pebblewriter

Tag: EURUSD

  • Charts I’m Watching: Feb 20, 2013

    As expected, equities have sold off since tagging the 1.618 Fib of the July 7 – Oct 4, 2011 sell off — dropping as low as 1522.19 this morning.  While it’s gratifying to see a reversal at a major Fib like this, it won’t mean much until SPX can make some new lows.  I’d be thrilled just to see the purple channel midline broken. I remain full short from 1530.50.

    There’s great interest in the Fed minutes due out at 2 EST.  Will the new FOMC composition affect the language re QE?  How did they take last quarter’s GDP decline?

    Housing starts and permits were released this morning.  Overall, starts fell 8.5% since December.  But, it was multifamily residential that was really responsible — declining 27% from Dec 2012 nationwide, an alarming 41% in the Northeast and 62% in the Midwest (versus 16% and 30% in last year’s Dec/Jan comparison.) The South and West regions rose modestly, as did permits.

    The EURUSD has found support at the .886 (yellow pattern) of the Feb – July 2012 selloff.  The rally fizzled several weeks ago at 1.3710 — just above the Feb highs — after initially reversing at the .786, hinting at a Butterfly Pattern objective of 1.3877.  This is also the 2.618 of the white pattern and the .618 (1.3832) of the purple pattern (May 2011 to July 2012 decline.)

    If the pair manages to hold the .886, it augers well for a move up to that target level.  The next white channel level to intersect 1.3832 is the midline around March 18-20.  The bottom of the white channel is currently around 1.3250.

    The dollar, in the meantime, has retraced the losses sustained the past two days.  In the process, it reached the midline of the white channel since Feb – so, we’ll be on the lookout for resistance.

    Remember, DX RSI broke out of a daily channel (red, below) on Monday and back-tested it yesterday. It also successfully back-tested the midline of the rising purple channel and is poking up above the yellow 75% line — so, the upside case is clear.

    What, then, would a dollar break-out mean for stocks?

    Quick aside: just read the FOMC minutes from stem to stern (available here) and there’s nothing of any importance that I can tell.  This is really no surprise, given that the last statement was virtually identical to the previous one.  Here’s the discussion of the statement:

    The media is reporting “increased concern” about the level of QE and inflation, but there is very little change in the outlook and the hawks are still vastly outnumbered by the doves.  I suspect that as long as inflation stays under control, and the dollar remains in a trading range — meaning no new pressures or relief for importers/exporters — the FOMC will leave things pretty much as they are.

    Getting back to the dollar and equities… It’s always interesting to compare the DX and SPX.

    Stocks are a mirror image of the dollar through from 2010 through October 2011. At that point, however, they generally move in tandem — except that, as DX forms a pretty docile channel, SPX leaps out and forms a rather extended rising wedge.

    DX has been locked in a trading range between the .382 and .618 of its decline into May 2011, while SPX has obviously blown through its May 2011 highs.

    Since last September, the comparison is especially interesting. DX spent about 6 months bouncing between the .382 and .500 Fibs, while SPX retraced 127.2% of its 1474 to 1343 losses (actually more, but it looks like it’ll probably back test to the 1.272 today.)

    Now, if DX starts to make a move, how will SPX react?  Will it react?  The dollar will need a serious push to get through current levels, since today’s equities weakness/dollar strength produced a Bat Pattern completion at the .886 — just as DX RSI also reached the next higher channel line.

    While, SPX has broken channel support…

    …even though prices reached a potentially important channel midline.

    In the end, I suspect it all spells a breather for SPX’s downturn and DX’s strength – at least until the RSI’s are reset and each can take yet another stab at a real breakout/breakdown.

    I’m holding with yesterday’s short-term forecast/scenario [the 2:45 update], but am open to revision if SPX can push strongly through the channel midline.  I should get a chance to post again tomorrow morning.

    GLTA.

