Support & Resistance

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EUR/USD Technical Analysis: Key Resistance in the Crosshairs

Fundamental analysis, economic and market themes

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Talking Points:

  • EUR/USD Technical Strategy: Flat
  • Euro bounce continues as back-to-back gains yield largest rally in 2 months
  • Prices closing in on trend-defining resistance level above 1.13 vs. US Dollar

The Euro continued to push sharply higher against the US Dollar, delivering the single currency its largest two-day advance since early December. Prices now approach a pivotal upward-sloping barrier set from mid-March defining whether recent gains are corrective or the start of a new near-term trend.

Near-term resistance is in the 1.1290-1.1336 area, marked by the 61.8% Fibonacci expansion and the aforementioned trend line, with a break above that on a daily closing basis targeting the 76.4% level at 1.1473. Alternatively, a move back below the 50% Fib at 1.1143 paves the way for a test of the 38.2% expansion at 1.0995.

The long-term EUR/USD trend remains bearish and our 2016 fundamental outlook calls for continuation of more of the same ahead. With that in mind, we will remain on the sidelines until the current upswing runs its course and look for the emergence of an actionable selling opportunity to become involved.

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EUR/USD Technical Analysis: Key Resistance in the Crosshairs




USD/JPY Technical Analysis: 14-Month Low Revives Reversal Focus

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 Broke Below Recent Low & Lower Highs Seen As Resistance
  • JPY Returns to Strongest G10 Currency as Risk Sentiment Sours

As the Lunar New Year gets underway, we are seeing a gappy environment meeting souring sentiment. USDJPY and JPY crosses across the board turned sharply lower and a key support zone around the daily range of the December 2014 low, which has supported price multiple times, has now broken. This price move turns our attention back to the larger bearish view of the head and shoulder’s bearish reversal that could take us back to the 110-106 zone.

A Mirror Image of the Bottoming Process?

USD/JPY Technical Analysis: 14-Month Low Revives Reversal Focus

The chart above shows the similarity of the bottoming process in 2011/12 and the potential topping process over 2014-2015. The 40-WMA shows a recent pivot off the price after the USDJPY had its largest one-day gain in over a year after the Bank of Japan cut interest rates to -0.1%.

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Given the turn lower of USD/JPY off the 40-WMA (same as 200-DMA as you will see on the chart below), and the pattern that is common at market turns, a move lower could be very aggressive. At the start of February, the market has effectively priced out a favorable probability until February 2017. Therefore, the US Dollar has seen some wind taken out of its sails, but the JPY could continue to strengthen should the downside momentum gather steam as investors’ price in more and more bad news.

February Favoring Further USD/JPY Downside?

USD/JPY Technical Analysis: 14-Month Low Revives Reversal Focus

The chart above shows an effective price channel that is drawn off key pivots at the begging of this 4-year rally off the bullish head & shoulders pattern that has done a fair job of framing price action. You can see from above that after the price has broken below channel support, price popped higher on the BoJ negative rate announcement, only to treat prior support as likely new resistance.

The chart above shows a likely turning sequence that is just gaining momentum to the downside. Today’s break to 14-month lows opens up the question of where resistance might be found for USD/JPY bears to look to join for a new downside run with a better risk: reward.

Given the recent drop from late January to this morning, traders looking for a retracement should focus on the zone comprised of the 38.2-61.8% retracement for entering with less potential risk than entering on an extension. The zone goes from 117.65 up to 119.185.

On the downside, the targets of 110 & 106 align with a 61.8% move in the direction of the bearish head & shoulder’s move and a 100%, and more common target respectively. What is fascinating about the latter target is that the 106.60 level aligns with the 38.2% Fibonacci retracement of the 2011-2015 range.

If we see a reversal or medium-term retracement in USD/JPY, the 38.2% is often a minimum target. The fact that the 106 zone combines with the head and shoulder’s target heightens the probability that we could see 106 hit if JPY were to strengthen on an aggressive risk-off move for the rest of Q1 2016.

