Forex Market Commentary
Adage: It's the economy stupid!
What a stormer! Reality is sinking back into the currency trading market. The Dow climbs a massive +619.07 points or +3.95% to close at 16,285.51 as the SSE composite in Shanghai settles as most of the damage appears to have run it's course. The Yuan devaluation that train-wrecked global equities for the better part of a week has now run it's course. Consequently the EUR/ USD fell like a stone over 200 pips to recorrect itself at the 1.13 mark.
Yes; it's the economy stupid! The pandemonium is over and economic fundamentals back to the fore.
Commercials were in the thick of the action the last 5 days buying EUR/USD spot in great amounts. Several large specs suffered great knock-backs as EUR/ USD shot up to the 1.16 in a knee-jerk reaction as investors panicked on the USD. However we did not touch large options and buy stops near the 1.17 to further complicate spec positions on the short trade of the EUR/ USD. ETF's were dangerously close to piling on fresh EUR/ USD longs with algorithmic trading potentially leading specs into larger losses on the back of the sudden surge up which was entirely based upon a false premise of Euro currency strength. Now, this is where market wisdom comes to play; to suss out reality from the confusion and step aside when things go awry. Dealer noise buzzing round bank floors were abundant with hedge fund agony every time the EUR/ USD climbed another 10 pips. However the tsunami like action caused by equities on a global scale has now subsided and the worst is over and the 1.15 barrier stands insurmountable at the moment even with bond yields on the US Treasuries slipping down.
Now if I was a massive hedge fund spec I would definitely be computing my risk/reward scenarios for a fresh spot short EUR/ USD at the 1.13 with call option cover for a short target of 1.08 for a late Q4 exit for a gross 500 pip gain over the next 3 months. That's how currency large specs think. The US economy took a knock head on but like a mighty tree it merely swayed in the wind.
See the credit Suisse report on volatility here:
http://www.thefinancialist.com/spark/volatility-back-with-a-vengeance/
Its back to the fundamentals: Dollar rates have an upward sloping yield curve that attracts investment in the USDX
Markets move up, markets move down and markets move sideways. In all 3 markets the channels of price action will experience low volatility and high volatility which will mark the boundaries of the 3 channels.
Crude Oil consolidating at 39 on the front end WTI as fundamentals show oversold conditions and gold bullion slipping even further from 1138 to 1125 as the panic dies away and the global equities markets shake their heads and re-balance.
Read on Bloomberg:
http://www.bloomberg.com/news/articles/2015-08-25/zhou-serving-as-circuit-breaker-under-pressure-to-ease-more
and
http://www.bloomberg.com/news/articles/2015-08-25/china-s-yuan-shock-gives-carry-trade-crowd-worst-year-since-08
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
95.205 -0.076 -0.10%
Support 93.212 Resistance 96.202
Forward 1 year - 95.740s.
95.205 -0.076 -0.10%
Support 93.212 Resistance 96.202
Forward 1 year - 95.740s.
EUR/USD
1.133610 -0.017590 -1.53%
Support 1.13673 Resistance 1.16893
Forward 1 year - 1.14570s.
1.133610 -0.017590 -1.53%
Support 1.13673 Resistance 1.16893
Forward 1 year - 1.14570s.
Crude Oil WTI
39.50 +0.90 +2.27%
Support 37.03 Resistance 41.11
Forward 1 year - 46.68s.
Forward 1 year - 46.68s.
Gold
1125.085 -13.490 -1.18%
Forward 1 year - 1,165.5s.
Pieter Bergli - DeLoren Trust Holdings
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