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January 21st, 2013 at 4:05 pm

Markets are Quiet on US Holiday.

With a holiday in the USA, currencies showed little life on Monday. The notable exception was the British Pound, which declined once again. We are not talking about a major price swing, but the GBP-USD dropped to as low 1.5805 today. However, if we zoom out a little, we can see that this pair has been falling all January, from 1.6330 at the start of the year. The pound is under broad pressure, losing ground versus the euro, too. Ever louder voices are emerging for the U.K. to lose its triple-A credit rating and this concern seems to the driving force behind the current devaluation. We should expect a sharp response from the GBP following future reviews by the rating companies.

The Japanese Yen, the most volatile currency of recent weeks, has also been quiet. Clearly, market participants do not to commit themselves just before the monetary policy announcement from the Bank of Japan in early hours on Tuesday. In Brussels, European finance ministers started their two-day meeting, although so far it produced no major developments. That could change tomorrow, when the meeting concludes, depending on what the final statement reveals. Assessment of Greece, Cyprus and Spain is on the agenda, as well as the European Stability Mechanism. The Euro has been enjoying a modest rally although negative news from the summit could cut it short.

Most currency pairs simply consolidated today, with the USD-CAD being a good example. After a strong run up on Friday, the price settled into a sideways drift, which by now assumed the shape of a flag. Normally, that is a continuation pattern, suggesting more upside. I do not trade these formations only use them for analysis. Instead, I watch the main support and resistance for signs of a breakout. In this example, a rally few pips above 0.9943 would constitute a buy, while a drop below 0.9908 will be a sell signal. Objective either way is 30-35 pips, very modest, but it should not take long to reach it once the volatility returns.

Mike K.

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