Weekly candlesticks in major FX pairs show some interesting setups for the coming week that suggest high risk of dangerous volatility.
This Friday the 13th didn't particularly live up to its superstitious reputation as there were no particularly alarming developments in risk appetite, though equities are finishing the day on a sour note. But looking at our weekly candles, we can call this a very interesting week - one with a number of "marubozo" closes (Japanese for "clean shaven", which in candlestick terminology describes a candlestick with no, or virtually no, shadow on at least one side of the candlestick. This is most interesting when the side lacking the shadow is on the closing level. This week produced a plethora of marubozu candles as we can see below.
Chart: EURUSD
EURUSD had a particularly ugly finish to the week as most EUR crosses fell. PIGS spreads are marching higher again. The Greek 2-year yield is close to the highest levels since the ECB managed to quash the April-May blowout back in early May - now trading at 10.2%.
EURUSD had a particularly ugly finish to the week as most EUR crosses fell. PIGS spreads are marching higher again. The Greek 2-year yield is close to the highest levels since the ECB managed to quash the April-May blowout back in early May - now trading at 10.2%.
Chart: EURCHF
EURCHF is again an excellent measure of the Euro sentiment - the combination of the weak EUR without strong CEE worries this week is high octane fuel for the downside. Could this week set up a test of the lows for the cycle?
EURCHF is again an excellent measure of the Euro sentiment - the combination of the weak EUR without strong CEE worries this week is high octane fuel for the downside. Could this week set up a test of the lows for the cycle?
Chart: EURGBP
EURGBP saw an ugly close on the week as falling rates around the world generally tends to favor the low yielding pound as rate spreads compress. The weak Euro helped matters out for the pound as well, though the latter still corrected sharply lower vs. the mighty greenback.
EURGBP saw an ugly close on the week as falling rates around the world generally tends to favor the low yielding pound as rate spreads compress. The weak Euro helped matters out for the pound as well, though the latter still corrected sharply lower vs. the mighty greenback.
Chart: USDJPY
We've seen three strong weekly closes in the last several weeks, but this one interestingly cam after the pair posted a new low close to critical levels. The ability of the greenback to also make a comeback against the JPY this week (thus making the USD far and away the strongest currency on the week) is particularly interesting. And remember that the world is far more short the USD this time around than the JPY, which specs are actually long, if panic strikes in coming weeks. The huge focus if we do see a strong rally extension could likely be the 89.00 area - a previous strong area of contention as well as the current location of the bottom of the daily Ichimoku cloud.
We've seen three strong weekly closes in the last several weeks, but this one interestingly cam after the pair posted a new low close to critical levels. The ability of the greenback to also make a comeback against the JPY this week (thus making the USD far and away the strongest currency on the week) is particularly interesting. And remember that the world is far more short the USD this time around than the JPY, which specs are actually long, if panic strikes in coming weeks. The huge focus if we do see a strong rally extension could likely be the 89.00 area - a previous strong area of contention as well as the current location of the bottom of the daily Ichimoku cloud.
Chart: USDCAD
USDCAD not doing as much as other USD crosses this week, most likely because CAD has suffered collateral damage from US economic weakness, as we have discussed over the last couple of days. The USDCAD pair has been rangebound forever and may stay capped for now before a bigger break higher further out, even if it has room to maneuver up toward 1.0800+ again.
USDCAD not doing as much as other USD crosses this week, most likely because CAD has suffered collateral damage from US economic weakness, as we have discussed over the last couple of days. The USDCAD pair has been rangebound forever and may stay capped for now before a bigger break higher further out, even if it has room to maneuver up toward 1.0800+ again.
Chart: AUDUSD
AUDUSD closed the week below the 200-day moving average and now the focus shifts to the minor rising trendline and the previous salient high around 0.8860 from late June.
AUDUSD closed the week below the 200-day moving average and now the focus shifts to the minor rising trendline and the previous salient high around 0.8860 from late June.
Chart: NZDUSD
The antipodean currencies had a very ugly week and the ugly close at critical levels could set up plenty of further downside in the weeks to come if risk remains wobbly. This 200-day (here shown as the 40-week) moving average has been an interesting one to watch for the pair and now the rising trendline has been broken.
The antipodean currencies had a very ugly week and the ugly close at critical levels could set up plenty of further downside in the weeks to come if risk remains wobbly. This 200-day (here shown as the 40-week) moving average has been an interesting one to watch for the pair and now the rising trendline has been broken.
Looking ahead:
So the question for next week is whether this move in risk aversion keeps up a head of steam. The greenback will need for it to do so if we are to believe that this is more than a short term squeeze. The negative momentum in risk in FX-land is pretty ugly here and the equity technicals look hideous, though we've still only seen one single day of ugly downside this week (yesterday). Still, we would be reluctant to stand in the way of USD strength or the risk aversion until the bulls prove that they want to make a stand. Remember that the market "gets back to business" after September 1 (and also realize that seasonally, September is the worst month for equities in market history), but that August has occasionally been a graveyard for risk as well, as we pointed out in a post some time ago. The sell-off in risk in 2008 got started by late July, for example, and continued throughout August. AUDUSD fell as much as 1000 pips intra-month in August of 2008, for example - and that was before the Lehman news hit in mid-September
So the question for next week is whether this move in risk aversion keeps up a head of steam. The greenback will need for it to do so if we are to believe that this is more than a short term squeeze. The negative momentum in risk in FX-land is pretty ugly here and the equity technicals look hideous, though we've still only seen one single day of ugly downside this week (yesterday). Still, we would be reluctant to stand in the way of USD strength or the risk aversion until the bulls prove that they want to make a stand. Remember that the market "gets back to business" after September 1 (and also realize that seasonally, September is the worst month for equities in market history), but that August has occasionally been a graveyard for risk as well, as we pointed out in a post some time ago. The sell-off in risk in 2008 got started by late July, for example, and continued throughout August. AUDUSD fell as much as 1000 pips intra-month in August of 2008, for example - and that was before the Lehman news hit in mid-September
So keep carefulness at the top of any agenda and have a great weekend.
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