Currency markets have seen increased daily volatility of late. This was particularly demonstrated on Friday after unemployment numbers were released.  Not only did we see sharp, directional moves, but most of them came on trend changes. Everybody must have noticed strength in US Dollar, it had best day in some time, but many other currency crosses turned, too. For example, EUR-GBP as well as most Euro pairs. Market observers credit surprising NFP report for these moves. However, one shouldn’t forget this type of behavior is typical in December.

More often than not, month of December is regarded as difficult to trade by market participants. Not that it is ever really easy, but last month of the year presents even more challenges. At least that is prevailing market “wisdom”. I tend to agree with it, even though it is hard to prove what exactly is so different here. Conditions become similar to Summer slowdown. This means that days like we had on Friday are often followed by ranging, non-eventful sessions, just when one would expect additional movement. Volume tends to be on average lower than during other periods. Many people tend to take extended time off, especially during later part of the month. Some trading decisions are made based on tax considerations. All said, more often than not December has different “feel”, even it is difficult to quantify what this means.

From more practical stand point, one could expect a little higher percentage of trades to be stopped out and most trading patterns would be less reliable. This could be mitigated by taking fewer trades, lowering the size of average position and shooting for smaller objectives. I simply accept the fact that costs of doing business are getting higher. Towards the end of the month I’ll take few extra days off, but that’s about it. Trading goes on as dictated by market developments.

Intermediate term chart of NZD-CHF suggest possible buy situation. I would like to see this pair above 0.7300 before committing myself trade here. Objective would be about 100 pips. If this happens, I’d start looking for a sell set up, because of daily chart implications. This will be covered later, if needed.

Another cross worth attention here is EUR-GBP. As mentioned before, Euro came under pressure on Friday and chances are this will continue. It doesn’t have to happen right after markets open, but chances are good for another move down sometime during next week or so. This pair shows fairly strong support under 0.8980. If it gives way, price could easily fall another 100-120 pips. Interestingly enough, Last December I was very active trading this pair, when it was approaching an all time high.

Just like every Sunday, gaps on the opening can happen and I’ll be looking for them. Also, Sunday evening set up is a real possibility, especially when it comes to Yen pairs. JPY appears to have diverged from USD, and finished the day on a loosing side. It remains to be seen if this is for real or not yet, but Yen could be worth watching later on tonight.

Mike K.