FX Weekly Update
The greenback v Yen broke above the long term resistance level at about 77.25 on January 24, and after that, the dollar rose to 84.5 because of the execution of the stop orders of Yen buyers and the dollar buying positions for dehedging. The dollar reached 84.18 against the yen on March 15.
However, since the greenback buying positions and IMM net short JPY expanded too rapidly (net long Yen turned net short Yen on February 28, and surged to 42,380 contracts within 2 weeks.), the market started to get heavy. Furthermore, as the net long Yen positions were being eroded by stop orders, the market formed a double top between 84 and 85 on March 21, and opened the door for downside potential. Speculators sold the dollar in order to take their profit which saw the dollar slide below 81.50 versus the yen.
The dollar has momentarily stopped its fall and may fluctuate between 82 and 83.5. In the near future the market will move between 80.00 and 85.00, but it is hard to imagine a break below the lowest point. Even if the dollar breaks below 80.00, the downside won't last long since the U.S. economy is recovering and the expectation for QE3 is receding. In the middle and long term, the dollar will probably climb to 85 on account of a perceived rise in U.S. interest rate and economic recovery. Possible buy positions could be formed at the 81 level.
Expected Range: 81.50-84.50 Wait and see, possible buy on dips
The euro is forming a head and shoulder with the head at 1.3485. The market was supposed to fall significantly to 1.26 after breaking below 1.3000, but it unexpectedly climbed to 1.3385. It is hard to predict the movement of the market at the moment. Interbank traders are in short-term mode as they have little clear ideas where the market may go in the future.
The market will be parallel to the support line from 1.2624 (the lowest in January) to 1.3005 (the lowest on March 15) if a break above 1.3500 happens. If we draw a resistance line from the high on February 24 (1.3486) to 1.37, there is a perfect ascending channel. Therefore, selling the euro between 1.34 and 1.35 or at 1.3486 is not a good idea. The suggestion is buying on dips at 1.32077, where the daily Bollinger Band's center line is. Even if the market may fluctuate in range should a break above 1.3500 fail, buying short-term is still suggested.
Expected Range: 1.3150-1.3500 Buy the euro on dips at about 1.32. Take your profit as soon as possible.
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