The EUR/USD pair has fallen a bit during the trading session on Monday, slicing towards the 1.19 level. We even broke down below there for a short amount of time, but I think we may get a short-term bounce, only to offer more selling opportunities. The ECB has recently suggested that quantitative easing may last a bit longer than anticipated, or at the very least tightening monetary policy will take some time. Because of this, the market should continue to drift towards the downside, but I think that the pair will be as volatile as per usual, and of course with high-frequency traders that tend to flock towards this market, that makes a lot of sense.
I believe that the 1.21 level above is a massive “ceiling” in the market, but quite frankly I believe that the 1.20 level underneath should be massive resistance, as it was previous support. So, at this point, this is a “only” market, but it is going to have short-term rallies that you can take advantage of. Be diligent and wait for those opportunities present themselves as signs of exhaustion should have people jumping back into the market. This pair won’t necessarily break down quickly, rather than grind to the downside through most of the summer. I believe that is going to be the story for the next several months, as we could go as low as 1.15 by the time we get to September.
The British pound has gone sideways during the beginning of the week, with the 1.3650 level offering a lot of resistance, and the 1.35 level offering support, as there is an uptrend line that slices through that area. I think if we can break down below the 1.35 level, we should then go down to the 1.33 handle, perhaps even the 1.30 level as the US dollar continues to show signs of strength in general. The Bank of England looks likely to push back the timeline for interest rate hikes, and that of course has put a bit of a damper on the British pound. I think that overall, we are going to see a lot of selling given enough time. However, if we break above the 1.3650 level, the market should then go higher, as it would be a significant change of attitude.
In general, I do believe that we break down given enough time, but it is probably going to be a very noisy situation. With this in mind, I think that selling rallies continues to be the best way to play this market, or perhaps even breaking down on a daily close below the 1.35 handle. Either way, I don’t have any interest in buying this market until we break above the 1.365 level on at least a daily close, if not weekly.
The Australian dollar has fallen a bit during the trading session on Monday, reaching down towards the 0.75 handle. That’s an area that has a certain amount of psychological importance to it obviously, but I also think that if we can make a fresh, new low, that could send this market much higher, perhaps down to the 0.7250 level. I have a hard time thinking about buying this market, because quite frankly it’s obvious that we have so much in the way of negative pressure, and of course the US dollar is one of the strongest currencies in the world right now. I believe that the Australian dollar being a proxy for gold doesn’t help either, and I think that we will continue to see a lot of negativity in the market. With higher interest rates in the United States and makes sense that we would continue to see the US dollar strength in, and of course the Australian dollar fall as gold falls.
I think short-term rallies should be buying opportunities, especially signs of exhaustion. I believe that the market could go down to much lower levels, perhaps even the 0.7250 level, as it is an area that has been important more than once. I think that it’s not until we break above the 0.76 level that we can even entertain the idea of buying this market, perhaps even the 0.77 handle. This is a market that looks as if it is going to unwind going into the summer.
The US dollar has rallied against the Japanese yen during the open on Monday, breaking above a little bit of short-term resistance, and then consolidating near the 109.25 region. I think the market should continue to go higher, perhaps reaching towards the 110 handle, but it doesn’t mean that is can be easy to do so. I believe that over the longer term, we will of course have US dollar strength based upon higher interest rates and of course the Bank of Japan looking likely to stay ultra-loose with its monetary policy for the long term.
I believe that the 108.80 level underneath should be support, and it’s not until we break down below there that I would be concerned. Even at that point, I anticipate that we will probably look towards the 108 handle, and perhaps even the 107.50 level. Ultimately, I do think that we break out but it’s going to take a certain amount of work, and certainly a lot of momentum. If we can break above the 100 handle, that will probably coincide with either a spike in interest rates, or perhaps more of a “risk on” move as sometimes the S&P 500 and the USD/JPY pair had a very strong correlation. Ultimately, I think you can inspect a lot of volatility but certainly I lean more towards the upside as I believe the US dollar is going to have a strong summer.