Currency Market: A Look Back & Look Forward

First, let me wish you all a very Merry Christmas! What a year this has been with Presidential Elections, Brexit and the almighty bounce back of the US Dollar. With this much activity in the second half of 2016, we can only imagine what’s to come in 2017.

For this week’s article, I thought it would be good to look at some of the recent activity on a few of the more popular currencies and make some notes of key levels to watch out for in the coming months. There is plenty of trading action to anticipate and look forward to over the coming months and there is no better place to start than the US Dollar itself.

US Dollar

It is a well-known fact that I have been long-term bullish on the Greenback for quite some time now. Ask any of my students and they will tell you that I have been predicting upside in the US Dollar since the end of 2009, and the recent rate hike by the Fed which put rates at 0.75% has only helped the cause.

Back then, the Dollar Index was trading at the lowly price of 74.50. At the time of writing this piece, we are currently at the lofty height of 103.02. Obviously, I am not encouraging you to run out and buy as many Dollars as you can because things are a little too high right now, but if a pullback happens I would expect to see this trend to continue a little more.

Let’s look at the chart:

As it stands, we see potential for the market to challenge the area of 106.42 to 110.00. Of course, this could take a run up easily from this point but I would like to see a retest of 100.00 for a better buying opportunity. Should we reach our higher level of Supply, and if it holds, the marked demand level of 96.00 to 91.90 would be the area to expect a bounce. This market is still in an uptrend and there is no reason for it to end yet, with a potential rally to 120.00 if the upper supply is removed, but that level is a big challenge for the US Dollar so I wouldn’t expect it to happen any time soon.

EURUSD

What can I say but wow; this is an ugly currency market indeed! I have not really enjoyed trading the EURUSD for quite some time now. We have seen some very choppy and ranging conditions and it has paid us well to play this range up until recently, but now things have finally broken lower and it looks like the pair is going to have a tough time making a recovery. As you know, I am not a big guy for using fundamentals in my analysis but news out of Europe has hardly been great and with the recent referendum in Italy it seems that there is little faith in the single currency as of late.

When we see such an oversold GBP too, if the pound does decide to rally and depending on the outcomes of the UK exit from the EU, there is the potential for lower prices on the Euro in the coming year. Here’s how the chart is looking right now:

It is hard to not see a test of the major demand zone at 1.000 which is only a few hundred pips lower as we speak. Sure, I would expect a bounce from this area as it is such a strong buying opportunity, but I really don’t like the chances the EURUSD has if it makes a recovery rally to the above level of supply at 1.1122 to 1.1500. It is looking like a strong zone and a great place to re-engage a downwards trend on the pair if we get a decent rally to the zone. I would not be surprised to see plenty of ranging activity between these two major zones for the coming months ahead, and the future state of the European Union hangs in the balance.

GBPUSD

Finally, we have the British Pound, a currency in the world of FX that has seen some of the biggest moves not only in its own history but also in the overall history of currency trading itself. June 23rd 2016 was a surprise for most, with the public voting to leave the EU and the ramifications of this decision still completely unknown. 2017 will likely see a little more clarity on how the Brexit will turn out, but in the meantime we should expect more ranging activity and the uncertainty to continue as the news from Europe and the UK continues to pour in. Our chart looks like this right now:

As much as I hate to say it (being an Englishman) this pair could fall to 1.1000 but I would be shocked if we didn’t see a pretty huge bounce from there considering the demand in the area. The major ceiling for now is in the region of 1.3000 to 1.3500, but there is a smaller range established too between 1.2800 and 1.2000 which must not be ignored. Again, much like the Euro, I see plenty of action around 1.2000 as an equilibrium point with prices exploring around this region as we wait for more clarity on the Brexit itself and the true consequences of the event to Europe and the UK.

So it seems as far as the currency market goes, we have more indecision ahead in 2017 but plenty of volatility to go with it! Pick your spots, be patient and stick to your plan and this could be a great year ahead as the world faces a whole new era of political landscapes unlike any other before. Thank you sincerely for your ongoing support and I wish you all a very happy and healthy New Year!

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