysis: Best 2-Week Run For JPY Since 1998

Position Trading based on technical set ups, Risk Management & Trader Psychology.

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Talking Points:

  • USD/JPY Technical Strategy: New 14-Month Lows Favor Selling Rips
  • USD/JPY Upside Aligned With Risk Sentiment, Which Bounced Higher on Friday
  • JPY Remains Strongest G10 Currency As Risk Sentiment Sours

This week, USD/JPY broke down to the 110 handle with a low Thursday morning of 110.95. This level had not been seen since the Bank of Japan surprised markets on October 31, 2014 with a multiplied effort of Quantitative & Qualitative Easing that sent USDJPY toward 125 in rather short order. Now, with fear of lower growth around the world pushing central banks below zero trying to stimulate overall demand, the market and USD/JPY appears dependent on the development of a global recession or a resumption of risk-on.

It has been said that markets panic first, and panic later and that played out cleanly in the USD/JPY this week. The 2-week gain in JPY has been the highest since the 1998 Asian/Russian Crisis caused a massive carry trade unwind an a 5% drop in the US30. However, as markets test policy leaders, the lack of co-ordinated action with worry mounting could continue to see JPY strength without a word of intervention from the Bank of Japan. This development aligns nicely with our 2016 fundamental outlook.

Does A Short-Term Bounce Ahead?

USD/JPY Technical Analysis: Best 2-Week Run For JPY Since 1998

Month to date, JPY has strengthened across the board. Against the US Dollar, the JPY has strengthened ~6.5%, and a short-term bounce could be ahead. The highlighted oval where price bounced after Thursday morning’s low on the chart aligns with a large price channel that has framed price and the 61.8% retracement right below Thursday’s low at 110.80.

The upside zone in focus early next week will be the prior zone of support that recently broke. In new trending markets, old support can turn into new chart resistance, and that would put attention on the daily range of the price extreme in December 2014 of 115.75-117.75.

However, such a move higher is estimated to provide better levels to sell unless the dour fundamental outlook changes dramatically in the next few weeks.

Additionally, the US Dollar continues to be sold, which will likely limit the ability for USD/JPY to push higher in a sustainable fashion. What is ironic is that the US Dollar weakness is coming as the US Dollar is subject to the Federal Reserve’s admittance to questioning the effectiveness of negative interest rates, something the Bank of Japan initiated on January 29.

T.Y.

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GBP/USD Technical Analysis: Cable Boxed-In Ahead of BoE

Price Action, Swing & Short Term Trade Setups

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Talking Points:

  • GBP/USD Technical Strategy: Flat, short setup identified.
  • The Cable continues to trade in the box developed last week after 6-year lows were printed.
  • A Bank of England meeting on Thursday will likely deliver the impetus for the next trend, but traders can watch the current box-formation for early breaks ahead of BoE.

The Cable stole headlines to start the year after multi-year lows were broken as the British Pound saw weakness across-the-board. In our last article, we asked if the Cable had yet hit terminal velocity on the down-trend, and judging by price action, the answer was a definitive no. At the core of this movement were rate expectations for the UK, and as global pressure continue to heat up those rate expectations for the UK continued to dwindle. We hear from the bank and Mr. Mark Carney this coming Thursday, and this could certainly inspire trends in either direction. Should lower inflation forecasts be on the horizon, we’ll likely see even lower-lows, and given the continued SSI reading of +1.63, that could make for amenable short positions.

Near-term price action is neutral as we’ve basically been building in a box for the better part of a week. On shorter time frames, such as the hourly or 4-hour this will appear with ‘range-like’ tendencies and this could be opportunistic as we approach the latter portion of the week. The box of the past week’s price action in GBP/USD is below:

The box itself is a neutral formation; all it really tells us is that buyers and sellers are roughly meeting in the middle. But this could be a fantastic setup for the next move (which, when trading, is what matters most).

For those that want to buy, they can simply wait for either a) support in the range to be hit before buying or b) wait for a break of resistance to prove that the up-trend may come in, and then get long after a ‘higher-low.’ And for those that want to sell, they can either a) sell while at resistance or b) wait for a break of support to prove that the down-trend may have staying power, and then look to get short on a ‘lower-high.’

Right now, we have price action at resistance and this could open up the door for short-side, trend-continuation entries. If we take a look at the longer-term chart, we’ll notice that this recent box is catching resistance off of a significant long-term level at 1.4371. This is the 76.4% Fibonacci retracement of the secondary move in GBP/USD, taking the Financial Collapse low up to the 2014 high. This level had provided support while price action was on its way lower, and has now given three consecutive days of resistance.

GBP/USD Technical Analysis: Cable Boxed-In Ahead of BoE

Created with Marketscope/Trading Station II; prepared by James Stanley

Traders could sell off of this level of resistance with stops above 1.4450 (aggressive) or 1.4510 (more conservative), with targets set towards 1.4150 (prior price action swing low), 1.4075 (prior low), and then 1.4000 (major psychological level).

Should 1.4000 be traded through, we’re in a veritable no-man’s land as price action has been very fleeting in this vicinity since 2002; but that could open the door for potential targets as deep as 1.3500, which was the low in 2009.

--- Written by James Stanley, Analyst for DailyFX.com

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US DOLLAR Technical Analysis: Support Showing Fault Lines

Position Trading based on technical set ups, Risk Management & Trader Psychology.

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Talking Points:

  • US Dollar Technical Strategy: US Dollar near Weakest G10 FX Currency Favors Shorts
  • Probability of Fed Hike Is Vanishing Alongside US Dollar Bulls
  • Seasonal Tendencies Favor USDWeakness for February, Score one for seasonality

The hits keep coming for the US Dollar. Janet Yellen came off the first day of her testimony as dovish and persistently concerned about global growth, which could further delay prospects of a Fed Rate Hike.

To see how FXCM traders are positioned after such a big move, click here.

Right now, there is a sparring of sorts among economists and markets (markets are usually right), about whether the Fed will hike this year. Many economists are still expecting a few hikes, albeit less than four showed on the Fed Dot Plot while the Fed Futures market shows little faith in a hike through February 2017. This market reality has led to an offered US Dollar.

