Monday, October 25, 2010

Monday 25 October 2010

So we are 10 days from the US mid-term elections and 12 days from the much anticipated FOMC announcement of the next round of QE.  The pesky G20 meeting  photo-op is out of the way without any firm agreement and if tonights action is anything to go by no one believes Timmy and his strong dollar statements.  The run up into elections and QE are typically bullish for risk and so despite reversal patterns in the dollar crosses, bonds and shiny metals there is a good chance we have a risk rally into those events and so I am trading small and taking profits quickly this week.  
Data out of Japan was really good ~ despite the strong yen Japan exports are up 14% y/y and exports to the USA are up 10% y/y.  USDJPY is under pressure tonight and I think it is unlikely that the MoF will intervene so soon after the G20 and on the back of this strong data.  

Saturday was a full moon, often an interim turning point and the week has kicked off with new highs in stock index futures, the dollar getting crushed (again), commodities on a roar with China buying everything - cotton limit up in the first hour and at new all time highs and Gold on its way back up.  Sometimes the big rallies in Sunday night Asian session get faded once the week kicks off.  I am a bit skeptical this week with all that is going on but it is a possibility.
Goldman Sachs have thrown fuel on the fire by saying they see the possibility for as much as $4 trillion in additional quantitative easing going forward based on more than expected US economic weakness.
Mortgage bank mess has not gone away but you would not know it.

A big Asian open for the indices, the Dow industrials have broken above the 200dma and the S&P has made a clear break above the resistance zone and 1200 next is just about a certainty (I have fib extension resistance at 1198) and then the big fib level at 1234 which would also be the completion target of this summers diamond reversal pattern.
Last week which should have been a correction swing the index basically went sideways and held its level, very bullish.  Interestingly the Dax broke out higher Friday and is leading the way.

Dollar Index
We have a push lower to test the lows and the 3 year trendline support is around 75.80-76.00

Weekly chart has a doji followed by a bearish weekly hanging man at resistance which suggests a reversal.   A break of the highs has resistance at 1.4270 and then bigger resistance, the 61.8fib and trendline resistance at 1.4450

On the daily chart I am watching this possible flag forming.  While the trend is clearly bullish the two weekly candles warn of correction back to support at 1.3330

The same pattern is clear across all the USD pairs with GBP possibly the weakest.  I won't post all the charts, in this market, if one goes they all go.  I am watching 0.9980 AUDUSD,  1.0095 USDCAD and

USDJPY has broken support and is at 15 year lows, setup to test the 80.00 level and below that the all-time low at 79.75.  Fib target for USDJPY short is 78.50

Yen crosses are all a sell at this point, I am selling GBPJPY

All sterling crosses are weak (as is the CHF)
Here is GBPAUD which has fallen right out of bed after consolidating for the past two weeks.  Support / fib targets are 1.57 and 1.5050

GBPUSD - weekly chart
Cable could be a weekly double top forming (needs to break 1.5295 to confirm) and has fallen out of the rising channel with a complete daily candle opening and closing below it.  This could be a throwover but the bottom of the channel should now be resistance for a short entry.  A break of 1.5295 projects a target low of 1.46 but support at 1.50 and 1.4880

USDCHF weekly chart
Broke long time trendline resistance, should now be support for a long entry back to 0.99 initially and a break above there sets up 1.007 then 1.032

AUDCAD monthly chart.
Broke the big trendline resistance going back to 1995 tonight.  It makes sense, Asia is on fire and the US is not.  Australia exports to Asia and Canada exports to the USA.  I am a buyer on a retest and support at the trendline.

Good luck!


  1. Lovely clear comments,thanks.

    Not quite sure about that swissie tl, but yes, it is an option.



  2. Wow. You've really outdone yourself with this post! Thanks for sharing your perspective on so many items.