FX Technical Strategy – Weekly by Lloyds TSB

As the market picks on the underlying bullish themes that have been building over the past few months the natural inclination is to be wary.

As the market picks on the underlying bullish themes that have been building over the past few months the natural inclination is to be wary. In the last release, the favoured currencies were Sterling and the commodity currencies against the US dollar coupled with the more benign environment that a drop in volatility would imply. Whilst from an equity perspective a consolidation/ corrective phase is becoming more compelling, the strength in commodities still underpins
the pro-risk theme.

The reasoning being that whilst it is still probable that this is a bounce in a bear market, the risk of being caught long dollars and long treasuries if the low is behind is greater than selling dollars now and reversing the strategy if proved wrong.

In this regard it is notable that gold is holding above the $900 level, which can no longer be attributed to the ‘fear factor’. With oil edging towards $60 and sugar prices matching the heights of the commodity boom phase of 2008 at 16.00 (although off the 19.73 peak of February 2006) the positive view is still compelling. Summer is approaching and the markets will be taking a breather soon one way or the other, but for the moment the cautiously bullish strategy
continues.

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