The yen fell from the highs against the dollar after North Korea conducted its nuclear test. USDJPY moved towards secondary resistance before consolidating around the 95.21 level. EURJPY was little changed at 132.70 per euro. Japan is geographically close to North Korea; shock news that can unsettle the geopolitical outlook can create increased volatility in the short term – Another reason to always use a Stop-Loss! Long Term the outlook for yen is still bullish.
FX Trading Signal Outlook
Standard and Poor’s downgraded its view of the UK to “negative”; Government borrowing is at an all time high. The immediate reaction to this news saw the pound short however it has soon regained its strength and is heading towards to the 1.60 level. Lower credit ratings will ultimately lead to higher yields and on te basis of fundamentals the pound is undervalued: so long term pound we are long!
The Yen continued its advance this week against the dollar making a new 30 day low. Fundamentally, government bond yields are a big driver for the yen, the tightening of yield spreads is in part a driver for the advance in the Yen in respect to the dollar. Japanese investors are also less in favor of buying up foreign securities.
Canada’s currency weakened for the first time in seven weeks as stocks fell and crude oil tumbled. CAD is a commodity linked currency and so concerns about future economic growth will have a negative impact on its strength. The change in direction reflects the market’s adjustment of risk sentiment and suggests that we are going to enter a period of consolidation.
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The double-top head and shoulders kicked in this morning with a neckline at 98.24 and a strong double top resistance at 99.58. Quantum-Forex closed out today with a profit of 120 pips. The 50% retracement was tested; we are looking for more bearish opportunities in this market in the coming days.
Many investors are calling this the bottom of the bear market yet fundamentals are still very weak and government debt levels are at an all-time high. Just how this will play out is anyone’s guess however it will have a big impact on the long term strength of the dollar.
Fed Chairman Bernanke Speaks early on Tuesday morning (12:30am GMT) so be cautious entering trades as volatility is likely to increase during this period.
The results of the US bank Stress Test failed to calm investor’s optimism, despite 10 firms requiring nearly $75bn in new capital. Chairman Bernanke said the stress test results should give the public “considerable comfort”. We’ll be hearing more from him on Tuesday morning 12:30am (GMT) so expect heightened volatility in the USD on the back of that.
CAD advanced last week to the highest level versus the USD this year after an unexpected increase in jobs during April. Technically the USDCAD trend continues to be very bearish.
EUR has been very bullish versus USD for a third straight week on speculation of a European Central Bank’s bond purchase. We will wait for volatility to calm before looking for EURUSD trading opportunities however EUR remains bullish against all major currencies.