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Monday, May 31, 2010

Euro/Dollar (EUR/USD) Technical Analysis - Weekly, 23 week, 2010

Hello. Let's take a look at the possible scenarios for the week ahead concerning the Euro/Dollar trading.

 The weekly graph points to possible bullish divergences for the Euro which could signal the trend reversal is near. The main problem with these divergences however is that they are not finished yet. This could lead to many people getting hurt by expecting a strong upward Euro movement while it still hasn't found a strong enough momentum. A classical case for a bull's trap. This could trigger a wave of stops being hit which presents a big opportunity for a test of the previous lows of the Euro around 1.21.
The daily graph also raises some warning signs which basically consist of the fact that even with positive MACD histogram and being in a relatively oversold position, the Euro is still not able to advance high enough (above 1.25-1.26) and to sustain that level.

With all that said it would be good to keep in mind that the mentioned divergences could get formed in the near future (maybe even next week) and an explosive upward move of the Euro against the US Dollar is highly possible.

Thursday, May 27, 2010

Gold fever. Will its price fall?

For the last year Gold has attracted much of attention. There are numbers spoken in the range of 1500 to 5-7000 and rumors of bets in those areas. The notion is that if this is spoken of, it might happen. So everybody rushes in and tries to get a share in the profits. It's like people expect and believe the market is just and it is its duty to give them what they need. The sad truth is, to paraphrase what Mark Twain once said, that the market owes you nothing because it was here first.

Gold price might continue to rise. If the demand exceeds the supply this would be normal. Even if the trading never gets to deliver real bullion the price would still be a question of demand and supply. The only difference would be the leverage that is possible to be used when trading not in real bullion. The amount of that leverage however could vastly increase the available amount of money that could be poured into Gold and effectively to create a pump&dump structure similar to the credit bubble and the housing ones. These however, are only assumptions and possible future scenarios. Nothing is sure in markets.

Let's take a look at the historical movement of Gold compared to the movement of Euro/Dollar pair. As these are past numbers we could use them to make some notes or even conclusions.

Table 1. Changes in price of Gold and the value of US Dollar against the Euro

Gold- 39%284%- 41%73%5%
EUR/USD- 39%80%- 29%22%- 20%

This comparison draws some interesting ideas.

The first one is that in general for the last 15 years Gold and Dollar were negatively correlated and the Euro and Gold were positively correlated. This means that whenever the Dollar rose in value against the Euro the price of Gold fell. This happens to be true till the last period which starts around the end of last year (November 2009) and continues till now. During this last period at first there is a slight fall of the Gold price in accordance with the rising value of the US Dollar but shortly after the Gold continues to rise and now Gold and Dollar seem to have broken its previous type of correlation as the value of Gold was increased by 5% for the period accompanied by a 20% rising of the Dollar.

In the light of the last market turmoil this could mean a lot more people could be using Gold as a hedge against a possible economic downturn. Or at least these people (or orders) entered the market in the last several months and were enough to break the previous type of negative correlation that was in place.

A second thing of note on the table above is the value of the correlation. Before 2001 the table shows the value was pure -1 which means there is a great possibility that the value of Gold was calculated in the "buying power" of the US Dollar. Thus every drop in the US Dollar drove the Gold price higher in the same proportion and vice versa. After year 2001 this doesn't seem to be the case.

During the later periods the negative correlation was still in place but it's power was changing. The proportion of movements (or say it Beta if you'd like) changed from pure -1 to more distorted values. For the next period the price of Gold rose 3.55 more that the value of the Dollar fell. With all other conditions equal this could mean there was a 3.55 times more demand for Gold than in the previous period. Such an increase in real demand looks a bit striking but having in mind the construction and debt bubbles all over the world in that period makes it not so impossible. The next periods just continue to distort the strong negative connection between the Dollar value and the Gold price. Thus we come to the last period in which the Gold price and the Dollar started to move in the same direction in contrast to all the previous periods in the table.

An interesting thing about the beginning of the century is that in the years of 1990-2001 the electronic means of trading became widely available. And then after year 2001 there came the CFDs to their fullest. This marked the era of the easy access to the market and eliminated the need to really own the shares (or commodities!) you trade in on leverage. With CFDs the leverage could go up to 1/100 or even 1/500. So a person with $1000 could have a buying power of $100000. This increased amount of available money could explain the bigger proportions between the movements of Gold and US Dollar during the period after year 2001. As the CFDs are not available to US investors this could mean that the world outside the US could be the reason for the changing the proportion.

