Last week was a pretty monumental one, not only in the forex market, but also in the stock markets! USD/JPY rose to a high of 99.30 before falling to a low of 93.79. Meanwhile, the Nikkei, which tracked the movement of USD/JPY, fell more than 6% during the week. As for EUR/USD and GBP/USD, both pairs surprisingly climbed to their highest levels in four months.
It seems that the currency exchange market was dominated by a few major market themes; namely, risk aversion and speculations on the upcoming FOMC meeting. Risk aversion, for instance, is causing equity markets to fall. In response, traders are pulling their money out of higher yielding currencies and putting them into the Japanese yen.
Now, with regards to the FOMC meeting, the focus is on the speculation that the Fed will taper off its quantitative easing program. Data have been mixed lately, meaning there is also mixed expectations on whether the Fed will tighten monetary policy by the end of 2013 or not.
I’m not sure what this week will bring, so I’m going to side with the trend until everything is clearer.
I think it’s pretty clear to all of us that USD/JPY is on a medium-term downtrend. It has been consistently making lower highs and lower lows. In addition, price is also below the major SMAs (100 and 200). I’m thinking of going short on this pair on a pullback to the 50% or 61.8% Fibonacci retracement levels.
On the hourly chart, we see that the pair is testing the 100 SMA as well as the 38.2% Fib level. Resistance just below .9250 could hold and we could soon see the pair drop back down to .9150. On the other hand, if resistance doesn’t hold, an upside break could lead to a rally well past .9300.
So those are the pairs I’m looking at for this week on top of my long EUR/USD trade. What are you eyeing?