FP Markets: What Is Ben Going To Do?

US Markets

My observations below should be viewed as general advice and may not be right for you.

It is tough to make forecasts ahead of events like tonight. Clearly the FED policy statement will have a major effect on the market going forth. No doubt it is difficult to tell how much is already priced in. As a trader, you just have to let price action and levels be your guide. The market is in a strong uptrend and the S&P500 is trading above its April highs. Furthermore, when I look at setups in the Dow Industrials and the Russell, I see major breakout patterns in play. In these kinds of situations, I would be happy to follow the trend vs. trying to pick tops. EUR also looks like it has a destiny with 1.30 which is still someway higher.

It would appear that some 2/3 of economists surveyed by Bloomberg believe there will be a third round of bond purchases. The continued rise in Commodities such as Gold and the relentless bid in risk assets such as the Australian Dollar implies to me that a QE3 event is likely indeed.

From a technical perspective, price looks to be in a short term flag pattern with a ceiling at 1440. Breakouts of this level open up a potential spike into 1450/55. On the downside, 1420 to 1425 remains a key support zone and until this is broken, I think it is important to focus on joining this move higher. Don’t fight the FED is a clear message that I have learnt throughout my career. The fact that the Russell is on the cusp of breaking out above its 2007 highs is sending a loud strong message.

Russell Weekly:

Major consolidation pattern right at the top end of the range. This implies genuine strength and a close above 850 would be a very bullish signal indeed

DOW Industrials Daily:

The more times a market “tests” a level, the more prone it is to a break. Clearly the Dow has tested its recent resistance levels a number of times and this too looks set for a breakout to the upside.

Emini S&P500 15mins:

This is the short term flag pattern I am looking at. The target for any breakout tonight is up to 1455 in the short term.

S&P500 Emini Key Levels:

Support Levels: 1425/1420, 1410

Resistance Levels: 1440, 1450/1455

Europe

European stocks advanced strongly to a 14month high after Germany’s top constitutional court cleared the way for the ratification of the euro area’s permanent bailout fund, the European Stability Mechanism. The court stipulated that Germany must ensure its liability to ESM does not exceed 190bln Euros, but this could increase with approval of lower house of parliament. After initial strong gains, the market faded into the close.

There was an interesting reversal candle left on the close in both the DAX and the Eurostoxx. No doubt these markets are now appearing overextended but once again the trend remains firmly up and there is no topping pattern in place yet. A failure at yesterdays spike highs would be needed for more confirmation of a more meaningful turn. My target is and remains 2600 for the Eurostoxx and we are now not far off that level.

DAX Daily:

Top end of this trend channel and reversal candle. However, the target for this market is higher still into the red line at 7600.

DAX 15mins:

Yesterdays sell off did not look impulsive. Thus I am looking for a retest of the spike high at 7400. Up there, short term traders could look for potential short scalps. On the downside, 7300 to 7310 should be strongly defended.

Eurostoxx 15mins:

Similar to above, yesterdays sell off did not look impulsive. Thus I am looking for a retest of the spike high at 2590/2600. Up there, short term traders could look for potential short scalps. 2555/2550 is strong short term support.

FX Majors

The Australian dollar touched the highest levels seen in almost three weeks as demand for riskier assets rose amid speculation the U.S will take more steps to stimulate its economy and due to the German constitutional ruling. The Australian dollar gained to make a high at $1.0505 before pulling back to close at $1.046. The euro also rose strongly to its highest level versus the dollar in nearly five months.

From a technical perspective, that downward sloping trendline on the Daily chart will be key to the future direction of the battler going forth. As I have been stating, the recent strong price action is indicative of a genuine move higher and I do believe a breakout to the upside is likely indeed in time. However, this 1.05 to 1.055 level appears to be short term resistance. The trend remains up and pullbacks to 1.045/1.042 should be strongly defended and remain good entries into the trend.

The EUR remains in a strong uptrend and I believe the target for this currency is up to 1.30 tonight.

AUDUSD Daily:

The key test will be at that downward sloping trendline. For now, price has bounced strongly right off the idealised buy zone and we now have 3 strong back to back bullish candles. Here is my post regarding the AUD buy zone that I put up last week: http://fpmarkets.blogspot.com.au/2012/09/audusd-and-employment-numbers.html

AUDUSD 60mins:

AUD has now broken out above my 1.044 target zone. This is a sign of strength and opens up a potential move into that Daily trendline up at 1.055.

AUDJPY 60mins:

This is a great looking breakout trade to play a potential move higher in AUD. If price can clear the 81.80 zone, this opens up a retest of the previous swing highs up at 83.60. Short term support is 81.00 to 80.80 and traders should look for low risk buy trades into this zone.

EUR Daily:

Price broke out of this long term downtrend. It takes time for markets to transition from downtrend into new uptrend. Clearly we have now seen this process complete given the strong breakout above the 1.24 base pattern. 1.30 looks to be the target tonight.