Currencies – Reversal Day

After the Pound set a new 52-week high Tuesday on the higher-than-expected US CPI data without the other major currencies confirming the move, the sellers jumped in.  The result was a reversal day to the downside for the major currencies (to the upside for the US Greenback).  As stated last week, the upside momentum is strong and a pullback to the late-April, early-May breakout areas sets up a potential position trade for at least a retest of the past week’s extremes.

Currencies – Buy the Rumors, Sell the News…and repeat

The US Dollar Index (DXC) tumbled to new weekly lows at 8450 with the major crosses including the Euro (ECM6), Pound( BPM6), Canadian (CDM6) and Yen (JYM6) eclipsing recent highs going into the FOMC rate decision news. News of another 25 bps increase initially caught the longs off guard, producing a quick drop to new session lows before reversing to new weekly highs (day session basis) with the Dollar Index setting another low at 8437.

Obviously, the buyers remain the dominant force and until there is a catalyst otherwise, don’t fight the momentum.  The breakout patterns mentioned over the past month remain in effect and continue to be tested.  Due to the continued move higher, support has moved as well. Watch for retracements to the late-April, early-May trading levels for entries with the objectives at the recent extremes. These levels are approximately as follows: DXC 8610-8640, BPM6 18250-18300, CDM6 8950-8970, ECM6 12600-12630 and JYM6 8860-8890.

Forex Update – Pre-FOMC 2-day meeting

With the upside objectives met last week, I suggested that the upside move was nearing a short-term top and the forex and debt markets were setting up for a retracement. A period of stagnation is likely now as the market awaits the results of the two-day FOMC meeting on Tuesday and Wednesday. The news decision will be announced at approximately 1415ET, 05.10.06. A summary of the major crosses follows.

As stated last Thursday, the initial upside objectives for both currencies was tested after strong moves over the prior month. The Pound (BPM6) ran 13.52 pts from the 04.03.06 low of 17284 to Friday’s NFP high of 18636, a 23-day rally. The majority of the move was posted in the last 7 days from 17813-18636 after the Monday 04.17.06 gap up at 17550-17688. Overnight Sunday, it moved to 18700. At a minimum now, expect a consolidation with a potential for a test back down to the breakout area of 17950-18050 realizing that there is a small gap at 18059-18070 from 04.27.06-04.28.06. Aggressive buyers could look for entries in the 18150-18200 area with conservative traders waiting for a test to at least 18075-18125 realizing that the breakout zone is the potential target.

During the same time frame, the Euro (ECM6) rallied 6.89 pts with a Monday 04.17.06 gap at 12158-12262. Its key support zone, the breakout area, is at 12350-12450 with the 12550-12600 area offering initial support for aggressive buyers. Conservative traders should look for the breakout zone test.

The Loonie (Canadian Dollar) broke key support during Monday’s session at 9020-9025. Major overhead resistance is at 9025-9055 with the move setting up a potential break of the past 5-days range of roughly 8985-9090 targeting 8880-8900. The key support zone is at 8920-8950, a potential area for aggressive buyers, with the conservative entry area down at 8875-8900.

Despite the Euro failing to break the NFP high overnight, strength in the Asian currencies forced the US Dollar Index (DXC) through the Friday lows to 8468. The Japanese Yen (JYM6) traded at its highest level since Sept 05 with 8875-9025 now major support on any retracement. Coinciding with the above levels on the major currencies, look for the US Dollar Index to test to 8650-8700.

The bottom line is that a rebound in the US Greenback (pullbacks in the major currencies) is likely into the FOMC news. Likewise, watch for and upside test in the US debt markets to setup short entries. The US T-Bond (USM6) breakdown area is roughly 110 with a test to that area offering a potential short play. Roughly 106-1/2 on the 10-yr notes (TYM6) offers a similar opportunity.

April Non-Farm Payrolls – the following took place between 0800 and 0900ET

The April US NFP report came in weaker than the consensus at only 138,000 jobs vs. 200,000 expected. Hourly wages however were up 3.8% YOY, the strongest gain in 5 years. On the news, the Euro, basis the Jun contract (ECM6), traded up to 12802 on the news, 40 ticks above the prior-day high while the Pound surged to 18636, 76 ticks above the Thursday day-session high. The US Dollar index (DXC) traded down to 8500. US Treasury Bonds, basis the Jun contract, USM6 are up over 1 pts from the Thursday low.

