The stock markets are really fighting to stay alive. Analysts and traders alike seem to be clinging to the mantra that less bad is the new good. Headline durable goods numbers below expectations? Let’s focus on the core instead. New home sales disappoint? Let’s look at the upward revision to the prior month. More quantitative easing? No problem, the Fed will bail out the economy.

Let’s get one thing perfectly clear: Not everything can be good news. The world just doesn’t work like that. And I realize that it’s once again en vogue to hammer on the U.S., but quite frankly, the situation in Europe hardly offers a better alternative. Ireland is in much worse shape than politicians and bankers will admit and the other stars of the Euro periphery like Greece and Spain will be thrust back into an ugly spotlight too. It’s inevitable. I’m waiting for a coalition of supermodels and oil sheiks to hit the headlines again, clamouring to renegotiate their contracts so they’re paid in Euros instead of U.S. dollars. Two years ago they gave us one of the best buy signals I’ve ever found on the U.S. dollar. We’re getting close to those levels again. Where are you guys?

U.S. Dollar Index
The U.S. dollar remains in a downtrend and is pushing into territory not seen since late January. The Relative Strength Index (RSI) for the Dollar Index futures contract is at 27, which is approaching oversold levels. Trading volumes have not been as large as the previous breakdown back in mid-September. Last week, the sidelines looked the place to be as the risk/reward calculations were not attractive, in my opinion. With the continued downside and move to oversold levels, these calculations are even more unattractive. I’d have to recommend staying sidelined for now. The next level of support is at 79 in the December futures, and would likely coincide with the RSI breaching 20 if that level is reached at all.

Euro Currency
The euro is of course an inverse to the dollar index, and has moved to its highest level since late April. The RSI is approaching overbought but like the index, there is room to go before this in itself would become a factor in holding back the rally. Traders carrying positions here should only be on the long side, in my opinion. Any such positions should be protected with 1.3200 stop-loss orders. Resistance will likely be encountered at 1.3600.

Canadian Dollar
The Canadian dollar did offer the opportunity to engage in some profitable counter-trend short trading over the past week. At this time, the Moving Average Convergence/Divergence (MACD) readings are unconvincing but if anything, bullishness may be reemerging. The RSI is beginning to turn back up and of course the moving averages themselves have maintained a bullish tone all along, hence the counter-trend shorts.

I have to anticipate a bullish breakout in the short term, but with the Bank of Canada likely to be sidelined in October, I think 0.9900 in the December futures will once again be a barrier to any further upside.

Australian Dollar
The Aussie rally is stalling for the time being near 0.9500. The RSI has been flat since the middle of the month, and the MACD shows divergence. I think risk/reward ratios favour a counter-trend short at 0.9495, with a 65-basis point stop-loss. My profit target would be 0.9330, the beginning point of RSI and MACD non-confirmation.

Japanese Yen
Action in the yen has been characterized by a cautious, wait-and-see approach as most traders are waiting for the Bank of Japan to intervene again. Overnight on Thursday September 23, a rumour of intervention was enough in itself to drop the yen 150 basis points. With the week-long pause, the chart too has deteriorated. The moving averages have crossed down and MACD leans lower as well, although its current reading is more neutral than anything else. All things considered, I have a strong short-side bias.

British Pound
According to my analysis, the pound provided a buy signal effective Friday, September 24. The moving averages had already crossed up, an initial condition of my trend analysis, and since then trading levels, RSI and MACD confirm the direction. My preliminary target is 1.6200.
 

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.

The data and comments provided above are for information purposes only and must not be construed as an indication or guarantee of any kind of what the future performance of the concerned markets will be. While the information in this publication cannot be guaranteed, it was obtained from sources believed to be reliable. Futures and Forex trading involves a substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results. Please carefully consider your financial condition prior to making any investments. Not to be construed as solicitation.

Chart Source: Telvent DTN ProphetX

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