All Eyes On Forex

Despite all the perennial drama, perpetual bad economic news, and a prevalent sense of fear in the markets navigating the tape this week has actually become quite a bit easier than two or three weeks ago. Sometimes out of chaos emerges order and as technical traders that are the times we are ready to strike. Once you let go of all your preconceptions, your ego, and other mental blocks you simply start following the charts, which will provide you will clear support and resistance clusters to structure your trades.

But I’m going to make it really easy for you guys this weekend. Let me re-emphasize that U.S. equities are really just the sideshow – you can trade them, but the key to it all this week is in watching the dynamics in various currency pairs. In comparison to the currency and credit markets equities are just a small speck on the wall. Yes, they get all the attention but the real money and volume these days is on the currency side. So let’s drive right in by starting with the closest correlation pair to the S&P E-Mini futures:

As I’m typing this the AUD/JPY is sitting on what i would deem the final Maginot line before a push toward 79 or lower. Holding the 80.50 mark is absolute key here. If we push higher than I’m sure that Scott will consider a retest variation trade. Obviously that one would have to fail in order to afford us a path higher.

But just watching the ole’ AUD/JPY is only a small part of the picture and gives us a limited view of what’s going on – there are much more important pairs worth tracking in the next two days:
[amprotect=nonmember] Charts and commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
[/amprotect] [amprotect=1,13,9,12,5]

The EUR/JPY has taken it up the rectum so much I think it’s starting to enjoy it. Where are now so far outside both Bollingers that I suspect there may be a black hole nearby exerting an increasing amount of gravity. What happens next is extremely important per Scott’s prime directive in that a failure of an expected move will result in the extreme opposite. For a push that far outside needs to be bought almost immediately. If we only see tepid buying here then this thing is going to breach the event horizon and accelerate into nothingness. Could get pretty ugly so watch what happens next here – at least once per hour in the next few days.

Similar story on cable – just not as extreme just yet. But those limeys are slipping and if you look at these past few candles then the word sickly comes to mind. Another high gravity event and it has to stop rather soon here as downside momentum in currencies can get very very ugly.

Ole’ bucky is also kicking the butts of our Northern aggressors – we all knew Canada had it coming after all. Now seriously though – the setup is pretty much the inverse as the USD on this one is the base currency. We are now pushing against both BBs and an acceleration higher without at least a reversion would be very bullish for the Dollar. I may point out that the general pattern is starting to look pretty positive for ole’ bucky but we’ll get to that further below.

I think by now you’re starting to get the picture as the Dollar on the AUD/USD chart is yet again the quote currency (i.e. the second one). That was a nice breach of a rather congested area last week and seems to be that those Aussies may drop near 1.03 or 1.02 unless they find themselves another Crocodile Dundee in a jiffy (sorry Scott but the gloves are off now) and push this thing above 1.05. That opening candle right now is not looking too hot but a lot can happen over night, so keep an eye on this.

Now the real fun starts. Obviously our hourly Bollingers are all shot to hell on the USD/CHF courtesy of the Banque National Swiss (Swiss National Bank) intervention. There was nothing but air above once we cleared those first few hurdles thanks to those cheese rolling yodeling FX pranksters and the first real test for the Dollar as well as the Swiss Franc will be the 0.9 mark. What we expect here is some kind of reversal – if it fails and pushes higher the Swiss get what they wanted (i.e. their weaker currency) and it’ll strap some rocket boosters on ole’ bucky’s behind.

If you have been a subscriber for more than a week then you remember that I added this question to my Dollar chart months ago. And what I highlighted in yellow is what they call a bonafide break out out of some sort of triangle. It’s not really an ending diagonal as I had hoped but if it winds up an ending pattern than the implications technically are most likely the same – which is that the ensuing move up should be rather explosive.

And of course you realize that all those charts I posted above are only another expression of the DXY – but they are worthwhile to put into context as the setup on the Dollar chart should either fail immediately or turn into the short squeeze from hell. Yes, we’re talking horns, sulfur, whips, chains, and plenty of screaming. Hey, this is Evil Speculator and that’s just how we roll.

Which brings me to equities. The weekly SPX chart needs to hold last week’s low – period. If we close below any of the next five trading days then the odds of a 990 visit the week after increase substantially. Even if we do then by Friday we must push back above – which would represent, that’s right – you got it, a failed pattern. And that one would most likely be followed by a big bad short squeeze. Of course I’m talking strictly hypothetically as the bulls really haven’t shown any mojo in the past two months.

More short term here are the daily spoos (a.k.a. S&P E-Mini futures – the term derives from the September contract which will expire next Friday – but they call it the ‘spoos’ all year round). Whatever you call them – they already opened lower and better push back toward 1150 and at least above the lower 100-day BB. Which is where they need to be in order to stave off a slide toward 1120. And if that one gives – well, then you better wear a cup and a helmet as it’ll be a rough ride to the dark side.

Keep it frosty folks (see my definition of that in the comment section) and instead of those skies keep watching those FX charts above, in particular overnight. The AUD/JPY and other pairs may also help you hedge your equities positions as you don’t want to be locked out of the market when things start to get nasty and accelerate during the European or Asian sessions.

Cheers,

Mole