(By Mike Kulej) Most of last week was relatively quiet for currencies, especially when compared to earlier periods. Eventually activity picked up on Friday with decent daily trends, seemingly without any convincing news. They came some time after the release of Canadian employment data, which were disappointing. Once markets digested that, however, currencies moved in the opposite direction, perhaps on an uptick in sentiment, perhaps because simply few larger players nudged prices in one direction and others followed. On balance, it appears that after promises of action from the ECB markets want to see something other than words from the central bank. At the same time, the ECB indicated it would start buying bonds once interested countries formally asked for assistance from the EU. This leaves everything in limbo, leading to less than decisive price behavior. Clearly, everybody wants to see the level of commitment from the ECB, meaning numbers – how much and for how long? We might find out this week.
Last week at this time, I was looking for a short-term reversal in the AUD-USD. The idea was to sell it following a bearish candlestick on hourly chart after the open. That provided entry at 1.0564 and the price indeed corrected. Unfortunately, as volatility evaporated, my 40 pips objective turned out to be overly ambitious. The AUD-USD declined only about 30 pips below my entry level, missing the objective. Since that was meant to be a short-term trade, I needed to get out relatively soon and closed for 8 pips gain.
Staying with the AUD-USD, the pace of advance has slowed down considerably last week. Even though the price made a new high for the move at 1.0612, it was by a small margin. After that, the AUD-USD dipped, establishing a minor low at 1.0490, a sign of potential weakness. Another drop below this level would confirm it and could be a good place to go short. I have a sell order at 1.0490, with objective of 90 pips. Should this order be filled, it might take several day for the trade to play itself out, especially if volatility remains as low as it is now.
The British Pound has been volatile day to day, but not translating it to a trend. Most of its pairs have been changing directions, forming rough trading ranges. In case of the GBP-JPY, this consolidation is well defined between 121.72 and 123.15 or so. It is just a matter of time before the beast starts moving again, so I am placing a straddle order here with intention of catching 100-120 pips. Because it is an intermediate term chart, I do not expect a speedy conclusion here, but a lot will depend on what happens after a breakout takes place. Have a great trading week!
Mike K.