Since my last newsletter much has been happening in both the markets and my personal life, not least of which has been a move out to Italy where I shall be spending the next few months trading and writing but will be returning to London on a regular basis.   Perhaps this highlights one of the advantages of trading which allows you to work from anywhere in the world provided there is a reliable internet connection.   Fortunately for me mobile internet in Italy is excellent but I am somewhat distracted by my surroundings, particularly as I am by the sea.  This is, of course, without the food, shopping etc – maybe I should go back to London sooner for the sake of both my wallet and waist!  So, in the meantime what of the markets?  Last week was yet another episode in the Euro soap opera as politicians dithered and central bankers ran for cover as the public protests intensified in Greece against the austerity measures deemed necessary for any bailout.  These concerns are now spreading with the latest casualty expected to be Spain along with Portugal and perhaps Italy.  The BIS (Bank of International Settlement) has estimated that the Greek sovereign debt is currently standing at around 189bn (not much greater than that of the UK), with Portugal at 240bn and Spain a colossal 851bn.  Greek treasury bonds surged to an incredible 13.1% last week thereby coming into the junk status category while the Bund yield dropped to 2.905%, just short of the record low posted in January 2009 at 2.856%.  The Schatz also set a new record low of 0.724% and the Swiss 10 year CONF also moved to a record low yield of 1.784% as investors desperately parked their money in high quality paper.  In the money markets June futures sold heavily as traders and investors considered which of the banks in which countries were holding the largest quantity of junk bonds.  Whilst in the US the FED reiterated its intention to keep interest rates low for “an extended period”.  In the equity markets there was a strong sell off Tuesday and Wednesday with many indices touching either the 50 or 200 day moving averages and indeed this bearish sentiment has continued short term in the start of this week.  The US dollar was mixed losing against the Singapore dollar but gaining against the Euro, and in the early part of this week we have seen the Dollar Index surge higher which now looks set to continue in the short term.

The underlying themes for this week and are, of course, the continued concerns over the Euro and the UK general election on Thursday, with Non Farm Payroll on Friday and ECB interest rate on Thursday.  The UK interest rate decision has been moved to next Monday because of the election. In addition to the ECB decision the Norges Bank will also be deciding on interest rates which are likely to remain unchanged at 1.75% along with Iceland whose rates currently stand at 9%.  Sunday sees the state elections in North Rhine-Westphalia which could signal the conclusion of the Greek bailout saga and a consequent reversal in the fortunes of the Euro.

EURUSD

The euro vs dollar continues to remain heavily bearish and yesterday’s steep fall breached our initial target of USD1.30 and is now well on course towards, what I believe, may be the floor of the current downwards trend in the USD1.25 area.  This outlook is confirmed on both the weekly chart and monthly charts. In the longer term on the monthly the 200 month average remains well below in the USD1.18 price area at present and should USD1.25 be breached then this could signal the absolute bottom in this particular cycle.  As mentioned above the main fundamental news this week is for the ADP numbers later today which are always a good guide to the nfp data on Friday and the forecast today is for a positive 29k (jobs created) against a negative 23k (jobs lost) last time. Thursday sees the interest rate decision for the Eurozone which is likely to remain on hold at 1% but it is the subsequent statement which will be closely scrutinized given the current turmoil surrounding the Euro.

USDJPY

The dollar yen continues to exhibit a bullish tone breaking above the 94.50 interim resistance level and currently trading at 94.77.  Having breached all four moving averages during last week’s trading the pair now look set to continue upwards reinforced by a break and hold above the resistance area outlined above.  The 9 day average in particular is providing good support to this short term move and with the 40 day now crossed above the 200 day the picture continues to bullish for the short and medium term.  The weekly chart confirms this view with the 9 week moving average providing solid support and provided we can breach the sustained resistance between 95 and 98.50 then we should see the pair run back towards the 100 price point and retest this area once again.

