Global markets are seeing a strong open for the week with most commentary talking about China’s move to ease last Saturday. Already we have Asian equity indices up by 1% on average the broader MSCI Apex 50 hitting intraday highs at 861.00 to pace the regional indices while commodities are also picking up with precious metals gaping up at the open to reverse Friday’s late slide. In the currency markets we are also seeing across the board risk appetite with the US dollar and the Japanese Yen getting a thumping though caution should be underscored given the extent of the gains we have already seen. Dollar pairs and their Yen crosses already saw a gap up at the open with a subsequent follow through rally from Wellington early into the Tokyo trade. Going forward however it would be a good idea to examine the premise for our rally. At the center of this is China’s decision to ease over the weekend, note that instead of cutting rates what actually happened was a reduction in the reserve ratio requirement by 0.50% to 20.5% from 21.0% while this adds liquidity to the system the net impact to the overall economy is not as great. Businesses that has sound fundamentals and need to expand should be able to get their needed money, speculative investing will still be capped. As such we caution people looking for a big follow through in the currency markets, though the news is a plus for the commodity pairs jumping in at new highs will be a bad idea. Either we look for a rejection from the top or try to pick the bottom from the pullback.
As with AUDUSD we have AUDJPY gapping up at the open, trying but failing to take out a strong resistance at 86.17. From the daily charts we have a big gap between EMA lines and prices while indicators show stochastic overbought and macd rising. From the lower time frames we have a possible bearish divergence in the works from 4H stochastic while macd is bullish. Hourly indicators appear to be the same we have stochastic heading lower while macd is flat above the signal line. Given the mixed picture from the lower time frames we are not in a hurry to jump in. Consider a buy on dips to the 85.07 support area, a more aggressive entry could be taken just above 85.50 though target remains to be a mere test of the 86.17 price point.
Loonie started the week in strong footing following the Chinese easing over the weekend gapping lower and quickly taking out the key support at 0.9926. Among indicators we could view this as a rejection from the daily EMA lines while daily stochastic is now oversold and macd is poised to cross lower. From the lower time frames we have hourly stochastic in oversold areas while macd has just crossed lower courtesy of the gap. In 4H charts we are just pushing oversold in stochastic while macd is also heading down. For now we prefer looking for shorts under the 0.9926 region previously a strong support. Alternative entry would be to look for shorts from just under 0.9972.
As with the Australian dollar, Kiwi gapped up at the open only to hit key resistances at 0.8429. Daily indicators show mixed signals with stochastic heading up and macd’s below the signal line. Note unlike the Australian or Canadian dollars, Kiwi is a soft commodity currency and as such not a direct beneficiary of Chinese action. In the lower time frames we have stochastic overbought in the hourly level while 4H charts are rising, macd is also bullish for both time-frames. Until we see a daily close above 0.8429 I am looking at this area as a sell point with tight stops above 0.8429. The terms-of trade for New Zealand is unlikely to get a boost from China’s moves over the week end.
Our bearish close from Friday has been neutralized by the weeks upside gap following the Chinese decision to ease monetary policy over the weekend. Daily charts now shows us poised to to take out the swing highs from two weeks back with the EMA lines acting as a support though we have yet to see macd’s head up and follow the bullish stochastic. In the lower time frames we all of a sudden face a confluence of buys following our upside gap from the open with hourly stochastic overbought while in the 4H picture we have macd opening up from its attempts to cross lower. Given the big gap we already have a scaled entry on a buy dips would be best starting from the days lows at 1.0763 then at Friday’s close at 1.0701.
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