This week we are looking at consolidating the gains made last week. The S&P 500 staged an impressive bounce off of support levels and needs to consolidate those gains if it is ultimately to follow through. We expect it will follow through even in the face of still relatively high crude oil prices. I mention these events because they will be the footing for the Dollar to stage and hold its bounce. We expect to see continued Dollar strength in the near term. Overall we are looking to buy Dollars on dips against the majors.
EUR/USD:
We did see a brief head fake above 1.60 last week, but since then we have seen this pair fall back into its well established range. We expect this range to be maintained for at least the better part of the summer. We are still selling rallies in this pair targeting a move back to 1.5650 or lower before the month is out.
GBP/USD:
This pair also staged a brief but violent head fake last week, but it too is falling back into its range. We are also selling rallies here while targeting 1.9750 before the month is out.
USD/CHF:
This pair put in a solid bottom below parity last week and has since staged an impressive rally. We do expect upside follow through in the medium term, but in the short term we could see this pair consolidate for at least part of the week.
USD/JPY:
This pair had a nice shake out last week and is now poised to really break out and rally. If this pair can break out above 108, we could see a sustained rally to 112-114. Much like the Swissy, we are in the very near term expecting a consolidation before the above rally takes off. Buy dips and hold.
AUD/USD:
This pair is building a bull flag. We are still looking to fade rallies as we expect this market to consolidate if not pullback in the face of a stabilizing US Dollar as well as consolidation in commodities as a whole.
USD/CAD:
This pair remains stuck to parity as the BOC has proven to be the best manager of their currency out of all major central banks. The daily charts clearly show that they have instituted a 5 cent band around parity and been able to maintain it so far this year. We expect that whatever they are doing will continue to work. Remember, central banks HATE trends. They have a mandate against them. They, above all else, want and need price stability. Price stability does not come from trends but rather from choppy side ways markets like we have seen in this pair all year. Hats off to the BOC as once again Canada proves to be a leader in global economics.
