by Gord Weisemann

The notion of a double-dip recession in the U.S. has been back in headlines for the past few weeks, but there’s still no consensus at all as to its probability. In fact there are some analysts who say we’ve already begun the second dip. In contrast to that, we have Canadian employment figures that seem stunningly out of line not only with analyst expectations but also with the rest of the world. Europe in the meantime is for all intents and purposes on strike. Once the World Cup is over its citizens will likely refocus their energy to fight austerity measures instead of cheering their teams. It’s a tough call when markets are rallying in otherwise bearish environments. Are we seeing routine retracements or have investors become accustomed to the relative negative investing environment, in which case there may be broader trend changes at work. Let’s take a look at the major currencies.

U.S. Dollar
The U.S. dollar has continued along on its established downtrend. The September dollar index futures have now tested support at 83.80, which I had anticipated via trendlines on both the daily and weekly charts. There are no divergence factors evident on the daily chart and the moving averages are declining at a sustainable pace. Moving Average Convergence/Divergence (MACD) readings, however, are showing signs of slowing. Aggressive traders who are not averse to trading counter-trend could consider a comparatively limited-risk long position at current levels (84.25) and risk to 83.70. I would advise trend followers, however, to wait as all indications currently point lower. That said, I don’t believe that there is a great deal left on the downside before we see at least some measure of upward movement, 100 points at a minimum

Euro Currency
Meanwhile, the euro shows a relatively proportionate and opposite picture to the dollar, which should be expected. The moving averages are ascending at a sustainable pace, and the Relative Strength Index (RSI) is at 59 without any strong divergent issues. Daily trading volumes, however, have been pretty light. I still read this as evidence of a bear market rally rather than a turnaround for the euro. So far the euro has managed to rise above a preliminary Fibonacci retracement line, with the next resistance level at roughly 1.2790. Similar to the dollar index, I would not be averse to recommending a counter-trend trade here. I don’t believe the euro will manage a move above 1.2800, so with that as a stop-loss, traders might consider shorting at current levels (1.2650).

Canadian Dollar
The Canadian dollar hasn’t delivered a tradable trend since mid-May. Instead it has been largely rangebound between 0.9800 and 0.9300. While I had the right idea to e a buyer at 0.9300 last week, the market simply didn’t extend low enough to get on board. In the meantime, we’ve had yet another remarkable jobs report, which turned the dollar promptly 100 points stronger and put some bullish indications back on the daily chart. Incidentally, I think either we need to fire all the analysts who are surveyed about employment expectations in Canada or launch an internal review at StatsCan to check the validity of their numbers. The surprises shouldn’t be so routinely huge, in either direction. Something is amiss here. Anyway, with indication mixed but favouring the buy side, I still would wait for either full confirmation or a move to the end of a trading range before getting on board so this week I’ll watch and wait.

Australian Dollar
The Aussie dollar chart is reconciling itself to the buy side. The moving averages are still upside down, but other than that, the remaining indicators are generally bullish. Last week’s hunch-buy would have played out well for those who followed with longs from 0.8400 and risks to 0.8200 easily intact. Resistance should kick-in at 0.8700 to 0.8725 and again at 0.8775. Lock down any profitable longs with stops at 0.8600. A break above 0.8725 could be seen as another long entry signal.

Japanese Yen
As for the yen, I can’t really change anything from what I said last week. All trend indications are up and I would recommend being prepared to repurchase at 1.1250 if given the opportunity, but modify the risk to 1.1100.

British Pound
The British pound is still bullish, but the RSI has flat-lined, trading volumes are low and the MACD is pushing a seven-month high. Traders would likely have been kicked out of longs at 1.4900. Failing that, stops should be set at 1.5000. I’m no longer so sure that 1.5400 is a viable target and am more inclined to think we’ve seen the peak rebound at 1.5200 for now.

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.

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