With Japan closed for the Golden Week celebrations and not due back until Thursday expect to see market conditions in all the yen pairs.  Focus will be on the US with ADP & non farm payroll.

USDCHF

The dollar swiss seems to have regained its traditional inverse correlation with the euro vs dollar, surging higher as the euro dollar fell heavily yesterday and moving strongly towards the 200 week moving average on the weekly chart.  This upwards surge has broken out of the recent sideways consolidation which had extended in this price range since early January 2010 and this should now provide a solid platform for a sustained move higher as the eurodollar moves lower to USD1.25 and below.  Deep resistance awaits above in the 1.125 to 1.175 area and this could coincide with a reversal in the fortunes for the euro capping any recovery for the dollar swiss in the 1.150 price zone.  The daily chart merely confirms this picture with the 9 day moving average providing excellent support and with all three short term moving averages now pointing sharply higher.

The fundamental news for Switzerland includes the CPI data which is expected at 0.8% against a previous of 0.1% and Friday’s key number for Switzerland are the retail figures which are forecast at 2.9%, down marginally from last month’s 3.1%.

GBPUSD

With the UK election overshadowing sterling at present the markets are now waiting to see whether Friday’s morning result will indeed leave the UK with a hung parliament.  Despite talk of a further collapse in sterling do not be surprised if this fails to materialise as the markets will have already factored in a hung parliament as this has been the most likely outcome for some time.  From a technical perspective the daily chart for cable remains mildly bearish with yesterday’s down candle closing below all four moving averages and confirming the round top of the last 5 weeks.  The floor for the current move still remains in place at 1.48 and any reaction lower on Friday could use this region as a base once again for any rebound and recovery.  Until Friday expect this pair to consolidate sideways but the combination of the election and non farm payroll in the US on Friday could create some volatility.

Any fundamental for sterling has been overshadowed by the ongoing election.

USDCAD

The dollar cad appears to have completed its recent downwards trend in finding the bottom of its present cycle at parity and is now making a sustained attempt to recover.  Yesterday’s widespread up candle was the first attempt to break above the minor resistance in the 1.02 price area and coupled with the 9 day moving average which has now crossed above the 40 day moving average this is now providing a bull cross signal which suggests the current move may have some “legs”.  In the short term whilst 1.075 represents an initial target for any upwards move, prior to reaching this level there is deep congestion which has to be overcome and which may bring any recovery to a temporary halt.   In the meantime look for short term trading opportunities to the upside.

Fundamental news for Canada this week includes Building Permits tomorrow which are expected to come in positive at 0.4%, reversing last month’s figure of -0.5% and later in the day we have the IVEY PMI data, a sentiment indicator which is forecast at 59.3 against a previous of 57.8.  Friday sees the Canadian equivalent of non farm payroll with the employment numbers released 90 minutes before the US figures and these are forecast at 20.3k, up from last month’s 17.9k with the headline unemployment rate remaining at 8.2%.

GBPCHF

Following 2 weeks of sideways consolidation in the 1.64-1.66 price zone, yesterday’s wide spread up candle provided some much needed momentum to the recent short term bullish trend with the pair having recovered from the lows of 1.5850 touched on the 28th March 2010.  Yesterday’s candle just failed to breach the 200 day moving average on the daily chart but in early trading this morning this has now been penetrated and provided we see the day close above this technical indicator then we should expect to see a continuation of the recent bullish trend.  The short term moving averages confirm this view, all pointing sharply higher but for any sustained move 1.71 remains the target which must be breached.  This price point could represent the extent of the current rally but if breached then we could see a run towards 1.8 and beyond in the medium term.  The weekly chart confirms this picture with the base now established at 1.58.

GBPJPY

With Japan closed for the Golden Week celebrations and the UK elections there is precious little to say about the pound yen pair which is continuing to consolidate sideways in the 143 price area.  Given the recent upwards trend and the configuration of various candle patterns, any breakout when it does occur, should come to the upside with 150 the initial target.

