HotForex Daily Technical Analysis

[HotForex]

European dilemma: to QE or not to QE?


The malaise of the economies in the euro zone is not news anymore. The same applies to, European Central Bank president, Mario Draghi’s readiness to revive the European economies by quantitative easing (QE). Mr. Draghi, being an Italian, has a special motivation to boost the economic activity in Europe as his own country is one of the most troubled economies in the euro zone. However, the Germans, who have seen the devastating impact of hyperinflation in the not so distant history, are unwilling to start a QE program. This, added to the fact that European leaders are famous for their slow decision making process, could mean that the QE program is further delayed or implemented smaller than expected. Whether there is another QE program or not, the European economies will remain weak for an extended period of time. Europe needs structural reforms in order to become competitive and these changes tend to take time before they can be implemented and the benefits can be reaped. In addition, another flood of cheap QE money would not solve these problems, but only delay these reforms that eventually have to be implemented.

As the EUR has such a heavy weighting in the DXY index (almost 60%), it is often almost a mirror image of the EURUSD.” to “As the EUR has such a heavy weighting in the DXY index (almost 60%), the DXY is often almost a mirror image of the EURUSD



EURUSD, Weekly

The pair is now between resistance and support. EURUSD has reached a weekly pivot high from July 2012 and reacted higher from it. At the same time we have the September weekly low right above us. That should keep the downward pressure on EURUSD and limit moves higher from the current levels. In light of the above it is reasonable to expect to have EURUSD fluctuating between the support and resistance over the coming week. In the longer term picture, the pair is at a lower end of a multi-year sideways move. Thus far, traders have not been able to push EURUSD below the support zone above $1.20. Part of the reason for EURUSD fluctuating in this huge trading range is the fact that we have two central banks on both sides manipulating their currencies. That is a reason to stay alert and see how the price reacts close to this historical support level.
 


EURUSD, Daily

EURUSD is forming a big wedge as it fluctuates close to the bottom of the longer term sideways move. When price forms a wedge after a longish down move it is a signal that the downside momentum is getting weaker. However, the pair is still moving lower as per traditional trend analysis (it is making lower highs and lower lows). Since Thursday last week the pair has moved up to a resistance after touching the weekly support at 1.2390. The price action from 31st Oct. to 5th Nov. (at and above of the current levels) is already causing slowing of momentum and is likely to act as a resistance. This area should provide us with opportunities on the short side.

 


EURUSD, 240 min

There is a confluence area above the current price. The price is not only facing the resistance created by Wednesday’s low from last week but also the descending 50 period moving average and the descending upper end of the trend channel. In addition, the 4h Bollinger Bands are relatively close and the Money Flow Index (MFI) is turning lower while in over bought zone. Therefore, I am expecting the price to turn lower again somewhere between the current levels and the Bollinger Bands. Look for signs of momentum reversal (such as shooting stars) to confirm this view and the timing of the shorts.



US Dollar Index (DXY), 240 min

As the EUR has such a heavy weighting in the DXY index (almost 60%), it is often almost a mirror image of the EURUSD. Therefore, the EURUSD analysis we have made should be confirmed by the price action in the DXY futures. As we can see DXY is reacting higher from a supportive area that coincides (timing wise) with the resistance area in the EURUSD. This supports the idea of selling EURUSD at the levels suggested in my analysis

Conclusion:

The pair is in at an important weekly support level which has already proven to be valid enough to cause price to rally from it. However, at the same time the fundamentals support the view that the EUR should move lower and the USD higher. Therefore the resistance level above the current price should keep any rallies in check. The bias is on the short side as the pair is now close to very potential resistance area. We are looking for short trades between the current levels and the 4h Bollinger Bands if there is confirmation of a momentum reversal in intraday timeframes. Look to take profits when price approaches the weekly support at 1.2390.

Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.

Janne Muta
Chief Market Analyst
HotForex

[HotForex]

In an uptrend but with some underlying weakness

Quite often we can find clues on market psychology by analysing the S&P 500 sectors’ performance in relation to the main index itself. If a safe haven sector such as utilities is gaining ground and the financial sector is lagging well behind, we then have a hint of market participants becoming more risk averse. This is based on the fact that the long only funds cannot but stay in stocks whatever the market circumstances. Therefore, if they are worried about market prospects over the coming weeks or months their only option is to move away from higher volatility and growth stocks into less volatile dividend plays such as utility stocks. Without this manoeuvre they would take a risk of taking a hit that is likely to going to be bigger than the potential down move in the index. This of course will cause the utility stocks to move higher while stocks in riskier sectors decline in relation to S&P 500 index.

Over the last month the undisputed market leader has been the industrial sector. Financials that usually lead the market when the move is strong have had a close to average performance with the technology and utilities sectors and only slightly better than the performance of the S&P 500. This is not a strong signal to either direction. If we focus on the last six trading days, the picture is slightly different. Now we have the utility stocks over performing both the S&P 500 and financials and the technology. Utility sector has (in relation to the S&P 500) gained +0.34% while the financial sector is down by -0.28% and technology by -0.71%. Therefore, we have a notion of bearishness in the way the professionals have been allocating their assets over the last few days.

 

Weekly

The E-mini S&P 500 futures (ES) charts are showing some signs of momentum slow down. Last week’s bar had quite a narrow range compared to the previous week. If this is repeated and we have another sluggish week with a narrow range, the likelihood of the market correcting lower from the newly made highs increases. We will not obviously know this before we have seen what happens over the rest of the week and therefore should not jump to conclusions about the longer term trend.

But what is the longer term trend and how well it is doing? At the moment the trend is still higher, but in the previous US stock market analysis I wrote at the end of October, I suggested that we might have a sideways market ahead as the market made a lower weekly low for the first time since the 2011 topping formation (that lead to a sizeable correction in the fall of 2011). In addition, the more risky small and medium capitalisation stock index, Russell 2000, has been underperforming the major indices since March this year. At the time of writing, Russell 2000, alongside the more volatile German DAX , has not been able to move with the major indices (Dow Jones and S&P 500) into new highs. I should also point out that the number of stocks rising versus the number of stocks falling in the New York Stock Exchange has been getting smaller since October 22nd. These are all signs of underlying weakness in the current up move.

Now that ES has made a new high I have to obviously re-evaluate my analysis and ask the question whether my view of potential sideways move is still relevant. An uptrend is defined as a series of higher highs and higher lows, which means that by this definition the market is still moving higher in a trend. The existence of the aforementioned underlying weaknesses however means that we need to pay attention to how the market behaves (in intraday timeframes) at key levels. This in turn will define the outcome on the weekly level.



240 min.

Judging from a daily ES chart one of these key levels is an area between the September 19th high and November 3rd high (2014.50 – 2019.25). Please note that these point values refer to E-mini S&P futures contract and the point values in other indices tracking S&P 500 index may have a slight variation to it. I have however included the dates so that it is convenient and easy for you to verify the levels from your own charting platform. This key area almost coincides with the rising trend line (currently above the levels). I believe that the level should attract buyers that want to trade against the recent high (previous resistance = current support). In addition to the support from September high and trend line, the 50 period simple moving average (SMA) coincides with the same level. This is an additional reason to believe that a significant number of traders will view this area as important. If price moves to this level, I suggest looking for momentum reversal confirmations such as hammer candles in order to enter into long trades. However, for the price to reach these levels it needs first to move below a Fibonacci extension cluster (black lines) that currently supports the price. As can be seen from the chart, this cluster is actually pretty much spot on at the same level as the rising trend line.

