2010 FX Review

The Japanese Yen was the star performer of 2010 among major currencies with the Swiss Franc and the Australian Dollar trailing just behind. The North American currencies (US & Canadian Dollar) were in the middle of the pack, while the British Pound and the euro were the two clear losers.

.

Japan's currency was up nearly 14% in 2010 against a trade-weighted basket. The dramatic fall in global interest rates allowed yield differentials among major economies to shrink vs. Japan. The reduced negative carry associated with the yen along with its safe-haven status, allowed the currency index to reach all-time highs. By the end of October, the USD/JPY was threatening the psychological 80Y level before the Ministry of Finance stepped in, intervening in the fx markets for the first time since 2003. The latest bout of strength is once again threatening the lifetime highs, leading to more speculation of intervention heading into the new year.

.

The euro was the worst performer of 2010, losing more than 7% vs. a trade-weighted basket of currencies. Early in 2010, fears of a sovereign debt crisis developed, concerning various European Union members. This caused bond yield spreads from Portugal, Italy, Ireland, Greece and Spain to widen out dramatically vs. the German Bund. The crisis of confidence of rising debt levels and government deficits climaxed in May, causing the ECB and IMF to step-in. The comprehensive trillion-dollar rescue package managed to calm nerves, allowing the single currency to bottom-out in June. However, recent headlines out of Ireland have put additional pressure on the euro, triggering fresh all-time lows vs. the Australian Dollar and Swiss Franc. The headline risk associated with the EU highlights the ongoing challenges for the currency going into 2011.

.

For 2011 posts, please visit http://fxtrends2011.blogspot.com/

CHART OF THE DAY

Daily DXY Roundup - 12/30

The US Dollar Index (DXY) finished modestly lower after paring losses on the back of firmer economic data. Price-action dipped below recent platform support at 79.58 before bullish diverging intra-day studies triggered a corrective recovery. The region between the December 14th swing low and the key 38.2% retracement (78.82/79.22) is the next downside target for dollar bears. Meanwhile, only a move above trendline resistance near 80.10 will shift focus back towards the resistant 130-day moving average.

The British Pound was the broad loser on the day following weak UK housing data. The Sterling exchange-rate index fell to a fresh 2-month low as the GBP/USD retreated back towards the lower end of its recent range and the GBP/CHF reached a new lifetime low. Oversold daily studies and thin trading conditions should allow for temporary consolidation as the immediate focus shifts to more UK housing data on Friday.

The Swiss Franc continues to be an outperformer, benefiting from its safe-haven status. The trade-weighted index finished up 0.66% following fresh all-time highs vs. the euro, dollar and pound. Further upside, however, should be hampered by thin holiday trade and oversold daily studies.

The USD/JPY managed to find a foothold at 81.36, the 76.4% retracement of the 80.23/84.51 advance on the back of bullish diverging hourly studies. Oversold daily conditions also contributed to the pairs bounce, forming a daily spinning top base. Dollar bulls will now need to reclaim the former swing low at 82.34 to avoid a re-test of November’s cyclical low at 80.23.

CHART OF THE DAY

Daily DXY Roundup - 12/29

The US Dollar Index (DXY) continues to struggle to clear the 130-day moving average, losing nearly one percent after rejecting near this key resistance overnight. As a result, dollar bears were redirected towards newly formed platform support at 79.58, leaving a downside breach of daily (9-period) RSI trendline support. Further weakness will expose 78.82/79.22, between the December 14th swing low and the key 38.2% retracement. Overcoming downward sloping trendline resistance near 80.20 is now necessary to regain the medium-term bullish tone.

The Japanese Yen was the broad winner on the day, increasing 0.70% vs. a trade-weighted basket of currencies. The GBP/JPY marked a fresh 2-year low, but managed to recover following a weak test of Tuesday's fresh low. The USD/JPY failed to regain the 50-day moving average and saw follow-through selling pressure following a bid in the treasury market. Oversold daily studies and possible bullish hourly diverging studies hint of possible consolidation going into thin end-of-year trade. Meanwhile, the yen exchange-rated index (Bloomberg: CEERJN:IND) continues to ascend towards the late October all-time high.

