Making Sense of the Latest Price Action


 

  • Technicals project larger Euro move
  • AUDNZD exposure increased
  • USD under pressure as Fed reconsiders

TECHNICALS - Ok. So we saw an important break on Wednesday. EURUSD finally took out major range resistance at 1.1060 and this opens the door for additional Euro upside in the days ahead. Technicals become important here and what you need to consider is the fact that this market had been consolidating in a 350 point range between 1.0710 and 1.1060 before finally breaking out. As far as breakouts go, it's always a good idea to take a look at the range that preceded the breakout and use that range size to project a potential target for the market's next move. As such, we should seriously consider the possibility of a Euro move towards 1.1410 in the days ahead (1.1060+0.0350). When you look at the weekly chart this would be perfectly reasonable. While the Euro is clearly still locked in a well defined downtrend, a move to 1.1410 would simply take it back towards the top of a more meaningful bearish consolidation range high. So I think if we are going to be looking to sell the Euro, we need to sit back and wait for a bigger push through 1.1400 before taking any action.

SWEET AUDNZD - Now, as the Euro goes, so do many of the other currencies, which also means this latest break could open a period of additional broad based US Dollar declines. Certainly when you take a look at the USDCAD chart this makes sense, with the market taking out support at 1.3800 and looking like it wants to gravitate back to some longer-term rising trend line support in the 1.3500s. So this leaves me sidelined for the moment, at least when it comes to US Dollar trades, with the only open exposure through AUDNZD. On Wednesday, I was able to take advantage of a sharp AUDNZD pullback and increase my long exposure to this trade that I think has tremendous upside potential in the months ahead. It's worth noting I did try to fade the US Dollar weakness into the wild end of day price action on Wednesday. But those were only short-term attempts and I have since exited those positions for a tiny profit. And so, it's back to sitting on a nice AUDNZD long and waiting for something else to materialize.

The Dollar may sell off for a week or two, but that's about it. Via @joelkruger

FUNDAMENTALS - Just a quick review for any of you wondering why the Dollar got hit so hard on Wednesday. All of this uncertainty in early 2016 has forced many Fed officials to reconsider what many had believed to be a more aggressive rate hike timeline. The level of tension in global markets over the past several weeks has been extremely high, and this in conjunction with softer readings in some US economic data is confirming the possibility the Fed may be too aggressive in looking for 100 bps of hikes in 2016. Fed Fischer and Dudley have both expressed their revised outlooks this week and ultimately this is what is driving this latest wave of intense Dollar selling. But I don't think it will last much longer than a week or two. Remember, such revised, scaled back Fed action would be because things are BAD out there, something that makes me want to be buying the safer US Dollar even more. So for now, maybe we see a small period of US Dollar selling. But don't expect it to last and be ready to buy again, perhaps when the Euro gets up to around 1.1400 or USDCAD trades into the 1.3500s. Let's see.

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