Amongst all the mayhem of last week which saw the VIX index hit 46.35, and forex market volatility doubling on many currencies, such as the Australian dollar and Korean Won, it has been the increasing Libor spread which is beginning to sound some very alarming bells.  The significance of Libor and when the spread widens is that it shows how difficult and expensive it is becoming for banks to find money and how difficult it may become for bank customers to obtain loans.   It is, perhaps, the closest there is to a global credit yardstick and are we could now be looking at yet another credit crisis.  The reasons given for the jump in spreads are, of course, the problems with sovereign debt as well as the fear that many European banks have been hiding the extent of their toxic debts.  The news at the weekend that the Bank of Spain was forced to rescue CajaSur which has 486 branches and 1.5bn euros of problem loans simply confirmed these market fears.

With the spotlight moving to Spain it is hardly surprising that markets have been reacting with heavy falls in both equities and commodities as investors flee risky assets.  The resulting stampede has seen major inflows back into gold and quality paper, such as Treasuries.  In addition there have been record inflows into the Swiss Franc by German investors who helped to push the yield on the 10 year Conf to a new record low of 1.519% following Angela Merkel’s unilateral ban on short selling a number of German financial institutions.  Apart from confirming to the wider market he names of the most vulnerable firms, she probably did more to alienate the very bankers needed to fund a good chunk of the various budget deficits.

This week’s economic releases are almost irrelevant as traders and investors need to hope for the best and prepare for the worst.  The worst of this financial crisis is far from over as more bail outs are no longer an option because in the words of the outgoing the UK’s Treasury Secretary Liam Byrne “I’m afraid to tell you the money’s run out”.  Only those countries with healthy savings and good credit histories will eventually win out.

EURUSD

Following the recent short squeeze the euro dollar has re-established its longer term bearish momentum once again, with yesterday’s candle breaking below all four moving averages and further reinforced by today’s downward’s price action.  In the short term the key level is now firmly established at USD1.2141 – the mid way point between its highest and lowest point, and indeed this price area has been tested once again in trading today with the market bouncing off USD1.2177.  I cannot stress too strongly how important this level remains and we are now waiting for this to be breached which will signal a much deeper move for the euro dollar in due course.  However, repeated failed attempts to break lower could signal the formation of a base in the USD1.21 area so caution is now required for any longer term trading to the downside.

As mentioned above items of fundamental news releases are taking second place to the wider political and economic problems in the Eurozone .  There is very little in Europe this week and the main items in the US include core durable goods orders tomorrow along with new home sales, preliminary GDP on Thursday which is forecast at 3.5% against a previous of 3.2%, followed by the unemployment claim which are expected to show a small fall.

USDJPY

The dollar yen continues to behave in an erratic, volatile and largely unpredictable way and is therefore a pair to avoid at present.  Trading is currently limited to a range between 88.50 and 94.50 and until we see clear evidence of a breakout and a trend developing then trading this pair will be pure guesswork.

The only item of significant news for Japan this is the trade balance figures which are expected to come in at 0.69t against a forecast of 0.67t and whilst there is a raft of data on Friday all of this news is of second tier status.

USDCHF

Thankfully the dollar swiss appears to be correlating once again with the eurodollar as it climbs steadily towards USD1.16 and above fully supported by all four moving averages and mirroring the decline in the euro vs dollar.  The weekly chart confirms this view and for eurodollar watchers the key number here is in the USD1.18 region.  Should this be breached then expect the dollar swiss to continue higher, possibly even to re-test the recent high of late 2008 at USD1.2250 and should this occur (and their inverse correlation hold) then expect the euro dollar to test the USD1.17 region as a result.

The main fundamental news for the Swiss Franc comes on Friday with the KOF economic barometer forecast at 2.04, improving slightly on last month’s figure of 1.99.

GBPUSD

The pound dollar continues to hold position in the USD1.43 price region as it attempts to form a platform of support at USD1.4250.  Today’s price action has once again evidenced this view with the low of the day bouncing off this price point once again.  However, immediately above are all four moving averages with both the 9 and 14 presenting stubborn barriers to any short term rebound.  Much like the eurodollar this current price level is becoming key and a break below USD1.4250 should see cable dive lower as a result and continue the recent bearish momentum.

