Draghi Reminds Dollar Bears That Europe Is Utterly Broken

We’re at a bit of a turning point. Some might call this a currency war. Clearly the Fed have expressed concerns about the global economy and FOMC members have been concerned about the dollar rally impacting inflation expectations, which in turn impacts rate hike expectations in the US. Just as the Euro looks like it may begin a rally of it’s own as a result of the FOMC fears, we have had some serious jaw-boning from Draghi reminding the market that Europe is still very, very broken. He’s right too. It’s crazy to want to buy Euros in this climate but trading is often crazy and i’ll roll with that until it stops working. Considering the US and the UK are meant to be the two strongest G8 economies we may genuinely be in a pickle in terms of the global economic picture. Things are getting bad and I’m starting to see the whites of central banker’s eyes, so much so that even gold is starting to not seem like a crazy investment.

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USD% Index

usd index thu 9 oct 14
We’ve not convincingly pushed back into the bullish channel for the dollar even with Draghi’s best attempt to prevent a dollar sell-off, although we are still holding above the 400 hour moving average for the USD% index, which in EURUSD terms is around the 1.2713 level. US jobs data was positive which was the real reason for the dollar push higher but it may not be enough for traders to want to hold onto their in the money long USD positions after the FOMC minutes. I’m certainly not in a hurry to buy dollars right now no matter what Draghi says. There is a cluster of dollar resistance in the 1.2650 region which if tested would be decisive. I am bearish USD%

USD% Index Resistance (EURUSD support): EURUSD 1.2693, 1.2656
USD% Index Support (EURUSD support): EURUSD 1.2721, 1.2800

EUR% Index

eur index thu 9 oct 14
We broke out of the bearish channel briefly although the positive US jobs data pushed us right back inside. The Euro’s ability to hold well above the 100 and 200 hour moving averages is suggestive of a lack of interest in dollar longs rather than an interest in Euro longs so now it is a question of profit taking until something decisive happens to settle on a direction from here. It seems that a correction higher as a result of dollar profit taking will happen but then the trend lower will resume once the reduced hope of a US rate hike is priced in. There is a cluster of support in the 1.2640 region here so this aligns well with the USD% index resistance levels. Moving averages are all sloped positively and we are still holding above them which is a bullish signal. I am bullish EUR% in the short term

EUR% Index Resistance: EURUSD 1.2724, 1.2800, 1.2876
EUR% Index Support: EURUSD 1.2694, 1.2640, 1.2591

JPY% Index

jpy index thu 9 oct 14
Stocks performed poorly again breaking a new low which gave the Yen all it needed to rally. Upside was modest though but the Yen still seems the best currency to trade this dollar weakness with even though the upside is still rather slow. I expect a slow messy grind higher for the Yen. I remain bullish JPY% but only if stock don’t rally too strongly

JPY% Index Resistance (USDJPY Support): USDJPY 107.73, 106.57
JPY% Index Support (USDJPY Resistance): USDJPY 108.59, 108.97

GBP% Index

gbp index thu 9 oct 14
An attempt at a sell-off for the pound but the 150 hour moving average contained the downside which currently stands in the 1.6108 region. As such our bullish view still holds although our channels are looking rather messy and upside still a struggle. GBPUSD 1.6250 remains the level to break for a bullish change of trend since that is where key resistance lies along with the 400 hour moving average, so we should await a break or failure at that level to decide this. I am bullish GBP%

GBP% Index Resistance: GBPUSD 1.6134, 1.6214
GBP% Index Support: GBPUSD 1.6100, 1.6060, 1.6000

AUD% Index

aud index thu 9 oct 14
Bullish still but a messy kind of upside that really does not inspire confidence. The cluster of support from the 100 and 200 hour moving average along with channel support failed although the move past those levels was muted and could well still reverse. Gold is still supported which may correlate to a weaker dollar and as such upside for the Aussie. I am bullish AUD%

AUD% Index Resistance: AUDUSD 0.8775, 0.8820, 0.8900, 0.8927
AUD% Index Support: AUDUSD 0.8700, 0.8545

CHF% Index

chf index thu 9 oct 14
Limited movement for EURCHF but the Franc rallied up to the 400 hour moving average regardless before rejecting. There’s now a lot of CHF support in the 0.9490 region and key CHF% index resistance suggests strong support for USDCHF in the 0.9592 region. I am neutral / bullish CHF%

CHF% Index Resistance (USDCHF support): USDCHF 0.9500, 0.9550
CHF% Index Support (USDCHF resistance): USDCHF 0.9580, 0.9600

LittlefishFX Relative Currency Index Strength

All of the currency indexes used for this analysis are available as a NinjaTrader indicator from the link below. They are eight indexes, USD, EUR, JPY, GBP, AUD, CHF, CAD and NZD with each index made up of the remaining seven pairs, weighted in accordance with the distribution of global FX volume as measured by the Bank of International Settlements in their Triennial Survey.

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