Most Major FX Pairs are Moving Sideways, But not the USD/CAD and the EUR/USD
Eric Furstenberg • 3 min read
Today the better than expected Canadian wholesale sales number was unable to evoke much buying of the Canadian dollar. The US dollar continued to overpower the Canadian dollar, and the USD/CAD gained another odd 50 pips for the day. The recent ascent in this pair has been great, and over the last four days, the pair has risen about 370 pips. The pair has convincingly broken through and cleared the 200-day moving average and the bullish momentum is just not losing steam at the moment. Look at the following chart:
USD/CAD Daily Chart
Forex trading has been more difficult this year than in many other years, and the reduced number of large strong trends has made speculating tricky. Certainly, there has been some strong moves here and there, but for long periods of time, many major pairs were caught up in consolidation phases.
From January this year until May, the USD/CAD corrected very aggressively and surrendered more than 2200 pips from the yearly high to the yearly low. This was a pretty sharp move. Look at the following chart:
USD/CAD Daily Chart
Since the pair bottomed out, however, the price has been chopping around at a slightly bullish angle. The red rectangle on the chart above marks a move of 2200 pips in 75 days, whereas the price action from there until now covers a mere 940 pip gain which took the bulls no less than 124 days to accomplish. That’s a big difference! This shows us how the volatility on this pair has diminished over the last few months. Nevertheless, the pair has produced a good strong bullish move in the last few days, and it looks like we could see some decent action on this pair in the next couple of weeks. Later today we have a speech by the Bank of Canada’s governor Mr. Stephen Poloz. This could be a great market mover, and if you’re holding long positions on the USD/CAD it might be wise to limit your risk going into this event. You don’t want to be in the unlucky position to give up a lot of gains if maybe the market reverses when Mr. Poloz delivers his speech.
GBP/USD Daily Chart
The GBP/USD has only been chopping around after the recent British pound ‘flash crash’. I think there were many high expectations for further extreme volatility after the flash crash happened early in the Asian session on the 7th of October this year. However, the market does not think anything of expectations and for the last few days, the pair has been trading sideways. The bear flag pattern we’re seeing at the moment favors that the pair will break out lower, but this could take several days to happen, and of course there is always the possibility that the pair will not break lower at all. I will watch the pair over the next few days to see if we get a strong push through the lower bound of the triangle on this chart. This could offer a decent opportunity to short this pair.
Let’s not forget about this very important FX pair. This is the most traded currency pair on the planet. It is also the most liquid pair.
This pair has traded significantly lower over the last few days, and the Euro is clearly on the backfoot against the US dollar. Take a look at the following chart:
EUR/USD Daily Chart
The RSI indicator is still giving us an oversold reading, and as long as it remains below 30, which is considered to be oversold, there is no reason for any short trader to exit his position(s). As I have said on numerous occasions, I am always uncomfortable about chasing the price when it has produced extended moves like the one you can see on the chart above. Nevertheless, any trader with a little bit of knowledge and skill would agree that this is not the time to buy into this pair, but rather to wait for good opportunities to short it. Patience is a key virtue in forex trading.
Lastly, let’s look at the US Dollar index to see how the US dollar fared over the last couple of days:
US Dollar Index Daily Chart
Here you can see the incredible US dollar strength that has prevailed over the last couple of weeks. At the moment there aren’t any fundamental reasons for the dollar to abandon its uptrend, and the chances are good that we'll see some more dollar strength over the next few days.
Tomorrow at 15:30 GMT the ECB president Mr. Mario Draghi will deliver another speech, but first there is a speech by the BOE governor Mr. Mark Carney, at 14:35 GMT.
The German Ifo business climate index (Oct.) number will be released at 08:00 GMT.
Then at 14:00 the US CB consumer confidence number will be released.
Good luck trading folks!