Fundamental news for sterling started today with revised GDP which came in at 03% which was on forecast and the only other significant news this week for the pound comes on Thursday with the Nationwide housing data alongside the CBI sales figures.  The first of these is expected to show a fall in demand to 0.5% whilst the second is expected to be positive at 14, marginally higher than last month’s 13.

USDCAD

The bullish momentum for the dollar cad now seems firmly established with prices having broken above the 200 day moving average coupled with today’s price action which has breached the critical 1.07 price handle.  Having broken through this upper level of resistance we can expect the short term bullish momentum to develop into a longer term trend, particularly given the fact that the 9 day moving average is now crossing the 200 day for a bull cross signal.  In addition both the 9 and 14 are providing excellent support to the upwards move.

There is very little fundamental news of any great significance for Canada this week so expect trading to be driven by technical & political factors.

GBPCHF

The pound swiss continues to behave in an erratic and volatile manner and in many ways mirrors the chart for the dollar yen.  There is no clear trend at present with prices bouncing between 1.70 and 1.59.

GBPJPY

The bearish momentum in the pound yen continues, with added pressure being applied from the 9 and 14 day moving averages.  The longer term target for the pair still remains a test of support at the 120 price point so plenty of trading opportunities to the downside as we probe lower in due course.  The weekly chart reinforces this analysis and with plenty of stubborn resistance above should provide protection to any short term rally.

AUDUSD

The recent market panic is clearly reflected in the Aussie dollar which has crashed through the 200 week moving average to trade marginally above the defined support area at 0.80.  Given the sharp and sudden sell off over the last few weeks we can expect to see a minor pullback in due course but at present the bearish momentum remains firmly in play with all four moving averages pointing sharply lower on both the daily and weekly charts.

The important number for Australia this week is that for private capital expenditure due on Thursday and expected to come in at 2.6% against a previous of 5.5%.

AUDJPY

As risk appetite fled the markets so the Aussie Yen plunged and breaking below the potential support at 76.60 and thereafter testing support in the 72 price area.  The weekly confirms this very bearish picture with 70 and below now looking increasingly likely.  The 9 week moving average is crossing below the 14 week giving us a bearish signal and with such sustained resistance now sitting above it is going take a monumental effort for the aussie yen to rebound.

CADJPY

Just as the oil price has continued to slide lower so too the Cad yen has fallen, correlating positively once again as the pair now test support in the 82.40 price area.  A break below this price point could suggest a re-test of 81 and should this fail then 78 becomes a real possibility for the pair.  With prices now well below all four moving averages on the daily chart, and the 9 day about to cross the 200 day the outlook remains bearish.  The weekly chart reinforces this analysis.

NZDJPY

The chart for this pair mirrors that of the Aussie Yen as  both pairs are uber sensitive to risk sentiment in the wider market.  Having broken below the psychological 60 level the pair now looks set to continue their downwards path in due course with 57.50 the next logical level.  The weekly chart confirms this analysis.

EURGBP

The daily chart for the euro pound continues to exhibit unstable tendencies as we continue to hover between 84.50 and 88 to the upside.  Attempts to rise have run into resistance from the 40 day moving average and Friday’s long legged doji was a signal that the market was set to reverse once again which was duly validated yesterday.  The current price action could be the first stages in the creation of a pennant pattern with a consequent breakout but it is too early to confirm this at this stage so expect further sideways price consolidation.

EURCHF

As mentioned above inflows into the Swiss Franc by worried German investors resulted in a major uplift in the pair which saw the price move from 1.4 to 1.46 in the space of three day.  This was followed by a subsequent pullback to 1.42 once the SNB had intervened.   Until the panic in the wider markets and, in particular the Eurozone, subside then expect to see move of this type of price action in this pair.

EURJPY

The euro yen has blasted through our initial target at 115 and is currently trading in the 110 area at time of writing.  With all four moving averages pointing sharply lower on the daily chart and with both the 9 and 14 weighing heavily expect this bearish momentum to continue for some time.

