With no major rate decisions and a reasonably light set of economic data due for release this week on the major currencies, focus will instead turn to Chinese Consumer Production figures. The year on year and money figures due for release at the start of the week will reflect the condition of the global economy, with any slowdown likely to weigh heavily on world markets.
On the currency markets the dollar is likely to continue its rally from last week putting other currencies under pressure. The gains in the greenback stem from the belief that the US government is continuing to reduce its monthly stimulus over the next couple of months. The FOMC meeting minutes on Wednesday and Bernanke’s speech are likely to provide further clues as to whether this is the case.
Later in the week the Bank of Japan press conference will be worth watching. The currency has been one of the biggest losers against the strengthening dollar with the USD/JPY coming under heavy pressure. In part this has been due to fiscal easing measures by the BOJ. This trend is likely to continue and could accelerate in the following weeks depending upon the contents of this announcement.
Key News This Week
The strong gains made on the USDJPY mean that in the shorter term, a corrective rally is likely. The underside of the recent upwards channel kicks in around 102.50.
Stay long, looking for a temporary reversal around this level.
EUR/USD – With dollar strength likely to accelerate, the fundamental picture for the EUR/USD is not looking favourable. From a technical perspective a break below the 1.2934 would also suggest further losses over the coming week. Going short on rallies to this level looks a good strategy.
USD/JPY – see above
USD/CHF – As is so often the case, the fall in the EUR/USD is countered by gains in the USD/CHF. Look higher towards a break of 0.9700.
GBP/USD – The British Pound looks largely sick. The break below $1.50 signals that we are likely to see the pair move into a new lower trading range for some time. Staying short looks the best way to play this market.
DOW – The DOW looks to have found strong support at the 14600 level. The market is likely to be fuelled by a cheaper dollar so expect further gains over the coming week. Focus on a retest of 15000.
NASDAQ – Last week’s gains see the index move up and pressure the 3500 level again where a break could signal new highs. Look for a break through this level to go long for further gains.
FTSE – A pullback from 6500 sets the index up for another push through this level over the coming sessions. A move through here will give a good level to go long to pick up the positive longer term trend.
Oil – Breaking higher the outlook for Oil if good. Strengthening fundamentals and a break through the 100 level leave the expectation for additional gains. Stay long against 100.00
Gold – Continuing losses on the yellow metal could be at an end with support having kicked in just above $1200 per ounce. An approach towards this level again could prove a good level to go long for further recovery.