The Forex Markets: Risk-Off/Risk-On

05/21/2019 9:48 am EST

Focus: CURRENCIES

Bill Baruch

President and Founder, Blue Line Futures

Bill Baruch, President of BlueLineFutures.com, updates the forex market.

Euro (ESM)

Fundamentals: A weaker risk-environment at the onset of U.S hours abated, and the euro recovered from a two and a half week low. Volatility between Friday and today was very low signaling that traders are waiting for the next catalyst to either driver prices through a long-tested level of support or find value for yet another bounce. Brexit, Italy and global trade all hang in the balance. Last night, Fed Chair Powell speaks at 6:00 pm CT. This is the highlight of a quieter calendar day that only boasted a weaker than expected Chicago National Fed Activity read and no major comments from Fed speakers earlier. Today, we look to Existing Home Sales and comments from Chicago Fed President Evans and Boston Fed President Rosengren, both 2019 voters.

Technicals: Price action still has yet to close out above major three-star resistance at 1.2455-1.12695. The last time the euro was above here was before it broke down on April 22. We will keep our pivot at 1.12075, and below there the bears have the near-term edge in attempting a breakdown through the floor of major three-star support at 1.11565-1.11845.

Bias: Neutral

Resistance: 1.12455-1.12695***, 1.1311-1.1332**, 1.13855***

Pivot: 1.12075

Support: 1.11565-1.11845***, 1.1000***

Yen (JYM)

Fundamentals: Yesterday was certainly a time where one would not only think the yen was higher but expected it to be. Overall, yesterday was disappointing for the currency given rising US-China tensions on tech and the tech-centric NQ losing 1.5% all the while the dollar did not trade higher. To top things off, GDP data from Japan last night was much better than expected. However, the previous quarter was revised lower which buoys the more recent numbers. If risk-sentiment worsens from here, the yen better respond, but given yesterday’s action, if stocks bounce back, we would expect pressures on the currency.

Technicals: The more immediate trend has been favorable and despite lower action early last night, the yen finished off that low and still settled above the 200-day moving average. In our videos last week, we advised that traders cannot chase price action into major three-star resistance at .91815-.9217, this pullback has provided relief against support and a potential buy opportunity.

Bias: Neutral/Bullish

Resistance: .91815-.9217***, .9284***

Support: .9102-91075**, .9031-.90585***, .8919-8931***, .88355**, .87675***

Aussie (ADM)

Fundamentals: The Aussie dollar was overdue for a bounce, and here it came yesterday after the incumbent Prime Minister Scott Morrison surprisingly won reelection. His win brings less uncertainty to the country’s landscape and he promised fiscal reforms that are expected to boost growth. The recovery or dead-cat bounce in the currency comes ahead of the release of the Reserve Bank of Australia’s minutes last night; shorts are likely de-risking a bit after piling on the bearish technical breakdown.

Technicals: Price action fell precipitously through last week and directly tested major three-star support at .6809-.6861 with a low of .6869. Right now, this has the makings of a dead-cat bounce and strong major three-star resistance comes in at .6970-.7001; this would present a sell the first test opportunity.

Bias: Neutral/Bearish

Resistance: .6946-.6951*, .6970-.7001***, .7042-.7056**

Support: .6809-.6861***

Canadian (CDM)

Fundamentals: The Canadian dollar is being buoyed by both progress on USMCA and strength in crude oil. On Friday the White House removed steel and aluminum tariffs on Mexico and Canada. These expectations were put in place on reports earlier in the week and helped keep the loonie from slipping amidst a broadly weaker risk-environment. Today was a holiday in Canada and tomorrow there is not data.

Technicals: Major three-star support at .7404-.7427 has held strong and price action is responding. Let’s not forget there is strong overhead resistance, but Friday’s reversal will attempt to bring a tailwind to the beaten down currency. We could see it trade as high as .7491-.7509 but it ultimately seems to be tethered to the .7443 pivot. We are Neutral for now.

Bias: Neutral

Resistance: .7491-.7509**, .7544-7564**, .7600-.7630***

Pivot: .7443

Support: .7404-.7427***, .7330-.7347***

Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.

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