Back to Square One

Market Overview

The anticipated euro dollar break out wasn’t to be and the market has dropped back into the centre of a range. Whilst the dollar bear story has clearly weakened in the short term, the risk over the long term remains to the downside and, after what could be another fortnight of range bound price action, a break-out should be forthcoming.

Interestingly, despite the drop in equities, precious metals have remained range-bound and traction in the yen has been very limited. Whilst relationships can break down, there is also a risk of a sharp correction in the yen, although there does not appear to be any immediate risk of this. Indeed euro yen continues to try and hold over the 2007 resistance at 168.95 and should attempt a final squeeze.

Euro sterling continues to be painted into a corner. The break-out risk favours the upside, but clear resistance at 0.8001 is the main hurdle. As the trigger lines converge for a break out, we should be close to a resolution. All in all the market does feel very short term in orientation, but hopefully will not remain this way for too much longer.

VIX index. Equity volatility usually equates to a pick up in yen volatility. Whilst the relationship has been more tenuous of late, it could still be a leading indicator. The long term bias remains yen bullish.

Euro/US dollar

Unfortunately, despite all the forces conspiring against the dollar, the range remains intact. However, the bias continues to buy euros looking for a break of 1.6020 and then 1.7200 over the coming months. From a strategic perspective, 1.5416 is trendline support so any dip to 1.5430 is a buy level on stops below 1.5270.

US Dollar/Japanese yen

Back to square one here. 108.60 is the main trigger level to reverse the dollar trend. Whilst below this key resistance, the preferred view is to sell dollars looking for 100. A pick up in the VIX index has not seen the normal traction in the yen, but there is still time.

Sterling/ US dollar

I got the break-out wrong here. Whilst I still expect it to break from a long term persepctive, the market is back in the range with another lower high formed at 2.00. 1.9388 is key support and a breach would severely weaken the long term bullsih case.

Euro/Japanese yen

Despite the move in equities, euro yen has remained resilient. The market continues to press new highs. It feels like there is going to be an inevitable correction just as I go long, but try a bullish strategy here, buying the current 167.66 on a stop and reverse through 165.60, target 172.00.

Australian dollar/US dollar

The break-out wasn’t to be and stops have been hit at 0.9540. For choice, parity is still the favoured target, but given the failed breakout, look to buy a deeper retracement to 0.9390 on stops below 0.9340.

Euro/Sterling

The break-out looks close to occuring as the trigger levels converge although intra-week ranges have been large. For choice the bias is to the upside with a break of 0.8001 a key signal. Stops are below 0.7875.

US dollar / Swiss franc

The bearish dollar strategy remains. Stops came close at 1.0360 and the range continues to frustrate, but targets remain at parity and 0.9600.

US dollar / Canadian dollar

Whilst this market is range bound and has been for some time, the downward trend should resume shortly, perhaps in the next few weeks. Look to sell US dollars with a stop over the 1.0311 resistance line. Initial targets are at 0.9600.

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