Light Data Week Leaves Traders Waiting For Volatility

With US CB Consumer Confidence and The Richmond Fed acting as the only potential for news volatility on Tuesday, and even those data points not traditionally that volatile, we have had slow start to the week. The dollar had begun to gain traction higher, but the moves have gradually been eroded although, importantly, we still hold above major support levels for the dollar. Later in the week we have more potential for volatility with an increase in market moving news, although for now things are likely to be slow and frustrating.

USD% Index

The dollar remains above key support and also a bearish trend line that was previously the top of a bearish channel but is now acting a support for the current attempt higher. Note the use of the word attempt, becaue this is the most painfully slow dollar rally i’ve seen in a long time. This does not mean that as soon as we get some USD positive new that the build of dollar sentiment wont have traders rushing to buy dollar, but it does mean that they are clearly not as enamoured with buying dollars as they could be right now, so any Euro or GBP positive news that comes out in the mean time gradually eats away at bullish dollar optimism. RSI is now comfortably below the 100 period moving average and reflects the return to slight bearish momentum for the time being, but so long as we are above the green support then a bullish dollar outcome is preferable. There is a risk though that not far below this level there will now likely be a batch of stop losses which may be targeted before the eventual move higher so a final spike lower can not be ruled out. Typically when that happens RSI is a very good method of timing entry. I am bullish USD while above the green support line.

USD% Index Resistance (EUR/USD support): EUR/USD 1.3718, 1.3700, 1.3678
USD% Index Support (EUR/USD support): EUR/USD 1.3755, 1.3780, 1.3800

EUR% Index

We are still holding up at recent highs which are also the breaking point of the current bearish channel. Traders seem to be in limbo without the decisiveness to break or continue either trend. We could see further attempts higher, although for the time being, the market seems to view the Euro as overbought and in need of a retracement lower. Its not clear how low we will go at this stage, our hunch is perhaps not that far given the return to bullish European data. This makes the trend line support highlighted in blue a potential target for an eventual continuation higher although it is still too early to tell given the fact we’re currently at highs. RSI is now showing some mild bearish divergence which also suggests downside. I am bearish EUR.

EUR% Index Resistance: EUR/USD 1.3773, 1.3800, 1.3850
EUR% Index Support: EUR/USD 1.3700, 1.3637

JPY% Index

The JPY% index remains trapped between two strong levels and is going nowhere fast. We’ve yet to test the bottom of the current bullish channel at about the 102.83 level for USD/JPY although it looks as though we are building up to a confluence of support from the green support line and the white bullish channel support at some point this week. This may find enough bids to break this deadlock and propel us up to the highlighted bearish major trend line (thick white line) currently displaying USD/JPY 100.00 as a suggested level for a major bearish JPY trend continuation. I am bullish JPY until USD/JPY 100.00 is tested.

JPY% Index Resistance (USD/JPY Support): USD/JPY 101.56, 100.00
JPY% Index Support (USD/JPY Resistance): USD/JPY 102.74, 102.83

GBP% Index

We are still holding within the very narrow bearish channel ever since the rejection from resistance last week. The slow pace of dollar buying has hampered the progression lower for the pound so we really have not gone very far. In fact the bearish GBP/USD price action appears to be entirely EURGBP led with the cross pair finding bids on most dips lower currently. The confluence of fib exp support levels for the GBP% index around 1.6550 may prove to be a strong barrier, but likewise, if that breaks then it will take out stops below and really get things going. We will have to wait and see. Below that we have a similar confluence of support which may prove to be more robust due to it’s proximity to the bottom of the current bullish channel meaning that is is more or less in the buy zone for the current trend. I remain bearish GBP within a bull trend.

GBP% Index Resistance: GBP/USD 1.6688, 1.6705, 1.6827
GBP% Index Support: GBP/USD 1.6550, 1.6496, 1.6390

AUD% Index

Further volatility without continuation for the Aussie, with another leg higher but really now going anywhere overall. The Aussie has displayed some nasty price action recently, with volatile spikes, which are gradually just filled back in slowly to where we started, making it very difficult to decipher the signal from the noise. Overall though downside is expected until the highlighted support is met and then we will have to consider how that level is handled, with the possibility of that being a strong buy price for bullish trend continuation. Longer term, sentiment is still bearish though based on the fundamentals out of China and Australia. We were once again diverging with gold, with the recent push lower in contrast to the gold rally to double top. This may be the reason for the push back higher once again fro the AUD% index from the lows yesterday. Gold remains a drag on the dollar currently. I am bearish AUD until the 0.8890.

AUD% Index Resistance: AUD/USD 0.9036, 0.9081, 0.9150
AUD% Index Support: AUD/USD 0.8890, 0.8800

CHF% Index

Still quite a weak break to the upside for the CHF index although now holding above the broken channel top, we have a cluster of resistance that is capping price action still. We have upwards momentum, but the price action if far from decisive. There is the sense that the market is waiting for a proper data clue as to the medium term direction and will not do anything too dramatic without it. I am neutral / bearish CHF based on my dollar outlook.

CHF% Index Resistance (USD/CHF support): USD/CHF 0.8856, 0.8834 0.8800
CHF% Index Support (USD/CHF resistance): USD/CHF 0.8900, 0.8950, 0.8984