USD Fails To Rally Ahead Of FOMC Minutes

US jolts Jobs data came in better than expected at 4.84M vs 4.71M, but the dollar was offered anyway and slowly crunched through bids after several failed attempts to rally. Even the pound managed a rally with poorer than expected manufacturing production. Stocks sold again and the Yen rallied quite strongly suggesting a flight to so called safety.

Neither Fed speakers on Tuesday said anything out of the ordinary and the overall tone was on track, but traders continue to lock in profit from the big dollar rally. If the FOMC meeting minutes suggest a fear that inflation is not up to par to keep us on track for the rate hike we will see more dollar selling. If they broadly suggest that the rate hike is on track, we should use this as a chance to load up on further USD longs.

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USD% Index

usd index tues 7 oct 14
We have crunched our way back through the support levels from the bullish channel and now find ourselves within striking distance of the big channel support line showing EURUSD 1.2718 as the key level to test. The 400 hour USD% index moving average is not far below that level which adds weight to the likelihood it will hold although only if the minutes play ball. I am bullish USD% although expect a spike lower to test channel support

USD% Index Resistance (EURUSD support): EURUSD 1.2644, 1.2614, 1.2584
USD% Index Support (EURUSD support): EURUSD 1.2681, 1.2711, 1.2718

EUR% Index

eur index tues 7 oct 14
Some resilience from the Euro considering the fundamental situation and technically if we break the fib expansion resistance showing EURUSD 1.2689 as a resistance level then this would be an inverse head and shoulders, since that could be thought of as a neckline for such a pattern. We are above the 100 and 200 moving averages but the big resistance level will be the top of the channel which aligns with the magenta coloured 400 hour moving average here too. If we break and hold above the 1.2762 level for EURUSD then we could be in for a more protracted short squeeze although this should not be thought of as a change of trend until the fundamentals change. ie. Draghi confesses that there never will be any QE or the Fed confess that everything really is not okay. I am bearish EUR% although expect a further pop higher

EUR% Index Resistance: EURUSD 1.2689, 1.2732, 1.2762
EUR% Index Support: EURUSD 1.2629, 1.2554, 1.2500

JPY% Index

jpy index tues 7 oct 14
Very interesting. The Yen has now broken key resistance to the upside and we are now outside of the bearish channel. We will no doubt retrace back to the broken level so if we find support there and hold above the trend line then we could be in for a more major correction market-wide, since the Yen is so intrinsically linked to stocks and bonds that the dollar may not have much choice but to sell from this elevated price. The alternative is much messier but somehow more likely at this stage given the information we currently have, and that is that the Yen will fail to rally properly, it’s hardly gone off like a rocket, and we will return to the normal dollar and stocks up, everything else down status quo. USDJPY 108.61 is the key level to hold under for USDJPY if this Yen rally is to stand a chance. I am bullish JPY% while above the purple trend line support

JPY% Index Resistance (USDJPY Support): USDJPY 107.74, 106.58
JPY% Index Support (USDJPY Resistance): USDJPY 108.61, 109.77

GBP% Index

gbp index tues 7 oct 14
Poor UK data made the upside for the pound rather sluggish, but when something can’t sell in a down trend on poor data then you know something is up. The Blue 100 period moving average is still holding up rather well although the orders are chipping away at it and the short squeeze looks likely to continue. Major channel resistance is at GBPUSD 1.6165 so this will be the real test of the upside. Unusually, EURGBP is rallying along with the GBP% index, which is a break from the typical negative correlation and is the reason that the pound looks a little slower than the rest of the correcting currencies. If EURGBP suddenly reconnects with the normal correlation then the pound may suddenly find an extra bid regardless of what the dollar is doing. Fundamentally we could see a reason for the pound to take charge again if the dollar can’t rally any more although the drop in performance of recent data is hindering it’s progress currently.I am bullish GBP%

GBP% Index Resistance: GBPUSD 1.6165, 1.6300
GBP% Index Support: GBPUSD 1.6076, 1.6000

AUD% Index

aud index tues 7 oct 14
Further surprising strength from the Aussie as traders cash in their short positions after the large move. Technically I still favour downside as a result of the elevated FX market volatility preventing carry traders from fighting against the strong dollar, so a correction higher should be sold, perhaps from the 0.8900 region for AUDUSD. I am bearish AUD% although not from these levels

AUD% Index Resistance: AUDUSD 0.8783, 0.8800, 0.8917
AUD% Index Support: AUDUSD 0.8662, 0.8600, 0.8535

CHF% Index

chf index tues 7 oct 14
A bit of a nothing day for the Franc in some respects although the CHF% index broke the recently added, steeper blue bearish channel and rejoined the previous channel. EURCHF held above support and remains bid which will hinder CHF% index upside significantly. As such, even though we remain with a bearish CHF outlook, the corrections elsewhere should see it push slightly higher before we go lower again.
I am bearish CHF%

CHF% Index Resistance (USDCHF support): USDCHF 0.9550, 0.9500
CHF% Index Support (USDCHF resistance): USDCHF 0.9600, 0.9700

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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