USD/CAD’s Failed Test of Parity is Creating Ideal Scalping Environment

http://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/scalping_report/2010/12/30/USDCADs_Failed_Test_of_Parity_is_Creating_Ideal_Scalping_Environment.html

The USD/CAD has seen choppy price action throughout the day as weak Chinese manufacturing and strong U.S. data have helped stem the dollar’s decline. The slower pace of activity for the engine of global growth has sunk commodity prices on the day, which had been generating “loonie” support. Meanwhile, signs of a stronger U.S. recovery are a positive for the Canadian economy which should could limit Canadian dollar weakness and leave the pair confided to its current patterns. The upcoming New Year holiday will see trader interest wane as we head toward the end of the week, making today the last day for scalpers to maximize their profits before spreads widen.

Key Technical Levels

Charts created using Strategy Trader– Prepared by John Rivera

Parity has proven to be staunch support for the pair with it failing to close below the level since despite several recent tests. However, the pair has traded below and intra-day we see that 0.9990 has been formidable and is providing a target level for entering and exiting positions. There are some upside risks to the pair with resistance not coming until the 20-Day SMA at 1.0087.

Charts created using Strategy Trader– Prepared by John Rivera

Key Support/ResistanceLevels to Watch

Pair	S/R	Level	Spot	Valid Since	Market Influence
USD/CAD	Support	Parity	1.0000	06/04/08	High
AUD/USD	Resistance	Yearly High	1.0182	11/05/10	Medium
GBP/USD	Support	200-Day SMA	1.5396	09/14/10	Medium

Quantitative Metrics

The USD/CAD’s has seen its Bollinger Band’s width shrink to 199 pips as the pair has settled into a narrow range. The pair’s level of variance ranks at the bottom of the majors, enhancing its attractiveness as a scalping target. Daily volatility has also quieted as the pair bounces along parity. The ATR has dipped to 75 pips, again the lowest amongst the most active pairs. Overall implied volatility readings have started to push higher which could be warning of sharp moves at the onset of the New Year.

Charts created using Strategy Trader– Prepared by John Rivera

Volatility / Activity Indicators

	EURUSD	GBPUSD	USDJPY	USDCHF	USDCAD	AUDUSD	NZDUSD	GBPJPY	EURJPY
ATR(14)	0.0133	0.0138	0.7028	0.0110	0.0075	0.0092	0.0090	1.2278	1.0167
ATR%	1.00%	0.89%	0.86%	1.17%	0.75%	0.91%	1.16%	0.98%	0.94%
20-5 Day SMA	0.0041	0.0171	0.9961	0.0156	0.0046	-0.0148	-0.0075	2.9677	1.6583
Boll. Band Width	0.0380	0.0666	3.0419	0.0586	0.0199	0.0443	0.0376	8.5586	4.8896
1 wk Implied Vol	11.0275	8.0100	8.9500	10.6400	7.8850	10.8100	11.3250	8.7200	10.1600

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Guest Commentary: Rising Rates Reveal Debt Reality

http://www.dailyfx.com/forex/fundamental/article/guest_commentary/2010/12/30/Guest_Commentary_Rising_Rates_Reveal_Debt_Reality.html

Gold - FOREX Correlations Strengthen Significantly as the Aussie and Franc Break Records

http://www.dailyfx.com/forex/fundamental/article/gold-forex_correlations/2010/12/31/Gold_FOREX_Correlations_Strengthen_Significantly_as_the_Aussie_and_Franc_Break_Records.html

Gold has been receiving an increasing amount of attention recently as the metal soars to new record levels. But you don’t have to trade gold to benefit from the metal’s recent volatility. In fact, many of the popular currency pairs have been moving in tandem with gold, offering forex traders an opportunity to piggyback on the uptrend or bet against it, with the added benefit of trading within the world’s deepest and most liquid market.

The following table includes the correlation between gold and the most popular currency pairs over various timeframes. A value close to +1 indicates a strong positive relationship between gold and the pair, while a value close to -1 indicates a strong negative relationship.

