Traders seem to be growing accustomed to or weary of the Greek crisis, so until there’s another shoe hitting the floor we’re going to continue with this choppy, range-bound trading. There really isn’t any new reason to aggressively hammer the U.S. dollar, but there’s also no reason to take the euro to new levels either way. So in the meantime, we’re stuck in no-man’s land.
Commodity prices have also maintained a disconnect from currency levels over the past two weeks, which has only added to the confusion. This environment is best traded with tight-stops, as homerun trades are unlikely anyhow. Keep your capital diversified and deployed. That way you’re more likely to be in the right place when the right time finally comes around.
The U.S. Dollar Index has come under pressure for the first time since mid-January. From a technical perspective, so far the first level support at 79.90 has been holding. This is both a recent low area as well as trendline support, so I think a failure here could gather momentum toward the 79.00 level. The 10-day moving average has just broken below the 20-day, the Relative Strength Index (RSI) is under 50 and trading levels are below the averages. While it’s too early to consider this a downtrend, it’s certainly time to run stop-loss orders at first level support.
I think the current trading levels near 80.10 offer excellent risk-reward opportunities on the buy side, but of course this is a leap-of-faith trade given that the indicators are weak at present.
There was absolutely no surprise about the upward breakout in the Canada dollar; this move was pretty much telegraphed on the charts for the past two weeks. With a move above the 0.9800 level, the market should see a push toward parity over the next two to three weeks. The draw will be too strong for traders to resist. Moving averages are trending up, the RSI is trending up, and there are no obvious technical issues to be found that warn against bullishness. The only caution comes from the fact that the opinion boat is very loaded to one side right now.
The June euro futures contract has managed a test of 1.3800, and this may come as bad news for short-side traders, but so far the high has been 1.3796 against a recommended 1.3800 stop-loss. The euro has been waffling on the daily chart for the past two weeks, with some bullish and bearish indications changing place virtually every other day.
This latest rally could be a result of traders covering short positions at the end of a week, given that they haven’t been dealt any new European/Greek crisis news to argue to hang in. The RSI is just barely reaching 50, and the moving averages are only crossing effective Friday, March 12. It’s way too early to consider a bottom for the euro, and in fact, I’m doubtful that we’re seeing anything more than a pause on the way to lower levels.
Those traders who have been on the sidelines up until now may want to look at this rally as an opportunity to sell with the same stop at 1.3800, but at a better risk-reward ratio from these current levels (1.3750).
The Australian dollar is still behaving as a delayed version of the Canadian dollar. Its current chart characteristics are more or less exactly where the CAD was last week. If that’s truly the case, then the Aussie is an obvious buy right now (0.9085), and in fact traders should already be long from previous week’s recommendations at even better levels. Moving averages, RSI and trading levels are all bullish. First level support is at 0.8880, which should now be the stop-loss level for longs.
In the Japanese yen, RSI has been declining with trading levels and reads 42. The moving averages are turning but have yet to cross. The weekly chart shows support nearby at 1.0900, but a close below that level opens the door to 1.0700 and beyond. Consequently, I suggest traders consider 1.0890 sell-stop-entry orders with a risk to 1.1200. Ultimately, the weekly chart shows the target could in fact be as low as 1.0200.
From a trend perspective, the British pound is still pointed down in all respects. RSI, moving averages and trading levels are negative. However, the market has not revisited the 20-day moving average since the end of January, so the market may see a bounce that will take it through the 1.5200 stop level. Traders should still be easily net profitable from the March-June roll so if kicked out, so be it. We’ll look for new selling opportunities, in that case roughly 100 points higher.
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.
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