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Tuesday, 30 Dec 2008
Stagnant Markets Leave Opportunities for Forex Traders
The approaching year end and illiquid forex market has produced large short term price movements. Traders may find opportunities to profit from these quick price spikes by closely following their hourly chart. With many large market makers closed, volatility is forecasted to remain high as we close the books on a historic year.
USD - High Price Volatility for Dollar amid Light Trading
As expected, there was very light volume in trading yesterday but high price volatility for the EUR/USD. The pair climbed as high as the 1.4360 mark. After the 1.4000 support line was broken, a corresponding rally in Crude Oil prices was seen due to a weaker Dollar. The pair ended the day down at 1.4043
The pullback of the EUR during the financial crisis has been largely eroded as the year end approaches, leaving the Dollar range trading between 1.3900 and 1.4200. This type of trading may be seen throughout the remainder of the year as currency markets see high price swings due to illiquid market conditions. This could leave traders with some potentially profitable trading opportunities for the next two days. As to what direction the Dollar may go for the coming year, the question needed to be asked is, are we finished with the big deleveraging that we've seen from the financial crisis? We may see some deleveraging that could strengthen the Dollar in the short term, but some fiscal and monetary policies choices by the U.S. government may lead to a weaker Dollar in 2009.
Today traders will be looking for the consumer confidence index to be released. The survey is forecasted to show a small increase in U.S. household confidence. Market conditions may again create high price volatility in the EUR/USD and other Dollar crosses.
EUR - New Year Rate Cuts Drop GBP
The GBP continues to head lower against the EUR as Britain may have a further Interest Rate cut priced into the EUR/GBP. There is a lot of negative news currently circling the GBP/USD, and the comments by European Central Bank (ECB) President Trichet that the ECB may hold Interest Rates steady in the near future may lend further support for the EUR. Also signals from the Bank of England show a potential rate cut in the future for Britain. Last week the EUR/GBP briefly hit an all time high, very close to a 1-1 trade parity. Yesterday the pair ended the day down at 0.9690.
Since the beginning of the financial crisis, the GBP has been one of the hardest hit currencies. The EUR/GBP has risen over 43% since September. This pair could be in line for a correction in the near future, or as some analysts are predicting, could be setting a new standard in the currency market pecking order.
JPY - Yen Sees High Volatility but Little Changes
Japanese markets are closed for a banking holiday today and will be for the remainder of the year. This may ease the pressure on the USD/JPY. The recent appreciation of the Yen has prompted the Japanese government to call for direct government intervention to depreciate the Yen in the open market. As the appetite for risk has climbed the last month, so has the value of the Yen.
The USD/JPY closed the day down at 90.30. Don't expect too much movement from this currency pair until trading in the New Year begins. Look for the JPY to hover around the 90.00 mark.
Oil - Middle East Violence Sparks a Rise in Crude Prices
A rally in Crude Oil was seen yesterday as continuing violence in the Middle East sparked a price jump. The price reached above $42 at one point, settling at $39.60 for the day. Analysts are concerned that an increase of violence in the region could disrupt Oil supplies, driving Crude prices higher.
The price appears to be so low, that some are calling this event the start of a rally in Crude Oil prices. This idea may hold little water, unless other Oil producing nations are brought into the conflict which may cause a disruption in the supplies. For the remainder of the year, Crude may continue to hover around the $40 mark.
A bearish cross on hourly chart's Slow Stochastic implies that a downwards correction might take place in the nearest time frame. The daily chart's RSI is floating in the overbought zone suggesting that the upward trend might be out of steam. Going short with tight stops appears to be the right strategy today.
The hourly chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, there is a fresh bullish cross on the daily chart's Slow Stochastic indicates that an uptrend correction might take place in the nearest future. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. All oscillators on the 4 hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.
The 4 hour chart is showing mixed signals with its Slow Stochastic fluctuating at the neutral territory. However, the Daily Chart's RSI is already floating in the oversold territory indicating that a bullish correction might take place in the nearest future. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
The Wild Card
The bullish trend is loosing its steam and the price is consolidating around the $874 for an ounce. The daily chart's RSI is floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage.
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