The forex markets were rather mixed last week. Commodities were the biggest winners. Canadian dollar recovered along with crude oil, which closed above 50 at 52.3. Kiwi was the second strongest major currencies as RBNZ governor signed that interest rate will be unchanged for a period of time. Meanwhile, Aussie recovered after post RBA rate cut dip as recent decline seemed to have exhausted. European majors extended recent consolidations against the greenback. Sterling was the relatively stronger one as boosted by a string of strong PMI data. There wasn't clear selling on Euro in spite of the uncertainties over situation in Greece. While the stronger than expected non-farm payroll report from US triggered some dollar buying, the greenback stayed in range in general except versus the Japanese yen. The main question for this week is whether post NFP momentum in dollar would carry on this week and finally trigger a breakout.
Dollar index stayed in the consolidative pattern fro 95.48 near term top last week. With 92.15 support intact, outlook remains bullish and we'd expect recent up trend to resume sooner or later. While Friday's rebound sent the dollar to close higher at 94.68, it's still kept well below 95.48 resistance, and even below last week's high of 95.33. Thus, more sideway trading cannot be ruled out this week. Nonetheless, an eventual upside break out is anticipated which should send the index through 50% retracement of 121.02 to 70.69 at 95.85 to 61.8% projection at 101.79 in medium term.
Looking at other currencies, a key is whether the late selloff in Euro would extend too. EUR/USD will face 1.1302 minor support and break there would likely bring a retest on 1.1096 low. EUR/GBP led the way lower and should have a test on equivalent support at 0.7403 initially this week. EUR/AUD's breach of 1.4480 suggests that rebound from 1.3963 has completed at 1.4893 and would likely head back towards 1.3963 support. EUR/CAD and EUR/JPY were bounded in familiar range with bias in EUR/CAD mildly on the downside and EUR/JPY mildly on the upside. Thus, overall, further weakness in Euro is mildly in favor, except versus yen.
That leads to a look at yen crosses. USD/JPY took out 118.85 resistance which confirmed resumption of rebound from 115.84. The pair could now head to a test on 120.82 resistance this week. GBP/JPY's break of 179.29 resistance last week also indicates near term bottoming and should head back towards 187.79/189.72 resistance zone. Corrective recovery in AUD/JPY and CAD/JPY also extended higher and both could follow recovery in Aussie and Canadian higher. Thus, we'd probably seen more downside in yen, which could even worse then euro in near term.
Sterling's rebound against dollar last week indicates near term bottoming and we'd likely see more upside ahead. But the current rise from 1.4950 in GBP/USD is viewed as a corrective move and thus, could end any time. Hence, while Sterling is having a mild upper hand over dollar, such relative strength is uncertain. Similarly, Aussie and Canadian bottomed for the near term and would engage in consolidation with mild upside bias. But the sustainability in recovery in both commodity currencies is in doubt.
Regarding trading strategies, we were correct in avoiding AUD/USD and USD/CAD last week. AUD/USD did dip but quickly recovered while USD/CAD extended sideway consolidation. Our trade of selling EUR/USD on break of 1.1096 wasn't entered as there was no breakout. The strategy of selling EUR/USD on recovery to 1.16 was not entered neither as the recovery wasn't strong enough. We'll cancel these trades first. For this week, based on the above analysis, we'll try to sell euro and yen against dollar and sterling to hedge against the uncertain volatility in GBP/USD and EUR/JPY. We'd prefer to sell EUR/GBP on break of 0.7403 for next key support level at 0.7250 with stop at 0.7510. Meanwhile, we'll just buy USD/JPY at market as the week open, for 120.82, with a tight stop at 118.00 minor support.