Weekly FX Forecast- May 14, 2012

EUR/USD

The EUR/USD pair broke down hard over the previous week. The elections came as a surprise for some strange reason, and the markets reacted negatively as the austerity measures are all now in jeopardy. The European Union is going to have many different problems coming up into the fray, and the ability of traders to discern the difficulties in various markets will be limited. This leads to an uncertainty about the Euro, which will continue to be negative for this market. The breaking of the lows, essentially the 1.20 level, in this pair has me adding to my short position.

AUD/USD

As the world is concerned about Europe, there are also concerns about a slowdown in China as well. This bodes poorly for the Aussie since it is essentially the “general store” for China as it makes massive amounts of goods for the rest of the world. The lack of demand will weigh upon the Australian economy, and this should in turn sink the Aussie dollar. I am already short of this pair, and a daily close sub-parity should have me adding to this position. I am out of the short trade if we get above 1.02, and at that time would consider a buy position.

USD/JPY

This pair has fallen quite a bit over the last several weeks. However, we are now seeing signs of support at the 80 handle, and the weekly candle is a hammer. The inclusion of the 50% Fibonacci level and the 200 day exponential moving average in the area also has me interested in buying. A break of the top of the hammer would signal fresh buying. As for selling, the Bank of Japan will get involved if we fall from here, leaving me to stay out if that happens.

GBP/USD

The cable pair has been very resilient over the recent run as the risk appetite has been falling around the world. The pair has fallen over the last two weeks, but on a relative value has done quite well. The pair is sitting on the 1.6050 level at this point, and support could be expected. However, with everything that is going on, to blindly buy at this point is risky. The level could give way – but there are a lot of minor support areas below. With this being said, a supportive candle could be a buy signal at this point. However, I need to see a break below 1.59 level in order to be comfortable selling. In other words – this could be messy for a few days or even weeks.