The AUD/USD re-tested the November peak, marking a fresh year-to-date high. Due to the recent outperformance, the Aussie now looks overvalued at current levels according to daily overbought readings vs. a variety of currencies. The Australian currency, however, is expected to outperform in the new year given robust risk appetite in global equity markets and should be accumulated on any oversold dips.

CHART OF THE DAY

Daily DXY Roundup - 12/28

The US Dollar Index (DXY) managed to recover earlier losses in overall thin trading conditions. Bullish hourly diverging studies (MACD & RSI) triggered a rebound just above the December 17th low in the mid-79 region. Not only does this potentially mark platform support, but it also represents a failure to break daily (9-period) RSI trendline support. A daily close above the resistant 130-day moving average at 80.48 is now required to confirm an upside break-out towards the 200-day moving average. Meanwhile, only a daily close below the 30-day exponential moving average will shift focus back to the Fibonacci retracement at 79.223.

The EUR/USD was the underperformer on the day after rejecting at the 25-day exponential moving average. Bearish hourly diverging studies also triggered a failure to clear the daily (9-period) downward sloping trendline. Moreover, price-action has confirmed a bearish daily spinning top formation that now refocuses euro bears back to the key 1.3080 region. A break below this important 50% retracement level would then suggest a re-test of the 1.2970 swing low. In the meantime, only above RSI trendline resistance and the 25-day exponential moving average (now at 1.3264) will shift expectations higher.

The Swiss Franc continues to be an outperformer, trading up nearly a percent against a trade-weighted basket of currencies. The Swiss currency reached fresh all-time highs vs. the US Dollar and British Pound, while continuing to hover above last week’s all-time high vs. the euro. Further upside, however, could be hampered by thin holiday trade and possible daily bearish diverging studies. As such, overbought hourly technical indications seem to be a more appropriate strategy to short the EUR/CHF, GBP/CHF and USD/CHF.

The British Pound finished the day relatively unchanged. In addition to marking a fresh all-time low vs. the Swiss Franc, a new cycle low was reached vs. the Australian Dollar. The GBP/USD failed to clear the 1.5484 former swing low, triggering a sharp relapse to last week’s swing low near 1.5350. Possible daily bullish diverging studies and the persistent probe of the 200-day moving average suggest that the Cable could consolidate until the bulk of traders return to the market next week.

The USD/JPY broke below the 50-day moving average and 50% retracement level at 82.45 following strong Japanese economic data and renewed selling pressure in Asian equity markets. The pair found support, however, near the 61.8% retracement at 81.86 to form a daily bullish hammer. Dollar bulls will now look to reclaim the formerly supportive 50-day moving average at 82.70 to avoid a re-test of the Fibonacci pivot at 81.86.

Daily DXY Roundup - 12/27

The US Dollar Index (DXY) traded quietly with several major trading centers closed for the holiday. Trade remains range-bound between the 130-day moving average and the 30-day exponential moving-average (on a closing basis). The (9-period) RSI upward sloping trendline could provide a clue for future direction. Losing support there would dampen the short-term bullish tone and would expose Fibonacci support at 79.223. Meanwhile, a sustained clearance of 130-day resistance would favor a move towards the 200-day moving average.

The EUR/USD managed to recover off 1.3080 (the key 50% retracement level) as the 2-year yield differential (vs. the US) rebounded off 3-month lows. Euro bulls will now need to pay attention to the daily (9-period) RSI downward trendline for hints of future direction. A break above RSI resistance could trigger a re-test of the 25-day exponential moving average located at 1.3274. A rejection, however, re-opens 1.3080 and potentially the 1.2970 swing low.

