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Thursday 23 June 2011

Testing Support and USD

That was a beautiful high yesterday. We spent all day bumping up against resistance and making marginally higher highs on sharply negative divergence on the 60min RSIs, then fell hard at the close and have fallen further overnight. The main index I'm watching today is NQ, as that is the index with the very nice looking IHS forming at the moment. As I said yesterday I'm expecting the ideal low for the right shoulder on NQ in the 2210-20 area, and the overnight low is 2216.25 so far. I'm expecting a little lower but that could be it. Any lower than 2200 today and the IHS is in trouble, with a strong possibility of a break further downwards:
On ES the first support level at 1276 I gave yesterday didn't hold overnight, but we're still above the second at 1270. Rising support is at 1265 and a break there would strongly suggest a retest of the lows:
On TF, the rectangle upper trendline at 793 didn't hold overnight. I'm seeing some support at 789 and 790. Much lower and a retest of the lows near 772 would look likely:
Just as an aside before I start talking about USD, GDX broke up through the potential IHS neckline at 54 yesterday and I'm seeing likely support on a retracement today in the 53.5 to 54 area:
USD is looking interesting today, though I was going to talk about it in detail even before EURUSD broke support overnight.The rising wedge on EURUSD has broken down and has also broken the potential rising wedge upper trendline from the top of the rising wedge. There's some support in the 1.42 area but beyond that a move to retest the lows looks very likely:
I've been having a careful look at USD and the main USD currency pairs yesterday and thought I'd post a couple of the most interesting charts. The most interesting chart is on UUP, where there is a very high quality falling wedge from the June 2010 highs. What this chart says to me is that any new lows on USD, if we see those at all, are likely to be marginal, and when the falling wedge breaks up it may break up hard and run a long way. If there's to be no QE3, that seems very credible:
The other interesting USD-related chart is for CADUSD, where a decent quality rising wedge from the 2009 lows has broken down and is now retesting the broken lower trendline. CAD just recover that trendline back intro the wedge, but new highs looks ambitious from here and overall upside looks very limited:
Altogether it looks to me as though USD has bottomed already, or is likely to bottom soon at a marginal new low. That's worth watching, as it may have big implications for bonds and equities over the next few months.

For today we are at or near my target lows on ES, NQ and TF. I'm expecting these to hold and not drop much further. If we do see a sharp move down from here then I'd expect a retest of the lows, though I'm not expecting that at the moment. If the NQ IHS continues to form then we may see equities stay near the overnight lows much or all of the day, and the IHS target would then be at 2325, which is a 5% move up from here.

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