Generally the price of Gold was affected by the value of the Dollar which happened to be lower in times of economic strength and growth and higher in troubled times. The higher value of Dollar when there are troubles in stock markets is possibly because the Dollar is perceived as a save-haven currency. I believe there is a chance the next recovery will be also accompanied by a weaker Dollar as this will help the US economy. So if the current newly found state of positive correlation between Gold and Dollar prices is preserved, this would mean the Gold could fall accordingly.

The last upside in the Gold price despite the rising Dollar and in the light of Europe's debt problems speaks that it could be mostly used as a hedge instrument now. Apart from the fact that using as a hedge something you own only on paper and not "holding in your hands" devalues the idea of hedge itself, using Gold as a hedging means that when there is no need to hedge a imminent danger, there would be no need to hold Gold.

All the above thoughts lead me to a conclusion that when times get calmer and the horizons look brighter the Gold price could fall. Even just in order to compensate the change in the correlation that appeared during the current crisis. There are technical signs that such a move could not be so much ahead in time but this would be a topic of another article.

Wednesday, May 26, 2010

Euro/Dollar (EUR/USD) Technical Analysis - Daily, May 26, 2010

After yesterday's closing of the Euro/Dollar pair near to its open level, today's trade started lower. However the technical analysis shows the direction might change during the day.

The daily graph of EUR/USD (click on it for a better view) shows the Euro gets close to being oversold while the MACD histogram is positive. Still the Stochastic points down but the formation looks promising for an Euro advance. Let's check the lower time-frame graphs.

On the 1 hour graph of Euro/Dollar we see the pair is swinging around the Moving Averages. Still the MAs are positive and the Stochastic points strongly upward. This could lead to at least a short term advance of the Euro against the US Dollar with target placed at the previous high around 1.2380/90.

The overall risk of further decline of the Euro still stays on the bigger time-frame graphs.

Tuesday, May 25, 2010

Euro/Dollar (EUR/USD) Technical Analysis - Weekly, 22 week, 2010

The Euro/Dollar pair took again the major trend direction this week. After the increase of the Euro for the last week which was partly supported by the weekly and the daily graph, now it's again on the downside. During the weekend the news that a major Spanish bank - the Roman Catholic Church-controlled savings bank CajaSur, was took over by the central bank of Spain hit the Euro and made it fall on two consecutive days. Now it trades around 1.2230/40 against the US Dollar.

The weekly Euro/Dollar graph (click on it for a better view) doesn't show any strong upside support for the Euro. Both MACD and Stochastic are pointing down. Such movement could continue at least till Stochastic shows the Euro is too oversold. The current market sentiment is negative towards the Euro and every news about even potential problems in the EU zone could trigger further selling.
There are market rumors on possible ECB intervention but one shouldn't count on that as such a move is mostly hypothetical. However the more oversold the Euro gets, the higher becomes the possibility of volatile movements and explosive ups and downs. The reasons for such movements could be different and could include a possible intervention - either by decreasing the amount of Euros available on the market or by increasing the amount of Dollars.

Thursday, May 20, 2010

Euro/Dollar (EUR/USD) Technical Analysis - Daily, May 20, 2010

Today's technical analysis of Euro/Dollar pair lead us to an interesting conclusion.

On the daily graph (click on it for a better view) of Euro/Dollar pair we see a bullish movement for the Euro. This explains the upward movement for the last two days. A possible target could be around 1.25 where the MA and several Fibonacci levels are found.

Still the smaller time-frame graphs suggest in a shorter term there could be a pull back of the Euro.
The 4 hour graphs still has some time to go up but on the others there are severe bearish divergences seen.
On the 1 hour graph we see the Euro tries to get higher but obviously it's loosing its strength. The Stochastic is in its highest levels but still the MACD is almost negative. Should this divergence takes the lead we could see another drop of the Euro at least around the levels it floated during the Asian trading day - 1.2320/30.
Having in mind the fragile Euro sentiment this could be easily broken and another fall below 1.23 could be seen.

Wednesday, May 19, 2010

US stock market technical analysis - S&P 500, daily, 18052010

The US markets have fallen a lot since the last technical analysis. Today the US Consumer Price Index (CPI) level is expected to be announced. The consensus figures are 0.1 (MoM) and 2.4 (YoY). Earlier in the day the Construction Output in the European Monetary Union (EMU) was declared to be 7.6% while for the previous period it was -7.2%.

The daily graph of S&P 500 (click on it for a better view) shows that the market is getting close to an oversold area. What is more interesting is if it will be a bullish divergence formed on the graph. Still the general direction is down and a test of the 1093 area is possible.

What is more interesting is the bullish divergence that is already formed on the 1 hour graph of S&P 500 which could signal an upward movement for today at least to 1120/25 area. If that gets broken, the market could go higher to around 1140.

