S&P nearing sell levels, decent correction.

Euro and DXY similar story, look for a dip in the dollar to get long.

A weekly close below 1195 on S&P later this week suggests the strong bullish momentum failing to break the trend channel higher and may leave the door open for a pullback down to 1140 and 1105 accordingly.

I finally managed to find the rhythm in trading last month despite a red number in P&L.  Market trading on the back of bear traps after a worse than expected NFP early in January helped me to pick the levels for a possible risk aversion. Guessing the turnaround in S&P and Crude Oil helped me to stay on the track for the rest of the month at the times of troubles.

Staying short EURUSD from 1.44s, AUDUSD from 0.9250s vs. long USDTRY from 1.45s and USDJPY from 88.50-89.30 area was good enough to cheer me up while losing money in illiquid Asian session two-way customer flows and stop-loss order executions in Wellington openings.

With the expectation of a black number in February, it is time to keep the motivation, confidence and team-work as high as possible to clear the sky from suspicious clouds. To make that happen, I need to have a better decision making mechanism which is only possible if I am energetic and in shape so  No drinking and losing weight policy for 2 months starting from today.

We are going to have the mighty NFP this Friday ( +15k exp.) and once again,  the rest of the month will be more based on that number.  I will be paying a lot of attention to a weekly close below/above at 1070 in S&P and 1.3868 ( 200 SMAVG in weekly) in EURUSD.

Post NFP last Friday, AUD and CAD rallied on the back of higher commodity prices.

With US rate hike possibilities fading away and US treasury yields dropping like a stone led greenback getting hammered as well in FX universe.

First thing on a Monday morning without checking the FX prices after a -80K NFP numbers vs.  expectations of flattish, I would sell risk trades and buy EURUSD as a knee jerk reaction but seeing S&P above 1140 and Crude Oil above 82.5$ is a bit worrying. In addition to that worry, AUD and CAD rallying on the back of higher commodity prices do not make any sense at all.

First of all, buying stocks and commodities on the back of  less chance of rate hike in US ? how about slower recovery on the back of growth prospects and less demand for energy when you produce less ? and effect on profits of companies ?

I think we may have a bumpy Monday session later on today with good chance of resistances holding in S&P and Oil which may lead a turn around in AUD and CAD on the back of risk trades getting sold off. I expect S&P breaking 1125 this week and heading down to 1085 while Oil holds it firmly at 84.40 and retraces back to 80.25.

On the back of the argument above if the rally continues in AUD and CAD,

Sell AUDUSD at 0.9285 and 0.9325, tight SL at 0.9345 and take profit at 0.9175.

Buy USDCAD at 1.0235 and 1.0195, tight SL at 1.0170 and take profit at 1.0415.

Bear in mind that:

A break of 0.9155 suggest a drop down to 0.8985 in AUD and a break of 1.0420 in USDCAD opens further room on the topside for 1.0665.

Non-farm payrolls (Dec) Market is forecasting payrolls at flat and unemployment rate  unchanged at 10%.

I think we all agree that a more bullish number between 10-80k than forecast is already the hidden truth in minds and any number lower than -10K may start rocking the prospects of recovery and risk on trades for the rest of the month and may be 2010.  Having said that, I am not sure which currencies or crosses will gain or lose against greenback most but I have some ideas. So lets start from the possible movers of a better outcome.

If  we have a positive number than expected, with USD  rallying against majors;

Buy USDJPY:??? 200 days SMAVG was  broken intraday at 93.47, printed  93.78 early this morning and retraced down to 93.25 at the moment just after Japanese PM Hatoyama said government should not comment on FX moves.  We all remember the KAN comments yesterday and weekly break of USDJPY at 91.85.  Better NFP heats up the US rate hike expectations once again while grow prospects pushes  S&P beyond 1145 resistance which triggers further “risk on” in currency universe and  XXX-JPY buying in addition to USD strength opens further room on the topside for USDJPY.

Sell EUR vs. EM : ?? EURUSD lower on the back of US rate hike expectations while grow prospects pushes  S&P beyond 1145 resistance which triggers further “risk on” in currency universe and a possible EM rally for the first half of 2010.  So that may support the view of selling EUR vs. EM and I am fancy of EURTRY breaking 2.10 in this case to test 2.0450 and even lowers due to positive Turkish IMF deal  news lately in addition to yesterday’s S&P upgrade rumours.

In case of a  bad number, buying EURUSD or EUR/EM seems to be the perfect trading idea, especially EURZAR in my mind. Lately, Relative value trading in EM causing TRYZAR drifting higher from 4.90 to 5.0650 by big investment houses. So market may accelerate dumping Rands and natural effect of EURUSD higher may bring a good rally in EURZAR.