The Euro struggled mightily during the trading session on Tuesday, as we have reached towards the 1.1825 region, and tested the bottom of the hammer. That of course is a very negative sign if it breaks, and I believe the market would probably unwind towards the 1.15 level underneath, an area that is significant on longer-term charts. It looks as if the US dollar will continue to strengthen during the summer, despite the fact that it looked as if we were going to get some type of reprieve in this market after forming the hammer from last week. At this point, it looks very much like a market that is in jeopardy, and that we should continue to go much lower.
If we do bounce, I suspect there will be sellers above just waiting for the first signs of exhaustion. I think that the market has shown just how fragile bullish pressure is, and I think that this move cannot be ignored. The 1.15 level should be massively supportive, so I don’t know that we are going to break down below there, but most certainly it looks as if it is a reasonable target over the next several months. There are a lot of short-term traders involved in this market, so course it will be very volatile. If we do break the bottom of this hammer on the weekly timeframe, that’s an extraordinarily negative sign.
The British pound has broken down significantly during the session on Tuesday, slicing through major uptrend line. If we can break down below the 1.3450 level, the market will more than likely unwind rather drastically. I believe that the 1.30 level underneath would be a bit of a target, with perhaps the 1.33 level offering short-term support. Rallies at this point need to be treated with suspicion, as we have made a slightly lower low at the time of recording in this market. I think that the British pound will continue to suffer at the hands of the US dollar, as quite frankly the Federal Reserve is the only central bank in the world looking likely to raise interest rates anytime soon. That being said, it is likely that there might be at least one interest rate hike out of London, but that pales in comparison to the US situation.
The way we break down during the day tells me that there is a major shift in attitude, and that the trendline is either going to be broken heart, or at the very least is giving way longer-term. That tells me that we have a downward move coming over the next several weeks. This is a trendline the goes back a couple of years, and the fact that it is failed is a very negative sign. Rallies at this point would not be trusted until we break above the 1.35 handle on a daily close, something that doesn’t look very likely.
The Australian dollar has broken down over the last couple of sessions, and of course Tuesday was more of the same. It looks as if the 0.7450 level is trying to offer a bit of support, but I think that any rally towards the 0.75 level will probably continue to show signs of resistance as it was previous support. I think a bounce from here is likely to attract a lot of selling pressure near the 0.75 handle, as it will attract a lot of attention due to the large come around, psychologically significant nature of the number.
Alternately, if we break down below the 0.7450 level, I think the market will probably drop down to the 0.74 level. US dollar strength is a main driver of currency markets over the last couple of sessions, and it appears that will continue to be the case. I believe that the market will continue to be noisy obviously, and of course will be influenced by what happens in the Gold markets. It looks as if the Federal Reserve is on track to continue to raise interest rates, so it makes sense that the US dollar should continue to strengthen overall. I think that we are going to see a lot of US dollar strength during the summer, and this is just the latest move that we have seen. I think that the market will eventually aim for the 0.7350 level underneath.
The US dollar has broken out during the session on Tuesday, finally clearing the drastically resistive ¥110 level. This is an area that has caused a bit of resistance several times in the recent past, and it looks as if now that we have cleared this area, the market is ready to go much higher. That’s not to say it will go up in a straight line, but I think that the ¥112.50 level above could be a bit of resistance. I think that at this point the ¥110 level will start to act as support, as the USD/JPY pair looks ready to go higher for the longer-term. I believe that the ¥112.50 level is a magnet for price, but I also recognize that we will probably break through there after a couple of attempts.
I don’t have any interest in shorting this pair, as I believe that the interest rate differential will continue to widen, as the Bank of Japan looks very unlikely to ease up on quantitative easing, and more than anything else would be likely to extend it. Ultimately, I think that dips offer value opportunities, so I would look to build a large core position in this market, unless of course we somehow turned around and broke below the 109 handle, which would negate a lot of the bullish pressure that we have seen recently. That seems very unlikely though, at least not without some type of major “risk off” situation out there.