This state of affairs did not last long, however, only until the NFP Report. The Nonfarm Payrolls brought another surprise for the day, showing an increase of 243K jobs in January, handily beating the forecast of 150K. It also bested December’s revised 203K growth and was the strongest job growth in nine months. The increase in hiring pushed the unemployment rate down to 8.3%, the lowest since February 2009. Late in the day, the ISM Non-Manufacturing index delivered yet another surprising result, coming at 56.8. To put in perspective, analysts expected a reading of 53.1 and previous one was at 52.6. The good news proved damaging to the US Dollar, though, as if it was losing its safe haven status when American economy shows signs of improvement. In case of the USD-CAD, it dropped sharply, deep under the parity level, making it one of the most eventful days for this pair in a long time.

The Euro, fighting own problems, did not have such a good day. Initially, it plummeted over 100 pips, although it recovered a good portion of that as the day went on. Clearly, markets are losing patience with what is going on in Greece. As we recall, this country “was on a verge” of reaching an agreement with its creditors two weeks ago. Here we are, in early February, still hearing exactly the same phrase. Obviously, there is no progress and that could be costly for the EUR in days ahead. Have a great weekend!

Mike K.

No official comments yet, but it is hard to imagine this particular proposal to be received friendly in Athens. They already have to contend with another set of demands that must be met before the next installment of bailout is released. They include cuts in healthcare and defense spending, commitment to eliminate another 150K government jobs in three years and scores of other painful steps. All of this is piling up when even talks with creditors on debt swap are not fully concluded. Forcing Greece to accept all of these measures could easily push this country out of the Eurozone and perhaps even EU. Other members could realize they might be next, which would endanger entire structure of the European Union.

With no currencies forming short-term reversal opening set ups (even though the last one did not work out), I will be looking for gaps in early trading. After that, the beast looks interesting. It already dropped to 120.00, but recovered to some degree. General shape of the price suggests more downside, so I will try to go short here. I have two different sell orders, one at 121.00 and the other at 119.90, each seeking 100 pips.

Another currency pair of interest is the EUR-AUD on the 4 H chart. It is slowly building a bottom reversal, which will be complete on a breakout above the last high. Here I want to buy it at 1.2490, targeting 1.2600. Of course, this price action could develop into a flat consolidation, which would be bearish in nature. If the EUR-AUD breaks out like it last time, with immediate rejection, I will most likely close the trade immediately and tale the loss. That would be a good sign that the price is not developing as planned, so hands off. Have a great trading week!

Mike K.

In a typical fashion for Friday, I looked at trading short-term price swings at the start of the London session. The EUR-USD formed a price range in hours leading to European opening, with well-defined support and resistance. Eventually, there was a bullish breakout, which filled a buy order at 1.3120. My objective of 30 pips was met fast, on a nice follow-up by the price.

Another trade involving the Euro was in the EUR-CAD, which I discussed it at the start of this week. It took a while, but the price finally started to move in the desired direction. Friday brought a nice acceleration on Friday, closing at 1.3240. I got out at the end of the day with 85 pips gains. Even though the trend still has some room to go, there are often reversals at the start of the week, so I simply want to avoid it. Other trades covered in the last few days are still valid, at least for now. Have a great weekend!

Mike K.

While many in Switzerland support these meassures, some are warning about unintended consequences, saying that Franc limit against the Euro may cause the country’s economy to overheat if authorities are not vigilant to its effects. For example, property prices have increased in Switzerland, aided by near zero rates and demand from foreigners looking for employment. This could be mitigated to some degree by increasing the benchmark rate in order to prevent a property bubble. However, such move would put upward pressure on the Swiss Franc and jeopardize the 1.20 EUR-CHF limit introduced in September to fight deflation. Clearly, the SNB will have to walk a fine line.

The EUR-CHF is in a precarious position, having just left its prolonged trading range. At present, there is no real support on the daily chart, other than the psychological importance of the 1.20 level, backed up by the SNB’s threat. If the central bank does not act, or only delays its involvement, the price can easily slip to 1.16 in short order. While this is playing out, I will focus on short-term trading on Friday, mostly in the USD pairs at the start on the London session. They show good volatility and could offer decent opportunities.

Mike K.

The BoJ will be followed on Wednesday with policy meetings in the USA and New Zealand. While the RBNZ announcement has the highest probability of some action, all eyes will be on the FED. Nobody expects a change this time, but it will be the first meeting when the central bank releases its interest rate projections. It goes without saying that everybody wants find out when FED expects the first interest rate hike and how much tightening is projected in the following years. Also, in recent few weeks public comments by regional FED presidents seem to signal a willingness to ease monetary policy further this year, the so-called QE 3. Latest fundamental data has been mostly positive, indicating economic growth, well, recovery in the USA. That does not rule out any action, but it probably pushes any announcement of a major policy move out to meeting later in the year. We will find out in few days.

