Forex Price Action Trade Setups (NY Close) Apr. 4th
Stocks Have Second Largest Losing Day of 2012, Markets Coming Undone?
After Spain’s failed auction sales, the Fed standing down on more easing, and the ISM miss, the low-volume and thus low self-esteem of this last bull run is starting to sober up to the very real risk things are not so rosy in Europe. Comments from today’s ECB meeting out of Draghi suggesting the risks to the zone’s outlook are not good did not help either.
Global markets fell over 1% across the board the the S&P down 2% from Monday’s peak to today’s lows, and bank stocks are down over 6% as a whole. Commodities are also not being spared in this with Oil struggling to hold onto $102 a barrel, Gold down to $1620 which is almost where it started this year, down almost 12% off its highs, and Silver sitting cautiously above $31, down 16% off its highs. Don’t forget a cooling China which is affecting exports out of AUD and NZD but hurting Europe as well.
Lastly, the carry trade seems to be finally unwinding with AUD & NZD down while JPY is up all suggesting global investors might be seeing the upcoming trouble ahead and are moving into less risky assets. We expect the USD and JPY to outperform for the rest of the week and possibly medium term as the carry gets unwound a little further.
EURJPY – Breaks Below Key Dynamic Support
After holding above the daily 20ema since Feb. 2nd of this year and over 2mos, the EURJPY has broken and closed below the dynamic support and daily 20ema, selling off 4 out of the last 6 days. As noted above, we suspect the carry may be unwinding a bit which would be bullish JPY and thus this pair goes south.
Reading the price action, we are expecting technical models to unwind stale longs, either closing the position entirely, or taking some profits. Either suggests short term losses for this pair. Since the 20ema was so good at holding as support, it stands to reason it might hold as resistance right around the 109 handle which was a 4 day support base for the pair as well. We are looking for price action signals off this level to possibly sell it down to 108, and possible a much deeper unwinding to 106 should the losses become more impulsive.
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