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Futures Trade Desk- Currency Traders Get A Plan

Trade Desk Client Note

Global Futures Market Review

Currency Traders Get A Plan

Fundamental Outlook:

The talk of the Euro being prone to speculative attacks over the ongoing debt and bailout debacle have not as yet been able to transpose themselves into mid and long-term action. The main stream talking heads are extolling the virtues of a break-up of the Euro-zone economy as if it could be something seen in the near-term. In reality nothing could be further from the truth, and those looking for a fundamental collapse of EUR valuations may just want to look at what is on the other side of a EUR/USD trade. 

There was a late-session move that strengthened all major currencies (EUR, GBP, AUD, CAD, CHF, JPY) against the dollar, in-line with an equity trading session that saw risk being bought. The strength of correlation between EUR and S&P 500 is not allowing one asset class to move against the other, and when equity indices are bought or sold EUR/USD moves in the same direction. 

The globalization of daily trade has created an investment arena that will not allow a separation of weighing equity risk against the dollar. Debt woes in the Euro-zone are probably no better or worse than in the US, and until the spreads in inter-bank borrowing and debt insurance narrow the attention will be on breaking headlines and reactionary automated algorithm trade.

Technical Review:

EUR/USD: Holding a trading range set at the beginning of September 2011, with 1.3250 the swing point support area and 1.3950 the swing point resistance area. Daily chart simple moving averages are in play and will likely hold the 700-pips range in place. 

GBP/USD has spent more time trading around the current levels than anywhere else over the last thirteen years. The current 1.6000 valuation also held steady for a decade from Feb 1992 to Feb 2002, and now looks likely to continue the pattern of trade that has 1.5550 the swing point support area and 1.6250 the swing point resistance area.

AUD/USD has held steady as a go-to currency pair for those looking for long-term interest rate appreciation rates, where interest is paid to hold AUD against the USD. However, now that the Reserve Bank of Australia has started to cut interest rates the speculative attacks on the currency may start to build. The pair is back into the September trading range that has 1.0000 the swing point support area and 1.0700 the swing point resistance area. A Weekly chart close below either of those areas could signal a sustainable move.

USD/CAD has held a sideways move that favors the short side of trade since mid-2009, with nothing happening in between to signal a mid-term long move will be easily sustainable. The long-term charts reveal that the pair will react violently to moves made on the short side of equity indices, but day-to-day it would seem that the market is happy to buy Canadian dollars when risk is being tolerated globally, and the pair looks likely to continue the pattern of trade that has 0.9950 as the swing point support area and 1.0350 the swing point resistance area.

USD/CHF charts reveal  a systemic collapse of the US dollar against the Swiss franc that cannot be ignored, with upside bounces met with a wall of sell orders. The recent move higher to test 0.9450 has consolidated, in-line with global risk markets looking for direction in the near-term. If equity trade can find buyers it may be hard for USD/CHF trade to move higher. This is a volatile intra-day trading pair that struggles to break ranges in the near term, but is more than capable of building a long-term declining trading pattern from one or two intra-day moves a week. This pair offers a daily conundrum of choices, and is left well alone unless a compelling reason is found.

USD/JPY joins USD/CHF as a pair that is prone to the ravages of central bank manipulation as the Bank of Japan and Swiss National bank battle the markets in an attempt to reduce their currency values against the USD. The technical outlook on USD/JPY reveals a pair that is in steep decline over the mid-term, and has been following an overall pattern of weaker trade since 1990. The Weekly chart reveals a slippery slope lower that will be hard to reverse; there will need to be a monumental reversal in the outlook for USD-based debt for this pair to move higher and easily hold. 

Trader Talk:

Ignoring the constant breaking news headlines and mainstream media talking heads is hard to do when the global market is wired with news-tracking algorithm trading responses. However, there is a way to maintain a stable outlook as a trader, and that is to have a defined daily plan of action that follows a repeatable structure, leaving the only variable each day as the market itself. 

These are volatile trading times, as seen in the exponential increase in average daily trading ranges (3% overall on main asset classes) that create a one-day-up, one-day down environment. 

Moving towards mid-term charts (4-hour maybe) and looking to buy the previous session low and sell the previous session high may offer about the most consistent rewards in the near-term. Mixing mid-term outlooks with near-term triggers that bank early and trail stops could be the way for most traders to navigate these volatile waters. 

Having a mentor or support program in place would also be a benefit, with an information source that offers repeatable information that builds education and confidence as each day, week, and month completes.