Mid-week Market Analysis 10.27
| 27 October 2011
The market's increase volatility have shown price movements on both directions of the market place. As money flows between equities, asset class precious metals market, and the foreign currencies among institutional players. This has not been favorable with the US Dollar.
As the US dollar index have now registered 75.75 low as of the Asian trading sessions towards the opening of European trading. Our opening market outlook dated the 24th of October have stated that the momentum would readily build-up as a probable break below the 75.85-76.05 range. The opening price levels and probable extensions that would take place may well be the bear factor in pushing the USDX lower. As it would cause prices for the EURUSD to make a follow-through heading higher when it has broken the intermediate resistance of 1.3880. Currently touching the 1.4014 high and is at the higher levels as of this writing. Friday's market price behavior should also be watched as pullbacks may occur unsuspectingly for investors and would cause some market confusion thereafter the US University of Michigan Confidence numbers.
Apparently, as the market prices for the EURUSD and the EURGBP cross rates would now move higher throughout the coming sessions towards the American trading where we do expect a continuation of increase market price action and volatility to be aggressive. Daily price extensions and trading range for the EURUSD would be between the current levels with 1.4080-1.4170 range and as for the EURGBP cross would be seen at the extension range levels of 0.8750-0.8870 respectively. Pls. follow our 2nd follow-up article on the'EURO & EURGBP Cross-Key price levels for a clear comparison of these pairs.
The momentum should build-up towards the Mid-American trading sessions together with the GBPUSD moving in tandem with the EURUSD, but witha slower pace. Yet the comparative GBPJPY cross rate should be a good currency pair to trade at this particular point in time. Since the limelight is much to the EURO, the correlation of the Pound with the strength of the Japanese Yen would more likely accelerate higher in line whenever the USD drops beyond its support. Risk taking a long on the GBPJPY as indicated on the chart is well worth taking while all eye are on the EURO - G20 outcome.
As the 116.85-91 double bottom indication on the low price (month on month basis) should be able to hold. Meanwhile the acceleration of buying on the way higher may not sound good for others but this strategy has proven to be well placed with our trading strategy. Taking the cue at the 121.35 and 121.48 on the way up as the USDX heads lower is logical. The timing on the 4 hourly entry would be best to play as the build-up of volumes and momentum is steadier than the volatility of the other currency pairs.
These current two days of trading activity to follow will culminate higher as the upcoming report this Friday would also be the catalyst in the final direction for the US Dollar moving forward. However, a word of caution should be properly exercised from hereunto. As these are the typical market conditions where 'bait & trade' are done amongst the bigger institutional / hedge funds prior to closing of the week & turnover positions of the month.
In essence, watch for the market sentiments and volumes from the European trading hours that may trade the major pairs to their extreme extensions, then spill-over towards the American trading session before the major report on Friday would be release. By then the total opposite would get unsuspecting main-street investors and be surprise of what hit them only to realize after the market has moved opposite of the current market price swing. These pull backs should be considered as well as, what is expected thereafter.
Notably, compare the price behavior between the USD, Gold prices and oil as their correlation may also weigh for the USDX to move towards the end and opening of the new month by next week.
