Murali Sarma
Trade Guidance, LLC
USD/CAD has been moving sideways to up now steadily after the CAD began giving up some of its nice gains from the past month. Tight conditions set markets up for breakouts and the USD especially remains muted to mostly bearish overall giving the basket of currencies it measures against, some momentum. The US Dollar Index is looking like some of the same we’ve been seeing since the end of April. This past week we saw considerable upside on Thursday which soon thereafter gave up all gains following the US Non-Farm Payrolls which despite being about 100K jobs lesser than the consensus estimate, remained a tad bit bearish for the greenback overall.
Perhaps the chiseling lower since then could be different as it isn’t occurring from a swing-low, but the fact that the one-day rally got negated on not such good economic news suggestive of the speculation that perhaps a swing-high may be in. There is the potential that a bear-flag formation forms, more discernable off the daily charts. A bounce may develop off the lower parallel of the pattern that is forming, but again it should be minimal. If we fall below the May low at 89.53 breaks the next levels of support is at 89.20 and following that a bigger gap into the 2018 low at 88.25. This last support level would be a major test as it is a level that began over a decade ago.
Below we put out trade ideas which we are currently in from the lower end of the "suggested entry range". Most times, we like to wait for the profit targets to achieve but have taken off winning trades sooner based entirely by watching the Dollar index.
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Chart of AUD/USD
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EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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