VIX

The VIX continues to press higher, trading marginally below yesterday’s high of 45.20 and continuing to advance  in a series of upwards steps.  Looking back over a 10 year period we are still some way below the high of October 2008 where the VIX achieved 59.89 for a short period .  With sustained support now on the daily chart the current move is looking ominous with further potential falls in equities and other assets.  However, as we close in towards the high of 2008 this could potentially signal the bottom of the current downwards trend in equities with buying opportunities as a result.  As of the time of writing the fear indicator is at 39.55, having risen 3% on the day so far.

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Currency Market News :

Europe’s deflation torture will be gift to the far left

US & European Volatility indices point to more fear

Markets volatile despite improving economic picture

Interesting article on extent of Euro reserves & price paid by various central banks

The problems in Greece continues to rumble on last week with the markets adopting a lukewarm reaction to the announcement of a 750bn rescue package which was put in place to prop up eurozone sovereign bonds. Even the news that the ECB had now stepped into the market with their own version of QE, selectively buying some of the junk status bonds failed to rally the markets with the Euro failing to a new low of USD1.2432, its lowest point since November 2008. Since then it’s slide against the dollar has continued further, touching USD1.2250 in yesterday’s trading and breaking below the four year low. As a result of these ongoing issues in Europe cable also fell sharply, partly helped lower by the increasingly realisation that the level of UK debt may be worse than expected once the “skeletons” in the cupboard start tumbling out. As for the Swiss the National Bank appears to be trying to hold the currency exchange with the Euro at 1.4. As a result of this ongoing turmoil top quality Treasuries continue to provide a safe haven status for investors, particularly those with maturity dates going out towards 5 years, along with index linked issues which are also in demand.

In the UK Gilts, on the other hand, are attempting to catch up with 3 year swaps at a record low of 1.88%. One of the major beneficiaries of the recent upheavals has been spot gold which has now broken above the previous high of last year and almost achieved $1250 per ounce as a result. On the political front UK markets are now beginning to accept that a coalition government may be in place for some time which could provide some short term stability, although longer term there is a question mark. Aside from Greece, Portugal and Spain are now implementing austerity measures with both governments planning to cut employee wages while in France the government there has already implemented a spending freeze.

Moving to the rest of the world the main items of news to watch this week include a tranche of fundamental items today with the main items being Tokyo tertiary industrial activity, Building Permits & PPI in the US, foreign securities in Canada & an RBNZ in New Zealand.

Looking at the broader picture we can expect equity indices to try and hold above the 200 day moving averages this week but should these fail then we could see a much deeper move in due course with the increasing pressures in the money market dragging everything lower, probably with the exception of gold and other precious metals.

EURUSD

Having broken through the support at USD1.25 the euro vs dollar accelerated to a four year low, touching USD1.2250 yesterday in the process.  However, yesterday’s candle on the daily chart is signalling a small bounce higher for the eurodollar as traders short cover their long positions, so we can expect to see a minor move higher which could break above USD1.25, or even fractionally above, where resistance from the 9 day moving average awaits.  In the short term look for small long positions with tight stop losses but the longer term picture remains heavily bearish with the Euro expected to slump further against the dollar towards the USD1.20 with a possible re-test of USD1.18 in due course.

Items of fundamental news which may affect this pair include the German ZEW data which was released this morning with the number falling well short of the forecast 47.1 and actually coming in at 45.8.  The other item of news this morning was European CPI with the y/y remaining flat 1.5% and core CPI falling marginally short of expectation at 0.8% against a target of 0.9%.  No significant news on either Wednesday or Thursday for Europe with the principal item on Friday being the German Ifo Business Indicator, forecast to show a minor improvement to 101.9 against a previous of 101.6.  However, all this news will, once again, be overshadowed by the problems of sovereign debt and unlikely to cause the usual reaction in the forex market.

Meanwhile for the US the week started with the TIC long dated which came in dramatically better than expected at 140.5bn against a target of 50.5bn – commentators believe this may be due to the Chinese rotating out of the Euro and back into the US dollar – Chimerica comes ever closer!

Today in the US we have building permits and PPI with the forecast for the former being 680k and the latter 0.1%, a decline from last month’s 0.7%.  Wednesday sees the release of the CPI data for the US, forecast at 0.2% against a previous of 0.1% with the associated core CPI at 0.1%, up from last month’s 0%. Thursday’s key release is the weekly unemployment number, forecast to show a modest fall to 439k from 444k.  The other main item for Thursday is the Philly Fed.

