Some Interesting Price Action for Currencies

Jun. 02, 2010 1:53 PM ETFXC, GBB-OLD, FXB, FXE, ERO-OLD, UUP, UDN6 Comments
Marc Chandler profile picture
Marc Chandler
15.12K Followers
Canadian dollar:
The US dollar is recording an outside down day against the Canadian dollar. That is, it has traded on both sides of yesterday's range and the US dollar looks likely to finish the New York session below yesterday's low of ~CAD1.0420. The BOC hiked rates as was widely expected and traders searched high and low for all sorts of reasons for its weakness. Today's gains lend credence to our idea that yesterday's disappointing price action had to do more with the general market conditions and the unwinding of risk. The US dollar is breaking below the 20-day moving average, something that has not happened since May 13th, which was a one-day wonder. The dollar has not closed below its 20-day moving average since April 26th. The break below CAD1.04, which is the 50% retracement of the USD rally. The next objective comes in near CAD1.0280. We look for a test on parity again toward the middle of Q3.
Sterling:
The collapse of the Prudential-AIA deal appears to be an important driver, allowing sterling to outperform in recent sessions. The gains have been sufficient to generate a cross of the 5- and 20- day moving averages, a helpful guide in identifying the near-term trend. The last time they crossed (bearishly then) was in late April when sterling was near $1.5350. It fell to a low near $1.4230 (May 20th) before launching the current recovery. We are reluctant to embrace this cross over as a bullish sign. We suspect the move to almost $1.48 earlier today may have completed, or nearly so, the correction.
Euro:
The euro made new four-year lows yesterday, and the bounce from there has been less than inspiring. Those gains have already generated overextended technical conditions on hourly momentum studies and the euro has not even been able to rise above its 5-day average (~$1.2283). There is a 5-point downtrend line drawn off the May 3, May 10, May 21, May 28, and June 1 highs. It comes in today near $1.2320. By Friday, when the US jobs data is expected (preliminary estimates coming in just above 500k), it is nearer $1.2230. Many European officials are still seeing a virtue in the euro's decline as long as it is not too fast. The rate of change has slowed since mid-May. We are still bearish the euro, but do not find the arguments in favor of Greece (or Germany) dropping out of the euro zone convincing. We believe that on the other side of the crisis, EMU will more more integrated not less.
Disclosure: No positions

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Marc Chandler profile picture
15.12K Followers
Marc Chandler has been covering the global capital markets in one fashion or another for 25 years, working at economic consulting firms and global investment banks. A prolific writer and speaker he appears regularly on CNBC and has spoken for the Foreign Policy Association. In addition to being quoted in the financial press daily, Chandler has been published in the Financial Times, Foreign Affairs, and the Washington Post. In 2009 Chandler was named a Business Visionary by Forbes. Marc's commentary can be found at his blog (www.marctomarket.com) and twitter www.twitter.com/marcmakingsense
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