After last weeks major move caused entirely by an overly Dovish Bernanke, the big man is back this week, most likely causing more havoc. Market participants will be watching nervously on whether Bernanke continues his Dovish tone (which could drive the Euro even higher) or will he revert to a more Hawkish stance allowing markets to resume their September taper idea (we are still in this camp).
Obviously moves last week were extremely dramatic and most pairs went into consolidation mode on Thursday and Friday as everyone attempted to digest and justify what happened. Key this week is the follow through from these moves; either we see a push higher (lower in the USD) from a continuation of these aggressive moves or we correct lower suggesting that despite the aggression the markets are still US Dollar positive.
Late on Friday we also saw Fitch Downgrade France, although this only brought them in line with Moodys and S&P it did provide another reminder of how fragile the situation in Europe really is.
Fundamentally we still sit in the US Dollar positive camp but at the moment the markets look like they could break either way.
Order books got a really good clear out on the moves last week and this offers some nice room in most pairs in either direction. Our auto systems preferred US Dollar short positions towards the end of last week as Retail Traders started buying the Us Dollar, however all Order Book systems are close to playing continuation patterns for US Dollar longs as well as US Dollar shorts.
Few key events to watch out for this week, but Mr Bernanke is going to be the main one.
US Retail Sales Monday
UK and European CPI on Tuesday
MPC Meeting minutes on Wednesday from Carney’s first meeting in charge.
Bernanke again – expect this to be a market mover, will he be Dovish or will he give the impression tapering is still on for September
Thursday Jobless and more Bernanke
Order Book systems remain long this pair from last week after the switch from 1.3000.
Following the aggressive moves this pair has now consolidated, we can look for early movement next week. For this pair to move higher it will need to hold the 1.3000 level.
The Daily chart has a rather nice Pin Bar price rejection off of the 1.3000 handle as well. This could also point to a move higher. 1.3200 level should act as relatively strong resistance.
Weekly chart is also shows a nice rejection off of the 1.2750 mark, however COT report, despite the move lower in the Index (which would normally point to a move higher) the Net Positioning is no Net Short for Non Commercials which would suggest that despite the move higher last week this could be short lived for a further move lower.
We therefore suspect we could be seeing another interim top in the Euro around the 1.3200 handle , if price is capped below this we could see another test of the 1.2750 in the longer term.
Pound Order Book system also switched to longs last week and is currently out of the money.
Lots of room in the order book for this pair to go in either direction therefore early week reactions could be key.
Daily chart is currently capped below the 1.5200 mark, although we wouldn’t be surprised if the Pound attempted to test eh 1.5400 mark before making a move lower again.
Weekly chart like the Euro is showing Non Commercials Net Short still, a hold below 1.56000 would maintain our Bearish bias on the pair.
Order book systems focusing on shorter timeframes in the Aussie remain short from the 0.9200 level for the time being.
Daily chart continues to look Bearish and we maintain our overall view of a test of 0.8500 level.
Order Book does remain at extremes however and we suspect price action will remain incredibly choppy whilst this is the case as orders will need to be cleared to make room for a push.
Weekly chart does look like it is trying to carve out one final push lower before bottoming. Non Commercial orders have started to move back from their extreme Net Short positions and this could point to the first signs of a turning point.
If we manage to clear some more orders and push lower we could look for good long entry signals.
Order Book systems remain Net Long and are currently flirting with Break Even.
Pair looks as if it is starting to consolidate, an early move lower this week might help this pair find some support around the 200 day SMA and we would look for the Order Book to reflect the support for a push higher.
Non Commercials remain Net Long this pair despite a minor blip last week into negative territory.
Realistically this pair has a lot of room to the upside and is unlikely to push past the 0.9200/0.9000 level with the EURCHF currently pegged.
If we do push higher we like an initial run to parity.
Remain long in EURAUD from the 1.4000 level with the Order Book at extremes.
Pin Bars having been playing out superbly on this pair at the moment, however Fridays Pin Bar towards the close isn’t ideal given the over extended nature.
We maintain our outlook on the daily chart, with the view this pair is setting an interim top. A nice RSI divergence on the Daily Charts and the extremes in the Order Books means this pair is ripe for a reversal, potentially with Bernanke mid week and the Aussie in a bottoming formation this could work out well.
If we do get momentum on the shorts below 1.4000 we would expect this pair to test 1.3400 / 1.32000.