EUR/USD Old Support New Resistance?
Good Morning,
So after 3 months of dissapointing jobs data (and other economic data as well), the SPX is only off its highs by 4%. The VIX is still appalingly low, hanging below 20.00. It seems to me that the VIX is staying low because traders aren't willing to purchase risk insurance by going long entities that tend to go up when equity markets go down.
A low VIX means a few things:
**tighter ranges. The range in the GBP/USD since the start of trading Monday morning is 43 pips. The EUR/USD, 47 pips. Seems like it will be an "inside day" where support and resistance will be key areas to look for trading opportunities.
**an underlying bid to equity markets. With traders shying away from purchasing equity protection unless they are getting in at appropriately low levels, the equity markets tend to sell off and then catch a quick bid and head right back up, violently. It is almost the opposite of what we are used to. The old adage is "buy a creeper, sell a leaper". Now it seems to be "sell a creeper, buy a leaper".
**moves per day. In volatile markets, you have moves, counter-moves and counter-counter moves. These days often set up a DOUBLE FALL LINE TRADE in the forex markets. But now, with lower volatility, you have a move....and that is it. Sometimes that move happens overnight and then we have tighter, sideways markets in the US session. In equity markets, you may have an impulse move up or downa dn then sideways contraction for the remainder of the day. It just means that our trading frequency may be lower as long as the VIX stays low.
Traders may have to expand their watchlist to cover more entities in slower markets and they may also have to sit in a trade a little longer. Day trades take longer to unfold. Swing traders may choose to risk a bit more to make a bit more over a longer period of time (becoming an intermediate trader by adjusting the amount of contracts they are trading).
Technically, the EUR/USD did make a lower low. I wonder if the 1.2350 level that was support will become resistance?
Past performance is not indicative of future results
A favorite chart to look at that is showing a nice bounce off support is USO. I still think it may head lower, but for now, the 29.00 area is holding in there:
Past performance is not indicative of future results
Fundamentally, we have a very, very, very quiet week on the economic calendar. Still keep an eye on things, especially claims as last week was a holiday week. Additionally, we do have earnins starting to creep in, so that could set the tone if they come in surprisingly weak or strong.
Draghi did speak today on the "bold and historical" moves that central banks made recently in the wake of the "crisis". It is worth reviewing if you haven't already done so.
Tip of the Day: Join me as I host a IBFX "Trending Markets" webinar on Thursday evening.
Happy Trading and Be Environmentally Cool
Coach Brian
Forex trading is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose.
