Sometimes it’s an individual currency that has a trend that makes sense to watch and capitalize on, notes Raghee Horner of InterbankFX.
Since the second week of January I have been focusing on the yen, euro, and kiwi—more or less in that order. Having pairs that are trending based on yen weakness, euro strength, and kiwi strength bring me to pairs that have directional bias or a clear and established trend.
Of course, corrections will happen but the key is to understand that a reversal would not occur until the yen trades above 1.1400 and even the 50DMA for a more psychologically relevant and technical level. The key will be to wait for those sizeable corrections higher and short into them between the 20DMA and 34 period EMA low.
While not as established (or convincing a trend) the technicals of the euro show a “12 to 2 o’clock” angle of the 34EMA wave and recently consistent green GRaB candles. This isn’t to say that there are not fundamental hurdles ahead, but it seems that traders are still willing to step in and buy the single currency after tough days especially when it seems that the ECB’s hands are tied. Yes, the currency is strong (arguably “too” strong) but a weakened euro is bound to begin hurting strong bond auctions… it’s a Catch-22. So in the meantime I like the euro’s strength against the pound and yen.
Amongst currencies that I am hesitant to commit to longer term are the US dollar and the Australian dollar, which are both in sideways and volatile choppy ranges (distribution) and while technically distribution is not usually considered at the end of a downtrend, the characteristics are similar. As long as traders discount that the Fed will wind down QE4 ever this year (mid or late) it will be difficult for the greenback to punch to new lows and follow-through.
By Raghee Horner, Chief Currency Analyst, InterbankFX