Market Brief
The trading week is going to end on a quiet note as the economic calendar is lacking any real market moving events. The forex heatmap has started the London session mixed with the commodity pairs green showing a willingness for some risk taking but the yen and US dollar are also green which then suggests a more sideways day is about to occur. The weakest of the set is the pound and a lot of that move I feel is being pushed by the EURGBP ahead of the European trade balance data.
Looking at the ActivTrader sentiment indicator for the US dollar it is clear to see that retail traders feel we have reached the limit to how far this asset can rise. Yesterday I noted that the price action had formed a lower swing high, but that the most recent swing highs now form a double top, which will entice the dollar bulls to target any liquidity above. Taking out yesterday’s high would be my signal to step aside for the bears.
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The current chart pattern that I am using as a guide is the expanding triangle, but the momentum as indicated by the moving averages is leading prices higher currently with major support down around $91.80-$92.00.
Another pair that is at the extremes on the ActivTrader sentiment indicator is the EURGBP. A massive 92% of traders think this pair should be trading back inside the range it just broke out of. I am expecting these traders to get very squeezed and for process to come lower.
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From my perspective there had been some defence of the 0.8500 level and anyone that was defending that to go long, has now had a chance to get out for scratch or reverse their idea. A break of any previous day’s lows could lead to an acceleration to the downside as we watch the long-positioned traders get stopped out. I am wrong if we break above the recent swing high and then make a higher swing low.
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The US equities bull run sees no sign of reversing. The signals I had been worrying about were coming from a dropping Russell 2000 as the small cap stocks can lead the large cap stocks lower. I was also worried about the Transportation Index not concurring with the Industrials but even they seem to have perked up. Earnings season was good and the concerns of further disruptions to supply chains etc. could be mitigated by continued vaccinations and a balanced view of how to manage the virus rather than eliminate it.
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Along with the US equities the UK FTSE100 is racking higher still so a couple of closes above the recent resistance level could get the bull speculators involved to a larger degree.
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Today’s start as I said has been into both the Japanese yen and the US dollar, so while that persists the USDJPY is probably not the pair to look for a trade. I am watching to see if the USDJPY can hold above the 110.20 as that was the most recent balance area. If it cannot find support there, it has a high probability of testing the 109.00 again as that was the start of the impulsive move higher.
