by Gord Weisemann

Friday’s U.S. employment report was less-than-spectacular given that almost all the 431,000 non-farm payroll jobs gained can be attributed to temporary U.S. Census work. In Europe, members of Hungary’s ruling party are going to have to brush up on their market-calming speeches after a member was quoted saying their financial condition is far worse than reported. Hungary is hardly a significant concern in euro debt, but right now just about any negative news will rattle investors’ already frayed nerves. In far more disconcerting developments, both the International Monetary Fund and European Central Bank are principally short of funds after the Greek bailout, so if there were to be a run on Eurozone banks, it would be very problematic.

U.S. Dollar
The U.S. dollar has risen to new highs following a disappointing U.S. May employment report. I can’t say this comes as a surprise, as the dollar index futures have held their current bull trend for a couple of months now. Generally the daily chart shows that this rally could continue over the near term, and I think I’ll stick with a target of 90.

From a technical perspective, the moving averages are trending well and volume and open interest levels look normal. There is, however, non-confirmation of this new high by the Relative Strength Index (RSI). That’s not going to be an immediate problem, but it does validate the notion that continued short-term highs are liable to be capped within the next 100 to 200 points on the index before we’ll have to see this issue addressed by either a larger pullback or a more protracted consolidation.

For now though, I think the dollar remains in a bull market. The first level of support for the June dollar index contract is found at 86, with a more significant pivot point found at 85.30.

Euro Currency
There have been no surprises in the euro either. We’re looking at new contract lows now testing the psychologically significant $1.2000 level. I had hoped to see a stronger test of the upside than what was delivered in the past week, so attempts to sell additional euro would’ve went unfilled.

Overhead resistance for the June contract now rests at $1.2640. Like the dollar index, there is a lack of confirmation of this new low by the RSI, but because this is a new development, it should not present an immediate barrier to continued new lows. I will maintain $1.1700 as a target level, but I’m also conscious of oversold readings on the weekly chart.

Ultimately, I’d say it’s clear the market will eventually fall even further than my target, but the next 500 basis points ($1.2000 to $1.1500) will likely be characterized by some pretty abrupt and choppy short term reversals.

Canadian Dollar
The Canadian dollar has been pretty cooperative to date. Traders should have been able to pick up some new short positions at 0.9575 or higher, and risks for these positions can be brought down from 0.9775 to 0.9685. While all technical indications remain on the bear side of the chart, I do see the moving averages as curling upward, and we’ve seen a few sessions of activity over those averages.

This throws a little caution into my analysis, but ultimately I’m obligated to stick with the majority argument which remains short. A preliminary profit target for the most recent positions should be 0.9400.

Australian Dollar
The Aussie dollar looks fairly similar on its daily chart to the CAD. We have all indications negative, but moving averages curling upward and there is some trading action above the 10-day average. The difference here is in the weakness of the action. The RSI sits at a comparatively low 36, and trade levels did not reach or exceed the 20-day moving average.

There are also no obvious divergence factors on the chart. Last week, I had been arguing for the long side with risks to new lows. The market did make a new low, but it shouldn’t have been enough to stop out positions. I recommend any longs on the book should be closed out for gains at this juncture.

The weekly chart has only just begun a turn negative, so I’m inclined to expect the market to open the door to a test of 0.7750–all the more reason to bail out of short-term longs. Overhead resistance is at 0.8600, which should be used as a stop level for shorts.

British Pound
For this week, I’m going to maintain my stance on the sidelines for the June British pound. Most indicators are negative, but trading action is above the short-term moving averages and Moving Average Convergence-Divergence (MACD) readings hold a buy bias. I see the weekly chart as still quite negative and pointing to a possible test of 1.400. If you are itching to pull the trigger on short positions, you might want to wait for a more complete chart picture to emerge.

Japanese Yen
The June Japanese yen futures contract is painting its usual complicated chart picture. Virtually every indicator conflicts with one another. The resignation of Japan’s Prime Minister this week has probably been the largest influence on short-term trading action, which could give some reason for the complete lack of chart clarity. With this much uncertainty, the only smart action is to look elsewhere for trading opportunities.

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.

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