Forex Trading - Market Update

EUR/USD
The Euro has remain very well bid considering some of the bad news and economic data that has come out recently. Technically, we are at an inflection point where a move higher to 1.3100 suggest follow through with a stop run past the two swing highs and 1.3200. I think the next move is back to 1.3000, but I'm going to be very cautious playing moves to the downside because we are very clearly in an uptrend.

GBP/USD
I'm taking cues from EUR/GBP and EUR/USD. If the Euro continues to climb higher across the board (across the board being the key phrase - because it means EUR/GBP) then the GBP should climb as well; but not as quickly. On the same note, if the EUR depreciates across the board, it will drag the GBP down - but at a slower rate due to the fall in EUR/GBP. The latter scenario creates potential trades to the upside in GBP/AUD, GBP/NZD, GBP/CAD if the commodity currencies continue to slide.

USD/CAD
Theoritically, the CAD should depreciate the fastest based on concerns over the fiscal cliff. However, investors have been chasing yields in high yielding currencies (AUD, NZD) so as the Aussie and Kiwi come off those funds can go into the CAD, keeping downward pressure on USD/CAD. To try and gauge any movement in USD/CAD, I'm keeping a close eye on AUD/CAD and NZD/CAD.

NZD/USD, AUD/USD
These high yielding currencies should fall the fastest into the end of the year as long as the resolution of the fiscal cliff remains in question. The rate decisions tonight and on Wednesday will definitely have a strong impact on the currencies; but I favor playing a pop higher on a rate decision as a shorting opportunity after momentum has waned.

USD/JPY
Going long this pair is easily the most crowded trade of 2012. At this point, there has been so much market talk of hedge funds going long this pair in record numbers that I can't touch it. I won't play it to the downside because any comment out of a BOJ official can send it skyrocketing and I can't play it to the upside because it's overcrowded and worries over the fiscal cliff should send it down. I favor buying USD/JPY and perhaps CAD/JPY on a resolution of the fiscal cliff and holding for follow through. The only exception I would make to this is buying at the 0.50 fib retracement at 80.66 and using a tight stop.


Side Note: there's a Eurogroup meeting today and there may be comments out around 5:00 P.M. EST. This time has been chosen for announcements recently as there are no major markets open at this time.