USDJPY

The dollar yen continues to oscillate between 92 and 94.50, showing little inclination to break out at present from this range and is a long way from establishing any sort of trend, other than a further period of sideways consolidation. With such a messy picture and with few technical clues this may be one to avoid for the time being.  The weekly chart is equally opaque.

Thursday’s release of Japan’s preliminary GDP is the number of watch for the yen with a forecast of 1.4% against a previous of 0.9%.

USDCHF

At last the dollar swiss once again appears to be correlating inversely with the eurodollar following a period of disunity between the pairs.  Yesterday’s trading session ended with a deep shooting star on the daily chart suggesting a short term reversal and mirroring the small hammer candle on the euro vs dollar daily chart.  The extent of any pullback is likely to be limited to around the 1.12 price point or marginally below which is where the 9 day moving average currently sits along with some interim price congestion.  The weekly chart confirms this analysis with last week’s price action holding above the 200 week moving average, a positive signal for a continuation of the longer term upwards trend, further reinforcing the view that the euro dollar is set to move lower as a result.

GBPUSD

Despite last week’s sharp sell off in the markets generally cable recovered remarkably well yesterday, initially probing the USD1.4250 region before recovering well later in the day to close above the USD1.4450 area.  As a result on the daily chart, we now have a deep hammer candle which should be a precursor to a modest move higher, but given the pressure that sterling is under at present this is unlikely to be more than a short term, minor rebound.  For short term trading look for small longs, with tight stops, based on the hammer formation but the longer term trend for cable still remains heavily bearish, a view reinforced by the weekly chart which shows all four moving averages pointing sharply lower.  In the medium term expect a break below USD1.40 with a possible test of USD1.3750 in due course so plenty of longer term trading opportunities available.

Today’s shock CPI data in the UK came in much higher than expected at 3.7% which will necessitate the Governor of the BOE writing to the government to explain why their 2% target has been exceeded.  Tomorrow sees the release of the minutes of the recent MPC meeting with a 0-0-9 split vote expected.  Any deviation will cause some volatility in the pair.  Retail sales on Thursday are expected to show a modest decline month on month, down to 0.3% from last month’s 0.4% and Friday’s key number is the Public Sector Net Borrowing which is expected to come in at 11.2bn against a previous 23.5bn.  Any bad news here could cause sterling to plummet.

USDCAD

The dollar to cad pair is continuing to behave in its own idiosyncratic way with continued dollar strength against the Euro failing to convert into a sustained recovery from the lows of late April, with this pair struggling to break above the 1.03 area and beyond.  From a technical perspective the daily chart remains mildly bearish, largely as a result of the deep price congestion now immediately below in the 1.025 area, and partly due to the break and hold above the 9 day moving average that we witnessed yesterday.  However, yesterday’s candle was far from strong, ending with a deep upper wick and failing to approach the 200 day moving average which currently resides at the 1.05 level.  For longer term traders my suggestion is to wait for a break and hold above this longer term indicator and for shorter term traders, on an intraday basis, look for short positions today with any bounce off the 14 day moving average suggesting a minor move higher.

The important releases this week for Canada are on Friday with the CPI and core CPI data which are both forecast to come in at 0.3%, with core CPI expected to move from last month’s negative figure into positive territory.

GBPCHF

Continues to trade sideways in a relatively tight range finding support from the 40 day moving on the downside and resistance at the 200 day moving average above. The weekly chart mirrors this price action making trading this pair almost impossible at present.

GBPJPY

The pound yen is continuing to exhibit a bearish tone as the pair slide lower once again, although yesterday’s deep hammer candle suggests the pair may be finding some traction in the 132 price area and much like the pound dollar we can expect to see a modes rise this week.  Any recovery though is likely to be limited to the 136 price handle, or marginally above, as the pair runs into deep price congestion and the 9 day moving average which currently sits in this area.  As a result small longs in the early part of the week with a resumption of bearish sentiment later should the pair fail to breach the 9 day moving average.