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: The Day the Dollar Died?

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

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Talking Points:

  • US Dollar Technical Strategy: Downside Exhaustion Soon To Be Revealed, Buying Dips
  • The Lack of Volatility on the Upside Led to a Washout
  • Seasonal Tendencies Favor USD Weakness for February, Score one for seasonality

Is everyone all right? It is a pertinent question to ask after a quiet market in G4 FX, aside from negative interest rates à la Bank of Japan and their Japanese Yen whose losses have now been completely erased, were awoken from yesterday's G10 shake-up.

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What’s odd is that the kick-off to this event was an interview with Federal Reserve Bank of New York President William Dudley noted that financial conditions have tightened since December (not news), which could weight on FOMC. However, the US 2yr Treasury Yield has fallen over the last month to levels that show expectations by the market that the Fed would fight to raise rates once this year.

Second, we had a weak, all right very weak, Non-Manufacturing ISD read yesterday morning, which helped further the US Dollar route. However, the market appears confused due to what currencies were strong yesterday. The Japanese Yen and the highest yielding currencies like Emerging Markets and Commodity Currencies, which are often inversely correlated, both were top performers yesterday.

US DOLLAR Technical Analysis: The Day the Dollar Died?

Such a divergence among top performers (risk-on and risk-off), help to show that the FX market is confused. Either way, the FX market is now in desperate search for a leader. Given the fundamental backdrop, FX will have a hard time looking to the EUR as the March 10 ECB with 100% market expectation of easing as per OIS, and the Yen’s Kuroda re-emphasized this week that they would not stop at -0.1% interest rates if needed.

In other words, let the volatility begin.

Key Levels: Watch the Recent Pivot to Hold

For now, the key support level on the US Dollar has turned quickly to the 200-dma at 12,021. While prior supports have been ripped like a rock dropping through wet paper, the 200-DMA at 12,021 comprises of the Ichimoku cloud and 61.8% Fibonacci retracement of the October-January range.

We recently said in the Dollar Bull Dilemma that short-term weakness was favored, but we were surprised what happened in the short-term. Now, as key support levels are being tested, we could see what the trend is made of in terms of longevity. Unless yesterday’s move was driven by a ‘behind the curtain’ Central Bank move, the market will likely soon favor USD again.

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.

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



USD/CAD Technical Analysis: CAD Bulls Face Key Test at Fib & Channel Support (Levels)

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

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Talking Points:

The Story in USDCAD – Is the CAD Drop Done?

The Canadian Dollar remains well atop a strength index of G10 Currencies in a sudden two-week shift of fortunes in the FX market. Two weeks ago, the Canadian Dollar was falling through the floor of chart price support, while everyone was in awe of US Dollar Strength. How quickly the fortunes can change in FX.

USD/CAD Technical Analysis: CAD Bulls Face Key Test at Fib & Channel Support (Levels)

Now, CAD has been rallying after reversing its longest losing streak since 1971, and traders are understandably wondering if more CAD strength is ahead. USD/CAD has taken out the 2016 Opening Range low, which is a good sign that the high set on January 20 may be the high price for the year or at least for the next few months. However, this type of second-month reversal has been common for USDCAD in the last few years.

While market forces and unwinds will continue to drive USDCAD in the short-term, traders should remain aware of the Friday’s job report in America and Canada that could affect risk-appetite and divert focus on short-term risk sentiment. However, the ‘Blame it on Crude’ environment seems to be fading for now.

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USD/CAD Technical Analysis: CAD Bulls Face Key Test at Fib & Channel Support (Levels)

Key Levels after the Plunge

The focal point on the chart now is long-term trendline and Fibonacci support. First, given the sharp ~1100 pip reversal, support looks to be at the price zone of 1.3550/3650. A strong turn off these levels higher should turn attention back to the opening range low of 2016 that sits at 1.3811. Beyond Opening Range low as resistance, the weekly pivot point and price high would be worth focusing on at 1.4101.