Recently the uptrend in the AUD-CHF has become very choppy, as if ready to reverse. Corrections are bigger, volatility is higher, possibly building a top on the intermediate term chart. I would like to short it if the price dips under the recent low of 0.9695, with entry at 0.9690. This trade, if filled, will attempt to capture 120 pips. Alternatively, if the AUD-CHF continues higher and makes a new high, it is likely to form a divergence with the MACD. In such event, it could offer a decent shorting opportunity.

Another currency pair of interest is the EUR-CAD, also on the 4H chart. Here the price already bounced from the low of 1.2875 to 1.3147, perhaps forming a bottom. I want to go long on a bullish breakout with entry at 1.3155. The target is 1.3300. There is a small complication; I would like to see a little more pullback first. Not necessarily much lower, but I do not want to enter into a trade if the EUR-CAD rises right after the open. Initial opening moves often lead to false breakouts, something I want to avoid. After the first few hours, the order becomes valid.

While waiting for those trades, which could take some time because of relatively large time scale, I will look for shorter-term opportunities. One of them could materialize in the GBP-USD, among others. After a sharp rally on Friday, the cable is likely to go through a correction. Preferably, I would like to see a little continuation, but the signal itself will be a bearish reversal candlestick pattern on the hourly chart. Objective will be 50 pips, although details will have to be worked out once the entry is confirmed. Have a great trading week!

Mike K.

Euro has been rising most of the week, as if market participants expected a solution and some stability in the common currency. Realistically, the EUR was due for a rebound; it had been oversold against most currencies. This run-up was a combination of a technical bounce and the anticipated good news from Greece, and in case of the EUR-USD, it reached 1.2986. It will be interesting to see how the Euro reacts to that, but one should consider the possibility of “buy the rumor sell the fact”. Meaning, the EUR could fall again once the supposedly good news is finalized.

My Friday trading was focused on short-term transactions at the start of the London session. As it turned out, the EUR-USD presented a good opportunity, with nice trading range established just before the session started. The first move of the day was down, triggering a sell order at 1.2951, under the minor support. Turned out to be a good trade but it did not maximize the potential here. Alls said, though, it was a good end to a good week. Have a great weekend!

Mike K.

These talks are not going well. According to some sources, the Greek government has proposed an even larger “haircut” of 68%, meaning a recovery rate of only 32 cents on the Euro. In addition, future interest payments would be lowered, too. There are plenty of conflicting stories, with some suggesting that the original 50% threshold is still valid. We shall see. Whatever it turns out to be, Greece is simply strong-arming, even blackmailing its creditors into taking losses, with only faint hope of actually recovering anything. According to Fitch, Greek default is inevitable and only a matter of time, and any talk to the contrary, including these negotiations is just posturing.

While that farce is playing out, trading goes on no matter what it actually is that drives the markets. In the last post, I discussed a buy in the GBP-JPY. The premise was to go long on a breakout above the latest minor high, with the exact entry at 118.33 and objective of 100 pips. That is what happened, the beast rallied with most of the gains taking place on Thursday. Perhaps this is a start of larger appreciation, but for that one should use the 4H chart, something I will look at later.

Another trade I covered earlier this week was in the EUR-NZD. Here I used the intermediate term chart, which formed a divergence with the MACD. Still needed a bullish candlestick reversal pattern, though, in order to pinpoint the entry. After a considerable wait, an engulfing line developed, providing entry at 1.5927. My objective was 200 pips, which was reached, if just. Later in the day, the EUR-NZD made another run at the high. For Friday, I will focus on short-term at the start of London session, using USD pairs.

Mike K.

Now Japan feels the threat of similar action. Her prime minister, attempting to build support for painful fiscal reforms, said Saturday that the country should be alarmed by ratings cuts in Europe and must tackle its massive public debts to avoid becoming the next target. Noda says Japan urgently needs to reduce its debt burden as the nation ages and its labor force shrinks, putting a greater burden on the social security and tax systems. He has promised to submit a bill by the end of March to raise the 5 percent sales tax in two stages, to 8 percent in 2014 and to 10 percent by 2015. To be fair, most of Japanese debt is held internally and not internationally, but another downgrade could be painful and seemingly official feel the heat.