Tuesday, May 18, 2010

Euro/Dollar (EUR/USD) Technical Analysis - Daily, May 18, 2010

Euro/Dollar (EUR/USD) forex market is a nervous one today with many swings in both directions.
On the daily graph (click on the graph for a better view) we see the Euro tries to recover some of its loses against the Dollar from the past week but still the major trend is negative toward the Euro. Stochastic is directed upward so this explains to some part today's efforts of the Euro to gain strength.
On the 4 hour graph the Euro seems to have some more road to walk before gets in the overbought area. Now it trades around 23,6% Fibonacci retracement level from the last downward movement. It was for a while above it but that didn't last long and now it trades below it again.
On the smaller time-frames graphs there are multiple bearish divergences formed which could explain the nervousness of the market around current levels.
Still the bigger time-frame graphs look a bit positive for the Euro so it might try another test of 1.2430/40 area.

Monday, May 17, 2010

Euro/Dollar (EUR/USD) Technical Analysis - Daily, May 17, 2010

Click on the graphs for a better view.
 The daily picture looks interesting and while the major direction is still south for the Euro against the Dollar, the Stochastic shows that the EU currency is highly oversold. Still the MACD indicator hasn't made new lows but the Euro price has. This could turn to a bullish divergence which would signal the downfall is about to over.
Still if such a behavior takes place, it shouldn't be expected to happen overnight. The path upward would be hard and cumbersome. The MA on each of the major graphs are still negative and the trend is still down for the Euro.

During the day however there could be interesting opportunities on the buy side for the Euro. One of these was the fall to 1.2250/60 area which was quickly cleared and the direction went north.
On the 4 hour graph we see the Stochastic is pointing strongly upward so it could be expected the upward movement to last at least to around 1.2360 area and even a bit beyond.
The 1 hour graph is still not firmly on a positive side but the ones of a smaller time-frame are. Especially the 30 min one. So a possible scenario is to touch 1.2360/70 and stop for taking a breath.
Still the daily graph is not positive for the Euro so a buy Euro strategy remains a risky opportunity which stands on a shaky ground.

Euro/Dollar (EUR/USD) Technical Analysis - Weekly, 21 week, 2010

Click on the graph for a better view.
The glamor of the aid plan adopted by the EU quickly vanished last week and the Euro got to its lowest level against the US Dollar since the start of the current crisis.
Today it broke below the lowest point achieved around the failure of Lehman Brothers almost year and a half ago and currently trades around 1.2270/90 level.
The weekly graph still points downward but there are couple of things that should be considered.
The trading levels got steadily outside the Bollinger bands which usually is a sign of extremely high pressure. Such pressure is often found in the last moments of a particular movement. Moreover it almost trades at the Bollinger bands level on the Monthly graph but it still hasn't surpassed them.
Apart from the above notes the downside pressure for the Euro on the weekly graph still remains.
For a more precise picture the daily graphs should be checked during the week.

Sunday, May 16, 2010

Macro analysis on the US Dollar value - May, 2010

The current uptrend of the Dollar made many people talk about the possible failure of the EU zone, the parity between the Euro and the US Dollar and even brought ideas of Euro disappearing as a common European currency.
Let's see some figures.
The Trade balance of USA for the last 3 years (since the crisis began) shows that the periods of US Dollar gaining value are accompanied by decreases in the country's import and export of goods and services.

Plot this into the current Forex market conditions and the macro economic data from USA. Consider the following table of quarterly US GDP and EUR/USD (Euro/Dollar) graph (click on the graph for a better view).

Table 1 - USA GDP
14Net exports of goods and services2009 I  2009 II  2009 III  2009 IV  2010 I 
15   Exports-29.9-4.117.822.85.8
16      Goods-36.9-6.324.634.16.7
17      Services-
18   Imports-36.4-14.721.315.88.9
19      Goods-41.0-16.525.120.39.0
20      Services-11.5-7.57.0-1.98.7

EUR/USD graph

The US Dollar for the last 5 months got near its highest levels since the start of the crisis and for the first quarter of 2010 the USA trade balance from the GDP table shows a lesser increase than the one marked for the previous quarter (in which the US Dollar was near its lowest level since the crisis start). Following this logic, the second quarter could prove identical or worse results.
An interesting conclusion from this comparison is that even with the higher value of the dollar the US economy was not able to achieve a higher growth of the money inflow to the country from foreign trade compared to the last quarter. So generally a weaker Dollar works better for the export/import businesses. Especially in a situation where the domestic consumption is not as strong as desirable.