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Gold	USD/CAD	AUD/USD	NZD/USD	EUR/USD	GBP/USD	USD/JPY	USD/CHF
15 Min, 3 Day	-0.78	0.81	0.77	-0.03	0.14	-0.76	-0.55
60 Min, 1 Week	-0.94	0.95	0.91	0.46	0.19	-0.92	-0.84
60 Min, 2 Weeks	-0.66	0.83	0.89	0.24	-0.29	-0.83	-0.81
Daily, 1 Month	-0.54	0.41	0.85	0.41	0.03	-0.69	-0.22

Weekly Commentary: Gold – FOREX correlations strengthened significantly in the latest week, as gold soared and the U.S. Dollar plummeted. Specifically, we saw gold advance in four of the last five sessions, while the dollar has fallen for seven straight sessions. As one would expect, the strongest correlations in the week were between gold and the commodity currencies, as well as gold and the safe haven Swiss Franc. Daily correlations still look weak as they have not caught up to the more timely intraday correlations, but they are slowly rising as well.

Our preferred pairs for proxy gold exposure remain AUD/USD and USD/CHF. In fact, both reached record levels this week, which is something we like to see for any pair that is considered a proxy for gold. NZD/USD, on the other hand, had a strong correlation in the latest week but the pair remains notably below its 2008 peak. Similarly, USD/CAD remains above its 2007 trough.

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Gold ETF holdings fell a modest 120K troy ounces from last week, but that didn’t stop gold from advancing almost $23. It once again looks like the tail is wagging the dog though, for while gold rose about 1.8%, silver rose by almost 5% to reach another thirty year closing and intraday high. Gold, on the other hand, failed to breach its record high above $1431. In turn, the gold/silver ratio plunged to 45 at one point, the lowest level since April 2006.

DailyFX provides forex news on the economic reports and political events that influence the currency market.
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FOREX: Both the Greenback and S&P 500 Produce a Meek Response to a Strong Round of Data

http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/daily_fundamentals/2010/12/31/FOREX_Both_the_Greenback_and_the_SPX_Produce_a_Meek_Response_to_a_Strong_Round_of_Data.html

• Dollar: Both the Greenback and S&P 500 Produce a Meek Response to a Strong Round of Data
• Euro Traders Keeping Tabs on the Steady Deterioration of Financial Health into 2011
• British Pound Tumbles Despite Small Business Optimism, Housing Data on Deck
• Japanese Yen Eases its Bullish Run as Risk Trends Fade and the Carry Outlook Returns
• Swiss Franc: Another Record High against the Dollar, Euro and British Pound
• Australian Dollar Further Deviates from the Bullish Performance of its New Zealand Counterpart

Dollar: Both the Greenback and S&P 500 Produce a Meek Response to a Strong Round of Data

If we needed evidence that trading conditions are highly unusual; we need only look at the performance between the US dollar and S&P 500 through Thursday’s session. The economic listings on the docket were not necessarily the heads of their respective classes; but they produced meaningful enough readings that they tangibly alter the outlook for the performance of the US economy. Yet, this round of event risk would offer little lift to the equities market. In fact, the benchmark indexes ended the day modestly in the red. As for the greenback, the relative improvement of the economic outlook to its major counterparts has proven over time to have limited impact through price action. More remarkable should have been the risk appetite implications on this last-resort safe haven. That said, this data would neither leverage gains through its contributions to the long-term fundamental outlook nor would it spark a swell in risk appetite to encourage a meaningful sell off. The dollar did slide against most of its counterparts but without the conviction necessary to leverage some of the tentative breaks we are seeing (EURUSD, USDCHF, AUDUSD) into meaningful trends.

The disconnect here is participation. There is certainly more than enough liquidity here to sustain trade in the massive global economy; but there is a notable deficiency in the speculative contribution. This is a condition and effect that will only be exacerbated tomorrow. Now counting down to the final trading hours of this year; market participants are keeping to the sidelines until the markets fill out and the potential for trends pick back up in the new year. This will not only curb the development of meaningful trends but it will likely dampen volatility as well. That means that all brands of traders (scalper, momentum, range, breakout, etc) would do best to wait until Monday to jump back into the market.