US DOLLAR Technical Analysis: Support Showing Fault Lines

Now, after an overheating in US Dollar in late January thanks to an equal weighting to AUD, EUR, JPY, & GBP, and the Bank of Japan’s negative interest rate action, markets have sold the US Dollar. The US Dollar was easily the strongest currency to end January and have switched places with GBP within the G10 this February with the weakest currency. Currently, the Japanese Yen is the strongest currency within the G10, and the strength isn’t slowing down as the topping pattern looks to be scaring many JPY bears.

Key Levels: Watch the Recent Pivot to Hold

The pattern on the chart above looks like a bearish rising wedge pattern. Such a bearish pattern favors a retracement of 61.8-100% of the wedge. A price break below wedge support would turn focus lower toward 11,891-11,634 respectively. The lower high of 12,156 should remain a key focus for Bulls wanting to test the water on the long side.

While many comparisons have been made to the 2008 in debt and equity markets, a worthy mentioned would also be the US Dollar. Before the bottom fell out in late 2008, the US Dollar fell 8.5% in January-March 2008. We are only half-way through a similar drop, and should history repeat itself; it would favor more downside to go.

Another development worth watching has been the drop in US 2yr yields. US 2yr yields have nearly erased its 4Q rise as markets fear rates set by the Fed will stay lower for longer. A break on the US 2yr Yield below the October low of 0.5379 would likely align with further US Dollar weakness.

T.Y.




USD/CHF Technical Analysis: Long USD Setup Available Against CHF

Price Action, Swing & Short Term Trade Setups

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Talking Points:

  • USD/CHF Technical Strategy: Previously long, 4 targets hit, stop hit on remainder; long re-entry setup identified.
  • The US Dollar had a brisk pullback last week and this hit USD/CHF; but this may be a re-entry opportunity.
  • The big driver for USD this week will likely be Ms. Yellen’s testimony in front of Congress on Wednesday and Thursday; should she reiterate the Fed’s plans for 2016 rate hikes, USD could catch a strong bid.

In our last article, we looked at the gyrating up-trend in USD/CHF. At the time of that article Swissy had been on a rather consistent six-week up-trend as USD strength became a pervasive theme around that December rate hike from the Fed. As we had warned, the daily candlestick setup for last Monday was a Doji off of resistance, and this often preludes a swing in the other direction; so last week was not the time to press the up-trend in USD/CHF.

Since then, we’ve seen considerable USD-weakness as prospects of 2016 rate hikes out of the United States continue to diminish; but the deviation in rate expectations between the US and Europe (and in-turn Switzerland) continues to exist. And further to that point, we have no evidence as of yet that the Fed will, in fact, back down. That USD weakness from last week came from a speech given by Mr. William Dudley of the New York Fed, and here merely noted that continued USD-strength could bring recessionary forces to the US economy.

We discussed the prospect of continued USD strength and what that might entail in the article, The Real Bain of Equity Markets is Actually a US Dollar Problem, and in that article we looked at the fact that USD will likely remain bid until the Fed backs down from the prospect of tighter policy in 2016. And while it may seem simple for the Federal Reserve to just say ‘ah, forget about those rate hikes,’ there are likely other considerations that the bank is looking at that makes this not such a clear-cut decision.

Ms. Yellen speaks in front of Congress on Wednesday and Thursday of this week, and rate hikes/trajectory of lift-off will likely be a primary topic of discussion during her testimony; and that could bring considerable volatility into the US Dollar.

Traders looking to get long USD ahead of that testimony can look to USD/CHF, as we’ve run down to a previous level of support that could offer an attractive risk-reward ratio in trading in the direction of the previous trend. Traders can look to lodge stops below .9781, which is the 76.4% retracement of the secondary move in the pair, taking the January 2015 high to the 2015 low. This level had provided the swing-low in December just ahead of that FOMC rate hike, and traders can look to lodge stops below this potential support level to take on ~110 pips of risk.

On the profit target side, the price of parity could offer a roughly 1-to-1 risk-reward ratio with current prices, and this could be a fantastic opportunity to manage up risk by moving the stop to break-even, and perhaps scaling out of a portion of the lot. Just above that at 1.0077 we have the 1.272% extension of the previous major move, and at 1.0142 we have a previous swing-low that could be an attractive scale-out level. At 1.0239 we have that January high, as well as the most recent swing-high, and just beyond at 1.0300 we have the 1.618 extension of that prior major move.

USD/CHF Technical Analysis: Long USD Setup Available Against CHF

Created with Marketscope/Trading Station II; prepared by James Stanley

--- Written by James Stanley, Analyst for DailyFX.com

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AUD/USD Technical Analysis: Aussie Drops Most in Six Months

Fundamental analysis, economic and market themes

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Talking Points:

  • AUD/USD Technical Strategy: Flat
  • Aussie Dollar retreats against vs. US counterpart, drops most in six months
  • Risk/reward considerations argue against initiating short trade for now

The Australian Dollar plunged following the release of January’s US employment data, issuing the largest daily drop in six months against its US namesake. The move lower hints the most recent leg of the multi-year AUD/USD down trend launched early December 2015 may be back in play.

From here, near-term support is in the 0.7016-30 area marked by the November 10 low and the 38.2% Fibonacci expansion. A daily close below this barrier opens the door for a challenge of the 0.6947-64 zone (horizontal pivot, 50% level). Alternatively, a rebound above the 23.6% Fib at 0.7111 clears the way for a test of the 14.6% expansion at 0.7161.

The Aussie’s downturn represents a tempting proposition to enter short in line with our 2016 fundamental outlook. Tactically speaking however, the available trading range is too narrow relative to ATR to justify entering the trade from a risk/reward perspective. With that in mind, we will remain flat for the time being.

Are you following what FXCM traders are doing with AUD/USD? Find out here.

AUD/USD Technical Analysis: Aussie Drops Most in Six Months



USD/CAD Technical Analysis: CAD Bulls Face Critical 100-DMA (Levels)

Position Trading based on technical set ups, Risk Management & Trader Psychology.

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Talking Points:

Why USD/CAD Direction Is Uncertain?

The Canadian Dollar has been a volatile currency across the board. Now, USD/CAD implied volatility over 1-month has reached the highest levels since November 2011. This expected volatility means uncertainty is high even with Oil breaking below the January 20 lows.

