Index Trading: A Lack Of Bearish Dollar Follow Through

Monday was predictably slow due to the lack of real data so for the most part the supports and resistances remained intact. The dollar weakened slightly from the 100 hour moving average although now sits back at key support so seems unlikely to make progress without a data stimulus to break the narrow range. Chinese GDP is always important for market sentiment and a poor number here would likely trigger an increase in stimulus from China and certainly few people are expecting a great number. We also have US existing home sales in the afternoon on Tuesday which has been trending higher in recent prints so we expect the dollar to remain supported if that trend holds.

Interestingly there are some fed speakers, notably Dudley who have indicated that their outlook for tightening is most definitely still on course even after the recent weak data so this is again supportive of more dollar strength.

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USD% Index

usd index mon 20 oct 14
Key support still golds but there is not yet the impetus to push higher for the dollar after last week’s shocking data. I think fundamentally we will push back to bullish for the dollar as a result of the lack of concern from Fed members but most likely not until the next FOMC meeting in which the final taper is likely to be nothing more than a box ticking exercise, but a lot of emphasis will be placed on the impact of the recent poor US data on the interest rate expectations. Clearly the Fed do not want loose policy right now and are aware that if they do have a loose policy, the tail winds from driving the Euro higher again with a weakened dollar will ultimately be a headwind on their own economy.I am bullish from the next support level down for USD% index

USD% Index Resistance (EURUSD support): EURUSD 1.2750, 1.2727, 1.2700
USD% Index Support (EURUSD support): EURUSD 1.2850, 1.2900, 1.2935

EUR% Index

eur index mon 20 oct 14
The 100 hour moving average held and we remain slightly bullish in a correction of the recent strong downside. The fundamentals although not as clear cut as before still hold and the preference is still for longer term dollar strength and Euro weakness, but after data as poor as last week’s the dollar deserves to correct lower first. There is still a significant resistance which remains a target for upside for the Euro in the 1.2950 region for EURUSD so this level should act not only as Euro resistance but also dollar support for a continuation of the very crowded EURUSD bear trend. I am bearish EUR% from 1.2950

EUR% Index Resistance: EURUSD 1.2876, 1.2950,
EUR% Index Support: EURUSD 1.2792, 1.2735, 1.2679

JPY% Index

jpy index mon 20 oct 14
Stocks have remained quite bid ever since S&P500 futures tested the 10% correction level that some were using as a target to begin rebuilding their portfolios. This has meant that the Nikkei has rallied also and has now pushed above the tenkan sen with the kumo the next resistance level. This places Yen support not too far away with the 107.67 resistance level for USDJPY the next likely hurdle to get past for the Yen. for now it seems that a yen bullish pattern will remain but with stocks increasingly bullish there is an increased risk of a return to Yen weakness and a potential retest of the key support. I remain bullish JPY% while above the 400 hour moving average

JPY% Index Resistance (USDJPY Support): USDJPY 106.17, 106.00
JPY% Index Support (USDJPY Resistance): USDJPY 107.67, 108.00, 108.50

GBP% Index

gbp index mon 20 oct 14
We’ve broken back higher again for the pound and it seems likely in part to the return to bearishness from EURGBP, which has rejected key resistance. This means that we should expect the correction in the pound to be largely over which considering the dollar is no longer scorching it’s way higher could see the pound regain some ground against the greenback. A hold above the 400 hour moving average will remain constructive for the GBP% index. I am bullish GBP%

GBP% Index Resistance: GBPUSD 1.6281, 1.6300
GBP% Index Support: GBPUSD 1.6041, 1.6000, 1.5886

AUD% Index

aud index mon 20 oct 14
We are in wait and see mode of the Aussie ahead of key Chinese data which is a key driver for the Australian dollar. Policy wise we remains quite dormant for the RBA except for a predictable amount of jawboning to attempt to get the currency lower. We also seem to have stabilised in volatility terms for the G8 currencies so if things progress in a less manic way once again then there remains good reason to try some carry inspired trades against the dollar or Yen (depending on whether the dollar and stocks further correct). Gold remains bid which is perhaps a signal of growing central bank concern. I am bullish AUD% longer term but only with strong Chinese data or more Chinese stimulus promised

AUD% Index Resistance: AUDUSD 1.8787, 1.8900, 1.9000
AUD% Index Support: AUDUSD 1.8645, 1.8555

CHF% Index

chf index mon 20 oct 14
Still holding above the 100 hour moving average which is constructive for the Franc but failing to really challenge last week’s highs . This upside looks corrective and as such we should expect to return to weakness at some point in the near future once the dollar direction is a little less foggy. EURCHF is running out of room below before it will be forced to break support and incur the wrath of the SNB to weaken the Franc. 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.

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