Currency traders will not be able to take their Christmas break early this year, as big, market moving economic releases are crowding the calendar this week. We have inflation data on tap from EU, UK, Canada and the USA. In addition, GDP numbers from New Zealand and minutes from last week’s central bank meetings could create volatility in their respective currencies. Of course, the two most important events come from central banks again. This week it is the FED and the Bank of Japan debating their financial policies.
FED Balance Sheet (trillions).
The main question among analysts and market participants is the fate of the asset purchase program, or rather, its end. For a long time the central bank has been buying bonds at a pace of roughly $80 billion a month, but now everybody wants to know when this easing will come to an end. Federal Reserve is expected to provide the answer on Wednesday. More realistically, the FED will offer “clues” and then markets will begin the wild process of interpreting them. On balance, a slowdown, or “taper”, in the purchase program is perceived to be positive for the USD, although it is not prudent to buy the Dollar only on this presumption.
On Friday, as mentioned in the last post, I was looking for short-term breakouts at the start of the London session. The GBP-USD turned out to be a good candidate with clearly defined consolidation. The concept here was simple, straddle the range with buy and sell orders. Eventually, the move was down, triggering the sell order at 1.6318. This trade resulted in quick gain of 30 pips, my objective here.
One of the currency pairs on watch list for this week is the EUR-CAD. This pair has had a sustained rally for a long time, but it could be ready to correct. On Friday, the price developed large bearish engulfing line on its daily chart. Coming at high of advance, it signals potential weakness ahead. The EUR-CAD might easily pull back 300 pips or so, but I will be looking for 120-140 pips, using smaller time frame charts. Have a great trading week!
Mike K.