Watching the moves on the Forex majors yesterday afternoon I could not help thinking that they were all somewhat counter-trend. The dollar has been strengthening one more in recent days and despite a retracement on key instruments such as EUR/USD, GBP/USD, USD/JPY and even gold on a very short term basis, many of the plays were simply up at levels that I would consider to be great levels to trade at once more as I want to play this continuing dollar strength. The ISM Manufacturing data this afternoon could have a significant role in the near term outlook, but moving into the data the market looks to be backing a decent number, which could drive significant dollar strength in the aftermath.
Take EUR/USD for example. A rally to the key near term breakdown at $1.0800 failed just under the resistance at $1.0791. The intraday technical indicators were at levels that any oversold momentum had unwound and this looked to be a chance to sell. This morning, the price has drifted away and even the better than expected Eurozone PMI data has failed to make any impact on the chart, if anything the euro has seen a touch of selling pressure in the wake. Now perhaps the market is looking out for the crucial ISM manufacturing data for the US (this is perfectly possible with the gravity that such Tier 1 data has now taken on now the Fed has removed “patient” from the FOMC statement). I therefore see rallies as a chance to sell on EUR/USD and any rebound towards $1.0800 is that chance. I expect further weakness, and this could be significant if the ISM Manufacturing data beats the estimate of 52.5 and even rises above 52.9 from last month.
Technically the EUR/USD chart is also set up well now with the resistance of the falling 55 hour moving average and the hourly RSI also at a level where the sellers have tended to resume control. The resistance around $1.0800 looks an ideal sell-zone.
Another key pair that has reacted badly to decent PMI data this morning is GBP/USD. Cable has dipped sharply on the back of a very slight beat on the UK Manufacturing PMI which increased to 54.4 (54.3 had been expected. Once again the anticipation may be that this beat is not enough to work on a relative basis versus the crucial ISM data this afternoon. We have already seen Cable break through support at $1.4750 to the lowest since 20th March, with my expectation that this is ready to pull even lower again to test the multi-year lows at $1.4633. However in the very near term this move looks a touch overstretched and may have gotten away from me. I see the pivot level around $1.4800 as a good entry point for a short position on Cable.
My morning report yesterday suggested that a good area to look for a buying opportunity on Dollar/Yen was around 119.40/119.75 and I stick by this. The problem is that the move has already moved quite a long way away from me and I would be happier to see this buying area once more instead of jumping in at current levels.
The Aussie dollar had been a bit of a concern for me and at the time of my morning report it was showing signs of a bullish divergence on the hourly chart. This has subsequently dropped away and the Aussie has since been hit by a bout of US dollar strength as the morning has gone on and moved below the support at $0.7588. It seems as though the market is positioning for a positive ISM reading. If this is the case then a move below $0.7558 would re-open levels not seen since 2009. I would be looking to position for any rebound as a chance to sell on AUD/USD. Anything into $0.7620/$0.7640 prior to the ISM data would be a good chance to sell.
My other trade I am looking at is a sell on Gold. I see the resistance between $1191/$1200 as being fairly strong on a near term basis now and anything into that band should be looked upon as a chance to sell. Unfortunately the dollar strength of the past few hours has dragged gold away from this sell-zone so it is sitting a little bit away. However, any rally is a chance for a near term short position.
Summary of my trade-zones:
I would also be looking at selling NZD/USD around $0.7440, but perhaps just hold off from trading the both the Canadian Loonie and the Swissy against the dollar near term as both are giving near term mixed signals.