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TheYens; Aussie Ready To Rumble?

Written by A Forex View From Afar on Wednesday, April 09, 2008

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Both major US Equities markets are at important resistance areas. The S&P 500 since January has traded under the 1,400 resistance area, and has failed to break that area on three occasions, it is also an price point that has acted as strong support previously that went on to break. Old Support turns into new Resistance, and this is a Wall o’ Worry to have to climb.

The Dow Jones has had the same problem since January in trying to break the 12,700 resistance area. It also failed three times to break, and this area was also a previous important Support point that failed; the Dow also has a Wall o’ Worry.

The bad part of the story for equities, and something that may now hinder those moves higher, is that yesterday’s FOMC Minutes somehow managed to build a much gloomier picture over the medium term for US economy than most had expected them to do, with recession a possibility and inflation above the comfort zone.

Fundamentally this is not a good setup for equities to break such an important technical resistance area.

The equity market’s close followers, the Yen cross pairs, have shown in the last couple of days that they want to move higher. Instead of the normal sell once with the major stock markets go lower they seem to want to close in the green.

It is important to note that most Yen pairs, like the S&P and the Dow, are now at resistance levels.

The Eur/Jpy is now trying to break the 161.50, the 200 day SMA area; the last time it tried this the attempts were the instigator of a new down-trend. The Euro will maybe need the ECB to help in this final push through.

The Gbp/Jpy has been in a clear down-trend for more than 6 months and trading way under the 200 day SMA. It also just failed at a bearish trend-line, an area that the pair has been unable to break since November 2007. The Markets are now expecting a rate cut from the BoE, and it is unlikely that the Gbp/Jpy will break much higher, without better fundamentals backing it.

Under The Radar
A Yen cross pair that does look capable of breaking the near-tern resistance is the Aud/Jpy. It still has room to run to the upside once it clears the first resistance at the 96 area, which is the 100 day SMA area. From there the 200 Day SMA is 150 pips away.

It is very important to note that Aud/Jpy has closed out the last eight days in the green, with big candles and small Wicks. It will be very interesting to see if the Aud/Jpy can move any further as the equity markets struggle. Keep in mind that it does have a lot of strength from the rate differential of being the highest yielding major versus the lowest yielding. Trade Desks will be looking for Interest appreciation the moment that the Risk Averse signs are taken off the Wall Street sidewalks.

Keep an eye on the Aussie, all it will need is the S&P to move higher; it is ready to rumble, it would seem, but….
‘positive equity markets’ and ‘breaking major resistance’ are not two things that we have seen for at least 6 months in the same sentence. Maybe just put in on the radar, and look for a close above 96.00.

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Fundies and Trading
There is a constant question from some traders as to why anybody would ever need to consider the ‘F’ word when trading. Fundamentals: what is so damaging at looking at both Technical charts and having a Fundamental filter to gauge how many Lots to put on? Why is it that accepting that Technicals give us price points to trade, but Fundamentals determine the direction that we travel is so difficult for some traders to accept? Without a Fundamental Filter very few pure Technical traders would have seen this Dollar move coming today.

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