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Always be aware of the trend. The market will not stop until it is ready, regardless of technicals or fundamentals.
- Adam Szatkowski |
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Today's Featured Article
The foreign exchange market will be looking to find some direction in the next couple of weeks, after the gains most majors have put in against the U.S. dollar (USD). As expected by the street last week, the Federal Open Market Committee lowered the U.S. rate another -.25% point to 4.5%. This was not a surprise, and therefore the USD did not make any dramatic move to correct its weakness. As has been the trend, the EUR/USD continued to climb into historic territory soon after the report -- as the market continued to factor future cuts out of the U.S. in the coming months. The European Central Bank has again left the rates unchanged, as expected. There are still
concerns in the European Union that the strength of the Euro is going to keep pressure on the tourism and export industry. Whatever the fundamentals suggest, the market will not turn around until the momentum has left, so don’t look to go against the trend. |
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For the months ahead, we will be watching the British Pound (GBP) closely against the Euro and the U.S. Dollar. Several months ago, after the U.K. made its last rate increase to 5.75%; there seemed to be enough positive strength to suggest a move above 6%. Since then, there seems to be a situation unfolding that looks similar to the U.S. housing market. Average home prices have been dropping in England, along with loans for homes. With disposable incomes normally used to invest in housing on the decline, there will be at least a plateau in the real estate market in the U.K. Looking into the near future, there could be a rate cut on the horizon for the U.K. to help
ease the pressure before the beginning of next year. The catalyst for this move would be steady growth seen in the U.S. housing market, which might take some time to unfold. Once again, we would like to see a trend develop in the GBP/USD to the downside -- as the market begins to digest the softness in the U.K. housing sector.
This is a bold statement as we write today, with the GBP/USD piercing through 2.089 without a clear sign of stalling. The last couple of reports out of the U.S. have shown some strength in the economy -- beginning with the 3rd quarter gross domestic product coming out stronger, along with double the jobs expected added to the non-farm payroll. It might take longer for the fundamentals to catch up to the technicals, so we will look for a momentum trade to position us in the market. We will watch this market closely in the next week, for a reversal that can hold for a few days -- until there is a key support area broken to trade the downside. |
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The last market we are watching is the EUR/GBP. As the Euro moved higher against the USD, it also traded steadily higher against the GBP. As mentioned above, there could be weakness in the U.K., providing a further increase of the EUR/GBP. Look for a breakout above the 0.7040 level for the trend to continue up. This is a fundamental based trade, playing the Euro’s strength against the USD and the GBP, but we will enter when the market makes a move into higher territory. If the market can break through and continue to trade higher, use a stop loss order in the 0.700 area with a projected target of 0.7090.
If you cannot view the British Pound (GBP), go here.
The risk of loss in trading commodity futures and options can be substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. |
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About the Author
| Adam Szatkowski is an RJOFutures Trading Consultant. He considers basic money management to be one of his main objectives, and is always looking at the downside of positions to preserve capital if the market is not doing what was expected. And he believes in following the trend and momentum, as well as in using stop orders to lock in profits behind winning positions. |
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