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US Dollar Moves Lower Going Into the Last Trading day of 2016, Pound Retains its Bearish Tilt

Posted Thursday, December 29, 2016 by
Eric Furstenberg • 3 min read

These last couple of days have felt like a bad day on the deep sea. The FX market just chopped around meaninglessly, pushing up and down and to and fro.


Today we also experienced a pretty vain day, with many currency pairs correcting somewhat, which means many trend traders didn’t enjoy a great trading day. Perhaps some of them got some great entries on pullbacks, but I’m sure many traders gave back some profits today.


Personally, I’m not disappointed by the last few trading days. I was expecting these sluggish trading conditions, which is a normal thing for this illiquid time of the year. I was ready for action, however, because you never know when this market will erupt into extreme volatility. Let’s see if we can spot some good opportunities to kick off the new year with…


The ‘Brittle’ Pound – GBP/USD


I call it the Brittle Pound because this currency is just so fragile at the moment and has really fallen apart in the last two and a half years – in which it has lost a massive 28.7 percent against the Buck. If you look at this weekly chart of the GBP/USD, you will understand what I mean:


GBP/USD Weekly Chart


What a massive decline! Of course, the whole Brexit theme has weighed heavily on the British pound and is continuing to plague this currency.


Most of the major currencies fared rather well against the US dollar today. While the pound managed to print a bullish day against the dollar, its advance was really poor when compared to the other major currencies. Look at this daily chart of the GBP/USD:


GBP/USD Daily Chart


Let me zoom in a bit…


GBP/USD Daily Chart


I like to look at a currency’s relative strength or weakness. It doesn’t necessarily need to be a fancy, complicated calculation. An experienced trader can easily pick up a currency’s relative strength by just scanning through a few charts.


The weakness we see in the pound could be something we can profit from in the new year if it persists. Please don’t just blindly sell the pound. We always need to trade with a plan and seek the most optimal opportunities to enter the market. There are exceptions, of course – if you engage in a long-term trade (which is also called a position trade), you obviously needn’t time your entry to the last pip. This type of trading involves a wide stop loss, and a target which may take months, or even years to reach.


To me, it would be important to see the pair break lower and print fresh lows, on, for example, a 4-hour chart. Only then would I look at entering short again. At the moment the pair is retracing some of its recent losses, so we need to see the bears take the lead again before we can call it safe to play the short side. I especially like this approach at this time of the year, because of the abnormal trading conditions and light liquidity. Some traders would like to use the current retracement to get in at a better price, of course.


Dollar Swissy (USD/CHF)


Despite its decline today, I still like the technical structure of the USD/CHF. The picture I get of this pair is still overwhelmingly bullish, and I reckon we still have a good way to go in this bull trend. Here is a daily chart of this major currency pair:


USD/CHF Daily Chart


I really like this former resistance zone which has turned into a zone of support. We’ve already had four touches of this zone in the last couple of trading days, and on every occasion, the market closed above it. I’m not fond of today’s weak close, but the upside still looks very attractive to me. If this blue support zone holds, there is a good chance of a strong push higher in the days and weeks to come.


News Events on the Last Trading Day of the Year


Tomorrow there are no important economic data events worth mentioning. However, the UK and Germany are closing early which will drain a lot of liquidity from the market. This and the general lack of liquidity could limit the market movement tomorrow. This is not guaranteed, however, and there could possibly be substantial volatility caused by year-end flows and portfolio adjustments. The possible effects of external factors should also be reckoned with, as this could cause market shocks even on the last trading day of the year. For example, major natural disasters, political uncertainty, wars, etc.

If you’re trading tomorrow, good luck! And all the best for 2017 – may you have an exceptionally prosperous year!!

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