FX STRATEGY
of the year, primarily due to continuing monetary easing by the Federal Reserve that has left interest at
record lows along with a stimulus program
known as Quantitative Easing that has flooded the market with a record amount of dollars. Now that the program comes to an end on June 30th, we are anticipating a renewed strength of the buck. We are already seeing price action that is indicative of a reversal, all we need now is a fundamental justification to support the technical analysis, though that remains in question as data continues to be mixed.
There remain many economic issues on both sides of the Atlantic and during times of uncertainty we tend to rely more on technical analysis than fundamental, as price action tends to deviate from reality. Our trading decisions, driven by a constant change in news and market expectations, are always based on technical analysis in conjunction with fundamental analysis as our experience has taught us that fundamental reasons will always catch up with market at some point in the future.
Taking into account all the global uncertainty, we should find that risk will be the main driving force for the coming months.
T sloping
echnically, price action in mid April showed that the market wasn’t ready to bear the high price of the euro as a breach of the upwards trend-line accelerated losses
to previous
weeks’ levels; however, as the market typically pushes prices to extreme levels prior to an eventual turnaround, we saw excessive gains in the euro in the following days, rallying more than 700 pips to set a 18 month high just below the 1.50 level. As we expected, the fundamental reasons didn’t support such a high price, traders turned against the trend and a heavy correction ensued. Price action during the month of May was impulsive and we see this as the start of a longer term dollar rally. Only a break above 1.4950 delays our outlook. Still, it is too early to call this a reversal as longer term uptrend near 1.4200 remains. A break of this figure will be necessary to see an additional move below 1.3965, which is currently the most recent daily pivot low.
46 FX TRADER MAGAZINE July - September 2011
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