Intervention in the Rear View Mirror?

The major currencies are breaking one resistance level after another against the Dollar. Treasury Secretary Paulson has made it clear that free markets should dictate the Dollars value. But will the major players allow a free fall? Some central banks may begin to feel pressure to intervene. On the other hand, the long trading range that has just been broken November 25^th may have already allowed for the proper distributions to have taken place.

Up,  Up and Away?

A common trait of currencies once breaking out of a range is that they will quickly reach altitudes that once reached almost appear to be preset. Since nothing trades in a straight line, this presents a trader with the option of using the trading strategy of “Buying on the Dips”.

GBP-USD Heading for 1.9800?

A potential price target of 1.9700-1.9800 for the GBP-USD. As an Inverse Head and Shoulders pattern that was triggered late last week continues to head in that direction. . 

Fed Chairman Postures for a Pause

Fed Chairman Ben Bernanke gave an extensive report of the US economy Tuesday afternoon at the Italian American club in New York and stated that the FOMC is prepared to act “if developments warrant” and speaks of risks being to both the upside and the downside. But is more concerned about the upside risks. Bernanke is also scheduled to speak Friday at. Other Fed officials are scheduled to speak throughout the week right up through Friday evening It is apparent that there is debate within the FOMC for lowering and raising rates.

The December 12^th FOMC announcement will be coming at a time as the US Dollar is under extreme pressure against all currencies.  The likelihood of keeping rates steady in December are growing, as the relatively new Fed Chairman has begun to show a past preference for a “wait and see”, and do no harm approach. Also coming over the news wires - Ex fed Chairman Greenspan was speaking Tuesday at an Investment conference and stated that he was not concerned about a falling US dollar.

Good Trading to All - Jerry Furst for "1st on Forex" and www.InvestorsEducationNetwork.com

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Inverse Head and Shoulders on GBP-USD is in play
The GBP-USD (chart 1) has quickly completed the right shoulder of an Inverse Head and Shoulders pattern that may see the Pound reach 1.9800. This pattern was also the fulfillment of a larger “Broadening Formation” or “Reverse Triangle” that goes back to Early August 2006.

Make a Note in Your Trading Log
Although it is important to note that the US markets are trading in very light and “Low-Volume” or “Low-Participation” - that is what we are expected to think. Make a note in your trading logs: The Currency Markets Do Not Take Holidays! While I hear the pundits being surprised at the recent dollar weakness, and that there is low volume - this is exactly the time that traders must be very aware of opportunities - or go flat. Read the blog posted on November 21st.

Long Time Resistance is Sliced
The long time resistance zone was tested during Thursday’s session at 1.9150-1.9170 and then sliced through during the first two hours of the London session. The Neck Line of this Inverse Head and Shoulders at 1.9277 (R2) was also sliced through. This pattern is now in play to the upside and could possibly see completion of the formation approx mid December (or sooner) at 1.9800 – A failure of this pattern could potentially take the Pound to 1.8600. But that scenario is only valid if the current pattern is quickly reversed on Mondays open.

Not too late to participate
A 61.8% retracement at approximately 1.9227could be an entry point. Look for some nice volatility moves as this pattern plays out. However, If Price tests R1 and fails, then price could see as low as 1.8575 by mid December. (chart2) Again - the Holiday season and its possibility for surprises during low volume may deliver some presents to those who are vigilant.

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Hello.

Well, in my opinion the h&s pattern which is pointed out is not a good one, and if I am wrong, then where is the "neck line". A "neck line" should be a decision making line or "triggering point in h&s pattern, but on your  chart, I see a line called "decision line".
I apologize if my comment/question is not clear. I will try to make it clear: where is the neck line for the pattern show on your chart (chart2)?

Thank you and good luck to all.

Rezo
===============================

Hi Rezo,

Thank you for your question. Allow me to elaborate - This is a "potential " Inverse Head and Shoulders pattern. It is not yet confirmed. You shoudl be able to see the "potential" slanting neck line drawn is clearly visible at R2 (approx 1.9230-1.9270).

R1 is what I labeled the "Decision Point" meaning price will decide whether this will or will not become an Inverse Head and Shoulders. Notice I draw an arrow that bounces down off this resiitance point (R1) If that happens, then this is a failed pattern that was setting up. (Reviewing this for you I noticed that the arrow for this H&S failure should have been drawn from R2 - not R1.) 

