Analysts Make Their Picks For A Low Liquidity, Potentially High Volatility Week

Daily Forex Technicals | Written by DailyFX | Nov 24 08 14:47 GMT |

Historical precedence says the US Thanksgiving holiday will drain the market of a significant amount of volatility through the second half of this week. Under these conditions, volatility itself can suffer dramatic swings. With the market already experiencing extraordinarily high levels of activity, will this finally be the mark for breakouts across the currency market? Our analysts weigh in below. Chief Strategist - Antonio Sousa My picks: Remain Short EUR/USD Expertise: Economics and Behavioral Finance Average Time Frame of Trades: 1 week - 3 months I have been short EUR/USD since 1.47 and I expect more EUR/USD weakness going forward on speculation that a considerable deterioration of the euro zone economy in 2009, could lead to a significant shift of interest rate differentials in favor of the U.S. dollar and keep the EUR/USD under pressure over the next few months. Indeed, it seems the ECB underestimated the size of the biggest housing and credit bubble in history and the once resilient Euro zone economy is slowly succumbing to tight credit conditions and a slowing global economy. The euro zone is now in a technical recession and facing the most serious test since the euro was introduced to the world financial markets in 1999. Currency Strategist - John Kicklighter My picks: Pending EURJPY Breakout Expertise: Combining Money Management with Fundamental and Technical Analysis Average Time Frame of Trades: 3 days - 1 week Trading conditions over the coming week are ideal for potential breakouts. The presence of the US Thanksgiving holiday on Thursday has a historical impact on liquidity, a period when leveraging can be dramatically amplified or tempered. Considering how consistently volatile the market has been over the past four months (even if direction has faded), it is safer to prepare for an increase in price action. What's more, for many of the most liquid pairs, congestion has created a number of technical formations where tight ranges multiple the potential for trend-defining breakouts that may come when half of the market is out for lack of liquidity. In preparing for a breakout, an interesting pair to watch will be EURJPY. Fundamentally, it has tracked risk trends very closely and interest rate expectations for the ECB are still up in the air. Technically, the congestion in this pair for the past month has curbed a major trend but not abornmally high volatility. Daily ranges (today's included) have been extreme. For levels. A falling trend from the October 14th swing high has clearly defined a top to the market - though there is significant congestion in Fib retracements, a 20-day SMA and internal pivots up to 124. Support is less defined, but nonetheless significant to a breakout scenario. The shared low of the past three active sessions maintains a short-term, descending trend channel from the early-November bear swing, but it has not tempted the October 27th low at 113.60 yet. These will be the levels to watch when liquidity drains Thursday. If a breakout happens before hand, the drop in liquidity may instead stiffle direction; therefore, such a situation should be monitored closely. Currency Strategist - Terri Belkas My picks: Sell USD/CHF on a Break Below 1.2000 Expertise: Fundamentals Combined With Technicals Average Time Frame of Trades: 1 - 3 Days For what it's worth, USD/CHF remains firmly entrenched within an uptrend, as the pair has simply climbed within a clear channel formation for the past week or so. Currently, the supporting line of this channel sits at approximately 1.2050, but with the 38.2% fib of 1.1549-1.2296 and the 11/13 highs looming at 1.2000/11, I'll be looking for a break of 1.2000 as a sell signal to target the 50% fib of 1.1199-1.2296 at 1.1748. On a shorter-term basis, though, traders could also play the USD/CHF range within the channel, though stops should be kept relatively tight. Currency Analyst - David Rodriguez My picks: Sell USD/JPY Rallies Expertise: System Trading Average Time Frame of Trades: 2-10 weeks This is essentially the same call I made last monday. The USD/JPY remains within its medium-term downtrend. Given that I maintain a bullish bias on the Japanese Yen, it makes sense to use this as an opportunity to go short the pair on rallies. That said, I'll look to get into a position above the 96.00 mark, placing max risk above previous spike-highs of 97.08. This is a shorter-term trade than I typically go for, but risk to reward ratios look attractive here and I'm willing to take on the risk of a short-term breakout to the topside. Currency Analyst - Ilya Spivak My picks: AUDCAD (pending breakout) Expertise: Macro Fundamentals, Classic Technical Analysis Average Time Frame of Trades: 1 week - 6 months AUDCAD has been consolidating in a triangle chart formation since late September. Prices are further contained by the 38.2% and 23.6% Fibonacci retracements of the 07/29-10/08 decline (0.8207 and 0.7827, respectively). Look for a daily close to surpass either of these levels to set directional bias, then enter short or long accordingly. A bullish target lies at 0.8517, the 50% Fib, while a bearish push would aim to test the 10/08 low at 0.7218. Currency Analyst - David Song My picks: Short GBP/CHF Expertise: Fundamentals and Technicals Average Time Frame of Trades: 2 - 10 Days After peaking to a high of 1.8976 on 11/3, the GBPCHF slipped to a low of 1.7436 on 11/13, and fading demands for carry trades continues to favor a bearish outlook for the pair. At the end of last week, the pair surged to a high of 1.8406, but the failure to hold above 1.8370-80 (61.8% Fib level) suggests that investors remain bearish against the pair. Over the week, I anticipate the pair to hold within the 61.8% and 38.2% Fibonacci retracement levels, and may work its way below 1.8020-30 (38.2% Fib level) to test the 11/17 low of 1.7556 over the near-term. DailyFX Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. 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