The story in the Forex Markets going into this week: Range bound trading. It’s been relentless. While that’s been the story for the last few weeks, that range got even smaller in the last week. Take a look at the Forex Chart for the EUR/USD Currency Pair below:
That last candle is actually for the Asian Session for Monday the 27th of July (It’s still Sunday here in the States). You can see that the price has rebounded down from resistance about 1.4200 (yet again) and is now on the way down to support. It’s still too early to tell right now where things will go. We’ll have a better picture once the news starts properly later on.
That underscores what is moving the markets…and on a day to day basis as well: News. The S&P 500 rallied to over 9000, the highest since January. In this earnings season, we have had a good chunk of positive numbers from companies; certainly more positive than the negative ones. That has generally been bad for the Dollar, and good for the other majors. As you can also see on the charts, we have not dropped back to 1.4000. It might be range bound trading, but the price range is certainly higher than it was a couple of weeks ago. However, the earnings have generally been in line with what most investors expected. Companies have been doing all they can do rein in costs. People have been let go, practices changed etc. What we have seen is mostly the end result of that i.e. higher earnings. However, those earnings will have to start coming from increased production and sales for this Stock Rally to have real legs. Some analysts think the whole thing is bogus. They expect this boost to show itself for what it truly is shortly. Something real has to happen with the economy or equities could start to head down again.
I think that point was highlighted by some of the other news that came out last week. The GDP report for Britain was pretty bad. They haven’t seen such numbers since the seventies. The UK isn’t coming out of this recession with any real conviction anytime soon. There is some talk of further Quantitative Easing to provide stimulus, though some are against that approach. If they go ahead with it, it should be negative for the Pound. However, with the general air of positivity that is in the air (if that is still the case at the time), measures like that might actually help the Pound more than hurt it, as it might be perceived as a sign that the UK authorities are still willing to do more to ensure that growth occurs. It is worth taking that into consideration when looking at trades.
Things are traditionally slow in the summer in the trading world. I guess traders have to go on holiday as well. However, we are still in the middle of a crisis, so things could happen differently this year. In any case, I have had to adjust my trading style because of all the ranges we are having to deal with. So last week, I traded up and down with the markets…and did quite well. I used four-hour charts and look for short-term opportunities where I could. It seems to be the only way to get any action these days, unless you want to wait it out.
That is the BEST THING to do if you are not 100% on point with your Money Management. Trying to navigate without Targets and Stop Losses is truly suicidal in this environment. If in doubt…wait!