Following last week’s lack of any significant fundamental news this week should provide us with more trading opportunities, particularly for those who like to scalp the markets on major announcements and other headlines items.  The principal item this week is, of course, the US rate decision on Tuesday and whilst interest rates are expected to remain on hold at 0.25% it will be the associated FOMC statement that will, no doubt grab the headlines.  The effect on the dollar will largely be dictated by Ben Bernanke’s comments towards current fiscal stimulus and the speed at which any such monetary support is withdrawn from the market.  The other significant area to watch is that of UK sterling where bear speculators have now increased their futures positions to such an extent that these are greater than those recorded at the time of the ERM crisis with the consequent collapse in the British Pound.  We had already highlighted this issue two weeks ago on the COT report where open interest volume was building heavily just as the pound was falling suggesting that prices would fall even further.  Indeed at the time the exchange rate was at USD1.54 and since then has collapsed to a low of USD1.48.

EUR/USD

Following three consecutive long legged doji candles on the weekly euro vs dollar chart we finally got our up candle last week although its strength was somewhat muted as it ran into resistance at the 9 week moving average.  However, given the strong reversal signals we should expect this to continue higher but only to a limited extent and possibly no further than the USD1.40-USD1.41 region as a maximum.  Prices still remain firmly below all of our 4 moving averages.  The rounded bottom on the daily chart simply confirms this short term signal and should the 40 day moving average be breached then expect to see a minor rally in the eurodollar as a result but as outlined above any recovery is likely to be short lived and should be seen as an opportunity to open further short positions on the squeeze higher.

USD/JPY

The dollar yen ended last week with a very narrow spread doji cross as the pair continued to trade on the weekly chart in a narrow channel.  There is little to suggest any break out in the short term as the pair continue to trade between the various moving averages which are increasingly tightly bunched.   On the daily chart the pair continue to reflect a bearish picture as they slide lower, with the 200 day moving average providing the barrier to any attempt to rally so expect to see the 88 level re-tested in due course once again.  Very tricky trading and with the BOJ lurking in the background there is always the potential for a volatile move higher.

USD/CHF

The inverse of the eurodollar which mirrors the price action with three doji cross candles and a wide spread down bar last week.  Given the weakness in the recent rally and the likelihood that the eurodollar is set to rise further, expect to see the dollar swiss break below all four moving averages and re-test the 1.045 region as a result.  The daily chart shows a perfect rounded top with the only indicator left to breach being the 200 day average which sits just above the 1.045 price region.

GBP/USD

Last week’s hammer candle on the weekly chart added to that of the previous week suggesting that we may see a possible small recovery in the short term but with all four moving averages still pressing heavily downwards this is likely to be short lived.  Given the weight of speculative futures’ interest we may even see cable collapse in the short term and re-test USD1.45 sooner rather than later.  Friday’s up candle on the daily chart managed to breach both the 9 and 14 day moving averages but with the clear pressure now evident in this morning’s early trading Friday’s gains have been reversed as we approach USD1.50 once again.  Any break below USD1.48 will signal a deep and steep move.

USD/CAD

Last week’s narrow spread down candle on the weekly chart validated the bearish signal of the previous week propelling the pair back towards the 1.02 price support area which has been breached in early trading today suggesting that we are now firmly en route towards parity once again.  With all four moving averages now firmly above continue to trade to the short side.  The daily chart merely confirms this picture as we march lower on a daily basis with only minor attempts to rally the currency pair.  With the 9 day moving average now proving a significant barrier to any move higher expect further moves south.

GBP/CHF

The pound swiss continues to trade with a bearish tone closing last week as a narrow spread down candle which once again ended below all 4 moving averages.  1.5 remains our medium term target and provided we see a break below the 1.58 price region this week then this should be achieved in due course.  On the daily chart prices continue to trade below all four moving averages with the 9 day in particular pressing heavily on any attempt to rally, a clearly bearish signal and one that should provide plenty of trading opportunities to the downside.  Should we see any attempt to rebound from the current level at 1.5941 then any upticks should be seen as opportunities to enter further short positions.

