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Wednesday, 7 July 2010

USD and Opex

A strange day yesterday, with ES breaking out above the short term declining channel but falling back in a real show of weakness in the afternoon.

I did mention yesterday morning that I thought that the USD currency pairs didn't look quite ready for an equities rally and that's still the case this morning, though that may change very soon.

My expectation is that by opex we will have seen ES rally to the 1070 area, EURUSD to the 1.28 area, and USD should fall to near the 83.5 area. We may well take a winding path getting there though. After opex I am expecting the main bear event of the summer to begin, with a fall over the next four to eight weeks to 870 on SPX while USD is in a strong wave up. Here's the big picture USD chart to illustrate why we should find very strong support at 83.5:


In the event that ES fails to stop at resistance, and USD fails to stop at support, then I would expect just the opposite, with the USD rally over and ES recovering most or all of the losses over the last few weeks, but that is definitely the secondary scenario until and unless that happens.

In the short term ES has been finding some support at the range support level at 1016.5, and that may well hold. We may be seeing the formation of an extremely ugly and unimpressive IHS and I am expecting that the range support/resistance levels marked will continue to be important:


EURUSD was testing overhead rising resistance hard yesterday, but has since fallen almost a hundred pips. I'm expecting further weakness, but am doubtful that we will see a return to the lower trendline of the rising wedge. I've marked in the two strong support levels where it is likely to find support instead:


GBPUSD is my favorite channel for the moment, as it is in a strong rising channel which is extremely tradeable. The two scenarios that I am seeing here is either a return to the lower trendline of the channel in the 1.5025 - 1.505 area today, or if strong support at 1.509 holds, then a touch of the lower channel trendline at or above there late tomorrow or on Friday:


I'm going to be away much of tomorrow and possibly all of Friday so there may not be a Friday post.

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