Jan 21, 2010

Forex Crunch The Case for the USD Having Made its Bottom

Forex Crunch The Case for the USD Having Made its Bottom

The Case for the USD Having Made its Bottom

Posted: 21 Jan 2010 12:15 AM PST


John Forman is a Forex author and expert. He is the Senior Foreign Exchange Analyst for the IFR Markets group of Thomson Reuters and frequent blog poster on Currensee.com.

The Case for the USD Having Made its Bottom

by John Forman

1-20-10

For the last year or more the dollar has garnered a considerable amount of the attention of the global markets. For much of 2009 it was about the inverse relationship between the USD and stocks. The strong rally in the greenback during the month of December, however, changed things quite a bit in terms of the inter-market relationships. There is also very good reason to believe it also told us the dollar’s bottom has been put in, at least for some time to come.

First, let’s consider the daily Dollar Index chart and what’s developed there.

Daily Dollar Index Chart

The most obvious reason to suspect the market has at least stopped falling is the fact that the pattern of lower highs and lows has clearly been broken. Now add to that the relatively shallow retracement which took place from the December peak to the lows earlier in January. It wasn’t even 50%. Shallow retracements are indications of strong markets, not weak ones.

Especially interesting on the chart above is the narrowness of the Bollinger Bands, as indicated by the bottom Band Width Indicator (BWI) plot. It’s telling us the Bands are now about as narrow as they get, and if you look at the chart you’ll see that narrow Bands quite often precede meaningful directional moves in the market. If the Dollar Index holds a break through the December high it will be well positioned to move nicely higher. On top of that, the relatively low Normalize Average True Range (N-ATR) reading says there’s room for a volatility expansion.

The weekly chart suggests an even bigger picture bottom having been put in.

Weekly Dollar Index Chart

Notice how the December lows were well above those registered back in 2008. If there is a break higher we would have to call that December bottom a higher low following on the heels of some very notable highs. This would, at a minimum, strongly argue for the dollar to be working through a wide consolidation.

Again, though, notice the narrowness of the Bollinger Bands. They could potentially get more narrow, but they are sufficiently tight for us to start looking for the next big move to unfold. A sustained move through the December peak would likely initiate something along those lines.

The monthly chart actually argues pretty well for a wide consolidation being worked through at this point.

Monthly Dollar Index Chart

Notice here that we are looking at wide Bollinger Bands narrowing rather than the narrow Bands potentially set to start widening in the shorter timeframes. Also notice how N-ATR is dropping from its highest reading in the last 10 years. At the same time the chart shows the latest highs slightly lower than the prior major ones and prospectively the most recent lows being well above the ones from 2008. So we have volatility declining at the same time a triangle type of pattern may be developing. That argues consolidation, not trend.

The implication of all this is quite bullish in the near term, especially if those December highs are broken clearly and held. The dollar would have a lot of room for gains, even within the scope of a monthly timeframe consolidation. A 10% rise is not at all out of the question. That kind of rise would probably put EUR/USD in the 1.2700 area.

Breakouts and China – Midweek Interview on Forex TV

Posted: 20 Jan 2010 03:39 PM PST


In a midweek review on Forex TV, I spoke with Julie Sinha about the breakouts that happened, upcoming events with a focus on Chinese GDP and other market matters, such as the strong moves of EUR/GBP.

Want to see what other traders are doing in real accounts? Check out Currensee. It’s free.

Forex Daily Outlook – January 21st 2010

Posted: 20 Jan 2010 02:00 PM PST


Another busy day is due with Chinese figures in the limelight. Let’s see what’s up for today. Will the dollar continue raging?

EUR/GBP, which I’ve been following in the past week is definitely continuing the free fall, breaking more support lines on the way down. The main reason is the weakness of the Euro.

Chinese GDP will supplies a strong start for the day. Q4 GDP is now estimated to rise at an annual level of 10.7%, after 8.9% in Q3. This strong growth has already been addressed by the Chinese central bank, which began a tightening policy. Also note Chinese Industrial Production which is expected to rise by 19.8% (year over year).

The currency that feels the Chinese impact in the strongest manner is the Australian dollar. Strong Chinese growth will help the Aussie, that is tumbling down in recent days. For more on the Aussie, read the AUD/USD forecast.

In Europe, purchasing managers’ indices will pour in during the morning. French Flash Manufacturing PMI and Flash Services PMI will start. The same figures are then released in Germany and later for all of Europe. All the indices are above 50 points, which means expansion and all of them are expected to edge up.

Also in Europe, a speech by Axel Weber is due. Weber is the head of the German Bundesbank and a candidate for replacing Jean-Claude Trichet. His words often mover the markets. For more on the Euro, that lost another stronghold,  read the EUR/USD forecast.

In Switzerland, ZEW Economic Expectations will shake the Swissy.

In Britain, Public Sector Net Borrowing is predicted to drop to 18.6 billion, after jumping to 20.3 billion last time. Later in Britain, CBI Industrial Order Expectations are expected to rise from -42 to -29, still in the negative zone.

The British Pound enjoys relative stability after the good employment figures yesterday. Note that Mervyn King’s dovish words hurt the Pound. One of colleagues, Paul Tucker, will make a public appearance in London, and could move the currency. For more on GBP/USD, read the British Pound forecast.

The Canadian dollar has lost a significant resistance line to the US dollar – 1.04, after a dovish rate decision and weak inflation. Today, Wholesale Sales are expected to rise by 0.4%.

Later, the Bank of Canada will release the BOC Monetary Policy Report which usually tends to shake the loonie. It will be followed by a press conference held by Mark Carney, head of the BOC.

For more on USD/CAD, read the Canadian dollar forecast.

In the US, the Philly Fed Manufacturing Index made nice gains and reached 22.5 points last time. It’s predicted to drop down to 18.1 points. Weekly Unemployment Claims are expected to remain almost unchanged at 444K. A rise above 460K or a drop under 430K will move the markets.

That’s it for today. Happy forex trading!

Want to see what other traders are doing in real accounts? Check out Currensee. It’s free.

USDJPY Technical Long Term Outlook

Posted: 20 Jan 2010 08:42 AM PST


Guest Post by Nick Kanger, Head Currency Analyst at ProAct Traders

There was "talk" earlier this week that the Yen would fall to 90.00 before making any appreciable recovery. And while price did fall to 90.31, this level of support came up short of 90.00, and should be consider as a price undershoot and a sign of weakness in the Yen, and reversal back north is now underway.

In looking at the Daily chart, we've started a potential 5 wave Elliott pattern back north, while currently in Wave 4. On the Hourly, we have a 50 pip bull surge candle and, there's been a penetration of a Single Line Trend Line. There's also a simultaneous Head and Inverse Head and Shoulder pattern forming, with the pattern being complete inversely. As long as price remains above 91.00, we remain in a longer term reversal pattern. A break below 90.80 will void above, albeit we think temporarily. 91.20 is a critical swing value and we need a string of candle closes for the uptrend to stay intact and demonstrate real follow trend follow through.

If you're a Swing or Position trader, an entry could be taken @ market no lower than 90.90 with a stop @ 90.75. Swing target is 93.20 longer term Position target is 95.00+.

As a side note: There is preponderance of market sentiment that the US will recover faster than Japan from the recession and this will necessitate a raise in interest rates by the FED sooner than Bank of Japan. Whatever happens, the Buck remains undervalued against not only the Yen, but the Euro in particular as well and USDX is showing strong continued signs of recovery.

Great trading to you.

Want to see what other traders are doing in real accounts? Check out Currensee. It’s free.
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