Majors Base After A Three Day Sell-Off

After three days of strong selling, the major pairs seem to have found a temporarily base, after the dollar index entered in a deeply overbought state following the gains seen lately. Throughout the day, the major pairs had varying attempts to break either way, but so far, the market has failed to move anywhere decisively. Ahead, investors prepare for a very busy calendar, including two interest rate decisions coming from the Swiss National Bank and from the Bank of England.

The euro (Eur/Usd 1.4735) spent the day swinging around the 1.4735 area, lacking a clear direction. On the daily chart, the euro is consolidating near the lowest value in a month and just above the 100-day moving average. Right now, the euro is expected to maintain its bullish momentum up to the 1.4830 area, where the market has formed an important swing point over the last few weeks.

The pound (Gbp/Usd 1.6270) is currently forming a long doji-star candle on the daily chart, in the 1.6270 area, which has been very important over the last two months of trading. If the pound does move lower from here, it might extend its downtrend to the 1.6000 area, but right now, the pair's direction of trading is up, ahead of the BoE monetary policy decision, on Thursday.

Aussie (Aud/Usd 0.9095) managed to put a base in place in the 0.9020 area, the same place that held the market over the last two days of trading. From here, the aussie looks able to develop and sustain an uptrend, especially now that the rate differential is working strongly in its favor. The next stop to the upside would seem to be in the 0.9200 area.

The cad (Usd/Cad 1.0535) had just broken below the 1.0550 area, the place where the 20 and the 50-day moving averages meet. This is an important achievement for cad, especially as the trading volumes were subdued recently. Even if the cad develops a downtrend from this area, some further retracements up to the 1.0550 area cannot be excluded.

The swissy (Usd/Chf 1.0255) had a daily range of only 80 pips in Wednesday trade. On the daily chart, the swissy is now forming a neutral doji-star, which usually signals that the prior trend is close to forming a top. Around the same area, the swissy formed a swing point high in early November.

The yen (Usd/Jpy 87.85) was very active throughout the first part of the day, but the trading range dropped to almost a standstill, of less than 10 pips at some stages through the U.S. session. Earlier, the yen tested the 87.40 support area, but bounced higher, returning to the 88.00 area. Over the medium to longer term, the yen's outlook lies to the upside, but on the short term, the yen has an arbitrary trading pattern.

Downgrades Continue, U.S. Markets Holds Higher

Equity Futures: Dow +24.00. S&P +0.70. NASDAQ +8.00. Japan Nikkei -100.00. German Dax -6.00

U.S. Trade: Trading volumes were subdued in Wednesday trade, with the major U.S. indexes barely moving throughout the overnight session, then moving heavily in the cash market, to then finish near to the opening prices. At the end of trade the U.S. equity market posted modest gains, something that could easily be deemed as bullish by those who earlier were concerned about a possible drop.

S&P futures barely moved overnight, even though the Asian and European equity markets were active at that time. During the U.S. cash trade, the market was characterized by indecision, with the S&P futures failing to break, or even to test until any important price point.

On the macroeconomic front, the rating agency Standard & Poor's revised Spain's debt outlook to negative from stable. However, Spain's debt rating was confirmed to 'AA+' for long-term loans, while 'A-1' for short-term debt instrument. This comes after Fitch's decision to downgrade Greece to BBB+ on Tuesday. It is expected that more rating revisions will be issued over the upcoming period, especially for European countries.

S&P Technical View: TheLFB Member Charts

Daily chart trend: Long. Main price points: 1100-1120. Looking for: Wave 5 or C top

The price structure on the daily chart is showing two valid scenarios. On the left side of the chart, it shows an impulse structure with five waves up from the 665 lows to the current highs. If this is the case, the wave 4 discussed on the weekly chart, below, will be rejected, since the fourth wave is a corrective wave, which means it cannot be sub-divided by a five wave move.

However, in this scenario, a three wave push lower into a corrective blue wave 2, with a targets somewhere around 950 area is expected. On the right side of the chart, we have a different picture, with a clear zig-zag correction, which is valid for a wave 4 scenario. In this case lower blue wave 5 will follow.

Overall, the current price structure signals for a coming turning point around the current levels with at least three wave push lower, since the market is trading around the top of wave 5 or wave C leg.

Sector Moves: The mixed trading activity seen in the S&P index was also reflected in most U.S. sectors. Utilities, technology, and healthcare companies advanced, but conglomerates, industrial goods and financials dragged the market lower. The basic materials sector traded flat throughout the day. Narrow industries, silver and personal computer makers advanced approximately 3%.

Within the personal computer industry, Dell and Apple advanced 2.50% and 3.00% respectively, ahead of the upcoming earnings season. The top gainer in the Dow Jones index was 3M, following a 'buy' recommendation issued by Citigroup. Sprint Nextel added 5.30% after it was also upgraded to 'buy' by Citigroup.

Economic Moves: Clear

Crude oil was recently trading at $70.90 per barrel, lower by $1.70.

Gold was recently trading lower by $14.10 to $1,129.30.

Treasuries fell in Wednesday trade, following a weekly auction that drew fewer bids from foreign central banks. This raised some question marks, since the U.S. Treasury is set to sell record amounts of debt over the upcoming period.

Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com

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