The Make or Break Level

  • Don't get sucked into USD buying just yet
  • Suspicious price action in Asian session
  • Weird end of year trading period begins
  • A new opportunity in USDCAD short
  • Keep an eye on this EURUSD level

PROCEED WITH CAUTION - So the US Dollar has continued its run into early Thursday and it looks like it may want to keep pushing. But I would be very careful. In the initial hours post Fed, it seems the key focus of the market is on the Fed dot plot and the central bank's confidence in sticking with its timeline of four 25 basis point rate hikes in 2016. Futures are only pricing in half that and with the Fed failing to move closer to expectations of the futures market, we are seeing a bit of an adjustment in positioning, with the US Dollar benefitting from the more favorable yield differentials on the news. But even still, it feels like this thing hasn't fully sorted and I wouldn't at all be surprised to see the US Dollar sell off into the end of the week. The most interesting thing to me about the post FOMC price action is the fact that the market didn't really do all that much in the US after the release, and most of the move since has come in Asia. The Asia market isn't known for its commitment to setting trends and is usually a lot more reserved. So I would have thought that a tame reaction in the US would translate into consolidation in Asia.

A QUESTION OF DAILY CLOSE - At the same time, it is the end of year, and with the FOMC event risk behind us, we have officially entered that twilight zone trading into the holiday season. Markets have a way of pushing relentlessly in whichever direction the trend was pre-holiday season, and so, with the US Dollar the currency of choice, there is risk the market really clamps down on the gas and accelerates Dollar buying into year end. As far as today goes and in light of all that I have said here, I think the key level to watch will be EURUSD 1.0796. This is a recent low in the major pair and if the market closes below this level, it could very well solidify the prospect of a Dollar run into the end of the year. If on the other hand the market can't close below 1.0796, the door will be open for the potential of a US Dollar sell-off. I am not trading the Euro right now, but will be keeping a close eye. As far as USDCAD goes, I am still holding out of the money short exposure. But I am very light and am now seeing this trade developing into a more meaningful position. As per my technical overview, if we get up to retest the 2004 peak just over 1.4000 in the days ahead, I will aggressively add to my position, with daily, weekly and monthly studies highly overbought and poised for a major reversal.

Right now, $EURUSD 1.0796 is the major level to watch. Via @joelkruger

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