Euro on Verge of Collapse
Forex markets are starting to see some renewed activity in the major pairs as the EUR/USD is now made its true trending tendencies clear. At this stage, there is little standing in the way of sustained market pricings below the 1.35 level in the EUR/USD, and this trend change has the potential to be far reaching and impact many other currency pairs.
In cases like these, forex traders need to remember the basic about trading in these markets. Extreme strength in a commonly traded pair like the EUR/USD can quickly translate to similar moves in the other Dollar denominated majors. In other words, this would mean more downside in pairs like GBP/USD and upside in the USD/JPY. There are strong
correlations that exist between these pairs, so when we see the Euro making drastic declines, many opportunities for new positions start to arise.
On the fundamental side, many of these trending moves have come as a result of the fact that the Eurozone is much more likely to be stuck in a period of low interest rates. The Federal Reserve is now seen moving in the other direction, with its first rate hikes coming as early as next year. This added yield incentive is a long term positive for the US Dollar, so seeing moves like this in the Euro is not at all surprising and completely in line with the broader economy fundamentals.
The Week Ahead in Forex Markets: Wait For The Dust To Settle Before Getting Into Big Positions
In the week ahead, forex traders will need to watch for new developments in the peripherally Dollar denominated pairs. The GBP/USD is still trading at long term highs as the moves in the Euro are being seen. So this creates an excellent opportunity to start selling the currency — at least in anticipation of a price correction back to its averages. Risk to reward ratios favor these types of stances because currencies like the GBP have seen such extreme moves in recent quarters.
All together, this means that the summer trading months are likely to be more active than normal. There is a strong possibility that we could see some establishing moves in much larger trends. Perhaps, these moves could even be significant enough to indicate what is likely to be seen in the Euro and the Dollar for most of next year.
For these reasons, it will be important for forex traders to remain relatively aware of the latest market developments as there could be many trading opportunities that arise during the next few weeks. The critical factor here is whether or not the Dollar can translate its recent strength to the peripheral pairs. So far, it looks like the GBP and JPY will need to give up some more ground in order to keep place with the broader trends of the market.