Dollar in trouble, but not as much as the Yen

February 24, 2009 by: Chris

How about a tour through the major currencies? It’s not a bad way to spend an evening, I say. I have to admit I’ve been avoiding currencies over recent weeks, which is not good. Back on February 8, I wrote that the Yen was looking weak and the Euro strong. In over two weeks, was I right on either call?

We will see in a minute, because I want to see how the US Dollar is looking … at first glance the chart of the UUP – which I use as my dollar-proxy – is in a nice little uptrend after the sell off. However, another way to view this is in the form of a rising wedge – which is bearish. Now, typically a rising wedge will be a continuation pattern of a downward trend. However, when you put it into a bearish context, it works. Look ahead if you will – there is a major level of resistance at the $27 level. Look also at the MACD histogram which is looking weaker and weaker as the UUP climbs higher. That is not a good development. It all adds up to a promising short idea in the not too distant future.

And how about the British pound? If there was one world currency that takes a beating more than the dollar, it is the pound. I have to admit – it’s not a complete shipwreck. The FXB etf has found support at 145, creating a “higher low” situation. If we can make a higher high above 150, we might be onto something. I like the uptrend in the MACD as well as the fact that the faster line is holding above the signal line. That shows minor strength. The high volume sell off in late January could prove to be the ‘crescendo selling’ that can sometimes mark a bottom – wish the volume was as high as last September for that however. All in all, the pound may be getting stronger.

Getting back to the Euro, I’m going to take a big step back to the weekly three year chart. This gives us some perpective on the big run up followed by the steep sell off. It looks to me like I might have been early on calling for “strength” in the Euro, but it certainly has not gotten any weaker. I like what I see in the double bottom – although that high peak in between is a bit problematic. It is not as neat as the double-top that we had in 2008, but it might prove to be a bottom of the downward trend. See also the new up trend in the MACD lines. I stand by my be ‘buy’ call on the euro.

Which brings us to the Yen. The land of the rising sun was the land of the falling currency today. The 105 area had been providing support, but no more. You can see a double top back in December and January. You can also see the down trend in the MACD which is getting stronger. I think it is not too late to get short. I think we have two more support levels to test – 101 and 97 – and I believe if they do not hold up, then the Yen could see weakness down to the 92 range.