USD/JPY and USD/CAD Distribution Fades

The U.S. Dollar is attempting to maintain 80.50 support as the Dow Jones rallies above 11500 once again. The dollar was rejected by the sellers that were waiting at 80.80. I believe this has now created multiple intraday hits at this ceiling and is establishing where the buyers are losing the will to drive the dollar higher. Remember that this level (80.80) is still 20 tics shy of the 81.00 major psychological level which also will have selling pressure.

In my opinion, the intraday dollar can still be perceived as strong despite the ceiling, and this means this is yet another day that EUR/USD bulls will be tested at 1.3200. The level was briefly broken when sellers were able to push through at 10:00am EST on the heels of what was essentially flat and lackluster U.S. data.

The follow-through from the daily swing short on the EUR/USD is taking a pause– as is the USD/JPY which is pulling back from the ceiling at 84.50. The USD/JPY is in a very different market cycle compared to the EUR/USD (which is still in a downtrend) on the daily and therefore still carries a negative directional bias. The USD/JPY daily is in a distribution market phase (sideways and volatile) which means that the 84.50 level is an exhaustion point at which fades can be taken. This sets up shorts on the daily (and 240-minute which is also in distribution) when the ceiling is reached and confirmed by an overbought (over 80 reading) Stochastics.

The fade has reached the 84.00 major psychological level which will present near-term buying support. Remember the dollar-yen will be boosted somewhat because of the positive day in equities. The yen selling could buoy the USD/JPY until the U.S. session closes.

The USD/CAD is another daily which is also in a distribution market phase with the 34EMA Wave moving between “two and four o’clock.” This sets up a buy entry along parity (1.0000) which is a significant psychological level. I believe parity has continued to be a reliable floor from which prices in the past have bounced 100-120 pips. Again, I recommend using the Stochastics to confirm the entry which will need an oversold reading (below 20). I use a 21/1/3 Stochastics.

*Results are not guaranteed, individual experiences may vary. Past performance is not indicative of future results.

As the dollar and Dow continue to range after Thanksgiving, there is a good chance that the trading range is set between now and New Years. Ff that is the case, I will continue to rely on exhaustion on longer-term time frames (240-minute and daily) and trade trends intraday on the five and 15-minute charts as they will require less follow-through.
My low expectation for follow-through continues to come from the fact that I feel the market will lack organization of sentiment and momentum longer-term – but offer plenty of short-term trading set ups – until after New Years.

*Forex trading is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose. Read the full risk disclaimer and privacy policy on trading at www.ibfx.com.

 

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December 19th, 2010 in Forex News

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