The title of today’s blog is a question that has exercised my thoughts for weeks. Every time the key levels I am watching are compromised, my alert level spikes, but so far it’s only led to disappointment. Technical signals in the currency markets have been like the boy who cried wolf so many times the credibility of chart watching is at a low ebb for me. But sooner or later the wolf always comes, the big dollar trend will start again and new highs will beckon, and in trading, timing is everything. There’s a reason why I’m studying the dollar’s position relative to the major currencies more closely now, that’s because it has been on a tear against emerging market currencies for some time now. Look at USD/ZAR, USD/RUB or USD/MXN and you’ll see exactly what I mean, the dollar looks mighty against the smaller currencies but the big players are holding out, but how long will that last?
Looking at the weekly chart for cable (GBP/USD) I am struck by the coiling pattern that has evolved over the last month, more and more I am convinced that there is a massive energy build growing in the cable chart. The end game is likely to be new multi-year lows for this currency pair, and it is unlikely that EUR/USD will remain unscathed, indeed the euro is currently far weaker than the pound sterling – EUR/GBP is within sight of recent lows. One technical pattern I have been studying suggests a target of 1.42 for GBP/USD if it should come to pass, but these summer markets in currency land have been the destroyer of hope and confidence, all we can do is wait and observe…
Today we get PMI data in Europe, and ISM data in the United States. In a neutral world one might consider relatively stronger data in Europe as a rationale to bid for European assets rather than American, but I would argue that anything that puts some distance between a scenario where the Eurozone is in crisis and reality, while we continue to see solid economic growth in the United States, actually increases the odds of interest rate rises by the Federal Reserve. I’m not saying that’s what will happen, I’m just trying to describe what I believe should be the state of mind of the market right now. For all my talk of GBP/USD, I should finally point out that EUR/USD is trading close to its mid-July lows near 1.0810, a breach to the downside could open the way for the big dollar move we are anticipating, that darn sheep boy could be about to cry wolf again…
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