Trend followers beware: Don’t get caught in the chop

The last few weeks have seen an undeniable period of ‘FOREX chop’. The markets remain undecided on the risk-on or risk-off. Stocks, which usually give us the first clue remain stuck in a period of uncertainty. On one hand, you have the investors/analysts that say the fundamentals simply don’t back up these inflated prices. And they could be right. After all, the Dow has recovered over 8000 points since the C19 low and now just 3000 points from all-time highs. And all this amid record business closures and mass unemployment. On the other hand, we have the ‘FOMO’ traders. The fear of missing out!  Those that are buying into risk assets expecting a surge in prices ‘when’ the vaccine is found.

The indecision has inevitably filtered through into the FOREX. The USD is crisscrossing around its 20 day moving average. The typical safe haven, low yielding currencies like the Yen and CHF are having strong days followed by weak days with no solid trend to latch onto.  The typical risk-on currencies, the AUD NZD and the CAD get bought on positive China news, then get sold off on negative domestic COVID news.

Central bank intervention, across all of the majors economies, is cancelling each other out. The strength meter chart below shows the major FX pairs are in a consolidation phase. Trend following traders on the 4H and daily charts are getting caught in the chop!  Our advice is to drop to the lower time period charts like the 1 hour, 30 mins or 15 mins and look to grab profits from the intraday moves. But be nimble. Don’t be scared to bank your profits and perhaps drop the ‘trail out’ strategy approach until markets start to pick up some confirmed trends.