Now the focus turns to what is driving the Canadian Dollar across the board as well as against the US Dollar. The US Dollar has been hard hit, and the ~ 1,000-pip fall in USD/CAD could turn the attention of the Bank of Canada back toward potential easing policy. Such a move would likely be due to a stronger relative Canadian Dollar, which hurts exports; alongside weak Oil that continues to put pressure on the energy portion of the economy will likely pressure economic growth.

USD/CAD Technical Analysis: CAD Bulls Face Critical 100-DMA (Levels)

Now that USD/CAD has recently taken out the 2016 opening range lows, there is a view that more downside could be on the way. However, you can see on the chart above that we have entered a key range of support going back to May. Until support, which aligns nicely with the 100-dma has broken, it is hard to see selling USD/CAD as a high probability trade.

To see how FXCM traders are positioned after such a big move, click here.

Key Levels after the Plunge

Considering that, USD/CAD sits in the middle of a wide long-term range between 1.3600-1.4325, the next zone of resistance of 1.4101 remains in focus. An inability to take out that opening range high of February would turn attention back to the bottom of the range with the February 5 low at 1.3710 and the Feb 4 low at 1.3638 of keen interest.

If USD/CAD is not supported by the 100-DMA at 1.3568, a broader view of US Dollar downside would be favored. However, returning to the first level of focus higher at 1.4101, if that level is taken out the next levels of resistance is the 21-DMA at 1.4139 followed by the late January corrective high of 1.4324.

Canadian Dollar Rally is set to Last per Sentiment

When looking at sentiment, crowd sentiment has moved back to a bearish bias relative to recent positioning. We use our Speculative Sentiment Index as a contrarian indicator to price action, and the fact that the majority of traders are selling again provides a contrarian signal that the USDCAD may continue higher. A push further into negative ratio territory on client positioning would favor further upside towards resistance mentioned above.

Combining the technical picture above, with the sentiment picture, a hold of support would further support the bullish argument. However, a break below support of the long-term channel and 100-DMA alongside a flip in retail sentiment from net short against the trend to net long against a potential new trend would further warn of more CAD gains ahead.

USD/CAD Speculative Sentiment Index as of 2/10/2016

USD/CAD Technical Analysis: CAD Bulls Face Critical 100-DMA (Levels)

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T.Y.




NZD/USD Technical Analysis: Struggling at Key Trend Line

Fundamental analysis, economic and market themes

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Talking Points:

  • NZD/USD Technical Strategy: Flat
  • New Zealand Dollar rallystruggling at long-term trend line resistance
  • Looking for actionable bearish reversal signal to trigger short position

The New Zealand Dollar continues to tread water below pivotal resistance defining the down trend against the currency’s US counterpart sinceearly July 2014. Directional resolution at this barrier may prove pivotal for trend development in the weeks and months ahead.

A daily close above the intersection of the trend line and the 38.2% Fibonacci expansion at 0.6717 opens the door for a challenge of the 50% level at 0.6764. Alternatively, a drop below the 23.6% expansion at 0.6658 paves the way for a test of the 38.2% Fib retracement at 0.6596.

Our 2016 fundamental world view is partial to NZD/USD down trend continuation. Still, the absence of an actionable bearish reversal signal warns that entering a short position is premature for now. We will remain flat, waiting for a better-defined opportunity to present itself.

Are FXCM traders buying or selling NZD/USD? Find out here!

NZD/USD Technical Analysis: Struggling at Key Trend Line




EUR/GBP Technical Analysis: Euro Rally May Be Fizzling

Fundamental analysis, economic and market themes

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Talking Points:

  • EUR/GBP Technical Strategy: Flat
  • Euro rally may be fizzling after prices hit 14-month high vs. British Pound
  • Looking for actionable short trade signal to sell in line with long-term trend

The Euro spiked to the highest level in 14 months against the British Pound but the push higher stumbled ahead of the 0.79 figure. The emergence of negative RSI divergence now hints at ebbing upside momentum and warns that a downturn may be ahead.

A daily close above the 38.2% Fibonacci expansion at 0.7821 clears the way for a challenge of the 50% threshold at 0.7913. Alternatively, below the 0.7681-0.7708 area (23.6% Fib retracement and expansion levels) opens the door for a test of the 0.7526-47 zone (January 22 low, 38.2% retracement).

The dominant multi-year EUR/GBP trend favors the downside and our 2016 fundamental outlook expects this to continue. As such, we are looking to enter short, but an actionable reversal needed to confirm entry on a trade is absent for now. We will wait and remain flat.

Has the Euro behaved in line with DailyFX expectations? Find out here!

EUR/GBP Technical Analysis: Euro Rally May Be Fizzling



EUR/JPY Technical Analysis: Where Weaker Just Means More Negative

Price Action, Swing & Short Term Trade Setups

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Talking Points:

The Bank of Japan shocked the world by moving interest rates into negative territory at their most recent policy meeting. Before that, only Europe had dabbled with sub-zero deposit rates and that’s only been for the past year-and-a-half, so to say that the prospect of a major economy using negative rates is still ‘new’ would be quite the understatement. The move was largely tokenary in form as the cut was a simple 20 basis points to move the BoJ rate from .1 to -.1; so we’re not talking about a huge move here. But it is emblematic, and Mr. Kuroda said at the accompanying press conference that he’d go more negative if need-be.

This makes the prospect of staying long the Yen rather daunting, at least if you’re marrying the Yen up with anything that doesn’t have more dire prospects than the Japanese economy. And as unfortunate as it may be, there is an economy with just that scenario in Europe. In Europe, rates are already negative and they could go even further below zero. The optimistic silver lining here is the idea that European Central Bank may be able to go for more QE at their March meeting, and the ECB looks far more equipped to embark on an increase to QE than Japan does.

But that, for all intents and purposes, presents a neutral tone in EUR/JPY. What makes this compelling is the technical setup. The rip on Friday after the BoJ’s announcement sent price right into a relevant zone of resistance that we’ve been discussing over the past few months. This is the zone from 131.67-132.03, where no fewer than three relevant Fibonacci levels fall. There’s also a 13-month trend-line projection in this vicinity as well. This confluent zone contains the 61.8% retracement of the most recent major move at 131.80 (in aqua), the 50% retracement of the secondary move at 132.03 (in orange, can be found by taking the 2008 high to the 2012 low) and the 76.4% retracement of the tertiary move at 131.675 (in yellow, taking the 2014 high to the 2015 low).

