Run to USD still not happening, but…
In last week’s report, I suggested the USD was likely to weaken further for at least the beginning of the week. Indeed the theme for almost the entire week was Dollar weakness almost across the board.
However this coming week is looking a little different with most currencies somewhat overbought against the USD. Potential for some continued weakness is still possible however I do think we are close to the Rubicon.
Friday’s volatility marks the typical struggle between bulls and bears near market tops and bottoms. In fact some pairs may be developing ending diagonals. And… many news headlines seem to be calling for even greater severe Dollar weakness. This plus the fact that the same thing appears to be happening on the major indices (Recovery underway, stock market strong etc…), suggests that sentiment is reaching an extreme where turns typically occur.
You know… I think my mother would have been a good annalist. She always used to say: If things appear too good to be true; they most likely are!
From the look of some charts, Friday’s moves are approaching terminal for some pairs. Of particular interest is the KIWI (NZD/USD). I for one will not stray far from my charts in the coming week.
I think the fall season and in particular October/November, should prove to wake everybody up again to the fact that the financial crisis is not over yet.
Picking tops and bottoms is very hard and usually very painful. If you want confirmation that the turn is underway simply wait for most of the long-term trend-lines to give way.
USD Index – Bottoming
EUR/USD – Possible ending diagonal forming/formed?
GBP/USD – Will the old top hold on? How long will the pair stay in overbought territory?
USD/JPY – The Yen has strengthened a great deal against the EURO as well. I expect a bit of a bounce but I believe the risk remains to the downside overall.
USD/CHF – I see on the Daily FX website that even the retail traders sentiment is at extreme levels on this one; looking for a reversal.
USD/CAD – The Loonie is struggling to take a direction – Ideally I would love to see a double bottom and strong capitulation (reversal)
AUD/USD – Consolidating/topping?
NZD/USD – I have to wonder just what is propping this currency up? At least a correction is coming due
EUR/JPY – The pattern here is very telling of trader sentiment