AUDUSD

Failure to move beyond the 0.9350 price handle has now established this area as the ceiling to the recent up cycle and as a result, and given yesterday’s widespread candle, we can expect to see a further pullback from this region which may well re-test the 200 day moving average which now sits below in the 0.89 price zone.  Should this indicator fail to hold then the aussie dollar may move to re-test support at 0.86 and should this too fail then a much steeper fall could be in prospect.  The weekly chart merely confirms this view with the 40 week moving average relevant here and as for the daily chart if this is breached then expect a re-test possibly even as deep as 0.82 in due course where the 200 week moving average now resides.

Tomorrow morning sees retail sales in Australia which are forecast to be positive at 0.8%, reversing last month’s negative figure of 1.4% and this item of fundamental news is also released along with the trade balance which is forecast to increase slightly to -2.02bn, up from -1.92bn last time.   The week rounds up for the aussie dollar with a policy statement from the Royal Bank of Australia.

AUDJPY

The Aussie yen continues to struggle in the 88 price area with yesterday’s candle breaking below both the 9 and 14 day moving averages once again and the daily chart is looking increasingly “toppy”.  However, in the last three weeks the 40 day moving average has provided excellent support to any short term reversal and should this be repeated in the next few days then we may see a further attempt to breach this level in due course.  The weekly chart remains mildly bullish with last week’s low bouncing off the 9 week moving average and closing fractionally below the 200 week moving average which prices have struggled to clear since mid March.   Should we see a break and hold above the 200 week moving average in due course then the bullish momentum may resume with a possible run towards 94.50 and beyond but at present this looks increasingly unlikely as risk appetite drains away from the wider market.

CADJPY

As usual the daily chart for the Canadian Yen mirrors that of the WTI oil chart as the pair  struggle to break above the 94 price handle.  Much like oil the pair is range bound between 91 and 94.  However, the weekly chart clearly indicates the depth of support now below and in addition the longer term bullish sentiment is now clearly evident with all three moving shorter term moving averages pointing sharply higher.  The 9 week moving average, in particular, is seen to provide excellent support.  Should we see a break and hold above the 200 week moving average which is currently in the 97 price area then this will be the catalyst for a sustained move towards 100 and beyond.

NZDJPY

Much like it’s cousin the aussie yen the new zealand yen too is struggling to move beyond the 70 price handle whilst still retaining a degree of bullish sentiment.  A break and hold above this price point should be the catalyst for a demonstrative breakout and if this is coupled with a hold above the 200 moving average on the weekly chart, currently at 73 then this could signal a run towards 80 in the longer term.

EURGBP

Despite a personal interest in this pair the outlook on the weekly chart now looks firmly bearish, particularly following the breach of all three moving averages in the last two weeks.  Having failed to break above 92.50 the medium term direction is now downwards with the next key level being that at 83.50. Should this manage to provide a platform then we could see a minor recovery back towards 90 and beyond in due course but any failure here will see the euro pound drop significantly, possibly even as far as 0.80 to re-test support in this price zone where major price congestion awaits.  The daily chart confirms this view with yesterday’s wide spread down candle adding further momentum to the bearish picture and breaking below the 9 day moving average in the process. The bearish tone is further confirmed by the 40 day moving average which has now crossed below the 200 day adding further pressure to an already weak position.  The only caveat to the above analysis is the Greek debt scenario and the outcome of the UK election and we may well see some increased short term volatility as a result.

EURCHF

Despite the SNB’s best endeavours to weaken the Swiss Franc against the euro the pair refuse to cooperate and have now entered a sustained and mind boggingly boring phase of sideways consolidation.  There is nothing more to say and if you have the patience to trade this pair then good luck – I’m afraid I don’t!

