Last week saw a three big figure sell-off from peak to trough, which was the second week of selling in a row. The pattern of rising lows from March last year has also been broken . However, bearish momentum looks overstretched at present as this morning’s Asian low has been 1.0630 so far, indicating investors willingness to sell through the low for the year from January 2nd at 1.0600. With this still in place there is the potential for a recovery to last week’s losses, but this would be viewed as temporary before a later test of the downside. Only a break of 1.0865, Friday’s peak would confirm that a more permanent rally is taking hold. Against this background, this week’s call is to remain cautious and trade only a break of a 1.0600-1.0865 range. Risk to this forecast is unclear at present, but may be the week’s opening level.
On the upside, only buying through Friday’s high at 1.0865 would indicate that bullish sentiment has been confirmed and should increase the confidence in the call to an outright buy. Prices should then improve further to last week’s 1.0955 top, then 1.1060, the high from 21 May.
Failure today would be selling through the year’s low at 1.0600. This would be a bearish signal that downside pressures have resumed and increase confidence in the call to an outright sell for a test of 1.0370, the 29 Dec low then 1.0225, the 21 July open.