by Gord Weisemann

We’ve seen some bullish price developments in futures markets over the past couple weeks that in at least in a few cases, don’t seem to be supported by fundamentals. I think speculators are concentrating a little too heavily on anticipated demand increases. While the first half of the calendar year may bring about a little optimism, I think we may see reminders by the second half that the “recovery” will be drawn out and slow.

U.S. Dollar

As far as currencies are concerned I’d say it’s more or less routine conditions that have returned. The U.S. dollar is still in an uptrend, but trading volumes in the Dollar Index futures are struggling to return to pre-Easter levels. This may call some short-term momentum into question. That said, the 10-day moving average is still above the 20-day moving average, and the averages are still more or less trending upward. The Relative Strength Index (RSI) reads a mere 55, but it is positive, and there are no apparent divergence issues. There is some soft trendline support found at 81.30 in the June futures contract, but more crucial longer term support sits at 80.50.

Euro

Essentially, I think traders should remain buyers above 81.30, and I remain bullish in my outlook provided the market stays above 80.50. Behind all this, the weekly chart looks fairly strong and points to a target of 85.00.

On the other side of the equation, the euro currency continues to track out a path that maps very well against the dollar. Here we have the 10-day moving average below the 20-day, and trending steadily. The RSI sits at 40 with no divergence issues, and there is soft trendline resistance at $1.3410 in the June futures contract. More significant resistance sits at $1.3600. With concerns over Greece and Portugal not alleviating just yet, I remain firmly biased to the sell side. The weekly chart still points to $1.3000 as a reasonably achievable target, in my view.

Canada Dollar

The Canadian dollar is still bullish in my opinion, but there are some minor divergent factors in RSI and trading levels as well as a significant drop-off in daily trading volumes. Combine this with the slightly softer-than-expected March employment report in Canada and the intra-day breach of par, and we may have more arguments for selling than buying over the very near term. Technical indications remain mildly positive, but risk/reward ratios now favour counter-trend shorts with a stop-loss at a new high over $1.0022 in June futures, and a target of 0.9800.

Australian Dollar

The Australian dollar flirted with some negative chart action over the previous two weeks, but in the intervening time it’s picked itself up into new highs. I’d say I now favour Aussie longs over Canada longs. The moving averages are trending up, and RSI is rising slowly without divergence. Daily trading volumes are light but more significantly, open interest has risen and held at higher levels. I would be prepared to buy June Aussie futures at current levels (0.9235) with a stop-loss below trendline support, set at 0.9040. Target new all-time highs (above 0.9770), inspired by the outlook on the weekly chart.

Since the Easter weekend, the British pound has wandered sideways long enough to move above trendline resistance. This isn’t exactly the kind of trading action I’d call a decisive breakout. It’s more a matter of not falling any further. The pound tends to find sideways ranges, and although the technical indicators are showing a bullish bias right now, I’m skeptical about momentum developing. Decent resistance is found overhead at $1.5400 in June futures. Support is so far well established at $1.4800. Since technical indicators are soft at best, I’m inclined to recommend selling the pound at current levels, risking resistance and targeting support.

Japanese Yen

The June Japanese yen futures continue to trend down and traders may still be carrying short positions from 1.0890. I’m a little surprised to see the yen so routinely below 1.0700, but I do remind traders that the action is likely to be choppy going forward. That said, the weekly chart has a top formation completed which implies an eventual target of 1.0000.

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.

Lind-Waldock , a division of MF Global Canada Co. MF Global Canada Co. is a member of the Canadian Investor Protection Fund.

(c) 2010 MF Global Holdings Ltd.

Futures Brokers, Commodity Brokers and Online Futures Trading. 123 Front St. West, Suite 1601, Toronto, ON M5J2M2. Toll-free 877-501-5463.