DAX
The first chart I’m looking at is the DAX, and the DAX in Germany has rallied rather significantly, briefly touching just underneath the €27,000 level. Strong corporate earnings and improved company outlooks are supporting European equities in general, while easing energy prices and hopes for progress around Middle East tensions have also helped.
At this point in time, I look at this as a market that is probably a buy on the dip. I like the German stock index anyway, due to fiscal spending plans coming out of the federal government. I’m looking for a pullback closer to 26,500 for potential entry, or a break above the top of the candlestick.
EUR/USD
The euro is trying to find its floor. That being said, real rates in the United States continue to make the U.S. dollar attractive, and we have seen that play out in multiple markets. Right now, precious metals are getting hammered. A short-term rally at this point in time makes a bit of sense after the last couple of days, but I look at that as a selling opportunity. I’m looking to fade rallies as they occur.
I really don’t have any vague interest in buying the euro until we break above the 50-day EMA, which is all the way up to the 1.1278 level. The ECB is supposedly fighting inflation risk, but we’ll have to wait and see. It’s an increasingly hawkish Federal Reserve, and they are expected to raise rates in December. The ECB was a little less committed about it, so I think we continue to see sellers come in at the first signs of trouble.
AUD/USD
The Australian dollar has broken through a major support level at 0.6850. Because of this, I’m becoming increasingly bearish and do like shorting the Aussie. It’s not until we break above the 0.6950 level that I think things change.
Federal Reserve officials in the United States still have to worry about inflation, but the RBA raising rates seems to be a lot less likely. Therefore, we’re starting to see this as a market that is starting to show the realities of the differentials in the central banks. Major support is near 0.67, so that would be an area I’d be watching to the downside.
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Finally, the U.S. dollar continues to levitate against the Japanese yen after breaking out. We’re sitting just below the ¥160 level. Interest rate differential is a scenario here that we’re watching. There was an intervention near ¥160.50, and a Japanese finance minister did say that they weren’t happy about the sudden appreciation in FX markets, perhaps threatening intervention. But at the moment, it doesn’t look like they have done anything.
Short-term pullbacks, I think, are buying opportunities. I’m particularly interested in the ¥159 level, but I’m already long in this pair. I’m looking to add on a fresh new high to get that carry-trade swap at the end of each session.
