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US Stocks Close Above 50 Day EMA, USD and JPY Open Weak Oct. 27, 2014

October 27
01:59 2014

Equities Signal More Upside, USD and JPY Weakness To Follow

With both the S&P and Dow Jones having daily closes above the 50 day EMA we should see more upside to stocks according to the historical reaction the 50 Day EMA has had over the years. That would also assume we are working with normal market conditions, which we are not. Im sure my favorite gloom and doomer, Graham Summers, is pulling his hair out about this time wondering if he should just throw any historical data out the window and front run the Fed like all the big boys do these days. Well I guess that is what we do in a way as well but I, like Graham, believe they simply cant do this forever and time is running short. At this point in time I wouldn’t even try to guess when things will make the correction they have been avoiding for the last few decades. They have done a great job of holding it off this long so in all reality I am prepared for up to another ten years of the same or something stupid to be used at a catalyst so the powers that be have some thing else to blame other than them self. That’s where Ebola comes in. Maybe its just coincidence, however one really should ask them self. In a world that we have found central planning at almost every aspect of life, how much sense does it make for this outbreak to be pure coincidence? Im not wearing a tinfoil hat saying they released it on purpose even though that wouldnt surprise me. However the initial response was woefully slow and inadequate compared to previous outbreaks of Ebola. If you have read the book Hot Zone that tells the story of Ebola hitting the US in 1989 you know what I mean.

On to the charts

EUR/USD Forms bottom

The EUR/USD has gone into a chop for two days leaving any solid course of direction behind with Fridays move. The gap up this morning has pretty much closed as well along with getting rejected at Fridays highs before Tokyo opens up for the day. We will get more information in ten minutes when they do open but if the conviction above Thursdays highs is real they will be pushing up today. That is not enough to give me direction but does add to the probability of an up move today. As for potential levels during the London session later. I will first want to see the conviction be confirmed by a rejection at either the 1.2684 after a push up or 1.2669 at Fridays close if they cant push up and test the hourly 200 this morning. If they do push down and show conviction below 1.2659 during London then those same levels are valid for the short. Having said all that I should remind you that the safest entries are at 1.2687 for the short and 1.2632 for the long providing they hold this range in the first couple hours of the London session.

EUR/USD Conviction up?

GBP/USD First push up

The GBP/USD has shown a push to the upside after the sloppy three intraday pushes last week so I will have a bias for the long today. As I mentioned in Fridays commentary the pushes were sloppy since they didnt come close to the current ADR but the ADR is abnormally wide at the moment as well so we have to consider they can run on intraday pushes like they did. I will be open for the short from a stop run to the Asian highs of 1.6102 but will also need to see good trapping to change my bias. Any conviction during Asia will need to be confirmed by London with the potential false move. The best level for a long is down at 1.6069 but if they do show the conviction up during London then the Asian lows are valid as well as the highs if the move runs high enough.

GBP/USD first push

EUR/JPY Closes Gap At Tokyo Open

The gap open on the EUR/JPY does suggest that this pair has more upside but the USD weakness is holding it back as the EU rises to test Fridays highs early this morning. I will remain open on direction for this pair since seeing both Yen and USD weakness could make this run in any direction depending on how the USD/JPY acts today. The best level to short would be at 137.22 at the current Asian highs if it holds until London. Otherwise the best long will be from 136.93 at the Asian lows. That level is a little more risky with potential of a run to 136.78 or lower if the USD shows its that much weaker than the Yen.

EUR/JPY hourly chart

Forex News Today

The calendar today has German IFO Business Climate expected to drop a bit. Considering the better than expected news from Germany last week this has more potential to surprise up as well but I expect it to be close however with the European bank stress tests failing over the weekend its hard to think they could be Euro positive unless they are convinced the Fed or ECB is coming to the rescue. I will be keeping an eye on the Assessment and Expectations as well. these are lower impact but have potential to create a sustained move on a big miss. Mainly expectations, if they think things are going to get much better the Euro should strengthen.

The US has Pending Home Sales expected to rise above the zero mark. In order to create some USD strength this would need a large miss upward and even then it could have the opposite effect if they think it will slow a rescue from the Fed. Be careful on any spike on positive news, its more than likely a stop run.

Happy Trading



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