In the meantime, it is worthwhile to take note of the economic data that crossed the wires through Thursday’s session. Because, though it did not produce an event risk trade; it does show a remarkably clear picture of the nation’s overall health. Taking stock of what was offered, we were offered updates on employment, business activity and the housing market. That covers the most contentious areas of the US economy. And, the uniform improvement in these measures suggests that though the region is far from booming, it is showing evidence of the beginnings to a solid recovery. We start with the initial jobless claims figures. The 388,000 filings through December 25th were the fewest since July of 2008. While this indicator may not have the notoriety of next week’s NFP report, it provides a better gauge of employment in general. Before a trend of steady job gains can be established; the pace of firings must abate. Consequently, that is exactly what the data is showing us. Next, the Chicago PMI reading for December is a regional complement to next week’s national ISM manufacturing report. From this indicator though, we see the activity level has accelerated to its fastest clip since 1988, production hit a six year high, while new orders and employment rise to levels not seen in five years. Another component of growth is in place. Finally, we come to the pending home sales report. Though housing has a long way to go before recovering from its deep trough; this report added stability with a better-than-expected 3.5 percent climb.

Related: Discuss the Dollar in the DailyFX Forum, John’s Analyst Picks: GBPUSD a Quick Turnover, All the Majors Offer Something for 2011

Euro Traders Keeping Tabs on the Steady Deterioration of Financial Health into 2011

The euro performed relatively well against its major counterparts Thursday; but the reasoning to this trend is more likely psychological and speculative in nature than it is fundamental. Position squaring on EURCHF and EURAUD is as sensible as sustaining uncomplicated trends for EURUSD and EURGBP. If we wanted to reach, we could say the move was supported by Markit’s Euro Zone retail sales report for December, which rose to its highest reading since May 2008. That said, this was in large part attributable to Germany. What was really notable though was the sharp jump in yields on a collective 8.1 billion euro debt auction and the Irish Central Bank’s report that its nation’s banks increased borrowing 13.7 percent while private deposits dropped 6.7 percent in November. This data will have its effect going forward.

British Pound Tumbles Despite Small Business Optimism, Housing Data on Deck

Fulfilling the need for a ‘biggest mover,’ the sterling proved the most remarkable mover on the day Thursday. Sharp declines against the dollar and euro were likely flow derived rather than a miraculous reaction to otherwise dull fundamentals and technicals. That said, the BIS (a UK group) reported a net 92 percent of medium-size companies found necessary credit in 2010 and 58 percent expect sales to rise in 2011.

Japanese Yen Eases its Bullish Run as Risk Trends Fade and the Carry Outlook Returns

Correlations have not been exceptionally robust over the past week; but the Japanese yen fell back into line with risk appetite trends Thursday. With the tempered performance of the S&P 500 and other sentiment benchmarks, the funding currency would show relatively little movement. We will have to make a very critical assessment of carry heading into the new year – that will be a conversation for tomorrow.

Swiss Franc: Another Record High against the Dollar, Euro and British Pound

It is difficult to drive any market to a meaningful break; but it is relatively easy to feed momentum after the push has been made. That is the reality we see the franc enjoying. Notching record highs against its euro, dollar and sterling counterparts; this is pure speculative momentum. Fundamentals certainly support it; but it is prudent to moderate our expectations for continuation given already rich levels.

Australian Dollar Further Deviates from the Bullish Performance of its New Zealand Counterpart

Both the Australian and New Zealand dollars reported a decent performance Thursday – after having already run impressive trends in for the past couple weeks. However, once again we see the difference in performance between the two. Another plunge for AUDNZD shows the power of position squaring. Yet, after this necessary correction has run its course, fundamentals could quickly find this pair too cheap.

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**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

Next 24 Hours

Currency	GMT	Release	Survey	Previous	Comments
AUD	0:30	Private Sector Credit (MoM) (NOV)	0.2%	0.1%	Australian bank lending rose MoM in eleven of the past twelve months.
AUD	0:30	Private Sector Credit (YoY) (NOV)	3.4%	3.3%
CNY	1:35	MNI Business Condition Survey (DEC)		64.14	Dipped from October’s 65.03 reading.
GBP	7:00	Nationwide House Prices s.a. (MoM) (DEC)	-0.2%	-0.3%	U.K. home prices declined in November for a fourth time in five months.
GBP	7:00	Nationwide House Prices n.s.a. (YoY) (DEC)	-0.3%	0.4%
USD	21:15	Bloomberg Financial Conditions Index (DEC)		-0.1	Negative reading in 6 of last 7 months.
CNY	1:00	Purchasing Manager Index Manufacturing (DEC)	55	55.2	Nov. reading highest in 10 months.
Currency	GMT	Upcoming Events & Speeches
NZD		New Zealand Market Closes Early For New Years Eve
AUD		Australian Market Closes Early For New Years Eve
CHF		Swiss Market Closed For New Years Eve