AUDUSD

Not quite achieved our short term target of 86 with the pair currently trading at 87.65 at the time of writing.  However, with the 9 day moving average now crossing below the 200, likely to be followed shortly by the 14 day ma, the outlook still remains firmly bearish with a re-test of the 86 price zone still on the cards.  Should this price zone fail to hold then expect a much deeper move for the pair so any short term bounce higher should be seen as an opportunity to open further short positions to the downside.  The weekly chart confirms this analysis.

With only the release of the monthly RNBA minutes this morning the remainder of the week is relatively quite for fundamental news in Australia.

AUDJPY

The bearish sentiment for the Aussie Yen continues in the short term with last week’s rally from the long legged doji of the previous Friday, running out of steam at just below 85, before collapsing once again to trade in the current region of 81.30, at the time of writing.  Yesterday’s down candle closed the session below all four moving averages and with the 9 day moving average now blocking any attempt at a recovery my short term target still remains a re-test of the 77 price area and any breach of this will see a much deeper move as a result.

CADJPY

Not quite mirroring the collapse in oil prices, but nevertheless exhibiting a bearish tone and prices unable to breach 94 which is the minim required before the pair can resume their upwards trend.  Short term the pair continue to look bearish given that both the 9 and 14 day moving averages have crossed below the 40 day – giving us bear cross signal.

NZDJPY

With the pair’s failure to close above 68 last week’s trading was mainly to the bear side with yesterday’s candle breaking below the 200 day moving average and eventually closing just above it.  The longer term outlook looks set for some sideways consolidation between 61 and 69 but for short term trend trading and intra day trading the bias is to the downside as we move from a current price of 65.07 to re-test the lower trend line in the 61 price area.

EURGBP

The euro vs pound is now consolidating in the 84.50 to 86 price area while it decides its future direction.  However, while it is still my opinion that the eventual direction will be to the downside, the pair will continue to be influenced by both political and macro economic factors and will on turn to the upside once the market begins to believe in a solid future for the euro.  Any recovery past 86.50 will require sustained momentum due to the deep price congestion now sitting above in this area.

EURJPY

The bearish sentiment for the euro yen remains firmly in place as we currently trade at 115.29 and with all four moving averages pointing sharply lower, and with the 9 day moving average a particularly strong barrier my short term target remains at 110.50 or even marginally below.  Any short term rally in this pair should be seen as an opportunity to enter further positions to the downside.

VIX

Since the VIX’s dramatic surge higher a couple of weeks ago where it broke above 40, last week’s price action was relatively muted with yesterday’s candle ending as a shooting star and closing at 30.84 last night.  This suggests that we should see equities recover as risk appetite returns to the markets and the key price level for the VIX is now in the 26 area where a support platform now awaits.  This price area needs to be breached in order for any continuation of a rally in equities to be sustained.

Another index which should give us cause for concern is the Thomson Reuters/Jefferies CRB index (a commodity price index) which dropped 2% on Monday, bringing its total loss to nearly 10% in the past month.  The silent crash in this important indicator while gold has soared will worry all traders and investors as it reflects growing deflationary risks as well as the possibility of a further seismic shock to the financial system.  Copper, the bellwether for global activity, has fallen more than 20% in the past month and whilst under normal circumstances a stronger dollar would lead to a rise in commodities the usual correlations have all but broken down as investors try to find the safest of havens which in this case is gold.  The last time gold and the dollar rose in tandem was in 2008 at the time of the Lehmans debacle.

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Market News :

