Market Analysis

Let’s take a big picture look at the oil market for a moment. Below is the monthly chart of the front month futures contract. Since prices mailed their failed attempt to get back above 120 again in 2011, they have essentially gone nowhere. The market has been increasingly narrow in either side of about $100 for just about three years now. That has led the Bollinger Bands to become very narrow – even more narrow than they were before the Financial Crisis. Narrow Bands are generally an indication of a market getting ready to make a meaningful directional move.

Monthly chart - futures contracts - click to enlarge

Of course I’m not suggesting we start looking for another round of massive price moves and extreme volatility like we say in 2008 and 2009. Rather I’m suggesting it’s time for us to start looking for a range break to unfold in the long-term time horizon.

We may have to wait a while, though.

The weekly chart below shows us that range entrenchment is a major feature in that time frame. We can see a similar narrow Bollinger Band situation which has developed there, also suggesting that the market is poised to get more interesting in the weeks to come.

Weekly chart - futures contracts - click to enlarge

The issue, though, is any sort of volatility expansion or trend move from here would only move oil toward the edge of its long-term range, not beyond it. There would still be a significant hurdle to overcome to get into new territory and start that bigger picture move. As such, what we need to see in the weekly timeframe is a two-stage trend move – one to get to the range limits, then a second one to push beyond.

Naturally, the longer a range is in force, the harder it is to break. At the same time, however, once the range does break, things can get really exciting very quickly.

As things stand, probably the best plan of action for market participants for now is to expect more of the general same in the intermediate term. For those with a longer-term aspect to their work, however, now may be the time to start planning for the eventual pattern change.

What the Eurozone does about an inflation rate of 0.5% was not resolved last week after the ECB meeting, but we are likely to see the debate continue into this week, which is likely to keep the single currency on its toes. The head of the ECB, Mario Draghi, heads over to Washington for the World Bank and IMF spring meetings, which is always a time for reflective debate and discussion of policy options for the future.

Read the original article at Forex Crunch • Trade Forex Responsibly

Alex Kazmarck of Trade Leader SpotEuro presents analysis of the EUR/USD.

Update

The euro has traded lower during the past two weeks, falling below 1.37 on Friday. The economic schedule this week is light, which would normally lead to less volatile sessions, but with Eastern Ukraine making noise in the geo-political sphere, capturing and barricading in government buildings in protest of the new government, we could see some big moves if America and EU begin to discuss more economic sanctions on Russia. Given the large natural gas reserves and pricing control, Europe is reliant on a good relationship with Russia, so I think it will be unlikely that Europe will rush to support any major economic sanctions. The story that will drive the EUR/USD pair this week will most likely continue to be prospects of QE within the EU with inflation figures from France on Thursday and Germany on Friday. Also, I’m paying close attention to FOMC meeting minutes (Thursday), US PPI figures out on Friday, and G20 meetings Thursday and Friday.

Technicals

The EUR/USD is entering dangerous territory. It hasn’t been able to break above 1.3900 with conviction and has traded back to the 1.3700 level, a very important support level. If the pair breaks below Friday’s low of 1.3673 it could very well continue dropping to the 1.3600 figure with 200 day MA providing good support near the 1.3550 zone. Resistance should come near the 50% retracement level of 1.3810, measuring from March pivot high to Friday’s low.

EUR/USD daily chart - click to enlarge

Conclusion

While I’ve been discussing the prospects for a euro short for some time now, we could see another bounce from 1.3700 and a test of 1.40+ if deflationary fears are eased with higher CPI and PPI figures. ECB VP Constancio said that inflationary figures will improve in April as Easter holiday travels should boost consumption. While there is a lack of confirmation in any direction, fundamentally the US is further ahead in the recovery process and inflationary outlook favors the US Dollar.

Integral Development, an aggregator of liquidity in the FX markets and Rabobank’s FX prime brokerage unit are no longer offering joint services in the e-trading of currency derivatives, Forex Magnates reports. …

  • FX Volumes at the CME Group Rebounding 10% In March
  • Shizuoka Bank Acquires 19.54% Stake in Monex Group for $235M, Forms Business Alliance
  • GMO Click Announces March Volume Metrics Down By 5% Over February

Read the original article at Forex Magnates

EURUSD weekly chart painted a Rising wedge pattern (on the left picture). According to this pattern the price should reach the lower Trendline (marked in red) – 1.3597 (in light blue). In addition, Bollinger bands (marked in purple) are showing a bigger chance for a bearish correction. The price climbed from the lower band to the upper band. While climbing up there were a few bearish corrections which ended in the middle band (20MA) region. In the last correction the price closed a bearish candlestick below the middle band (20MA) which invites a dipper correction downwards. Instead the graph rose higher. There is a great chance for the graph to correct lower than before, reaching to the lower band – 1.3485 (in pink) if a candlestick will be closed below the middle band – 1.3696 (in brown).

Even if the graph will correct lower, the long-term bullish patterns won't be cancelled.

The weekly chart is in the middle of an established uptrend (on the right picture). A reversed Head and Shoulders (H&S) (in dark green) and Cup and a Handle (C&H) (in grey) are both seen at the weekly chart. The reversed Head and Shoulders pattern is already in the middle of its uptrend while the gains in C&H have not started yet. A bullish candlestick closed above 1.3832 (in black) but it was a false break since the price returned to the Handle region. If the graph will break above 1.3832 (in black) and close a daily candlestick above it, we are headed upwards.

