spotfxtrader

Red Alert:

North Korean Artillery Attack on a Southern Island November 23, 2010 North Korea and South Korea have reportedly traded artillery fire Nov. 23 across the disputed Northern Limit Line (NLL) in the Yellow Sea to the west of the peninsula. Though details are still sketchy and unconfirmed, South Korean news reports indicate that around 2:30 p.m. local time, North Korean artillery shells began landing in the waters around Yongpyeongdo, one of the South Korean-controlled islands just south of the NLL. North Korea has reportedly fired as many as 200 rounds, some of which struck the island, injuring at least 10 South Korean soldiers, damaging buildings, and setting fire to a mountainside. South Korea responded by firing some 80 shells of its own toward North Korea, dispatching F-16 fighter jets to the area, and raising the military alert to its highest level. South Korean President Lee Myung Bak has convened an emergency cabinet meeting, and Seoul is determining whether to evacuate South Koreans working at inter-Korean facilities in North Korea. The barrage from North Korea was continuing at 4 p.m. Military activity appears to be ongoing at this point, and the South Korean Joint Chiefs of Staff are meeting on the issue.

The market has failed after a temporary penetration of the 1.3693 level, and a rejection of the ‘mean channel’. It is still possible that a low has formed, but if the market is forming a base, then we would expect a higher bottom above the week’s 1.3446 low. Potential supports for such a higher bottom would be at 1.3516.

Further gains to 1.6079 but the action below the 1.6296 high appears corrective and may not yet be complete.

We would look either for a higher bottom above 1.5893 or a resumption of impulsive upside.

So much for our expectation of resistance at .9805, as the rejection of the lows has carried the market back to .9894 and the long term ‘mean channel’ on the four hour chart.

So far the .9724 low which formed on the 16th, leaves a higher bottom in place and the market appears to be in some consolidation pattern below the 1.0182 high. The longer term outlook remains positive for the aussie, but the pattern of activity below that high appears to signal that the market has entered a longer  term period of corrective activity which should see lots of overlap of previous swings and could see the market ranging between 1.00 and the .95 area.

Above, we expect resistance at .9982 and 1.0070; while below we expect to find support at .9805,  .9717,  .9629, and .9540.

Ha ha. The recent rally appears to have fizzled, as the imminnent collapse of the Irish banking system threatens to bring down the entire euro project, and hopefully with it the “proto Fascist” EU,  as it was described by Ambrose Evans-Pritchard in a recent post in the London Telegraph. An Irish bailout would increase the pressure on Portugal, Spain and Italy in that order, with the final act potentially including France, as the entire European banking system collapses under the weight of this extreme indebtedness. As Evans-Pritchard writes “Like Alpinistas roped together, an ever-reduced core of solvent states are supposed to carry the weight on an ever-widening group of insolvent states dangling beneath them”.  An apt analogy. And while I’m quoting from another source I would add this, on the decision to discuss the imposition of haircuts and the subsequent backpeddling : “This is a breath-taking mixture of suicidal irresponsibility and farcical incoherence,” – Marco Annunziata from Unicredit.  This whole episode is symptomatic of the incompetence of the politicians and examples such as this are rarely laid so bare by the consequences being made apparent with such immediacy. The normal pattern is for their responsibility for the unintended consequences of their actions to be adeptly concealed with deceit. But I digress.

Further to our post of 1st November discussing the decision to impose haircuts on bond holders and by implication the higher interest rates across the eurozone that logically result from this, an act which by its very nature is inherently deflationary, we can now see that any euro rally that results from the shedding of the PIGS will occur from much lower levels. Hence the current weakness. Effectively, as long as the euro contains the dross of southern Europe it will never mimic the Deutschmark, as it was supposed to and as the Germans would have liked. Indeed their management of it as though it were, it could be argued, has contributed to its woes.

Anyway there is a degree of incomprehensibility to the gyrations caused by the politics. We’ll try in future to stick to technicals.

The decline witnessed in this pair is less pronounced than in others, but further downside appears likely, setting up a possible test of old low supports between .9629 and .9540.

Expect rallies to be capped by .9805.

The impulsiveness of the decline has carried the market below our 1.3516 objective and, as the daily chart shows, this move has penetrated the channel support drawn up off the September low. This is now a fairly critical juncture for the market; declines remain impulsive in nature and rallies continue to resemble corrective action, suggesting a move to the slower channel support which coincides with the band of consolidation commencing with the 1.3163 level.  1.3516 is now capping the market and a recovery of the 1.3693 area would really be required to signal an end to this decline.

The impulsiveness of the decline appears to signal that the market is now in retreat in search of support back towards the channel drawn up off the early September low. A break of 1.3693 would suggest 1.3516.

OK so weakness has materialised, with a relatively sharp move back to the lower end of our band of targets near .9982. We are now sitting on what should be support,  suggesting potential for less impulsive weakness. In the event that there is no rejection of this support, we would then anticipate a probe of the band of consolidation extending back to .9805.

Should the anticipated weakness discussed earlier fail to materialise, the next upside objective is 1.0512