Expect Rising Volatility in Dollar Pairs
Forex markets saw a moderate resumption of the trends that have marked most of this year so far. But it is undeniable at this stage that the overall momentum is waning and that forex traders will be forced to make some important decisions in the very near future. Some of the best forex pairs to watch in this direction can be seen inthe EUR/USD and GBP/USD, which are both trading relatively close to their highs for the year.
If you are trading from a short term perspective, there is little wrong with shorting both of these pairs near 1.3850 (in the EUR/USD) or 1.68 (in the GBP/USD). Stops here should be kept relatively tight, however, as a clear break here could trip market momentum in the other direction and set the pace firmly en route to key psychological levels. For the GBP/USD, this would mean 1.70, and in the EUR/USD this would mean the 1.40 level.
So at this point, there are some clear lines in the sand that can be drawn. If these price regions are overcome, expect the volatility to step up in most of the pairs denominated in the US Dollar. There is some good potential for this volatility to move in either direction in terms of the broader trend, so it will be important to trade with a higher degree of caution into next month. This is also a climate where a good deal of money can be made, however, as there is now the potential for some big moves very soon.
The Week Ahead in Forex Markets: Don’t Neglect the Economic Data
In the week ahead, forex traders will need to pay close attention to specific price levels. But it will also be important to watch economic data as some key releases will be coming very soon. More specifically, the GDP and Non Farm Payrolls are on scheduled and this will come in close proximity with the next monetary policy meeting at the US Federal Reserve. All of these events will be intimately connected and could greatly inform the results that are released when the Fed puts out its next policy statement.
The key issue there will be to watch for evidence that the Fed is still committed to finalizing its QE programs. Stronger data would come in line with this type of outlook and this would give some added advantages to those with Dollar long positions (or short positions in the EUR/USD or GBP/USD). There is some risk that the Fed could signal a pause in its stimulus reductions. If this were to occur, it would make sense to expect both of the aforementioned pairs to rise back up through their psychological resistance levels as a good deal of the market would then be forced to reposition for changing analyst expectations.