Risk Appetite and Direction Return to the Forex Market
The market-wide hesitancy in taking a position on direction has seemingly been broken with the agreement for a US bailout. With the dollar rallying and carry unwinding, our DailyFX Analysts are looking at good setups across the market. Read ahead to see what pair each analyst is looking at:
Currency Strategist - John Kicklighter
My picks: Pending USDJPY
Expertise: Combining Money Management with Fundamental and Technical Analysis
Average Time Frame of Trades: 3 days - 1 week
The market's collective breath has been exhaled; and many pairs have shown a new life for direction. A marked move in favor of the US dollar (owing to the refound stability in the banking sector with the bailout) has been met with a sharp unwinding of the carry trade to keep USDJPY stuck in a mature congestion zone. However, these two opposing forces cannot neutralize each other forever; and a break will eventually come. Fundamentally, the dollar's strength is sustainable only as long as good will can be factored in by the bailout. Essentially, this factor is more or less a relief to the markets, while there are considerations - like a possible recession - to still consider. The direction of the carry is the reflection of risk appetite; and that is a force that is always present in the market.
Considering USDJPY has been in wedge for nearly a month now, it is not wise to try and speculate direction. Instead, I will be waiting for a breakout with either limit orders or market while if I happen to be watching (and depending on my risk tolerence). To the downside, a former 38.2 percent retracement of the March to August bull wave offers a good trigger point at 104.90 - though the technical significance of the retracement has certainly been degraded by price action. A more cautious entry would be for a break of 103.50. An advance will be less aggressive as it will have to fight through two months of choppy price action as a ceiling; but there is a clear level to go long in the break above 107.15.
Currency Strategist - Terri Belkas
My picks: Long EUR/USD
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 1-3 Days
The sharp drop in EUR/USD this morning failed to break below 1.4350, which presents a good buying opportunity. Indeed, looking at the 60 minute charts, the morning lows ran right into a rising trendline connecting the 9/16, 9/17, and 9/19 lows. I'm looking at this as a short-term opportunity with a target of approximately 1.4500/18, where we have the 38.2% fib of 1.4868 - 1.4302.
Currency Analyst - David Rodriguez
My picks: Continue selling USD/JPY rallies
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks
Over two weeks ago I signaled my preference for selling USD/JPY rallies, and I continue to maintain that ongoing market volatility will support the Japanese Yen through short-term forex trading. In terms of short-term targets, today's sharp intraday reversal tells me that we are likely to re-test the recent lows near the 104.00 mark. Intraday resistance near 107.03 should contain rallies through the near term. More medium term, I'm looking for a charge back towards 100. Look for other USD/JPY trading signals on our free forex trading signals page.
Currency Analyst - Ilya Spivak
My picks: Pending Short NZDUSD
Expertise: Macro Fundamentals, Classic Technical Analysis
Average Time Frame of Trades: 1 week - 6 months
Having tested all-time highs at 1.60, the Euro showed a Bearish Engulfing reversal candlestick formation on 07/22 and collapsed nearly 13%. Support was found at the psychologically significant 1.40 level. Prices then retraced to find resistance ahead of the 50% Fibonacci retracement of the 07/22-09/11 decline at 1.4908. Last week saw EURUSD has break past support at the 38.2% Fib level (1.4666) but bearish momentum stalled on a re-test of a trend line established in March 2006. EURUSD sold off sharply at this week's trading open as US authorities seemed to finally agree on the terms for a $700 rescue plan to shore up financial markets. Look for the current candle to close below the trend line to initiate a short targeting a return to 1.40.
For more details on EURUSD and positioning for remaining major pairs, please see the latest Fibonacci Weekly Report.
Currency Analyst - John Rivera
My picks: Short EURJPY
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 2-4 Days
The European banking sector saw several bank bailouts and which may be the tip of the iceberg. The upcoming rate decision for the ECB could see President Trichet sound more dovish and signal a change in bias which will weigh on the Euro. The EURJPY free fell overnight, but a break of the 20 Day SMA could lead to more losses. 1.50 looks like the next level of support with a possible test of the monthly low of 147.01 a possibility.
Currency Analyst - David Song
My picks: Short EUR/CHF
Expertise: Fundamentals Combined with Technicals
Average Time Frame of Trades: 2 Days - 2 Weeks
The EURCHF has come under heavy selling pressures throughout the month of September, and should continue to move lower over the week. After failing to break above 1.6000 last week, the euro-franc has lost 100+ points to hold near 1.5010. Over the recent hours, the pair fell to an intraday low of 1.5839, and I expect the euro-franc to end the day near the low. Over the course of the week, I anticipate the underlying downtrend to lead the pair lower to test the 9/16 low of 1.5751 for support on its way to the downside.
DailyFX
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