The British Pound continues to underperform, losing nearly half a percent on the day vs. a trade-weighted basket of currencies. The GBP/USD remains near the 200-day moving average since failing to reclaim the 1.5484 pivot. The near-term outlook is bearish while price-action remains below this former swing low. The 1.5260/1.5350 region would be the next target for Sterling bears.

Meanwhile, the GBP continues to consolidate off recent cycle lows vs. the Aussie and the Swissy. Daily RSI levels reached such oversold conditions late last week that a corrective bounce was warranted. The limited short-term recovery, however, suggests that the GBP/AUD & GBP/CHF are both vulnerable to renewed selling pressure.

The USD/JPY managed to find support at the 50-day moving average once again. Dollar bulls will now need to reclaim the 83.15 region to avoid a re-test of the 50% retracement level at 82.45. Meanwhile, Japan’s exchange rated index is dangerously close to negating a possible head & shoulders top. Exceeding 172.50 will shift focus from neckline support back to the all-time high at 173.30.

STRATEGY UPDATE:

BUY USD/JPY at 82.52, targeting 83.62 1st, risking 81.97
SELL GBP/AUD at 1.5420, targeting 1.5280 1st , risking 1.5475
SELL GBP/CHF at 1.4915, targeting 1.4680 1st , risking 1.4970

CHART OF THE DAY

Happy Holidays!

A breakout of the latest range requires a higher low above 80.80 or a lower top below 80.30. The downside target includes the 79.20/79.50 range, while a bullish breakout suggests a move towards the 200-day moving average.

STRATEGY UPDATE:
BUY USD/JPY at 82.52, targeting 83.62 1st, risking 81.97
LOOK TO RE-SELL EUR/CHF & GBP/CHF

Happy Holidays!

Daily DXY Roundup - 12/23

The US Dollar Index (DXY) continues to consolidate within a tight range. Over the past few days price-action has idled between 80.30 & 80.80. A breakout of this range will require an hourly or short-term higher low above 80.80 or a lower top below 80.30. Meanwhile, the Proshares Dollar Index ETF (UUP) is favored to appreciate to the 24 level while price-action remains above 23.
.
The Swiss Franc was the broad loser on the day following profit-taking. The USD/CHF failed at the psychological .95 figure then the GBP/CHF carved out a small double bottom base, triggering a 1% correction in the trade-weighted Swissy. While oversold studies hint of further consolidation, the current correction should only last temporarily. As such, short EUR/CHF and GBP/CHF opportunities should become available early next week.

CHART OF THE DAY

Daily DXY Roundup - 12/22

The US Dollar Index (DXY) was roughly unchanged in holiday-driven flow. The 130-day moving average continues to provide resistance, but the outlook continues to be bullish while hourly price-action remains above 80.30 on a closing basis.

The commodity currencies (Aussie and Loonie) outperformed as risk appetite continues to flourish. The USD/CAD has shied away from 100-day moving average resistance, while the AUD/USD remains poised to re-test 1.0031 (the 76.4% retracement).

The British Pound was the weakest currency following downwardly revised GDP data and a larger than expected current account balance. As a result, the GBP reached new cycle lows against the Swissy and Aussie. Each of these pairs, however, are expected to consolidate due to extreme oversold conditions before resuming further weakness.

.

STRATEGY UPDATE:

SELL GBP/CHF at 1.4680, targeting 1.4625 1st, risking 1.4735

SELL EUR/CHF at 1.2500, targeting 1.2440 1st, risking 1.2555

Daily DXY Roundup - 12/21

The US Dollar Index (DXY) was modestly higher in thin trading conditions. Bearish hourly diverging studies limited a sustained move above 130-day moving average resistance. Meanwhile, only an hourly close below intraday support at 80.33 will question the short-term bullish tone.

.

The Australian Dollar was the outperformer despite the slightly dovish RBA minutes. The Aussie continues to extend to multi-decade highs against the Pound and Euro. The AUD/USD looks to re-test a key Fibonacci retracement at 1.0031 (76.4% of the November relapse).

.