Surely the strong Dollar is not the only obstacle in front of the USA sustainable growth. But in the current US economic policy of "easy money" it doesn't seem to please anyone but maybe the big petroleum companies which could have gained from both the increase of crude oil price and the increase of the Dollar value.

The current policy of FED has proved to be actively in favor of using monetary measures to expand consumer spending. There are no signs it will be changed in the near future. Basically this means pouring more money in order to stimulate spending relying mostly on the Keynes multiplier.

With all that said the current stock market and Forex market situation seems perfectly fit. A possible direction would be an increase of the available US Dollars on the market which will achieve two goals - stimulate (even if considered as being an artificial stimulation) domestic spending and bringing down the US Dollar value against the Euro (which happens to be the major currency it values against). The lesser value of the US Dollar would again increase the activities in foreign trades area and in turn would increase its share in the US GDP. As most of the major companies traded on the US stock exchanges are doing an international business this would reflect in possible increase of their financial results.

Tuesday, May 11, 2010

Euro/Dollar (EUR/USD) Technical Analysis - Daily, May 11, 2010

Click on the graph for a better view.

After the initial sharp increase of the Euro value yesterday, the US Dollar gained some ground and the day closed on the negative side for the Euro.
Today the Euro went lower at first and now it's gaining again some ground.
An interesting formation is seen on the 1 hour graph (and on the 30 min also). If Euro closes on the 1 hour graph above the 1.2745/50, there could be said a bullish divergence was formed which could lead the Euro higher.
On the 4 hour graph the Stochastic is in its lowest area and still the MACD and moving averages are not suggesting a prolonged decline of the Euro.
So basically as a short term way of playing the game the lower time-frame graphs should be watched and when (or if) they show a more clear indication for an Euro increase, this could be a good point for a long Euro position with a first target around the 1.28 level.

One should keep in mind that on the daily graph the Euro is still under pressure.

Monday, May 10, 2010

Euro/Dollar (EUR/USD) Technical Analysis - Daily, May 10, 2010

Click on the graphs for a better view.

The daily Euro/Dollar graph looks promising for the Euro but still now it is traded around its MA level. As the increase for today is quite big there is a possibility for a retreat to take place for some time.
Still the Stochastic is pointing strongly upward so any decrease in the value of Euro against the US Dollar should be easily covered.

The smaller time-frame graphs (the 4 hour and the 1 hour) are still positive for the Euro even though on the 1 hour graph there is a small bearish divergence seen which should be cleared out before the upward movement of the Euro has a chance to continue.

Having this in mind there is a chance in a very short term we see an increase for the US Dollar against the Euro. After that the graphs should be looked at again to see if that increase has a strength to continue and grow.

Euro/Dollar (EUR/USD) Technical Analysis - Weekly, 20 week, 2010

Click on the graph for a better view.

The news about the aid plan the EU government has agreed upon sent a big relief signal to the markets and the Euro jumped against the Dollar. It covered almost 5 cents of losses and currently trades at around 1.2930/40.
Technically there is a chance for a strong bullish Euro divergence to be formed on the weekly Euro/Dollar graph which could signal the start of another medium-term period of value decrease of the US Dollar.
Currently the Stochastic is pointing upward so this week could be a week of the Euro. Still the MACD is in a negative position so this should also be kept in mind.
If the expected increase of the Euro value takes place the first milestone is around 1.31 (a  level that was already touched today) which is the 23.6% Fibonacci retracement level. The second Euro resistance level after the first one lays around 1.34/35.

Friday, May 7, 2010

US stock market technical analysis - S&P 500, daily, 07052010

Click on the images for a better view.

The daily graph of S&P 500 (SPX) stock index shows the market being in a strong downtrend. Yesterday's plunge of about 10% was the reasonable result of series of days in which the market tried to compensate negative movements from the previous days. It wouldn't be much of a surprise if the big drop that took place almost in an hour was caused by automatic trading machines which triggered sell orders given the particular stop levels were reached.

Stochastic points a bit upward for today and in the pre-market the players tried to regain some of yesterday's loss of the S&P 500 index.
In a more close time-frame what is seen on the 4 hour graph of S&P 500 is that Stochastic is gaining height while still the value of the index stays bellow its previous heights. This could show us a possible attempt of the market to lift the index on the first time but as the MACD is still negative a further deeper decline after that attempt is possible. This comes in line with the Daily graph of the index.
Still the big picture looks considerably negative for the index and the stock market as a whole.
On the weekly graph there is a clear bearish divergence seen (shown by the blue lines).
The bullish divergence that took place almost a year ago pushed the markets to its recent heights but it looks now like being exhausted.
Should the bearish divergence takes the lead we could expect e deeper decline of the markets.