     

     

  • Charts I’m Watching: Feb 19, 2013

    The dollar index has cleared an important hurdle to higher prices.  Note RSI has broken above and is back-testing the red channel on the daily chart.

    Of course, it’s not a back-test until it reverses and stays higher.  The first key level to confirm a breakout are the Jan 4 80.995 high — at which point DX will run into the 25% white channel line.The harmonic picture is muddled at best, as DX has tagged the .886 retracement of the move from 78.725 to 81.515 three separate times – preferring to remain in a trading range rather than breaking down or out.

    Breaking this RSI channel is the first very (potentially) positive news for the bears in quite a while.  One caveat, there’s probably a 50:50 chance that the DX RSI will need to tag the midline of the rising white channel before the reversal really gets going.

    One potential problem here is that the midline and the red channel top don’t intersect until early March, so this could mean sideways currency markets for several weeks — which would likely be accompanied by higher stock prices.

    For the past week or so, I’ve been opening intra-day long positions on strength while maintaining a short core position.  Today is no exception.  I’m closing my intra-day longs here at 1526.50, as we’ve reached a 1.618 Fib level of the latest move up.  A move back up through this level, and I’ll add them back on again.

    I must admit, though, that I find the SPX RSI chart a little unnerving.  If DX looks bullish based on a channel breakout, SPX does, too.  Chart coming shortly — if my internet signal will cooperate.  I’m writing today from a hotel lobby in Lake Tahoe, and the connection is a bit slow.

    SPX is obviously trading above the upper bound of the big rising wedge again today (the yellow TL).  This marks five days in a row, though we’ve managed to close below it every day.  As we’ll discuss today, the next day or two is vitally important to the market’s overall direction.

    I put the yellow TL at about 1524 today (1521 on the arithmetic scale rather than log).  This is drawn from the July 21, 2011 high of 1347(inception) through the Sep 14, 2012 1474.51 high.  IMO, a strong move through this TL would be very bullish and practically guarantee 1553-1555 — with one caveat.

    In 2011, there were three potential Point X’s to kick off the downside and calculate the upside: 1370.58 on May 2, 1356.48 on July 7 and 1347 on July 21.  I referred to these in the post All The Pretty Butterflies in calling the April 2012 high.

    I favored the 1347 high because it best fit with the definition of a Butterfly – a Point B reversal at the .786 retrace. The 1356.48 Butterfly didn’t quite reach its .786, and the 1370.58 Butterfly didn’t come close.

    As we found out, the 1347 pattern was the correct one.  It signaled a reversal at its 1.272 Fib of 1421.05 and, in fact, the market reversed at 1422.38.  The decline from there to 1266 set up another Butterfly Pattern (in purple). The 1.272 actually targeted 1464, but SPX stretched to reach the .886 of 1576-666 at 1472 (ultimately reaching 1474.51).

    Because 1347 figured prominently in two important patterns, and neither of the other potential point X’s have seen any real reaction off their Fibs, I have pretty much discarded them.

    But, I show them above just in case.  This market is currently flouting, if not completely ignoring, the rules.  And, the 1356.48’s 1.618 at 1530.58 might suddenly decide to assert itself.  It’s just above current levels and would make for a nice intra-day high.

    And, the 1370.58’s 1.618 at 1553.39 lines up very nicely with the 1.618 extension of the 1474-1343 decline (yellow pattern.)  It also would fulfill a measured move I’ve been tracking.

    On the chart above, the distance from (2) to (3) is 207.77.  Adding 207.77 to the 1343.35 low (4) yields 1551.12 – right there with those 1.618 Crab Pattern completion points. If SPX can break through 1530.58, there are no other Fib levels between there and 1553.

    Obviously, we are still looking at strong negative divergence on the daily and 60-min charts. And, with the sequester looking more and more likely, we’re not lacking for a catalyst. But, the market continues to shrug off some pretty strong headwinds.  I still wouldn’t commit new capital at these levels, and I sure wouldn’t be long and unhedged. But, a close above that yellow trend line and 1530.58 Fib would be hard to ignore.

