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January 1st, 2013 at 11:49 am

Looking Ahead at Currencies in 2013.

In the past year, most currency pairs have been relatively quiet, with volatility in historically low ranges. We did not see major long-term trends develop, which many money managers blame for weak returns in Forex trading programs. This period was still a consolidation, which followed dramatic developments of 2008-09. However, by now several currency pairs indicate that this market phase may be nearing completion, although the timing is subject of vagaries inherent to extremely long-term charts. Here is a quick look at the few that could start significant trends in 2013.

The GBP-JPY, or “beast”, has been a shadow of itself when compared to previous years. Still, in the past several weeks, its price started to move with more urgency. While well below its historically average volatility, the movement is currently accelerating, possibly completing a long-term rounded bottom. Additional progress from the current level of 140.60 would clear a major resistance level and likely mark the starting point of a new major rally. If this indeed happens, the GBP-JPY could remain in a bullish sentiment for some time, maybe even years.

The Aussie is in a little different predicament. Its rate with the US Dollar has not made progress since of May of 2011, although the current slowdown does not necessarily mark a major reversal. Instead, the price developed a large triangle, typically a sign of indecision. Currently the AUD-USD is approaching the triangle’s apex, which most of the time means a breakout relatively soon. While difficult to trade on this time frame, a move from here could set the tone for this pair for next several months.

Virtually pegged to the Euro, the Swiss Franc disappeared from headlines in recent months. That could change if it resumes its earlier strength, perhaps versus the US Dollar. On the weekly chart, we can see a puttering rally, and a potential bearish reversal under development. The area to watch is the support at 0.8930, breaking of which could pull the USD-CHF back to the all time low of 0.7066. In addition, renewed strength in the Swissy could force the SNB to abandon its EUR-CHF floor of 1.20. The first indication of that coming might be on this chart of the USD-CHF.

While on the subject of the Euro, this currency has been in a multiyear downtrend, especially in relation to the commodity currencies. This is another market phase, which could end/turn in 2013. In case of the EUR-AUD we can see the price bottoming out on the weekly chart, although this process is not over yet. There are some bullish signs, like the crossover in the MACD and the proximity of the 100 SMA. Still, in order to complete the reversal, the EUR-AUD must rally above the latest high of 1.3028, the key level to watch now.

The GBP-USD is in a little different situation that the GBP-JPY. We do not see a trend reversal here, but rather a prolonged and very narrow consolidation. Still, chances are the status quo here will change in coming weeks/months and the price begins a new trend. There is no strong directional bias present, although with repeated testing of the resistance at 1.6300, probabilities for an upside breakout are somewhat better. This particular range is suitable for trading using options, perhaps incorporating binary options signals.The bottom line is, the behavior in the GBP-USD is likely to change in 2013.

Mike K.

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