Market Update EURUSD moving sideways

EUR/USD

Moving sideways.

• EUR/USD is consolidating after Thursday's decline. A bearish bias is favoured as long as prices remain below the resistance at 1.3664 (03/07/2014 high). An hourly support stands at 1.3576, while a key support lies at 1.3503. An hourly resistance can be found at 1.3651 (10/07/2014 high, see also the 61.8% retracement).
• In the longer term, the break of the long-term rising wedge (see also the support at 1.3673) indicates a clear deterioration of the technical structure. A long-term downside risk at 1.3379 (implied by the double-top formation) is favoured as long as prices remain below the resistance at 1.3775. Key supports can be found at 1.3477 (03/02/2014 low) and 1.3296 (07/11/2013 low).

Await fresh signal.

GBP/USD

Approaching the support at 1.7086.

• GBP/USD is consolidating near the top of its rising channel. The mild price correction thus far favours a bullish bias. Monitor the hourly support at 1.7086 and the hourly resistance at 1.7180 (04/07/2014 high). Another support can be found at 1.7007 (27/06/2014 low).
• In the longer term, the break of the major resistance at 1.7043 (05/08/2009 high) calls for further strength. Resistances can be found at 1.7332 (see the 50% retracement of the 2008 decline) and 1.7447 (11/09/2008 low). A support lies at 1.6923 (18/06/2014 low).

Buy stop 2 units at 1.7190, Obj: Close 1 unit at 1.7328, remaining at 1.7435, Stop: 1.7138.

USD/JPY

Bouncing.

• USD/JPY is trying to bounce after having broken its recent low at 101.24 (30/06/2014 low). The hourly resistance at 101.45 (09/07/2014 low) is challenged. Another resistance can be found at 101.86 (09/07/2014 high). An hourly support lies at 101.07, while a key support stands at 100.76.
• A long-term bullish bias is favoured as long as the key support 99.57 (19/11/2013 low) holds. However, a break to the upside out of the current consolidation phase between 100.76 (04/02/2014 low) and 103.02 is needed to resume the underlying bullish trend. A major resistance stands at 110.66 (15/08/2008 high).

Await fresh signal.

USD/CHF

Remains thus far capped by its declining channel.

• USD/CHF continues to move within its declining channel. An hourly support lies at 0.8886 (intraday low). Hourly resistances are given by the declining channel (around 0.8944) and 0.8975. Another support stands at 0.8857.
• From a longer term perspective, the bullish breakout of the key resistance at 0.8953 suggests the end of the large corrective phase that started in July 2012. The long-term upside potential implied by the double-bottom formation is 0.9207. A key resistance stands at 0.9156 (21/01/2014 high).

Await fresh signal.

USD/CAD

Short-term base formation validated.

• USD/CAD has broken the resistance at 1.0697, validating a short-term base formation with an implied target at 1.0772. Another hourly resistance can be found at 1.0752, whereas a key resistance is given by 1.0814 (previous support, see also the declining trendline). Hourly supports now stand at 1.0694 (08/07/2014 high) and 1.0621.
• In the longer term, the technical structure looks like a rounding bottom whose minimum upside potential is at 1.1725. However, a break of the support area implied by the long-term rising trendline (around 1.0656) and 1.0559 (29/11/2013 low) would invalidate this long-term bullish configuration.

Await fresh signal.

AUD/USD

Moving sideways.

• AUD/USD is moving sideways. However, the technical configuration since June looks like a bearish head and shoulders. An hourly support lies at 0.9361 (10/07/2014 low), while a key support stands at 0.9319. A resistance can be found at 0.9457.
• In the longer term, the false breakout at 0.9461 confirms a limited upside potential, favouring a bearish bias. However, a break of the key support at 0.9206 (03/04/2014 low) is needed to open the way for a new significant phase of decline.

Sell stop 2 units at 0.9309, Obj: Close 1 unit at 0.9212, remaining at 0.9007, Stop: 0.9348.

