A tremendous flow of scheduled and unscheduled event risk has crossed the wires over the past few weeks; yet the currency market as a whole has not produced any major shifts in direction or trend revivals. However, technical patterns behind many of the market's most liquid pairings have developed to the point that breakouts are inevitable. Are these technical catalysts all that is needed to finally produce new trends or will the market see another round of false breaks that return to the congestion that we have seen so prominently since October? Find out what each of our Analyst thinks through their pick below.
Chief Strategist - Antonio Sousa
My picks: Buy Safe-Heaven / Sell High Yielding Currencies
Expertise: Global Macro and Behavioral Finance
Average Time Frame of Trades: 1 month
Last week, U.S. lawmakers approved a massive 787 billion dollar stimulus plan. With this spending bill, President Barack Obama hopes to “create more than 3.5 million jobs over the next two years” and “ignite spending by business and consumers alike”. However, I’m afraid that a “Buy American” clause included in the stimulus plan by the House of Representatives may well trigger a wave of protectionism in other countries and damage the potential benefits of the stimulus plan. In fact, this has happened before during the last Great Depression of the 1930s when an unemployment rate of more than 23 percent pressed U.S. politicians to implement a series of protectionist bills which had a catastrophic impact in the world economy. Having said that, and given the lack of political will to implement tough reforms, I expect the world economy to continue to deteriorate in 2009, which could create additional pressure on export dependent countries and lead to a significant shift of interest rate differentials in favor of safe-heaven currencies like the U.S. dollar and the Japanese yen. So, I will continue to look for opportunities to sell high yielding commodity currencies like the Canadian dollar, Australian Dollar or New Zealand dollar.
Senior Currency Strategist - Jamie Saettele
My picks: stay long EURUSD, against 1.27, targets 1.33 and 1.36
Average Time Frame of Trades:
The bottom line is that a corrective advance is due soon. Whether or not 1.27 is broken before the advance begins is another question. Dropping below 1.27 would complete a small 5th wave in a terminal thrust from a triangle. Bigger picture, the next leg of the multi year bear is underway from 1.47. A countertrend rally is expected and initial resistance is at 1.33.
long EURUSd, against 1.27, targets 1.33 and 1.36
Currency Strategist - Terri Belkas
My picks: Sell GBP/USD on a break below trendline support
Expertise: Fundamentals combined with technicals
Average Time Frame of Trades: 1 day - 1 week
My pick of the week last Monday was to buy EUR/USD on a break above 1.32, something that never came to fruition. This week I'm looking at GBP/USD, and assuming risk aversion remains an issue this week in light of the minutes from the January Federal Reserve meeting and the February Bank of England meeting, I am looking to sell GBP/USD on a break below intraday trendline support at approximately 1.4150 (the line is slowly edging higher by the hour). Depending on your preferred time line of trading, there are various targets to consider. The nearest level sits at the 61.8% fib of 1.3503-1.4988 at 1.4070, where we also have the January 29 and February 2 lows. However, a drop toward the January 23 low of 1.3503 may not be out of the question either, as this would leave GBP/USD within its downtrend. Stops should be placed according to preferred risk/reward ratios.
Currency Analyst - David Rodriguez
My picks: Flat the USD for now
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks
I remain bearish the Euro against the US Dollar, but the pair's resilience at key support levels has clearly made me wary of the potential for further bounce. In my weekly EUR forecast, I highlight the reasons for my EUR bearishness, but the short term is almost always a different proposition. As such, I'll wait and see what happens next. If we get a strong break to the downside, I see it as an opportunity to go short the currency pair.
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 first sold the Euro against the US dollar at 1.5510 and have been holding short since, expecting the emergence of a long-term down trend. The pair conoslidated in a well-defined range below the 1.31 level since the beginning of this month but last week's clear negative market reaction to US policy efforts and the past weekend's ominous G7 summit suggest risk aversion could forcefully return in the near term. This stands to benefit safe-haven currencies including the US Dollar and may prove enough to see consolidation yield to a resumption of the down trend. Remain short, targeting below 1.26 near the bottom of the range that confined EURUSD from 10/22/08 - 11/10/08.
Currency Analyst - John Rivera
My picks:GBP/JPY Breakout
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 2-4 Days
Well, I have been too early or too late on the GBP/JPY pair and although I remain bullish on the pound over the medium term, it is still susceptible to short-term bearish movements. The BoE is expected to lower rates again and the U.K. economy is entering a severe recession. However, the currency has most of that priced into it and when credit markets stabilize we could see a large retrace. The GBP/JPY has traded in a tight range and a breakout is imminent the 50-Day SMA at 132.31 and the 20-Day SMA at 129.00 has held the pair captive. If either technical level is broken it could lead to a breakout in either direction.
Currency Analyst - David Song
My picks: Sell Rallies on NZD/USD
Expertise: Fundamentals and Technicals
Average Time Frame of Trades: 2 - 10 Days
Expectations for a rate cut by the Reserve Bank of New Zealand favors a bearish forecast for the NZDUSD, and the pair should continue to hold its downward trend over the coming months as investors continue to curb their appetite for risk assets. After reaching a high of 0.6086 in December, increased selling pressures pushed the pair to a seven-year low of 0.4961 earlier this month, and I expect the kiwi-dollar to retest the February low over the near-term as the reserve currency continues to benefit from safe-haven flows. Over the remainder of the week, we may see the kiwi-dollar attempt to retrace the sharp sell-off from the previous week, but as short-term resistance holds at 0.5380-90 (38.2% Fib), I will wait for the pair to work its way towards the stated level before entering a short NZDUSD trade.
Currency Analyst - Joel S. Kruger
My picks: Pending Sell EUR/USD @1.2860 for 1.2550 Objective, Stop @1.2955
Expertise: Technical Analysis
Average Time Frame of Trades: 1-3 Days
Inability for the pair to close above 1.2940 last week seriously dampens any hopes for a legitimate recovery. The market has been trading with a heavy tone into the early week and a closer look at the daily chart shows the formation of a bearish descending triangle formation with the market gradually making a series of lower highs while at the same time finding support right by the 1.2700 figure. This would imply that we are nearing a break below 1.2705 (2Feb low) for a bearish resumption to expose the key trend lows at 1.2420.
Fundamental Catalyst - The threat of any form of currency intervention is out of the way after the G7 once again proved to be a let down for any traders who were hoping for the meeting to inspire some form of significant position adjustments. This should keep things moving in the same direction as they were which translates into more broad based USD gains. Additionally, the Obama stimulus plan is now about to officially pass, and as has been the case over the past several months, we have seen a buy the rumor sell the news mentality in the markets. Lightened holiday trade can often result in some nasty stop hunting and at this point it is quite clear that the pain lies just below 1.2700, with massive stops having been built up below the latter over the past few weeks.
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