Weekly FX Forecast- December 5, 2011

By: Christopher Lewis

EUR/USD

The EUR/USD pair originally had a surge upward at the start of the week to test the 1.35 level. The area has proven to be resistive again, and simply too strong for the bulls to overcome. However, the pair does seem to have “9 lives” as every time it falls – the bulls come into the market and support it. The pair looks weaker though now, as the weekly candle has formed a shooting star at the bottom of the recent plunge in pricing. If the 1.31 and 1.30 levels can ever be broken through – this pair falls hard. However, we still feel selling is the correct trade overall as the pair will sometimes rally.

NZD/USD

NZD/USD had a terrific week as the bulls entered the market in full force. The “risk on” trade came into vogue as the market reacted to the lowering of dollar swap costs for central banks. (This could open the door to flooding the market with USD.) With this in mind, commodities took off over the past week. This trade looks very healthy, and could be a “buy on the pullbacks’ candidate. However, with bad headlines – this pair falls hard. We like the buying side, but only with tight stops as the news flow is so erratic lately. If the market turns negative overall – we would aggressively short this pair in those conditions though.

GBP/USD

The cable had a strong start to the week, but gave back much of the gains by the end of the Friday session. The pair looks weak, and we prefer to sell any and all rallies at this point. However, it should be noted that the 1.55 level is the start of a 200 pip support area down to the 1.53 level. The breaking below that area has this pair going much, much lower. Also, this could be the breaking of the bottom of a complex “head and shoulders”.

EUR/GBP

EUR/GBP continues to bounce around in the 0.85 to 0.8650 areas. The pair is essentially a contest between two unloved currencies, and will continue to fight in the area as the EU has so many problems, and the UK has so many banks exposed to those problems. We like this pair currently for day trading between the two above mentioned levels. The weekly chart shows a hammer, another hammer, a shooting star, and a hammer over the last four weeks – signaling that the pair doesn’t want to go anywhere. This is great for range trading.

AUD/USD

Much like its antipodean cousin, the Aussie had a very bullish week as the breaking of the hammer from the previous week was such a strong buy signal. However, the risk sensitivity of the Aussie dollar would have us nervous about holding this pair for too long. The pullbacks give us a chance to buy this currency at a cheaper price, but a break below parity would have us selling instead.