GBP/JPY

The rising channel has been breached.

• GBP/JPY is trying to bounce after having breached its rising channel. Hourly supports stand at 172.97 (10/07/2014 low) and 172.38. Hourly resistances can now be found at 173.89 (38.2% retracement of the current decline) and 174.43.
• In the long-term, the break of the major resistance at 163.09 (07/08/2009 high) calls for further strength towards the resistance at 179.17 (15/08/2002 low). The long-term technical structure remains supportive as long as the key support area defined by 163.89 (04/02/2014 low) holds.

Await fresh signal.

EUR/JPY

Trying to bounce.

•  EUR/JPY's technical structure remains weak as can be seen by the break of the short-term rising channel and the recent new lows. A break of the resistance at 138.83 (07/07/2014 high, see also the declining trendline) is needed to improve the short-term technical configuration. An hourly support now stands at 137.50.
• Prices need to break the resistance implied by the 200 day moving average (around 139.36) to indicate exhaustion in the medium-term selling pressure.
• The long-term technical structure remains positive as long as the support at 134.11 (20/11/2013 low) holds. A strong support can already be found at 136.23 (04/02/2014 low), while a strong resistance stands at 145.69 (27/12/2013 high).

Await fresh signal.

EUR/GBP

Grinding higher.

• EUR/GBP is bouncing. However, the resistance at 0.7973 (03/07/2014 high) has held thus far. Furthermore, a break of the hourly resistance at 0.8034 is needed to invalidate the bearish technical structure. An hourly support lies at 0.7915 (07/07/2014 low).
• In the longer term, the break of the key support area between 0.8082 (01/01/2013 low) and 0.8065 (05/06/2014 low) opens the way for a full retracement of the rise that started at 0.7755 (23/07/2012 low). Another strong support stands at 0.7694 (20/10/2008 low). A break of the resistance at 0.8153 (29/05/2014 high) is needed to suggest some exhaustion in the long-term selling pressures.

Await fresh signal.

EUR/CHF

Monitor the test of the support at 1.2134.

• EUR/CHF is challenging the support at 1.2134. Another support lies at 1.2122. An hourly resistance stands at 1.2166. However, as long as prices remain below the resistance at 1.2178 (20/06/2014 high), the technical structure continues to favour further weakness towards 1.2104.
• In the longer term, prices are moving in a broad horizontal range between the key support at 1.2104 and the resistance at 1.2261.
• In September 2011, the SNB put a floor at 1.2000 in EUR/CHF, which is expected to hold in the foreseeable future.

Long 3 units at 1.2329, Objs: 1.2660/1.2985/1.3195, Stop: 1.1998 (Entered: 2013-01-23).

GOLD (in USD)

Declining sharply.

• Gold is declining sharply after having broken the resistance at 1331. Hourly supports are given by the short-term rising trendline (around 1314) and 1305. A resistance now stands at 1345 (10/07/2014 high).
• In the long-term, we are sceptical that the horizontal range between the strong support at 1181 (28/06/2013 low) and the major resistance at 1434 (30/08/2013 high) is a long-term bullish reversal pattern. As a result, a decline towards the low of this range is eventually favoured.

Await fresh signal.

SILVER (in USD)

Failing to hold above its recent highs.

• Silver has broken the resistance at 21.29 (02/07/2014 high), but has failed to hold above it. Resistances now stand at 21.58 and 21.79. An hourly support area is given by the short-term rising trendline (around 20.93) and 20.83 (07/07/2014 low).
• In the long-term, the trend is negative. However, the successful test of the strong support area between 18.84 and 18.23 (28/06/2013 low) and the break of the resistance at 20.41 (24/02/2014 high) indicate clear exhaustion in the selling pressures. A key resistance stands at 22.18 (24/02/2014 high).

Await fresh signal.

