Currencies have been active so far in 2014 and this is likely to continue to start the month of February. Sever fundamental events of primary importance are on the calendar in the next week affecting virtually all of the majors. Most analysts focus on the policy meetings of the ECB and the BoE, with some calling for interest rate cut by the European Central Bank. While these events are important, I think most of the action will take place before the announcements and response will be flat. Earlier in the week, the RBA meeting could provide more excitement, followed by employment numbers from New Zealand. Respective currencies have been lively and should respond strongly to news, especially if there are surprises. The US dollar will be driven by ISM data and, of course, the NFP report and the Unemployment Rate on Friday. In addition, we also have Canadian labor numbers. All of these events should keep traders on the edge and currencies on the move.
Recovery in the Canadian Dollar coincided with weakening selloff in the Yen pairs. While I think that there is much more downside potential for these pairs, we could see a rebound from a short-term perspective. If this happens, the CAD-JPY should be a good candidate for a long trade, once certain conditions are met. Using the hourly chart, I want to buy this instrument at 92.28, targeting the 93 area, or roughly 70-80 pips. Because from the perspective of this chart the selloff is already advanced, chances for a bounce are realistic. Should the price continue lower, I will keep moving the buy order down, following the price action just above the latest minor high.
From immediate perspective, the EUR-USD might offer an opportunity in early trading hours. Following a sudden drop in last three days, it closed near the low for the day/week. The set up here is simple – if the price makes a new low in the first few hours after the open, I want to buy it after seeing a bullish reversal candlestick pattern on the 1H charts. Precise numbers will have to be worked out when(if) the situation develops, but my objective will be about 40 pips for this short-term trend. In addition, as always after the weekend, gaps are possible, something to pay attention to, as they often produce trading opportunities. Have a great trading week!
Mike K.