EURUSD, USDJPY & AUDUSD Direction
EURUSD
The dominant technical event for the Euro is still that it reversed the course of its monthly trend in November to bearish against the Greenback in sympathy with higher U.S. long-term rates. It is still however above a confluence of support between the 3-month low at approx 130.00 and the 50% retracement of the 6-month up-move at 130.80. The daily Directional Line shifted higher today following last week’s higher low on the Daily chart. Based on this EURUSD looks to be in a position to re-rest the Monthly Pivot at approx 134.00. Counter to that short-term trend, the intermediate-term trend on the daily chart is still lower which is why this market continues to flash sell signals.
The current long-term bearish pattern of lower highs and lower lows on the Weekly Euro chart below spells out the obvious problem of holding long positions for long-term traders. The Euro however could uptick again to the Dec highs at 135.oo and the short-term trend on the Weekly chart would still remain lower.
The trade signals – green and red arrows — on this Weekly Euro chart are set to give trade alerts only when in-line with the Monthly trend. We can see that the last signal given was a buy signal so we cannot rule out a rally to the fall high’s just above 140.00 and a potential double-top. While the short-term trend is lower on the weekly chart the intermediate-term is still higher.
USDJPY
USDJPY just did fail to reverse its bearish Monthly trend in November, which was a harbinger of the current sell-off. USDJPY failed to eclipse both the Weekly and Monthly Directional Line at 84.40 and 84.00 and has now reversed the intermediate-term trend on the daily chart to lower. While recent U.S. Dollar weakness highlights that the reverse correlation between asset class markets and the U.S. Dollar is still in place, we have to remember that USDJPY is not an asset itself. Given that U.S. stocks and the carry-trade banner holder AUDUSD are still strong, while USDJPY is now weak questions this pair’s status as a bonified flight to quality currency given there is no apparent overt economic risk in the air.
Over the past few years long USDJPY positions has been such a losing proposition for professional trader’s that it’s often called the “widow-maker”. At the very least it shows market’s penchant for trending longer than even experienced traders think. The consensus among many hedge-fund traders is that a bullish reversal for this market is likely once the U.S. economy can prove itself by showing continued positive job growth. The current sell-off looks to put off any potential monthly reversal of this market till the end of January, yet opens the door to a double bottom at the historic 80.00 level, if not a significant higher low before then.
This Weekly USDJPY yen chart shows this market bouncing off the 1995 low at approx 80.00, and gives us scale. In trading parlance we can say ‘there is a lot of room on the upside”. The price pattern on this chart however – lower highs and lower lows – is still bearish.
AUDUSD
The Aussie shifted its Weekly trend back higher during the low volume holiday week and has been following through since. AUDUSD is an asset class market because of the high carry, and benefits from a bullish monthly trend, bullish price pattern on the Weekly chart, and a strong correlation to stock indices. From a retail level this market has a well deserved reputation as being a bug-light for dumb money shorts. The green arrow buy signals on the Daily chart are set to only signal if in-line with both the monthly and weekly trends.
The Aussie is in the enviable position of enjoying a bullish price pattern on the Weekly chart, the most favorable demographics of the majors, and a leading asset class market with a tight correlation to stock indices. A monthly close above 100 opens the door to 110.
Jay Norris is the Chief Market Strategist at Clovernest Financial Group and the author of Mastering the Currency Market, McGraw-Hill, 2009 which is the text book for the intermediate level trading course offered though Trading-U.com see: Trading Courses Jay’s second book Mastering Trade Selection and Management, McGraw-Hill will be in book stores in the Spring of 2011.
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. Any charts shown here represent market conditions at a particular point in time. Such conditions may not be replicated in the future. Past performance is not indicative of future results.