SUPPORT AND RESISTANCE LEVELS

CLASSIC SUPPORT AND RESISTANCE - 18:00 GMT

Currency	EUR/USD	GBP/USD	USD/JPY	USD/CHF	USD/CAD	AUD/USD	NZD/USD	EUR/JPY	GBP/JPY
Resist 2	1.3840	1.6420	89.00	1.0000	1.0922	1.0600	0.8230	127.60	146.05
Resist 1	1.3700	1.5910	86.00	0.9735	1.0750	1.0200	0.8000	120.00	140.00
Spot	1.3283	1.5417	81.53	0.9361	0.9999	1.0159	0.7711	108.29	125.69
Support 1	1.3000	1.5312	80.00	0.9300	0.9950	0.9600	0.6850	103.80	125.00
Support 2	1.2925	1.5186	75.00	0.9000	0.9700	0.9375	0.6585	100.00	119.00

CLASSIC SUPPORT AND RESISTANCE –EMERGING MARKETS 18:00 GMTSCANDIES CURRENCIES 18:00 GMT

Currency	USD/MXN	USD/TRY	USD/ZAR	USD/HKD	USD/SGD		Currency	USD/SEK	USD/DKK	USD/NOK
Resist 2	14.4500	1.6755	7.1750	7.8165	1.4945		Resist 2	7.7500	5.7800	6.2750
Resist 1	13.8500	1.5931	6.7650	7.8075	1.4655		Resist 1	7.5800	5.6625	6.1150
Spot	12.3834	1.5545	6.6147	7.7820	1.2885		Spot	6.7532	5.6128	5.8885
Support 1	12.0500	1.4724	6.4000	7.7490	1.2750		Support 1	6.4500	5.2625	5.7030
Support 2	11.7200	1.3475	5.9200	7.7450	1.2500		Support 2	6.1250	5.1000	5.5200

INTRA-DAY PIVOT POINTS 18:00 GMT

Currency	EUR/USD	GBP/USD	USD/JPY	USD/CHF	USD/CAD	AUD/USD	NZD/USD	EUR/JPY	GBP/JPY
Resist 2	1.3370	1.5609	82.13	0.9502	1.0036	1.0238	0.7764	109.60	127.17
Resist 1	1.3327	1.5513	81.83	0.9432	1.0018	1.0198	0.7738	108.94	126.43
Pivot	1.3271	1.5440	81.56	0.9391	1.0004	1.0159	0.7700	108.28	125.97
Support 1	1.3228	1.5344	81.26	0.9321	0.9986	1.0119	0.7674	107.62	125.23
Support 2	1.3172	1.5271	80.99	0.9280	0.9972	1.0080	0.7636	106.96	124.77

INTRA-DAY PROBABILITY BANDS 18:00 GMT

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Currency	EUR/USD	GBP/USD	USD/JPY	USD/CHF	USD/CAD	AUD/USD	NZD/USD	EUR/JPY	GBP/JPY
Resist. 3	1.3480	1.5591	82.52	0.9482	1.0107	1.0305	0.7824	109.95	127.51
Resist. 2	1.3431	1.5547	82.27	0.9452	1.0080	1.0268	0.7796	109.54	127.06
Resist. 1	1.3382	1.5504	82.03	0.9422	1.0053	1.0232	0.7768	109.12	126.60
Spot	1.3283	1.5417	81.53	0.9361	0.9999	1.0159	0.7711	108.29	125.69
Support 1	1.3184	1.5330	81.03	0.9300	0.9945	1.0086	0.7654	107.46	124.78
Support 2	1.3135	1.5287	80.79	0.9270	0.9918	1.0050	0.7626	107.04	124.32
Support 3	1.3086	1.5243	80.54	0.9240	0.9891	1.0013	0.7598	106.63	123.87

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Written by: John Kicklighter, Currency Strategist for DailyFX.com

To receive John’s reports via email or to submit Questions or Comments about an article; email jkicklighter@dailyfx.com

DailyFX provides forex news on the economic reports and political events that influence the currency market.
Learn currency trading with a free practice account and charts from FXCM.