Traders had to wait an excruciatingly long time for new news since the emergence of the Greek crisis, but finally were handed a Portuguese downgrade and a Euro/Greece aid package. Nice enough I guess–but unfortunately one more or less washes out the other as far as any near-term certainty is concerned.

I keep repeating the mantra: “less bad is the new good,” and when I look at the interaction between currencies and gold and other markets it looks more and more to me as though traders really are content now to lose 5 percent instead of 25 percent and call it a good day. For example, I believe many investors in Euroland are content to buy gold even though they fully understand a deteriorating euro currency erodes their investment. It’s simply a case of losing less. And interestingly enough, it may also be something of a political non-confidence vote just as we were seeing last year against U.S. policy. Oh how the tides have turned. When was the last time we read about oil sheiks and super models wanting to be paid in euros instead of U.S. dollars?

Currency traders finally got some tangible news to chew on this past week, and although we’ve seen some action in both directions, the net effect on the charts is a breakout to the upside for the U.S. dollar and new 10-month lows for the euro. The more significant event was the downgrade to Portugal’s debt rating. This was the event that brought about the chart breakouts and is also likely what will keep a negative bias in place on the euro. Traders are no doubt wondering in the back of their minds if and when this spreads further to other euro members (notably at the moment, Spain).

The latter development was of course the Greek aid package. Cutting through all the details the most significant element is the involvement of the IMF. Before aid discussions began in earnest, most eurozone officials were adamant that the IMF not be involved and yet, here we are and their participation is being lauded. I think this speaks loudly of the potential for more trouble to come.

U.S. Dollar Index
So, let’s get to the charts and see what they have to say. As a counter-point to the euro’s 10-month low, the June U.S. Dollar Index futures contract posted a 10-month high. The Relative Strength Index (RSI) is rising at a reasonably bullish pace, and the moving averages are trending well, particularly on the continuation chart. Support in the 79.90 area held remarkably well and for the June contract, that support level climbs to 80.50. Resistance shows up overhead just above 83.00. There are some minor RSI divergence issues, but not prominent enough to be of concern. Ultimately the US dollar remains a bull.

Canadian Dollar
The June Canadian dollar futures contract is still bullish by most measures, but I think it’s a pretty tired looking bull. RSI reads a meager 53 and is in fact trending down. The short-term moving averages are converging slightly, and as of early Friday, March 26, trading has dropped slightly below the 20-day moving average, something we haven’t seen since late February. We could have a “newspaper top” on our hands. When every business news publication in the country writes about parity as though it’s a done deal, it might be time to go the other way.

I say that facetiously because technically I can’t argue for shorts, but traders should be very protective of any longs at this stage. Key support sits at 0.9650. A close below that level isn’t necessarily indicative of a long-term top, but it could extend the sideways action and lead to a test of 0.9400.

Euro
The June euro futures contract, in spite of any fundamental developments, is still in a very well defined downtrend. RSI is at 36, trending down and obviously well out of oversold levels. The short-term moving averages are trending down and open interest continues to climb with the sell-off. Trendline resistance is relatively far overhead at 1.3600, so there’s quite a bit of room for a relief rally/short covering. However, I think upside action presents a selling opportunity. The 1.3650 level should be considered a stop-loss point for position-based shorts, while 1.3000 is a highly probable target, in my view.

Australian Dollar
Last week, the rally in the Australian dollar was struggling and that struggle has developed further. It’s at the point where I’d suggest traders step away from a long bias on the Aussie for the time being. In fact, this could be an early warning for Canadian dollar bulls as well, given the remarkable similarities between the two daily charts. Effective Friday, March 26, the Aussie futures have fallen completely below the 20-day moving average, with the daily high being a mere 10 points above that technical measure. RSI is trending down and reads sub-50. Most significantly, the June daily chart failed to take out the previous high and has now double (or triple) topped while the daily continuation chart displays even more prominent declining highs since last November. While it’s too early for me to say there’s an established downtrend, I now fully favour a short bias. A close below 0.8950 basis June would be a particularly bearish sign and a possible short entry. Resistance is clearly overhead at .9175.

Japanese Yen
Coincidental with the breakdown in the yen, we have a confirmed downtrend on the daily chart. The 10- and 20-day moving averages are trending well, while the RSI reads 30 and matches trading levels very well without divergent factors. Support is not far below at 1.0700, so I recommend traders be quick to move stop-loss orders to protect a profit. Resistance is now down to 1.1000. Trading below 1.0700 is likely to get sloppy again, so I suggest traders not look for much momentum, even if we see an initial drive below that point.

British Pound
Last week, there were some bullish elements emerging for the British pound on the daily charts, but those factors have slipped away, and the longer-term bear trend is definitely rearing its head again. The daily continuation chart has been bearish without interruption, but both that chart and the June front-month charts show a support level at roughly the 1.4800 level. The RSI is at 36 and does show some fairly prominent divergence between the current and last low at support. Trendline resistance is overhead at 1.5200. I think a 1.4770 sell-stop-entry is a reasonable approach for traders for now, but the RSI divergence would warn traders to trail a stop-loss into profitable territory quickly if elected. Otherwise, traders might consider selling rallies with a 100-point risk above trendline resistance.

Feel free to contact me with any questions you might have about these markets or others, and to develop an appropriate trading strategy given your unique situation.
Gord Weisemann is a Senior Market Strategist based in Toronto, and is accepting Canadian clients. He can be reached locally in Canada at 416-369-7909 or via email at gwiesemann@lind-waldock.com. This article is based on an excerpt from his weekly “Weisemann Report,” which covers not only currencies but a variety of global commodity and financial futures markets.

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