Euro/Dollar (EUR/USD) Technical Analysis - Daily, May 7, 2010

Click on the images for a better view.

After the big drop the Euro took yesterday, today is a day of regaining some strength. On the left daily EUR/USD graph we can see it managed to advance up to around 1.2750. Now it strives to get back inside the Bollinger bands. Stochastic is pointing up so we could witness an Euro day at least for the several hours. The reason for such movement could be seen on the lower time-frame graphs.
Still the bigger picture stays negative for the Euro concerning it US Dollar value.
On the 4 hour graph (which today shows almost the same patterns as the 1 hour) we see the Stochastic is pointing strongly upward. So up to its next measurement (which would be at 12 AM or after about 2 hours) the Euro could advance further against the US Dollar.
A possible level to be reached is the one marked with a horizontal red line on the graph - around 1.283/50. This is the 38.2 Fibonacci retracement level on the last big down movement of the Euro.

A warning sign could be seen on the smaller time-frame graphs (30 min and less) which until they are cleared, could make the market suffer a greater volatility.

Wednesday, May 5, 2010

Euro/Dollar (EUR/USD) Technical Analysis - Daily, May 5, 2010

The Euro took quite a plunge today with a loss of about a cent and a half. It started the day trading at about 1.2970/80 and currently trades at about 1.2815/20 US Dollar to one Euro.

As it can be seen on the Daily Eur/USD graph the resistance level around 1.30 (mentioned in the monthly Euro/Dollar technical analysis) was broken and now all the indicators are pointing south.
the graphs of the bigger timeframes agree with such a scenario so more surely than not the downfall of the Euro could be expected to continue for at least today and tomorrow.

On the smaller timeframe graphs the Euro looks oversold but as the bigger graphs are contrary to such a view, they could prevail. Nonetheless there could be times of revival of the Euro during the day so it might take a bit of breath before diving again.

Monday, May 3, 2010

EUR/USD Technical Analysis - Daily, May 3, 2010

Click on the images for a bigger view!

The daily Eur/Usd graph shows the Euro is still under pressure. It took a dive since the beginning of the day and was trading as low as 1.3205 US Dollars. After the intial shock it gained some ground and increased its value to around 1.3230/35. Still the daily graph doesn't support a strong day for the Euro.

In a shorter period there could be an advance of the Euro to cover about half of its today's loses. On the 1h graph we see there is a chance the Euro to achieve a level of about 1.3260 which happens to be both the MA30 and the 31.8 Fibonacci retracement level of the last week's Euro advance from 1.3114 to 1.3339.
Such a view is supported also by the 30min and 4h graphs.

EUR/USD Technical Analysis - Weekly, 19 week

The EUR/USD weekly graph for the current week doesn't show much of a lead.
In contrast to the upward movement of US Dollar during the second half of 2008, here we still don't see any clear trend turning divergence to be formed. The two red lines (A and B) shows the bullish divergence for the Euro which was followed by its own upward trend in the beginning of 2009.
What the current graph has is a MACD indicator whose Histogram is getting closer to being positive but the value of the Euro against the US Dollar still falls. This could indicate either an end of the fall or a stronger than expected downtrend for the Euro.
The Stochastic being in neither oversold or overbought area shows the current movements on the weekly graph are not supposed to be extremely strong and supported by a large amount in either of the directions.
With all that said what could be expected for the current week is a graduate continuation of the upward Dollar trend accompanied by many sideway movements. If we are getting closer to the end of the Euro fall a higher volatility could also be expected.

EUR/USD Technical Analysis - Monthly, May

The technical analysis picture on the EUR/USD monthly graph still looks depressing for the Euro. We are in the midst of a Dollar uptrend although there might be seen some signs for a change coming.
MACD is on the negative side and there seems more time will be needed till it goes positive. At the same time Stochastic shows the Euro is in the oversold area. The picture suggests that at least for the first days of May the Dollar will continue to grow stronger. As history shows there could be several months to pass before the trend gets definitely changed.

We could take a look at the monthly graph and expand it for a much longer period to see which are the possible resistance levels for the Dollar on its way up.
The horizontal red line shows the first possible Dollar resistance level against the Euro which lays at around 1.30.
As Euro looks being much oversold the most probable scenario looks a test of the 1.30 level and a bounce back.

Update: Markets reacted to the agreed bailout package of Greece with sending the Euro lower. In long term there is a chance Greece manages to recover and return the 110 billions of debt the EU and IMF decided to give her. As a result there will eventually be more quantity of money poured into the EU and IMF treasures. That however could take maybe 15-20 years to conclude. So the direct effect is diluting the Euro value and as a result the Dollar gets stronger.