Risk assets still vulnerable
Continuing on from the sections above, we’ll begin by looking at EUR/USD, where price this past week has closed just below the daily Ichimoku cloud bottom at 1.3531, but importantly has held above the weekly cloud base at 1.3408, which coincides with the 76.4% retracement of the recent 1.3150-1.4250 advance. If the 1.3405/10 level fails on a daily closing basis, we would look for additional declines to the 1.3150 prior lows initially. While that support hold, there is scope for some further consolidation/correction, but we think the 1.3750/3800 area offers a good short-entry opportunity.
Consistent with the weak outlook for EUR, the S&P 500 has broken down out of a sideways triangle consolidation at about 1235, and may in fact be leading FX. The daily Tenkan line is poised to cross down below the Kijun line, generating only a weak sell signal at the moment, as price remains above the 1168 daily cloud top. The weekly Kijun line comes in at 1215, coincident with the Nov. 1 low, suggesting to us that a drop below the 1210/15 level may trigger a sharper decline in the weeks ahead.
The CRB commodity index has also fallen below trendline support for the advance since early Oct., last at 312.20, but has held above the daily cloud base at 310.00 for the time being. The daily Tenkan and Kijun lines should see a bearish crossover shortly, and with price inside the cloud/possibly below, a medium-to-strong sell signal may be generated. We would also note the sharp rejection of WTI crude oil prices from above $100/bbl and a similar failure in gold from the 1800 area. Gold prices have dropped back into the daily cloud and a close below the 1703 Kijun line may signal a test of the 1676 cloud base initially.
Overall, we continue to favor using rebounds in risk assets as an opportunity to get short risk. In FX, we will focus on opportunities to short risk currencies like EUR, AUD, CAD, and NZD on remaining strength against safer haven FX like the USD, CHF, and JPY, though we must caution on intervention risks in those last two currencies.
Finally, we would note the US Thanksgiving holiday next Thursday, which also typically sees reduced market interest on Friday as well. While a holiday shortened week heading into the final weeks of the year may see further market consolidation/sideways drift, we will be alert for potential risk asset breakdowns amid lethargic markets.
Brian Dolan is chief currency strategist at www.FOREX.com.
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.