Currencies | Apr 30 2010
By Rudi Filapek-Vandyck
Here's for one of the calendar themes that in general does not receive much airtime: the months March and April often mark important medium-term or longer-term reversal points for financial assets.
Maybe this is the real driver behind the old adage Sell in May, et cetera?
Taking a market view from this perspective one could suspect, for example, that gold has now seen its lows for the year? Also, maybe prices of metals have seen their peak? Recent price charts show clear build ups and peaks for all metals except lead and zinc in April.
Technical commodity analysts at Barclays Capital have today added another possible scenario. Zooming in on currency markets, the analysts repeat what I already stated in my opening sentences: April often marks the beginning of a new trend (or the end of an old trend – depending on how one looks upon things).
If we accept this as a given, then today's trading sessions around the globe might prove to be of pivotal importance. The analysts point out the US dollar appears to be on the cusp of major trend reversals against currencies such as the yen and the euro. They'll be closely watching what happens next to seek confirmation.
Reports the team: “USD/JPY is testing its weekly cloud cap (94.30) and is within striking distance of its 21 month average (94.75). Both these trend following techniques have a remarkably good track record of calling 1-3 year USD moves over the last 25 years; a close tomorrow above 95 would target 110”.
Regarding the EUR/USD cross, it would seem that only a firm rally today can save the European currency from being labelled "in a long downward trend” from Monday onwards.
Reports the team: “EUR/USD has punched its way through its monthly cloud base and a close below 1.3310 would suggest a run at 1.20”.
And probably equally important, and hardly a surprise given both yen and euro are an important part of the five currencies basket that makes for the USD index, the analysts report: “the USD Index is pressing its weekly (82.30) and monthly (83.84) cloud caps. If it closes above those levels then the evidence of USD strength would be hard to ignore”.
P.S.: Strictly taken gold's trough in February was lower than in March and April, but technical analysts would counter that April brought the confirmation of the reverse head-and-shoulders formation and as such it will be April that marks the turnaround.
