Post Labour day long weekend it’s been a little light on economic releases. Traders haven’t had much to grab onto and so far the equity markets have taken advantage of the data-lull to move a little higher. What little we have seen has been uninspiring. While Canada’s employment numbers provided a satisfactory headline, the details were not so pretty. European and Asian numbers can be viewed in the same light.
We’re still very much in a less-bad-is-the-new-good environment. If one were to chart employment figures, GDP and trade numbers, I think it’d be a safe projection to say the final quarter of the year isn’t looking to deliver a strong finish.
U.S. Dollar
The December U.S. dollar index futures contract has been treading water for the past week, and the technical indicators reflect that as well. The Relative Strength Index (RSI) is neutral at 50. The Moving Average Convergence/Divergence (MACD) is absolutely flat and the 10-day moving average is 11 points under the 20-day average. There is trendline resistance overhead at 83.30 and trendline support below the market at 82.57.
I see the underlying momentum as moderately bullish, so for the moment the trading bias is still one of buying weakness.
Euro Currency
The euro as also taken a pause but otherwise maintains a previous downward bias. The RSI and MACD are both comparatively neutral. Trendline resistance is overhead at 1.2810 in the December futures. With the exception of two days, we have seen trading consistently below the moving averages since the breakdown from the peak in early August. I’d have to consider the euro to have developed a wedge formation. I am comfortable recommending the short side in the Euro at current levels (1.2685) with an initial stop-loss of 1.2835. I can also suggest traders set sell-stop-entry orders at 1.2580 as a move below that level breaks out from the wedge pattern.
Canada Dollar
The technical picture for the Canadian dollar is more bullish than anything else but there remains a certain degree of caution evident in the trading action. The Bank of Canada raised its benchmark rate by a quarter point, but their accompanying statement was in my opinion pretty neutral for future policy. Historically, the BOC has shown a reluctance to get much more than 1 percent away from the Federal Reserve, and given that they’re there now, that should factor into analysis of future BOC moves.
If nothing else, this environment probably reinforces the 0.9300 to 0.9900 trading range Canadian dollar futures have held for most of the calendar year. In the short term I can argue for selling on the CAD at current levels (0.9650) with a stop at 0.9705.
Australian Dollar
The Australian dollar has continued to move higher and has taken out the previous December contract high. The next overhead target is 0.9330 to 0.9380, coincidental with a high range established between November of 2009 and April of this year. That said, I’m not convinced the market will see that level. Other than the moving averages, the rest of the technical picture just doesn’t look as convinced about upside. The RSI has risen to 65 but remains below the August peak, and MAC likewise is too weak to draw me to the bullish camp. Given the price trend I’ll have to stand aside, but my inclination going forward will be to watch for a sell signal.
Japanese Yen
The yen has been good to bullish traders. Behind the rally, RSI is flat at 57 with a slight inclination to a downward curl. MACD likewise shows a similar action. Risk aversion is still lurking in the markets, so I don’t see the carry trade as off the table just yet and the Bank of Japan is unlikely to be inspired into action as the market hasn’t made significant new highs. The trend is your friend, right?
British Pound
The pound continues its slow downtrend and traders who were short the September contract from 1.5500 should have rolled out to December. Although there’s no particular strength in the indicators, they are universally down. I’ll maintain my 1.5200 target.
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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