Week of May 18, 2015 overview and chart setups

The U.S. Dollar strength weakened for the past week as weak industrial output and consumer sentiment report failed to reassure investors of a truly recovering U.S. economy. Retail sales adds to the disappointment as American shoppers are not optimistic enough to be making purchases.

Trouble also spells for the Euro as the IMF leaks June 5th to be Greece’s default date. The IMF has reportedly refused to be a part of the new bail out plan. If an agreement cannot be made by then, this will truly be an endgame for Greece.

Finally, Ray Dalio of Bridgewater Associates says ‘we are not in a bubble’ as the signs just don’t point to it. Although asset prices are high, the current conditions do not reflect a bubble. Prices have risen, but not nearly as fast as other bubbles. Valuations are still in normal territory. Leverage isn’t a major driving force of prices and overall lending is still modest. There aren’t any significant new investors entering the market. While Bridgewater Associates does not think there is a bubble, Ray Dalio highlights the U.S. economy is in a long term slower growth state dubbed ‘secular stagnation’.

With these highlights of the past week, let’s take a look at what lies for the week ahead.

Starting off with the New Zealand Dollar, a fake-out of the previous channel required the channel to be redrawn to take into consideration of the recent fractal lows.

NZDUSD Redrawn Channel

Assuming this channel holds up, NZDUSD could potential test the upper channel boundary at 0.7720~. This would be a bit over a 250 pips move. Currently, I have one key demand zone drawn and two supply zones drawn. The closer supply zone has been tested once already. Price rebounded from a multiple bottom and is expected to continue on upwards from this point on. The New Zealand Dollar sell off may have been over done and so we are experiencing the buy back from the covers.

Bearish Open on USDJPY and USDCAD

Finally, prepare for a bearish open on both USDJPY and USDCAD. The upper candlestick tails say it all as buying pressure cannot hold up. If we approach this from a psychological trading point of view, we have the green candles from the short sellers covering or exiting their positions. However, the long upper tails means there is still greater downward pressure. With that said, the U.S. Dollar does not look too promising for the week ahead.

 

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