The calm before the storm…

• kevinmhughes
• January 26th, 2010

Today was somewhat of a boring day.  There were some moves that created some urgency, but were short lived.    Last night, the $EURUSD was at a high of 1.4179 which happened during the 10:30pm 30 min candle, it hit a low of 1.4041 in the NY trading session during the 10:30am 30 min candle (I’m not kidding).  The pair has retraced to the 1.4100 level, which seems to be a magnet.  This level in my opinion, is pretty critical, if it breaks and holds above, we’ll see the 1.4230 level.  A break down and hold below 1.4034, we should see the 1.38 level by the end of next week (had to back out to the daily chart *sigh* to find that level).  Again, in my opinion, for shorter term traders (like myself), the 1.4100 level is critical.  A break above or break down of that level will warrant a nice and quick pip move (be on the right side of the trade and it’ll pay off).

The $USDJPY is another pair that we as traders, regardless of the asset class you trade, need to watch because it is still an indicator to the equity markets.  Last night it hit a high of 90.55 during the 10:30pm 30 minute candle.  12.5 hours later it hit a low of 89.33; I wanted to put that in there because I thought it was funny/ironic/interesting; if you don’t, your loss.  The 90.55 level has proven to be a sacred resistance for the short term, a break above this level will warrant a visit to the 91.60 area.  But first the pair needs to get above the 89.84 level with a clean break, if that happens, then look for the infamous 90.55 level.  The 89.27 level is a key support for the pair as well as equities.  A break down below there, the 88.40 level will be visited and visited quick.  The equity markets will take this visit in comparison to an annoying mother-in-law with blue hair.  below that level we’ll have to catch the pair at the bottom of the abyss.

The $JPY has been somewhat of a tell as to where the equity markets are going.  If the $JPY is strengthening, equities are falling; and visa versa.  You can look specifically at the $EURJPY pair as a reference (if that pair & the $USDJPY is falling, so are the markets b/c the $JPY is strengthening).  I know I said in my 2010 predictions that the correlations across all markets will be obsolete, but this particular correlation seems to still be intact (i.e. Gold ($GC_F) was running up while the $EURUSD was falling ($USDX strengthening), usually it would be the opposite).

Tomorrow is going to be a crazy day in regards to the markets.  We have ‘Tiny’ Tim Geithner and Hank ‘I thought I could save the world & my job’ Paulson on Capital Hill, we also have the FOMC interest rate decision (we know what they’re going to be, but it’s still fun to pretend we don’t) and last but not least, President Obama’s first ‘State of the Union Address’.  Tomorrow would be the day, if any, that you are on your toes, alert to everything going on and possibly have a catheter so you don’t miss any of the festivities (I kind of feel like I’ll be at the circus).

Have a great night and I will see everyone during the Asian trading session.

Kevin M. Hughes is the President/Head Trader at K.M. Hughes & Associates, Inc; a currency trading firm based in Charlotte, NC.  If you would like to learn more about Kevin or his firm, please visit www.hughesincorporated.com

Tickers: $EURUSD, $USDX, Interest Rates, USDJPY

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