Volatility has clearly returned after the weekend liquidity lull. With a drive that is finding its source from general risk trends and dollar strength, we are starting the week on enough momentum to drive breakouts and reversals. Our DailyFX Analsyts weigh in on whether this move will hold up and where to take advantage of the evolving market trends.
Chief Strategist - Antonio Sousa
My picks: Short AUD/JPY
Expertise: Economics and Behavioral Finance
Average Time Frame of Trades: 1 week - 3 months
My favorite macro theme continues to be the extraordinary wave of de-leveraging in today' very volatile financial markets. In fact, I have been short AUD/JPY since the beginning of October, when the currency pair was trading at 70, and I expect the Australian dollar to fall further against the Japanese yen in 2009. Indeed, risk aversion combined with de-leveraging in the financial sector is likely to continue helping lower yielding currencies like the Japanese yen. Moreover, with the world economy slowing down is reasonable to think that the demand for commodities will also begin to slow down which could only mean further losses to commodity sensitive currencies like the Australian Dollar.
Senior Currency Strategist - Jamie Saettele
My picks: Limit entry USDCHF long at 1.1050, against 1.0850, target 1.15
Average Time Frame of Trades: 1 month
The USDCHF rally from 1.0367 is the beginning of a B wave that is expected to reach Fibonacci resistance at 1.15, eventually. Wave b of B is likely complete at 1.0861. Therefore, wave c of B is underway from 1.0861 (price should remain above there). Short term support begins near 1.11.
* NZDUSD long (from last Monday), exit
* Short USDJPY (from last Wednesday), move risk to 91.69
* Short AUDUSD (from Friday), exit half and move risk to .7139
Currency Strategist - Terri Belkas
My picks: Long EUR/GBP
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 1 - 3 Days
EUR/GBP has held above support at the 61.8% fib of 0.8233 - 0.9805 at 0.8835, and while we do need to keep in mind that the euro faces heavy event risk on Thursday, this provides a good opportunity to buy the pair. From a fundamental perspective, the British pound may be due for declines across the majors in light of last week's rate cut by the Bank of England. Stops should be place below noted support, and the 50% fib of 0.9805 - 0.8838 at 0.9318 may serve as a decent target level.
Currency Analyst - David Rodriguez
My picks: Long Japanese Yen against US Dollar (Short USD/JPY)
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks
The Japanese Yen posted a massive rally last week and through the start of this week's trade, and I believe it will continue to strengthen through near-term trade. The USD/JPY subsequently trades at important support of the 61.8 percent Fibonacci retracement of the 87.20-94.60 rally (at 90.00), and a substantive break lower would invite further USD/JPY weakness. I will position myself accordingly and watch for a move back towards subsequent support at 88.50 through the near term, with a challenge of multi-year lows near 87 the subsequent objective.
Currency Analyst - Ilya Spivak
My picks: Sell EURUSD below 1.3409
Expertise: Macro Fundamentals, Classic Technical Analysis
Average Time Frame of Trades: 1 week - 6 months
Writing in my weekly technical outlook report, I noted that the Euro was likely to see near-term gains against the US Dollar to re-test support-turned-resistance at the bottom of the range from late December in the 1.3823-1.3910 area. Indeed, the pair saw near-term upside but ran out of steam on a test of 1.38 and dropped back to a key multiple support/resistance level at 1.3409. A daily close below here clears the way for a selling opportunity targeting 1.3075, the range top that contained the pair from 10/22/08 - 11/10/08.
Currency Analyst - John Rivera
My picks:Short CAD/JPY
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 1-2 Days
I was clearly too bullish on the global growth story last week and the dismal employment reports has spark a return to risk aversion as the outlook for corporate earnings dimmed. Although, I still believe that the once the get past the U.S. presidential inauguration, we may see the beginning of an extended trend of increasing risk appetite, until then I would have go with current sentiment. Watch out for support at 74.00 with a re-test of 73.00 a possibility.
Currency Analyst - David Song
My picks: Short EUR/USD
Expertise: Fundamentals and Technicals
Average Time Frame of Trades: 2 - 10 Days
The decline in the interest rate outlook for the Euro-Zone will likely weigh on the regions currency over the near-term, and as the EURUSD could face increased selling pressures over the week as the ECB is widely to lower the benchmark interest by 50bp to 2.00% on Thursday. 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 the lack of momentum to end the day higher favors a bearish forecast for the pair. As a result, we may see the euro-dollar work its way towards 1.3250 (61.8% FIb and 50 Day SMA) over the week, and a break below this level could push the pair towards the 12/11 low of 1.3000 over the stated timeframe.