Sterling ended up as one of the strongest major currencies last week, boosted by hawkish BoE quarterly inflation report. Swiss franc was the weakest major currency as post SNB pull back extended. Markets were rather mixed elsewhere. Dollar's rally attempt was not met by follow through buying with dollar index retreated ahead of 95.48 resistance. Euro shrugged uncertainties over the situation in Greece and was indeed lifted mildly after stronger than expected GDP data released on Friday. The Japanese yen's weakness also faded after reports that BoJ was shifting its stance and has some reservations over additional stimulus. Canadian dollar's weakness was limited as crude oil managed to defend 50 handle and recovered after initial dip. The markets could stay rather mixed this week.
Dollar index's recovery was limited at 95.11 below 95.48 and retreated. Consolidations from 95.48 would likely extend further in near term. But downside should be contained by 92.15 support and bring up trend resumption. We're holding on to the long term bullish view in the index and expect the up trend from 70.69 to extend through 50% retracement of 121.02 to 70.69 at 95.85 to 61.8% retracement at 101.79. Nonetheless, a break of 92.15 support will bring deeper correction first.
One important development to note was the strong rally in US stocks towards the end of the week. S&P 500 indeed closed at new record high of 2096.99. DJIA also closed strongly at 18019.35, just shy of historical high of 18103.45. The long term up trend of S&P 500 is expected to extend to 161.8% projection of 666.79 to 1370.58 from 1074.77 at 2216.60 next.
Another development to note is that rebound in long term treasury yield extended last week.U.S. 30-Year yield closed at 2.626 comparing to 2.226 low made three weeks ago. Similarly U.S. 10-Year yield closed at 2.021 comparing to corresponding low at 1.651. Both are now pressing 55 days EMA. Main focus this week is on whether such rebounds can getaway from the respective 55 days EMA level to gather momentum for further rise.
Regarding trading strategies, our USD/JPY strategy was initially correct as the pair jumped to as high as 120.46. However, it faced strong resistance ahead of 120.82 and retreated sharply. Even though our stop of 118.00 wasn't hit, we'll close out the USD/JPY long position first. However, it should be noted that the above mentioned developments in stocks and treasury yields still favor more downside in yen in general. And outlook of dollar index favors more upside at a latter stage. Thus, we'll still look for opportunities to buy USD/JPY again. At this point, we'd buy USD/JPY on dip to 116.50, or on break of 120.50.
Our EUR/GBP short was entered last week on break of 0.7403. Downside momentum wasn't too convincing yet but the overall development still favor deeper decline in the cross. We'll stay short in EUR/GBP, targeting next key support level at 0.7250, with stop lowered to 0.7460. We'll stay away from others for the moment.