Risk averse investors turn to the US

US lawmakers block indiscriminate IMF aid for Europe

Following such a turbulent and volatile week across all the markets it is hard to know just where to start either in the overall analysis of last week’s events or more, importantly, in where markets are heading in the near future.  Indeed one commentator has simply entitled his report this morning “Let Meltdown Commence”.  Whilst this may be an extreme view it does tend to encapsulate the turbulent times in which we are trading at present and whilst there are undoubtedly significant opportunities, money management and risk management are the keys to survival.  The three principle strands of last week’s turmoil were, of course, the European sovereign debt issues and the market’s fear that contagion was spreading to Spain, Portugal, Ireland and beyond.  Secondly, the UK election which duly produced an inconclusive result and finally the German election which has seen Chancellor Merkel’s working majority slashed as a result.  All in all a maelstrom of the political coupled with the economic.  The first of these is perhaps the one that over arches all three and is perhaps the most significant of all with the EU leaders meeting over the weekend and allegedly reaching a consensus on the way forward.  The significance of this cannot be overestimated not because the bail out package has been agreed, although this is debatable, but more so because the EU has now profoundly altered the character of the European Union by creating and issuing bonds with a triple AAA rating to help failing European states, such as Greece.  This clearly breaches both the fiscal rules and economic sovereignty and goes far beyond the Lisbon Treaty, effectively creating a new agency which could be labelled the EU Treasury.  In summary and in effect we are witnessing the creation of a European state in which no member country will be allowed to default whatever the political, financial or moral implications, in other words a debt union.  Mrs Merkel’s position has already been seriously weakened as a result as the German citizens of Rhine & Westphalia have reacted and given their judgment, a trend that is likely to continue in the future.  With Germany being the major driver and powerhouse in Europe at present this could potentially undermine and ultimately sabotage any rescue package both for the Greeks and any other defaulting member state.  Whilst the markets this morning have initially surged on relief that some sort of solution has been found the reality of the seismic shifts which have been proposed may, in the end, simply lead to monetary disorder and breakup of the Union, as has already been suggested by a number of German academics.  Into this firestorm stepped the UK with the electorate delivering an hung parliament and we now have the somewhat unedifying spectacle of a “squatter” in No 10 who, constitutionally at least has no pressure to move, whilst the remaining parties attempt to cobble together some sort of working majority.  As mentioned last week the hung parliament result had already been factored into the markets and this morning’s bounce higher in equities and sterling is more the result of the relief that “something has been done” in Europe.  What to watch for this week?  We have already had the UK interest rate decision (postponed from last Thursday) with rates once again held at 0.5% and causing little reaction in the markets.  The German Trade Balance figures too were overshadowed but came in worse than expected at 13.3bn against a forecast of 14.2bn.  BOE inflation report in the UK, trade balance in both Canada and the US with German Preliminary GDP Wednesday morning.  Thursday sees Australian employment data, UK Trade Balance and a speech from Fed Chairman Bernanke with Friday rounding off with a clutch of fundamental news items in the US.

EUR vs USD

As has already been outlined in the daily eurodollar blog we achieved our initial target of USD1.25 somewhat sooner than I had anticipated and following the weekend’s 750bn rescue package the euro duly opened up gypped up in the first session of the trading week in Asia but has since fallen back to trade well below USD1.30 as markets begin to digest the implications of this deal, the main one being is whether it is fact legal.  Indeed, the legality of the recent bailout proposals for Greece look set to be tested in the German courts and it is interesting that the statement for this weekend’s agreement came, not from Germany, but from France.  From a technical perspective the daily euro vs dollar chart continues to remain bearish and today’s rally already appears to have hit resistance at the 14 day moving average.  Any break higher is therefore likely to be short lived with USD1.32 seen as the likely top of any rebound and any move higher should be seen as an opportunity to enter further short positions with an expectation of a continuation of the bearish trend in due course.  A break below USD1.25 should signal a much deeper move down to USD1.20 in the longer term. Items of fundamental news for Europe this week have already included the German Trade Balance figures which came in worse than expected at 13.3bn against a forecast of 14.2bn and these will be followed by preliminary German GDP on Wednesday which is forecast to be flat and with Thursday being a Bank Holiday we have a relatively quiet day on the fundamental news front.  However, this does not mean that we will not see any volatility as traders and investors focus on the political dimension to this crisis.

USD vs JPY

The recent bullish trend in the dollar yen was brought to a savage and abrupt end on Thursday with a dramatic collapse from 94 to 88 severely scaring the market and promptly supported by the BOJ who stepped in to send the pair rocketing back to close at 91.50.  Friday’s price action was equally volatile but this morning’s trading has recovered a degree of equilibrium and now looks set to re-establish the bullish momentum once again.  However, only a break and hold above all four moving averages will signal this continuation and preferably I would suggest waiting until 95 has been cleared which should then provide a cushion for any pullback in more “normal” trading conditions. There are no main items of fundamental news for Japan this week with only level 3 releases.  Meanwhile in the US we have to wait until Wednesday for the Trade Balance figures which are forecast at -39.9 against a previous of -39.7, followed on Thursday by a speech from Fed Chairman Bernanke with the week rounding off with retail sales figures (forecast to show a decline to 0.3% from 1.9% the last time) and the UoM (University of Michigan) sentiment index.  This is forecast to come in at 73.5 against a previous of 72.2 – a mild improvement.

