Did euro reverse its 2 year-long downtrend? EUR/USD broke down its long-term moving average in September 2011. Since then it has been trending below the 200 day moving average with one exception in October 2011, which was a 3 day spike above the long-term average and was not a valid breakout. In July 2012, EUR/USD reached 1.20 levels. Rebound from the oversold levels carried EUR/USD to the trend resistance at 1.2650. It didn’t take long for the cross rate to clear this resistance in September 2012. Breakout was followed by a sharp rally towards 1.3150 levels. During this rally EUR/USD breached the 200-day moving average for the first time in one year. In the last two months we have seen a pullback to the long-term average which is now forming support at 1.2860. If EUR/USD can stabilize above the long-term average at 1.2860 levels, we are likely to see the continuation of the strength in the euro. It is important for the cross rate to hold above this support. Failure to hold above 1.2860, could send EUR/USD back to 1.25 levels.

Long-term charts are usually self-explanatory. They lay out the big picture in a clear-cut way. The below long-term chart (decade-long) shows U.S. dollar vs. Turkish Lira. From 2002 to 2011 USD/TL moved between 1.15 and 1.76. This was a wide trading range with several of volatile swings. In the last quarter of 2011 there has been a major change in supply & demand. USD/TL breached 1.76 levels… This was followed by a consolidation above the long-term resistance. Long-term resistance at 1.76 became support.

Not only USD/TL found support at 1.76 levels but also above the 200-day moving average. Over the past year, the consolidation took the shape of a symmetrical triangle. Symmetrical triangle is usually regarded as a continuation chart pattern. The chart below takes a closer look at the symmetrical triangle consolidation between 1.8420 and 1.78. It is now clear that USD/TL will breakout from the year-long contracting range. A breakout on the upside (breaching above 1.8420) will be bullish for the dollar. Unless we see USD/TL below 1.76, we should continue to expect strong USD and weak TL.

Claims for the September 15 week are down only 3,000 to a 382,000 level that is above consensus for 373,000. The September 8 week is revised to 385,000 with roughly half of the week’s 18,000 jump due to Isaac. In my opinion people are too focused on week to week changes while on the other hand slowing down in the last 3 year’s downtrend deserves more attention. I’m following the momentum and the 1 year average of the jobless claims unlike the widely reported 4 week average of the data. I believe 4 week average is too volatile. You’ll remember from my earlier updates that I kept on drawing attention to the 380K level which was the 52 week moving average. Last week I also added the timeline for the past and recent QE announcements on the chart. My concern is the slowing down momentum of the last 3 year’s downtrend. And if we don’t see jobless claims falling below 380K in the following weeks, this could be a medium term reversal on the jobless claims. This would eventually push unemployment rate higher. Okay, I understand the argument that QE 3 will take time to have an impact on the unemployment but what about the impact of QE 2. Aren’t we at the same levels of jobless claims since QE 2?

Can additional QE help the jobs market? FED believes that it will. What the data tell us is something different. Let’s analyze… I’ve been frequently updating the U.S. Initial Jobless Claims chart and drawing attention to the slowing downward momentum on the jobless claims. In this post I added the timeline for past and present quantitative easing announcements. As you can see from the chart, between QE I and QE II jobless claims dropped sharply from 650 K to 400K. However after the QE II announcement the impact on the jobs market was limited. It has been a year since QE II was announced and initial jobless claims are still at 382K levels. Last week FED decided to go ahead with another round of QE which is called QE III. At the same time jobless claims reached 382K levels. We all know from the earlier updates that 52-week moving average is an important threshold and jobless claims above 380K could reverse the last 3 year’s downtrend. Now the question is: What if QE III fails to push jobless claims further down but instead we see higher jobless claims in the following months? In the following weeks and months we should keep an eye on 380K levels. Jobless claims data that is above 380K could challenge the argument of fixing unemployment with further quantitative easing.

Commodity currencies had a strong run since the beginning of 2009. With the help of metals, agriculture and mineral prices going higher Canadian, Australian and New Zealand dollar gained strength against U.S. dollar. Australian dollar reached 1.1 levels in May 2011. However, since then we have seen the commodity currencies entering into sideways corrections. Choppy price action around the 200-day moving average formed a year-long symmetrical triangle on the AUD/USD chart. In the beginning of August, Australian dollar found resistance at 1.06 which is the upper boundary of the consolidation range. Over the past month AUD/USD moved lower towards the 200-day moving average at 1.025. The consolidation pattern is not completed yet. We are likely to see further weakness in AUD towards 1.00 levels. The real price action and the directional movement will take place once we see the major breakout from the year-long consolidation range.