The Euro was the weakest currency as debt concerns continue to linger despite supportive words by the Chinese government. The EUR/USD managed to rebound after re-testing 1.3085, the 50% retracement level of the June/November upmove. Bullish diverging hourly studies have provided support, but the pair will need to clear the 1.3190/1.3205 formerly supportive region to hint of a possible base.

.

[STRATEGY UPDATE] LONG GBP/USD at 1.5449, targeting 1.5555 1st, stop-loss at 1.5394

Daily DXY Roundup - 12/20

The US Dollar Index (DXY) is probing the same moving average that capped strength earlier in the month. The double bottom neckline at 80.40 has been broken and clearing 130-day moving average resistance would expose the November high. Meanwhile, only a daily close below the 20 & 100-day moving averages would compromise the bullish structure.

The Canadian Dollar was the weakest performer following weaker than expected wholesale sales data. The trade-wighted index was down over 1% on the day. The USD/CAD now looks to re-test the 100-day moving average since finding a foothold near parity. The CAD/JPY broke out of a one month rising wedge and will attempt to carve out a higher low by the 50-day moving average and 50% retracement near 81.50.

Daily DXY Roundup - 12/16

The US Dollar Index (DXY) ended the session slightly down after rejecting at key resistance. The bullish hammer recovery paused at last week's highs at 80.40, failing to confirm a double bottom base. Bearish hourly diverging studies contributed to the bearish rejection, which now seeks a higher low to maintain the bullish structure. A sustained move below the 20 & 100-day moving averages will shift the immediate focus to the 38.2% retracement at 79.20.


The British Pound was the outperformer following an upbeat retail sales report. The GBP/USD recovered back above long-term trendline support and managed to retrace a quarter of this week's sharp decline. The pair, however, remains bearish while below the 38.% retracement at 1.5676.


The EUR/USD retested the 1.3180 region, but managed to rebound on the back of bullish diverging hourly studies. Clearing the 30-day moving average is now required to redirect bulls back towards 1.3470, a key Fibonacci retracement level.

STRATEGY UPDATE:

Daily DXY Roundup - 12/15

The US Dollar Index (DXY) rallied on the back of rising treasury yields, confirming Tuesday's bullish hammer pattern. The next obstacle for dollar bulls is last week's highs at 80.40, above which confirms a higher double bottom base. A swing low could form near the 79.87 region, where the 20-day moving average and 100-day moving average overlap. A sustained loss of this pivot would suggest a third test of the 38.2% retracement level at the 79.20 level.

The British Pound was the weakest performer of the major currencies following a surprisingly weak employment report. The GBP/USD collapsed through its upward tilting channel then rejected near formation support. The 2-day retreat has wiped out nearly all of the gains from the previous two weeks. This bearish development suggests an imminent re-test of the November low at 1.5480. The Sterling also reached new lifetime lows against the Aussie and Swissy, as focus shifts to tomorrow's UK retail sales report.

The USD/JPY broke above the recent 84.40 ceiling to signal further strength towards 84.82/85.40 (between the 2009 former low & the September 24th spike high). Only a daily close below the formerly resistant 110-day moving average delays dollar bulls.

CHART OF THE DAY

Daily DXY Roundup - 12/14

The US Dollar Index (DXY) ended the day mixed against a trade-weighted basket of foreign currencies. Price-action managed to rebound off the lows on the back of bullish diverging hourly studies, forming a daily hammer formation. While follow-through is needed to confirm this candlestick base formation, only back above the 20-day moving average delays weakness. Dollar bears will look to test the mid-78 region, where the 50% retracement and 50-day moving average lie.

.

The Swiss Franc was the strongest currency on the day following the government's upgrade for future growth. The Swissy was up nearly one percent against a trade-weighted basket of currencies. More importantly, both the GBP/CHF and EUR/CHF are approaching their all-time lows. These pairs are worth watching in the upcoming sessions especially with the Swiss National Bank due to meet later this week.

.

