3 Potential Market-Moving Themes This Week

After reviewing the major currencies’ price action for 2011 and reading my wacky predictions for 2012, it’s time to focus our attention on the future and start trading in 2012! Here are three potential themes that might influence forex trading this week:

1. Return of trading volume

With forex junkies like you and me coming back from the holidays with our trading resolutions firmly in place, you can expect forex trading volume to show it. You see, aside from retail traders coming up with fresh trade ideas this year, we can also expect big market players to start placing their long-term positions.

USDX Weekly Chart

We don’t even have to look far to see the start-of-the-year effect on the major pairs! Based on USDX’s weekly chart, there were significant increases in trading volume during the first few weeks of 2010 and 2011. Of course, we’re not 100% sure that the trend is going to continue in 2012, but you have to admit, the odds look pretty good.

2. More euro woes?

Though the euro just celebrated its 10th birthday (it has been 10 years since it replaced the euro zone’s individual national currencies!), it doesn’t seem like anyone’s in a celebratory mood. And to be honest, I’m not surprised, considering what we saw in the last days of 2011!

To end the year, the euro was dealt more bad news as Spain announced that its budget deficit might be 2% higher than initially estimated. Meanwhile, Italian bond yields continue to play around the 7% mark, which is just about where Greek, Portuguese, and Irish bond yields were before their countries asked for bailouts! Yowza!

Bearishness was at a high last week after data came out and revealed that European banks had been stocking the cash that was recently injected by the ECB instead of lending it out. As Pip Diddy said in today’s Daily Forex Fundamentals, this is ominous behavior from banks as it suggests that their confidence is so low that they’d rather hold money at very low interest rates from the ECB than lend to one another. I wouldn’t be surprised to see this theme carry over to this week.

3. NFP week, baby!

If you’ve been looking for a way to start your year off with a bang, look no further! There’s no better way to start 2012 than trading the biggest and baddest report in the neighborhood – the NFP! The next couple of NFP reports will be particularly vital considering that the Fed is still on the fence with regard to QE3.

Employment data might make or break the Fed’s decision, so don’t even think of missing the NFP report when it comes out on Friday at 1:30 pm GMT! Look for the unemployment rate to tick up from 8.6% to 8.7% and the number of employed people to increase by 153,000.

There you have it, folks! A lil’ something to get you started for the year! Which one of these market themes do you think will dominate the newswires this week? Hit me up on my Facebook and Twitter accounts! Good luck and stay sharp!