Conclusion:

Weekly momentum appears to be fading but this week’s close defines the picture for the coming weeks. The weekly close obviously has greater indication value of what is happening with the momentum than the midweek price action we are now witnessing. There is underlying weakness which suggests that the price will correct to levels close to the September high, which could provide us with opportunities on the long side. We would need to see a sizeable rally (into new highs) from that level to change the weekly picture in terms of the momentum fade (that I have been writing about) otherwise we will have another narrow range or potentially even downward candle. That would indicate more bearish market conditions and a possibly a correction below the September 19th high. If the price reaches the ES 2014.50 – 2019.25 area, look for hammer candles and other signs of reversal of downside momentum in the 60 min. timeframe. After these signals we should see a fast move higher to confirm the idea. In case the price starts to move sideways and does not have a healthy and fast reaction from the level, it is likely that it has to find lower levels to bounce from.

Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.

Janne Muta
Chief Market Analyst
HotForex

https://blog.hotforex.com/in-an-uptrend-but-with-some-underlying-weakness/

[HotForex]

US shale oil, the new North Sea

The strength of the dollar has been a driver for the lower price in oil but there have also been other factors. Saudi Arabia, the largest oil producer in the world cut recently oil the price of oil it sells to the United States. This was a sign that the oil cartel OPEC is not likely to cut production in order to prop up the market and stop the decline in the price of oil. This far Saudi Arabia has been the one bearing the lion’s share whenever there have been production cuts. The other members of the cartel have enjoyed the higher prices following the price cuts but have not cut their own production. This is not sitting well with the Saudis and this time they might keep the production going in order to discourage new investment in shale oil production in the US. In other words they are protecting their market share.

While demand is lacklustre the supply side has remained strong and is even increasing. The Russian supply has not decreased even though the west has imposed sanctions on them and at the same time US shale oil production is still on the increase. According to the US Energy Information Administration (EIA) an average new well in North Dakota increases production by 100 barrels per day. Some analysts have referred to US shale oil production as the new North Sea. The findings in the oil fields of North Sea in 1986 had a major impact on oil prices. During years of 1984 and 1985 the price of US crude oil had been ranging between $24.66 and $31.50 per barrel, but in 1986 the price of oil plummeted to $9.75 (a drop of 69%). For the rest of the decade the price of oil fluctuated between the $9.75 low and the high of $22.76 per barrel. Oil price was not able to sustain levels above $23 before the year 2000, except for a brief period time between July 1990 and January 1991 as the Gulf war one broke out.

If the analysts are right about the US being the new North Sea, we still see lower prices for crude oil as the difference with the June 2014 high and yesterday’s close is only 28.6%. The world economy is slowing down as the central banks have not been able to manipulate the economies back into growth path with their QE programs and the supply of oil is still increasing. Therefore, further declines in the price of oil should be expected and once the low has been reached we should prepare for a period of lower prices unless a large scale geopolitical conflict significantly disrupts oil production. Further decline in prices will eventually have an impact on the supply side investments and this will in due course cause the price oil to stabilise. What might this “in due course” mean time wise? It is very challenging to estimate this based on the fundamental trends as the price of oil is a sum of numerous outside forces from monetary policy to terrorist attacks. From the technical perspective the price of oil has reached levels that have been psychologically important in the past. Therefore it is interesting to follow the price action as these levels are approached.


Crude Oil, Weekly

Close to weekly support of $72.52, a weekly pivot from May 2010. This level has turned the prices higher in the past which means that the price action needs to be monitored closely here. At some level there we will have a situation where price turn higher before the news and fundamentals get better. Therefore, there will be a disconnect between the price action and the news about the fundamentals. However, at the moment we are still in a downtrend and there are no signs of bottoming or major divergence between the price and the oscillators. It takes in average 3 or 4 months to reverse the trend in crude oil market after a significant decline.


Crude Oil, 240 min

A very clear downtrend with attempts to get above recent supports turned into resistances. The Money Flow Index is overbought and the price is close to Bollinger Bands with a resistance right above the current price action. The first two moves (A and B) after a support was broken have been equal in size. Meaning that price has moved roughly a similar distance before rising back to the former support level (red lines). This time (move C) the price of oil turned higher earlier and has reached the resistance without touching the price projection level. This suggests weakness in downside momentum but we are still seeing reversal of contra trend momentum at 76.43 resistance (60 min shooting star), which is a sell signal for me in this context. Should a move higher happen, we have a potential resistance level close to 61.8% Fibonacci retracements (drawn from point 1 to point 2) that coincides with the descending trend line at around $77.30. I have switched the other Fibonacci levels off to make the chart more readable.


Crude Oil, 60 min.

Conclusion:
The short term bias is down. Even though we have seen some weakness in downside momentum, the price is still in downtrend. Look to participate at resistance levels if the price action confirms the validity of the level (by momentum reversal signals). In the longer term timeframe we are close to levels that have potential to act as major support and turn the price of oil higher. We will not obviously know beforehand when prices turn but for the last 30 years or so it has taken on average 3 to 4 months to create a trend reversal in oil after a major move lower. Therefore, there is no hurry to get to the long side. Rather we should concentrate on trading against the resistances as long as those trades work and buy the positions back at levels where the risk of price rebounding higher is increased. I would look to cover my shorts as the price approaches the levels close to weekly support at $73.25.

Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.

Janne Muta
Chief Market Analyst
HotForex

Read the full analysis on blog.hotforex.com

[HotForex]

US shale oil, the new North Sea

The strength of the dollar has been a driver for the lower price in oil but there have also been other factors. Saudi Arabia, the largest oil producer in the world cut recently oil the price of oil it sells to the United States. This was a sign that the oil cartel OPEC is not likely to cut production in order to prop up the market and stop the decline in the price of oil. This far Saudi Arabia has been the one bearing the lion’s share whenever there have been production cuts. The other members of the cartel have enjoyed the higher prices following the price cuts but have not cut their own production. This is not sitting well with the Saudis and this time they might keep the production going in order to discourage new investment in shale oil production in the US. In other words they are protecting their market share.

While demand is lacklustre the supply side has remained strong and is even increasing. The Russian supply has not decreased even though the west has imposed sanctions on them and at the same time US shale oil production is still on the increase. According to the US Energy Information Administration (EIA) an average new well in North Dakota increases production by 100 barrels per day. Some analysts have referred to US shale oil production as the new North Sea. The findings in the oil fields of North Sea in 1986 had a major impact on oil prices. During years of 1984 and 1985 the price of US crude oil had been ranging between $24.66 and $31.50 per barrel, but in 1986 the price of oil plummeted to $9.75 (a drop of 69%). For the rest of the decade the price of oil fluctuated between the $9.75 low and the high of $22.76 per barrel. Oil price was not able to sustain levels above $23 before the year 2000, except for a brief period time between July 1990 and January 1991 as the Gulf war one broke out.

If the analysts are right about the US being the new North Sea, we still see lower prices for crude oil as the difference with the June 2014 high and yesterday’s close is only 28.6%. The world economy is slowing down as the central banks have not been able to manipulate the economies back into growth path with their QE programs and the supply of oil is still increasing. Therefore, further declines in the price of oil should be expected and once the low has been reached we should prepare for a period of lower prices unless a large scale geopolitical conflict significantly disrupts oil production. Further decline in prices will eventually have an impact on the supply side investments and this will in due course cause the price oil to stabilise. What might this “in due course” mean time wise? It is very challenging to estimate this based on the fundamental trends as the price of oil is a sum of numerous outside forces from monetary policy to terrorist attacks. From the technical perspective the price of oil has reached levels that have been psychologically important in the past. Therefore it is interesting to follow the price action as these levels are approached.