After Friday’s massive counter-trend rip, traders are faced with a decision: Do they want to hit the setup aggressively or more conservatively? The aggressive setup could be taken now with a stop above the next level of potential resistance at 132.50. The high on Friday came in at 131.27, and with a major psychological level so closely nearby, traders can look to wedge stops for short positions above that 132.50 level to take on ~70 pips of risk. This could open the door for a 1-to-2 risk-reward ratio down to the lower psych level at 130. Below 130, targets could be cast to 129.45 (50% Fibonacci of the ‘big picture’ move in the pair), 128.50 (38.2% retracement of quaternary move, taking 2012 low to 2014 high), and then 126.15 (prior swing-low).

To treat this more conservatively, traders can wait to confirm that resistance in this zone will, in fact, be able to hold. Doing so would bring a less attractive risk-reward ratio, but that’s the nature of the beast when trading reversals. This style of trading can be really dangerous, so please make sure that your risk management has been addressed if trying to fade a move in EUR/JPY or any currency pair.

EUR/JPY Technical Analysis: Where Weaker Just Means More Negative

Created with Marketscope/Trading Station II; prepared by James Stanley

--- Written by James Stanley, Analyst for DailyFX.com

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GBP/JPY Technical Analysis: Buckle Up Before BoE

Price Action, Swing & Short Term Trade Setups

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Talking Points:

GBP/JPY has a few nicknames of note, one being ‘The Dragon,’ and the other being ‘The Widow-maker.’ Both nicknames denote the penchant for volatility that will often be found in this pair, and the past two months have been nothing short of astounding, even in GBP/JPY terms. From the beginning of December to mid-January we saw GBP/JPY rip off 2,400 pips to the down-side; and then after support came in around the middle of January, we’ve seen the pair move higher by more than 1,000 pips; and this can still be classified as a ‘retracement.’

With Japan having recently moved into ‘negative rates’ territory combined with the growing sentiment around an increased possibility of a Brexit, and with a Bank of England meeting on the docket for this Thursday, the potential for heightened volatility remains. And in GBP/JPY, that means any trader taking a position should take notice.

In the near-term, the top-side momentum is notable. We’ve basically seen 500 pips of run since Thursday’s close. That’s not something you want to directly fade unless you have a really strong resistance level to trade it off of, which I don’t. Not yet anyways. There’s a major psychological level at 175, a 50% Fibonacci retracement of the most recent major move at 176.37, and a 61.8% Fibonacci retracement of the secondary move in the pair at 178.03 (taking the 2008 high to the 2011 low). But there hasn’t been much signs of slowdown in this move higher yet, and there are no indications of resistance setting in. So, traders that are looking to get short GBP/JPY would likely want to wait for that resistance to develop in one of those price zones, and this can be found by looking for top-side wicks on the hourly or four-hour charts.

On the top-side, we’ve seen intra-day support develop in the 173.50-vicinity, which was also a previous swing-high. The 38.2% retracement of that most recent major move comes in right at 173.45, and traders can potentially use this as an entry level for top-side plays. Similar logic would be needed, as in traders would likely want to wait for support to develop at this price on the hourly or 4-hour charts before triggering long. This could open the door for targets at 176.37 and then 178.03. If we can break above 178, which in GBP/JPY, anything is possible, then additional targets could be cast towards 179.30 and then 180.00.

GBP/JPY Technical Analysis: Buckle Up Before BoE

Created with Marketscope/Trading Station II; prepared by James Stanley

--- Written by James Stanley, Analyst for DailyFX.com

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USD/CNH Technical Analysis: Yuan Aims to Extend Rebound

Fundamental analysis, economic and market themes

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Talking Points:

  • USD/CNH Technical Strategy: Flat
  • US Dollar completes Head & Shoulders setup, hinting at deeper losses vs. Yuan
  • Risk/reward considerations, fundamental instability argue against taking a trade

The US Dollar is digesting losses in a narrow range after dropping to the lowest level in over a month against the Chinese Yuan in offshore trade. Prices appear to have completed a bearish Head and Shoulders top chart formation, hinting that a larger downward reversal may be in progress.

From here, a daily close below support at 6.5515, the 50% Fibonacci expansion, opens the door for a challenge of the 61.8% level at 6.5281. Alternatively, move back above the 38.2% Fib at 6.5750 paves the way for a retest of the 23.6% expansion at 6.6040. Broadly speaking, the H&S setup implies a measured downside objective near the 6.39 figure.

The available trading range is too narrow to justify taking a trade from a risk/reward perspective. Furthermore, we remain leery of any CNH exposure as the tug of war between Beijing policymakers and the markets makes for an inherently unstable fundamental landscape. With that in mind, we will stand aside.

Losing Money Trading Forex? This might be why.

USD/CNH Technical Analysis: Yuan Aims to Extend Rebound




The CAC40 Rallies After Yesterday’s 4.1% Decline

Short Term Strategies, Scalping, Price Action Analysis, and Risk Management

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Talking Points

  • The CAC40 Opens Higher on News
  • Bullish Breakouts to Target 4,154
  • SSI Reads at +1.64

CAC40 30 Minute Chart

The CAC40 Rallies After Yesterday’s 4.1% Decline

(Created using Marketscope 2.0 Charts)

Losing Money Trading? This Might Be Why.

The CAC40 has opened higher this morning, with French shares attempting to rebound from yesterday’s 4.1% decline. Prices today have been bolstered primarily by Euro Zone GDP figures coming out in line with expectations at 1.5% (YoY) (4Q A). With prices now trading back over 3,950, it opens the possibility that price action may attempt to completely invalidate yesterday’s bearish breakout. To validate this opinion, traders should continue to monitor Thursdays high, which was established on the open at 4,022.

In the event that prices fail to breakout to a new high, and close the day inside of Thursday’s price action, it will prepare the Index for a breakout early next week. Using a 1-X extension of yesterday’s 132-point candle, bullish breakouts may begin to target prices near 4,154. Conversely, if the CAC40 resumes its downtrend, bearish breakouts below 3,890 may begin to target prices near 3758.

