E$ caught between tectonic plates again...

More signals are converging to affirm a USD resurgence, which concomitantly would also mean an end to the commodity cycle (AUD, XAU, etc....). In a situation as such, euro benefits from the stronger EURXXX but on a relative basis will still be weaker than the greenback. Being caught in between 2 tectonic plates, it will become trickier. My concern is the divergence between the currency market from the equity market. In 1987, the US treasury bonds and the equity market diverged for around 7/8 months before the equity market plummeted. Are we in the making of the same? If so, then there should a big correction in the equity market this year, probably in the Q3.
Back to the E$.... with the weak close last week at 1.2990, we are now trading below the DMA21, 50 and 200, which are bearish signals. Strong resistance stands at 1.2995/3010 and pivot at 1.3060/70. First support level is the 61.8% target (see chart) which the market had already bounced away on first test with the next stronger one at 1.2910/890.

CFTC COT report - Speculative accounts (as per May 7):
Net euro short -33,533 vs 30,149
Net short jpy   -78,560 vs -71,127

Europe order book:
Stop loss: 1.2845 and 1.3055
Limit: 1.2860/50, 1.2935 and 1.3040/50

Primary trend: Bullish
Intermediate trend: Bullish (unless 1.27447 breached)
Minor trend: Bearish (refrain from getting too bearish nearer 1.2900)

Technically, longer intraday indicators are in o/s zone. Shorter intraday momentum indicator is showing range consolidation but longer intraday momentum continues to point lower. I expect a trading range between 1.2890/3010 to 1.2990/3010. Overall technical signals favours selling E$ on rally.

E$ Daily chart - 61.8% corrected

BOK supporting E$....

Since 4th Apr this year, E$ has not closed one day below the DMA21 until yesterday. To add on to the bearish story, it broke below the trendline convincingly (see chart). Though these signals are simplistic but one has to take note and avoid being too aggressively bullish at this stage until the above levels are recaptured. Yesterday, 1.3120/40 proved to be an important support level and breaking which exposed E$ to the next stronger support at 1.3000 which we just saw tested and low printed 1.3005 as of now. Market chatters have it that an Asian central bank (ie. BOK) is recycling intervention dollar into euro at around the 1.3000 is providing support. But rumour of a large sell stop residing at 1.2950 will keep market focus on the downside.

Europe order book:
Stop loss: 1.2950, 1.3000 and 1.3050/55
Limit: 1.3095/105

Primary trend: Bullish
Intermediate trend: Bullish (unless 1.27447 breached)
Minor trend: Consolidation (can't get overly bearish around 1.3000 for now)

Technically, intraday indicator is just coming out of the o/s zone. Intraday momentum indicator shows that 1.3000 is probably very close to the lower end of the band and that would encourage some form of shortcovering. Expected range today 1.2980/300 to 1.3070/100.
Stay nimble ahead of the weekend and don't hold on to a single position. Learn to flip and move with the momentum. I am already on my 8th trade of the day!

E$ Daily chart - Below trendline and close below DMA21 (red)

1.3200 is an important pivot....

E$ exceeded my topside target pushing up to a high of 1.3194 before easing off on the back of offers, understandably from the party who is protecting an option expiry at the 1.3200 strike which is due for expiry NY cut tonight. The rally took out buy stops till 1.3180 and at this point in time, market looks quite flushed with an uninteresting order book. ECB Weidman's latest comment that ECB can still take further action triggered some selling but E$ found support at 1.3130. Not too sure how reliable this information but one of the FX vendor revealed that their retail speculators' position is showing around 65% short E$.

Europe order book:
Stop loss: 1.3000
Limit: 1.3200, 1.3070/50 and 1.3000

Primary trend: Bullish
Intermediate trend: Bullish
Minor trend: Mixed with upside bias

Technically, intraday indicator has come off the o/b zone following the consolidation last night till now. Intraday oscillator indicator has mixed signals but with a slight upside bias. If support at 1.3120/40 holds, E$ should push back to pressure the 1.3200 level and retest last week's high of 1.3243. 1.3200 is an important pivot point, inability to recapture this level will put pressure on E$ to test 1.3000. Expected range today 1.3120/40 to 1.3230/50.

E$ 6-hourly chart - Higher highs and higher lows....

Doji = Uncertainty

As expected, the disciplined E$ stayed within the range (l.3067 to 1.3132) except that it was capped at the first resistance before falling back to close the day exactly at where it opened (1.3075) forming a "doji". A "doji" candlestick pattern on its own and not at important high or low does not have much significance except that it indicates market uncertainty which can go either way. Looking at the price action within the outlined triangle, one would have quickly noticed that the market has spent more time testing the downside. Coupled with the order book information, the probability is still higher for further probe on the upside for the next 24hrs where there is still tradable range before it narrows further. Having said that, I am one who normally would avoid trading when closer to the apex in any consolidation because the probability would drop significantly to 50%, which is at gambling zone. Note that the French, Swiss and German will be off tomorrow but hopefully the Aussie employment numbers at 9:30am (Sin/HK) can spillover some action into E$.