Crude Oil, Weekly

Close to weekly support of $72.52, a weekly pivot from May 2010. This level has turned the prices higher in the past which means that the price action needs to be monitored closely here. At some level there we will have a situation where price turn higher before the news and fundamentals get better. Therefore, there will be a disconnect between the price action and the news about the fundamentals. However, at the moment we are still in a downtrend and there are no signs of bottoming or major divergence between the price and the oscillators. It takes in average 3 or 4 months to reverse the trend in crude oil market after a significant decline.



Crude Oil, 240 min

A very clear downtrend with attempts to get above recent supports turned into resistances. The Money Flow Index is overbought and the price is close to Bollinger Bands with a resistance right above the current price action. The first two moves (A and B) after a support was broken have been equal in size. Meaning that price has moved roughly a similar distance before rising back to the former support level (red lines). This time (move C) the price of oil turned higher earlier and has reached the resistance without touching the price projection level. This suggests weakness in downside momentum but we are still seeing reversal of contra trend momentum at 76.43 resistance (60 min shooting star), which is a sell signal for me in this context. Should a move higher happen, we have a potential resistance level close to 61.8% Fibonacci retracements (drawn from point 1 to point 2) that coincides with the descending trend line at around $77.30. I have switched the other Fibonacci levels off to make the chart more readable.



Crude Oil, 60 min.

Conclusion:
The short term bias is down. Even though we have seen some weakness in downside momentum, the price is still in downtrend. Look to participate at resistance levels if the price action confirms the validity of the level (by momentum reversal signals). In the longer term timeframe we are close to levels that have potential to act as major support and turn the price of oil higher. We will not obviously know beforehand when prices turn but for the last 30 years or so it has taken on average 3 to 4 months to create a trend reversal in oil after a major move lower. Therefore, there is no hurry to get to the long side. Rather we should concentrate on trading against the resistances as long as those trades work and buy the positions back at levels where the risk of price rebounding higher is increased. I would look to cover my shorts as the price approaches the levels close to weekly support at $73.25.

Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.

Janne Muta
Chief Market Analyst
HotForex

Read the full analysis on blog.hotforex.com

[HotForex]

RBA worried about Chinese Property Market https://blog.hotforex.com/rba-worried-about-chinese-property-market/


According to the minutes of the monetary policy meeting of the Board of Reserve Bank of Australia from 4th November, the bank decided to leave the interest rate unchanged at 2.5%. This decision was influenced by the worries related to what the bank described as “considerable uncertainty to the outlook for the Chinese property market and the broader implications for the Chinese economy”. This is understandably a major worry to Australia as China is the most important trading partner for the Australians. The GDP (Gross Domestic Product) growth was expected to stay below the trend during the years 2014 and 2015 with some acceleration expected in 2016. Low interest rates support the economic activity, but the spare capacity in the labour force mean that inflationary pressures stay low. The Australian dollar is still overvalued in light of most estimates and according to the bank “the exchange rate was offering less assistance than would normally be expected in achieving balanced growth in the economy”. Based on the above, the Reserve Bank of Australia, like so many other central banks, would like to see their currency at lower levels. This means that they are not likely to increase interest rates in the foreseeable future. Still, compared to Europe the Australian economy is so much more robust and therefore a better bet from an investment point of view. This and the interest rates differential means that the Australian dollar is likely attract more money than the euro in the long run. However, at the moment we have a short to medium term technical setup that seems to favour the euro.

 

EURAUD, Weekly

In September the pair found buyers at a historical support from 2011 that coincided with a rising trend line. Since EURAUD has now created a higher low at the beginning of November I am betting that it will eventually move higher. The pair is currently trying to push through a resistance area between 1.4592 and 1.4706. If we will see a move lower from this resistance, I expect the weekly high of 1.4440 (see the daily chart below) to provide support and help to create a new higher low in EURAUD. This in turn would support the view that the pair is indeed going to move higher. Once this resistance area has been penetrated, the next target is a weekly high at 1.5022.

 

EURAUD, Daily

Daily chart supports the picture gained from the weekly. The Stochastic Oscillator is entering into overbought territory and EURAUD has reached the resistance area and seems to be creating a shooting star. However, it has also created a slightly higher low above the support at 1.4223 suggesting some underlying strength. At the moment the pair is still in a range mode and therefore might provide opportunities at both ends of the range. At the time of writing we have signs of momentum reversal and we should obviously trade accordingly as long as the pair stays in the range.



EURAUD, 240 min

EURAUD has countered resistance and we are seeing momentum reversal happening. The first potential level for short exits and long entries would be either the weekly high at 1.4440 or the 1.4376 intraday support. This level has recently been acting both as a support and as a resistance. Again, look for hammers to confirm your entries and exits at these levels. Obviously the low end of the range at 1.4223 is another key area.

Conclusion:

EURAUD has now created a weekly higher low at the beginning of November and I am betting that it will eventually move higher. The pair is currently trying to push through a resistance between 1.4592 and 1.4706 but has encountered resistance and is forming a daily shooting star. If there is a move lower from this resistance I would expect the weekly high of 1.4440 or the 1.4376 intraday support to give the price a new higher low and help it to move higher. We have had some short signals at current levels (the resistance). Should the price move lower I will be focusing on potential buy signals at the weekly high of 1.4440 or at the intraday level of 1.4376. As my medium term bias is on the long side I would be more careful with the short trades and trade the long side with an expectancy of longer lasting moves.

Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.

Janne Muta
Chief Market Analyst
HotForex

[HotForex]

EURUSD ranging before the CPI releases https://blog.hotforex.com/eurusd-ranging-before-the-cpi-releases/

Business confidence in Germany rose for the first time in seven months. On Monday the German IFO business climate survey surprised to the upside being 104.7 instead of 103.0 as expected. The German GDP figures (0.1%) for the last quarter were left well behind of those released in the US on Tuesday. The preliminary GDP in the US was more positive than analysts expected with the figure being at 3.9%. That is 0.6% better than expected. On Thursday we will have preliminary inflation figures from Germany and then the euro area CPI estimate on Friday. The logic from the fundamental side suggests that should these statistics show that there is no inflation the pressure on the ECB to act sooner will grow. The focus of the central bank is now on inflation and therefore signs that the euro area might be heading towards deflation should cause the market participants to adjust their positions accordingly and sell euro.

 

EURUSD, Monthly

From technical point of view EURUSD is now at a major support area that has been able to turn traders from bearish to bullish (and price higher) in several occasions in the past. Since 2006 none of the moves below the current level have been sustainable in medium to long term. In 2009 this very level turned price higher in two occasions and in 2010 we had an attempt to take EURUSD below 1.20. This failed even though the euro crisis was at its worst and market participants sought safety from the US Dollar. Many analysts interviewed in Bloomberg TV at the time shared their views on how they expected EUR to move to parity with the US Dollar (one euro would be worth one US Dollar). Now, we have stimulus promises from the ECB president Mario Draghi that have made analysts suggest that EUR will move as low as 1.15. This would mean euro visiting levels it has not seen since November 2003. Will the coming QE mean it is different this time and this move to 1.15 might actually happen? Obviously this is possible, but in the light of current price action it is not likely to happen immediately. This far Mr. Draqhi has been able to talk the market down but in terms of tangible and meaningful action he has not been able to deliver much. In terms of economic growth prospects in the euro area and the United States it makes sense assume that the Dollar will be favoured by the markets in the long run but as we are looking for short term trading opportunities it makes sense to concentrate on the current price action as it develops and technical setups available for us today and over the rest of the week. The downside momentum has clearly slowed down with market being close to forming a small narrow range bar in monthly time frame. The price is at a monthly pivot from 2010 and at the Bollinger bands. If the support holds for the rest of the week and through the euro area CPI releases, we have a monthly narrow range bar indicating that market is at a turning point. In my experience technical levels will prevail unless some unexpected news exceeds the expectations and traders have to quickly revalue the underlying assets and their strategies. This could cause the market move beyond major technical support and resistance levels.



