A New Trading Week Brings A Heavy Interest In US Dollar Pairs
After an extended holiday for the US markets - which consequently curbed volatility for most of the FX world - liquidity is back to full capacity. Stalled technical moves and position squaring ahead of last week's holiday is now giving way to bigger fundamental themes and more prominent price patterns. With the dollar's consistently high level of volatility and its position among significant trends, many of the DailyFX Analysts see the greatest potential for big moves among these majors. See what pair each analyst is following and why below.
Chief Strategist - Antonio Sousa
My picks: Remain Short EUR/USD
Expertise: Economics and Behavioral Finance
Average Time Frame of Trades: 1 week - 3 months
Low volatility and thin volume are probably the best words to describe the past week of price action. However, this week will probably be different since a couple of event risks are expected to fuel some interesting trends in the currency market. For instance, I expect the euro to be very volatile during this week since the Governing Council of the European Central Bank is expected to announce its rate decision on Thursday morning at 12:45 GMT. I have been short EUR/USD since 1.47 and I expect more EUR/USD weakness going forward on speculation that a considerable deterioration of the euro zone economy in 2009, could lead to a significant shift of interest rate differentials in favor of the U.S. dollar and keep the EUR/USD under pressure over the next few months.
Senior Currency Strategist - Jamie Saettele
My picks: Short USDCAD, against 1.2996, target 1 1.20, target 2 1.15
Expertise: Technical
Average Time Frame of Trades: 1 month
After months of relentless rallying, the USDCAD is showing signs of reversing. The rally from just below 1.15 is in 5 waves and could be a truncated 5th wave. If so, then a correction back to at least 1.15 and possibly lower is underway now. Shorter term, the drop from 1.2993 to 1.2120 is in 5 waves, which is bearish. Price should remain below 1.2993 going forward.
Currency Strategist - John Kicklighter
My picks: Long USDCAD
Expertise: Combining Money Management with Fundamental and Technical Analysis
Average Time Frame of Trades: 3 days - 1 week
I am sticking with my setup from last Thursday; but now I'm beginning to see a bias. After two months of extraordinary volatility, USDCAD price action seems to have setteled somewhat. However, steady price action over the past week does not mean that conditions have dramatically changed. Instead, the stability may be temporary (related to liquidity associated with the extended holiday weekend in the US) or we may be passing through a period of much-needed congestion before the next trend develops. Regardless, the pair is once again in motion and both fundamentals and technicals are having a hand in its development. From the fundamental side, both dockets are looking at a concentration of market-moving scheduled event risk, with employment figures from both topping the US and Canadian's dockets respectively. More important until the Friday release however will be the push or pull of risk appetite/aversion within the market. This morning a sharp rebound in the dollar, yen and Swiss franc points to a broad turn to safe haven flows.
Altogether, the fundamental framework of the USDCAD setup is murky - a general contibution to the pair's 1.1450-1.3025 range. However, the technicals can offer clear levels for a good setup. A look at price for the past few months shows a major double top formation around 1.30 that robbed momentum from a nearly 2,700 point rally through October. More recent through, is the shared prospect of the most recent bearish reversal developing into the head of a heads-and-shoulders formation. With the peak at 1.30, shoulders defined by a congestion zone marked by 1.21 to 1.25, and a neckline on the move, we have a good pattern to trade on. More recently, we have seen a number of rising trendlines bring up the lows on lower time frame charts. A rising trendline from the Nov 26th swing low is particularly motivating as it is now entering the apex of a wedge with the 1.2475/500 pivot level. I will look for a confirmed breakout to the upside to confirm that this H&S formation has been curbed and look for long entry. On the other hand, a push to the downside will merely add confirmation to the H&S which would then refocus my attention on 1.21.
Currency Strategist - Terri Belkas
My picks: Sell AUD/USD on a break below 0.6340
Expertise: Fundamentals combined with technicals
Average Time Frame of Trades: 1 - 3 days
AUD/USD has started the week off on a bearish note, but has thus far held above support at the 38.2% fib of 0.6073-0.6604 at 0.6402. However, a more critical level that I'll be watching is the 50% fib at 0.6338, as a break below there is likely to be followed by a test of 0.6100. There is quite a bit of event risk on hand for AUD/USD as the Reserve Bank of Australia is expected to cut rates by 75bps to 4.50%, but there is potential for an even more aggressive one as Credit Suisse overnight index swaps are fully pricing in a 100bp reduction and a small chance of a 125bp cut.
Currency Analyst - David Rodriguez
My picks: Continue Selling USD/JPY Rallies
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks
On Wednesday of last week I renewed my calls for selling USD/JPY rallies. The pair currently finds itself at the very bottom of its multi-week range, and I get the sense that the pair could easily break lower on renewed selling in global equity indices. With that said, I like the idea of selling rallies through the medium term. The more risk averse could wait for a pullback or a sharp break below current support near 93.54.
Currency Analyst - Ilya Spivak
My picks: Short GBPUSD (pending)
Expertise: Macro Fundamentals, Classic Technical Analysis
Average Time Frame of Trades: 1 week - 6 months
Early last week, GBPUSD looks to have broken past resistance at a downward-sloping trend line connecting the highs since 09/25. The pair has since stalled just ahead of 1.5511, the 23.6% Fibonacci retracement of the 09/25-11/13 decline. Look for a counter-trend rally, aiming for a test of resistance at the 38.2% Fib (1.6113) to begin positioning to enter short as the long-term bearish trend regains momentum.
Currency Analyst - John Rivera
My picks: Short GBP/JPY
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 2-4 Days
Declining interest rate expectations and weakening fundamental data has weighed on the Pound and with the declining global outlook, the yen crosses will continue to be under attack. Therefore, I am looking to short the GBP/JPY taking advantage of its current momentum. My target is Bollinger Band support at 136.76
Currency Analyst - David Song
My picks: Short EURUSD
Expertise: Fundamentals and Technicals
Average Time Frame of Trades: 2 - 10 Days
The ECB rate decision scheduled for Thursday could drag the EURUSD lower as the central bank is widely expected to lower the benchmark interest rate by 50bp to 2.75% from 3.25%. After dipping to a low of 1.2329 on 10/28, the pair strengthened to reach a high of 1.3300 on 10/30 but pared gains last week as its dropped 250+ pips on Friday. The lack of momentum to push higher continues to favor a bearish outlook for the pair, and I expect the euro to face increased selling pressures as investors continue to reduce the interest rate outlook for the ECB. Over the week, I anticipate pair increased selling pressures to drag the pair towards 1.2530-40 (78.6% Fib retracement level), and a break below this level could drag the pair back towards the 10/28 low of 1.2329 over the near-term.
DailyFX
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