    More later.

    UPDATE: 2:00 PM

    SPX broke back above 1526.50, so I put the intra-day long on yet again.  As we approach 1530.58, I’ll take another stab at lifting it.  We’re certainly not making any money with this approach, but I’m much less concerned with a sudden 30-point updraft than a sudden 100-pt downdraft.  I seem to have plenty of company, however, and this concerns me.

    OTOH, today’s USA Today headline reads: Mutual Funds Breaking Records.    The only thing missing is the exclamation point.  Inside the Money section, you can take your pick of “Has Dow Outgrown Crazy Days?”, “It’s Hard Out There for a Repo Man” and the imponderable “Fast Foreclosures Help Home Prices.”

    Turns out judicial foreclosures slow things down because the banksters are occasionally restrained by the rule of law (that must really suck for them.)  When it takes too long to kick families out of their homes, it creates “real uncertainty.”  Of course, so does having your former neighbors living out of their Toyota.  Guess that’s where the repo man comes in.

    More shortly.

    UPDATE:  2:45 PM

    Taking another stab at an interim top here at 1530.50 — lifting the intra-day long, full short again. Tight stops on this sucker; as mentioned above, whole lot of blue sky between 1530 and 1553.

    Remember, this is the 1.618 of the Crab Pattern formed by the 1356.48 to 1074.77 decline between July and October 2011.  Downside targets that matter include 1474.51, of course. But, first, let’s think about the scenario that would confuse the most people: a decline to 1490-1497 that would leave open the possibility of a new Butterfly/Crab higher to 1553-1555.

    I’m being summoned for Dad duty (the kids are off school this week and it’s snowing outside – yay!) so I’ll leave it at that for the time being.  I’ll be back later this evening to tidy things up and answer any questions.

    GLTA.

  • The Euro is Doomed

    From Bloomberg, reprinted in its entirety:

     

    Saxo Bank CEO Says Euro Is Doomed as Currency Woes Resurface

    By Mahmoud Kassem – Feb 18, 2013

    Lars Seier Christensen, co-chief executive officer of Danish bank Saxo Bank A/S, said the euro’s recent rally is illusory and the shared currency is set to fail because the continent hasn’t supported it with a fiscal union.

    “The whole thing is doomed,” Christensen said yesterday in an interview at the bank’s Dubai office. “Right now we’re in one of those fake solutions where people think that the problem is contained or being addressed, which it isn’t at all.”

    The euro has gained 8.2 percent versus the dollar in the past six months and reached as high as $1.3711 on Feb. 1, the strongest since Nov. 14, 2011. The European Central Bank forecasts the euro-area economy will shrink 0.3 percent this year and ECB President Mario Draghi said on Feb. 7 that the currency’s gains pose a risk for growth and inflation.

    While the euro has strengthened, the economies of Germany, France and Italy all shrank more than estimated in the fourth quarter. Ministers from the 17-member euro area met during the week to discuss aid to Cyprus and Greece as a tightening election contest in Italy and a political scandal in Spain threaten to reignite the region’s debt crisis.

    “I’d be a bigger seller of the euro at anything near 1.4,” according to Christensen, who said he isn’t making any speculative bets against the currency.

    The euro declined 0.2 percent to 1.3332 against the dollar, falling for a fourth day.

    Shrinking Investment

    France is grappling with shrinking investment, job cuts by companies such as Renault SA and pressure from European partners to speed budget cuts. While Germany expanded 0.7 percent last year, France posted no growth and Italy probably contracted more than 2 percent, the weakest in the euro area after Greece and Portugal, according to the European Commission.

    The economy is on the brink of its third recession in four years and the highest joblessness since 1998. Prime Minister Jean-Marc Ayrault said Feb. 13 the country won’t make its budget-deficit target of 3 percent of gross domestic product this year as the economy fails to generate growth and taxes.