EURUSD, Daily

In the daily chart we can see that EURUSD is forming a bullish wedge. In fact, it can be seen in both weekly and daily charts. Both RSI and Stochastic Oscillator have bullish divergence as price moves below 1.2360 have been rejected twice. This has created a short term double bottom. In addition, the pair has once again moved away from the regression channel, a further indication of momentum slowdown. Resistance levels at daily pivot candle are also weekly resistance levels. As they coincide with a descending trendline and the proximity of Bollinger Bands I am looking for short signals between 1.2512 and the daily Bollinger Bands (1.5 stdv Band currently at 1.2568).



EURUSD, 240 min

In the four hour chart the pair is in a range, so selling the resistance levels and buying at support is the preferred strategy. The price is now approaching the 1.2512 resistance (weekly and daily pivot) with the Bollinger bands stalling the current move a bit. Pay attention to the area between weekly resistance at 1.2512 and a daily high at 1.2568 that also coincides with the descending trend line. I am looking for short signals at or above 1.2512 (a momentum reversal confirming the trade idea). As we are in a range I would look to buy either in the region of 1.2400 or close the support at 1.2360. Again the momentum changes in 15 min and or 60 min resolutions will help us to decide whether to stay short or cover.

Conclusion:

From technical point of view EURUSD is now at a major support area that has been able to turn traders from bearish to bullish (and price higher) in several occasions in the past. The downside momentum has clearly slowed down with market being close to forming a small narrow range bar in monthly time frame. The price is at a monthly pivot from 2010 and at the Bollinger bands. If the support holds for the rest of the week and through the euro area CPI releases, we have a monthly narrow range bar indicating that market is at a turning point. In weekly and daily chart we can see that EURUSD is forming a bullish wedge. In the four hour chart the pair is in a range, so selling the resistance levels and buying at support is the preferred strategy. I am looking for short signals at or above 1.2512 (a momentum reversal confirming the trade idea). As we are in a range I would look to buy either in the region of 1.2400 or close the support at 1.2360. Momentum changes in 15 min and or 60 min resolutions will help us to decide whether to stay short or cover.

Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.

Janne Muta
Chief Market Analyst
HotForex

[HotForex]

Disappointing Black Friday sales turns S&P 500 futures lower

Retailers struggled to entice shoppers with their Black Friday offerings. Spending dropped by an estimated 11% over the weekend. Consumer spending fell to $50.9 billion from $57.4 billion in 2013 and made this the second Black Friday in the row that saw the sales figures tumbling. Even though retailers had aggressive discounts and longer opening hours many of the shoppers stayed at home. It was estimated that more than six million shoppers that had been expected to come did not want to or just simply could not afford to join the Black Friday shopping circus. This has raised concerns of how well the recovery in the US economy is doing.



S&P 500, Weekly

The S&P 500 emini future (ES) created a narrow range candle last week. This implies no demand at those levels and increases probabilities of a sizeable correction. Up volume in the NYSE (New York Stock Exchange) has moved to so high levels that in the light of recent history cannot be sustained. In the past this has caused the market to move sideways and/or correct lower. ES has now moved below the last week’s low of 2060.75 which should limit any immediate rally attempts while the Stochastic Oscillator is overbought and about to roll over. A more significant weekly support level can be found at September high of 2014.50 with a Fibonacci level nearby at 2010.44, while weekly resistance levels are at 2060.75 and 2075.25 (the range of this weekly pivot high).

 


S&P 500, 240 min

Money Flow Index and Stochastics have had bearish divergence while volume has been trending lower over the month of November. This means that there has been less participation in this market and has had obviously bearish implications. Since 21st November the decline in the average volume has been intensifying but it can be at least partly explained by the long weekend due to the thanks giving day in States. However, the bearish indication that this kind of development has was confirmed by the creation of a weekly narrow range candle last week and price now moving below it. Trading started this week with a gap opening lower, which is a further indication of weakness in demand. The last time we’ve had a gap opening lower after a period of rising prices, was on 22nd of September and lead to a 9% correction in the S&P emini and stocks in general.

 


S&P 500, 60 min

Daily high from 18th November has provided some support this morning but the intraday resistance between 2057.50 and 2059.50 has at the time of writing provided a short term sell signal (a 15 min shooting star in the insert) and confirmed the downward bias for today.

Conclusion

A narrow range candle last week is an implication that there is no demand at those levels and increases probabilities of a correction. At the same time oscillators are rolling over from overbought zone and trading started this week with a gap opening lower, all these are further indications of weakness in demand. The last time we’ve had a gap opening lower after a period of rising prices, was on 22nd of September. This lead to a 9% correction in the S&P emini and it therefore makes sense to therefore look for a correction to at least to the next important weekly support level at 2014.50, the weekly pivot high from September. If the price keeps on making lower highs in the intraday charts and keeps on giving sell signals at resistance levels (similar to the 15 min insert) I would keep on trading them and look to go long only if this pattern is broken or ES moves to the 2014.50 support where I believe we have some potential of finding more lasting support. Always look for momentum reversal signals to confirm the support and resistance levels.

Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.

Janne Muta
Chief Market Analyst
HotForex

[HotForex]

“There is a tremendous shortage of physical gold in the world”

This week started with a big rally in the price of gold even though the news that Swiss voters rejected the proposal to buy
more physical Gold should have sent the price lower. The upsurge in the price of Gold from 1141 to 1221 (a move of 7%) has been credited by analysts with the price of Crude Oil surging higher at the same time. With the price of Crude Oil being an important component in inflation measurements an up move in the price of oil would therefore create a need to hedge against inflation, which is what Gold is widely thought to be.

However, the fact that this move in the price of Gold took place after it was confirmed that the 7% annual demand increase for physical Gold by the Swiss central bank is not going to happen is an important indication that the market participants are now willing to step in and buy Gold futures (paper gold).

This brings the paper market in Gold more in line with reports that there is actually a global shortage of Gold. According to McAlvany Financial Group, a firm specializing in physical precious metals markets, gold buyers in Far East are currently paying premium prices for physical Gold. This means that buyers are not only willing to pay the market price for their physical Gold but actually add some on top. At the same time central banks, such as China are buying physical gold and others are repatriating their gold reserves that have been stored abroad. Global Research, a research center for globalization; published an article this week saying that “Netherlands has moved 122 tons of gold worth $5 billion from New York, and similar demands are now being made in France. Last year, Germany asked to have 680 tons of gold repatriated, which is mostly kept in the United States, but some also in the United Kingdom and France. Berlin receives only 5 tons, with the promise to get the rest back by 2020.”

