Monday, January 10, 2011

EUR Weakness or USD Strength

Pretty critical juncture in the FX markets right now which have implications on the equity market.  The USD has shown strength of late but perhaps it's more appropriate to say the EUR has shown weakness.  The Euro represents about 50% (working from memory here) of the DXY.  USD strength has pressured commodities and equity markets so it's important to watch how this breaks.  Below are charts of both currencies.

EUR/USD -  Notice how the EUR broke through support at the 1.29 area.  It took about two days of bouncing around intraday to finally pop down below that support line.  Today it found some strength but probably more so to test support which acted as resistance and to work off oversold conditions.  From a technical standpoint it looks as if resistance at 1.29 should hold and the next stop being the 1.26 area.

The DXY has really put in a good move the past few trading days.  It is looking to breakout.  In this case above prior highs of 81.44 would set up a test of the 200MA just above (81.50 range) and then if successful to 83.50.  

Interesting to note that copper has 5 red candles on a daily chart in the past 6 trading days.  Quite possible copper has put in an interim top at 4.498.  Zero Hedge ran a great piece on the future of copper, certainly a must read.  Certainly lots going on right now in the FX, bond, commodity and sovereign debt markets with broad implications for risk assets.  Did I mention how low the VIX is?  


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