What was the most interesting development  in currencies /Forex trading last year? Opinions vary, and are often personal, depending n experiences. In most case a trader will judge importance of an event through an impact it had on his/her account. Somebody who was on the wrong side of the market during SNB intervention may see it as most important news of the year. Those who loaded up on the Dollar early in the year will swear that the slide of USD is the leading story of 2009. For me early year trades in Pound crosses are memorable. I mean how often can you make 700+ pips in EUR-GBP trade lasting a week? Was first for me and unlikely to happen again any time soon.

Personal experiences aside, one of the trends shaping currencies was the continues talk about replacing Dollar as a de facto world reserve currency. Many countries expressed concern with USD, calling for changes in international finances. One of the proposed alternatives mentioned most often were Special Drawing Rights. So far nothing came of it yet, but some noticeable changes when it comes to currency reserves took place. The Dollar’s share  of foreign reserves held by global central banks dropped to 61.6 % during the quarter ended Sept. 30, the lowest on record, from 71% a decade ago, the International Monetary Fund reported on Dec. 30. The Euro”s share rose to 27.7% from 17.9%. Holdings of Canadian Dollar and Swiss Franc also increased during the period. While USD has not lost its status, yet, changes that took place are real and will most like continue into this year and beyond.

As far as moves of individual currencies are, Australian Dollar and New Zealand Dollar stand out. After the sell off during global panic in 2008, both of these currencies rebounded strongly. While this was expected, the strength and sheer size of the move was a surprise. AUD-USD bottomed out at 0.6000 in late 2008, with another run on the lows in early 2009.  After that it was a one way road for the Aussie. Sure, it was helped by interest rate increases by RBA, which in itself deserves a memorable mention as one of the more important events in Forex last year. This is important after prolonged period of slashing rates across the globe. But even with this as positive influence for AUD, did anybody foresee early in the year that AUD-USD would reach 0.9400 in few months, very close to the previous top, for almost complete recovery? Very impressive move.

We can see this almost straight move up on weekly chart, something not found very often among major currencies. Sure, preceding sell off was out of proportion and panic driven, but still recovery rivals it in speed and magnitude. That, however, maybe coming to an end now, because Aussie started to show signs of topping in last few weeks of last year. Daily chart of AUD-USD shows price falling under most recent low, one of the first serious indications that trend might be reversing here or is even broken. Price found support at 100 SMA, around 0.8800 and bounced a little bit. Currently it resides in a no man’s land. An uptrend could resume, with a slower momentum. On the other hand, move under 0.8800 suggests that reversal is under way, taking it down to 0.8100 or even 0.7700 fairly fast. Something to watch.

After a strong recovery earlier in the year, GBP-JPY settled into a wide and loose sideways action, or consolidation pattern, if one could call it that. Price created well defined support at around 139.00, and more recently also built less obvious resistance at 153.00. What happened during last few trading days, very nice run up, favor testing of this support. If it manages to go through it, yearly high of 163 or so could next. Whatever happens, up or down, is important because it will set the tone for good part of the year. Most recent news are both bearish Yen and bullish the Pound, which is positive for the beast, but we have seen how easily and fast that can change. Form elation to depression on a dime. I’ll keep this cross under scrutiny.

How about Canadian Dollar? Lately it has been very strong, even held solid ground against rallying USD. For good part of the year we heard threads from Bank of Canada that high levels of CAD are detrimental to domestic economy and they will take necessary steps to prevent it, This means intervention, which by now doesn’t seem probable, given luck of direct involvement to date. On the other hand, other central banks announced increase importance of the Loonie in their foreign reserves. On balance CAD has been gaining and is at or near crossroads, where next big move should be decided. Looking at CAD-CHF we can see the market moving up, even though Swiss Franc is near historic highs. It speaks volume about Canadian Dollar. This pair is right at parity and very close to next important resistance of 1.01 or so. I’ll be watching what happens there with interest.

These are some of the longer term charts that I find intriguing with an outlook of weeks or months. They will not necessarily turn into trades, because bulk of my activities are carried out on shorter time frames, but who knows? If prices unfold in line with my observations, no reason to not to take them. As always, a lot depends on where the stops can be placed at the time, as well as how many other trades I’m in at the time. For now chart analysis is the name of the game, lining up possible trades, so I’m ready when conditions are met. At least until markets open after the New Year festivities.

Mike K.