Either way, you look at the chart; the burden of proof is on the USD/CAD Bulls. A break above the resistance levels mentioned would be the first signs of evidence that they have a rightful claim. However, unwinds often defy expectations, and if price breaks through key support of the 1.3550/3650 zone, we may have entered a longer-term sell the rally environment.

Canadian Dollar Rally is set to Last per Sentiment

When looking at sentiment, Crowd Sentiment Extremes Have Flipped on USD/CAD relative to recent positioning, which shows that retail traders likely now see USD/CAD as oversold. On the sentiment chart below, you will also notice that there has been a changing of guards as to the number of USD/CAD buyers. We use our Speculative Sentiment Index as a contrarian indicator to price action, and the fact that the majority of traders are now long provides a contrarian signal that the USDCAD may continue lower. However, a flip into negative territory again would warn of a larger trend resumption higher.

Combining the technical picture above, with the sentiment picture, a break below newly defined support of the long-term channel and Fibonacci support, 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 2/4/2016

USD/CAD Technical Analysis: CAD Bulls Face Key Test at Fib & Channel Support (Levels)

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T.Y.




NZD/USD Technical Analysis: Rejected at Critical Resistance

Fundamental analysis, economic and market themes

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Talking Points:

  • NZD/USD Technical Strategy: Flat
  • New Zealand Dollar turns lower after testing 19-month trend line resistance
  • Waiting to enter short until positioning offers favorable risk/reward setup

The New Zealand Dollar recoiled from resistance capping gains against its US namesake since early July 2014, producing the largest one-day drop in five months. The formation of a Bearish Engulfing candlestick pattern hints at continued weakness from here.

Near-term support is at 0.6545, the 38.2% Fibonacci expansion, with a break below that on a daily closing basis opening the door for a challenge of the 50% level at 0.6481. Alternatively, a reversal above the 23.6% Fib at 0.6623 clears the way for a test of the 14.6% expansion at 0.6671.

The available trading range is too narrow to justify taking a trade at current levels from a risk/reward perspective. With that in mind, we will stand aside for now and wait for an opportunity to enter short in lie with the long-term NZD/USD down trend.

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NZD/USD Technical Analysis: Rejected at Critical Resistance




EUR/GBP Technical Analysis: Euro Gains Most in 13 Months

Fundamental analysis, economic and market themes

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Talking Points:

  • EUR/GBP Technical Strategy: Flat
  • Euro issues strongest close in 13 months vs. British Pound, sets new 2016 high
  • Waiting for selling opportunity in line with dominant multi-year down trend

The Euro looks poised to continue higher against the British Pound after prices issued the strongest daily close in 13 months and set a new 2016 high. The long-term trend established from late 2008 continues to favor a downside bias however.

Near-term resistance is at 0.7821, the 38.2% Fibonacci expansion, with a break above that on a daily closing basis opening the door for a test of the 50% level at 0.7913. Alternatively, a move back below the 23.6% Fib at 0.7708 paves the way for a challenge of the January 22 low at 0.7526.

Our 2016 fundamental outlook favors the resumption of the multi-year EUR/GBP down trend after the current upswing runs its course. With that in mind, we will remain on the sidelines for now and wait for signs of bearish reversal to position for a short trade.

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EUR/GBP Technical Analysis: Euro Gains Most in 13 Months



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.

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USD/CNH Technical Analysis: Yuan Aims to Extend Rebound




The CAC40 Tests Resistance in a Downtrend

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

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Talking Points

  • The CAC40 retraces to resistance in a downtrend
  • R3 resistance is found at 4,209
  • SSI reads at an extreme +3.41

CAC40 1 Day Chart

The CAC40 Tests Resistance in a Downtrend

(Created using Trading View Charts)

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The CAC40 is trading up modestly this morning, after the Index broke to a new monthly low yesterday at 4348. Currently the Index is trading under key resistance, which is found at 4295. This area on the graph is represented by today’s R3 Camarilla Pivot point, and so far, today price has been rejected below this value. In the event that resistance holds, traders may look for the CAC40 to return towards values of support. This includes today’s S3 support pivot, which resides at 4,209.