GBP/JPY

The pound yen continues to trade in a relatively narrow range ending last week marginally higher but well below all four moving averages.  With the deep and sustained resistance now above the medium term outlook remains bearish with 120 the longer term target for the pair. On the daily chart the second half of last week saw price action break and hold above both the 9 and 14 day moving averages indicating a degree of bullish sentiment, short term, but this is unlikely to clear the 138.50 price area which presents a significant obstacle to any recovery so expect to see 132 reached an re-tested in the short term.

AUD/USD

Ticking up nicely the Aussie dollar continues its recent upwards trend on the weekly chart, breaking above 0.91 last week as it moves towards our initial target of 92.50.  The daily chart too confirms this outlook with the 9 day moving average providing excellent support as the pair climbs higher.  However, with the 92.50 price point now in sight we can expect to see a reaction at this level, but if breached expect to see the rally continue with conviction.

AUD/JPY

The Aussie Yen continues to flirt at the 83 level with last week’s candle signalling indecision and a lack of direction.  To the upside 85 remains the key level with the 200 week moving average immediately above and these two factors may well combine to cap any attempt to break through this price.  On the daily chart the short term outlook remains bullish with the 9 day moving average breaking above both the 14 and 40 and we may well see a sharp rise to test 84.50 later this week.  However, expect to see this short term rally snuffed out unless the longer term chart kicks into play.

CAD/JPY

Little to add to last week’s analysis as this pair continues to move sideways & flirt with the 90 top of the recent channel. Only a break and hold above this upper trend line will signal a breakout and strong move to the upside.  On the daily chart the picture is very similar with Friday’s shooting star candle suggesting weakness as we run into the previous top at just above 90.

NZD/JPY

Very messy trading at present on the weekly chart with little clear direction either one way or the other.  Meanwhile the bias on the daily chart is mildly bullish but as we run into the 200 day moving average expect to see prices reverse lower from here.

EUR/GBP

The breakout for the euro pound continued last week as prices moved above the 0.90 price handle and closing well above all four moving averages once again on the weekly chart.  With the demise of the pound this is helping the pair even further and should sterling come under sustained pressure from speculators then we could see 0.9250 breached as well and if so clearing the way for a run back towards 0.9650 and beyond.  On the daily chart today’s price action has all been to the upside and with the 9 day moving average providing excellent support expect to see this trend continue in the medium term.  A break and hold above 0.9150 should open the way to 0.9350 where further resistance awaits. The platform of support below is now well developed so any reversal lower should be short lived.

EUR/JPY

With equity markets mildly bullish last week the euro yen continued higher on the weekly chart ending the week on an up candle but with a relatively deep wick to the lower body suggesting we may see a continuation of the current short term rally.  However, having run into resistance from the 9 week moving average and with the sustained price congestion above any attempt to rise is likely to be difficult in the medium term.  On the daily chart Friday’s price action managed to break and hold above the 40 day moving average and with the 9 day now crossing above the 14 day and giving us a bull cross signal expect this rally to continue in the short term.  128 seems a likely target where further resistance now await.

VIX

Not much has changed on the daily VIX chart from last week with the index closing at 17.58 as we continue to consolidate in this price region as equity markets continue in a mildly bullish manner.  Should we see the index move into single figures in due course then this will be the first signal of a change in sentiment for equities as a result.  Until then trading conditions remain largely benign as traders and investors continue to embrace riskier assets.

Dollar Index

The weekly dollar index remains mildly bearish given three weeks of consecutive long legged doji candles followed by a shooting star candle last week.  However, whilst this has a distinct negative feel, until the 9 week moving average is breached we cannot be sure, and the 200 week average also seems to be presenting an immovable barrier to any move higher.

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The periods I use for my moving averages are 9, 14, 40 and 200.