Wednesday January 5, 2005 - 10:54:07 GMT
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EUR/USD : The long awaited relief or panic rally (depending on what side of the market you are on) in the benchmark finally came to fruition following a rather momentous breakdown of the support price action had indicated as considerable (1.3440/65). Interestingly, the move stalled at the .618 projection (1.3270) of the range we noted as key in yesterday’s report, where it presently trades. As we noted on various occasions while the pair was pinned to the resistance of the all time high, “… [12/29] a considerable barrier lies overhead in the all time high … as indicated by common volatility indicators. These specific calculations, both standard deviation and actual [vols], indicate this resistance is much more formidable than the past few levels respectively. For this fact we are screening for “top-like” formations in the price action for confirmation…”, and those “top-like formations” we were eyeing came in the form of a double top later in that daily session. In addition, perhaps as the final catalyst in the moments leading into the collapse, short term (1 week) vols rocked higher while medium (3 month) dated vols remained fairly stationary, also indicating a sizable move was pending. Ironically, to get a better idea of may come next we have referred back to the period when EUR made a major correction following fresh all time highs early ’04. The price action is similar thus far, however, after making a brief stall at the previous high (as we are now) the pair continued lower in the following sessions only to be snatched up by the “buy on the dip” momentum back to the highs, creating a DT formation. Shortly thereafter the pair broke down to the 23.6 fib level of the entire data set, which coincided the previous all time high near 1.1750/1800.
Key levels: On the resistance side of things, we have laid out fib retracements using the session high and low. These levels combined with the larger scale fibs peg key resistance that may serve as a tipping point for those anticipating a larger retracement (1.3350/60). Subsequent to that, more levels of resistance come in near the 20-day SMA (1.3425/35). Naturally, session highs will be the most considerable on move beyond that. On the support side of the picture, projections and historical levels are indicative of 1.3100 and 1.3195 as probable regions of support. However, daily oscillators imply a base may have already been found at present pricing.
USD/JPY : Interestingly, and rather foretelling of what future price action might be influenced by, the USD rally was not masked in this cross, as it had been for some time during the period of heavy intervention. Instead, the rally in the benchmark translated into a 200-pip move in the pair up to the 38.2 of Dec range. Also worth noting, the rally stalled at the 20-day SMA, retraced to the 10 (which coincided the regression upper band we exemplified yesterday), then continued higher to the aforementioned resistance. Not unlike the other majors, the move seems to have lost a lot of steam, and now hangs precariously, perhaps in line for a brief sell-off.
Key levels: The confluence of the 50% of Dec and 20-day SMA should prop thing on a move lower with the 61.8 just above the 10-day thereafter. Naturally the first level of resistance hangs close overhead at the session high (104.80) with key fib resistance just above the 105 handle.
GBP/USD: “As we noted yesterday, “…the pair hangs precariously from the apex of the symmetrical wedge pattern the offer in the dollar of the past 6 hours has refused to translate into a higher price in sterling however. Thus, this year’s correction in the USD looks like the beginning of what could clearly become a prolonged apex break below the 1.9100 support line….”, and is just as we supposed, the break down from the apex has come to fruition. Going forward, we see the pair perhaps making another run lower to the 8800 figure making fresh session lows, before following the others in a minor pullback in the USD.
Key levels: As we noted, “…A break down from here would further exemplify the DT formation and could encourage sidelined participants to propagate, and those already committed long to a mass exodus…” and we reaffirm this sentiment given recent price action, though we fell things may be muted as event risk rises into the session close. Nevertheless, the DT formation remains considerable and a move lower may be in the deck. On the resistance side, the former support, now resistance comes in near the 1900 figure, with a break opening up the door to the diverging 10 and 20-day SMA (1.9175/1.9234) subsequent to that.
USD/CHF: The synthetic has rocketed of the DB formation at the key support level we were pinning about for over 2 weekly sessions at 1.1300. The move stalled just above Dec highs and the 23.6% of 1.1680-1.1300 near the 4 year old regression trend upper band (1.1700). Not unlike the diametric indication seen in EUR, daily oscillators have slammed through neutral territory from a diverging oversold level (while price moved to the same level) to overbought on the run, leaving us a little weary of the staying power behind this rally. Nevertheless, the 10 and 20-day EMA (1.1460) have converged, with a crossover impending.
Key levels: Going forward, we have key support coming into play at the confluence of the 38.2% of the rally and 10/20-day EMA crossover (1.1500). Prior to that level however, we have a barrier at 1.1605/15 and the previous session spike high of 1.1555/60. Resistance lies at the session high and 1.1740.
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