USD vs CHF

Following Thursday’s long legged doji on the dollar swiss daily chart Friday’s price action was relatively muted but confirmed the short term reversal signal as a result which has duly followed through in early trading this morning.  However, the 9 and 14 day moving averages seem to be providing a degree of support and any pullback is likely to be short lived, particularly given that the dollar swiss now appears to be correlating inversely with the eurodollar once again suggesting that the recovery in the latter may also be temporary.  With a deep and sustained platform of support now immediately below any bearish move is likely to find support in the 1.09 price area which may well provide a platform for a continuation of the bullish breakout.

GBP vs USD

An interesting technical picture on the daily chart for the pound dollar with Friday’s deep hammer candle suggesting a sharp recovery was in prospect which to date has been validated in early trading so far morning.  With such a prominent signal we can expect to see sterling recover further from the current high at USD1.50 although this does depend, to some extent, whether the market continues to ignore the present uncertainty surrounding the failure to form a new Government.  The upside to this recovery is, however, likely to be capped at USD1.5450 and may well run out of steam earlier as we run into relatively deep resistance which starts in the USD1.52 price region.  This area also coincides with the confluence of the three shorter term moving averages which may well present an immoveable technical barrier as a result.  The longer term outlook remains bearish so any short term recovery could be seen as an opportunity to trade to the downside. Important items of fundamental news for sterling started this morning with the interest rate decision which was kept on hold at 0.5%.  Tomorrow sees the manufacturing production numbers which are forecast to decline from 1.3% the last time to 0.3% this time. Wednesday’s key release is the inflation report by the BOE.  Thursday’s big number is is the trade balance figure which is forecast at -6.5bn against a previous of -6.2bn and the week rounds off with the CB Leading Index – a composite of 7 economic indicators.

USD vs CAD

I did not expect my suggestion that the dollar cad would rally to 1.08 quite so rapidly and to consequently reverse equally as quickly in the same trading session, but all markets were overtaken by the dramatic collapse in Dow Jones on Thursday.  This was alleged to have been caused by a fat fingered trader (the same lame excuse that it is always wheeled out whenever there is such an occurrence) with the more likely cause being market makers taking an opportunity to make some serious money on the back of the Greek debt problems & Trichet’s vague statement on Thursday.  Whatever the reason the I hope you managed to take some pips (at least on the way up) and with today’s price action now equally volatile but re-trenching towards 1.02, this should provide some excellent opportunities to trade to the long side once again, as the US dollar continues to recover int he short term. The main fundamental news for Canada this week include the trade balance figures due out on Wednesday with a current forecast of 1.7bn against a previous of 1.4bn followed on Friday by manufacturing sales which are expected to show an improving picture at 1.1%, up from last month’s 1.0%.

GBP vs CHF

Our bullish prediction duly came to pass but then promptly suffered as a result of Thursday’s and Friday’s wild market reactions which has resulted in the pound swiss pair now trading at 1.6568 as we quickly recover the lost ground from the low of 1.61 on Friday.  From a technical perspective prices were propelled below all of our short term moving averages and also well below the recent price congestion which is now being re-tested as of writing.  A break and hold above 1.6650 should see a recovery later in the week with 1.69 the initial target once again and a break and hold here should see the pair move on towards 1.71 and above in due course.  This is, of course, must be read in conjunction with the ongoing political situation in the UK. GBPJPY All the yen crosses enjoyed a savage day on Thursday followed by an equally volatile day on Friday with the pound yen trading as a long legged doji as it whipsawed around.  As a result we now have an excellent signal for trading to the long side with this morning’s price action duly delivering.  However, for a continuation of this upside momentum we need to see all four moving averages breached once again coupled with a break and hold above 145.  Should these factors combine then expect to see the pair propelled higher and on towards 150 and above in due course.