According to Global Research ““And even those 5 tons Germany got back was not the same they had given to the Fed, those were newly cut bars. So it does mean that the Fed clearly did not have anywhere near the gold necessary to send back to Germany. Because it was most probably either leased to the market or sold – this is what central banks are doing – they are lending gold to the market or selling gold in order to push the price of gold down,” Egon von Greyerz said stressing that there is a tremendous shortage of physical gold in the world.” One day when the people who hold paper gold ask for delivery, there will not be any physical gold to deliver.



Gold, Monthly

Gold is at historical support (provided by a monthly pivot candle high from February 2010. The monthly candle for November was a narrow range candle with open and close only $4 apart. This indicates that supply and demand were in balance in November and now this balance could be tipping over to favour the demand side, at least temporarily. This price action coincided with the monthly Bollinger Bands which also limited the move lower and was then followed by a strong rally in the price of Gold higher after the news from Switzerland (the Swiss rejected the law to increase the country’s Gold reserves) caused the market to gap open slightly lower than the close on Friday. If market rallies strongly after news that on face value is negative for Gold, then we have reason to conclude that the market participants are collectively ready to defend (to buy) the recent lows of 1230 – 1240 and they see Gold representing value even if the additional boost of demand from Switzerland is not going to be there.

We still have this market trending lower in the technical sense as it still has lower highs and lower lows. However, the monthly narrow range candle at Bollinger bands suggests that we might have a turning point at hand and Gold could move higher towards the upper end of the down sloping trend channel. There is bullish divergence in RSI even though Gold has been moving lower for four months since July this year, therefore it might well be the time for a move higher after so many downward months.

Longer term Fibonacci levels are clustering at three different areas. The supporting cluster is between 1045 and 1090, while clusters between 1270 and 1306 and again at higher levels between 1383 and 1406 are likely resistance areas in the longer term picture. I have left these levels off the chart to keep it more readable.

The resistance area (1204 to 1226) above the current price action is created by monthly lows and closing prices from this and last year. This level obviously needs to be cleared before Gold can advance sustainably but the fact that we now have a narrow range candle with Bollinger Bands right below and a very positive price reaction to negative news increases possibilities of this happening. However, should the price stay below this level for a one more week it would negate the bullish indications we now have had and increases possibilities of supporting demand eroding at the 1230 to 1240 support area.



Gold, Weekly

Trend the weekly Gold price is lower both in short to medium term and longer term as well. The medium term weekly trend lower is defined by descending regression channel from the pivot in July this year. Currently the price is close to the lower end of long term downtrend channel and a historical monthly pivot candle as well as both monthly and weekly Bollinger Bands near the current lows. These technical factors limit the immediate downside and have in November translated into a narrow range candle (or a Doji as it is also known) with a rising RSI line (bullish divergence). On the upside the weekly pivot high at 1226 from November has acted as a resistance and sent the price to the current levels. The latest high (1221) that was just 3 dollars shy of the low of this pivot candle. The medium term down sloping regression channel top is also close which could mean that Gold needs to have more sideways fluctuation before more upside can be gained.



Gold, 240 min

Price is fluctuating above a recent 4h pivot (green arrow) and below the pivot high from Monday. The 1191 used to be a level that supported price earlier and it acts as a support again. The price being between two pivots has created a very narrow range which on a daily chart looks like a pennant (flag) formation. If this pennant is resolved to the upside it gives us a target of about 1280, a former support level from July and August this year. If Gold corrects lower, look for buy signals at or near to the 1159.50 support created by the 4h pivot.

Conclusion:

Gold is close to an important support with several technical factors supporting the price. If the current narrow range is resolved to the downside (which looks likely to me based on the current market action), the pivot low between 1141 and 1159.50 is a potential support and should be monitored as an exit level for shorts and entry level for long trades. Look for hammers and bullish wedges in 15 and 60 min timeframes to confirm the momentum reversal. If the DXY, US dollar index moves strongly to the upside the bullishness of the above technical indications is negated and it is more likely that the price of Gold will move below the recent lows.

Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.

Janne Muta
Chief Market Analyst
HotForex

[HotForex]

Employment in focus on both sides the border https://blog.hotforex.com/?p=6655&preview=true

In Canada the central bank’s focus is on employment and the recent figures don’t encourage the Bank of Canada to raise rates even though the inflation figures have lately been positive. The employment change reported last Friday was -10.7K instead of positive expectation of 5.3K. This compares quite badly to the same period a year earlier with employment increasing by 146K. On the southern side of Canada’s border the US employment figures are developing above expectations. Non-Farm Payrolls increased by 321.000 instead of 231.000 jobs expected by analysts and the average hourly earnings came in last Friday at 0.4% instead of 0.2% expectations. At the same time the analysts are expecting the Fed to drop their “low rates for considerable time” language soon. It is expected that the Fed will raise rates in six months’ time should this happen. The Bank of Canada’s governor Poloz speaks this Thursday (11th December). He is known to be dovish and the markets are expecting that after the last Friday’s employment figures he will continue with dovish statements. All this is likely to support USDCAD which is still trending higher.



USDCAD, Weekly

The market has been trending higher since June and the pair has pushed through a pivot high that was accompanied with a very long term 50% Fibonacci level (calculated from March 2009 peak to July 2011 low). USDCAD is now approaching levels of a weekly pivot from July 2009 (61.8% Fibonacci retracement level at 1.1674 coincides with this pivot). In terms of nearest support and resistance levels, the proximity of the low of the pivot at 1.1544 is likely to cause some resistance while the peak from March this year (at 1.1278) is a major support.



USDCAD, Daily

The pair is trending steadily in a channel with a recent breakout from a triangle formation. The width of this formation points to the weekly resistance level of 1.1544 and suggests that we need to pay attention to price action at this resistance area. It could be a good target level for short term trades after the pair pulls back a bit. Stochastics Oscillator is getting to the overbought territory suggesting that the price move is nearing levels that we should not consider as entry levels for long trades. Rather it would make sense to buy retracements back to support levels. Pull backs close to the weekly support of 1.1278 should be monitored closely for momentum reversal signals in smaller time frame charts. The 23.6% and 38.2% Fibonacci retracement levels coincide with two other technical levels. The 23.6% retracement is roughly at level with the two recent peaks when considered on closing basis (focusing on daily closing prices rather than the high values) while the 38.2% Fibonacci level coincides with a pivot in a four hour chart.



USDCAD, 240 min

If the momentum stays strong the market can find support at higher levels (closer to the current price). However, should we get moves to the lower levels such as 1.1278 it the risk of further corrections after our entries would be smaller. We should obviously feel therefore more confident deeper pull backs closer to the major support level at 1.1278.

Conclusion

USDCAD is in an uptrend but approaching a higher time frame historical resistance area that has potential to cause this market to correct closer to the lower end of the up trending channel. We are looking for long opportunities at the levels identified in different timeframes. The fundamentals favour this trade idea with the US economy being stronger than the Canadian. Look for corrections to the support levels and then intraday momentum reversal signals before entering long trades.

Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.

Janne Muta
Chief Market Analyst
HotForex

[HotForex]

The Fed pushed the US stocks to recent highs https://blog.hotforex.com/the-fed-pushed-the-us-stocks-to-recent-highs/

Janet Yellen promised that the Fed would keep the interest rates low, or at least that it would not rush to hike the rates. This helped the stocks to rally to levels that we are interested in selling should the price action justify that. We are already seeing momentum reversal and it seem that this is a low risk area to take a contrarian view to the latest rally. Yes, the US economy is doing better than the rest of the world but a quick rally to levels that in the recent past have not been attractive enough for investors to keep buying could very well be followed by a technical correction lower. Let’s see what the charts are telling about the current market activity.



