Weekly FX Forecast- Feb. 27, 2012

By: Christopher Lewis

USD/JPY

Without a doubt, the most interesting move over the previous week was to be found in this pair. The USD/JPY has finally broken out of the oppressive consolidation that the pair has been stuck under for quite some time now. The overtaking of the level signals a real change in this pair.

The 80 level should be supportive at this point, and will more than likely be retested as support in the near future. The level may give way a bit, but with the Bank of Japan expanding the buying of Japanese bonds that should continue to flood the market with Yen going forward. With this in mind, the trend looks as if it may have changed. The pair is now a “buy on the dips” market for me now, and I think the next target going forward is 85 over time.

EUR/USD

I honestly have to wonder how many accounts this pair has destroyed in the recent past. The pair has been very resilient over the last few months, even in the face of obvious problems in Europe. The pair has slammed into the 1.35 level, and this is also the site of inflection in this pair overall. The 50% Fibonacci level is just below, and the 61.8% isn’t too far above. The pair looks like it is at a place where we could see a bit of a struggle overall. However, the pair has closed at the top of the range for the week, so the strength is still there. Because of this, I feel that a pullback is coming, but should only be a short stop on the way back to 1.35 or so. Choppiness will continue in this pair, and as a result there aren’t many chances to trade this market long-term.

USD/CHF

The inverse of the EUR/USD pair is the USD/CHF pair. The market has fallen again, and even managed to break below the 0.90 level at one point during the previous week. The pair is a slightly manipulated one, mainly because of the Swiss National Bank and its “floor” in the 1.20 handle of EUR/CHF. The USD/CHF pair may not be directly targeted by the SNB, but it will certainly react to any intervention in the other market. Because of this, selling this pair is going to be difficult, and in fact we are at the 61.8% Fibonacci level on the daily chart. Because of this, I am fairly leery of selling this pair at the moment. The shorting of this pair could be done on further weakness, but one would have to keep an eye on the EUR/CHF pair, and it absolutely MUST remain over the 1.20 level in the EUR/CHF market. As a result – I am looking for supportive candles, which would be an easier trade to take.

AUD/USD

The AUD/USD pair fell a bit during the previous week, and failed to break above the 1.08 resistance level. The pair continues to rise overall, but this 1.08 level is obviously a massive resistance area that will have to be overcome before the upwards trend can continue. The commodity trade, and therefore the Aussie trade, should continue to strengthen as the central banks around the world continue to ease monetary policy.

People will want to buy “stuff”, and therefore gold and other hard commodities as well as soft ones like grains. The need to store wealth somewhere is going to make Australia attractive as it exports so much of these desired commodities. The yield doesn’t hurt either! I am buying on dips and will certainly get heavily long if we can close above the 1.08 level. The recent daily triangle measured to 1.12, and as a result I am still bullish of this pair.