Overview

Despite new highs on the Dow and S&P 500, risk aversion dominated the Forex marketplace last week. The US dollar pushed ever higher against its major counterparts, as growing concerns over the Greek debt crisis and a credit downgrade for Portugal weighed on investors. In the current quarter, the euro has slipped 6.8 percent against the dollar - the largest quarterly decline since 2008 - reflecting a general preference in the marketplace for the perceived safety of US assets.

In the week ahead, expect growing volatility for riskier assets, as the results of a $6.7 billion bond offering out of Greece are certain to move markets. The euro and sterling are particularly vulnerable to further declines, as a lack of confidence and the force of trends continue to work in their disfavor.

Friday's release of Non-Farm Payroll numbers will cap off the week of trading. While the consensus estimate sits at 179K jobs added, economists believe that temporary census workers may account for 100K or more of those jobs. While providing a temporary boost in payrolls, the impact of census workers will reverse in June.

Currency Pairs of Interest This Week

EUR/USD

GBP/USD

AUD/USD

Forex Playbook - Analysis and Trade Ideas

Euro (EUR):

The euro ended the week on a strong note, following news out of the EU that an agreement had been reached in terms of providing aid for Greece. The Sunday open should offer a glimpse at the investment community's weekend reflection on the news. However, the real test will be the market reaction to Greece's $6.7 billion debt offering expected to be issued by midweek.

Euro strength will likely continue at the onset of the trading week, which would provide a valuable opportunity to establish, or add to, a short EUR/USD position. Expect Greece's forthcoming debt issuance to serve as the catalyst for the next leg down in the euro. Positions should be established, or added to, once Greece unleashes its debt on the markets. Ideally, the EUR/USD trades up to the 1.37 or 1.38 level. If so, a stop around the 1.41 level should offer sufficient room for the trade to play out.

Sterling (GBP):

The sterling, like most other currencies, is expected to take its initial cues from trading activity in the euro; thus, an early boost for the GBP/USD is to be expected. The sterling, however, does not need the euro to discover is own path of least resistance. Alongside a forceful downtrend, fears of a double-dip recession in the UK have dominated trading in the sterling and will likely continue to do so in the weeks ahead.

The GBP/USD becomes an attractive short candidate at, or near, the 1.50 level. That price is arguably a point at which the sterling becomes overvalued relative to the dollar while further serving as a key psychological level of resistance.

Australian Dollar (AUD):

The Australian dollar most recently peaked against the US dollar back in November, 2009. Since that time, the AUD/USD has failed on two occasions to break above that high while lower lows have been established in each of its last three troughs.

As the resistance levels are expected to hold, the AUD/USD provides a favorable short opportunity with easily identifiable risk parameters. If establishing a new position, look toward the 0.9100 level to short the AUD/USD. If already short, consider adding to your position at, or near, the 0.9200 level. A stop should be placed around the 0.9300 level and will likely run untouched.

United kingdom