SSI (Speculative Sentiment Index) for the CAC40 (Ticker FRA40) is currently reading at +1.64. This value is little changed from yesterday. However, with SSI for the CAC40 remaining positive, it suggests that there may be future declines in store for the Index. In the event that sentiment continues to shift towards a more neutral value, it may suggest that the current downtrend is beginning to slow.

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WTI Crude Oil Price Forecast: Oil Bounces 12% Off A 12 Year Low

Position Trading based on technical set ups, Risk Management & Trader Psychology.

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Talking Points:

  • Crude Oil Technical Strategy: Oil Rebounding to Key Resistance Zone
  • The Offered US Dollar Further Puts Support Under Oil’s Advance
  • WTI Is Starting To Divorce from Leading Risk Sentiment, Which May Support US Oil Bulls

Have We Found Our Floor?

Oil has continued to fall further and more doubt that a sustainable move higher is on the way. Yesterday, the sell-off took on new life when a realization about the consistent crude oil inventory build in Cushing, OK is a mere 8M bbls from being at theoretical max capacity. Specifically, a Reuters report showed the following note from the EIA.

U.S. Energy Information Administration data on Wednesday showed inventories at the Cushing, Oklahoma delivery hub hit a record 64.7 million barrels last week - just 8 million barrels shy of its theoretical limit - stoking concerns that tanks may overflow in coming weeks.

Below, you will see that prices have hit their lowest levels since 2003, and now concerns are developing that a move down to ~$22 could be on the way soon. In addition, you will note that resistance at $34.79 and $38.36 the YTD high remain in focus as a sign that true buyers are stepping in to buy Oil. Below these key levels, worries may persist about supply, which is in line with our 2016 fundamental outlook on Oil.

Long-Term Oil Support Unlinkely Until $22

WTI Crude Oil Price Forecast: Oil Bounces 12% Off A 12 Year Low

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Intermarket Analysis Shows Market Confusion, Maybe CapitulationThe US Dollar was seen as a driver for the move lower in Oil. Now, the dollar strength / Oil weakness argument is not as strong as it was as the US Dollar is selling off, yet Oil is falling further still without a sustainable bid, except for the one found on short-term rumors around a production cut. Either way, more than rumors will be needed for a market bottom to form. However, do not expect volatility to slow down.

On Thursday, the CBOE Crude Oil Volatility Index or Oil VIX showed expectations for large price swings were at their widest in 7 years. Equally impressive was the trading volume showing that open interest was increasing and trading volumes in aggregate were highest on record. Such a combination is likely responsible for Friday’s wild swings ahead of a long weekend in the United States.

Key Levels from Here

WTI Crude Oil Price Forecast: Oil Bounces 12% Off A 12 Year Low

For now, the key price resistance a zone of confluence around the 38.2% of the February range at 28.91 up to the $30.60 level. If the price can close above that zone, the focus will turn to the 50-day moving average and late January high and for Oil at $33.32 and $34.79 respectively. Short-term trend support will be on Friday morning’s higher low near $27. An ability for the price of Oil to hold above this level could continue to support enthusiasm for Oil bulls.

It is worth noting that bear markets have some of the most aggressive rallies that can put short sellers on the sideline until a new narrative takes over the market or the outlook darkens. Friday’s ~12.5% rally off Thursday’s low appears to have taken the appetite for new lows out of the market for now. However, it’s important to be aware of the increasing narrative of worrying stories from the global economy that continue to favor demand remaining low or dropping further relative to supply, which could kick off the next leg lower in Crude. .

Sentiment Flip Warns of Further Short-Term Upside

In addition to the technical pressure, that Oil may have found a short-term support zone around the Thursday’s 12.5yr price low, the larger bearish view aligns with our Speculative Sentiment Index or SSI. Our internal readings of Oil are showing an SSI reading of 3.3375. We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are now bullish provides a contrarian signal that US Oil may continue eventually lower. If the reading were to turn negative again, and the price broke back above $34.79bbl, we could begin looking for a retest of the YTD high of $38.36.

T.Y.

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Gold Prices Shine in the Race to the Bottom

Price Action, Swing & Short Term Trade Setups

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Talking Points:

  • Gold Technical Strategy: Long, four targets cleared, one remains at $1,161.51. New conditional long setup identified (buying support, not chasing).
  • With Mr. Dudley of the Fed providing a dovish tilt towards US rate hikes in 2016, the bid in Gold has grown stronger.
  • As we near this critical juncture for the global economy, there is a strong chance that we’re going to see Central Banks around the world attempt to avoid a stronger currency in the effort of avoiding recessionary forces from distortions in trade balances. This is a positive for Gold if it continues.
  • Just because there is huge volatility here, it doesn’t mean that you should abandon your rules. If your risk management is not on-point, you are running the risk of ruin when trading Gold in an environment such as this. To get risk management tightened up: Traits of Successful Traders.

The past seven weeks have been peculiar for financial markets. We had the rate hike from the Fed, and that seemed to go off without too large of a hitch, at least initially. And then as we opened the New Year many of the fears that were circling under the surface to finish off 2015 came screaming back to the top of the headlines, and things haven’t really been the same since. We just saw a break of a long-term downward sloping trend-line, and it appears that a larger reversal may be afoot.

Gold Prices Shine in the Race to the Bottom

Created with Marketscope/Trading Station II; prepared by James Stanley

The scourge of financial markets has become that question as to whether or not we’re at the forefront of a global recession. This is a really difficult question to properly answer, and even if we could – a recession isn’t technically a ‘recession’ until we have two consecutive quarters of slower growth. By then, it’s often too late, at least if you’re a trader looking to trade a swing. By the time evidence of an actual recession comes in, at least in many cases, the big move has already been made.

But again, this is a really tough question to answer; is the global economy headed for a recession? And even if you could answer it – it doesn’t mean that you’ll be able to profit from it because by the time you ‘know,’ it will probably be too late. This is where the chart comes in. We can plan trade scenarios around these possible events, and then institute the strategy if the environment lines up in a manner that agrees with our assessment.