EURJPY

This pair appears to have been insulated from the current market turmoil as it continues to slide lower from 128 and now looks to be re-testing support in the 121 price zone from its current 122.20 price handle.  Short term trading opportunities are probably to the downside but very tricky at present and wait until Japan re-opens and the debt issues in Greece calm down.  On the weekly chart any break below 120 could be seen as a re-test of 115 in due course, particularly if we hold below all four moving averages which is currently the position at the time of writing.

Gold

Gold continues to push higher supported by all of our moving averages with $1200 per ounce now looking increasingly likely in the short term with a run at $1225 and above a distinct possibility.  It’s inverse correlation with the US dollar appears to be over as investors become ever more wary and risk averse.

Dollar Index

Following yesterday’s breakout at the 82.50 price point the dollar index is continuing to push higher in today’s trading adding further to the bullish momentum for the US dollar and the key levels now remain 84.25 and beyond as the index begins to encounter deep and sustained price congestion between this level and 88.50.  The bullish momentum for the dollar now looks set to continue for some time.

VIX

Having been sliding lower over the past few months the VIX duly surged higher last week closing yesterday at 23.84, well above its recent lows of 15.23 and reflecting the short term panic which has engulfed the markets.  Whilst the 15.23 price level is a relatively low measure it is by now means the lowest point for the index and in the longer term single figures for the VIX should be taken as evidence of a deeper structural change for equities.  On the daily chart there is sustained resistance between 20 and 35 and only a break above this upper level will signal the end of the recent upwards move.

Finally this site and newsletter have been included in a major report for the The Times of London as a reference for forex and gold trading – details of the report can be found here by clicking on the link.  Well worth a read!

What is one of the best retail forex trading platforms?  In my view it is Metatrader 4.  Advanced, powerful & intuitive it now comes with ECN execution, so you can happily scalp away without broker or dealer intervention.  Just download your free demo copy of MT4 by following this link – download metatrader free –  and get started today.  Don’t forget to follow my daily posts for updates and analysis of the forex markets to help you with your forex trading – so good luck and good trading.

Market News :

Euro plunges as market sceptical over Greek bailout

Portugal due for downgrade

Breach of 1.30 puts Euro reserve status under pressure

In a holiday shortened week trading last week was epitomised by thin volumes and unpredictable price action.  The US dollar weakened against several of the major currencies other than the Euro which touched a low of USD1.3280, and several central banks intervened to support their currencies as a result including Poland, Switzerland and Singapore.  As outlined in many of my previous market forecasts the Canadian Dollar finally dropped below parity, touching a low of 0.9977, its strongest since July 2008 which was mirrored by the South African Rand which in turn prompted the Reserve Bank of South Africa’s chief economist to suggest that the bank would intervene at some point.  This in turn helped move metals higher with gold breaking out of its recent malaise, moving above the $1150 per ounce level and this was also reflected in silver which moved over $18 per ounce.  Daily oil prices too followed suit moving strongly higher to touch marginally $87 per barrel which is the highest for a front month contract since October 2008.

With very little fundamental news yesterday, the Greek sovereign debt problems continues to dominate and despite the weekend assurances of support and 30bn loan facility the markets continue to remain sceptical until any firm detail is forthcoming.  The temporary bounce in the Euro may well be short lived if and until after the German elections making trading across all markets very tricky.  In addition the UK election campaign is now in full swing and with the prospect of a hung parliament this is likely to keep the markets unnerved and indeed should this be the final result we could see Serling come in for some sustained selling.

Moving into this week with many traders still away markets may continue to be erratic and volatile, with a further sell off in the dollar quite possible, particularly as we have now dropped below the 40 day moving average on the daily dollar index chart.  The effect of this will be seen prominently in the Aussie Dollar, Canadian Dollar and UK pound, a view which is reinforced by extreme futures positions which are now building aggressively in this direction.  The equity markets should continue to maintain their recent highs despite the fact they are looking a little overbought at present and for commodities, both precious and base metals, should continue to hit new recent highs.

