Daily Trading Edge

The EUR/USD is rebounding from a lower low in Wednesday’s session as the market heads into a holiday weekend. The question is whether today’s rally represents a height from which bears are tempted to step in. The daily correction doesn’t look like much, but intraday there is a zone emerging that could entice sellers to take a stand.

 The daily Directional Bias opens up trend-following shorts across multiple time frames and when possible I prefer to look to longer-term swing shorts and with the euro strength today, the question is whether to wait for a more pronounced correction or short into today’s momentum?

 There is a zone being created by both the 20 period SMA close and 34 period EMA low but also by the 240-minute and projected daily range highs. These range highs are calculated by the historical trading ranges that project both support and resistance levels that the pair could trade within. The 240-minute range has been hit and along with the 20 period SMA close and 34 period EMA low, trigger an intraday swing short.

Past performance is not indicative of future results

The ideal scenario would be to place a tighter stop just above the 240-minute range high - in this case - just above the 1.2850 major psychological level. A longer-term trend follow based on the daily time frame would be the 20DMA.

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Today’s pound sterling weakness - after at rejection at 1.5257 and the subsequent slide back through the 1.5200 figure - is a win for bears who were patiently waiting for resistance to pressure the currency lower.

 The most important shift on the daily chart however is NOT today’s sell-off but rather the U.S. dollar strength that is contributing to it and the transition OUT of the GBP/USD’s former downtrend. While the near-term psychology most certainly had turned bullish, the longer-term and (arguably) dominant psychology is still bearish. The transition from the downtrend to the more volatile transitional market still favors the bears (for now).

 While there are bullish seasonals at work (see “The GBP/USD Seasonal Tendencies are Playing Out”) the February 24 gap down close level at 1.5245 along with the 1.5250 major psychological level are where the bears are making their stand. If this is the line in the sand, any seasonal tendency for the GBP/USD will need the current greenback strength to simmer down and the pound sterling to take advantage of the rally through April and this will need support at 1.5200 to attract fresh buying momentum.

 The transition still plays in to the hands of sellers because despite the downtrend losing its mojo. The lack of daily lower lows has strengthened the bullishness of the pair but only near-term. The short squeeze affected mainly the most recent GBP/USD sellers. The most aggressive and newest selling pressure will enter short based on the overbought view of the pair and the resistance of the aforementioned gap close*.

 * The Friday close gap will only be visible on charts that plot a Sunday open candle...

How “aggro” to do you want to get with the aussie? Trading the AUD/USD aggressively could mean shorting intraday time frames like the 15-minute to some traders following the move lower through today’s session on the stronger greenback (which is really a play on the weaker euro). Trading the AUD/USD aggressively could also mean initiating a longer-term swing buy on the pullback to the 1.0350 major psychological level and the 34EMA Wave on the 240-minute. So which are you?

For short-term traders, remaining nimble in the current environment is not a bad idea since it’s not enough that this week was likely to be volatile based on the central bank activity alone…but here we are also dealing with Cyprus.

 For longer-term traders, dealing with the AUD/USD also mean contending with the Fed tomorrow. If the Fed is going to continue with the current pace of QE then I also suspect that Bernanke will present a slightly dimmer view of the current economic picture. This will likely do nothing but add volatility to the dollar’s and Dow’s uptrend. The market will be content to move higher on the Fed’s continued support and some sour grapes will likely be what equities bulls have been waiting for to buy into weakness. 

Past performance is not indicative of future results

A change in the Dow’s uptrend with the Fed tomorrow? Not likely.

A stronger equities market should contribute to aussie strength but the it’s the RBA Minuets release that seems to have tapped the brakes on the aussie’s bullish momentum. In the hours after the Minutes release, the aussie traded lower as it seems that the “accommodative” stance of the RBA was concerning to the “no RBA cut” bullishness that...

The USD/CAD has sunk into the swing buy zone between the 20 period SMA close and the 34 period EMA high on the daily chart and triggered a conservative long entry along 1.0200. The move lower - driven by the weaker greenback - has given the daily uptrend the first significant correction since mid-February.

 The major issue with committing to a longer-term buy in the USD/CAD is navigating next week’s hot zones. The U.S. market has a slew of data releases - Wednesday’s Fed Statement among them.

 It’s interesting that the loonie hasn’t given the greenback much of a fight since the strong jobs numbers last Friday…and that may have had a little to do with the U.S.’s strong jobs number as well. Greenback 1 - Loonie 0.

Past performance is not indicative of future results

In a typical risk ON environment the loonie - as comm doll - would benefit from the risk appetite and gain against the greenback which would usually be moving lower. That has simply not been the case with the U.S. dollar’s recent strength. Only in the last two sessions has the U.S. dollar corrected lower on the daily chart; the first time since the beginning of February. For now greenback bulls seemed satisfied with buying at the 20 period SMA close; a plus for the USD/CAD long position.

Past performance is not indicative of future results

There are also refinery implications with crude oil demand as refiners come back on line after the seasonal refinery maintenance. Brent crude gained against WTI (West Texas Intermediate) and refiners are eager to...