The other possibility is where I have drawn another arrow that continues through R1 and R2 all the way to a H&S Completeion point at approx 1.9800.  This would be the maximum potential of the Inverse Head and Shoulders patern.

Time will tell the accuracy of this potential pattern and analysis. Interpreting the right edge of the chart is a bit more challenging than going back and showing you what has already come to be. I encourage all my readers to send me thier "right edge" analysis - as that is the market!

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Good Trading to all - Jerry Furst for "1st on Forex"

This Thursday marks the beginning of the holiday season between Thanksgiving and New Year’s. This is expected to be a quiet week.  Institutional traders in the United States will most likely be taking off early Wednesday, and not returning until Monday, leaving the markets in a low-volume situation. Veteran traders know that they must be on guard for wild fluctuations during this low-volume season.  Beware - The recent range bound trading may be tested over the next few days.

Inverse Head and Shoulders on GBP-USD?

GBP-USD (chart 1) may be completing the right shoulder of a reverse head and shoulders pattern. This pattern will be in place if resistance is tested at 1.9150. Be prepared at any moment for the Euro and the GBP to slice through resistance against the USD once resistance is approached.

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If R1 is sliced through at 1.9180 and breaks R2 at 1.9277 this Inverse Head and Shoulders wil be in play to the upside and will see completion of the formation approx mid December at 1.9800 .

However, If Price tests R1 and fails, then price could see as low as 1.8575 by mid December. (chart2)

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Again - the Holiday season and its possibility for surprises during low volume may deliver some presents to those who are vigilant.

Good Trading to All - Jerry Furst for "1st on Forex" and www.InvestorsEducationNetwork.com

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China and It’s Problems - Too Much Money!

While the mass media seems to be concentrating on last Friday’s China’s central-bank governor Zhou’s comments regarding China’s diversification of its FX reserves, the following quote seems to be overlooked: In reference to Balance of Payment problems Zhou stated they, "should be adjusted by keeping the domestic economy in good health, by international efforts and by exchange rate regimes," and should be gradually adjusted.”

A Clear Reference to "Intervention"? This reference to "international efforts" and "exchange rate regimes."  Is a clear statement to me that intervention is at work.  Not that there’s anything wrong with that — but it’s definitely something to be aware of. Once intervention runs out of steam, it is often followed by large moves that happen quite suddenly.

What Do You Think the Fed is Going To Do? With interest rates rising across the globe.  It can be argued that the FOMC will also be raising rates.  This Wednesday’s 2 p.m. Eastern Time release of the FOMC minutes from October’s meeting should prove to be worthy of volatility.

Let’s not Ignore the Euro

The EUR/USD is continuing in its range, and the consensus is that it will stay that way for the foreseeable future.

However I disagree, and expect that we will test the the bottom of this range at 1.25 and then begin to chart a path higher for the euro and the GBP against the Dollar.

Nice Triangle on the EURUSD Weekly chart.  Are you ready for 1.35 or 1.20?
(click for larger view)

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Watch The JPY!  Japan releases GDP numbers at the beginning of Tuesday’s Asian session, and the BOJ meets on Wednesday. The yen is clearly undervalued and on the defensive posture. The possibility of the BOJ raising rates is a real possibility that may come sooner than most people think.

Election Results Come in Around 8pm EST

Several critical states on the East Coast will begin to have results in the evening. The consensus is that the Democrats will take back the House of Representatives and possibly the Senate as well. These polls  are often wrong and could provide a surprise that could shock the USD to the upside.  The highly Democratic and liberal demographics of the North East US will probably be a good heads up for the following…

Scenarios:         
1 - Democrats take back the House only: Downward pressure on the USD

2 - Democrats take back the House and the Senate: Extreme downward pressure on the USD

Republican Surprise!     
3 - If the Republicans can maintain their control of both houses of government, then the USD should rally.

All of this is based on the fact that the markets disdain uncertainty. If the Democrats get into a position of control, then the policies of US politics will likely distract and derail any policies from moving forward for two years.

An End to The Recent Trading Range?
Elections are always a factor that must be expected to affect the currencies. I predict that we shall now test the upper and lower ranges that have been in place on the "Majors" for the past few months - and then chart a course for a new trend and direction.

Good Trading to All - Jerry Furst for "1st on Forex" and www.InvestorsEducationNetwork.com

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