Risk is off again in the markets, but the calendar of economic releases, at least out of the U.S. is a little light until the end of the week. The U.S. second-quarter gross domestic product reading comes out on Friday, August 27. I’ve already gone on record saying I expect a noticeable downward revision from the previously reported 2.4 percent guesstimate. And now market traders are fixated on a new boogieman: The Hindenburg Omen. This is the scary name given to a comparatively new technical analysis pattern that claims to portend a stock market crash. Is it just me or are traders looking for things to be afraid of? But in all seriousness if you want to be scared of the economy you don’t have to look any further than the last couple weeks’ worth of employment data. Oh the humanity!
U.S. Dollar
The U.S. dollar first established a momentum low, then gave us a trading low and now, by my methodologies, is on the cusp of putting a confirmed uptrend in place. I have been recommending a buy in the U.S. dollar index futures for the past two weeks and continue to do so. All indicators are positive and the moving averages are crossing up now as well. Near-term support is found at 81.70, with heavy long-term support at 80. I see first level resistance at 83.65. With the recent round of weak U.S. economic numbers, we are back into a risk-off environment. I suspect this sentiment will be further solidified with the release of the second quarter U.S. GDP numbers later next week. Ultimately, I would stay long the dollar index as the flight to “safety” continues.
Euro
I remain bearish the euro currency, which should hardly be a surprise against long dollar index positions. But here too, the charts have been remarkably cooperative. The old Fibonacci fan line I’ve been watching since May of this year was a resistance level on no less than five occasions over the past week and a half. Wit the euro dropping to a new one-month low, we definitely have momentum in place. The Relative Strength Index (RSI), Moving Average Convergence/Divergence (MACD) and the moving averages remain negative. As with the dollar index, my methodologies here too require just a bit more time before I can declare a confirmed downtrend on the daily chart; this could occur as early as Monday August 23. I recommend staying short, sell rallies, and risking to 1.2965. My preliminary target has now declined to 1.2400.
Canada Dollar
The Canadian dollar has broken below a significant supportive trendline that has marked the low end of all sell-offs since May of this year. RSI, MACD and the moving averages are negative. There is no confirmed downtrend as yet, so I have to anticipate some degree of a bounce higher in coming sessions; however, I believe any such move should be seen as a selling opportunity. Overhead resistance is at 0.9750 in the futures, and much more significantly at 0.9900. The near term downside objective should be 0.9350.
Australian Dollar
The Australian dollar has posted a one-month low, and like most of the other major currencies, it too is just shy of an established downtrend but carries uniformly negative technical indicators. The RSI has declined to 46 over the week and we’ve again breached a supportive trendline. Refining my numbers of last week, a close below 0.8892 in the front-month futures should set in motion a continued decline to at least 0.8600. The CAD/AUD spread remains tight with the Canada dollar decline likely accounting for most of this. Consequently, I feel the Aussie has a greater decline potential in coming sessions.
Japanese Yen
The daily chart trend for the yen remains bullish, but it is looking like a tired bull. RSI is flat at 57 and MACD has taken a nominal curl lower. This could be just a consolidation; comparing the yen action across other currency pairs I’d still recommend buying the yen under what look to be favourable risk/reward conditions.
British Pound
As quickly as the British pound came to a halt, it looks prepared to reverse the other way. RSI and MACD have turned negative, and the moving averages have already crossed lower. Again it’s too early to see this as an established downtrend, but early adopters may consider shorting the futures at current levels (1.5500) and run a comparatively tight stop-loss at 1.5765.
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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