Volatility rose yet again as US equity markets moved lower again today, renewing strength in the Dollar and pulling the EURUSD down from its latest attempt at setting new year highs during this morning’s early trading. Early Asia session movement has indicated more EURUSD losses are in store, but important support is seen below.

With volatility increasing and Dollar momentum picking up, we are shifting to even more cautiousness over the next 24 hours. If the futures market indicates a good open for US equity markets, we may look for a good price to sell the Dollar on AUDUSD and EURUSD.

Daily Currency Pair Analysis

AUDUSD: We are anticipating a bounce in the market during tomorrow’s Euro session and a short term AUDUSD may take advantage of this scenario. However, again we are increasingly cautious as the Dollar gains have been driven by uncertainty in equity markets.

Potential Trade: Long AUDUSD
Optimal Entry: .8600
Potential Stop Loss: .8520
Potential Take Profit: .8775

Following the not surprising lack of change from the FOMC, equity markets took a “sell the news” approach and drove equity markets in the US all to the negative. This late selling also pushed volatility and risk aversion up and, in turn, gave strength to the Dollar–knocking the EURUSD, AUDUSD, and NZDUSD all off highs for 2009.

The sell-off has stabilized early into Asia’s session, but we could see more volatility going into Euro and tomorrow’s US sessions. With German business news and US employment claims on tap, we should see strong movement in the EURUSD and more indication of the long-term direction of the pair and the appetite for selling the greenback–which we do expect to continue.

Daily Currency Pair Analysis

EURUSD: We are still looking to the EURUSD as our driving force for direction of this market. The pair has yet to confirm the break of important resistance with 2 day candles opening and closing above 1.4750, so we are a bit cautious, but still looking long (our Daily Limit Signal confirmed a EURUSD long position at the end of the trading day). As with yesterday, we look for a return to the 62 EMA on an H4 chart (which may meet price action around 1.4660 today).

Potential Trade: Long EURUSD
Optimal Entry: bounce off 62 EMA (H4)
Potential Stop Loss: 1.4450
Potential Take Profit: 1.4950

Equity markets around the globe finished lower yesterday and into today’s US session, giving the USD strength against commodities and currencies across the board before the Dollar hit resistance and gave back much of the gains to most major currencies.

We continue to look to the EURUSD as the driving indicator for the direction of the Dollar and risk appetite as a whole, but without major news events expected until Wednesday’s interest rate statement, we are still anticipating a ranging, consolidating market before sentiment towards the FOMC’s neutral status drives more losses for the USD.

Daily Currency Pair Analysis

EURUSD: Last week we anticipated the EURUSD to bounce off of 1.4615–which it did early this morning. However, we anticipate this to be a long-term play so if you missed the move, await the EURUSD to return to the 62 EMA on an H4 chart or look shorter-term and buy on a break of 1.4766.

Potential Trade: Long EURUSD
Optimal Entry: bounce off 1.4615
Potential Stop Loss: 1.4450
Potential Take Profit: 1.4950

Potential Trade: Long EURUSD
Optimal Entry: break of 1.4766
Potential Stop Loss: 1.4700
Potential Take Profit: 1.4950

With little in the way of news events to press the USD at the end of the week, the Dollar gained back slightly in the last day of trading against major currencies. But, with a neutral outlook from the FOMC expected next week–despite massive inflation concerns–we carefully anticipate the USD to see more losses over the next few days.

Look for risk appetite plays such as the AUD and NZD to stand to gain the most from a weakening Dollar while the Euro looks to again test important resistance around 1.4720. A sustained break (two D1 candles) above that mark could signify the EURUSD soaring toward the all-time highs set in 2008.

However, despite our obviously bearish USD stance, we are again cautious and concerned that market volatility could again put risk appetite on the back burner and a flight to safety (lead by an equity market sell off) moves back to the headlines and the money toward the JPY and USD.

If the equity markets do begin to falter next week before next week’s interest statement, look to the USDJPY and GBPJPY as a short seller’s favorite plays with a break of USDJPY 90.19.

In all, next week should be a telling sign of the long-term direction of this market and we have not ruled out seeing a disconnection from the strong Dollar/weak equity market correlation by the end of the year. But, that’s for another outlook–for now, our short-term outlook going into next week remains cautiously bearish USD.

Daily Currency Pair Analysis

USDJPY: The Dollar has stolen some momentum from the USDJPY downtrend, but still is sitting below the previous support at 91.72 (July 13th). Our long-term outlook is still bearish USDJPY, but if the pair moves above 91.72, we’ll remove our short-term approach. Look for a bounce of the 62 EMA on a H4 chart to sell off the top of this downward trend.

Equity markets were steady, giving the USD some breathing room from the stunning losses it’s seen over the past week. However, it did not slow it down long enough to stop the trend on the EURUSD from breaking through the December 2008 highs.

With the news event schedule light until next Wednesday’s US interest rate statement, expect that trend to continue consolidating and hold the currency markets to a tightening range over the next few days. However, we expect the trend to quickly resume and we will look to the EURUSD as our trigger to continuing selling the USD.

Daily Currency Pair Analysis

EURUSD: We are looking for today’s D1 candle to close above 1.4720 to signify a continuation of this long-term uptrend. However, a pullback to 1.4615 would give us a much better price to buy and potentially reduce some of our risk of drawdown on a long term trade.

