The theme for this week is corrective bounce and consolidation of all the wild moves we saw last week. Our models sow that this is just a correction within a bearish trend instead of a resumption of the bull trend so if you insist on buying these dips do so with caution. We will be using these bounces to establish short trades in most of the pairs listed below.
Euro, Pound, Swiss Franc
The Euro already hit out 1.34 target and us now staging a bounce. We could see this bounce carry us all the way back to 1.37. We do not see much upside beyond that point in the near term. We expect the daily chart to have formed a classic bear flag by the end of this week.
The cable is also bouncing and could see a push back above 2.00. We expect these bounces to be short lived and are using them to buy and spread puts in many of these pairs.
The swissy rallied farther than we had expected, but it too has turned around and should now retest the 1.19 handle. We expect the swissy to be somewhat range bound for the week ahead.
Yen, Australian Dollar
This pair confirmed our bear flag pattern last week and fell all the way to 112.00 as the carry trade continues to be unwound. We expect to see this market bounce to at least 116 this week but this too is just another bear flag being formed.
The Ausi also had a huge move on the heals of the carry trade unwinding. We expect this pair to bounce back up to the .8200 level before turning back down.
The Canadian expanded its range last week by testing the 1.08 handle. This week we see this pair consolidating and drifting sideways within a 50-75 point range around the 1.06 level.
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