EUR/USD Weekly Chart - click to enlarge

As long as the price stays above the bottom of the Cup the pattern remains and the same would happen with the Head in H&S pattern.

Also, the handle must be at least 38.2% Fibonacci of the cup.

The initial target is seen at 1.4125 (in light green) and the final target is approximately the depth of the cup – 1.4770 (in blue) – more than 900 pips.

Over the weekend, coming on the heels of the NY attorney general calling for curbs, 60 Minutes ran a feature story focused on high frequency trading (HFT). It features outspoken Wall Street critic and author Michael Lewis and takes a hard look at what’s going in the US stock markets and the implications for investors. It’s well worth a viewing.

There’s a link here to what’s happening in the forex market as well.

The two biggest inter-bank dealing platform names, ICAP (EBS) and Thomson Reuters have both been implementing measures in recent years to achieve exactly the sort of thing IEX in the video looks to do – slow down the HFT shops. Some of the things being implemented along those lines is setting minimum quote life times (how long a quote must be made tradable by others in the market) to cut down on “flash” orders, randomizing the order in which orders are processed, and widening some spreads and/or implementing minimum price moves (it’s been suggested that the move to decimalization in the stock market was the first step toward HFT dominance there).

Unlike the stock market where HFT is said to represent the vast majority of US trading volume, in forex it has not yet crossed the 50% threshold according to recent estimates. It is interesting that the least regulated global market is the one where the big platforms are being proactive about curbing the influence of HFT. Stock markets have been HFT-friendly in the pursuit of volume, in forex the operators are thinking more in terms of fairness and transparency as a way to gain market share. Considering that trading in stocks is more directly linked to consumer welfare than is the case for exchange rates, one would think things would be the other way around.

Who would have thought the “wild west” currency markets would be the ones where the strongest measures are being made by the participants themselves (rather than regulators) to curb abusive practices? If only they’d been a bit more proactive with that pesky fixing manipulation problem!

Trade Leader Alex Kazmarck of SpotEuro presents analysis of the JPY.

Update

The Japanese Yen has been stuck within a range for the past two months, trading within the 101-103 level for the most part. Friday’s strong move continued into Monday as the USDJPY is now trading above the 103 figure for the second time in March; it briefly tested these waters for three days during the first two weeks of March.  With today's commentary from Federal Reserve Chair Janet Yellen that the US economy will need extraordinary support for “some-time” and that the job market is not back to normal health have given traders appetite for more risk and thus we’ve seen a rally in equities as well as a sell-off in the yen as it is often used as a carry trade. While we remain in a volatile trading environment with the EU on the brink of easing to fend off deflation and geo-political concerns remaining in Eastern Europe, I think there is an outlook for both long and short trades in the near term.

Technicals

USD/JPY - click to enlargeUSDJPY – the pair is once again trading above the 102.80 level and is aiming to break out of the wedge with resistance just above the 103.10 level. A close above March highs of 103.76 will be bullish for the pair and a close above the figure will lead to test the 105 level which should prove difficult; However, if broken and the daily price sets a new yearly high, we should see continuation higher. A failure to hold the 103 figure could lead to a broader sell-off and target the 100 figure and possibly deeper into the mid-90s, targeting the region in which the pair spent most of last year.

EUR/JPY - click to enlargeEURJPY – trading within a channel for the past two years with moderate consolidations, the pair can be seen within a wedge as of late, setting an important lower high in early March. With Friday’s bounce off of 140, the pair is now testing 142, just below the descending slope. If the pair breaks above, it will most likely target 145, the December 2013 high; however, a break below 140 will most likely lead a much deeper correction and target the 134/136 levels, which are previous resistance and support zones respectively. Until a close above the descending slope mentioned earlier and a close above 144, I expect a longer term bearish outlook more worthwhile from a risk/reward point of view.

GBP/JPY - click to enlargeGBP/JPY – also trading within an ascending channel during the past year and a half, the pair has begun to consolidate and correct lower over the past four months. Currently, enjoying momentum to the upside following a break of consolidation, the pair is aiming for the highs of 173.70 set in January and matched in March. While I expect the pair to trade lower than 175, which is December and January’s highs, a break above this figure could lead to another leg higher. Until this break, I expect further consolidation between 170 and 175 before a break below 168 leads to a deeper correction that should reach to prior resistance of the 160 level.

Conclusion

The yen mostly responds to risk-on/risk-off strategies due to its carry trade and safe haven status. All three are within a specified mid-term range or a wedge formation, attempting to break out to the top. If successful, technical all point to continuation to the upside; however, if we see another bout of risk-off selling, this could be seen as a failed attempt and a much deeper correction could be in the works. Considering the big gains during the last 18 months and consolidation taking place across different markets, I am looking for current momentum to wane and support levels broken in the next few weeks.

Dean writes on Market Pulse, "Capital markets is about to sign off on Q1, a quarter really not worth remembering, and embrace Q2, a quarter jammed packed with fundamental and event risk that should be capable of stirring up a few notable investment opportunities for investors. Thankfully this first week has a bit of everything, enough to keep investors and dealers on their toes across all asset classes."

Read the original article at Forex News