Littlefish FX | Nov 06, 2014 12:40AM ET
This method of using bespoke FX indexes to compare the strength of multiple currencies aims to find trading opportunities that can sometimes get lost in the noise and distortions of charting using individual currency pairs. Reasonably well correlated with key dollar pairs as a result of the index weighting but often significantly different, we are able to trade divergences between the index charts and the major dollar pairs. All of the indices have positive polarity, meaning that when the Yen strengthens for example, the JPY% index chart will rise. You can also purchase these indexes for NinjaTrader from the link at the bottom of this analysis.
h2 Outlook/h2Quite an unusual day overall with the dollar higher against most, but there were a few anomalies along the way. The Australian dollar crumbled and was the most volatile recipient of dollar strength in contrast to the previous day’s gains for the Aussie against dollar consolidation. EURCHF selling has meant that the Swiss Franc was the least volatile, resisted the day’s dollar rally better than the other majors, with the exception of the pound, which dropped quite significantly after a poor UK services PMI but then rebounded very sharply from key support once again. There was market talk of mergers and acquisitions as a driver for this price action. The Yen continues to plummet, although there are certainly some red lights starting to flash and we could see the sell-off become more moderate and perhaps even a small amount of two way order flow from key levels for the Yen.
Thursday sees the MPC and the ECB on the wires so there is the potential for a further choppy day. The market expects bells and whistles from the ECB in order to hold onto their massive short positions. Any hint that further easing may not happen or might be watered down as a result of turmoil at the ECB would very likely see a good spike higher for the Euro before the selling resumed. The Q&A session will no doubt be enlightening as the press will jump on the recent rumours regarding the discord at the ECB.
h2 USD% Index/h2USD% Index Resistance: EURUSD 1.2440, 1.2400, 1.2372, 1.2340
USD% Index Support : EURUSD 1.2540, 1.2577
EUR% Index Resistance (EURUSD Support): EURUSD 1.2514, 1.2500, 1.2574
EUR% Index Support (EURUSD Resistance): EURUSD 1.2470, 1.2375
JPY% Index Resistance (USDJPY Support): USDJPY 113.80, 113.14, 112.21
JPY% Index Support (USDJPY Resistance): USDJPY 115.00, 115.50
GBP% Index Resistance: GBPUSD 1.6013, 1.6087
GBP% Index Support: GBPUSD 1.5962, 1.5900, 1.5855
The 100 hour moving average saw considerable selling pressure enter during the Asian session last night which continued right the way through the European and US sessions with the Aussie all the way down at 0.8559 at present. Australian Employment Change was positive with growth in the labour market, but the market sold the pop higher and continued lower regardless. We’ve yet to break a medium term trend line at the 0.8560 level for AUDUSD, which if broken could see the previous major low tested at 0.8489. This level will almost certainly get some attention so it will be important to see how the market reacts to this key support. .I am neutral AUD%
AUD% Index Resistance: AUDUSD 0.8612, 0.8644, 0.8721
AUD% Index Support: AUDUSD 0.8559, 0.8500, 0.8489
CHF% Index Resistance (USDCHF support): USDCHF 0.9632, 0.9600
CHF% Index Support (USDCHF resistance): USDCHF 0.9700, 0.9750
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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