S&P 500, Weekly

After a long term trend higher the S&P 500 futures market is experiencing a higher volatility with the price taking back the ground lost during the previous week’s sell off. This move has taken the market to a weekly pivot high between 2063 (open) and 2079 (high). This looks like a return move, meaning that the chances are it gets sold right at the current levels. This weekly pivot high has been an area that I have called a no demand zone earlier this month and judging from the price action in the four hour chart we might get another move lower from here.



S&P 500, Daily:

The Stochastics Oscillator is getting into the overbought territory and the daily candle looks like it is forming into a shooting star. This will happen if the price cannot close much higher than the current levels. If the market cannot penetrate this (weekly pivot) resistance level but moves lower from here, then the risk of price actually moving much further down increases. The potential support levels are as follows: 2011.25, 1961 and 1883.25.



S&P 500, 240 min

The 240 min chart has already a Doji candle (open and close near to each other) with the Stochastics about to roll over. Both of these signal momentum slowdown and quite possibly momentum reversal taking place. With the price being close to a recent market high, inside a weekly pivot high and very close to a long term (weekly) channel top, I would not be looking to buy at these levels. Rather it makes sense to sell against the recent intraday highs with a view of taking partial profits when price approaches the former intraday resistance (now a potential support) at 2011.25. This is the very same level that provided us with two nice short setups until on the third attempt the price went through. This could be the target one for short trades opened at the current levels.



S&P 500, 60 min

We have already had a 60 min Shooting Star inside this weekly pivot high. This implies that the momentum reversal is actually taking place. There is some minor support at the current levels which might mean that there will be another attempt to take the market slightly higher intraday. This could provide a great short entry level at (or inside) the 60 min pivot candle, therefore my preference would be to short between 2068 and 2073.75 with the first target near to the previous resistance at or around 2011.25, and should the price action justify then I would look to close the rest of the shorts at either 1961 or close to the daily pivot from 15th November at 1883.25.

Conclusion:

Price is inside a recent weekly pivot high and close to the long term channel top. This has been a no demand zone in the past. The 240 and 60 min charts have signs of momentum reversal. I would look to short against the current levels with an aim to close some the short positions at or close to 2011.25 or should there be no signs of momentum reversing, then the next target would be at 1961 or area close to the 1883.25 pivot.

Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.

Janne Muta
Chief Market Analyst
HotForex

[HotForex]

HotForex Blog: https://blog.hotforex.com/portfolio-diversification-supports-gold-price/

I wrote in the beginning of December how the price of gold was supported by many technical factors. I also pointed out that even the negative news that Swiss voted against increasing the country’s gold reserves couldn’t push the price lower. Instead it actually rallied on the next trading day after the results of the vote came out. If negative news can’t push the price down, then the market sentiment is rather positive. This combined with the fact that the price action was showing signs of downtrend running out of steam helped me to conclude that the downside is limited and that the price should move towards the higher end of the long term trend channel. At the same time the analysts focusing only on the fundamentals kept on repeating the same arguments about the improving U.S. economy, the continued better labor picture, the lack of inflation, very strong stocks and the very strong dollar pushing the price of gold lower. By this they justified their views that gold is going to keep on moving lower.

Now analysts are focusing on renewed fears over the EU economics and the potential exit of Greece and suggest that the weakness in equities globally will support the gold prices. This is what typically happens with analyst expectations and market moves. The market reacts first and those who know how to read the market will have an advantage over the analysts that are still focused on something the markets as a whole have already dropped from the radar. At the time I wrote my analysis on Gold (5th December) the internet was flooded with analyst views on how the price of Gold will depreciate further due to strong dollar and low inflation and continued economic recovery, of which the strong stock market was a proof. Since the publication of this article the US Dollar index (DXY) has risen over 4% and Gold is up by 2%, so much for the strong dollar sending Gold prices lower. In addition, the so called strong stock market has not been that strong. I pointed out in my analysis on 12th November that there was underlying weakness in the stock market (S&P emini futures traded at 2021 at the time and are now 1.5% lower) and in another piece from 29th October I suggested that there might be sideways markets ahead. The S&P 500 has not been able to maintain the levels it moved to since then and is now trading only roughly 1.7% higher.

All this supports the view that the appetite for risk is gone and the market participants are looking for ways to diversify their portfolios by selling equities and adding exposure to Gold.



Gold, Monthly

Gold is still relatively close to a historical support (provided by a monthly pivot candle high from February 2010), while the monthly candle for November was a narrow range candle with open and close only $4 apart. This indicates that supply and demand were in balance in November. Even though Gold is still inside a long term downtrend channel we now have a monthly pivot candle (one higher monthly low value on both sides) right at the Bollinger Bands, which is a rather significant technical indication of momentum change. If this month’s trading closes above 1167.30 we have yet another higher low which would further indicate that the price of Gold is gaining upside momentum.

 


Gold, Weekly

Price of Gold has now moved above the down sloping regression channel that formed a medium term downtrend. This week price has been moving outside the channel while the last week’s candle created a third higher low since it pivoted at 1131.50 in November. There is a symmetric triangle created with lower weekly highs and higher weekly lows. The fact that the price is relatively close to a historical support and in a process of reacting higher from this support, we might well see that the price will break out to the upside. A weekly close above the last week’s high would be a further bullish sign. Should the breakout happen the Fibonacci Extension Levels of 1.00 and 1.618 (drawn by using the points a, b and c) would indicate potential short to medium term target levels. Their significance is increased by the fact that they coincide with monthly pivot candle high and low from July 2014. The nearest weekly resistance is at 1226.30 (a weekly shooting star candle low from October).

 
https://blog.hotforex.com/wp-content/uploads/2015/01/Gold_D.png

Gold, Daily

The trend in the daily chart is sideways but the price making higher lows each time it retraces to the Bollinger Bands and moves inside the 7th November pivot candle range (the green highlight). The weekly resistance and support levels limit the current sideways move with assistance from the daily Bollinger Bands. Look for Momentum Reversal Signals inside the green support area to either go long or exit the short trades. The area to look for short MR Signals would be above the 1226.30 level.

Conclusion:

Even though Gold is still inside a long term downtrend channel we now have a monthly pivot candle (one higher monthly low value on both sides) right at the Bollinger Bands, which is a rather significant technical indication of momentum change. This week price has been moving outside the medium term downward channel while the last week’s candle created a third higher low since it pivoted at 1131.50 in November. The trend in the daily chart is sideways but the price makes higher lows each time it retraces to the Bollinger Bands and moves inside the 7th November pivot candle range (the green highlight). At the same time the stock market has been sluggish which suggests that the market participants are not that eager to buy stocks but they might instead be diversifying their portfolios and moving money into safe havens such as Gold. All these factors point to the price of Gold moving higher over the coming weeks and months, however the sideways range could provide actionable trade setups at both ends for traders who understand the Momentum Reversal Signals and Multi Time Frame Analysis. Those wanting to learn how to trade professionally open an account with HotForex and gain access to my past and future educational webinars. I will take you through all the aspects of analyzing the markets and trading them the way the professionals do.

Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.

