Many of the currency world's most liquid pairings are still settled within tight ranges or on the cusp of significant breakouts. And, once again, we are presented with a healthy round of high-level event risk that may finally force technical levels or drive a major retracement. What will be the ultimate driver? Is the FX market going to finally see a revival of trend this week? Where are the best opportunities among the majors and crosses? Our DailyFX Analysts look to answer these questions.
Chief Strategist - Antonio Sousa
My picks: Short AUD/JPY
Expertise: Economics and Behavioral Finance
Average Time Frame of Trades: 1 month
Some investors thought the new Obama administration stimulus plan could have led to a much broader recovery in the appetite for risky assets like stocks and high yielding currencies. However, judging by the recent price action, not everyone bought into that story and a large majority of traders thinks governments across the world don't have the antidote for the current financial crisis. Looking ahead, I expect a mix risk aversion with de-leveraging in the financial sector to dictate most of the price action for the next few weeks. Having said that, I have been short AUD/JPY since the beginning of October and I expect the Australian dollar to fall further against the Japanese yen
Currency Strategist - Terri Belkas
My picks: Short USD/JPY
Expertise: Fundamentals combined with technicals
Average Time Frame of Trades: 1 day - 1 week
On a short-term basis, I'm looking to sell USD/JPY at market with a stop above 90.00. I think the 61.8% fib of 87.15 - 90.71 at 88.52 serves as a good initial target, as it remains clear that risk aversion is still a major driver of price action in the financial markets. On a longer-term basis, a good strategy may be to sell rallies in the Japanese yen crosses in general.
Currency Analyst - Ilya Spivak
My picks: Remain Short EURUSD
Expertise: Macro Fundamentals, Classic Technical Analysis
Average Time Frame of Trades: 1 week - 6 months
I originally sold EURUSD at 1.5510 having identified a Long Black Candle that closed beyond trend line support. I then added to the position at 1.3364 on a break of a key support/resistance level above 1.34. Prices dropped to close below near-term support at 1.29 on Friday, with the next major hurdle for bearish momentum being a test of the 1.2500-1.2550 area at the bottom of the 10/23/08 -12/08/08 range. Support here is reinforced by the lower boundary of a downward sloping channel that has contained prices since mid-December so a corrective bounce is possible.
Currency Analyst - John Rivera
My picks:Short GBP/JPY
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 1-2 Days
My long USD/JPY trade last week hit my initial target at 90.50-the 20-Day SMA but that the technical level proved formidable as earning concerns and lingering banking troubles led to risk aversion. Today I will continue with the risk trade but the GBP/JPY is my pair of choice. The pair was also turned away by the 20-Day SMA but I think that after the Pound's recent rally it has further to retrace and with the BoE expected to cut rates by 50 bps on Thursday we could see the sterling trade heavy leading up to the decision.
Currency Analyst - David Song
My picks: Short GBP/USD
Expertise: Fundamental and Technical
Average Time Frame of Trades: 2 - 10 Days
As the Bank of England is expected to adopt a zero interest rate policy over the near-term, I expect the GBPUSD to face increased selling pressure over the week, and the pair should continue to hold its downward trend over the coming months as the reserve currency continues to benefit from safe haven flows. The pound-dollar fell 450+pips during the overnight session to slip below 1.4900, and as a result I expect the pair to retraced the rally from the previous week and will hold my target at the 1/26 low of 1.3546 for the time being.
Currency Analyst - Joel S. Kruger
My picks: Buy NZD/USD @0.4945, for 0.5380; stop at 0.4780
Expertise: Technical Analysis
Average Time Frame of Trades: 1-3 Days
The market has finally taken out next support by 0.5010 (June 2002 highs) along with critical psychological barriers at 0.5000 today, to trade to 0.4975 thus far. With daily studies so heavily oversold, we contend that the market should find some support in here ahead of a necessary corrective bounce. On Friday we recommended establishing a long position by 0.5010 but our trade was never triggered. Today we will look to buy again using ATR (Average True Range). As contrarians, we often like to look at the ATR of an instrument to give us a better sense of compelling risk/reward trade ideas. This is a necessary step to take, particularly in the current markets where counter-trend trading can be so dangerous. Nevertheless, the best bull opportunities come within bear markets and as such, we continue to look for attractive counter-trend trading ideas. While the ATR only gives a trader an average projected range, it still is a useful tool to anticipate the full extent of a market move within a given timeframe. The current daily ATR in Kiwi comes in at 150 pips. As such we will be looking for an opportunity to establish a long trade on a test of the 0.4945 (0.5095 daily high minus 150 pips). Strategy: BUY @ 0.4945 FOR A 0.5380 OBJECTIVE, STOP @0.4780. Recommendation to be Removed if Entry Price Not Hit Monday.
Fundamental Catalyst - RBNZ event risk is out of the way with the central bank slashing rates another 150 bps to 3.50%. Although Bollard has warned of further reductions, much of the weakness has been discounted into the markets. Global equity prices while still tracking lower are showing some form of stabilization or at the very minimum, a slowdown in the intense liquidation as seen in previous months. Commodity prices have also been showing some constructive price action with gold starting to break higher and seemingly more and more in demand. The broad based USD gains have also look to have run their course for the time being and as such, at least over the shorter-term, there could be some value in trying to pick up some positive carry at current levels.