A necessity here is boiling down facts that we know, for certain, in order to separate from our speculations. And just yesterday, Mr. William Dudley of the New York Fed gave us another fact with which we can use in our planning around moves in Gold. Mr. Dudley provided some very dovish commentary in pertinence to the US Dollar. He essentially noted that a higher-rate spectrum in the United States would likely lead to USD-strength; which, in-turn, would put pressure on US exports, potentially even exposing the US economy to the same recessionary forces that are being felt around the world right now.

The near-immediate response was one of significant USD weakness, as previously this was one of the few currencies that caught a bid on the back of the expectation for higher rates. There were a ton of long bets in the US Dollar because Japan just went negative, Europe just went even more negative and it’s looking increasingly like we’re going to see some element of devaluation of the Yuan out of China. This means that there would be a lot of capital looking for a home, and this is not a good thing. If all of that capital rushed into the US Dollar as the Fed continued to walk towards and speak-up the four-rate hike in 2016 theme, the US Dollar would likely get so strong that US exports would take a hit. And that hit would come at an already precarious juncture, as these other issues in Asia and Commodities are in the process of presenting a whole other set of risks.

To boil this down: No major central bank appears to be wanting of strength in their currency, as it will just make their job of managing monetary policy even more difficult, and perhaps even impossible, as rampant capital flows can lead to further distortion in trade flows; distortion that, if left unchecked could pull that economy into recession along with the rest of the world.

This has traditionally been a good time to look at Gold as the prospect of further monetary debasement becomes a realistic prospect as major Central Banks all look at ways to stem currency strength. And this syncs with what we’ve been watching in the Gold market over the past couple of months. At the end of November and moving into the huge batch of Central Bank data we had for December, Gold was running lower in an aggressive down-trend that offered quite a few selling opportunities. Throughout the first half of December, Gold prices chopped around while trying to seek out a bottom, and just ahead of the December Fed meeting we warned against selling bottoms. The trend hadn’t yet flipped to the up-side, but this was enough to avoid pressing short positions. And then just before year-end, we looked at the prospect of a new trend in Gold prices.

Chop + higher low often preludes reversal in down-trend (prior image from 12/28/2015)

Gold Prices Shine in the Race to the Bottom

Created with Marketscope/Trading Station; prepared December 28, 2015 by James Stanley

A couple weeks into January and the top-side reversal setup was ready. But this was not without fraught, as is the case with most reversals. Price action moved aggressively as sentiment flipped, and that position came a nickel away from being stopped out at $1,071.28. Since then Gold has cleared out four targets and only one remains at $1,161.51.

The reason for pointing this out is to highlight how important technical analysis can be in such situations. All of these reasons and narratives didn’t become obvious until after-the-fact, and that is often going to be the case. Just like spotting a recession isn’t technically possible until we’re already in one, finding the reason for a price movement isn’t going to be glaringly obvious until after the fact.

But the chart illustrates where people are willing to put their hard-earned money to work. And when people are willing to chase higher prices in Gold, there is probably some type of reason for it. Now that we have this recent innuendo, it’s become rather clear that Gold is trading as a type of anti-currency. As in, the term ‘anti-Dollar’ became a popular catch-phrase for Gold given that gold is priced in USD (so USD moves up, Gold down and vice-versa); but looking at the movement that it put in last week after the Bank of Japan’s surprise move to negative rates, it’s clear that this is more than just a USD-play; it’s become more of an overall monetary debasement theme. As inflation looks less and less likely, and as Central Bankers make moves to avoid currency strength, this could bring continued flows into Gold as there is a lot of capital looking for a place to go. If you’re a Japanese retiree or a European investors, the idea of keeping cash ‘safe’ and tucked away just became that much more daunting.

And in such situations, price action can be violent. There will be swings. Stops will be hit, this is just the nature of the beast when trading in volatile markets like Gold. This is also the reason to look to techs for your setups, to ensure that your ideas and stories sync with what the market is doing at the time, and to enable you to move forward in a risk-efficient manner.

On that topic Gold is really strong right now on the short-term charts. Longer-term, that bigger picture downtrend has come into question as Gold prices have popped higher through that nearly 3-year old trend-line. But that doesn’t mean that you want to abandon prudence. This merely means that opportunity may be about. On the chart below, we look at some potential levels of relevance based on recent price action.

Gold Prices Shine in the Race to the Bottom

Created with Marketscope/Trading Station II; prepared by James Stanley

Since we have an up-trend with the legitimate prospect of continuation, the trader’s stance should be to look for ways to buy to get on the right side of that trend. The issue with current price action is that prices are still elevated. So, if you buy here you run the risk of chasing. Instead, you can wait for a better entry. I’ve attached two support levels to the above chart, and each of these can be long re-entries. The more aggressive swing is in the $1,140 area, and just below that we have a Fibonacci level at $1,127.03. Either of those could suffice if support builds on the hourly or 4-hour chart.

Profit targets in that case could then be cast towards $1,161.51 (38.2% of the prior major move), $1,189.39 (the 50% retracement of that same move), and then $1,200 (major psychological support/resistance). Should that become eclipsed, $1,217 could then become a level of interest as the 61.8% retracement of that same prior major move.

--- Written by James Stanley, Analyst for DailyFX.com

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Silver prices Trading At A Discount To Gold

Global Macro and Momentum Trading

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Silver prices are bullish above the February 2 low of $15.11, and I anticipate that trend following traders are likely to use a pullback to the $15.48 mark (yesterdays’ breakout level) as an opportunity to add to their bullish exposure.

We note that silver prices have been rallying strongly over the last two weeks, from a low of $14.18 to $15.97. This makes the trend overbought, however, the last few days prove that its far better to stick to the trend rather than trying to fight it.

A bounce from $15.48 may mark a resumption of the bullish trend and take price to the current weekly high of $15.97. The next target beyond the $15.97 high, is the October 15 2015 high of $16.23.

Silver Is Trading At A Discount To Gold

With gold prices trading above $1440, it suggests that silver should be trading at $16.51 given its correlation to gold.

US Retail Sales and University of Michigan Consumer Sentiment are on tap this afternoon, with better than expected data potentially triggering lower prices as demand for the USD increases and the need for safe haven assets like silver diminishes. Soft data, may on the other hand trigger higher silver prices, in line with the prevailing technical trend.

