Overbought Currencies Look for Equity Guidance

Includes: FXA, FXB, FXC, FXE, FXY, SZE
by: The LFB

Overall, the currency market experienced a sell-off during the first part of the new week’s trading session, re-testing the prior support areas that broke during Friday’s surge. However, during the Monday European session, the market was able to find a base and started to post some small gains against the dollar. This was in-line with global equity trade that pushed stocks higher, and bonds lower, and now forces market participants to consider whether the current valuation of the dollar reflects the same fair value of the speculative interest built up in both crude oil and S&P futures.

The currency market may face another test during the U.S. open, as the cash market gets aligned with overnight moves. The economic release calendar is almost empty, indicating that the trend set during the European trading hours is likely to continue, so long as the S&P futures market can attract increasing volume.

The euro (Eur/Usd) bounced from the 1.4350 area during early Asian trade, and continued to decline until the European session opened. For now, the pair is trading within a 20-pip range, just below the neutral pivot point (1.4300). Moreover, on the daily chart, the euro is trading above all the important moving averages, which denotes a bullish outlook.

The pound (Gbp/Usd) is trading between the 20 and the 50-day moving averages, as the pair failed to break anywhere importantly over the last few trading sessions. In Friday trade, the pound managed to break briefly above the 20-day moving average, and at the same time above the 1.6600 level, but could not find the strength to hold above these two price points. Going forward, the pound will need strong momentum in order to be able to break decisively higher.

The aussie (Aud/Usd) was the only pair that opened the Sunday session with a bullish gap, something that has not happened recently. In spite of the selling going on in the currency market during the Asian session, the pair managed to stay above the Sunday open price, which denotes strength. During the European session, the aussie recovered every pip lost earlier in the day.

The cad (Usd/Cad) literary came to a standstill during the first part of the overnight session, as the pair spent an important part of the Asian trading hours within a 5-pip range. Despite this, the cad saw an increase in volume during the London open, but still below the average, which helped the pair follow the other major currencies.

The swissy (Usd/Chf) is currently re-testing the 1.0620 area, the same place where it bottomed over the last few sessions. If crude oil and the S&P futures manage to stay into the green in Monday trade, the pair is likely to top around this value and resume its downtrend.

The yen (Usd/Jpy) showed a lot of strength even from the Asian session, as the Nikkei along with the rest of the Asian markets headed higher at a substantial pace. Currently, the pair is testing the resistance area formed by the 200-day moving average and by a resistance trend-line that holds the pair since early April. In order to break higher, it will need very strong momentum.

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