Trading "Risk-Off" Currencies as US Fiscal Cliff Looms

Focus: FOREX

As the fiscal cliff gets closer and closer, the markets get more nervous with each passing day. Here, Tyler Yell of DailyFX.com, suggests strategies for trading specific currency pairs.

When markets drop, they drop fast. It’s a common tale of trading that a trading instrument can take weeks or months to build up to a certain level yet drop and leave behind the gains fought for in a number of days. As a trader, you must be proficient in taking advantage of down moves and this article will share with you the currencies to keep your eyes on if the US economy goes over the fiscal cliff and way to trade them.

Over the last four years, we’ve found ourselves in a crisis management environment that continues to drag EUR/USD and other major pairs lower. This is a result of traders and institutions running into the US dollar via Treasuries. US Treasuries are seen as the safest financial instrument in the world.

chart
(Created Using FXCM’s Marketscope 2.0 charts)
Click to Enlarge

This weekly chart shows a down trend that started with the global credit crisis in 2008 only to be followed by the sovereign debt crises coming to head with many key European economies.