Currencies | Jan 21 2009
By Chris Shaw
As volatility continues on foreign exchange markets CIBC World Markets technical FX analysts have updated their views on a number of currency pairs, at the same time offering some possible trading options.
In most cases the technical analysts are relatively bullish on the US dollar, the exception being expectations against the Japanese yen. For the greenback against the Canadian dollar the analysts’ previous view of a target of 1.35 remains in place, so they suggest any pullback to levels around 1.24-1.25 is a buying opportunity.
While trading has been choppy the analysts note daily momentum indicators are still positive as are short-term moving averages, so any move through initial resistance at 1.2740-1.2760 would indicate an initial target of the previous triple top at 1.30 initially before an eventual move to the 1.35 target. The suggestion is a stop-loss on any daily close below the 40-day moving average support currently at 1.2284.
The move below key support at 1.3000/85 reinforces the bearish view of the analysts towards the euro and they suggest a target of 1.2500/50 initially before an eventual test of 1.2329, which is the trend low. Given such an outlook, the analysts recommend adding to short positions on any bounce above 1.3000, while using resistance between 1.3300 and 1.3464 as a stop-loss level.
The analysts also expects the euro to fall against the Canadian dollar given it has broken below the base of a daily pennant formation, which suggests an initial target of 1.5580 as this represents the 38.2% Fibonacci retracement of an eight year rising price channel. Buyers should emerge initially between 1.5800 and 1.5900, according to the analysts, as these levels represent 100-day and 200-day moving average support.
The picture is similar for the British pound against the US dollar as the UK currency has fallen below 1.40 for only the second time in around 25 years. This puts it within sight of the long-term 1.3700 target of the analysts and with momentum indicators not yet oversold they expect the current downtrend will continue.
In contrast, the analysts expect the US dollar to weaken further against the yen, as recent technical rallies have eased what had been oversold conditions. The first target is the 2008 trend low of 87.13, with a test of 87.00 and possibly below expected to follow. Strong resistance at a range of 91.00-93.00 limits any possible upside in their view.
For the Australian dollar the technical analysts expects further gains against the New Zealand dollar following a clear break above the 1.2315 pivot point. Expect an eventual re-test of last summer’s peak just above 1.2900 but the move is unlikely to be a smooth one, as the currency is above Daily Bollinger Bands and this highlights the risk of minor pullbacks along the way.
To reflect this risk, CIBC analysts suggest establishing partial longs at current levels while being ready to add to positions around 1.2360. At present a stop-loss level of 1.2200 is recommended.
