By: Golearn Forex
The Greenback has been offered across the board since March 2009. As long as risk did not rear its ugly head investors were
selling the dollar in favor of better yielding assets. When risk showed up at the Market's doorstep the Dollar was right
there with it ready to regain market control. We saw this a week and half ago when Dubai spooked the market with a needed
debt restructuring.
The pattern we have seen for the last 9 months has been equities advancing as the dollar slides. Equities would advance on
positive (or at least less negative) economic data. The correlation between increasingly better news and the Greenback was
therefore negative. When normal markets are in control positive news typically strengthens a currency. What we witnessed
Friday may be an early indicator that the Dollar bear is finally ready to hibernate.
Friday brought us 2 very important prints from the U.S. The first was the Change in Nonfarm Payrolls and the Unemployment
Rate. The Change in Nonfarm Payrolls fell by just 11k and the Unemployment Rate fell from 10.2% to 10%. This is obviously
positive news for the U.S economy and the Global economy as well. Stock's advanced, but this time the Greenback would not
yield any ground instead it posted gains on all its G-10 rivals. The Dollar move was positively correlated with the
economic news, something not seen in 9 months. There was a tangible shift in market sentiment regarding the timing of a
potential rate increase. Originally, forecasts were calling for an increase in Q4, however, analysts now think it may come
sooner.
It is not by coincidence that a number of pairs slid almost exactly to Support levels before firming against the Dollar. A
breakthrough of support would most likely trigger a massive Dollar rally, something the market is not whole heartily a
believer in at this point in time. Rather, the move on Friday was one of caution as it may be the first signal the Bull is
getting ready to run.
Let's analyze current key technical levels and what the trading implications are:
EUR - Friday's close put the EUR right at the 50 SMA. The 50 SMA has been holding as support for nearly 9 months. An
entire candle below the 50 SMA would trigger a Short EUR entry while a quick bounce off of support levels would trigger a
a resumption of our EUR Long
AUD Similar to the EUR, the 50 SMA has been holding firm support. Therefore, a Short AUD entry would be triggered
with the appearance of an entire candle below support. We would resume a Long AUD position with a bounce off of support.
GBP The Cable has been trading the range but has not dipped below the 50 SMA since mid September at which point it
gave up over 4.5% to the Dollar. As with the EUR and AUD, an appearance of entire candle below the 50 SMA would trigger a
Short GBP entry.
Obviously one occurrence hardly represents an entire shift in trend, however, a shift in trend starts with one occurrence.
Continue to monitor the correlation between economic news and the Dollar. In addition pay special attention to support and
resistance levels on the majors, as a breach of S&R may signal future changes and should be capitalized on.