The move above the 1.2800 resistance area proved to be short lived after better than expected US resale data forced the late dollar shorts to cover positions. With the near term top at 1.2820 in place, there is a good chance to see a continuation of the mild correction to 1.2720, assuming that US data come in better-than-expected. If the new home sale data on Wednesday also come in better than expected, then brace for further dollar advances to 1.2650 area with a good possibility of seeing a test of 1.2600. In that range, we are likely to start accumulating euros, but do note that any time the 1.2600 support gives, then the way will be open for a quick test of 1.2550 and perhaps 1.2450 where most of the weak euro longs will be forced out. If such dips are seen, then it would be the best opportunity to pick up euros for at least 500 points move higher. In the meantime, if the 1.2600-50 area is tested and holds, then that is a good indication that the recent range of 1.2600-1.2900 is likely to hold, which is why you should test and go long euros there for a retracement back to 1.2840/80 and thereafter 1.2920. Only a clear and preferably NY close above 1.2990 would indicate breakout of range and the start of a major rally to 1.3200 and beyond.
USD/CHF: The 1.2290 key support was tested and held, and with NY closing Monday above 1.2390, we are confident of a minimum move to 1.2440 and then a test of 1.2505 to 1.2540. If you are long dollars, we suggest you cover longs on rally to 1.2505/40, with aggressive traders moving back in the event of a break higher for min target of 1.2620, the previous week’s high. A NY close above 1.2620 will set the stage for a move on 1.2760 but is seen as unlikely, unless the market is in for a major shake. On the other hand, if the 1.2505/40 res is seen and does not break, then short the dollar for a return back to the bottom of the recent trading range of 1.23-1.26. Only a break below 1.2275 to 1.2260 will open the way for a test of 1.2220 heavy support, holding since June ’06, break of which sees a move on 1.2010, then 1.1920.
USD/JPY: The yen is likely to swing according to the line-up of the Japanese Cabinet to be sworn in and since we have no idea who represents what, it might be better to watch the performance of the Nikkei and the bond market for direction. On the technical charts, we see the 115.50-117.50 ranging holding throughout the week unless something dramatic happens with the Abe line-up. Neutral positions suggested, but investors busy on the crosses should note the 148.20 critical support on EUR/JPY. Failure to break 148.20 is bound to yield to a rebound to 149.50, while a clear and closing break below 148.20 will force heavy yen buying.
GBP/USD: Cable exceeded our major resistance level target of 1.9040 where we had advised readers to exit out of longs. We followed our advise and existed there and even went short at 1.9055 with stops above break of 1.9100 which needs to hold at all cost to hold sterling down. If the 1.9100 is not broken, then maintain the shorts for min target of 1.8975, which we are sure will break allowing us to see a test of 1.8900 and hopefully 1.8855 where shorts should be covered. If the 1.8850 breaks, then brace for an extended decline to 1.8790, which should hold. Otherwise there will be a shake of the weak longs to 1.8730 and perhaps 1.8600. On the other hand, if the 1.8855 is seen and holds, then load up again on sterling with stops on break of 1.8790 for a return back to the 1.9050 area.
Disclaimer: The recommendations on this page are for indication purposes only and the Financial Mirror does not take any responsibility for investment action taken on the above. Always consult a professional before investing.