In the event that prices do reverse from the R3 pivot, it opens up the possibility that the CAC40 may continue its downtrend under 4,165. A breakout below S4 support would allow traders to target a lower low near 4079. This value is found by extrapolating 1-X of today’s 86-point range from the S4 pivot at 4,165. Alternatively, in the event that prices continue to rise, and move above today’s R4 pivot point at 4294, it would nullify any retracement opportunities on the creation of a new higher high.

SSI (Speculative Sentiment Index) for the CAC40 (Ticker FRA40) is currently reading at +3.413. This value is considered extreme, with over three positions long for every short. When taken as a constrain signal, SSI in this scenario favors a move towards new lows.

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WTI Crude Oil Price Forecast: $30 Acting Like Strong Price Support

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

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Talking Points:

  • Crude Oil Technical Strategy: Oil Trying To Find Footing Around $30, Providing ST Upside
  • 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 ended Monday’s trading day right around $30. However, the continued pain in equities is no longer being led by Oil nor is Oil being driven lower by the risk sentiment, which has turned markedly lower as Bank CDS are trading at their highest levels in the last 12 months, and JPY is at 14 months highs.

In the midst of this unfavorable environment, Oil is now looking supported around the $30 level, which could stop the proverbial bleeding in one of the worst hit commodity markets. Unfortunately, the glut of supply remains and will likely remain a cap on prices, however with a potential floor in place at $30, we may have a reason now to focus on where a ceiling of the price might be found.

US Oil Has Found an Intermediate Floor around the January 21 Daily Range

WTI Crude Oil Price Forecast: $30 Acting Like Strong Price Support

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Key Levels from Here

For now, the key price resistance is the late January high of 34.79. If the price can close above that level, the focus will turn to the opening range high for 2016 in Oil of $38.36. The larger support is identified as the price range of January 21 at $27.85-30.22 should support price, however, the specific level is the pivot low on January 26 of 29.23.

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. The ~26% rally off the January 20 low appears to have taken the appetite for new lows out of the market. However, it’s important to be aware of the potential for a sideways consolidation or price triangle formation that would likely end in a retest of the January 20 lows.

The triangle consolidation pattern mentioned above would keep price trapped between the late January high of 34.79 and the support mentioned above at 29.23 for a few more weeks. Put another way, if price is unable to break above 34.79 the imminent downside threat is removed, but the probability of a new low remains higher over the next month or two.

Sentiment Flip Warns of Further Long-Term Downside

In addition to the technical pressure that Oil may have found a short-term support zone around the January 21 price range, the larger bearish view aligns with our Speculative Sentiment Index or SSI. Our internal readings of Oil are showing an SSI reading of 2.337.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 Price: Traders Buy Silver As Stock Markets Falter

Global Macro and Momentum Trading

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With the USD in general retreat and risk-off dominating the stock markets, the demand for haven-assets such as silver and gold has increased.

In the case of silver prices, the short-term trend is bullish above $14.62, which is a swing lower from its position on February 3. Traders will most likely see a pullback to the $14.85 to $14.75 range as an opportunity to add to their long exposure, as the risk/reward ratio is good here. The alternative entry is a break to last week’s high of $15.08 which will most likely trigger pending entry orders as well as stop loss orders layered above this high.

The next strong resistance and target level for bullish traders is the October 10 low of $15.65, a target also supported by gold prices. Silver’s correlation to gold suggests that it should be trading at $15.80.

A level more suitable for short-term traders, is $15.35, which is the 61.8% correction to the October high of $16.38.

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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 Clears January Lows More Pain Ahead

Global Macro and Momentum Trading

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The German DAX 30 breached its January 2016 low of 9253 this morning, triggering a decline to 9021 and representing Friday’s base case. With the latest slide in price, Friday’s high is the new trend defining level and I see no reason to expect a multiday bounce until this level is taken out.

