in commentary, technical analysis

Forex Technical Analysis Outlook – January 2014.

When I first set up FuturesTechs in 2000 one of the first things I did was move to Australia. We only ended up there for 18 months but in that time I met a chap who has remained a friend since, and who, like me, also writes a bit of Analysis on the markets. I am always interested to read his thoughts on the markets as he comes up with such gems as this, from one of his last e-mails:

” It wasn’t long ago that the most important fundamental indicator for forecasting FX price movement was Central Bank interest rate expectations…..a high (or climbing) interest rate pretty much meant a rising currency.

However, for the last few years, interest rates across the major currency pairs have been so low that other factors such as QE, verbal intervention, actual intervention and Central Bank bail-out policies have been the primary drivers for currency flows.
As such, over the last several years, directional FX trading could be described as an ugly contest with the trick being to find the currency that was slightly less worse off than the other….and buy it.”
Thank you to my man,  Todd Deiterich at SRB Capital Management in Chicago. Couldn’t have said it better myself, and I hope you didn’t mind me reproducing this.
So what does the ugly contest have in store for us in the coming months?
EURUSD has been moving higher since July 2012 and recently got to a big Fibonacci level at 1.3835. We have pulled back from this level and for now I am looking for further weakness targeting 1.3530, 1.3430 or even 1.3295, the latter being November’s low.
Obviously taking out 1.3835 is the bulls’ priority…
GBPUSD is a bit of a mess right now and we are on the sidelines, with a leaning towards the bulls. There is a “big picture” Fibonacci level at 1.6430 that’s never quite been breached properly, and last week’s rejection of the upside is a worry on this basis.
This means EURGBP is looking increasingly bearish and we are short and reaping the benefits as we speak. Below 8253 we’ll be at 12 months lows.
Abe-inspired Yen weakness was one of the stories of 2013 and is set to continue. We are currently long USDJPY and expect to see 110.00 soon. Getting a long trade to “stick” in EURJPY is proving more tricky due to its volatile nature, which causes us bother due to our tight stop policy.
Another big theme in 2013 was weakness in the Aussie dollar. Australia’s Central Bankers are talking down their currency with RBA’s Glenn Stevens recently suggesting 0.8500 is a good level. The chart concurs and we’re looking for opportunities to get short although one think I learnt the hard way towards the tail end of last year is that “patience is a virtue” when it comes to this exercise!
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