Meanwhile in France, the Prime Minister Fillon said Saturday his country would push ahead with cost-cutting measures. The downgrade confirmed his conservative government’s plans for more reforms to bring down debts, despite worries that more austerity measures could suffocate growth. However, the government would not adjust the budget yet, saying it had been devised with an assumption of higher borrowing costs. This is typical of what we have been hearing from Europe in the last two years – plenty of talk but very little practical steps. In the end, Friday’s downgrades provide Germany with even bigger clout than before which could have a profound impact on what the EU will do to combat the problem (if they ever do anything).

Few days ago, I discussed a weekly chart of the EUR-NZD, which showed a strong possibility of MACD divergence. For a while, the weekly chart almost produced a reversal pattern, but a steep selloff on Friday closed at almost the weekly low. However, this choppiness created another probable MACD divergence, this time on the 4H chart. The divergence itself is almost guaranteed now, as long as the price makes a new low, but the EUR-NZD still needs to show a bullish reversal pattern. I would like to see a hammer or a bullish engulfing line, which would act as the trigger here, with at least 200 pips objective.

Meanwhile the CAD-CHF has consolidated, building a potential Head and Shoulders reversal on the intermediate term chart. For the pattern complete, the price must move under the latest low of 0.9238. I have a sell order at 0.9230, targeting 100 pips if it is initiated. Should the advance continue I would look for signs of resistance at 0.9400. Another pullback from that level could create a buying opportunity on a follow up breakout. As for immediate concerns, opening gaps could form and those are often exploitable. Have a great trading week!

Mike K.

The interim central bank chief Thomas Jordan is unlikely to implement important changes in present policy. If anything, he will be under even greater pressure to raise the floor. Many in Switzerland are demanding the EUR-CHF to be at 1.30 even 1.40. This probably will not happen either, at least not immediately. For now, we should expect the SNB to stick with 1.20 floor, although it does not mean an intervention at precisely that level. The price could easily drop perhaps 1.18 before any action is taken. On the other hand, the SNB might start a “soft” intervention now and keep purchasing the Euro in small dozes around the clock without major spikes. Whatever happens, “buying the Euro in unlimited quantities” is still its official policy, which unlikely to change in the short term.

The EUR-CHF is flirting with 1.21 level, possibly on its way to 1.20. I do not plan to buy it at 1.20 solely based on what the SNB is saying, but IF the price dips to 1.20-1.19 and IF there are technical reasons on the 4H/Daily chart to go long, it might not be a bad idea. After all being on the side of the central bank might be positive. Plenty of “ifs” here, so no real plan yet, but a consideration should the price drop lower.

Trade from last post involved the USD-CAD. Plan was to see initial upward continuation, followed by a bearish reversal candlestick on the hourly chart, serving as the entry signal. There was a shooting star, closing at 1.0304, which became my entry. Probably should have waited four more hours for the bearish engulfing line, but that would have produced almost identical entry. It took a while for the USD-CAD reach the 40 pips objective; however, the trade was relatively easy and worked out as planned.

Mike K.

Chances are that the summit in Brussels on January 30 will not produce agreement on this issue. In such case, Mr. Sarkozy will try to impose the Tobin tax unilaterally before the April presidential election in France. French business was quick to distance itself from the idea. Paris Europlace, a financial markets association, warned that unilateral application of this tax would drive banking, insurance and asset management business out of Paris, and benefit of other large financial centers. It could even hurt Sarkozy’s reelection bid. Ultimately, though, it will further sour European unity at a time when it is most needed.

The USD showed strong gains on Friday, especially against the Canadian Dollar, which fell of confusing employment numbers. While the Net Change in Employment improved with 17.5K new jobs, even higher than the projected 15 K, the Unemployment Rate somehow increased during this time to 7.5% from 7.4%. How is it possible? Beats me, but the USD-CAD had a nice rally and closed at 1.0283 just shy of the daily high. This, it turn, sets up a short-term reversal trade, a sell in this case. I want to see a bearish reversal candlestick pattern on hourly chart, looking for a 40 pips correction.

After a bullish spike on the first trading day of the year, the Euro fell for the rest of the week. Fundamentally, there are few, if any reasons to by the common currency, but it could be getting oversold for now. Such is the case in the EUR-NZD. At 1.6287, the price is approaching the previous low of 1.6201, creating a possible MACD divergence on the weekly chart. It is a chart to watch for me, in case the divergence actually develops. That would be confirmed by a strong bullish reversal pattern. Because this is a weekly chart, we have to wait at least a week for the next candle to form, maybe even longer. If it does, the price could easily recover to 1.70 or so.

Mike K.