As the overall trend is bearish, I would expect traders to use a pullback to the region of 9150-9340 as an opportunity to add to their bearish exposure. The DAX 30 may reach the August 2014 low of 8900 in the coming days ahead.

Today’s selloff is a continuation of the bearish market in place over the last few months and adding to the DAX 30’s pressure is the latest bounce in the EURUSD and Friday’s strong NFP report.

The US Dollar and yields gained as the details of the labor market report showed an improvement despite the headline figure printing 151K vs. the 190K expected.Wage growth increased by 2.5% YoY vs. the 2.2% expected and the unemployment rate dropped to 4.9% from 5%, possibly suggesting that there is less slack in the U.S. economy and thereby strengthening the Federal Reserve’s case for rate hikes.

E.U. Sentix Inventor sentiment report, which was published earlier today, declined to 6 from 9.6 in January, suggesting that E.U. economic growth is slowing.

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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

Contact and follow Alejandro on Twitter: @AlexFX00

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FTSE 100: More Pain Ahead

Global Macro and Momentum Trading

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The FTSE 100 (FXCM: UK100) has now breached its January 26 low of 5767 and is expected to drift to the January 21 low of 5660 over the coming days ahead. Traders not short will most likely use a pullback to the regions of 5800 before turning bearish, as the risk/reward ratio is favourable here.

The overall trend will be bearish below the February 4 high at 5949, which is also the level highlighted last week as a sell zone. Traders need to lift price above this high for bullish positions to be considered.

At this stage, it’s hard to pinpoint exactly what is driving price, yet it may be last week’s strong U.S. labor market report, which suggests that a Fed rate hike is still in play. The unemployment rate dropped to 4.9% from 5% and wage growth increased by 2.5% YoY, solidly beating the 2.2% expected, with the manufacturing sector adding 29k jobs vs. the -2k expected. The latter reading come as a strong surprise given the softness of the manufacturing sector.

There is no more data on tap today and trading should be dominated by technical trading.

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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: Pressured toward Lower Bound


Talking Points:

  • AUS 200 Strategy: Buy the dip near lower boundary for range trade
  • Momentum signals indicate further downside development
  • Range 4754-5043 firmly contains price action

AUS 200 followed London and New York stock markets to slide under a previous triple top at 4918.4, with short-term momentum hinting at further downside. This level may provide a cap to intraday price action. January’s range of 4754-5043 still firmly contains index movements.

Short-term traders could take advantage of the area below 4918.4 for upcoming volatility, all the way toward lower bound of range at 4754. Downside extensions near 4754 may facilitate dip buying.

Choppy trading is not ruled out this week amid thin Asian market, although there is slim chance for AUS 200 to climb back above the previous support trend line.

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AUS 200 Technical Analysis: Pressured toward Lower Bound

Daily Chart - Created Using FXCM Marketscope

Losing Money Trading Forex? This Might Be Why.

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

Contact and follow Nathalie on Twitter: @nathuynh




JPN225 Technical Analysis: Sideways Trade through Lunar New Year


Talking Points:

  • Nikkei 225 Strategy: Position adjustment during low volume period
  • Range 15,978-17,653 firmly contains price action
  • Sideways movements likely dominate Asian market this week

JPN 225 stalled its recent decline today, to trade flat within Friday’s band as Asia market starts Lunar New Year celebration with low liquidity across the board. The range 15,978 – 17,653 is expected to contain price action through this week. Traders could take this chance to readjust positions in preparation for a return of volatility next week.

Today’s price action conforms to Friday’s band, hinting at a drop in volatility. Occasional range trade opportunities could materialise during this holiday period. However any challenge of the two boundaries would be unlikely.

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JPN225 Technical Analysis: Sideways Trade through Lunar New Year

Daily Chart - Created Using FXCM Marketscope

Losing Money Trading Forex? This Might Be Why.

Want to read market’s momentum: Speculative Sentiment Index

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

Contact and follow Nathalie on Twitter: @nathuynh