Janne Muta
Chief Market Analyst
HotForex

[HotForex]

Low Energy Prices Pressuring Corn HotForex Blog https://blog.hotforex.com/low-energy-prices-pressuring-corn/


Weak US exports and falling energy costs have reduced the appeal for renewable fuels which are largely made from grains and oilseeds. According to the U.S. Energy Information Administration, ethanol stockpiles have had risen by 751,000 barrels to 18.85 million barrels by 2nd January. This was the largest weekly rise in nearly two years. Corn prices have been coming down since the beginning of the year as low oil prices mean that demand from ethanol manufacturers is reduced. According to industry analysts, it is unlikely that ethanol manufacturers and blenders will be able to pay close to $4 for corn. This has put a damper on price. Furthermore, the recent rise in the price of corn is likely to encourage farmers to increase the acreage of corn. This would lead to an increase in supply over the year 2015 and put pressure on corn prices.




Corn, Weekly
Price rallied 30% from the September low and has since hit a resistance at around 415’6, which was a weekly support in the Q4 2013. The price has reacted lower from the resistance and sits now at a minor support at 392. The outside reversal bar in the weekly picture took the market lower by almost 6% in one week and suggests that the corn price will be under pressure in the coming weeks. The Stochastics, MFI and RSI are rolling over from overbought levels.



Corn, Daily

The daily chart reveals how there was a rally from the 392 support, but the rally couldn’t penetrate the bottom of the rising regression channel. This created a lower high and confirmed that the uptrend is over. A lower high after the price has had a strong move lower from a resistance level tells about the balance of supply and demand being in favour of the bears. The levels close to the 38.2% Fib level (at around 380) could be significant support as it was a resistance in August 2014 and price pivoted at this level on 18th of August last year. When price moved higher from this level the last time (4th December), a pivot candle was formed and was followed by a gap opening higher. The current daily support at 392 coincides with the Bollinger Bands and the 23.6% Fibonacci level, but in the light of the price moving so strongly down from resistance and creating a lower high, it seems unlikely that the support will hold.

Conclusion:

The potential increase in the acreage and the low energy prices suggest that Corn will be under pressure. The technical picture is weak with the price reaction lower from a resistance and creating a lower high in the daily chart. The first target level for short trades is at around 380, close to the 38.2% Fibonacci retracement level. This view would be negated by market moving above the latest weekly high 417. I look forward to seeing you in the webinars where I will teach you how to take advantage of trading opportunities that occur daily in Corn and other markets.

Those wanting to learn how to trade professionally open an account with HotForex and gain access to my past and future educational webinars. Over the course of the webinars I will take you through all the aspects of analyzing the markets and trading them the way the professionals do. Click HERE to register and be early to secure a seat!

Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.

Janne Muta
Chief Market Analyst
HotForex

[HotForex]

Verbal QE has been weighing on Euro - HotForex Blog:https://blog.hotforex.com/verbal-qe-has-been-weighing-on-euro/


The EURUSD has reached a support area that has been psychologically important in the past. The level acted as a resistance in 1998 and in 2003 and in 2005 the level turned a downtrend in EURUSD to an up move that lasted for more than two years. This could mean that chances for immediate and extensive moves lower are now limited. The last time EURUSD reached a historical weekly pivot it moved sideways for three weeks before breaking lower. The trend is still down and there is no reason in the charts to turn bullish with Euro. In addition, the economic problems in the euro area together with the verbal QE from Mr. Draghi are likely to drag the EURUSD even lower.



EURUSD, Monthly

The EURUSD is at a support area that has been psychologically important in the past. The level acted as a resistance in 1998 and in 2003. In 2005 the level turned a downtrend in EURUSD to an up move that lasted for more than two years. The pair has created lower highs since 2007 and has now moved below an important support area that was able to turn the market higher in three separate occasions.



EURUSD, Weekly

The weekly trend is down but is has extended outside the regression channel. This means that the trend is now more vulnerable for retracements. The 1.1795 level that has provided support is a weekly pivot high from November 2005. With Stochastics and RSI firmly oversold and price at a historical weekly support extensive and immediate downside could be limited.
EURUSD, D



EURUSD, Daily

The daily short term daily trend is down with price inside the regression channel. Price has retraced back to a daily low from 5th January at 1.1868. The oscillators are oversold. The last time Euro was able to move against the prevailing trend it lasted for two days, if the current resistance holds now it is likely that the Euro will at least test the recent lows but there is a likelihood that the problems in the euro area together with the verbal QE from Mr. Draghi will drag the EURUSD even lower.



EURUSD, 240 min

The price has moved out from the descending regression channel to resistance that coincides with the 20 period Bollinger Bands. The resistance is created by pivotal low at 1.1868. Now that price has moved to the level momentum is drying up with Stochastics being ready roll over and 4h bar ranges becoming very narrow. We have a daily resistance at 1.1868, but a weekly support at around 1.1795 is still relatively fairly close. Oscillators are overbought as price moves sideways at the upper Bollinger Bands. There is also a cluster of Fibonacci levels that coincide with the current resistance level and another between 1.1934 and 1.1949. I have left the levels off to increase the readability.



EURUSD, 60 min

A minor uptrend that has reached the 1.1868 and shows signs of weakening. Now the price is about to create a shooting star at the resistance which indicates price will move lower from here.

Conclusion:

The EURUSD has reached a support area that has been psychologically important in the past. The level acted as a resistance in 1998 and in 2003 and in 2005 the level turned a downtrend in EURUSD to an up move that lasted for more than two years. This could mean that chances for immediate and extensive moves lower are now limited. The last time EURUSD reached a historical weekly pivot it moved sideways for three weeks before breaking lower. The trend is still down and there is no reason in the charts to turn bullish with Euro. In addition, the economic problems in the euro area together with the verbal QE from Mr. Draghi are likely to drag the EURUSD even lower. In the intraday chart (240 min) price has moved out from the descending regression channel to a resistance that coincides with the 20 period Bollinger Bands. The resistance is created by pivotal low at 1.1868. Momentum is drying up with Stochastics being ready roll over and 4h bar ranges becoming very narrow. In a 60 min time frame we can see that as the minor uptrend has reached the resistance it shows signs of weakening (a lower high). In the process price also created a shooting star candle at the resistance. This indicates that price will move lower from here. Traders looking to short against the 1.1868 resistance should monitor the levels around 1.1795 for Momentum Reversal Signals to exit short trades as the weekly support possibly provides temporary support to the market.

For those who would like to learn how to trade professionally, please join me at my free trading webinars. Over the course of the series, I will take you through all the aspects of analyzing the markets and trading them the way the professionals do. Click HERE https://www.hotforex.com/en/trading-tools/trading-webinars.html?refid=37217 to register and secure your seat!

Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.

Janne Muta
Chief Market Analyst
HotForex

[HotForex]

The Sideways move in S&P 500 Continues

It is common that market is soft whenever a higher time frame Doji candle forms after a sizeable move higher. This has happened in several occasions over the last seven years and the investors should pay attention. For traders however, this means usually more opportunities as the lower time frames tend to have more price fluctuation. We have plenty of economic releases today from the US, which should help the traders in that regard and cause more volatility in the market. We have import and export data, business inventories, Fed Beige Book, Crude Oil Stocks Change but the most interesting and the publication of Retail Sales data, an event that has potential to move the markets the most. The analysts are expecting the figure to come in at -0.1%, which is considerably lower than the previous 0.7%. A strong deviation from the expectations should move the market significantly and create more opportunities to trade the market.



