This past week, the markets have generally taken a breather from their relentless selling. That being said, the momentum doesn’t inspire much confidence, at least not for me. The markets will generally take the path of least resistance. Let’s take a look at the picture for currencies.
U.S. Dollar
Last week, the U.S. dollar was still bullish, but that recent high was not confirmed by a new high on the Relative Strength Index (RSI). I had felt that we might still have a while to go before a correction on that basis, but the abrupt pullback on June 10 addressed this non-confirmation. This effectively eliminates any short-term concerns I may have had, and opens the door to buying any further weakness that may emerge.
Trading levels have dipped below a rather aggressively angled trendline that would otherwise have provided support at 87.90 in the dollar index futures contract. More crucial support, based both on trendlines and trading lows, sits at 86.00. The RSI has corrected to 60 and the moving averages remain positively positioned. The weekly RSI confirms the trading action. All things considered. 90.00 looks like an optimal target for both resistance levels, and a probable RSI non-confirmation. I’ll hold that target for the September contract.
Euro Currency
The euro hasn’t shown any deviation from its path. Effective Friday, June 11, trading levels rose above a reasonably aggressive trendline that put resistance at 1.2065 (remember the inverse action occurred on the DX which is validation of the activity). The RSI had not confirmed any new lows for the euro since the May 19 low, arguing that at some point trading would have to return to that level to address this issue. Effective the morning of June 11, the euro posted a high of 1.2164, which resets the RSI back to a state of balance. Consequently, I can now argue for an accumulation of short positions and would recommend maintaining a minimum downside objective of 1.1700. Retracements could admittedly be large. Resistance should be found at 1.2100, 1.2400 and critically at 1.2800. However, I don’t really expect to see trading above 1.2350
Canadian Dollar
Traders with short positions in the Canadian dollar should have closed them out profitably at the beginning of the week, as the market reached and exceeded my target level of 0.9400. Looking at the September contract, we’ve seen bullish action since then. This doesn’t come as a surprise to me, as I’d warned last week that the moving averages were curling higher. The 10-day moving average has since crossed above the 20-day, and trading levels have moved above both averages as well. The RSI has risen to 52 and the Moving Average Convergence./Divergence (MACD) is trending well also. The dollar has hit resistance at 0.9700, however. I have to give the Canadian dollar a bullish bias, but for now, I recommend staying on the sidelines until trend confirmation—one way or the other.
Australian Dollar
The Aussie dollar has posted a more feeble version of the Canadian dollar’s move. While it has rallied from its lows and managed a rise above the 10- and 20-day moving averages, the RSI has stayed below 50 (currently reading 47) and the averages themselves are still pointed down. Resistance is getting established at 0.8450. Given that the majority of technical factors remain negative, I can make a short recommendation at current levels (near 0.8360) with a stop-loss at 0.8500. The profit target is 0.8100.
British Pound
The British pound hasn’t clarified its chart picture. Trading action is mixed (as are the indicators), but ultimately I lean to the bearish side. While not fully confirmed, I’m comfortable recommending short positions at current levels (1.4560) with a stop-loss above recent highs at 1.4800. The target level should be a retest of recent lows at 1.4200 and a possible break to 1.4000.
Japanese Yen
Ever the technical challenge, the yen continues to be buffeted by changing risk appetites. For one thing, we have a failed bull flag formation. The 10-day moving average has slipped below the 20-day, but all the while RSI has essentially flat-lined at 50 and MACD offers no strong signal. I think I’ll have to let momentum pick the direction. I suggest traders sell on a 1.0875 stop-entry or buy on a 1.1035 stop-entry, with the unfilled side becoming the stop-loss.
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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