As the final U.S. currency session of the week begins we find
no real price action movement in the major currencies.
Even with all the hype surrounding the Spain auctions this
week, the euro continues to be locked in a fairly tight trading
range and will need to break out and close either above
1.3215 or below 1.2995 to determine if the bulls or the bears are
in charge.
Running through our screens and charts it's beginning to
appear that global equity markets are becoming overvalued from a
technical viewpoint, suggesting the decline will continue and
could be very significant in the near term.
If global equity markets continue to slide, currency traders
will continue to see underperformance in risk-correlated
currencies as traders run to safety. Setups like these suggest
shifting your bias to a basket of short commodity currencies -
and even emerging market currencies - against the major
currencies. The shift in strategy dictates a move away from the
U.S. dollar. The issue with the U.S. dollar is that traders
cannot get a handle on the directional bias given the recent
consolidation.
Looking at all angles: we know markets are forward looking and
could well be in a consolidating - or at best, a holding pattern
as the G-20, IMF and World Bank all meet over the next several
days. However, if history is any indicator traders are not
expecting any market moving developments.
It's more likely the market drivers for the coming weeks will
be the Fed monetary policy outlook, China's economic performance,
and the euro zone crisis, which all have the biggest potential to
move global equities and currency markets.
Since we are at the beginning of a potential currency shift
that appears to be in control in the near term, traders can look
for advantage via the currency ETFs. Consider looking at either
long positions of currencies with little to no exposure to
commodities, or selling those same currencies.
Traders can use options to leverage and define risk for short
position via PUT positions. Consider looking at countries that
can weather the near term turmoil. The British pound has been
climbing during this cloudy patch, so consider the Currency
Shares British Pound Sterling Trust (
FXB
quote
), or the GBP/USD as way to play the uncertainty.
