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Friday, 3 February 2012

US Dollar Weakness Examined

I haven't much to add to my ES & SPX charts from yesterday here so I'm going to concentrate on other things today. Support is still at Monday's low and resistance is still at last Thursday's high so a break of either with any confidence should deliver the next significant move. I was asked yesterday whether in effect I was saying that a break higher should be followed by more upside, and that a break lower should be followed by more downside, and that is exactly what I'm saying here, and is a good description of any setup confined between strong support and resistance levels. Obviously we are a lot closer to resistance than support here at the moment.

I've been looking hard at related markets for directional clues this morning and the first of those is USD. I posted a chart on USD a couple of weeks ago showing a possible IHS right shoulder retracement. That chart looks very compelling this morning, and my target in the 77 area is supported by rising channel support there as well. Looking at this (ultimately bullish) chart more short term downside on USD seems likely:
120203 USD Daily Rising Channel and IHS Forming
Is that supported by the EURUSD chart? Well at the moment definitely. Looking at EURUSD the rising channel that broke down the other day has developed into a larger rising channel, with a bull flag and triangle setup within that channel. A break to a new high should deliver a move to the next resistance area around 1.35. On the downside I'm watching for a break of triangle support and channel support just below that:
120203 EURUSD 60min Trendlines
I've posted the GBPUSD chart a few times over the last few days. That should be a decent barometer of when to take a possible bounce on USD seriously. I've had a careful look at that and have that as a rising channel with a strong internal support trendline:
120203 GBPUSD 60min Rising Channel
ZB is looking weak this morning, and has broken below my rising support trendline from the last low. This is looking lower and while I was considering why the last low was a little higher than I expected I came up with a neckline for a very impressive possible H&S pattern.This is something to bear in mind on any strong move down:
120203 ZB 60min Possible HS Forming
Obviously I'm bearish on oil as I've posted yesterday and beforehand, but I have an interesting a jarringly divergent setup on copper that looks interesting. That setup is an H&S that indicates back to rising support in the 357-60 area. Not tremendously bearish unless that rising support breaks, but an odd looking bearish divergence short term. It will be interesting to see whether this plays out:
120203 HG 60min HS Pattern
Overall the USD and bond pictures here look bearish for the moment, which would fit with a continuation upwards on equities. As I've been writing the jobs figure has come out and propelled ES to a new high. As long as that holds into the open then that will be a gap up on SPX over declining resistance from the 2007 high. That is bullish and I'm expecting to see some follow-through. That brings me to my last chart today, which is of the Dow. SPX is still some way below the 2011 highs, but NDX has already beaten those and on a strong move up today, the Dow may beat the 2011 highs as well:
120203 Dow 60min Trendlines
On the EW count I showed last week, this would be wave 5 of 3 up from the October low, and the next major resistance level above on SPX is at the 2011 highs. We could well see a test of that level in the next few days.

LATE NOTES - After the jobs news GBPUSD and EURUSD are breaking down so a decent bounce on USD here now looks more likely. ZB has broken down very hard and I'm watching that huge H&S neckline. Copper has broken the declining channel so that looks much more bullish now. Apologies for the late post today but I'm not feeling well as my household disease vectors (children) have been busy this week.

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