    “Another possible fallout is getting rid of some of the countries that are being ruined by being in the euro, notably the southern European economies,” Christensen said. “People have been dramatically underestimating the problems the French are going to get from this. Once the French get into a full- scale crisis, it’s over. Even the Germans cannot pay for that one and probably will not.”

    Cyprus Election

    Cyprus has been shut out of debt markets for nearly two years with lenders including Bank of Cyprus Plc and Cyprus Popular Bank Plc losing 4.5 billion euros ($6 billion) in Greece’s debt restructuring last year. The nation is holding a presidential ballot today where the economy is the main issue rather than reunification of the divided island.

    Spanish and Italian bonds rose last week as debt sales allayed concern the nations may struggle to raise funds before Italy goes to the polls to elect a new prime minister. Yields on Spain’s 10-year bonds fell for the first week in five as European Central Bank President Mario Draghi said the country had achieved “enormous progress” in its reforms. The spread between Spanish 10-year bonds and comparable German securities decreased two basis points to 354 basis points.

    Spain, which plans to sell three- and nine-month bills tomorrow and bonds maturing in 2015, 2019 and 2023 on Feb. 21, faces a sixth year of slump. Output is forecast to contract for a second year in 2013 with unemployment at 27 percent amid the deepest budget cuts in the nation’s democratic history.

    Record Debt

    Public-sector debt is at record levels, having more than doubled from 40 percent of gross domestic product in 2008. The European Commission, which is due to update its forecasts this week, sees it rising to 97.1 percent of GDP next year.

    “It’s the political world that has been extremely supportive of the euro, not for economic reasons but for political reasons,” said Christensen, a long-time critic of the single currency who now lives in Switzerland.

    TPG Capital, the private equity firm started by David Bonderman, bought a 30 percent stake in Saxo Bank in August 2011 for about $560 million. Christensen and co-founder and co-CEO Kim Fournais maintain majority ownership of the company.

    The Hellerup, Denmark-based bank said in August that first half profit dropped to 44 million kroner ($7.8 million) from 346 million kroner a year earlier.

  • What Recovery?

    source: eurostat.ec.europa.eu

    It was thoughtful of eurostat to include the US in their chart.  Funny, that’s not the chart one would picture based on the MSM’s steady drumbeat of “recovery!”

    Germany, which had previously taken an ambivalent attitude about the soaring euro, might change its tune following its worst GDP print since Q408.  The main culprit?  Exports, which fell 15.4% from November – the worst monthly decline since 2007 – and 5.7% YoY.  Straight from the Bundesbank:

    Housing figures for Q4 should be out soon, but look for a continuation of the slide.

    A falling euro might increase exports, but make oil even more expensive – the same energy/export conundrum in which Japan finds itself.

    UPDATE:  12:20 PM

    SPX continues to move sideways.  The H&S pattern completed yesterday busted, completed again, busted, and is working on completing a third time.  This is a very ugly pattern, with hardly anything normal about it — especially the 3 right shoulders.

    It should have already paid off yesterday with a trip down to 1511ish.  The red channel I drew yesterday is holding nicely so far, but a departure to the downside this morning was quickly erased.  It even fell through the larger red channel midline but rebounded.

    Clearly, the bulls are trying valiantly to defend the 1520 level.  But, can they?

    continued for members… (more…)

  • What Gives? Feb 13, 2013

    It was worth watching the SOTU last night just to see Boehner’s contortions, trying to scowl in a dignified, statesman-like way.  Nothing much new in the speech or the response.

    More interesting was Mitch McConnell’s comment on CNBC last night that the sequester will go into effect. I don’t know any reputable economist who believes we can go through sequester without a sizable hit to GDP.

    But, the market is ignoring the tenuous economic situation and continues to edge higher.  What gives?  Aside from the $85 billion mainlining into the banks every month courtesy of the Fed, that is…

    Zerohedge ran a BofAML study last night that pretty much says it all.  The market is currently reflecting bullish sentiment that’s higher than almost any time since 2002.  I imagine it’s even a little higher this morning.

