Worries have again flared up in the eurozone, causing the U.S. dollar to move higher in early trading. It appears Ireland’s Anglo Irish Bank will be bailed out, possibly to the tune of 34 billion euros. That would amount to 32 percent of Ireland’s GDP.

The unemployment rate in the Eurozone and the broader EU is roughly 10 percent. In Spain, the unemployment rate is 20 percent. Year-over-year these figures are getting worse. But month-over-month, the data got marginally better. Care to guess what traders are focused on? I think given the uncertainty, the markets are going to have to correct. And when I say markets I mean everything from equities to currencies to metals and energies. They have to get back to present situations rather than anticipatory levels. It’s not a question of if but when. Let’s take a look at the technical picture for currencies this week.

U.S. Dollar

The December U.S. dollar index futures contract is now entering oversold territory based on a Relative Strength (RSI) level of 20 on the daily chart. The Moving Average Convergence/Divergence (MACD) is also reaching levels equivalent to that of previous lows. It’s getting awfully tempting to be a buyer. It’s an extraordinarily counter-trend and counter sentiment trade but given a 100 point stop-loss from current levels (78.50) I think the risks are warranted. A simple corrective rally, not even a genuine bottom, could bring the index up by 150 to 200 points. While I’m not prepared to say this is the definitive low for the buck, I think it’s a good point to trade against the masses.

Euro Currency

The technical picture for the euro lends further credence to the idea of a dollar buy as here we now have daily RSI at 80 and potential resistance with a 1.3755 high matching previous highs back in mid-March. The MACD histogram is showing very early signs of divergence as well. I think this is an either/or scenario with the dollar, not to be taken side-by-side.

Canadian Dollar

The Canadian dollar has been locked in a sideways range since mid-September, pivoting around 0.9700. There is significant overhead resistance in the 0.9750 -0.9770 area with a long-term trendline providing an additional barrier just above that level as well.

The MACD is presently flat and the RSI, while on the positive side, is trendless. I think risk/reward ratios favour a sell from current levels (0.9735) with a stop-loss at 0.9800. At this time, MACD readings are unconvincing but if anything, bullishness may be reemerging. 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 will once again be a barrier to any further upside.

Australian Dollar

The rally in the Aussie dollar is still evident but still stalling. The market has managed to
squeeze one more cent to the upside, but RSI and MACD readings show a distinct reluctance to confirm the last few trading sessions. I can’t continue to recommend counter-trend trades, but for all intents and purposes, here too the technical picture seems to make more sense to sell than buy. The Aussie hasn’t visited its 20-day moving average for a month. I think it’s long overdue for a correction.

Japanese Yen

Traders are once again pushing the yen higher. I think it’s largely owing to the seemingly endless U.S. dollar selling that the yen has picked up somewhat on the crosses. It’s going to take a very bold trader to push long yen positions much beyond current levels, as this is roughly where the Bank of Japan last stepped in to halt the ascent. Technically there is a very soft uptrend on the chart, but I can’t possibly advocate following the trend with a very real intervention threat in play.
 

British Pound

The British pound is still in an uptrend but momentum has stalled. Traders may be long from levels not much off current values. At this point, I think it would be prudent to tighten stops to 1.5650 from 1.5400, but I think this is the only currency where it still makes sense to stay with the trend.

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.

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