AUD vs USD

A spectacular collapse on Thursday with the Aussie dollar duly breaking below the 200 day moving average on the daily chart and testing support at 0.87 as a result.  Again this fall was much faster than expected but in line with our forecast of bearish sentiment in the daily chart as the pair failed to breach the top at 93.50 and rolled over below all three moving averages as a result.  This morning’s price action in the 0.9029 price area has now presented further opportunities to short the pair with a view to achieving an initial target of 0.86 in due course. The fundamental news for Australia this weeks focuses on the employment data due for release on Thursday with jobs created expected to come in positively at 22.5k against a previous of 19.6k last time and the headline unemployment rate to remain flat at 5.3%.

AUD vs JPY

Last week’s forex forecast probably produced the understatement of the year where I suggested that the daily chart for the Aussie Yen was looking a “little toppy” in the 88 price region.  Three days later we tested 77!!!  Not quite what I was expecting but there we are.  Friday’s long legged doji, coupled with Thursday’s extreme price action, has produced a bounce today but this also appears to be running out of steam as it attempts to breach the stiff resistance at 85 and beyond.  As a result should the pair trade at this level for any length of time look to trade to the short side looking to an initial target of 82 where the 200 day moving average is currently sitting.  If this is breached then we should see a re-test of 79 and possibly 77 in due course, but not at the same speed as has just occurred!!!

CAD vs JPY

As with oil the CADJPY suffered as a result of last week’s market mayhem, falling dramatically on Thursday to test support at 82 before gapping up wildly on Friday to re-test 90.  This morning’s price action has been equally volatile as we trade between 89 and 92, testing both the strong resistance now above and also the three shorter term moving averages which are intertwined at this level.  For any recovery of bullish momentum we need to see a clear breach of 94 which will then provide the necessary platform for a sustained move higher in due course.

NZD vs JPY

A similar chart to that of the Aussie Yen with Thursday giving us a dramatic move lower producing a long legged doji candle and a sustained recovery in trading so far today.  For the bullish momentum to be reinstated we need to see a close above 68 today which will then provide a position clearly above all four moving averages once again.  Should this occur today then expect to see the pair push on to re-test the previous high of 69 and clearance at this level should open the way for a run towards 72 and above.

EUR vs GBP

Thursday’s long legged doji candle signalled a potential turning point on Friday which was duly delivered in dramatic style largely as a result of the uncertainty in the UK political situation.  The 40 day moving average eventually provided a technical barrier to this spectacular recovery with the pair closing marginally above 0.86 at the close and fractionally above the 9 day moving average.  This morning’s price action has been driven by the weekend events in Europe with the market clearly undecided as to the fiscal and legal viability of the most recent rescue package for Greece and other indebted EU states.  With the ongoing political situation in the UK expect continued volatility in this pair making trading somewhat of a lottery with my own personal bias to the downside.

EUR vs JPY

The slide lower as outlined in last week’s market commentary promptly turned into an avalanche with the pair crashing through our longer term price level at 115 and testing support at 110 on Thursday before rebounding to close around the 116 price handle.  In contrast Friday’s price action was relatively muted with today’s price attempting a further rally which now appears to have run out of steam as we run into both deep price congestion at 122.50 and also solid resistance from our three shorter term moving averages which are now pointing sharply lower.  As a result the outlook for this pair remains firmly bearish and the recent recovery of the last few days should be seen as opportunities to trade to the short side with a view to achieving a target of 115 in due course.

Just follow the links to catch up with my latest gold, oil and the dollar index analysis. VIX In the light of last Thursday’s dramatic collapse and then equally dramatic recovery in the DOW the VIX surged higher to close on Friday at 40.95, breaking through the short term resistance at 25.50 sooner than we anticipated.  The key support level for the VIX is now firmly established in the 30 price area suggesting a further period of volatility for equities.  To the upside the recent high of the last two years remains at 90 (the height of the last panic) and whilst this seems an unlikely level to be tested at this stage anything is possible in the current market environment. In addition to the VIX I have also been looking at the iTraxx index which measures the bond risk on European banks which last week reached a new high and indeed registered a worse number than at the time of Lehman’s collapse.  This resulting stampede into the safe haven of the 2 year German Schatz was likened by the Swedish Finance Minister, Anders Borg, as not just “herd behaviour” but “wolfpack behaviour”.  but whether the world has avoided another financial meltdown still remains to be seen.

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