EURUSD to GBPJPY – Connecting The Dots

We are seeing the first few down days in a row for the S&P in some time. Should the markets correct significantly from here the “experts” will tell us that it’s not surprising because the equity markets are beginning to price in the possibility of higher rates in 2015. Obviously the opposite is true which is that should the equity markets continue to go higher the “experts” will give us a plausible reason why this is logical too.
I will nail my opinion to the mast right now and say the correction is sooner rather than later. I wonder are the European markets the canary in the coal mine. The reason I put this out there is because I’ve been continually able to make money selling the FTSE. Every time the FTSE manages to get close to 6900 it’s been sellable. Looking around at the DAX it seems 10050 seems to be the equivalent level where we are starting to see markets find it difficult to push higher. So what about the S&P?

We are certainly overdue a pullback in my opinion but let’s not get too far ahead of ourselves. We have not had a lower weekly candle since May. Last week’s low in the SPX comes in at 1955. Let’s first see can we break this. If we do then the weekly 20 period moving average has provided significant support since 2012. That level comes in at the 1895 region. In other words without looking for a home run there is significant distance between 1954 and 1895. However should that 1895 level get breached then we will know that correction has begun.

Naturally if that penny about interest rates does drop you have to wonder about USDCAD, and many of the dollar pairs. USDJPY and EURUSD would seem to be particularly vulnerable because here you have two central banks conducting quite contradictory policies to the Federal Reserve. I will continue to look for long USDJPY trades and again the significant levels are the yearly low at 100.74 which I would expect would be less and less likely to be breached. Then looking higher 102.20 is a fairly good level. Oddly enough as the markets dropped yesterday you saw the Yen strengthen so it won’t be a straightforward trade. I will continue to take long trades below 101.50.

If any central bank out there is ahead of the Federal Reserve the Bank of England would be a good candidate. Again you could hardly find another central bank more contradictory to the BOE as the ECB so I will wait patiently for an opportunity to sell EURGBP on rallies.

Then essentially linking the three paragraphs above is GBPJPY. The trend here has not surprisingly been up but we have seen some considerable sideways action (just like USDJPY) since late 2013. Significant support comes in via the rising moving averages and here the weekly 20 period weekly MA at 171.50. My bet is that USDJPY is going to break higher and due to the convergence of the moving averages I would speculate sooner rather than later but such a move up towards the 100 mark will likely put GBPJPY above 200.00. Now that would be a nice trade.

If Iraqs Oil is cut off!!

The ISIS rebels have carved out an impressive swath of territory in northern Iraq. This has enormous implications and risks to the world’s oil supplies. 

Months before the ISIS rebels began their threatening move into Iraq’s southern regions, the International Energy Agency was imploring OEPC to produce and export an additional 1.2 million barrels per day (mbd) more oil by the end of 2014. 

Unlikely allies aid militants in Iraq

Radical Sunni fighters, who seized another northern Iraqi city on Monday, are being aided by local tribes who reject the Islamists' extreme ideology but sympathize with their goal to oust Baghdad's Shiite-led government.

The sad fact is that out of 12 OPEC members, eight of them are collectively in decline. When summed together Algeria, Angola, Ecuador, Iran, Libya, Nigeria, Qatar and Venezuela were producing just over 14.5 million barrels per day in early 2005; but are now producing just 11.25 mbd. 

These countries are losing nearly 500 thousand barrels per day of production per year. 

Of the other four OPEC members not in decline, only Iraq has managed to add significant production. It increased its output from 1.75 mbd in 2005 to 3.25 mbd currently. 

The nearly 2 mbd of incremental Iraqi production were essential to keeping Brent oil within the price range of $100 to $110 per barrel over the past couple of years. 

At best, the ISIS rebellion guarantees that any potential additional Iraqi oil output gains are not going to materialize in the near future. No oil companies are going to invest in Iraq until and unless the situation stabilizes. 

This means that Saudi Arabia will have to account for 100% of the hoped-for additional oil supply that the IEA is calling for. There’s quite a bit of uncertainty among oil analysts as to whether Saudi Arabia can even do this, as that’s over 1 million barrels per day more than the country has ever pumped in its entire history.

