All Eyes on Italy
So now what? No real big reactions from NFP but DXC and the S&P’s are largely in line with what I was looking for in the near-term at least….i.e. modestly lower levels.
Italy’s vote on Sunday will be very key, but the fact is a YES or NO vote does little to change what few are talking about: Italian banks are an absolute mess. Some would say technically insolvent.
Keynesians and the ‘never met a dip I would not buy’ crowd might dismiss this, but it is one of many data nuggets that simply cannot be ignored.
But I digress.
What about the next few days/weeks. What makes the most sense from a technical and trade selection perspective?
A few clients have asked me about the really solid bearish patterns in both AUD/USD and NZD/USD. I agree – the charts look pretty bearish.
But, in the near-term I think we will see some weakness in the Dollar Index (DXC) as noted earlier this week.
A close today in DXC below 100.70-100.60 will keep downward pressure on DXC.
That scenario, will keep some upward pressure on the likes of AUD/USD and NZD/USD. So while I would certainly consider getting short either pair (see my AUD/USD chart from yesterday), it might be a bit premature.
If we get much above .7470 (today’s high – boy this Fib/Elliott stuff really work) it would suggests that what is labeled as Circle Wave ii is not complete and a move towards .7600 is in the cards.
Same situation with NZD/USD. A move above .7142-.7167 suggests a deeper correction higher is unfolding.
Bottom line for me is that I do not think the timing is right for shorts in either of those pairs right now.
We are coming off a solid week of trades as both EUR/SEK and AUD/CAD were closed out for nice profits. I think the best course of action is to see how DXC unfolds and start making a game plan from there.
On my radar/dipping toe in water?
- Shorts in USD/JPY – simply a play on mean reversion. This one is extended to the upside – a pause is overdue.
- Longs in AUD/NZD. At some point I am expecting this cross to move higher – for now it is simply fun to keep an eye on….not trade.
- Short EUR/NOK on rallies. Watching oil very closely as it rallies again today and threatens the $52.22 resistance level/recent high. That would be the catalyst for lower levels in EUR/NOK