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Silver Prices | FXCM: XAG/USD

Please add a description for the image.

Created with Marketscope/Trading Station II; prepared by Alejandro Zambrano

--- Written by Alejandro Zambrano, Market Analyst for DailyFX.com

Contact and follow Alejandro on Twitter: @AlexFX00

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SPX500: A Story That Can Only be Told with Charts

Price Action, Swing & Short Term Trade Setups

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Talking Points:

While much of the world wrestles with whether or not stock prices are going to move lower, whether or not we’re at the forefront of a global recession or even if we’re nearing a point where Central Banks are beginning to feel the strains of panic themselves, the chart has already started indicating a move lower. We discussed this before all the chaos started with the turn of the New Year as the initial signs of a top had already presented themselves. The first thing that we have to establish here is that major market turns take time. This isn’t a day-to-day thing where you just walk into the office and all of the sudden ‘oops, it’s bearish. Let’s sell.’ No, markets are controlled by the collective opinions of millions of people (the herd). Being from Texas has taught me the luxury that you can’t expect a herd, any herd to collectively move at once with agility. This takes patience.

One look at the anatomy of the Financial Collapse (below) can show you how long it takes a herd to turn their opinion in a market. And keep in mind, the writing was on the wall here: Mortgages had already started blowing up, and then stock prices followed. We didn’t have capitulation (the -43.6% move) until the bulls had been vanquished by lower-lows and lower-highs to the point of realization that the bull market was not coming back.

SPX500: A Story That Can Only be Told with Charts

Created with Marketscope/Trading Station II on Jan 27, 2016; prepared by James Stanley

If you watch the common sources of financial media, you’ll hear the same wonderment right now that we heard back in Q4 of 2008 where various hosts and personalities toggle between ‘bullish, bearish and everywhere in between.’ This is normal at market turns. The herd gets confused because doing just the same old thing doesn’t work in the way that they’d become accustomed to. This is evidence of the herd actually taking notice of the road ahead and realizing, ‘hey, maybe I should start thinking about zigging after six years of zagging.’ But even this isn’t enough. This is just enough reason to start getting less bullish. The reasons for bearishness don’t come in until there’s actual motivation: A spark, if you will. But before that spark can start a fire, sentiment has to wane, and we’ve already begun to see that happen. But as that happens, we’ll often see considerable volatility. This is when the last-minute bulls slug it out with the new, fresh bears. This is one of the reasons that equities have been whipping on both sides of late.

The chart below goes over the swings that we’ve seen in the S&P over the past five months. The volatility of recent is undeniable, and again, this is very common at major market turning points.

SPX500: A Story That Can Only be Told with Charts

Created with Marketscope/Trading Station II; prepared by James Stanley

But, nonetheless, you hear these really smart and well-dressed and supposedly educated people get on television to make a case for higher (or lower) stock prices as if they were delivering the closing arguments in a really important trial in which someone’s life hangs in the balance. This can all be utterly confusing, and all of this pandemonium just adds to the noise, making the prospect of ‘reality’ seem distant and confounding when trying to trade a turn. But the luxury to market participants is that we can separate the noise from reality very simply by looking at a chart. The price on the chart is the going price. This is the same that banks or hedge funds can act on (or in many cases the prices that they’re feeding into the market) and this, on a microcosmic level, always has a level of efficiency; because the simple offer to your bid is the meeting of minds on a transaction at a price that you both agree upon at the time. It’s only with hindsight that we can invalidate the efficiency of that market at that price at that point in time.

And now that the Fed has begun to raise rates, and as the prospect of more QE out of the world’s largest economy became more and more distant, those reasons for buying stocks have started to dwindle and dwindle. After all, QE has basically been a propellant for stock prices over the past six years. Each hiccup or misstep in financial markets was met by more and more QE. The chart below illustrates each of the three rounds of QE along with Operation Twist. This got so contorted that bad news actually became a positive for stock prices.

That’s right – the diametric opposite of what ‘should’ happen in an efficient market. For a long time, ‘bad was good,’ because that simply meant more and more QE from the Federal Reserve. During this time, good news actually became the scourge of equity investors. Because that meant less QE: Complete and utter distortion became commonplace as the herd adjusted to the norm.

A Market Truly Propelled by Stimulus

SPX500: A Story That Can Only be Told with Charts

Created with Marketscope/Trading Station II on Jan 13, 2016; prepared by James Stanley

What’s Different Now?

The Fed. On the above chart you can see where they basically came in to support markets at multilpe points in the last six years. The Fed has said no more, at least for now, as they look to normalize policy. And this tighter policy comes at a tough time as other issues have begun to become prominent. China is in a very precarious state, and Oil prices have likely started a process of havoc in the American economy that we’ll be hearing more about over the next couple of quarters.

So the market’s most bullish facet, Fed support, is missing at a time when these other very threatening issues are developing. But perhaps more to the point, this may be the Fed’s intention. Ms. Yellen mentioned in December that she felt there was a higher probability of a recession if the Fed didn’t raise rates. Further to that point, stock prices are not a Fed mandate. This is but a consequence of the Fed attempting (and thus far, not succeeding) at their dual mandate of healthy employment and inflation.

As long as the Fed continues to talk up higher rates, the S&P is at a risk of continued correction-like moves, and the charts begun to show this with lower-lows, and lower-highs. After the massive move to start the year, stock prices have begun retracing; but in reality we’re really just working on a bear flag formation. On the chart below, we’re taking a look at that formation on the 4-hour chart with a Fibonacci retracement of the most recent major move applied. Notice that the 50% Fib comes in just a few handles shy of the 38.2% retracement from the previous major move (2137 top to 1833.5 low). This is a confluent level that will become usable in a moment:

SPX500: A Story That Can Only be Told with Charts

Created with Marketscope/Trading Station II on Jan 13, 2016; prepared by James Stanley

There are two ways to trade a bear flag.

The aggressive way is to get short with a stop above resistance, and wait for the break. If the break doesn’t happen, the trader wants to be taken out as new highs are printed in the effort of avoiding a huge loss. That level of relevance with the above setup is that confluent zone of resistance in the ~1,950 area. And if using that, you’d likely want to nudge that stop just above 1,950 so that you don’t get wicked out if the high is 1,950.1.