Can the Saudis do this on the back of ageing fields on average 50 to 60 years old? It’s an open and very serious question. They say they can, but all we have is their word on the matter; no data or evidence. If they cannot, then the world will have to confront the harsh reality that Saudi Arabia is no longer the go-to swing producer it once was. 

A slightly more dire scenario could see Iraqi oil production decline from current levels due to various insults to its existing oil production systems. Perhaps there will be more voluntary shut-downs of pipelines and refineries, as happened to Iraq’s biggest refiner in Baiji Tuesday morning. A complete loss of Iraqi production would spike the world oil price CLN4 +0.17%  up to $200 per barrel pretty quickly.

Any declines will only add to the pressure on Saudi Arabia. It would not only need to make up for losses in the sliding eight OPEC members’ production, but for any Iraqi losses as well. The loss of a million barrels per day would place a burden on Saudi Arabia that takes it to 100% of its stated production capacity. 

The most dire scenario sees a regional conflict break out that pits the Middle East’s Shiites (Iran) against the Sunnis (Saudi Arabia), leading to a compromise of the Strait of Hormuz. Forty percent of the world’s exported oil flows through this waterway. 

If conflict causes this flow to become restricted, then $200 per barrel would seem positively cheap. While this risk is small, it is a catastrophic potential outcome that cannot be dismissed. Prudent governments and investors need to begin factoring this in.

Oil Update

WTI Crude oil moved decisively lower yesterday, as price failed to breach 104.45 main resistance level, to retreat breaking the rising trend line for the latest bullish wave, and the near term main horizontal support at 103.50 and that warns that the price has topped for the short term, and could probably correct further, where we expect a test of 102.00 levels.

Support: 102.75, 102.30, 101.65, 101.15, 100.80
Resistance: 103.00, 103.50, 104.00, 104.45, 105.20

Recommendation Short below 103.50, targets at 102.75 and 102.30. Stop loss above 104.30

Oil Update

WTI Crude oil fluctuated heavily yesterday, forming a major long lower shadow, as price was rejected after testing the broken descending resistance shown on the daily chart above, however price should take 104.50 resistance level to confirm a move higher towards the major swing high at 105.20. Overall, the bullish breakout above the descending resistance favors further upside for crude oil, targeting 105.20.

Support: 104.00, 103.40, 103.25, 102.65, 102.00

Resistance: 104.70, 105.20, 105.95, 107.10, 108.00

Recommendation Based on the above, buy WTI oil futures above 103.40 targeting 105.20 and stop-loss below 102.60

Oil Market Update

The price is still trading positively after retesting the previously breached resistance level and is turning to support now at 103.40 showing on graph above, as the price needs to stabilize above this level to extend the bullish bias in the upcoming period. The price is still getting good support from SMA 50 and 100 strengthening the opportunities of targeting 105.20 levels then a breaching attempt to extend gains towards 107.35.

Support: 104.00, 103.40, 103.25, 102.65, 102.00
Resistance: 104.70, 105.20, 105.95, 107.10, 108.00

Recommendation Based on the above, buy WTI oil futures above 103.40 targeting 105.20 and stop-loss below 102.60

USDCAD short position

Today, the USD made a small rally against the 2 month Beairsh trend on the USD/CAD.

The 40 pip rally puts the USD/CAD in perfect position to short off our recent trend line with a high Reward/Risk ratio.

This USD/CAD trade is a similar situation. By being aggressive and shorting at today’s close, we could enter with a 20 to 30 pip stop and target 80 pips or even a recent daily level 180 pips away.


The stop placement is very subjective in this case. I’d recommend 15 to 20 pips above last week’s high (May 13).

As I said, this is not an extremely high probability trade because the market can easily shake us out of the trade; however with the R/R on the table, I think the risk makes sense.

Let me know what you think.