The British Pound, meanwhile, was among the weakest performers. The GBP/USD rejected at 50-day moving average resistance and the 50% retracement level for the second consecutive day. The pair continues to trade in a one-week upward tilting channel. Losing formation support would violate the current choppy recovery and exposes the 1.57 handle.

Daily DXY Roundup - 12/13

The US Dollar Index (DXY) broke out of consolidation, collapsing through triangular support. Price-action was decisively bearish, wiping out nearly all of last week's gains. The subsequent retreat probed the 38.2% retracement at 79.20 for third time. A clean loss of this key Fibonacci level exposes 78.52, the 50% retracement. Meanwhile, only a move back above the formerly supportive 20-day moving average alters the bearish outlook. The UUP (Proshares Dollar Index ETF) failed to clear key resistance to suggest a re-test of critical support at 22.

The EUR/USD reversed the recent weak downmove by breaking out of a short-term consolidation triangle. The rebound retraced nearly the entire move off the non-farm payrolls high. A higher low is now sought by the 20-day moving average for an extension towards 1.3462/1.3614 (the 38.2% & 50% retracement levels).

CHART OF THE DAY

Daily DXY Roundup - 12/10

The US Dollar Index (DXY) continues to consolidate, forming a 3-day ascending triangle pattern. Since completing a zig-zag correction off the November low, the recent pullback has been limited to the 38.2% retracement level. While the uptrend remains intact, lackluster follow-through hints of the possibility of a bearish shift.

The greenback's rebound has stalled near the mid-way point of the previous week's relapse. More importantly, this recovery has taken nearly twice the amount of time it took to decline from the recent high. This potentially suggests the formation of a secondary high or lower top. A loss of triangular consolidation support near the 80 handle could trigger the third test of 79.22 (the 38.2% retracement). In the event of a confirmed lower high, a relapse to the 50% retracement level at 78.39 would then be favored .

An uptrend is considered to be intact while price-action remains above the 38.% retracement of the overall upmove. Thus, a move above triangular resistance at 80.40 would reinforce the bullish structure. A short-term swing low above the 80.40 pivot could then expose the important 200-day moving average.

CHART OF THE DAY

Daily DXY Roundup - 12/08

The US Dollar Index (DXY) consolidated while the treasury and commodity markets continued to trade violently. The greenback's recovery off the 20-day moving average spent most of the day locked in tight range between the 38.2% and 50% retracement levels. Future direction will now require the formation of a swing low above the 50% retracement or a swing high below the noted range. A bearish breakout will reopen the key Fibonacci retracement at 79.22, which has been tested twice so far. In the event of an upside breakout, the 61.8% retracement is targeted ahead of the 200-day moving average.

CHART OF THE DAY

Daily DXY Roundup - 12/07

The US Dollar Index (DXY) maintained support at the 38.2% retracement for the third straight day. This bullish development along with the sell-off in commodities should redirect dollar bulls back above the key 80 handle. The dramatic rise in treasury yields should also narrow yield differentials in favor of the US. This would also set the table for further gains through the pyschological 80 level towards 80.25/80.53. Clearing this would greatly increase the prospects for a move to the important 81.85/82.00 area. Meanwhile, only a loss of 79.22 (the 38.2% retracement) alters the bullish scenario.
...
The EUR/USD failed to overcome 20-day moving average resistance once again. The pair retreated late in the North American session to retest the key 38.2% retracement (of recent gains). Losing 1.3260 immediately shifts focus to the 1.3150/1.3210 region, while only a clean break above the 20-day moving average offers relief.
...
The USD/JPY has benefited from a rising yield environment. The pair tested 50-day moving average support before retracing 61.8% of recent losses. Dollar bulls should anticipate a retest of the 110-day moving average above the 84 handle. Clearing this key resistance immediately exposes the 84.88/85.00 region.
...