Asia order book:
Stop loss: 1.3180
Limit: 1.3020/00, 1.3050 and 1.3130/50

Primary trend: Bullish
Intermediate trend: Bullish
Minor trend: Mixed as consolidation range tapers

Technically, intraday indicator has just come out of the o/s zone as a result of this morning's reaction to the CNY trade balance number but there is still lots of room on the upside. Intraday oscillator indicator is still suggesting range consolidation between 1.3040/60 to 1.3130/50 with first level of stronger resistance at 1.3115/25. Advice: Stay nimble and trade in reduced notional amount.

E$ Hourly chart - Range tapering....

Trade the range....

E$ continues to consolidate within 1.3030/50 to 1.3160/80 ahead of the next stimulus. Could it be the German Factory Orders (6pm Sin/HK), German Industrial Production (Wed, 6pm Sin/HK), Spanish Bond Auction (Thu) or the upcoming G7 meeting starting from Friday? As far as the momentum indicator is concerned, it does not look like we are going to see a breakout in the next 24hrs. However, looking at this stage of the consolidation with reference to the order book, market seems to look more vulnerable on the upside as strong buy interest continues to build up with stop loss order on topside.
Nonetheless, I have come out with 2 possible scenarios for the week ahead:
Scenario 1: (Black color lines)
Consolidate within 1.3030/50 to 1.3180/200 before breakout on the upside.

Scenario 2: (Fushsia color lines)
Capped below 1.3110/30 and breakdown for 1.2960/80 before rebound.
This is a low probability scenario.

Europe order book:
Stop loss: 1.3100 and 1.3180
Limit: 1.2980/70, 1.3020/00, 1.3050 and 1.3130/50

Primary trend: Bullish
Intermediate trend: Bullish
Minor trend: Consolidation before rally

Technically, indicators are mostly at neutral zone and momentum indicator is suggesting range consolidation with a slight downside bias at current level (1.3078). However, considering the expected range for today, risk/reward favours staying long here with a tight stop.

E$ 8-hourly chart - Consolidation before rally

Expect lacklustre price action....

E$ managed to hold the 1.3030 support, printing a low of 1.3033 before short squeezing all the way up to 1.3159 before easing off to close the week at around 1.3113. Lacklustre price action is quite typical on a Monday first half post US employment numbers but made worse today as UK is off. Taking into consideration that E$ managed to close above the DMA21 despite the better than expected Change in Non-farm Payroll data, we have to respect the underlying strength until proven otherwise ie. if 1.3033 is broken.

CFTC COT report (non-commercial speculator's account):
Euro net short -30,149 vs -34,275
JPY net short -71,127 vs -79,730

Europe order book:
Stop loss: 1.3025/20, 1.3155/60 and 1.3200
Limit: 1.2980/77, 1.3050 and 1.3200

Primary trend: Bullish
Intermediate trend: Bullish (unless 1.2953 breached)
Minor trend: Consolidation with slight upside bias

Technically, intraday oscillator indicators are all converging to suggest consolidation but the longer intraday is still showing a slight upside bias for now. Overall technical indicators are not throwing out convincing signals. For today, I would expect the range to be between 1.3060/80 to 1.3190/210 on wide.

E$ Daily chart - Price managed to stay above DMA21 (red)

E$ holding precariously....

E$ reacted almost exactly as forecast under Scenario 1 in "Major risk event to overwhelm....", 2 May Thu. High printed after the 25bps rate cut was 1.3218 before dropping to a low of 1.3038. Another major risk event tonight at 8:30pm (Sin/HK) and I have come up with the possible outcomes in reaction.

Scenario 1: Within expectation or Weaker than expected US employment numbers
1.3030/50 to hold and E$ stage a rebound to test 1.3170/3200

Scenario 2: Stronger than expected
1.3100/20 to cap and E$ plummets to 1.2960/80 before rebounding back above 1.3000 to close the week.

Asia order book:
Stop loss: 1.3100 and 1.3240/60
Limit: 1.3010 and 1.3055/50

Primary trend: Bullish
Intermediate trend: Bullish
Minor trend: Subject to data, another dip before rebounding.

Technically, intraday indicator is in o/s level though not extreme. Shorter intraday oscillator indicator is starting to show a turn in momentum from down to consolidation which at current level would mean upside bias. However, longer intraday momentum is still pointing down. From now till tonight's US data release, I expect market to stay range trapped within 1.3030/50 to 1.3100/20. Do note that at this moment, E$ is staying below important technical levels which in fact has a higher probability for a test lower. Ability to regain 1.3100 will relieve the sell pressure. I prefer to react only after the data.

E$ 4-hourly chart - Trendline should hold unless data disppoints