Majors Move All Over The Charts

Overall, the U.S. session proved to be very volatile in Wednesday trade, with the major pairs moving all over the charts. The activity in the forex market was greatly influenced by equity moves, which traded in volatile fashion. The most active pair was the swissy, as it appears that the SNB intervened again the foreign exchange market. On the other hand, the yen spent the entire U.S. and European sessions in the 45 pips range.

Dollar Index Technical View:

Daily chart trend: Long possibilities. Main price points: 75.00-76.00. Looking for: Wave V low

Prices on the dollar index chart have reached new lows in the past few days, between the 75.00-76.00 support zone, where wave V may already be completed. If so, then a move higher over the next few weeks should follow, especially once the upper side of the trading channel gets broken and if S&P futures stay below their 1075 highs. In this case we will be looking for a bounce higher on the dollar index chart, near to the 78 area of the previous wave E), of the fourth wave triangle.

The euro (Eur/Usd 1.4630) used the entire U.S. session to move up and down the 1.4625 area, which proved to be an important swing point over the last few weeks of trading. A break above this area might put the euro back on its path towards the 1.49 area, but if it fails, and it breaks below the 20-day moving average, the euro is likely to extend the current downtrend.

The pound (Gbp/Usd 1.5980) moved almost exclusively higher until the U.S. session started, gaining as much as 180 pips. However, during the U.S. open, the pound was sold at a strong pace, shedding every pip gained earlier in the day. For now, the pound is trading very close to Wednesday’s opening price, forming a bearish pin-bar formation on the daily chart.

The aussie (Aud/Usd 0.8815) appears to be the strongest pair among the majors. Even though the other majors saw a corrective wave during the last period, the aussie just set a new high for the current year. Since the beginning of the current year, the aussie advanced a whopping 25%. Buying on dips appears to be a good strategy on the aussie.

Trade Plan of the Day: TheLFB Trade Plan is Aud/Usd, one of the six that are available to members on the major pairs each day, plus four Jpy based cross pairs, plus S&P futures, oil, gold, and the dollar index.

The cad (Usd/Cad 1.0695) saw a very strong day on Wednesday, in which it managed to break below the 20 and the 50-day moving averages. For now, the cad is trading just below the 1.0700 area, which has been an important support area over the last few weeks of trading. A break below it and the cad might extend the current downtrend, but in order for this to happen, the entire market needs to sell the dollar lower.

The swissy (Usd/Chf 1.0365) lost 80 pips during the first part of the day, but throughout the U.S. open, some strong orders hit the market, making the pair surge 150 pips in less than 30 minutes. Most market participants point out that the SNB intervened again in the market to devalue the Swiss franc, as the Eur/Chf was trading at the lowest value in three months.

The yen (Usd/Jpy 89.75) spent the entire European and U.S. session trading in a 45 pip range, despite the volatility seen in the forex market. Since the beginning of August, the yen had been in a downtrend, but right now, the market is taking a break as the new government is surrounded by uncertainty regarding the forex policy they decide to adopt.

U.S. Market Lifted By Buying The Dips

Equity Futures: Dow +15.00. S&P -3.00. NASDAQ +5.00. Japan Nikkei -3.00. German Dax +4.00

The U.S. market saw a very volatile session in Wednesday trading, falling as much as 1.50%, but then recovering every point lost. This comes, after a flat overnight session, in which the index barely moved. The first index to advance above the break-even was the NASDAQ, with the S&P and the Dow Jones closely following.

U.S. Trade: Due to a calendar loaded with top tier reports, the U.S. session proved to be very volatile. The better than expected U.S. GDP numbers helped S&P futures test the 1060 area, the main resistance of the last few days of trading, but shortly afterwards, a wide sell-off started, which drove the future index some 20 points lower, to test the 1040 area.

Investors started to buy on dips, and now the market is trading slightly above the break-even line. With S&P futures closing around in the 1055.00 area takes the quarterly performance up to over 13%, one of the best of the last decade. In order for the S&P 500 index to post the astonishing 14% performance throughout the third quarter, the industrial goods, financial and conglomerates are the sectors that helped the most, with conglomerates up almost 30%.

S&P Technical View:

Daily chart trend: Short possibilities. Main price points: 1075. Looking for: Wave 5 or C top

The wave count on the weekly chart, above, offers a question; is it wave 4 or not? The price structure on a daily chart is also showing two valid scenarios. On the left side of the chart below, 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, above, 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 wave 2), with a targets somewhere around 38.2%-50% Fibonacci support levels, is expected.

On the right side of the chart, we have a different picture, with a wave count that has a clear zig-zag correction, which is valid for a wave 4 scenario. In this case lower wave 5 will follow.

Overall, the current price structure signals for a turning point, since the market is trading on the top of wave 5 or wave C leg, around the Fibonacci resistance levels with the current top at 1075. As such, we will be looking for at least three wave push lower over the coming days and weeks.

Sector Moves: Except for the technology sector, which advanced 0.60%, every other sector traded mixed, moving up and down around the break-even line. Moreover, the technology sector had a big influence over the last few trading session, posting important gains both in the Asian and in the European cash sessions. Interestingly, the technology sector is the only one trading in the green from one year ago, while the financials are the worst, with a -17% return.

The NYSE tick is mixed right now, with 1500 companies advancing, but 1450 declining. This usually denotes a flat market, unable to move anywhere decisively. Until now, 832 million shares changed hands on the NYSE, but most of the trading volume was build declining shares, with approximately 500 million shares.

Economic Moves: The economic calendar was loaded with top tier reports in Wednesday trade, which had a strong influence in the market. Moreover, the calendar will remain loaded for the rest of the week.

The ADP Non-Farm Employment Change came in worse than expected for the fourth month in a row, but still this was offset by the much better than expected GDP read. In the second quarter, the U.S. economy contracted only 0.7% in annualized terms, about 1.5% nominal, even though the market expected a 1.2% annualized contraction. At 09:45 EDT, the Chicago PMI showed that the economy contracted in September in the Chicago area, which extended the strong sell-off started just a few minutes earlier.

Crude oil for October delivery was recently trading at $70.64 per barrel, up by $3.95. Crude oil had a positive momentum even from the first few hours of trading, but the real uptrend started only after a report showed that gasoline inventories fell unexpectedly.

Crude Oil Technical View:

Daily chart trend: Short. Main price points: 60.00-61.00, and 73,00. Looking for: Wave III)

Oil prices on the daily chart have broken through the lower trend-line support which signals for a lower wave III) move. Prices have also traded through the 67.00 wave I) low, which is confirming that the red wave II) is behind and that new leg is in progress. As such, we will be looking for a move towards the 60.00-61.00 Fibonacci support level, where wave III) may hit the bottom. The wave count stays valid so long as the 73.00 highs of wave II) holds.

Gold for October delivery was recently trading higher by $14.10 to $1008.50. Gold managed to break above the $1000 level for the first time over the last few trading session, helped by the gains seen in crude’s market. The next target to the upside lies in the $1020 area for now.

Treasuries traded mixed on Wednesday, reflecting the activity seen in the equity markets. The shorter-term notes, up to 7 years where bought by investors, but the longer-term ones, were sold. This flattens the yield curve even more, which shows the market does not expect the Fed to raise in a hurry.

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

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