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Good news over the weekend from Greece sent the futures higher this morning and major European indices opened with a gap up. It’s a US holiday today, so while our friend’s stateside take a rest for Memorial Day European trading may be a little subdued.

last Thursday I gave a technical argument for a bullish counter-trend rally in the S&P and so far the lows have held as the markets edge slightly higher, but the underlying weakness of recent weeks should not be brushed aside, especially given the recent aversion of markets to turn on a dime and medium-term time frames that look decidedly weak.

To appraise direction for the shorter term there maybe a few hints gleaned from the GBP/AUD, generally this currency cross has an inverse relationship with the stock market; the lows came in February followed by a rounding bottom pattern which broke out through 1.5000, since then it has shot higher, broken an inverse head and shoulders pattern with a higher target of 1.6375. It faltered at 1.6181 recently and has seen a pull-back to today’s level of 1.5911. With on-going uncertainty in the Eurozone and the markets preference for the risk off trade – the uptrend in the GBP/AUD looks comfortably established and may be not want to break anytime soon.



However, there are signs of waning price action in the shorter-term time frame which may support a market counter-trend rally and a momentum shift lower in the pair. The price has traded in a range since the 8th May and on Friday broke the steeper 3rd phase up-trend from the April lows. Today the price is testing the support line of the sideways action and a decisive breakdown through 1.5890 would target 1.5600. The support line hasn’t offered a definitive break yet but it’s worth keeping an eye on GBP/AUD for potential clues on the next direction of the markets.



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