Daily Trading Edge

The post-February climb higher in the dollar was accompanied by historic highs in the Dow. The Dow is the most psychologically relevant view of equities and while not nearly the representing the cross-section that the S&P does, it’s reflects a generalized, “everyman” view of equities strength or weakness. As the Dow sinks lower today, it should be noted that it’s not dragging the U.S. dollar lower with it and this is beginning to mark the adjustment traders are making to an expectation of a later wind-down to QE.

 If the U.S. Dollar is to re-emerge as a safe haven it may well be now as the ECB and RBA turn dovish and an appeal comm-dolls may have could be less-so because of the risk aversion. The CAD may well have the support of a hawkish BOC but it has the drag of lower oil demand in the U.S. and China. The EUR weakness, driven by USD strength, will perhaps also begin to make traders re-think the optimism it has had for the single currency despite all the headwinds but I do think there are *hopes* that looser monetary policy from the ECB could kickstart the European economy.

 It’s important to also mention from a timing perspective that today’s Dow weakness did not begin with the disappointing Bank of America (BAC) earnings. In fact the $0.03 miss is actually what BAC earned Q1 of 2012.

Past performance is not indicative of future results

Notice that the Dow was heading lower shortly after the London open and while the Asian close did offer a slight reprieve, the move lower continued into the New York open and leveled off until the Wall Street open sent it sharply lower again. The losses leading into the U.S. session were likely in response the the...

The sea of red extends far past the gold market. With the 10 and 30yr showing little movement, sellers are sitting temporarily in cash.

The sell-off in gold is a continuation of weakness that has lasted throughout 2013 with a shallow downtrend - so it’s not necessarily gold weakness that is taking traders by surprise - but it’s the acceleration that is taking them for a ride. Not doubt that the shallow downtrend did invite some bottom picking from gold traders (before Friday) who did not shed their upside bias; had gold had a more pronounced downtrend, this acceleration may not have caught as many traders on their heels since there would have been a more convincing Directional Bias.

Selling begets selling. It’s an old adage.

Part of the risk aversion was already building with the soft data that has been coming (including of course NFP) and there hasn’t been an equities pullback of any decent magnitude this year; arguably this is the pullback the bears and skeptics have been waiting promising. China’s miss in GDP was a catalyst for the sell-off (more so for comm-dolls) but there is an argument that the Dow could pullback to the 20DMA which is a level that is has revisited along the steady climb higher. That would make the 14,600 major psychological level potential support.

Past performance is not indicative of future results

What’s the flow however in the aftermath? Out of commodities into equities? If so, the new bullishness that was seen in comm-dolls will struggle. Gold is dragging down commodities across the board and comm-dolls with it - most notably the AUD and NZD.

How much of the...

It was a trying couple of sessions waiting for what amounted to a sound technical pullback buy in the new AUD/USD uptrend. The issue for the entry was support but the follow-through was not coming. Leave it to China and the Tuesday night Trade Balance release; the 0.9B deficit was enough to rally the aussie on the higher Chinese imports. This fares well for traders looking for the AUD/USD to consolidate above the 1.05 figure.

The consolidation is no surprise in front of tonight’s Employment Change and Unemployment Rate release tonight at 9:30am EST.

The AUD/USD has rallied to an area of prior resistance which puts a slippery slope in front of the bulls between today’s 1.0551 high and 1.0597. This is where the three session rally could correct lower and since this is an uptrend (albeit still not established) there will be some buying into weakness.

Past performance is not indicative of future results

 There is no concern here that the AUD/USD is overextended in terms of its rapid ascent but rather that fact that the ascent has reached a level at which there will be selling pressure waiting. This pressure would have been waiting regardless of the pace of the climb. It presents the first significant challenge for the new uptrend since the resistance area dates back to August of last year.

Past performance is not indicative of future results

The downtrend in the EUR/USD has transitioned but often the error is to get too bullish too soon. Keeping in mind that the overall Directional Bias was down, there is still that lingering headwind for euro bulls. The challenge will be what could be the next catalyst to either push the pair through the 1.3050 level or pressure the pair lower back into the trading range.

Technically there is the 200DMA level that is trading near the 1.3000 big figure. 

Past performance is not indicative of future results

The Autochartist PowerStats overlaid on the chart shows that the daily range could pressure the 50DMA but that would all depend upon whether buying support sets up at 1.3000. For now however, the 1.3000 support is eroding.

Past performance is not indicative of future results

The U.S. Dollar Index in the meanwhile has arrived on the doorstep of 83.00 and this also puts the 20DMA in play which was the original aggressive swing buy entry on the previous pullbacks. The uptrend is still intact but there’s no debating that the uptrend does not have the same mojo it once has because of the increase volatility. Notice that the 83.50 level still eludes bullish support.

 The daily EUR/USD is now a time frame that I would set up fades on rather than trend-following shorts. While the entry is still a short, the ceiling is 1.3000, 1.3036 (today’s high), or 1.3066. The pair does not yet have an overbought Stochastics however this does not mean there...