Welcome to the last FX Weekly Analysis of 2013!
This is a special analysis since it will be the last one for 2013, so I’ll be recapping all the major moves this year and what we can expect to see in 2014. However, this week’s analysis will be presented in written form rather than video form because I’m sick to the point that I’ve lost my voice (for the second time this year). I don’t get sick often but when I do, it’s pretty bad. The last time I was sick, I couldn’t get out of bed; at least this time I’m able to sit here to type up the analysis =).
Holiday Season Reminder
- Due to my trading rules, I do not trade during the holiday season. Since I won’t be trading, this means I won’t be making my FX Weekly Analysis either.
- The first FX Weekly Analysis of 2014 will come out on Saturday, January 18th, 2014. This will be a special analysis as well since I have to recap what happened over the holiday season on top of what I usually do for the FX Weekly Analysis.
Disclaimer: Although I do not have any open positions at this time, I may take trading positions throughout the week without notice. So take this into consideration when reading my FX Analysis as I may be biased in my forecast/analysis.
Commentary / Technical Forecasts
Before I get started, I just want to take a moment to talk about my long term forecasts. For those of you who’ve been following my analysis for a while now, you’ll know these don’t change often. The reason being is because they’re based on long term levels.
- As long as USD/CAD is above 1.01 then it’s probably going to keep going up
- As long as AUD/USD is under 1.01 then it’s probably going to keep going down.
- As long as EUR/USD is under the monthly trend line, then it’s probably going to keep going down.
- Same goes for GBP/USD, however, it’s no longer under the trend line, so this one is being changed to unsure until we get confirmation that the trend has changed.
USD/CAD and AUD/USD for the most part just move based on how their economies are doing. While EUR/USD and GBP/USD have been trending down for the past few years ever since the 2008 financial crisis. In the long term, both Canada and Australia benefit from a weak currency since it helps their exports. Exchange rates 101, if you have a weak currency, other countries see your products (exports) as cheap goods so they’ll import it into their countries. The US is Canada’s biggest trading partner just like China is the biggest trading partner for Australia, so both power houses are encouraged to continue importing goods as long as there’s a weak currency. Higher exports lead to better GDP numbers for Canada and Australia.
Given the recent rally of EUR/USD and GBP/USD, I’m not sure if these economies benefit from a strong currency in the long run. Although the UK is a powerhouse in it’s own right, which is why it kept it’s own currency rather than switching to the Euro. It still resides in Europe and trades along side the EUR/USD. Doing a direct correlation (e.g., looking at EUR/GBP) shows the EUR losing strength while the GBP gaining strength over the past several years. For those of you new to cross pairs, if EUR/GBP goes down. It means EUR is losing strength and GBP is gaining strength. In the long run, I guess this would be beneficial to the EUR considering a weak currency would encourage tourism but I’m not sure what to make of GBP strength.
Recap of 2013 Price Action
- USD/CAD started at 0.98 and has moved up a total of 800 pips so far this year, so needless to say unless something drastic happens. USD/CAD was in an overall uptrend this year.
- AUD/USD started at 1.05 and has moved down a total of 1,700 pips at the extreme lows (which price will probably revisit again by the end of the year) but is currently down 1,500 pips from the start of the year. So just like USD/CAD, it’s quite clear that AUD/USD had a trend this year as well and it was a downtrend.
- EUR/USD started at 1.33 and proceeded to move up to 1.37 where it found resistance and dropped down to 1.27 support for a bounce up. This is pretty much what it did all year, support held price up at 1.27 while resistance levels were held at 1.37 and 1.383. Currently, EUR/USD is about 270 pips up from the start of the year but that shouldn’t be surprising considering the movement path of this pair. Although there’s no clear trend based on price movement, considering how fast price dropped compared to how slow it rose, the overall trend for EUR/USD was down this year.
- GBP/USD is extra special, it started at 1.63 and we’ve managed to get back up here after a 1,500 pip drop, currently sitting at the 1.636 level right now. So basically, as soon as the year started, price moved down immediately to 1.48 lows which held as support on 2 occasions. The only resistance level that stands out aside from the highs of 1.63, was at 1.57. Based on what I’ve described here, does this sound like any pattern formations? 2 high resistance levels, 2 low support levels and 1 mid resistance level… it’s the Bearish Gartley! This however, doesn’t change my long term forecast though, we did break the long term levels and we currently have a year long pattern formation, but there are other factors to consider before making a firm forecast.
USD/CAD: Long term – up | Short Term – See chart annotations
Given what I stated above given the long term forecast, I think this should be pretty self explanatory. However, we are currently sitting at 2012/2013 resistance, so don’t be surprised if we get an initial down move / pullback before the eventual burst through resistance, aiming for higher levels like the 1.085 level from 2010.
AUD/USD: Long term – down | Short Term – See chart annotations
Given what I stated above given the long term forecast, I think this should be pretty self explanatory. However, we are currently sitting at the bottom downward trend line, so price could very well bounce up / pullback up to the 0.93 level before continue the onslaught downwards.
EUR/USD: Long term – down | Short Term – See chart annotations
Given what I stated above given the long term forecast, I think this should be pretty self explanatory. However, price bounced off of the 61.8 fib level this week, so is this a signal for what’s to come in the next couple weeks? It’s also sitting at the trend line that it broke on it’s way down. So if the trend line and fib level holds, price may very well just continue to drop from here.
GBP/USD: Long term – unsure| Short Term – See chart annotations
Given what I stated above given the long term forecast, I think this should be pretty self explanatory. Since the long term forecast is unsure, this pair will be tricky for the coming weeks until we get confirmation on long term charts. We already have closes above the 1.63 level across the board, so short term indicates confirmation for more upside power. However, we’re in a sticky situation because markets take a while before they change their long term trends, the downward trend line stretches back to 2009. So I’m not sure if one week of bull movement can overpower a 4 year trend. So trade this pair with extreme prejudice in the coming weeks, I’ll hopefully have a long term forecast by the time we start again in 6 weeks.
PS: Due to being sick, I didn’t bother to edit this, so I hope you can overlook the grammar and spelling mistakes (if any) or if something just doesn’t make sense at all… This actually took me about 2 hours to write up, probably would’ve been faster if I was talking and wasn’t sick.