JPY% Index Rally Now At Key Resistance

I’ve been rather cynical about the ECB’s interpretation of QE in the past and if I was a poker player I would probably call Draghi’s bluff. The implementation of European QE just exposes everything that is wrong with the non-federal implementation of the European Central Bank. It is no good needing QE at the peripherals when the core money makers of Europe are major hawks and really don’t want it. Why should Germany have a loose policy in order to bail out the sunshine states with their lower working hours and poor productivity? Granted, Germany are now backed into a corner by inflation, but that has spread from the weaker parts of Europe like a rash. It’s a fair point, but that’s not the point and it’s the fundamental flaw in an otherwise great single currency. So it came as no shock that Draghi skirted around the issue somewhat during Thursday’s ECB meeting and was rather thin on the ground with meaningful details. The market consolidated so we had counter trend retracements all around ahead of the Non-Farm Payroll number on Friday. I would prefer not to get into comments like “…the Euro rallied because of Draghi’s lack of concrete plans” because when the Euro continues lower next week it would feel a little short-sighted. (Cue massive Euro rally)

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USD% Index

usd index tuesd 2 oct 14 H1
I think everyone’s dollar sell button must have been a bit moth-eaten due to lack of use, so we had a very ugly and bumpy move lower from key resistance, clattering our way through the various support levels. Of note was the orange 150 hour moving average which was the back stop of the first main move lower for the USD% index. We find ourselves now perched above the green 200 hour moving average with strong Fib expansion support just below in the 1.2713 region for EURUSD. Looking at the M5 chart we get a clearer picture of the move lower with the 400 period MA acting as the high of the day which was rejected quite strongly during the ECB Q&A into bids which gradually reversed the move but failed to break a new high and eventually crumbling below the 100MA again. Unless we get wild moves overnight I rather like 1.2750 as a nice place to enter short EURUSD during the usual NFP whipsaw if given the chance. This would roughly be the bottom of the bullish channel for the USD% index and allow us to enter with reasonably short stops of say 75 pips, then targeting 1.2500. I am bullish USD% but NFP dependant

USD% Index Resistance (EURUSD support): EURUSD 1.2625, 1.2600, 1.2500
USD% Index Support (EURUSD support): EURUSD 1.2713, 1.2750, 1.2766, 1.2800

USD% Index M5 Chart

usd index tuesd 2 oct 14 M5

EUR% Index

eur index tuesd 2 oct 14 h1
A very reluctant rally on Thursday saw us briefly break resistance currently showing a cluster of the orange 150 hour moving average and the yellow fib expansion resistance in the 1.2689 region. The 200 hour moving average seems like a nice place to enter short but if the reaction is not initially strong them we should consider 1.2800 instead if given the chance as this would be the top of the bearish channel and a suitable refresh of the trend. A Break much higher than 1.2800 and we should reassess things. I am bearish EUR% from the 1.2750 region

EUR% Index Resistance: EURUSD 1.2700, 1.2782, 1.2800, 1.2812
EUR% Index Support: EURUSD 1.2600, 1.2550, 1.2500

EUR% Index M5 Chart

eur index tuesd 2 oct 14 M5

JPY% Index

JPY index tuesd 2 oct 14 H1
A higher high and a break of the 400 hour moving average has seen Yen strength push to the top of the bearish channel. What happens next is entirely dependant on NFP. An unimpressive number and we should see this channel broken to the upside as stocks nosedive further. A great number and trend will continue lower for the Yen and higher for stocks from this key continuation level. The Daily JPY% index vs the grey USDJPY chart shows the continued rejection of the key trend line but this also points to a possible USDJPY bounce from the broken trend line at the top, now that the Yen has normalised slightly. This places USDJPY support in the 107.50 region. IF we can break that level to the downside then this JPY% index rally may have the legs for a longer move breaking the Yen out of it’s bearish channel. Stocks fell quite hard with Nikkei futures dropping to bounce off the 100 day moving average and the S&P500 doing the same for the 150 day moving average, which was the first time that was challenged since December 2012. The M5 chart of the JPY% index shows how cool and calm the upside was for the Yen in contrast to the dollar’s turbulent downside, indicating the Yen moving the dollar this time around. I remain bullish JPY% – data dependant

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

JPY% Index Daily Chart

JPY index tuesd 2 oct 14 Daily

JPY% Index M5 Chart

JPY index tuesd 2 oct 14 M5

GBP% Index

GBP index tuesd 2 oct 14 H1
Yet another test of the 100 hour moving average for the GBP% index picked yet another top for the move lower back inside the bearish channel. This also signals a clean break lower below the 400 hour moving average and we are now looking increasingly bearish, having almost retraced 76.4% of the Scottish referendum spike higher. EURGBP at the bottom of the hourly chart has now met resistance but the move looks quite strong and could see further gains for the cross. The M5 chart shows the GBP% index bouncing from the first support level from back inside our bearish channel in the 1.6112 region for cable. The GBPUSD 500 day and 100 week moving averages remain big levels to test or breach which now come in at 1.6076 and 1.6086 respectively. 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 tuesd 2 oct 14 M5

AUD% Index

aud index tuesd 2 oct 14 H1
We were right to be cautious about the pace at which the Aussie sprung back from the last move lower because the pair has now breached our original steeper channel and held bellow the level at which we deemed tolerable for further continuation of the down-trend. As such we are now back in the sell zone although it seems prudent to wait for the NFP chaos to be less of a threat before entering. The level we need to stay below is 0.8838 for AUDUSD. Our target for shorts is now 0.8550. I am bearish AUD%

AUD% Index Resistance: AUDUSD 0.8838, 0.8920
AUD% Index Support: AUDUSD 0.9671, 0.9536

CHF% Index

chf index tuesd 2 oct 14 H1
We saw a rally in the Euro which saw a corresponding rally in EURCHF much to the delight ( or hard work) of the SNB. As such the CHF% index failed to break resistance in the 0.9521 region so we could see a spike test it again as a result of NFP, but really trend remains bearish and long USDCHF perhaps the better choice than short EURUSD. I am bearish CHF%

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