Look At These Longer-Term FX Trends

• March 30, 2004
• Dave Floyd

Bo Harvey, a
longstanding colleague of Dave Floyd’s, is writing today’s piece in Dave’s
place. 

This
week’s action could be important on both the FX and stock index
fronts, and bears watching closely.  If the indices get a weekly close under
last week’s lows, with a break of 1078 in the S&P
and 10,000 in the Dow, it would
be weak technical action indeed. 

In the Forex markets I see a
few interesting setups, especially the USD/GBP and EUR/JPY from daily and weekly
standpoints, respectively. The USD/GBP is forming a very clear
head-and-shoulders pattern with the neckline at 1.7825. A break of this would
put the 200-day moving average, circa 1.7400, in sight as a reasonable
target. Since I don’t suspect the dollar’s longer-term downtrend has changed at
all, I wouldn’t get married to a USD/GBP short, if it were to unfold. 

The second longer-term setup
shaping up in FX is in the EUR/JPY; the 1.39 high in March tagged an internal
trendline that dates back to 2001, and the subsequent reversal has raised the
possibility that the EUR/JPY three-year weekly uptrend may be breaking down. I
would look for a break of the 1.2414 low, set in November of ’03, to confirm a
break down of the uptrend.    

Lastly, it is significant that
gold rose in most currencies last week,
including the EUR, USD, and CAD.  This is critical action and is what many of
been waiting for to confirm gold’s bull market—