EURUSD

Last week’s deep hammer candle on the weekly chart suggests that the currency pair is finding some traction at this level with USD1.3250 the current floor of the recent long down trend.  Given this particular candle formation, which is reinforced by that of 3 weeks ago, we can expect to see a modest rise in the eurodollar as a result in the short term. Any move higher is likely to be capped around USD1.3750 or marginally above as it runs into both the 14 and 200 week moving averages now immediately above.  Any recovery should still be seen as an opportunity to open longer term short positions in anticipation of a deeper move lower.

Fundamental highlights for this week (other than the Greek situation) include Trade Balance for the US later today; tomorrow sees Core CPI and Retail Sales in the US, followed by a speech from Fed Chairman Bernanke, a quiet day on Thursday other than unemployment claims and the Philly Fed in the US and the week ends with Building Permits & the UoM Sentiment Indicator.  All this against the backdrop of the ongoing high level discussions with China.

USDJPY

The dollar yen struggled to maintain its momentum following the breakout on the weekly chart and ended marginally lower, having run into resistance at the 95 price handle coupled with deep consolidation above.  Any move higher will need to breach this resistance which now sits firmly between 95 and 100 and provided the moving averages continue to provide support then we should see the pair rally in due course.  This is further confirmed by the 9 week moving average which is crossing above both the 14 and 40 week and provided these hold firm we should see a further attempt to rise this week.

Very little fundamental news for Japan so the pair will be dominated by dollar news & political events.

USDCHF

The dollar swiss closed marginally higher last week but ended with a deep shadow to the upper body indicating potential weakness as a result and confirming once again the fragile extent of the rebound from early 2010.  However, last week’s low did find support from the 14 week moving average and coupled with previous positive signals from this indicator we can expect to see the dollar swiss recover in due course.  1.1 remains the key level which will require considerable momentum to breach given the sustained resistance now lying directly above but if this is breached then expect the bullish momentum to be reinstated.  If we achieve this level then the correlation with the eurodollar should continue once again.

No major fundamental news for the swiss franc this week.

GBPUSD

A difficult call on the weekly chart for the pound dollar as the pair still remain bearish in the medium term (markets no doubt waiting outcome of the election). Last week’s modest rise moved cable above the 9 week moving average but fell well short of attempting a breach of the 14 week moving average which now sits in the USD1.55 price region.  Provided there are no shocks in the ongoing election campaign this may well prove to be the barrier to any further progress higher and we may even see a pull back in the pound dollar this week.

The only key fundamental news this week for sterling are the Trade Balance figures which came out earlier today much better than expected and as a result we have seen a modest bounce back of sterling against both the Euro and the US dollar.  Trade balance figures are an important leading indicator as they represent the difference in value between imports and exports with export demand directly linked to demand for the currency.

USDCAD

The dollar canadian continued on its downwards path last week ending lower once again and breaching parity with the outlook for the pair still remaining heavily bearish.  Having broken the resistance between 1.02 and 1.01 our next target to the downside is now 0.97 and should the floor of this region be broken then 0.94 and below becomes a realistic target.  All four moving averages remain pointing firmly downwards with the 9 week average applying particular pressure to any minor recovery.

The key fundamental news today for Canada and the US are the Trade Balance figures for both countries while the focus for the remainder of the week is in the US (see above).

GBPCHF

A modest recovery for the pound swiss last week which followed cable marginally higher but subsequently ran into resistance from the 9 week moving average and also failed to make any inroads into the strong resistance now sitting at 1.6320 and above.  Given the technical picture this now seems a good time to enter medium term short positions with a view to a downside target of 1.58 or lower.

GBPJPY

The pound yen continues to prove a difficult currency pair to trade, lacking any conviction or direction.  With the deep price congestion now above in the 143 – 150 region and until we see some firm direction either way this is probably one pair to avoid at present as prices are sandwiched between the shorter term moving averages.

