Weekly FX Forecast May 21, 2012

EUR/USD

The EUR/USD pair continued to fall over the week, as the crisis in Europe continues to run the headlines around the financial world. However, with the G8 conference over the weekend, the late hours on Friday ended up being a short covering free for all. The breakdown to the 1.26 level was my original target, and we did get within a whisker of that mark. The bounce has produced a hammer-like candle though, so a bounce could be coming. The headlines out of the G8 will be the next catalyst. All things being equal, rallies should be sold.

AUD/USD

The Aussie has been absolutely pummeled lately. The week was massively bearish, and the close is very weak. The risk attitude of the markets look absolutely horrible, and the fact that the Aussie couldn’t be bothered to bounce suggests that this mark has further to fall. A rally would be sold, and a break of the lows for the week would be as well. As for buying, the 1.02 level still looks extremely resistive, and I can’t buy until we close well above that mark.

USD/CAD

The USD/CAD pair has been range bound for some time until this past week. For the last couple of months, I have seen 1.01 as a massive resistance area, and was very leery of going long in this pair until it was overcome. The last week saw this market do just that, and now this pair is obviously broken out. The bulls have control now, and the 200 day exponential moving average is well under the market on the daily chart now as well. On a break above the highs for last week, or perhaps a supportive daily candle above the parity level, I am buying this pair. Oil will lead the way as well, and it should be noted that the Light Sweet Crude market is sitting on the precipice for a free fall of sorts.

USD/JPY

The USD/JPY has been a bit frustrating lately. After all, the pair had a massive breakout that now looks as if it has fallen apart. The 80 level was a massive point in this pair for me, and now that it has been broken down below – this market isn’t one I want to trade at this point. The fact is that we are approaching levels that will have the Bank of Japan getting concerned, and when that happens – they intervene eventually. The upcoming week has a BoJ meeting, and the market is speculating that they won’t do anything. This is a risk I am not prepared to take at the moment. I think that eventually there could be another round of buying, and I may be interested. However, I am not interested in selling as there will be easier trades going forward.