Potential Trade: Long EURUSD
Optimal Entry: 1.4615
Potential Stop Loss: 1.4450
Potential Take Profit: 1.4950

Stocks rallied in the US today, reducing volatility and halting the flight to safety seen in currency markets, at least momentarily. With today’s bounce and the NFP report set to be released tomorrow, any worse than expected numbers could send JPY-quoted pairs such as GBPJPY and EURJPY right back into the risk aversion trade we’ve seen over the past month.

And with unemployment claims continuing to rise, the likelihood of that NFP report being released with more than a 250,000 change is increasing. We continue to focus on the former carry trade (JPY-quoted pairs) in our trading as the over-inflated USD begins to falter as the safety pick for investors during risk averse times and the Swiss central bank is actively devaluing their currency.

Daily Currency Pair Analysis

USDJPY: We have just entered the GBPJPY trade we recommended on Tuesday. The retracement in USDJPY has also given a solid entry price, but in this analysis, we will focus on a potential break in very important support. If USDJPY passes the low at 91.76, look for the USDJPY to move quickly to the 1995 lows at 86.10.

Potential Trade: Short USDJPY (medium term trade)
Optimal Entry: A sustained break of 91.76 (two H4 candles)
Potential Stop Loss: 93.00
Potential Take Profit: 86.50

The US markets were battered today as investors weary about bank strength sold the Dow down 187.27 points and the S&P down 22.72 points, below the important 1000 level. This risk aversion saw the JPY continue its onslaught against virtually all other currencies and the USD making up serious ground against the EUR and GBP and especially against commodity-driven currencies such as the AUD.

This flight to safey is what we have anticipated for the past weeks, but it also has driven volatiltiy up and reduced optimal entry points. We will continue to stay bearish equity markets, but we will cautiously look to buy on retracements and not breaks.

Daily Currency Pair Analysis

GBPJPY: The pair has broken support at 150, but we will only look to go short on a retracement to at least 151.50.

Potential Trade: Short GBPJPY
Optimal Entry: 151.50
Potential Stop Loss: 152.99
Potential Take Profit: 147.50

The Dow Jones Industrial Average dropped 186.06 points today, an ugly start to a week that could see much of the last month’s short-term, stimulus-fueled gains erased. The JPY-quoted pairs have sold off dramatically the past 5 days and another large losing day could confirm our risk averse sentiment for the rest of the month.

However, while risk aversion has traditionally correlated with a substantial increase in the USD, the Dollar has not seen as significant a rise as the other safe haven currency, the JPY, over the past few days. Is government intervention pushing investor’s safety play away from the inflated Dollar? We have consistently held to the outlook of the USD decoupling from equities as the Dollar has been significantly weakened by its mounting debt.

This decoupling is a long-term outlook, though, and we do not expect it to happen right away this week. So, we will stay cautiously bullish on the USD as volatility is rising and risk aversion is driving equity markets down, but we will look more strongly toward buying the JPY to fill our safe-haven trade.

Daily Currency Pair Analysis

GBPJPY: The pair, along with virtually all of the JPY-quoted pairs, is not at a prime shorting price at this point because of the strong push down over the past few days. We will look for a small retracement to previous support 155.95 to short or a break of the 61.8% (of the move from July 08 – August 10) at 153.00.

Potential Trade: Short GBPJPY
Optimal Entry: Above 155.90 or Below 153.00

Stocks rallied on strong sentiment for financials despite unexpected poor retail sales data and an increase in unemployment claims. This positive reaction despite the poor data begs the question: have stock prices disconnected from reality? With the Fed and Treasury stimulating financials and automakers at seemingly any cost, the question looms whether the economy truly is recovering or if this is just a short-term stimulus providing unsustainable results.

With more economic indicator releases like today’s, we can only assume the market can hold to this “sentiment” for so long and the reality could bring another sharp decline. When that decline will come is yet to be seen. So, we are staying patient and cautiously bearish in the short-term. Looking for interim tops in the trade formerly known as Carry (JPY quoted pairs) and to buy USD on expectations of risk aversion.

Look to NZD retail sales set to be released later tonight to help guage trader’s appetite in anything but the USD going into tomorrow’s US inflation-indicator, the CPI. Any unexpected rise in CPI could cause the sentiment for more intervention from the Fed to bring an initial USD push.

Daily Currency Pair Analysis

GBPUSD: We are looking for a good price to buy the USD on risk aversion expectations. GBPUSD near 1.6700 would be a good opportunity to make a longer-term trade short toward 1.6100.

Potential Trade: Short GBPUSD
Optimal Entry:Above 1.6650
Stop: 1.6800
Target: 1.6100

A strong day for US equity markets mixed in with an unchanged interest rate announcement sent stock prices soaring and the Dollar on a wild ride during this morning’s session. USD initially gained strength on the expected unchanged rate, but then pulled back within the same hour to pre-release levels against the GBP and EUR.

We anticipate more jumpy movement over the next few days as equity markets struggle to hold to the current levels that the recent bullish trend over the last month pushed stock prices to. So, we will look to play for our longer-term risk aversion sentiment with short-term tops in EURUSD, GBPUSD, GBPJPY, USDJPY, etc.

Daily Currency Pair Analysis

EURJPY: The price of this pair is currently too low for us to sell within this range. We will look for another push to the upside before selling the carry, looking for more risk aversion.

Potential Trade: Short EURJPY
Optimal Entry:Above 138.50
Stop: 139.50
Target: 134.50