The Pound Stalls As The Euro Tumbles: The DailyFX Analysts Find The Opportunities
As the first full week of the New Year wears on, traders seem to be taking advantage of the influx of liquidity and volatility to turn the market back to trends. However, the high correlation through the the fourth quarter of 2008 seems to be breaking down with the european currencies taking very different paths. This shift adds a layer of compexity to the market, but it also opens the door to greater potential and opportunities.
My picks: Remain Short EUR/USD Expertise: Economics and Behavioral Finance Average Time Frame of Trades: 1 week - 3 months
I have been selling short EUR/USD since 1.47 and I expect more EUR/USD weakness in the first quarter of 2009. In fact, I expect a considerable deterioration of the euro zone economy in 2009 which 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.
My picks: GBPUSD long (stop order at 1.4850), against 1.4340, target near 1.60 Expertise: Technical Average Time Frame of Trades: 1 month
The British Pound is testing multi-year lows but the preferred wave count suggests that a 3rd wave decline is complete or nearly so and that the GBPUSD will soon enter a 4th wave that should consume at least a few months and reach roughly 1.60. Divergence with RSI on the daily chart for the last several months favors this reversal opinion. A significant congestion zone (distributive perhaps?) has formed, and a strong directional move is expected soon.
My picks: Pending GBPAUD Short Expertise: Combining Money Management with Fundamental and Technical Analysis Average Time Frame of Trades: 3 days - 1 week
Depending on the way the market shapes up, this GBPAUD trade could be a duplicate of my breakout scenario for GBPUSD laid out yesterday. Therefore, if it comes down to it, I will have to choose a pair should the pound overwhelm the market and take both sterling crosses in the same direction. Breaks in opposing direction would be ideal as two appealing positions that partially hedge each other. Looking to GBPAUD in isolation, the pair has enviable momentum. This is the perfect pair for those traders that are able to stick to their convictions and ride a trend through reversals as it has covered over 6,800 points in a matter of three months. This recent push behind trend has been just as consistent as any other time since the early October reversal - 14 of the past 16 daily candles have closed lower - which suggests continuation is in store.
We have already seen an intraday test yesterday to a 12 year low; but confirmation of a genuine breach of the 2.0300 triple bottom is absolutely essential in establishing the next leg of the bear trend. This would best be served as a daily bar's close below this level. Momentum will also have to follow up on this move to keep us from a temporary reversal that could whip us out in this volatile pair. From this standpoint, fundamentals may provide as the Bank of England is set to deliver its rate decision on Thursday. A greater than expected cut (economists are only expecting 50 bps) and a dovish outlook could easily leverage a swell in bearish sentiment. From a tactical standpoint, it is best to approach this position with reduced position size and wide stops. This will allow me to place the initial stops above the falling trendline seen on the shorter-term charts. Furthermore, I could more capably set staggered targets to account for a major (24 year in the making) 61.8% Fib at 2.0050 and the next swing low at 1.90. Patience and trade management are essential to this scenario.
My picks: Long GBP/CHF on a break above 1.65 Expertise: Fundamentals combined with technicals Average Time Frame of Trades: 1 - 3 days
GBP/CHF has bounced quite a bit from its record low of 1.5124 reached on 12/29/08, but thus far the pair has held below a solid area of resistance at 1.6500, which is not only a psychological level but also marks the confluence of the 38.2% fib of 1.8725-1.5124 and 50% fib of 1.7833-1.5124. From a fundamental perspective, it's necessary to keep in mind that the Bank of England is anticipated to cut rates by 50bps on Thursday, which normally should evoke a bearish reaction from the British pound. However, as we saw with the December 4 rate cut by the BOE, we can't assume that the currency will automatically fall. As a result, I'm looking to buy GBP/CHF on a break above 1.6500 to target the 50% fib of 1.8725-1.5124 at 1.6926.
My picks: Stay short the EUR/JPY, move risk to 129.73 Expertise: System Trading Average Time Frame of Trades: 2-10 weeks
On 12-31 I called for a EUR/JPY short against 131, and so far the trade has paid dividends. I'd like to stay in the trade, but I'd also like to pull down max risk to recent spike-highs of 129.73. Profit targets are not yet set in stone, but a hold of clear congestion near 126.00 would signal that short-term rallies are likely.
My picks: Continue holding EURUSD Short Expertise: Macro Fundamentals, Classic Technical Analysis Average Time Frame of Trades: 1 week - 6 months
Yesterday, I suggested selling EURUSD on a break of 1.3844, the 38.2% Fibonacci retracement of the 11/21/08 - 12/18/08 rally. The pair has since tumbled sharply lower to test the 61.8% level at 1.3380. Continue holding short, with a break of current support opening the door for decline to the 76.4% mark at 1.3060. As before, this is a reference level rather than a hard take-profit target as we expect a considerable long-term EURUSD down trend in the coming months.
My picks:Long GBP/JPY Expertise: Fundamentals Combined With Technicals Average Time Frame of Trades: 2-4 Days
The Pound has shown signs of life despite the expected rate cut by the BoE on Thursday. Therefore, if the central bank signals that their easing policy is over then we see significant bullish momentum. Additionally, risk appetite has been picking up and the Yen crosses have been the beneficiaries. My initial target is 141.92- the 50day SMA with 148.64- the 11/25 high as the next.
My picks: Short EUR/USD Expertise: Fundamentals and Technicals Average Time Frame of Trades: 2 - 10 Days
Expectations for an ECB rate cut triggered a freefall in the EURUSD during the last two days of trading, and the euro is likely to weaken further over the week as market participants expect the central bank to lower the benchmark interest rate by at least 50bp this year. After dipping to a low of 1.2329 on 10/28, the pair bounced back to reach a high of 1.4720 on 12/18 but ended the session lower, which suggests that investors are bearish against the euro. The pair dropped 150+pips to break below 1.3525 (50.0% Fib), and may work its way towards 1.3240-50 (61.8% Fib and 50 Day SMA) over the remainder of the week to test for support. A break below this level could lead the pair to retrace the December advance, and may push the euro towards 1.3000 over the near-term.