EURUSD, GBPUSD and Crude Oil – Star performers of the week

Capitalizing on the Dollar’s weakness, the downtrend in the EURUSD, GBPUSD and Crude Oil has started to show signs of bottoming out. Although the fundamentals supporting the currencies and the commodity were mixed, it was evident that from the price action noticed for the past two weeks, a bottom seems to have formed in place.

EURUSD: The fundamentals were mostly mixed with CPI continuing to disappoint clearing pointing to deflationary threats. On the other hand, GDP across some of the major Eurozone economies have started showing signs of a rebound, as widely expected based on the behavior of Crude Oil. But the Euro was mostly focusing on the Greece deal talks, staying choppy at times.

GBPUSD: While the pair came under pressure since early February and also in January as PMI’s were mixed, the Cable managed to etch a bottom near lows of 1.495, promptly bouncing off to trade comfortably above 1.52 levels. The GBP turned quite bullish this week against most of its peers. The BoE’s inflation report hearing offered a mixed bag, but the markets choose to ignore the downside, continuing to support the pair.

Crude Oil: A quick glance at Crude oil related news from main stream media shows that the general view still being confused in regards to the direction. However, the bearish talk in Crude oil seems to be easing a bit; and rather understandably so.

The turnaround in Crude oil in fact was set in late January after a doji reversal candlestick pattern was formed on the charts. While inventory reports continue to state the oversupply, Crude Oil continued to chug along higher. The main risk to the commodity however is another doji reversal formed near the interim top at 51.65 levels. A break above this level and possibly the support at 55.35 could potentially set the stage for a rally to as high as 78 levels.

While for the most part, the Dollar weakness has played a role in the reversal of direction (not trend) in the above assets, the most important test will be next week when the FOMC will reveal its February meeting minutes. Back in early February the FOMC statement was considered to be hawkish as the Fed shrugged off downward pressure on inflation being temporary. In a way, the outlook painted by the Fed is partly correct, if one looks at the BoE’s inflation report in comparison. The main theme being that disinflation is most likely a temporary effect and that Crude oil prices should potentially stabilize from their lows at least for the short term.

From a trader’s perspective, for those considering taking new short positions in EURUSD, GBPUSD or even Crude oil for that matter, do so if you must with caution. At this point in time one cannot simply state that the downtrend is done with, in the above assets and the current outlook being that the rally that we are witnessing could most likely be a correction. So until we see further clues that substantiate the trend, it would be best to wait for a better opportunity.