Are We on the Cusp of New Leg up in Risk Assets?

Euro

With a few exceptions, Europe’s single currency has been confined to a $1.12-$1.14 range for a month. Within that range, it has appreciated for the past two weeks by a cumulative 0.5%. It poked through the middle of the range after the US jobs figures but met good selling that pushed it back to almost $1.1220.

The downtrend line, drawn off the June 10 high (~$1.1420) begins the new week near $1.1275. The MACD is still trending lower while the Slow Stochastic has turned higher. The charts and risk-reward calculations suggest buying the euro on dips toward the lower end of the range and even on marginal penetration.

Japanese Yen

Since testing key support near JPY106 on June 23, perhaps fueled in part by Softbank’s divestment of T-Mobile, the dollar rallied above JPY108.00 for the first time since June 9. However, the greenback encountered a wall of selling and saw it posted a key reversal in the middle to last week and fell to about JPY107.35. Follow-through selling over the past couple of sessions has been virtually non-existent.

The price action reinforces the technical significance of the JPY106-JPY108 range, which mostly confined the greenback is Q2. The MACD has been muted by the sideways action and the Slow Stochastic has turned higher. Our correlation work shows a weakening of the yen and S&P 500 co-movement in recent weeks, but it looks set to re-couple shortly.

British Pound

Sterling’s downtrend since June 10 ended and the subsequent bounce to $1.2530 retraced half those losses. It where the corrective upticks in the previous week had run out of steam. This area needs to be taken out to be convincing, and the next retracement level (61.8%) is at $1.26. The MACDs have flatlined near zero in recent days, while the Slow Stochastic curled up. Initial support is seen a little below $1.2400.

Canadian Dollar

The US dollar had set a nearly four-week high on the last Friday of June near CAD1.3715. There was no follow-through buying last week and the greenback was sold in four of five sessions to about CAD1.3540. The uptrend line off the June 10 low was frayed on June 30 and successfully penetrated to kick-off the second half.

With closes near the low more often than not in recent sessions, the Slow Stochastic has turned down from its highest level in Q2. The uptrend in the MACD has flattened. The CAD1.3480-CAD1.3500 offers important technical support. It houses the 200-day moving average, the low from the second half of June, and the halfway mark of the greenback’s bounce from June 10. The next retracement level (61.8%) is near CAD1.3470.

Australian Dollar

The downtrend line off the June 10 high was violated in the middle of last week. The Aussie settled above it for the past two sessions and found support at it ahead of the weekend. The downtrend line begins the new week a little below $0.6900.

The statement following the central…