AUDUSD

We are still waiting for a clear breakout above 0.93 but all the technical indicators suggest that this will happen in due course, particularly now that the 9 week moving average has crossed above the 14 week ma and is offering excellent support.  Any pullback to 0.92 or below should be seen as a buying opportunity for some medium term long positions with an exit target of 0.9550.

With no major fundamental news this week for the Aussie the focus will remain on the US dollar (details above).

AUDJPY

Thin trading volumes last week did little to carry forward the upwards momentum of the previous week, but with the breakout from the recent sideways consolidation now complete, expect to see this pair move higher in due course and there is certainly the opportunity for a clear run all the way back to three figures and beyond in the longer term.  With the 9 week having crossed the 14 week and with the current spot price breaking above the 200 week moving average this should now provide a solid platform for a sustained move higher.  Buy on any dips down to 85 for longer term long trades.

CADJPY

A quiet week for the CADJPY pair which has paused for breath following its breakout from its long period of sideways consolidation, reflecting its strong correlation with crude oil prices.  With the 9 week now having crossed above the 14 week moving average these moving averages are now providing excellent support and we should see a sustained move higher towards 100 and even 105 in the medium term.  The caveat will come as we approach the 200 week moving average which currently sits in the 97 price arena so there is plenty of profit available before we hit this key level.

EURGBP

The EURGBP is trading broadly sideways and is now beginning to consolidate into a pennant pattern on the weekly chart, the point of which is concentrated around 0.89.  Last week’s small hammer suggests a degree of momentum to the upside but whilst prices remain below the 3 shorter term moving averages this is far from guaranteed.  In addition the pair are dominated by two big picture scenarios, the first being the UK general election and the second being the Greek debt crisis either of which could cancel the other out and we could end with a “score draw”.  Patience is required to trade this pair at present and we need to wait for a confirmed breakout from the current pattern.

EURCHF

The EURCHF subsequently rallied as outlined in my previous forecast following the long legged doji candle of the previous week, but as suggested now appears to have run out of steam as the pair run into resistance from the 9 week moving average.  Any further move higher may be capped as the pair struggle move higher as the outlook still remains firmly bearish longer term.

Gold

A strong performance from gold last week which finally broke out of the pennant pattern on the weekly chart moving to the upside and breaking above $1150 as a result.  The spot gold price now looks firmly bullish and with the deep resistance acting as a platform of support this should provide the base for a strong run to $1200 per ounce and beyond and we should see record highs for gold prices in the next few months.  The 9 week moving average has now crossed above the 14 week adding further weight to this analysis and any short term pull back should be seen as a buying opportunity.

Silver

Another good week for silver which confirmed the bullish picture for commodities generally, and metals in particular, with the industrial commodity breaking above $18 per ounce and making a strong move to challenge the $19 per ounce price handle and beyond.  A break above $18.60 will confirm this picture and with the 9 week having crossed above the 14 this adds further weight to this analysis.  Any pull back to $18 or below should be seen as a buying opportunity longer term.

VIX (The FEAR Index)

The VIX continues to slide lower as equity markets continue to climb and hold onto their highs and this is no indication at present that this trend is likely to break just yet.  The index closed last week at 15.58 but as outlined many times before as we begin to approach single figures then you should consider very carefully any longer term equity investments as this will begin to suggest an extremely low reading and therefore a possible point for the equity markets in general.

What is one of the best retail forex trading platforms?  In my view it is Metatrader 4.  Advanced, powerful & intuitive it now comes with ECN execution, so you can happily scalp away without broker or dealer intervention.  Just download your free demo copy of MT4 by following this link – download metatrader free –  and get started today.  Don’t forget to follow my daily posts for updates and analysis of the forex markets to help you with your forex trading – so good luck and good trading.

Market News :

Greeks being punished for Europe’s Mistakes

Japan still trying to haul itself out of its deflationary spiral

Is platinum the new “gold”?