Overall, currency prices enter week 3 under severe range compression as anchor pairs and a vast majority of 21 cross pairs are affected. If G28 currencies are troubled then EM pairs are equally implicated to range restriction. Overall MA’s are compressing around vital high / low averages to force price containment. The difference between overbought and oversold becomes hardly significant as the difference between closing prices week to week fails to achieve meaningful progress.
In normal traded weeks, 2 and 5 currency pairs may suffer from range compression but never on a wholesale level to affect all currency pairs and to include EM. USD/PLN normal weekly movements range from 7 to 1000 pips easily. This week, USD/PLN will be lucky to trade 300 pips. EUR/USD will be lucky to trade 50 pips. JPY cross pairs contain wide ability to freely trade wide ranges yet never meet expectations.
EUR/USD from a close price perspective for the past 6 weeks traded 221 pips on a high /low basis while bottom most currency NZD/CHF traded 187 pips. The difference between wide range EUR/USD and low range NZD/CHF is zero. Both trade as the same currency pair when in reality, EUR/USD should outperform NZD/CHF by 2 and 300 pips.
Long Term Targets
As written to long term targets for 18 currency pairs in January: Currency prices will move however in intervals of 2 and 300 pips and very slowly. If we don’t see at least 2 and 300 pip moves within current ranges then MA’s will continue to compress and surround to restrict traded prices.
Price moves are quick and very short term and this is seen because medium to long term averages are just not moving. They are actually completely dead.
As currency prices work off very slight deviations to averages, currency markets to include EM contains every ability to enter a long period of neutrality.
The following EM pairs earned their place to neutrality: USD/PLN, USD/CNY , USD/DKK, USD/MYR, USD/RON, USD/BGN, USD/CZK, USD/HKD, USD/HRK, Croatian Kuna, USD/ISK, Iceland krona, USD/KRW, USD/MXN, USD/NOK, USD/PHP, USD/SEK, USD/SGD, USD/THB.
AUD/USD, NZD/USD, EUR/USD and GBP/USD requires 100 and 200 pip drop to enter complete neutrality and the same situation to JPY cross pairs. USD/CHF and cross pairs already entered neutrality as well as EUR/CAD, GBP/CAD, AUD/CAD and NZD/CAD. EUR/AUD entered neutrality while GBP/AUD classifies as problem pair. USD/JPY entered neutrality.
Long term target trades to 500 and 700 pips weren’t available in January and won’t become available for the next 3 month review.
Neutrality means no significant moves expected but rather a long period of range trading until possibly July.
The Week
EUR/USD, AUD/USD and NZD/USD enter the week deeply overbought while USD/JPY sits at perfect neutral which means no significant moves to JPY cross pairs despite overbought, a short only strategy and heading lower over time.
GBP/USD and GBP/JPY are viable short trades this week as well as oversold USD/CAD and overbought CAD/JPY. GBP/USD and USD/CAD ranges are holding well. EUR/AUD is a good trade selection yet caution to GBP/AUD.
EUR/USD breaks 1.1935 and heads lower or USD/JPY trades below 107.83 and targets lower levels. A EUR/USD break at 1.1935 then USD/JPY targets 110.00’s.
EM
Deeply oversold USD/BRL breaks below 5.5769 to target 5.5535 or trades higher to target 5.6472. Longer term, USD/BRL remains miles overbought.
Oversold USD/DKK must break 6.2330 to target 6.2459. Long this week at 6.1977 and 1.2009 to target 6.2266.
USD/HUF must break 302.12 to target 303.05. Long 300.73 and 300.50 to target 301.66. Not much to USD/HUF.
USD/MYR fairly neutral, short 4.1333 and 4.1358 to target 4/1210.
Deeply oversold USD/RON breaks below 4.1054 to target 4.0907 or trades to 4.1275 easily.
USD/RUB closed at 75.82 and at a significant inflection point. Below targets 74.88 and above targets 76.38.
USD/TRY lower must break below 7.8599. Long to target 8.1241 and 8.1396 then short 6.1396 to target 7.9842.
USD/ZAR Deeply oversold ZAR long from 14.3094 and 14.2970 targets 14.4959 easily. USD/ZAR represents easily best EM trade this week.
USD/HRK, Croation Kuna
Long 6.3079 and 6.3114 to target 6.3323.
Brian Twomey
BRIAN TWOMEY ON TRADING 