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January 6th, 2013 at 11:20 am

Eyes on Central Banks.

The main events in coming days will be policy meetings of central banks. Most importantly, the European Central Bank will announce its interest rate decision. As we recall, the ECB took no action in December, even though a cut had been widely speculated. Following that meeting, there were plenty of rumors of more easing 2013, perhaps even introduction of negative rates. By now, these voices diminished and collectively analysts do not expect much from this week’s meeting. However, the press conference could reveal what the ECB is likely to do later in the year. This in turn, might be the catalyst for a larger move in the Euro and in several other currencies by extension.

Quick catch up to Friday’s action. I avoided trading after the NFP release, mostly because I could not find suitable entry points. Even, the Canadian Dollar, which surged following its domestic employment, numbers, did not provide good opportunities. Its initial rally was short lived, thus no trades. Fortunately, the GBP-USD formed an exploitable trading range leading to the London opening. This resulted in a quick trade for 29 pips, closed before volatility of the NFP report.

While on the subject of the Canadian Dollar… It has been very strong lately with some of its crosses among the best performers among all Forex pairs. The EUR-CAD, for example, declined by 2% last week, even including the small bounce on Friday. After falling by almost 350 pips, this pair could be ready for a corrective rebound, perhaps back to the 1.30 handle. The level of 1.2915 is the area to watch for signs of a rally, although if it happens at the open, as the initial moves are often not reliable.

The CAD-JPY was an even bigger mover last week, gaining 3.4% for the period. While part if it was due to a broad weakness in the Yen, this particular rally could be especially overextended from the short-term perspective. Unfortunately, there is no sign of reversal, so it is difficult to plan a trade. However, for now, I am tracking the price on the hourly chart, considering a sell just under the latest minor low. At this point, it is at 87.95, but I hope to adjust it higher soon. In addition, a topping pattern could develop, creating a better short entry. Once that happens, the CAD-JPY can possibly drop to about 85.50 relatively fast. Have a great trading week!

Mike K.

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