Currency Pairs In Focus - Sunday, Feb. 8

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S&P 500
 

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The S&P 500 has continued to experience a lot of noise, and this past week has seen it test the 7,000 level and even break below the 6,800 level before it turned around. Ultimately, it seems the index is unsure where to head next, considering that we are in the midst of earnings season.

This appears to be a bit of a 'buy on the dip' bounce. I think it will likely bring more 'fear of missing out' price action into the picture. If the S&P 500 can break above the 7,000 level, then the index could probably continue to go much higher. I do think that will be the case, but in the meantime, things might continue to be a little bit noisy.

EUR/USD
 

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The euro experienced a lot of noise during the trading week as it tested the 1.18 level, which is an area that previously offered resistance. The previous week formed a horrific-looking shooting star, so we are still questioning whether or not the euro really can take off to the upside.

If we see it break down below the bottom of the candlestick for this past week, I think the euro could go looking to the 1.16 level, as it re-enters the consolidation phase.

I expect to see a lot of noise in the space, but over the longer-term, there is still speculation as to what the ECB’s going to do and, of course, whether or not the Federal Reserve is going to cut rates quick enough to satiate the market. All things being equal, I’m pretty neutral on this currency pair.

USD/CAD
 

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The US dollar rallied against the Canadian dollar, but it struggled at the 1.37 level again. It’s been sitting right at the 200-week EMA, and it had formed a hammer during the previous week, so we’ll have to see whether or not the buyers can push it higher.

From a technical analysis standpoint, it does look like a very interesting area to get long. Additionally, the interest rate differential favors the US dollar, although I think this is more the purview of short-term traders. I would not be looking for massive moves in this market anytime soon because, quite frankly, that’s just not what this pair does most of the time anyway.

USD/CHF
 

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The US dollar rallied a bit against the Swiss franc to break above the 0.78 handle, which is a large, round, psychologically significant figure that a lot of people will be watching. I’m particularly interested in this pair because of the hammer structure that formed last week and the fact that the Swiss National Bank continues to complain against the strengthening of the Swiss franc.

If that continues to be the case, they will likely get involved and intervene eventually, which would send this pair and anything else denominated in Swiss francs higher as they look to devalue their own currency. It’s a positive swap to go long, but it’s also likely going to be a difficult path higher, so keep that in mind.

USD/MXN
 

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The US dollar moved all over the place against the Mexican peso, as the MXN17.50 level continued to offer resistance. That being said, the MXN17 level below could potentially be a short-term target.

There appears to be a lot of support underneath from a long-term standpoint, so we’ll have to see whether or not it can break down below there. As things stand right now, though, it could still be a rather nice carry trade, at least for shorter-term traders. This week of trading will probably end up being just as choppy as the previous two, so I’m not expecting to see any massive moves here.

DAX
 

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The German DAX was bullish throughout most of the week, but it still struggled with the 25,000 level. If it can break above that level on at least a daily candlestick, if not a weekly one, then I think such a move could open up the potential for the German index to go much higher.

Quite frankly, I think that will happen eventually. This is not the type of market that I believe you can short; it is likely going to get a lot of support from the German government if given enough time, as they appear to be throwing money into the economy. So, I like the idea of buying dips in the DAX at the moment.

USD/JPY
 

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The US dollar performed quite well against the Japanese yen this week, despite the recent intervention. The JPY158 mark is a massive level on the long-term charts, and I think that’s something to pay close attention to, as this area goes all the way back to May 1990.

If it can break above the JPY163 level, then such a move could see the pair reach as high as the JPY250 level before all is said and done. I don’t expect to see such a thing this coming week, but that’s what I expect could occur over the longer-term, unless something changes quite drastically.

GBP/USD
 

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The British pound moved all over the place during the trading week, as it continued to see a lot of resistance at the 1.3750 level. Breaking below the 1.35 level would be very bearish for the British pound against the dollar, and such a move could likely send the pound down to the 1.30 level.

Ultimately, I don’t know if the US dollar has bottomed out, but it’s certainly starting to look like it’s going to attempt to make that happen. This is going to catch a lot of people on the wrong side of the market if that turns out to be the case.

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