The less aggressive way (and I’m not going to use the term ‘conservative’ here, because there is nothing conservative about trading turns), would be to wait, let the flag break to prove that bears will be able to take control, and then wait for resistance to show after the up-trending channel has broken. The level of relevance for that approach would be 1,875, which is the low for today. Let prices break below that to prove that bears may, in fact, be able to keep driving this lower. And once that’s taken place, look for resistance on the hourly or four hour charts before triggering short. Stops can still be assigned above that 1,950 zone of resistance.

Targets on short positions can be cast towards previous support values, and once/if those become eclipsed, we can incorporate some Fibonacci extensions from prior major moves. Those levels at 1,874 (prior price action swing), 1850 (prior price action swing), 1833.50 (2015 low), 1810 (2016 low), 1750 (prior move 27.2% extension), and then 1,645 (the 61.8% extension of the prior move).

--- Written by James Stanley, Analyst for DailyFX.com

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DAX 30 Remains Bearish Below Wednesday’s High Of 9129

Global Macro and Momentum Trading

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The DAX 30 (FXCM: GER30) is bearish below Wednesday’s high of 9129 and given this downtrend, traders will most likely use a correction to 9000 as an opportunity to add to their bearish exposure with stops above 9129. They will most likely target this week’s low of 8696 and on a break to this level, the psychological key level of 8500.

However, caution is warranted given that the DAX 30 has lost near to 11.5% of its value over the last 2.5 weeks. This will make it tempting for bearish traders to reduce their exposure. The Japanese government also looks to be ready to intervene in the forex markets, which may lift the USDJPY and equity indices.

U.S. Retail Sales on Tap

Bearish news this morning is E.U. Industrial Production declining by 1.3% YoY in December, which points towards a slower E.U. economic growth, yet the market is disregarding this for now. In the afternoon, U.S. Retail Sales and University of Michigan Consumer Sentiment will be key outcomes for the DAX 30.

Better than expected readings may boost the DAX, while softer outcomes may trigger declines. At this stage though, I don’t expect the DAX 30 to breach Wednesday’s high of 9129, independent of the data outcome. Please see our economic calendar for market consensus projections.

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DAX 30 | FXCM: GER30

Please add a description for the image.

Created with Marketscope/Trading Station II; prepared by Alejandro Zambrano

--- Written by Alejandro Zambrano, Market Analyst for DailyFX.com

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The FTSE 100 Digests Its Losses

Global Macro and Momentum Trading

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Risk-aversion in the financial markets is abating which lifts the FTSE 100 and it seems fair to expect the FTSE 100 to digest its losses today. I assume that short-term traders will be booking profits at current levels given that the FTSE 100 lost 9.52% of its value over the last two weeks, substantially fattening the gains on short positions.

Also lowering the stress in markets are comments by the Japanese Chief Cabinet Secretary Suga, Finance Minister Aso and Economy Minister Ishihara, all of whom have voiced concerns about the strong Japanese yen and the possibility of market intervention. This has influenced the FTSE 100 as there is a strong correlation between the USDJPY and global stock markets, whereby a selloff in the USDJPY may trigger a decline in global stock markets and vice versa.

Technical Trend is Bearish Below 5717

The technical trend is bearish below the February 10 high of 5717 and the FTSE 100 may reach the June 26, 2012 low by next week, while a break to 5717 may trigger a rally to the 5800.

E.U. Industrial Production declined by 1.3% YoY in December, which points towards as slower E.U. economic growth, yet the market is disregarding this for now. Later today we look forward to U.S. Retail Sales and University of Michigan Consumer Sentiment. A better than expected reading may boost the FTSE 100, while a soft reading may trigger declines. See our economic calendar.

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FTSE 100 | FXCM: UK100

Please add a description for the image.

Created with Marketscope/Trading Station II; prepared by Alejandro Zambrano

--- Written by Alejandro Zambrano, Market Analyst for DailyFX.com

Contact and follow Alejandro on Twitter: @AlexFX00

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AUS 200 Technical Analysis: Welcomed Retracement above Support


Talking Points:

  • AUS 200 Strategy: Small dip buying if it holds out above 4754 support
  • Reduced threat of a decline to 2013 levels
  • Sideways mode is expected until the week ends

AUS 200 made a welcomed retracement up above the 4754 support level and two-year low. Yesterday’s close above this probably turned the tide, as we outlined. The best scenario from here on is sideways trading until the week ends. A full return of Asia markets next week will add more dimensions and support two-way trading in the index.

The threat of declines is not ruled out totally, given weak downside bias in momentum signals. Dip buyers and investors with long positions should keep a close watch of support level. At top, 4918.4 comes as immediate resistance, with 5074 firm resistance above head.

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AUS 200 Technical Analysis: Welcomed Retracement above Support

Daily Chart - Created Using FXCM Marketscope

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--- Written by Nathalie Huynh, Strategist for DailyFX.com

Contact and follow Nathalie on Twitter: @nathuynh




JPN225 Technical Analysis: 2-Year Low Under Threat


Talking Points:

  • Nikkei 225 Strategy: Dip buyers be cautious if index challenges 2-year low
  • Immediate support is 14,963, followed by 2-year low at 14,353
  • Clear downtrend still dominates price action

As forewarned, JPN 225 broke below 76.4% Fibonacci at 15,545 to test a past support at 14,963. Below that, the 2-year low at 14,353 has come under threat. A breach of this level would be bad sign for the bulls and dip buyers.

Traders who look to buy dips should exercise caution during the rest of this week, especially if JPN drops further toward the 2-year low. Momentum signals remain in oversold zone with no sign to pick up yet.

On the topside, 76.4% Fibonacci now turns into an immediate resistance, topped by 50% Fibonacci at 17,416. Below is weekly chart for a broader view of the index.

JPN225 Technical Analysis: 2-Year Low Under Threat

Weekly Chart - Created Using FXCM Marketscope

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JPN225 Technical Analysis: 2-Year Low Under Threat

Daily Chart - Created Using FXCM Marketscope

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--- Written by Nathalie Huynh, Strategist for DailyFX.com

Contact and follow Nathalie on Twitter: @nathuynh