24th August 2015 Currency markets, news and analysis

Forex Market Commentary  

We are at a fork now with he EUR/ USD. Whilst everyone thought that the global equity crisis was done and shaken up for the weekend to refresh traders its gone and happened again. Another trillion dollars gone just like that as the Dow slips 500 points in another Monday massacre. The Dow closed today at 15,871.35  and that's a hefty  -588.40 or a whopping -3.57% on the day session - Bloody Monday! Along the way the US Dollar has come under pressure with the sheer volume of equity sales that the EUR/ USD went through the 1.15 and triggered call options lurking in that region and buy stops. This is the problem with fast moving markets; at times they skew away from reality. The EUR/ USD did not rise today out of any fundamental reason per se but rather rode a tide of Dollar selling as traders looked for German Bund and even European equities as a safer haven for he moment. Thus USD was sold and EUR was bid up and a wide deviation is now at play from all interest rate fundamentals. Where we go from here an only be understood in terms of how long this global equities crisis will continue? Moreover the Fed cannot possibly raise even 25 basis points this year as a result of the China crisis.

Read on Bloomberg:

http://www.bloomberg.com/news/articles/2015-08-24/truck-running-over-stock-market-was-headed-our-way-for-months?cmpid=BBD082415_BIZ


On the EUR/ USD today large specs lost heavy amounts on the wrong side of the trade with net shorts in the futures some 80,000 plus and several large blocks open spot market. Most of the dealer buying on the EUR/ USD today came from commercial banks taking orders to purchase European equities and large commercial companies locking forward 30 day Euro currency contraces FRA's (Forward rate Agreements) at a cheaper rate to purchase European items for this month as a hedge should the EUR/ USD continue to climb to the 1.17 mark.

Small traders do not jump onto a band wagon yet. The trend is your friend says the old adage and at this moment there is no clear direction of trend. There is an immense scuffle going on between commercial banks and large currency hedge funds and small traders opting to step into this battle of the giants can easily get squashed! the best thing a small trader can do at the moment is step out until the dust settles on this global equities crisis so reality can snap back and a trend emerges on the currency pair.

Small traders should be aware that the technical bounce on the EUR/USD is unjustifiable given interest rate fundamentals and eventual the rubber band will snap back to reality and equilibrium. However when contagion occurs like this all reality becomes a blur for a moment. Most bank analysts are of the opinion that the current chaos is just a pause within a longer term trend of Euro currency decline. Key supports are at the 1.0504 (21/03/2003 low) and the parity rate 1.0000. Technicians need to see a clear 5 days closing above 1.1534 to accept a serious consolidation of the EUR/USD in this new area of price action. Certainly with large specs being routed the last 3 days one feels the shorts can be back in action very soon to claw back their losses and push EUR/USD back down to the 1.10 region. There is no fundamental basis for the higher value EUR/ USD. Small traders must learn to take in a bigger panoramic view before being tempted to take a long position. Put options cover on quick longs is seriously advisable for the small trader that takes a long on the EUR/ USD. What goes up quickly also goes down just as fast should hedge funds stop shorting equities and turn their attention back to to some other market. we are now nervously eying 1.17 to see if this tsunami surge in the EUR/USD hold its technical breakout against he fundamentals or this week.

Crude oil is at 38 Dollars in the wake of this crisis a the dominoes fall one by one. This is a dramatic fall since crude oil was above 50 Dollars a mere few weeks ago and the move can be considered excessive. Gold loses 9 points and holds at the 1150 mark with less significance than bonds as a safe haven. Gold has risen too fast and crude oil has fallen just as dramatically creating an artificial viewpoint of global logistics in the 2 essential commodities. Gold needs to close another 5 days above the 1132 to demonstrate a new period of consolidation in the face of opinion that gold is in a downward long term trend.

In speaking of moving averages; markets are not rational and daily price action volatile, but in the longer run trader expectation and negative sentiment can be collectively summed up through the 50 day moving average. Always look to support and resistance band lines as the key to understanding in the long and short term where prices are converging. Professional technical traders use 50 day and 200 day medium and slow moving averages as fundamental cornerstones for interpreting the direction of price action.

USDX

US Dollar
93.631     +0.210 +0.27%
Support 92.212 Resistance 94.202
Forward 1 year - 95.740s.

EUR/USD
1.160450     +0.016390 +1.43%
Support   1.13673          Resistance 1.16893
Forward 1 year - 1.14570s.  

Crude Oil  WTI

38.23     -0.01 -0.02%

Support 37.03  Resistance  41.11
Forward 1 year - 46.68s.

Gold

1151.635     -9.055 -0.78%

Support  1,139.2     Resistance 1,177.0
Forward 1 year  -  1,165.5s.

Pieter Bergli - DeLoren Trust Holdings

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