STRATEGY BUY USD/JPY at 83.40, targeting 84.88, stop at 82.85
..............SELL EUR/USD at 1.3286, targeting 1.3150, stop at 1.3341

CHART OF THE DAY

Daily DXY Roundup - 12/06

The US Dollar Index (DXY) ended a 3-day skid by rebounding off the 20-day moving average. The 38.2% retracement provided support, allowing the greenback to maintain its near-term bullish structure. However, the ensuing rally rejected near the key 80 threshold to potentially shift the focus back towards the 20-day moving average and key 38.2% retracement. Reclaiming 80 would reinforce the original outlook for a move towards the 200-day moving average.

..................

The EUR/USD rejected at the 20-day moving average, failing to test the 38.2% retracement at 1.3460. Failing to reclaim the November 16th swing low has maintained the bearish structure. Fortunately for euro bulls the subsequent relapse was contained by a key Fibonacci retracement at 1.3260. While this pivot remains supportive, a retest of the 20-day moving average is favored. Losing 1.3260, however, will expose the 1.3150/1.3210 region.

CHART OF THE DAY

Daily DXY Roundup: 12/03

The US Dollar Index (DXY) fell across the board as a result of the worse than expected employment report. The disappointing data put a bid back into the treasury market, helping to drive down US yields. The shrinking yield differential hurt the greenback, allowing the DXY to close near the key 38.2% retracement. Although, the recent relapse has produced a normal sized correction in terms of size, the rapid pace suggests further weakness in the near-term. While price-action remains capped by the important psychological 80 level, the 50% retracement at 78.55 is next targeted. Meanwhile, the Proshares Dollar Index (UUP) has broken below the pivotal 23 region to potentially refocus key support at the 22 handle.

..............................................................................

The EUR/USD extended recent gains, closing the day near 20-day moving average resistance and the key 38.2% retracement level. The current rebound has exceeded the size of the previous corrective rally in mid November. This along with the formation of a weekly hammer, suggests strength towards the 50% retracement near the 1.36 handle. Meanwhile, the Euro Index (EXY) has regained the key 50% retracement at the 107 level to refocus the important former swing low at 108.

12/03: CHART OF THE DAY

Daily DXY Roundup: 12/2

The US Dollar Index (DXY) has retraced a quarter of recent gains. A daily close below 100-day moving average support exposes the 38.2% retracement at 79.240. While the presence of three hourly lower tops suggests further corrective weakness, reclaiming the latest intraday high at 81.020 could stabilize selling pressure. Focus now shifts to tomorrow's employment reports out of Canada and the United States. A better than expected non-farm payrolls number could trigger further narrowing of yield differentials, which could stand to benefit the greenback.

The EUR/USD continues to benefit from reduced risk aversion. An hourly inverse Head & Shoulders formation has been completed, projecting strength to the 38.2% retracement near the 1.33 handle. Only a loss of former neckline resistance at 1.3150 softens the outlook.

12/02: CHART OF THE DAY

Daily DXY Roundup - 12/1

The US Dollar Index (DXY) pared recent gains on the back of overbought daily conditions. Wednesday's price-action carved out the right shoulder of an hourly Head & Shoulders pattern. A sustained loss of neckline support at 80.70 projects a relapse back to the psychological 80 threshold. Meanwhile, the dollar remains structurally bullish while price-action remains above the 79.461 swing high. Reclaiming 25-hour moving average resistance negates the aforementioned bearish pattern and could trigger an extension to the targeted 82 region.

.

The EUR/USD broke out of an hourly consolidation pattern overnight and has retraced a quarter of losses off last week's peak. Wednesday's move has solidified a tweezer bottom formation. The clearance of 1.3150 would confirm an hourly inverse Head & Shoulders pattern. This would project further corrective strength towards the 1.33 handle, where a key Fibonacci retracement lies. Back below 1.3050 will refocus the 1.2940 region, where an equality target lies.

.

The AUD/USD rebounded off the 100-day moving average, triggering a falling wedge breakout. A sustained clearance of key resistance at .9700 would suggest further strength towards 20-day moving average resistance.

CHART OF THE DAY