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Accumulated gains in the major US equity indices helped boost the dollar in a vacuum of US economic release and a further erosion of trading liquidity in the currency markets. The Dow Jones Industrials Index and the S&P 500 rose 0.9% to a 3 1/2 year low. Equity analysts were unsure whether this was a “Santa Clause” rally or an early “January effect” but agreed on their expectations for seeing further equity run-up into the end of the year ahead of beginning of the year buying following the December tax-related selling.
The main FX story of the day remained that of the falling sterling after a deterioration in housing price to a 12-year high may lead some to revise their expectations for further rate hikes. A strong showing in Canada’s retail sales had only a limited effect on the loonie before the US dollar held it lower.

Sterling extends losses by 2-cents on housing

Cable accumulated its losses to a more than 2 cents from a 1-cent decline in the European session nearing $1.9260 following the Royal Institution of Chartered Surveyors (RICS) house price index showed a decline for the 7th straight month in November down to -48% from -40% in the October period. The index measuring price changes in the three months through November fell to a 12-year low highlighting the deepening slowdown in the nation’s property market. We have seen improving data on the UK macro picture (falling unemployment and rising manufacturing), the house prices figures could throw damp water on possibilities of further rate hikes to avoid the risk of destabilizing the heavily indebted housing market.

Cable’s support starts at $1.9270 and $1.9250. Declines could extend down to $1.92 before end of the week. Upside starts at $1.9380, followed by $1.9430 and $1.95.

Loonie tapers off

USDCAD edged higher within the 1.2250-00 range after mixed Canadian data failed to form one direction. Canada’s leading index of Canadian economic came in flat in November, failing to increase for the first time since May 2003, following a 0.25% rise in October. Economists had expected a 0.2% rise. On the bright side, Canada’s retail sales rose 1.4% in December beating expectations of a 1.0% increase after the Oct reading was revised to 0.3% from 0.2%. But sales ex-autos rose 0.1% undershooting forecasts of a 0.4% rise after a 0.6% increase.

USDCAD resistance starts at 1.2352—the 38% retracement of the 1.3382-1.1715 move. Subsequent pressure seen at 1.2408, followed by 1.2460-65. Support starts 1.2235-40, followed by at 1.2180. Key support stands at 1.2150-- 38% retracement of the rise from the 1.1715 low to the 1.2406 high. A drop below 1.2150, calls up 1.2120. Resistance starts at

EURUSD adrift

Support starts at 1.3330, followed by 1.3260 and 1.3220. Resistance stands at $1.3425-30, the trend line extending from the 1.3468 high through the $1.3441 high. Subsequent pressure stands at 1.3470.

The DX opened lower at 81.85, as money managers continue to discount the latest bit of ‘short-covering’ and focus on the twin deficits and an administration that only ‘talks’ a strong dollar policy, with little to back it up. Commercials were liquidating DX positions, while hedge funds were liquidating EC positions and adding to their shorts. The DX continued lower to a daily Lo of 81.68, before recovering during the afternoon session and closing the day at 81.75, down 48 tics. Despite a better than expected report from the Conference Board showing November leading economic indicators rose +0.2% to 115.2, buyers were staying on the sidelines. We could see a test of the previous low of 81.05, unless a round of further ‘short-covering’ before ‘year-end’ gave us a boost higher. A lower open may find Support at 81.55 and 81.36, while an open above 81.88 should find Resistance at 82.07 and 82.40.

CANADIAN DOLLAR (CDH5):

The CD opened lower at our Filter level of .8138 and rose to a daily Hi of .8152, before retracing to a daily Lo of .8115 as traders continue to favor most other majors, until the consolidation on the charts improves. Prices managed to recover off the morning low, but lack of buyers was evident as the prices continued lower into the close, ending the session back at the Filter level of .8132, down 16 tics. The s/t trend remains ‘negative’ with weak momentum indicators, indicating further weakness or consolidation. A lower open may find Support at .8114 and .8096, while an open above .8133 should find Resistance at .8151 and .8170.

BRITISH POUND (BPH5):

The BP opened higher at 1.9163 and dipped to a daily Lo at our initial Resistance level of 1.9360, before climbing to a daily Hi of 1.9393, despite the UK reporting the ‘highest deficit’ in history. Prices trailed lower through the afternoon and ended the session at 1.9372, up 84 tics. The ‘gap’ up day is still ‘bullish’, but ‘over-bought’, as momentum indicators suggest a failure to take out the previous Target Hi of 1.9431 on 12/16 could see ‘weak’ longs taking profit/risk off the table. Commercials are liquidating ‘longs’ and increasing their Net Short position to 53,348 contracts. Time to tighten ‘stops’ or purchase a ‘put’ to reduce exposure. A lower open may find Support at 1.9357 and 1.9342, while an open  above 1.9375 should find Resistance at 1.9390 and 1.9408.

EURO-CURRENCY (ECH5):

The EC opened higher at 1.3392 as traders revert back to their ‘self-fulfilling’ prophecy of ‘higher-euro’-‘lower-dollar’. Despite the burden of higher prices for exports, the ‘anti-dollar’ position is depending on further Dollar weakness to continue into the New Year and are afraid of chasing the market. We could see some disappointment should the EC be unable to close above the 12/16 Hi of 1.3427, which could ‘trigger’ a round of profit/risk taken off the table ahead of ‘year-end’ bookkeeping. A higher open should find Resistance at 1.3419 and 1.3437, while an open below 1.3401 may find Support at 1.3383 and 1.3365.

JAPANESE YEN (JYH5):

The JY opened higher at .9651 and rose to a daily Hi at our secondary Resistance level of .9681as lower oil prices, a weaker DX and optimists looking at the latest Tankan Survey as ‘still’ positive pushed the JY higher, despite concerns by the MOF about slowing exports and falling industrial production. Prices retraced during the afternoon, sending the JY to a lower close of .9664, up 29 tics. The s/t trend is ‘positive’ and momentum indicators headed higher, as the ‘managed’ currency looks to challenge the MOF to ‘intervene’ or get out of the way. A higher open should find Resistance at .9681 and .9699, while an open below .9664 may find Support at .9646 and .9629.

MAY THE PROFITABLE TRADES BE YOURS,

BOB KOZAK

Commentary provided by Bob Kozak, a Commodity Trading Advisor at Alaron

phone: 800-462-4691  email: bkozak@alaron.com

As a technical analyst, numbers are an important part of trading; whether they are Fibonacci, Gann, Support or Resistance. My formal training as a Mathematician helped me to understand what makes the chartist or other technicians see a plan where others see chaos. I have been using Pivot Point analysis for a number of years along with a combination of other technical tools to help my clients determine trading ranges that could provide a competitive edge.