Forex Vulnerability

Written by JS. T Alexander | 30 June 2010

UPDATE:

Today the US dollar is getting hit hard on the back of weak economic data including Initial Claims, Pending Home sales and the ISM Manufacturing Indice. This coupled with a successful Spanish bond auction in the EUROZONE has the dollar on the defensive.

The moves have led the dollar toward key technical levels. Below is a review of those levels. The link below will access a video commentary of the technical levels to watch for the major currency pairs. It is a key time for the US dollar. As the market absorbed the news in UK consumer confidence basically remaining unchanged and did little effect on the directional trend lower for the EURUSD from its high of 1.2400 down to the 1.2150 with slight recovery at the present price of 1.2233 as of this writing.

The German unemployment which fell lower had neither a real effect as the diminishing risk have marked down as volumes also deteriorated. There is no significant sign of a price reversal for now from the last time it touched the 1.1875 since the week of 6-06. However, that was a good correction as we called it a temporary price reversal , short-lived held true.

EURUSD reached a high at 1.2451 on May 28th 2010 and 1.2467 on June 21st 2010. The high today extended above those areas today but has come off. Nevertheless, there is room to the upside for the EURUSD on a technical basis. Today we broke above the trendline on the daily chart (bullish) and above 1.2451. Targets could take the pair up to the 1.2569 level which is the 38.2% Fibonacci retracement level of the move down from the April 12th, 2010 high to the low reached in June 2010. That is a minimum corrective level. Remember the EURUSD has come down from 1.5144 in November of 2009. Shorts have additional room to get squeezed.

GBPUSD moved back above the 100 day MA again today at the 1.5019 level today after dipping below the level yesterday. The high from earlier this week at 1.5127 has been tested today. A break of this level should target the 38.2% retracement of the move down from the November 2009 high to the low reached in May 2010. That level comes in at the 1.5238 level. Staying above the 100 day MA is a bullish sign for the GBPUSD.

Although, the contrary behavioral pattern between the GBPUSD vs. the EURUSD is quite obvious and has indicated that investors had shift hedging strategies from the USDJPY and the USDCHF. With GBPUSD making a high at the 1.5127 and a higher low at the 1.5005 indicating that it still has legs to move higher. while the EURUSD moved lower to 1.2150.

As both Yen and Swiss franc has been in line with the correction of the USDX which made a hold at the price level that we have mentioned in our market view analysis marking at 85.20 low and a swing back higher is what it has been doing currently working at the 85.93. As the chart on the USDX clearly shows that the trend upwards is still intact. The correction made after the 88.78 high was the sign of a correction in the making and the 85.20 was the target level where our market view did mention several times of this correction and a key price to watch if any penetration on the down side would be made. This still holds true to monitor even now. Indeed, within a major trend, there will always be major corrections in both directions regardless of trend along the way.

USDJPY: The 87.11 level is an important support area for the USDJPY going back to 2008/2009. The market moved below this key level today but has found some profit taking buyers at the area. If momentum can develop below this key level, a further move toward the 86.55 level can not be ruled out/

With the USDJPY at the low end of the levels at 88.63 and the USDCHF at our targeted price levels at 1.0820 which happens to be slightly below its Fibonacci retracement level of 50% from the lowest level of .9910 last Nov. 2009 and its recent high of 1.1730 registered last May 2010 No significant changes in the outlook so far.

USDCHF has retraced 61.8% of the move up from the November 2009 low to the high reached on June 1 2010. What took 6-7 months to move higher, has erased 61.8% in a months time. That level comes in at 1.0609. The 200 day MA comes in at 1.0616 today. Needless to say, key technical support is found at this level.

As some may have noticed that the market view and analysis varies but more often hold our bearings for at least on a medium term basis. Remember, that percentage trading can be your advantage as the market is quite vulnerable to it up and down swings which happens to be good for short term scalpers in the market and day traders.

This goes without saying that the AUDUSD and NZDUSD has made the same where both currency pairs have shown its weakness as the Aussie is currently working at the 0.8526 giving back half of its gains for the past couple of weeks. And the Kiwi has done exactly the same at 0.6925 from its high of 0.7145 and from its previous low of 0.6572 barely three weeks ago which made a quick recovery when it touched those prices. The overall outlook specially for the precious metals like Gold has made some good corrections lower from the first 2 days of the week that a possible price reversal was in the making however, the bigger picture frame still holds significant legs for some new highs in the near term. But do not discount the possibility of market swings lower as the daily shows some possible exhaustion as lower volumes and profit taking are being made by institutional investors and hedge fund traders.

For now the technicals may prevail over the market as reports are being brushed aside as risk appetite are slowly emerging but our analysis is that the market movements are simply in wait and see attitude as the coming market holiday of the 4th of July is giving some investors and traders that holiday good feeling.

Good Luck and Happy Trading!