Today's close in the major currencies offers an interesting setup for next week, with the Euro rocketing higher on tough talk from Trichet and the JPY wilting on widening interest rate spreads. What should we look for next week?
Last week, by all appearances, we saw a major move in the USD that appeared to set up the potential for follow through this week. But that follow-through was halting at best and instead we got a huge reaction to Trichet's surprisingly hawkish words on inflation and other encouragement in Euro crosses because of short term relief on the PIGS sovereign debt issue. So the focus shifted dramatically from USD strength to Euro strength. Below we highlight some of the more interesting charts on the close of this week.
Chart: EURUSD
Last week's weak close near the lows is followed up by this week's strong close. The key resistance at the 11-week (55-day) moving average is still in place, though one can also say that the attempt to break below the 200-day (40-week) moving average failed this week. Needless to say, this chart appears very much in limbo. Bulls can argue that we are in for a test of the 0.618 Fibo up above 1.3700 after the show of support this week. The flatline area around 1.3435 has been critical on a number of occasion recently and now happens to coincide with that 55-day moving average.
Last week's weak close near the lows is followed up by this week's strong close. The key resistance at the 11-week (55-day) moving average is still in place, though one can also say that the attempt to break below the 200-day (40-week) moving average failed this week. Needless to say, this chart appears very much in limbo. Bulls can argue that we are in for a test of the 0.618 Fibo up above 1.3700 after the show of support this week. The flatline area around 1.3435 has been critical on a number of occasion recently and now happens to coincide with that 55-day moving average.
Chart: EURJPY
EURJPY saw enormous gains this week as Trichet broke out the hawkish rhetoric and on "successful debt auctions" from Spain and Portugal. Note that the pair has now paused right at the bottom of the daily Ichimoku cloud, which also happens to be close to the 55-day moving average. The action has been awfully steep, but so then too has the acceleration in interest rate spreads.
EURJPY saw enormous gains this week as Trichet broke out the hawkish rhetoric and on "successful debt auctions" from Spain and Portugal. Note that the pair has now paused right at the bottom of the daily Ichimoku cloud, which also happens to be close to the 55-day moving average. The action has been awfully steep, but so then too has the acceleration in interest rate spreads.
Chart: USDJPY
On the USDJPY side as well, the pair saw a new low for the week today rejected. Also interesting is that we are trading near the Ichimoku cloud levels and the 55-day moving average and that today's candle suggests a bullish reversal, though on relatively low volatility. This is a reverse image of bonds, which rallied, but then failed to hold the gains - bullish for USDJPY if we see follow through in the bond selling next week.
On the USDJPY side as well, the pair saw a new low for the week today rejected. Also interesting is that we are trading near the Ichimoku cloud levels and the 55-day moving average and that today's candle suggests a bullish reversal, though on relatively low volatility. This is a reverse image of bonds, which rallied, but then failed to hold the gains - bullish for USDJPY if we see follow through in the bond selling next week.
Chart: AUDUSD
A curious market, as we have copper closing the week strongly while silver and gold are closing near their lowest levels in come time and below key moving averages. Meanwhile, risk appetite has gone virtually ballistic in the US stock exchanges. Technically, the pair looks relatively bearish, though we need to see a close to a new low for some confirmation of whether the pair really wants to take out that 55-day moving average.
A curious market, as we have copper closing the week strongly while silver and gold are closing near their lowest levels in come time and below key moving averages. Meanwhile, risk appetite has gone virtually ballistic in the US stock exchanges. Technically, the pair looks relatively bearish, though we need to see a close to a new low for some confirmation of whether the pair really wants to take out that 55-day moving average.
Looking ahead
Next week the focus will be on whether the gains in European interest rates can hold and whether EURUSD and EURGBP can take out the next key resistance levels. While it seems crazy to think that Trichet could pull the lever on rates in this environment, he did raise rates as the world was sliding into oblivion in July 2008, so maybe we shouldn't underestimate his willingness to throw himself under a bus again. 12-month forward expectations, by some miraculous logic we have no access to, are looking for 67 basis points of tightening from the ECB.
Next week the focus will be on whether the gains in European interest rates can hold and whether EURUSD and EURGBP can take out the next key resistance levels. While it seems crazy to think that Trichet could pull the lever on rates in this environment, he did raise rates as the world was sliding into oblivion in July 2008, so maybe we shouldn't underestimate his willingness to throw himself under a bus again. 12-month forward expectations, by some miraculous logic we have no access to, are looking for 67 basis points of tightening from the ECB.
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