New York
London
Tokyo
FX Weekly Report
The FX Weekly Report provides the latest, in-depth forex technical analysis about the FX market each week. By Pierre Charlebois.

USD at Crossroads on many pairs

EURUSD_Oct_5_08

GBPUSD_Oct_5_08

USDCAD_Oct_5_08

EURJPY_Oct_6_08

USD is on breakout on many pairs. What is interesting is it is at such thresholds even though it is highly overbought and fundamentally it is difficult to understand why this move has been so dramatic considering the state of the US economy and the ‘Bailout Package’.

One explanation might be the overhead of the ‘Carry Trade’ and the unwinding of many other trades such as in Oil and other commodities that were high flying over the last few months. Remember that even Gold has been softening and gold is usually a flight to commodity in times of economic uncertainty. Also of note is we are at extremes in sentiment indexes that usually signal a reversal. With all of this going when we see a reversal it will be dramatic and add to the roller costar ride we seem to be on in many currencies.

So here’s my take on what we might see next:

Now with some relief on the credit markets, although I don’t believe this will help stem the coming recession it might give some temporary relief. As such this might be the climate required to cause a temporary reversal. I’m not saying there is a bottom in place on the EUR/USD or the GBP/USD, however we should be expecting that when a turn comes it should be dramatic and obvious.

What is usually the best trades during such times is to bet on the JPY. Japan went through a crisis of non-confidence some years ago and as much as their economy relies on world markets as much as everywhere else, they have been cleaning up their financial systems and should weather the storm better then the other G8 economies.

There are many possible counts by Elliott Wave standards and as such I am choosing to view this as a neutral indicator and will be looking for daily candles for clues on where the moves will be. For now, I still view the trend towards USD and JPY strength until a strong reversal takes place.

The EUR/USD has spent weeks in the oversold however the move does not appear over. Waiting for a strong reversal signal is recommended before changing your bias.

The GBP/USD is very much in a similar situation. So I am on the sidelines waiting here to pounce at the right time as well.

The USD/CAD is truly at a critical place. Having broken through both the .618 Fibo of the last major move down and breaking a long-standing trend-line. Much more of a move up strongly suggests the bottom may be in place for some time. Especially if commodities like Gold and Oil continue to soften. (Not to mention potash and copper).

EUR/JPY is a highly volatile pair however if you’re lucky enough to catch a strong downward move, you may consider keeping a small position on for the long haul as an expected a multy year correction is underway and the JPY should continue to strengthen for some time. If you don’t like the stop-losses required on this pair consider the CHF/JPY.

Good trading!

SocialTwist Tell-a-Friend

Leave a Response

Trading Metro
Disclaimer

Before diving into the legalese below, use your common sense when trading. Rely on yourself to define trade execution, don't trade with money you cannot afford to lose, and know the risks of trading. Be responsible, be honest, and use common sense.

Online trading, especially that on margin carries a high level of risk and may not be suitable for all investors. Opinions expressed at Trading Metro are those of the independent authors and do not necessarily represent the opinion of Trading Metro. Trading Metro has not verified the accuracy of any claim or statement made by any independent author. It's your responsibility to ensure the veracity of information presented.

Any solutions, opinions, news, research, analyses, prices or other information contained on this website, by Trading Metro, its employees, partners or contributors, is provided as general market commentary and tools, and does not constitute investment advice. Trading Metro will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Information on Trading Metro is NOT a recommendation or solicitation to buy or sell any securities. Your use of this and all information contained on Trading Metro is governed by the Terms and Conditions of Use. Please click the link to view those terms. Follow this link to read our Editorial Policy and our Privacy Notice.

Feedback Form