Huck’s Pre-Week Market Analysis for May 20 to 24, 2013

Fundamental Picture

It was an amazing week to buy the dollar. The Greenback dominated last week’s trading on the heels of positive data from the U.S., further fueling speculations that the Fed would soon start to taper off its asset purchases.

Of course, this outlook for the direction of the Fed’s future monetary policy only attracted more demand for the dollar as it diverges from the European Central Bank (ECB)‘s outlook. Remember that in the last ECB statement, Draghi hinted that the central bank is open to further easing.

Going into this week, I expect economic data to have more impact on the currencies as their outcomes would affirm or contradict the current expectations for monetary policy from central banks.

For instance, if the PMIs from the euro zone come in worse than expected, we could see further euro sell-off as signs of a weaker economy would only give the ECB more reason to ease. On the other hand, positive data from the U.S. can only drive the dollar higher.

Potential Trades

EUR/USD: Bearish

EUR/USD 1-hour Chart

After a week of massive selling, I’m looking for a potential pullback on EUR/USD. I’ll keeping an eye around the 61.8% Fibonacci retracement level which coincides nicely around the previous support area and the 100 SMA.

GBP/USD: Bearish

GBP/USD 1-hour Chart

I have a similar view on GBP/USD, as the pair is clearly on a downtrend. The pair has been making lower lows and lower highs, but I don’t know where to enter. For now, i’m going to wait for price to retrace to the SMAs before formulating a plan.

XOXO,

Huck

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