Index Trading: ECB Bond Rumours But Still Stalemate

The main news of the day was not the better than expected Chinese GDP and Industrial Production numbers or the upbeat US existing home sales, but the rumour that the ECB were looking at beginning corporate bond purchases as soon as December. This was of course later rebuffed by the ECB but the wind had been taken out of the sails for EURUSD upside and the Euro continued lower modestly.

Elsewhere in the market pairs remained within narrow ranges, although with a more meaningful fundamental calendar to deal with on Wednesday the volatility may pick up. The UK MPC rate decision followed by US CPI. MPC votes seem like a done deal thanks to the predictable nature of forward guidance but the US CPI has missed targets for the last two releases and another miss could be suggestive of a delay in the decision to hike rates, at least in some of the dovish minds at the Fed.

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USD% Index

usd index tues 21 oct 14
We have not gone anywhere really for the dollar ever since we broke below the 400 hour moving average and any attempt for upside has been handled by resistance at the 100 or 200 hour moving averages or trend line resistance. Downside has held largely above the previous multi-year high support level. We now also have a minor bearish channel to contend with and we are right in the sell zone if that is to hold. It seems unlikely we will see anything too bold until the CPI release although longer term it seems like everything is moving towards further dollar strength so any tests of key support for the dollar will likely be bought. A poor CPI number might just be enough to break the current support level but the level below in the EURUSD 1.2900 region may offer a better opportunity to buy USD for the longer term. I am bullish from the next support level down for USD% index

USD% Index Resistance (EURUSD support): EURUSD 1.2717, 1.2676, 1.2600
USD% Index Support (EURUSD support): EURUSD 1.2792, 1.2834, 1.2900

EUR% Index

eur index tues 21 oct 14
Considering the rumour, the downside for the Euro was rather modest. As such this might well reverse higher slightly for a continuation of this bumpy correction higher towards key trend line resistance in the 1.2950 region although since USD support is likely to come in ahead of that the recent highs in the 1.2900 region may also see enough offers to return us to bearish trend. I am bearish EUR% from 1.2950

EUR% Index Resistance: EURUSD 1.2792, 1.2881, 1.2950
EUR% Index Support: EURUSD 1.2718, 1.2700, 1.2600

JPY% Index

jpy index tues 21 oct 14
Still a bullish bias for the Yen although a rather messy one now that stocks are rallying from recent lows. This is at odds with USDJPY and the bond market both of which are less enthusiastic. Nikkei 225 futures have now reached the Tenkan Sen resistance once again so unless we can break higher from here then the trend remains bearish for Japanese stocks and as such bullish for the Yen. The 200 hour moving average is doing a good job of supporting the JPY% index which currently sits in the 106.95 region for USDJPY so we can think of 107.00 as the line in the sand for continuation. A break there and Yen support in the USDJPY 107.77 region will be the next stopping point ahead of the 400 hour moving average in the 108.00 region. A break there and we return to Yen selling. I remain bullish JPY% while above the 400 hour moving average

JPY% Index Resistance (USDJPY Support): USDJPY 105.95. 105.00
JPY% Index Support (USDJPY Resistance): USDJPY 107.77, 108.00, 108.63

GBP% Index

gbp index tues 21 oct 14
The pound appears to be all over the place at the moment when viewing the GBP% index or GBPUSD. Things become much clearer though when we simply think of the pound as the inverse of EURGBP since the cross has been selling from key resistance continually and rather predictably irrespective of whatever chaos the dollar is tangled in. As such we remain bullish GBP% while above key support for EURGBP, which is quite some way off now thanks to the large correction higher for the cross recently. I am bullish GBP%

GBP% Index Resistance: GBPUSD 1.6275, 1.6300
GBP% Index Support: GBPUSD 1.6050, 1.6020, 1.6000

AUD% Index

aud index tues 21 oct 14
Very little by way of progress ahead of the Chinese HSBC Flash Manufacturing PMI and the moving averages are all converging ready for a breakout one way or the other. We have now managed to break above the key support level though that we have been holding under for the last week or so, and all of the moving averages are now below us acting as support. So for this reason and the increased likelihood of further positive Chinese numbers we remain bullish. I am bullish AUD%

AUD% Index Resistance: AUDUSD 0.8931, 0.8915, 0.9000
AUD% Index Support: AUDUSD 0.8759, 0.8600, 0.8634

CHF% Index

chf index tues 21 oct 14
The Franc has sold down to the 200 hour moving average and we await to see if this level will hold or not. Much like the Euro, there are reasons to suspect a return to some bumpy upside but we could just as easily break lower to the 400 hour moving average which currently sits in the 0.9522 region for USDCHF. With EURCHF so close to support the CHF% index has again increased in correlation to the EUR% index so will likely trade identically for fear of incurring the wrath of the SNB. I am bearish CHF% from resistance

CHF% Index Resistance (USDCHF support): USDCHF 0.9419, 0.9383, 0.9331
CHF% Index Support (USDCHF resistance): USDCHF 0.9455, 0.9526

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.

Get RCIS Indicator here