Euro Decline is a Bull Trap

The EURUSD has fallen materially overnight and is close to testing the psychological 1.55 level. Support should be strong in the 1.5450/90 zone. The drop from above 1.58 counts better as a correction than an impulse (to this point), so be careful of chasing the EURUSD lower.

EUR/USD

We are not giving up on the bullish count until we see a clear 5 waves down from 1.5817. The decline, while sharp, could be a double zigzag. If this is a second wave, then it should come as no surprise that the decline is sharp (second waves are sharp so as to convince the majprity of market participants that the trend is back down). Look for support in the 1.5450/1.5490 zone (61.8% of 1.5283/1.5818 and 100% ext. of 1.5818-1.5608/1.5664).

STRATEGY: Get bullish near 1.5450/90, against 1.5283, target above 1.6018

USD/JPY

We are looking for a spike through 105.70 in order to complete the entire rally from 95.72. A push through 105.72 would be wave Z from 102.57 in what is a triple combination correction (W-X-Y-X-Z). Resistance should be strong near 107.00. Short term support is at 104.50.

GBP/USD

Support held just below 1.97 and a 4th wave should be complete at 1.9672. The corrective sequence took the form of a double flat (complex and labeled W-X-Y). Complex forms such as this are common in 4th waves. Risk can moved to 1.9671 and the target is above 1.9850 (at minimum).

STRATEGY: Bullish, against 1.9671, target above 1.9850

USD/CHF

We must respect the possibility that a larger correction is underway from .9647. To this point, both legs (from .9647-1.0624 and 1.0624-1.0216) are in 3 waves. This action has all the earmarks of a larger correction. As such, we are standing down from the bearish bias for now. If the advance from 1.0216 unfolds in 5 waves, then we'll commit to the long side. That advance has yet to unfold as such.

USD/CAD

We should know very soon whether or not we are completely wrong in our assessment of the USDCAD. We've been bulls and waiting for a buying opportunity. We were given that opportunity as the USDCAD dropped into support from the 78.6% of .9710-1.0324 at .9841 last week; a 100 + pip move off of the low is nice but a push through .9997 would inspire confidence in the bullish count. The pair must remain above .9710 for us to remain bulls.

STRATEGY: Bullish, against .9710, target above 1.0324

AUD/USD

The rally from .8952 is wave C of a large 5th wave diagonal that could extend to a measured objective just below 1.00 in coming weeks (.9936). Look for support near .9509 (and the line shown on the chart). A bullish bias is warranted against .9290.

NZD/USD

The rally from .7536 is in 2 nearly equal legs, therefore it is possible that an important top will form soon and that Kiwi will retrace all of the rally from .7536. The decline from .7921 is not the clearest 5 wave drop but it can be counted as such. Therefore a bearish bias is warranted against .7921. Look for resistance near .7866.

STRATEGY: Get bearish near .7865, against .7921, target below .7536

DailyFX

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FOREX : Foreign Exchange Market

FOREX is a word play on the term Foreign Exchange Market. It is a market for buying and selling of currencies from all over the world. Certainly, such transactions are bound to be voluminous. It is just an estimate that there are about transactions of $1.5 trillion USD on a daily basis in the FOREX. Now just compare this with the paltry $300 billion USD a day transactions for the US Treasury Bond and the $100 billion a day transactions for the US Stock Exchange.

The FOREX came into existence in 1971 when the fixed currency exchanges were abolished. Currencies no longer had fixed values after that; on the contrary, their rates (mostly taken in comparison with the USD) were fluctuating, and changed on a daily basis. Throughout the seventies and the eighties the FOREX grew steadily, showing more advancement in the later years. The market has stupendously grown from $70 billion USD a day to the staggering amount that it transacts today on a daily basis.

There are actually about five thousand trading institutions in the FOREX. These include international banks, central government banks such as the US Federal Reserve, and commercial companies and brokers for all types of foreign currency exchange. The best thing that shows the unbiased nature of the FOREX market is that it has no fixed headquarters anywhere – it operates primarily from all major cities like New York, Tokyo, London, Hong Kong, Singapore, Paris, Frankfurt, etc. One can even use the telephone or the internet to make the transactions. The major businesses at the FOREX are the buying and selling of products in other countries. Several transactions are also conducted from the currency brokers or traders who stand to make small profits with the daily fluctuations in the market.

Most of the FOREX business is centered on big banks and financial institutions, but it doesn’t mean that the FOREX is inaccessible to small investors. The recent changes in the financial regulations have effectuated this accessibility. Earlier, a minimum transaction size was required to conduct business with the FOREX. But the current rules have made it possible to break large inter-bank units into smaller bits. Each bit is worth as less as $100,000. This makes it possible to each individual investor through loans that are extended for trading, known as leverage. The ratio to control the lots is 100:1. This means, every $1000 USD will allow one to control $100,000 on the FOREX.

The benefits of trading with the FOREX are mentioned below:-

(1) Liquidity of Investments – As the FOREX is a huge market, the funds have a very high degree of liquidity. This is because of the presence of the international banks who provide their bids and carry out a large number of transactions on a daily basis. Therefore, there is always a buyer or seller for any type of currency.

(2) Highest Degree of Accessibility – The FOREX is open 24 hours a day for 5 days a week. Every Monday morning the exchange opens at Australian Standard Time and closes on Friday afternoon at New York time. Greater accessibility is provided because the transactions can be conducted from the person’s home or office.

(3) Open Market – At the FOREX, there are no secrets. All the fluctuations that occur in the market are made accessible to everyone at the same time. There is no insider trading in the FOREX.

(4) No Commission – There is no hassle of paying commission to the brokers in the FOREX. Here the brokers earn by setting up a difference between the buying price and the selling price of a currency, which is known as a spread.

It must be understood by now that for the FOREX to work effectively, the currencies must always be traded in pairs. For instance, the Japanese yen must be traded against the euro. When one kind of currency is sold, there should be another to be bought in its stead.

The profit happens because there is always mobility between the different currencies. Even if there is a miniscule change in the exchange rate, then it could mean substantial changes in the profits due to the large amount of money involved in the transactions. People are thronging to the FOREX and not any other institution due to the trust that they have in it. To add to the advantage, the market is absolutely well-advanced and uses sophisticated software for dealing out its transactions.

FOREX-DD : Forex Daily Analysis