S&P 500, Monthly

Trend wise the market is still inside the rising regression channel, even though it has had one move outside of it in October last year. The last completed candle from December is an interesting one. The long term stock market Bulls don’t really want to see something like this developing in the world’s most important stock market, especially not combined with a plunge in the price of copper (down almost 5% today). The December candle is what’s known as a Doji, a candle with open and close near to each other. When such a candle appears after an uptrend we know one thing: the demand and supply were in balance. In other words the bulls were not in control anymore. The last time a similar monthly candle appeared after a long uptrend was in October 2007. Then the candle marked the end of the previous bull market. Is it likely that the Monthly Doji candle will again turn the market lower? The importance lies in the price action over the coming two months. If we get lower lows and lower highs followed with increasing volatility, then the probabilities of uptrend being over are much higher. We don’t yet know if this will be the case, but what we know is that the market usually corrects lower after these kinds of candles after the market has been trending higher.

The RSI has been overbought since the beginning of year 2013, which is what often happens in a strong uptrend. Now RSI is breaking below a level of 66.58 that has supported the index in August 2013 and January 2014. The RSI has also diverged from the S&P500 with lower highs while the stock market has been moving higher. This is known as bearish divergence. The nearest monthly S/R levels are at 1961.50 and 2088.75 and a couple of Fibonacci levels cluster at 1845 – 1832. This is not much of a cluster but the fact that they coincide with a monthly low from October makes the level between 1813 and 1845 significant.



S&P 500, Monthly

Trend wise the market is still inside the rising regression channel, even though it has had one move outside of it in October last year. The last completed candle from December is an interesting one. The long term stock market Bulls don’t really want to see something like this developing in the world’s most important stock market, especially not combined with a plunge in the price of copper (down almost 5% today). The December candle is what’s known as a Doji, a candle with open and close near to each other. When such a candle appears after an uptrend we know one thing: the demand and supply were in balance. In other words the bulls were not in control anymore. The last time a similar monthly candle appeared after a long uptrend was in October 2007. Then the candle marked the end of the previous bull market. Is it likely that the Monthly Doji candle will again turn the market lower? The importance lies in the price action over the coming two months. If we get lower lows and lower highs followed with increasing volatility, then the probabilities of uptrend being over are much higher. We don’t yet know if this will be the case, but what we know is that the market usually corrects lower after these kinds of candles after the market has been trending higher.

The RSI has been overbought since the beginning of year 2013, which is what often happens in a strong uptrend. Now RSI is breaking below a level of 66.58 that has supported the index in August 2013 and January 2014. The RSI has also diverged from the S&P500 with lower highs while the stock market has been moving higher. This is known as bearish divergence. The nearest monthly S/R levels are at 1961.50 and 2088.75 and a couple of Fibonacci levels cluster at 1845 – 1832. This is not much of a cluster but the fact that they coincide with a monthly low from October makes the level between 1813 and 1845 significant.



S&P 500, Daily

The daily trend is sideways as I suggested some months ago. The price moved briefly to new highs in the end of December but has since formed a lower high and is now possibly forming a bullish hammer candle. The levels below the pivotal high from September last year (2014.50) seem to attract buyers as evidenced by the last rally from the current levels. However, that was followed by a lower high which dampens the bullishness of the current picture. The 38.2% Fibonacci retracement together with Bollinger Bands supported the price in the previous daily pivot low and now the price is fairly close to the same levels and trying to create a higher low. This indicates that the bulls are looking to take this market to test the 2060.75 resistance. If that is cleared and held (a higher low above the level) the picture becomes much more positive. This is negated if the last week’s low is taken out.



S&P 500, 240 min

Stochastics indicate some bullish divergence and the last complete candle is a bullish hammer. This suggests that the current levels could be a new base for a move higher. The price action however over the last hour has not exactly been explosive to the upside. That is due to the fact that the market participants are waiting for the economic releases.

Conclusion:

The long term picture is getting weaker with a monthly Doji candle appearing. The market now would need a higher high with an ability to main the new highs should the bearish indications in a monthly Doji were to be negated. The weakness indicated by the Doji candle should lead to increased volatility in smaller time frame charts and provide the traders with more opportunities in both directions (long and short). In the daily and 4h charts the price is now close the previous pivot low and we therefore should be looking for short term long trades. The four hour hammer candle confirms the trade idea but there has been no follow through as the market waits for the economic releases. We should be looking for signals to go long at or close to the January 6th pivot low.

For those who would like to learn how to trade professionally, please join me at my free trading webinars. Over the course of the series, I will take you through all the aspects of analyzing the markets and trading them the way the professionals do. Click  HERE to register and secure your seat!  https://www.hotforex.com/en/trading-tools/trading-webinars.html?refid=37217

Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.

Janne Muta
Chief Market Analyst
HotForex

[HotForex]

Markets move sideways before the ECB meeting tomorrow https://blog.hotforex.com/markets-move-sideways-before-the-ecb-meeting-tomorrow/

A lot of the European Central Bank (ECB) QE program is already priced in to the EURUSD but the fact remains that the European economies are in mess when compared to the US. Some commentators have suggested that the reason ECB has delayed its QE program is not in fact the Germans, but the fact that they themselves don’t believe the QE would have a significant impact on European economies. It is true that the problems in the euro area are structural, i.e. relating to labour laws and inflexible policies coupled with the aging European population. All of this combined results in degrading competitiveness in the euro area. The Chinese economy (an important export area for EU countries and Germany especially) is slowing down and in addition to this, it is unlikely that bringing lending rates even lower via QE will result in a significant enough increase in lending that would translate into economic growth. The only measurable impact of the QE has already been seen in the value of euro. The lower the value of the euro against the other currencies, the better the chances that European countries, that depend on exporting will benefit.




EURUSD

In the previous EURUSD analysis I wrote that it is likely that the problems in the euro area together with the verbal QE from Mr. Draghi will drag the EURUSD even lower than the latest lows at the time. I expected some sideways move before that taking place but the removal of EURCHF peg by the Swiss National Bank (SNB) accelerated the decline.

The weekly pivot low at 1.1639 from November 2005 has acted as a resistance both on Friday last week and Monday this week. Even though the price has been moving sideways it is forming a descending triangle, a bearish formation. The current sideways move that forms the triangle is a reaction to huge market move caused by the SNB actions last week. It is common that the markets take a breather after fast and furious moves.

The nearest daily support and resistance levels are at 1.4600 and 1.1639, with the next resistance levels being at 1.1754 and 1.1870. The 1.1754 level coincides roughly with 23.6% Fibonacci retracement level (measure from November 2014 weekly high to the latest low). The next significant weekly resistance level is the weekly pivot low from July 2013 at 1.2042 which coincides with the 50% Fib retracement level. These levels could come into play should the ECB decide not to move forward with the QE program. At the moment the trend is down and we should keep on selling rallies until we have evidence the trend has changed.



EURUSD, 240 min

Price is moving sideways in a narrow range and is likely to do so until the results of tomorrow’s ECB meeting are published. Today should be pretty much flat as the market participants don’t want to commit to any view before an important meeting.

Conclusion:

We don’t know what kind of volatility we will have tomorrow but it makes sense to seek for shorting opportunities (momentum reversal signals) at daily and weekly levels identified in this analysis and stay away from the middle of the ranges. Outside of the QE considerations it remains a fact that the US economy will be in a much better shape than Europe. We therefore should have no reason to be bullish on EURUSD. The only reason that could flip this equation on its head would be a new QE program from the US and at the moment there are now signs of it happening.


For those who would like to learn how to trade professionally, please join me at my free trading webinars. Over the course of the series, I will take you through all the aspects of analyzing the markets and trading them the way the professionals do. Click  HERE to register and secure your seat! https://www.hotforex.com/en/trading-tools/trading-webinars.html?refid=37217

Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.

Janne Muta
Chief Market Analyst
HotForex