Weekly FX Forecast- April 23, 2012

By: Christopher Lewis

EUR/USD

The EUR/USD pair had an extremely bullish week as the Spanish bond auctions went off well. The yields rose a bit, but the debt was oversubscribed by three times, and this shows that there is still demand out there for debt. The breaking higher of the pair though the high’s for the week will signal another move up. However, I am fading rallies as the European Union has far too many issues to overcome in order to be a clean trade to the upside. The 1.35 needs to be overcome on a daily close to consider this pair overly bullish, and as a result I will be selling weakness as it comes.

GBP/USD

Cable had an outstanding week as the 1.6050 level was smashed through. The Bank of England has taken the idea of quantitative easing off of the table, and as a result the interest rate in England is probably going higher than in the United States. With this in mind, this pair should continue to rise in value even though the move is a bit overextended. Because of this, I am buying pullbacks in this pair as long as the market stays above the 1.59 level.

AUD/USD

The AUD/USD pair rose most of the week, and continues the bounce from the 50% Fibonacci retracement level. The pair will be heavily influenced by the Chinese HSBC Flash Manufacturing PMI on Sunday, as it is a more broad measure of Chinese economy then the official government numbers. If this number comes out over 50, it should push this pair higher as the Chinese buy some much of their raw materials from the Aussie. If the number comes out below 50, this could be very negative for the Aussie dollar. The first 12 hours of the week should be rather telling for this pair. Also of note is the FMOC minutes on Wednesday, which could push the value of the Dollar around as it could give possible hints on whether the Fed is ready for more easing.

USD/JPY

The USD/JPY pair had a strong week as well, this time bouncing from the 50% retrace, and the 80 handle. Both of these marks should continue to be supportive, and as long as we are above them, I am long of this pair. Buying on dips is the strategy I am employing as the Bank of Japan should continue to try and devalue the Yen. In fact, if we get above the 85 level – I am holding for months. I don’t think that will happen this coming week, but in the long run, the Bank of Japan will be easing for much longer than the Fed, and because of that I am long of this pair.