    Most past ventures into this sentiment range have not ended well for the markets – especially when there is a huge divergence between soaring markets and faltering economic backdrops, as the charts below show.

    Notably, the market is ramping these past few days on negative divergence in every single time frame – from weekly on down to 5-minutes.  And, it has completed some very significant harmonic patterns at the very top of a massive ending diagonal/rising wedge that’s precisely aligned with several previous tops (Jul 2011, Apr 2012, Sep 2012.)

    SPX surpassed our IHS target of 1522.60 from yesterday.  I’m closing out longs here at 1524 and will play the downside.

    UPDATE:  3:15 PM

    Getting a nice little push to the downside here — now 7 points off the daily high.  The white channel line that had been providing support is now providing resistance at around 1518.60 (the purple Crab’s 1.618 Fib is 1518.57.)

    SPX just completed a little H&S pattern that targets about 1510.80.

    Stay tuned…

     

  • Because We Said So (wait, what’d we say?)

    Just as we were getting a tad nervous about simmering currency wars, the G-7 announces there are no wars — everything is fine.

    Then, a G-7 official announces that everything is fine except for the Japanese — who are obviously sort of fighting a little war (see Brainard’s endorsement of same…)

    From Reuters about 30 minutes ago:

    But, really, everything is fine…except that by now the markets don’t know which way is up anymore.  Hopefully by the time the pub crawl lands in Moscow, they’ll have their story straight.

    The USDJPY, which had fallen to its channel midline following the Japanese Finance Minister’s comments that the yen’s fall had, perhaps, been a touch more than anticipated, rose on Brainard’s comments, fell on the first G-7 statement, and rose on the second.

    The pair remains in our target area, but I wouldn’t put any money on it staying there – or anywhere for that matter.  With the press releases flying, who knows where it’ll land when the music stops?

    The EURUSD is suffering from it’s own case of vertigo. In a now familiar refrain, the Germans and most northern EZ countries are just fine with the euro’s strength, while the more fragile economies of France, Italy, Spain, Portugal, Greece, etc. are taking it on the chin.

    The equity markets have been all over the map, albeit in a tight range the past week. SPX is testing 1518 for the 6th time in less than three sessions.

    Apparently, the market can’t accept our assertion that it’s time to sell off.  I don’t know why… Goldman did.

    Speaking of Goldman, Apple CEO Tim Cook is speaking this morning at their Tech Conference.  Apple will offer a live audio feed HERE.

    As discussed yesterday, I’ll add an intra-day long to cover any push above 1518.57 — which might be expected after the little IH&S pattern on the 5-min chart.

    continued for members… (more…)

  • Charts I’m Watching: Feb 11, 2013

    It was a beautiful weekend here on the central California coast.  Seems like everyone was out surfing, golfing, taking walks on the beach — at least that’s what I heard.  I spent the weekend poring over ECRI’s Weekly Leading Indicators for the past 30 years.

    Okay, in the interest of fair disclosure, Friday night was the annual Father-Daughter dance at my 10-year-old’s elementary, and I needed a couple quiet days off my feet.  If you’ve ever been in a room full of screaming prepubescent girls for two hours of JB and 1D, you know what I mean.

    Bottom line, the WLI research bolstered my confidence that our current position is the right one — whether or not the US economy is still in a recession, about to double dip, or is on the mend.  The key takeaway is this chart, showing the QE-fueled market continuing to pull away from the underlying economy (as measured by the WLI.)  Check out the article HERE.

    This morning, I’m hearing more and more talk about the market being frothy.  This is somewhat reassuring, as shorting at tops based on Harmonics often leaves one feeling very lonely.  I mentioned that SPX 1518 was at least an interim top to several other dads at the dance (guys who are in the biz) and they looked at me like I’d had too much fruit punch.

