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EUR/USD eases below 1.0440 hurdle inside falling wedge

EUR/USD retreats from intraday high inside a bullish chart pattern. Bullish MACD signals, higher lows marked since May 13 favor buyers. 50-HMA, the upper line of the wedge guard immediate advances, bears can aim for yearly low.

However, the intraday sentiment hints at the pair’s further weakness towards the 1.0400 threshold. Following that, the stated wedge’s support line, around 1.0355 and the yearly low of 1.0349, marked in May, will be important to watch for the bears.

In a case where the EUR/USD drops below 1.0349, the January 2017 bottom of 1.0340 could act as validation points for the further south-run. Alternatively, buyers need to provide a successful break of the 50-HMA and the wedge’s upper line, around 1.0445, to retake controls.

Even so, the 200-HMA level surrounding 1.0515 could act as an extra filter to the north before directing the north-run towards the late June swing high near 1.0615.

Dow Theory


The Dow theory is the oldest and the most respected theories written in the field of financial technical analysis. The principles of the theory were proposed in the late 19th century by Charles Dow, the founder of the Dow Jones Industrial Average (DJIA) and Dow Jones Transportation Average (DJTA), in his editorials. After Dow’s death, William Hamilton refined and published Dow’s tenets in his book ‘The Stock Market Barometer’ in 1922. And following Hamilton’s death, Robert Rhea further refined and published the book ‘The Dow theory’ in 1932. Despite being proposed more than a century ago, the Dow theory has stood the test of time in spite of strong advances made in the field of financial technical analysis over the last 100 years.

The theory was originally written keeping in mind the DJIA and DJTA indices. However, the principles of the Dow theory are applicable to all other indices as well. Back then, trends in these two indices were used to gauge the overall well-being of the U.S. economy. For example, confirmation of a primary uptrend from both the indices was used as a signal that the broader market was also trending in the same direction.

Principles of Dow theory

For a better understanding of Charles Dow's writings and their implications, here are the six basic tenets that underpin the Dow theory.

One: The market discounts everything

In other words, the prices of stocks and indices reflect all available information, and the only information that cannot be reflected is that which is unknowable. This is known as the Efficient Market Hypothesis (EMH).

Two: The three-trend market

Dow theory highlights that primary trends tend to last for one year or more. They dictate whether a market is bullish (upward moving) or bearish​ (downward moving). Secondary trends are the corrective moves within a primary trend. They typically last between three weeks and three months, and lead to stock market corrections​ (a drop in stock prices) in a bull market and rallies (upticks in stock prices) in a bear market. Finally, there are minor trends that only last a matter of days and which are largely "market noise", in other words, unpredictable short-term fluctuations in stock prices.

Three: primary trends remain in effect until a clear reversal occurs

This is one of the more controversial elements of Dow theory. Indeed, reversals in primary trends can easily be confused with the emergence of secondary trends. The Dow Theory therefore advocates caution, as it is difficult to distinguish between the two until after the event.

Four: the three phases of primary trends

The first phase of primary trends determines that informed investors profit from an accumulation phase (before a bull market) or a distribution phase (before a bear market). Traders then move towards a second public participation phase, which is when the largest price movement occurs. Finally, the market experiences a third excess phase, characterised by a period of euphoria (at the end of a bull market), or of panic/despair (at the end of a bear market).

Five: volume must confirm the primary trends

Volume should increase in the direction of the trend in order to give confirmation. It is only a secondary indication but Dow realised that if volume didn't increase in the direction of the trend, this is a red flag. This means that the trend may not be valid.

Six: primary trends must confirm each other across market indices

This last tenet, that two opposing primary trends cannot coexist on two different market indices, was undoubtedly the most important to Charles Dow. In other words, the primary trend discovered on a market index must always be confirmed by a similar trend on another market index and vice versa.

It was in response to this final tenet that Charles H. Dow did not stop at creating the Dow Jones Industrial Average. He also contributed to the development of another market index, the Dow Jones Transportation Average.

USD/CAD drops below 1.2900 on firmer oil, US Durable Goods Orders, central bankers eyed

USD/CAD renews intraday low near 1.2870 heading into Monday’s European session. In doing so, the Loonie pair takes clues from the upbeat prices of crude oil, Canada’s key export item. However, mixed sentiment and the US dollar moves appear to challenge the bears ahead of important data/events.

That said, the WTI crude oil remains mildly bid at around $106.50, stretching the previous weekly gains, suggesting the Group of Seven (G7) leaders prepare to take moves against Russian gold and oil.

It’s worth noting, however, that the fears surrounding China probe the oil buyers and challenge the USD/CAD bears. The White House said, per Reuters, “The US is confident that NATO's new strategy document will include "strong" language on China, a White House official said on Sunday, adding that negotiations on how to refer to Beijing were still underway.”

Elsewhere, statements from the Bank for International Settlements (BIS) add to the risk-off mood and restrict the US dollar’s downside, which in turn tests the USD/CAD sellers. “Bank for International Settlements (BIS) calls for interest rates to be raised "quickly and decisively" to prevent the surge in inflation from turning into something even more problematic,” said Reuters.

However, fears surrounding the US recession, highlighted by International Monetary Fund (IMF) Managing Director Kristalina Georgieva, keep the USD/CAD sellers hopeful.

While portraying the mood, the S&P 500 Futures remain firmer around 3,920, up 0.20% intraday by the press time, whereas the US 10-year Treasury yields rise three basis points (bps) to around 3.15% after posting the first weekly loss in four.

Given the upbeat oil prices and the US dollar’s indecision, the USD/CAD is likely to remain pressured. However, today’s US Durable Goods Orders and Pending Home Sales for May will be important for intraday directions. Forecasts suggest that the US Durable Goods Orders for May, expected 0.1% versus 0.5% prior, as well as the Pending Home Sales, expected -2.0% versus -3.9% prior. Above all, Wednesday’s debate of the US and the UK and the European central bankers at the ECB Forum on Central Banking will be an important event to watch.


Oil prices inch lower on concerns over recession, China COVID curbs

Oil prices fell on Tuesday as concerns over a possible recession and China's COVID-19 curbs outweighed an expectation of tight global supply and a pick-up in fuel demand with the U.S. summer driving season.

Brent crude futures for July slid 61 cents, or 0.5%, to $112.81 a barrel by 0402 GMT. U.S. West Texas Intermediate (WTI) crude futures for July delivery dropped 55 cents, or 0.5%, to $109.74 a barrel. Both benchmarks fell by more than $1 earlier in the session.

Brent gained 0.7% on Monday while WTI settled nearly flat.

Multiple threats to the global economy topped the worries of the world's well-heeled at the annual Davos economic summit, with some flagging the risk of a worldwide recession.

"Investors were selling off as they expected higher oil prices to dent consumption for fuels worldwide," said Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd.

While Shanghai, China's commercial hub, aims to normalise life from June 1 as its coronavirus caseloads decline, an increase in new COVID-19 cases in Beijing have raised concerns for further curbs.

Source - REUTERS

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