Forex Markets For The Week Commencing January 28, 2013
For most of you, the idea that the Forex markets weren't always chaotic is probably far fetched. However, I can assure you that it wasn't always like it is currently, and as a result a lot of good traders have been blown out over the last couple of years. However, there is good news on the horizon it seems. It appears that some sense of normalcy may be returning to the FX markets and this can be seen in various pairs at the moment.
The first one is without a doubt the USD/JPY pair. This pair has long been a stalwart of the bullish crowd in general, as have the other EUR/JPY, NZD/JPY, and AUD/JPY pairs. In fact, if you were trading 5 years ago – you simply sold the Yen and collected your profits. This was known as the “carry trade”, which of course is beyond the scope of this article, but suffice to say it was a one-way trade for quite a while. In fact, if you go back a few years on your charts, you might be forgiven for asking how anyone ever lost money in FX trading.
Looking at the USD/JPY pair, you can see the 90 level has been broken. This leads this pair higher in our opinion, and as a result the 100 level will more than likely be targeted. A couple of Japanese officials suggested that they would be happy to see a 100 level on this pair, and as a result this was a bit of a “green light” for more traders to jump in and push this pair higher. Don't get us wrong, there will be pullbacks, but 100 seems to be the target this year. This should lead to even higher gains later on as well.
Looking at the other main player in the “normalized” markets, the EUR/USD looks posed to make a serious move. The ECB has put in a backstop for the bond markets, while stating they are not looking to ease monetary policy. This has lead many traders to take that as a sign that it was al-right to buy the Euro. In a world that has most central banks around the world in a race to the bottom, this is a welcome sign for traders who are looking for something to own. In this case, the EUR/USD looks ready to sprint if we can get over the 1.35 level.
This area features massive resistance, but is also a neckline of an inverted head and shoulders pattern. This pattern suggests that the pair is going to 1.50 if we can break out. Seem a bit excessive? Not so much if you look at the long-term trend. This in fact would only be a return to the top of the massive consolidation area the pair trades in. (Between 1.20 and 1.50)
Seeing this, we may finally be entering into what would look like a normal market. This is better news than we can tell you. In this type of environment, money does come much easier, as long as you can be patient.
The potential catalyst? This Friday has the Non-Farm Payroll number coming out in the United States. This could be bullish enough to send markets even farther into the “risk on” mode. The S&P 500 and Dow are both on a tear lately, so there is that possibility as well.