The major currencies are pressing the levels mentioned yesterday at 12825-12925, 18625-18725 and 8500-8525 for the Euro, Pound and US Dollar respectively. Today the key intraday downside zones to monitor are 12770-12785, 18575-18600 and 8530-8540. Note that 12760, 18560 and 8545 are the most significant trading levels. For those watching the Loonie (Canadian Dollar CDM6), 9020-9025 remains the most significant support area.

With all the economic news out and the markets are heading into the weekend, look for choppy trading for the balance of the session unless the aforementioned levels fail.

Showtime – Non-Farm Payrolls – 05.05.06

US Treasury notes/bonds (TY #F and US #F), US Dollar and major currencies are at or nearing critical levels.  Tomorrow morning at 0830ET the US non-farm payrolls numbers are released.  Strap on your speed-jeans, this could be a wild one!  The Jan-May 2005 levels are the keys.  For the Euro, Pound and US Dollar, the major zones to watch are 12825-12925, 18625-18725 and 8500-8525 respectively.  It’s been quite some time since we’ve had a 2-pts move in the US Treasuries.  Today may be the day and if so, the currencies will join the ballistic reaction.

* Note that since the earlier intraday post, ECM6 and BPM6 set new weekly highs at 12762 and 18560 while the DXC hit 8531.  With less than 30 mins to the pit-session close the million dollar question is "who will jump ship – the longs that are in control or those caught short?".  Logic would say the shorts, but anything is possible in front of such a key economic number.

Forex/Currency Update – Intraday

The Euro (ECM6) and Pound (BPM6) set new intraday highs of 12735 and 18509 respectively with the US Dollar (DXC) setting a new weekly low of 8542.  The key intraday zones to monitor at this point are 12645-12675, 18425-18445 and 8575-8600, respectively.  12660, 18440 and 8590 are the most significant trading levels.  For those watching the Loonie (Canadian Dollar CDM6), yesterday’s low are of 9020-9025 is very imporant.

US Dollar Objective Achieved!

Approximately 1 month ago I outlined the potential for a significant downside move in the US Greenback (upside for the Euro and Cable).  This week, the objectives for the Euro (ECM6) and Pound (BPM6) of 12700-12900 and 18400-18600 were hit with intraday highs of 12731 and 18503 respectively.  The US Dollar Index (DXC) tagged 8948 with 8900-8950 a strong support area.

So where do we go from here?  It appears time now for at least a consolidation with the potential for retracements.  On the Euro, watch for a sub-12650 daily close to confirm the move; on the Cable, sub-18400 will be a sing of weakness; and finally DXC, above 8625-35.  If these levels are breached, expect the Euro, Cable and US Dollar to find support (resistance) at roughly 12474-12500, 17975-18025 and 8715-8735.  Tests to these levels will setup a retest back to at least the recent highs (lows on the Greenback).  Stay tuned!

Euro, Cable and Greenback – Update

Per the post on 04.05.06, the key support level of 12200-12300 failed to hold on the stronger-than-expected US NFP data on Friday.  Note that the cable failed to confirm the inverse head-and-shoulders bottoming pattern breakout in the Euro, a warning sign.  With both contracts back below key levels and the US dollar index above 8900, these patterns are on hold at the moment.  The Euro and Pound gaps from 04.04.06 are now filled potenially aleviating the downside pressure.  At a minimum, the Euro and Pound must produce daily closes above 12285 and 17545 respectively to re-establish the upward momentum.

Showtime – the following took place between 0800 and 0900 ET

The US NFP report came in stronger than consensus and the markets are currently digesting the news.  The Euro, basis the Jun contract (ECM6), set a 12228 day session low, within 23 ticks of the real gap from 04.04 and into the key support zone.  The cable traded to 17508 (17491 on the Globex contract) while the US Dollar index continues to consolidate around 8900.  The stage is set – stay tuned!

Euro and Cable – Status Quo – The following took place between 0700 and 0800 ET

The Bank of England and ECB both held the line on interest rates and the weak longs baled out producing lows of 12253 and 17510 respectively for the Euro and Pound futures.  Per yesterday posts, both currencies are probing support.  Now it’s time to see what the Big Boys read into Mr. Trichet’s comments. Stay tuned.