    I could have talked for hours about how applying derivations of a golden ratio based on 2,400-year-old mathematics enables effective market timing, but for some reason they had a sudden urge to go find their daughters and dance.  Funny how that always happens, and just when I’m getting to the good part…

    Of course, frothiness is what leads to overbought conditions — which, of course, is what you want when you short the S&P 500.  So far, the market is behaving itself — selling off a little while trying to sort out economic data, quantitative easing, currency wars and the upcoming sequester battle.

    continued for members… (more…)

  • Satisfaction

    Will the sixth try be the charm?  SPX has futzed around in our target area for six sessions in a row.  Today, we should finally get some satisfaction.

    The dollar has broken out of and is back-testing the yellow triangle. Lots of juicy Fib levels ahead, starting with the cluster at 80.758-80.883.

    RSI appears poised to break out of the red channel and explore the upper half of the white.

    While the EURUSD looks like it’s ready to tumble.  The test I’ll be watching closest is the intersection of channels around 1.3253.  But, merely popping back down below those falling white channel lines would be a great start.

    If I’m right, the falling white and/or yellow channels will take it from here.  Note the negative divergence represented by the last two spikes up to the top of the yellow channel.  The flatish red channel dates back to the fall of 2008, and every sustained push below its midline — currently around 50.51 — has been accompanied by a nice sell-off in EURUSD.

    Japanese finance minister Taro Aso is frantically searching for the “off switch” on the yen-cinerator.  In a chat with a legislative budget committee, he admitted: “it seems that the government’s policies have fueled expectations and the yen weakened more than we intended in the move to around 90 from 78.”

    The 7 sessions in (and slightly above) our target area are looking tenuous.  A dip to the bottom of the white channel could take the pair back to 90.82.

    And a fall from the white channel could easily see a back-test of the midline from the purple channel dating back to 2000.

    continued for members… (more…)

  • Charts I’m Watching: Feb 7, 2013

    Nice little intra-day sell-off again yesterday, culminating in a last minute positive close — another shake-and-bake by your friendly neighborhood market makers to separate you from your hard-earned money. Look for more of the same today.

    Today’s news is all about currencies.  Draghi’s comments are successfully taking some of the bloom off euro’s today.  The euro is up 11% since Draghi’s “whatever it takes” speech last July 26.  What has it gained them?

    Oil got a little cheaper — at least through the end of the year.  Germany might not care, but  Spain, Italy and France exporters are feeling the pinch at a time when they can ill afford it.

    IMHO, this will set up a battle of political wills between the haves and have nots in the EZ.  Bucking the global trend and trying to achieve nominal growth without more accommodative monetary policy is doomed from the get-go.

    The EURUSD chart shows how the market feels this will ultimately be resolved.

    Though the pair will likely find support right about here — an important Fib line (red .618) and the intersection of two prominent channel lines.

    The top of the big falling white channel is still out there as an upside target.  Timing would determine price, of course, since the channel features a fairly steep slope.  But, the range currently includes the red .886 at 1.3995 (the top of the purple channel), the white .500 at 1.3956 and the purple .618 at 1.3832 (the purple midline.)

     

    SPX isn’t enjoying the plunge in the EURUSD.  I’m taking an intra-day short position with the channel line cross at 1508 with a target of 1497.29 – 1499.29 — the .886/.786 of the latest run up.  Charts in a few.

    60-min RSI shows likely downside to at least the red midline and white channel bottom.  This likely translates into the .886 at 1497.29, but the purple midline is way down at 1492, so I’ll give it some rope (and reconsider our upside target) if SPX dips below 1495.

     

    continued for members… (more…)

  • Charts I’m Watching: Feb 5, 2013

    The dollar is taking a breather after a strong reversal off the latest .886 and channel bottom, but appears ready to break out.

    The EURUSD back-tested the broken channel line and rising wedge lower bound, and is likely about done.

    SPX fell 19-pts after we shorted last Friday.  We positioned for an intra-day bounce, but SPX added only 4 points before falling back to complete a little H&S pattern at the close.

    continued for members… (more…)