Yen Finally Catches A Bid Ahead Of The ECB

After the unrelenting dollar strength which has been keeping the Yen in check, the poor US data along with poor UK data meant that the dollar sold from a double top from key resistance. The Yen after testing very important support bounced strongly as the stock market finally got my memo and started to sell. The Nikkei having remained stubbornly strong despite the struggling S&P500 finally broke and as such the test of key support for the Yen made it Wednesday’s winner overall. The poor US ISM also leads us to suspect a less than stellar NFP on Friday although all eyes are now on Draghi and the ECB rate decision and statement. We need him to suggest QE or at least not shoot it out of the water to allow this bearish Euro momentum to continue because the TLTRO seems to have fired a blank.

If you have any questions or comments then feel free to tweet me @LFXMark

USD% Index

USD index wed 1 oct 14 H1
Poor US data meant that Wednesday’s attempt to break the 300% fib expansion level failed again although USDJPY seems to have been a major contributor to the retracement, which is a big change from the recent price action. Whether this is new quarter positioning or ECB fear causing profit taking or simply Technical positioning (see Yen analysis) is not important, chances are it is a combination of all three. For now though I would prefer to wait and see before buying more USD so would prefer to drop lower before recommending a USD buy signal. I don’t much fancy jumping in front of this trend either with a short dollar recommendation so until we see the outcome of the ECB I am sidelined due to the suspicion that we will track lower towards the bottom of the channel. Looking at the M5 chart below we can see the perfect rejection from the Tuesday’s highs, which again makes me suspicious of downside in the near term. I am neutral USD% until the ECB

USD% Index Resistance (EURUSD support): EURUSD 1.2585, 1.2600
USD% Index Support (EURUSD support): EURUSD 1.2633, 1.2700

USD% Index M5 Chart

USD index wed 1 oct 14 M5

EUR% Index

eur index wed 1 oct 14 H1
Considering the big moves in USDJPY, the EUR% index has been rather flat and the profit taking ahead of the ECB minimal. I don’t like selling the Euro from these levels so would prefer Draghi to admit that they are dilly dallying about QE, which would spook the Euro bears enough to get a better price on shorts. 1.2800 would be lovely, if we get there then everything is on course for continuation. A break to 1.2850 and we will have popped some key resistance and we will need to re-evaluate. There is also strong resistance at 1.2700. The M5 chart below shows that we are currently challenging the 400 period moving average which if we can hold above would mean a deeper retracement higher. I am bearish EUR% but not from these levels

EUR% Index Resistance: EURUSD 1.2700, 1.2800, 1.2829
EUR% Index Support: EURUSD 1.2622, 1.2571, 1.2500

EUR% Index M5 Chart

eur index wed 1 oct 14 M5

JPY% Index

jpy index wed 1 oct 14 H1
I’ve continued to make a fuss about a trend line in the daily chart for the JPY% index and here is why (shown below in blue and red against USDJPY in grey) . Looking at the daily chart we can clearly see that the yen may find support here, but it currently feels counter intuitive to sell the dollar in favour of the yen, even though most other currencies have been buckling under yen strength recently. Today something changed. Stocks sold off strongly again and bonds were bid, pushing the yields much lower, both things usually correlate to yen strength. This is a perfect example of why I bother to chart using indexes rather than the key mayors such as USDJPY, because the wild dollar strength has masked how strong the yen is, but as soon as the market feels comfortable with a dollar retracement, then the yen will spring out if it’s box like a jack-in-the-box. Whether this will continue or not is not clear and perhaps largely determined by Draghi and co but the trusty indexes have again been very useful here for picking a very major level for the Yen. The hourly chart of the JPY% index suggests the 400 hour MA at around about the same level as some strong resistance in the 108.60 level. I am bullish JPY% while above the purple trend line support (below USDJPY 110.00)

JPY% Index Resistance (USDJPY Support): USDJPY 109.46, 108.83
JPY% Index Support (USDJPY Resistance): USDJPY 110.00

JPY% Index Daily Chart

jpy index wed 1 oct 14 Daily

GBP% Index

gbp index wed 1 oct 14 H1
Our suggestion of selling from the 100 hour moving average was just the ticket and that is precisely what happened, aided by poor UK data. Pound trend is becoming more and more bearish but we need to get below the green pre-referendum lows in order to kill the bull’s hopes as this seems to be the final bastion of bullish sterling hope. In real money terms, the 500 day (100 week) moving average sits right on the threshold of bull / bear so expect that to be the battle ground. Even EURGBP is bid from lows so this could look good for a Euro retracement and allow the pound some breathing room to drop lower now that we are below the 400 hour moving average and inside the bearish channel once again. I am bearish GBP%

GBP% Index Resistance: GBPUSD 1.6200, 1.6265, 1.6378
GBP% Index Support: GBPUSD 1.6100, 1.6022

GBP% Index M5 Chart

gbp index wed 1 oct 14 M5

AUD% Index

AUD index wed 1 oct 14 H1
We sold sharply from our suggested sell zone although the Aussie sprung back quite keenly which I personally find alarming considering how strong my bearish view is currently for the Aussie. We have broken the bearish channel once again although there is an argument that the current channel is too steep and we could see the blue channel be more favourable, which places major resistance at the 0.8864 level although 0.8800 would be satisfactory if we could hold below there. I am bearish AUD% although not from these levels

AUD% Index Resistance: AUDUSD 0.8764, 0.8800, 0.8864
AUD% Index Support: AUDUSD 0.8700, 0.8638, 0.8534

CHF% Index

chf index wed 1 oct 14 H1
Woooo, some EURCHF volatility, almost. This was enough to create a lovely double bottom for the CHF% index though right ahead of the ECB meeting. Fingers on the EURCHF buy button at the SNB no doubt who will be keen to protect the Franc from overbearing Euro weakness during Thursday’s ECB. This means that we should track the Euro quite closely. If EURCHF becomes manipulated once again we will simply stop analysing the Franc until it is different enough from the Euro enough to warrant the effort. I am bearish CHF% although not from these levels

CHF% Index Resistance (USDCHF support): USDCHF 0.9517, 0.9500, 0.9472
CHF% Index Support (USDCHF resistance): USDCHF 0.9594, 0.9600

CAD% Index

CAD index wed 1 oct 14 H1
I have been quite suspicious of this CAD downside for some time and suggested a bounce from the 1.1238 region. I was five pips out (sorry) but we got the bounce regardless. We are still in a shorter term downward move for the CAD% index until we get back above the recently broken CAD% index support turned resistance in the 1.1115 region for USDCAD so it is still too early to call this a retracment yet. Lets see how the market reacts during the ECB but I am also sidelined on this trade without clarification for the time being. I am neutral / bullish CAD%

CAD% Index Resistance (USDCAD support): USDCAD 1.0984, 1.0973
CAD% Index Support (USDCAD resistance): USDCAD 1.1112, 1.1238

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