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 the 50% retracement of the 5-month up-move at 130.80, and is holding above its Daily Directional Line at 131.93. The positive correlation between the Euro and asset class markets is still in-place, though direction on the weekly and monthly charts is lower for the Euro, and higher for the S&P 500. The Euro is the whipping post for “global risk” developments, while still benefits from being the anti-Dollar and U.S. risk developments. Based on last week’s small ranges and last Friday’s very low volume it looks EURUSD is going into holiday mode a bit early. The price pattern on the Daily chart is still obviously lower and this market continues to give 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 to last week’s high at 134.40 and the short-term trend on the Weekly chart would still remain lower.
EURUSD
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 top of the current 2-year bear channel and a potential double-top. If the Euro were to provide us with a short-covering rally it had better do it now with bearish sentiment high, because the odds of a serious uptick will decrease with time and particularly into January.
USDJPY
USDJPY just did fail to reverse its bearish Monthly trend in November, and still shows a stubborn pattern of overall lower highs and lower lows on the daily chart. Last Tuesday and Wednesday’s sharp gains were impressive, but this market has to eclipse 86.00 to break the pattern of lower highs and lower lows before longer-term traders would increase long positions and before it can do that it has to breach 84.00. Being long USDJPY / short yen is still a trade and not an investment just yet. A weaker yen — stronger USDJPY – would likely be a boost for stock markets as it would show that Japan’s powerful investor class is investing globally again.
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 bullish reversal for this market is likely once the U.S. economy can prove itself by showing continued positive job growth. The Yen is still a flight to quality currency and shows it every time the financial markets glimpse weakening economic numbers in the U.S. and globally. A close above 84.00 on December 31 would shift the monthly trend higher. A BIG question among professional traders is how would an eventual reversal higher of this market affect asset class markets – the consensus is rounding out that it would be bullish and take over where QE II leaves off.
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 is currently in counter-trending mode with the short-term Weekly trend lower and the Monthly higher. Counter-trend markets favor trading change-of-direction signals on intra-day time frames. 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. Aussie still benefits from U.S. risk – negative US financials – but can suffer from global risk and current correlation to the Euro. 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 U.S. Dollar up-tick and a breach of the 4 point trendline on the Weekly chart could spell a correction back to 95.00 while a move above 100.00 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 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.