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Learn more...A combination of the World Cup, thin market volumes (China closed today & tomorrow) and continuing worries over debt will make trading particularly tricky over the next few weeks. Last week was slightly quieter as equity markets, Japanese, UK and US bond yields all managed to hold above key chart levels for a third consecutive week as volatility retreated from the market. Indeed the VIX, having hit a high of 45 in mid May has been steadily retreating back towards 30 and below and in yesterday’s trading session closed the day at 28.58. Although still well above the lows of early April, the recent volatility now appears be receding as equity markets settle down once again. Whilst it is impossible to say how long this lull is likely to last because at some point the market will recognise that the underlying problems have not gone away, despite what many politicians and central banks would like to think and say. They have merely bought themselves some time and not solved the underlying problems. For example this week’s focus may be on Spain once again and which may be the catalyst for a renewed bout of the jitters.
As always market mood is reflected in the candle charts & my analysis for this week is as follows:
EURUSD
The weekly chart for the eurodollar still remains heavily bearish and despite last week’s short squeeze which appears to be continuing in early trading this week, expect to see the eur usd continue its recent downwards trend in due course. Any rally is likely to be limited to USD1.25.
The most important items of fundamental news for the eur usd this week began this morning with the German ZEW Economic Sentiment number which came in at a shocking 28.7 against a forecast of 48.7 (the higher the number the more positive the outlook for the economy). Meanwhile in the US this afternoon we have the TIC long term purchases which are forecast at 77.3bn – this number reflects the demand for the US dollar & is one to watch.
Wednesday sees Building Permits, PPI and a speech from Ben Bernanke in the US while on Thursday we have the Core CPI data, unemployment claims and the Philly Fed Manufacturing Index data. Meanwhile for the EU we have a number of second tier releases but market focus will be on Spain and the EU summit in Luxembourg.
USDJPY
The dollar yen is continuing to consolidate on the weekly chart around the 91.50 region and is now forming a strong pennant pattern. As a result we can expect to see a breakout in the pair in due course and until this comes trading this pair will be particularly difficult.
For Japan the main items of fundamental news include interest rate decision earlier today (remains at 0.10%) and accompanying statement, tomorrow’s BOJ Monthly Report and the Monetary Policy Meeting Minutes on Friday.
USDCHF
The dollar swiss reflects the inverse of the eur usd with a long legged doji on the weekly chart now confirmed with last week’s down candle. However, with the short squeeze in the eur usd now in place expect to see the dollar swiss find support at 1.1250 where the 9 week moving average now resides. From here we should expect to see a bounce higher.
Most of the fundamental news for Switzerland is due on Thursday and is centred on the interest rate decision from the SNB who are expected to keep rates at 0.25%. This release will be accompanied by the SNB Policy Assessment Statement, Press Conference and Financial Stability Report. All key data given the SNB penchant for trying to manipulate the Swiss Franc – in particular against the Euro.
GBPUSD
The pound dollar continues to ease higher on the weekly chart but with very little conviction and is now running into resistance from both the 9 and 14 week moving averages. Indeed this was a feature of last week’s trading with the high of the period failing to breach the 9 week moving average, suggesting the bearish tone firmly in place for the time being.
Some important items of fundamental news for sterling this week in advance of the budget next week which started this morning with the CPI and Core CPI data. The former came in below expectation at 3.4% against a target of 3.5% while the latter came in worse than expected at 5.1% as opposed to 5.0%. Tomorrow sees unemployment data and a speech from BOE Gov Mervyn King and Thursday sees the release of the retail sales figures and CBI industrial orders.
USDCAD
Last week’s wide spread down candle on the usd cad confirmed the bearish nature for the pair and validated the shooting star and hanging man combination of the previous two weeks. With prices about to break below all four moving averages once again expect to see the usd cad move lower in the medium term and re-test support at parity once again.
With most of the fundamental news for Canada this week classified as level 2 data the markets may focus on 2 speeches from Bank of Canada Mark Carney.
GBPJPY
The pound yen continues to trade in a very tight range on the weekly chart as it struggles to penetrate the 9 week moving average to the upside but with stiff resistance still in place above and with all four moving averages weighing heavily the pair looks set to fail at 135 once again with a re-test of 129.50 a strong possibility in the medium term.
AUDUSD
The aussie dollar weekly chart clearly indicates the level of support that the pair has found in the 0.81 region with last week’s wide spread up candle having propelled the pair back through the 200 week moving average. However, this rally looks to be short lived with trading so far this week confined to the 0.8550 region and with the high which has found resistance from the 9 week moving average. Should this pattern continue then expect the bearish trend to continue in due course with a further test of the 0.81 area once again.
Australia’s most important news this week was the release of the Monetary Policy Meeting Minutes which explained the RBA’s thinking behind the recent euro crisis and desire to halt the recent round of aggressive round of interest rate increases.
AUDJPY
Much the same as for the aussie dollar where prices have broken above the resistance area at 0.77 and currently trading at 78.40. However, as with the aussie dollar this short term rally appears to be running out of steam so expect to see the pair fall to re-test 72.50 in the medium term. The bearish sentiment is further evidenced by the crossing of the 9 week below the 14 week moving average.
EURGBP
The euro pound continues to slide lower on the weekly chart reflecting the ongoing demise of the euro although the bearish sentiment is not as severe as the eur usd. However, with the currency pair now trading below all four moving averages and with resistance from the 9 week ma now clearly evident, the short term outlook remains bearish. Having broken below potential support at 0.84 our short term target remains 0.80 with a test thereafter at 77.50.
EURCAD
For a further view of the current negative view of the euro we only need to look at the euro cad pair on the weekly chart which resembles nothing less than a ski slope showing a regimented and steady decline over the last 6 months and there is no sign of any reversal just yet.
EURCHF
Despite the SNB’s best endeavours the euro simply refuses to cooperate as it continues to slide ever lower against the Swiss franc and touched a low of 1.3750 in last week’s trading on the weekly chart. However, given that this was a deep hammer candle we can expect to see the pair rise in trading in the short to medium term, possibly to retest the 9 week moving average which is currently basing at the 1.41 area, but any recovery will be limited to 1.4250 as a maximum.
EURJPY
Having set myself a target of 115 for this pair we are now sitting on a healthy profit as we trade at 111.91 with the bearish sentiment still firmly in evidence. Having breached the potential support area at 113.50 the downwards trend looks set to continue with all four moving averages adding further weight to the move.
USD INDEX
An interesting candle pattern on the weekly dollar index chart with last week’s candle creating a “dark cloud over” formation suggesting a pullback in the index which we have already seen in early trading this week. The extent of the pullback is likely to be relatively minor and should be halted by the 9 week moving average which currently sits in the 85.50 region. This indicator, coupled with some strong potential support in this area should prevent any further decline in the dollar and index.
Gold
The weekly gold chart continues to exhibit the bullish sentiment with spot gold trading well above all four moving averages and with excellent support from the 9 and 14 week as a result. Spot gold prices will also be boosted by a weaker dollar. Expect to see a new high for gold in due course which should break above $1250 per ounce and beyond in the next few days.
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