FX Weekly Report

Last week I wrote about the double top on the USDIndx. We saw some dramatic moves around the highs and the price has come back to rest once again within pips of this important level. What is noteworthy is we briefly broke the old high and came back a market-close to rest just below this critical line of .8843.

So although there is a lack of real clarity in the direction the moves at the beginning of the week, (maybe even Sunday at opening) will likely be fast and furious. Look for extreme momentum and a trend to develop after either a break out or break down. This of course will translate into all USD pairs.

Good trading.

This week the focus for me is on whether or not the trend has changed. Many currency pairs have now had varying degrees of re-tracements and so the question becomes will these moves continue or are these just corrections that will suddenly reverse once again.

Fundamentally it is hard to tell. The situation in Europe is such that the Euro really shouldn’t be seen at this time as a quality hold during difficult times. This is not to say things are much better in the US, however overall the USD is driven by one government whereas the Euro is governed by many. In the long run it will be difficult to bolster the Euro to the same degree that is possible  in the US. So on the bigger picture the USD should continue to come out ahead.

However, for the short to medium term is the USD overbought? Has the tide turned against the greenback for the next few weeks? I think we have to hold out this notion as a good possibility based on the highly volatile reversals of last Thursday/Friday.

What to expect this week: Volatility is the word for the week. We know from experience that once we break out of a range or pattern the following moves are strong, swift and fast. So a strong pull-back may be in the cards prior to a continuation counter to the USD. Be aware that strong swings in both directions are quite likely.

The move of the week belongs to the USD/CHF. I had posted the potential of such a move on my blog. See me during the week at  http://blogs.fxstreet.com/disciplined (Scrool down to see the CHF posting)

Cheers and good trading.

I am just focusing on two pairs this week that are providing a glimpse into things to come.

I often talk about fractals in the form of patterns that repeat themselves in a diminishing form moving to smaller and smaller patterns of similar shape. When this happens at the point where the pattern breaks down we see volatility return and a breakout ensues. I can’t help but notice two pairs in particular that are displaying potential in this manner. Here’ a look at those pairs and the levels to watch for break-outs or reversals. (Note that a strong break in these pairs would reflect across the the market in general)

The EUR/USD

This pair is displaying a potential diagonal within a diagonal.

The USD/CAD

This pair is a triangle within a triangle.

Cheers and good trading!

With volatility rising here, what way will happen to the USD. Will it correct further and give up more of the recent gains or will this be the tipping point for a resurgence in its strength.  The best trades will likely come when the current patterns are broken.

Cheers

This week I want to point out how the GBP and EUR were for most of Friday moving in opposite directions against the USD. This a fairly rare occurrence and certainly signals that times are still quite volatile and uncertain in the currency markets, not to mention all other securities.

Many currencies are at tipping points are which way the may head for the week. And I think the big questions is; will the EUR catch up to the GBP or will the GBP weaken to reflect the downward moving EUR.

Let’s see how the week unfolds.

Cheers

Pierre

Volatility seems to have jumped over the last few days including the opening session for the week (Sunday the 25th), with a surprising counter move on the EUR/USD and GBP/USD pairs.

With such high volatility right off the bat early in the Japanese session, I would expect much of the week to be very active.

Cheers and good trading

Pierre

I’ve post the USD index this week as there are now two strong rejections of a descending trend-line. A break of that trend line would suggest a period of Dollar strength, however at this time the rejections point to the index heading lower. The US Presidential inauguration may have an effect, however that should show up longer term and not necessarily affect this weeks sentiment.

Cheers and good trading,

Pierre

Although I’m suggesting the ranges should hold up this week this still opens the door to high volatility. Technicaly most currency pairs are still in a corrective mode of the larger moves that took place in the last quarter of 2008. I would for ranges to continue this week as no clear directions have taken place. What I would expect in the months to come would be renewed moves continuing the what was started in the last quarter however I would expect this is still 3 to 6 weeks away.

Longer term, I believe the USD will strengthen in the medium term being the first several months of 2009. Going into this week it is hard to tell however where the USD will go in the first full week of 2009.

It is said that in equities (stocks) the first week of January usually reflects what we should expect for the year. It is not as clear-cut for currencies. However the first few weeks usually do reflect how the balance of the first quarter will go. Overall we are certainty going to have continued high volatility so opportunities will certainly be available.

Hi folks.

I won’t be posting now until the New year. All the best for the season and have a prosperous 2009.