Littlefish FX | Oct 29, 2014 12:50AM 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/h2The market was already keen to offload some long USD exposure ahead of this week’s FOMC and the poor US Durable Goods Orders number was just the catalyst. We did have a very positive Consumer Spending though at 94.5 vs 87.4 expected, so USDJPY actually defied the dollar selling with a bounce from the 100 hour moving average again, ending the London session firmly in the green. Another quite unusual move which isn’t something covered by this analysis but comment worthy was the continued Canadian dollar strength as crude rejects the 80 dollars per barrel figure. This figure is significant because it represents the break-even point, below which the majority of oil production becomes too expensive to be profitable. Something to keep an eye on for sure.
Wednesday sees the FOMC statement as the economic highlight and technically the market is poised to go either way, other than USD/JPY traders which seem quite confident in the outcome. Since that is the pair most sensitive to fed policy change at the moment due to the policy divergence between the US and Japan then we can take this as a positive sign going into the FOMC tomorrow.
h2 USD% Index/h2USD% Index Resistance (EUR/USD support): EUR/USD 1.2732, 1.2704, 1.2650, 1.2625
USD% Index Support (EUR/USD support): EUR/USD 1.2815, 1.2875, 1.2924
EUR% Index Resistance: EURUSD 1.2791, 1.2800, 1.2839, 1.2900
EUR% Index Support: EURUSD 1.2650, 1.2600, 1.2500
JPY% Index Resistance (USD/JPY Support): USD/JPY 107.00, 106.50
JPY% Index Support (USD/JPY Resistance): USD/JPY 108.60, 110.50
GBP% Index Resistance: GBP/USD 1.6174, 1.6200, 1.6240
GBP% Index Support: GBP/USD 1.6088, 1.6066, 1.5985
AUD% Index Resistance: AUD/USD 0.8926, 0.9000
AUD% Index Support: AUD/USD 0.9935, 0.8800, 0.8773
CHF% Index Resistance (USD/CHF support): USD/CHF 0.9425, 0.9400
CHF% Index Support (USD/CHF resistance): USD/CHF 0.9481, 0.9519, 0.9589
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