Prospects of the FX markets


Interview with Greg Michalowski @GregMikeFX, chief of technical analysis and client education at ForexLive

Based on the current market situation and your personal experience in previous years, do you think there will be a year-end rally in the markets this December? How significant movement could it be?

Since I deal in the forex market, my focus will be on that market.

Typically, activity dies down but that can be a double edged sword in the forex market. Lower liquidity can lead to a market that hardly moves. It can also lead to up and down volatile moves, as traders get whipped around from the sporadic flows. As a result, if traders are going to play in the game, they have to be aware of the changing environment. Personally, it is not my favorite month. Nor do I recommend that traders in the forex market expect the month to be one of their best either.  So manage expectations and you should be ok.

Having said that, in the forex market, much is dependent on the economic data and events as well. This month the ECB interest rate decision on Thursday December 4th, followed by the US employment report on December 5th has the potential to rile the market especially in the current environment of diverging economic fundamentals.

If Draghi talks more dovishly and the US employment numbers surprise to the upside,that can ignite a continuation of a run into the US dollar and get the EURUSD moving back lower. Even so, a move to the 1.2131 area (around 300 pips) is probably the best that we can expect on the downside.  This level is the 50% of the EURUSD range since it’s inception in January 1999. It would be a nice level to trade around into the New Year.

Can the USD go lowert? I suppose so. The GBPUSD is scraping at low levels and a move to 1.6000 is possible. USDJPY reached 119.12 and could we go lower on weaker US data. That could push USDJPY toward the 115.00-116.00 area.  The AUDUSD made new year lows on December 1. The 50% of the move up from 2008 low comes in at 0.8542. A move above that level will be bullish for the AUDUSD in the short term. The EURUSD has upside resistance at 1.2660 and then 1.2746-57.  It might be a stretch to get there but illiquid markets can squeeze traders too.

Another event that will be on traders radar is the December FOMC decision scheduled for December 17th. At this meeting Chair Yellen will be holding a press conference and the members of the FOMC will be making their Central Tendency projections for GDP, Inflation and Employment. The members will also give projections for lower and upper band for rates in 2015, 2016 and beyond.  The last time the Fed did this was in mid- September. It will be curious to see how the distribution of rate forecasts come out.  I thought that the projections for 2015 were a bit too high in September. A few months hence, will the members tone down their projections for tightenings a bit?  That might be a little dollar bearish.

In your opinion, what are the best markets to operate in during the year-end rally? Have you any previous experience worth mentioning about trading in that part of the year? No real suggestions for this…..

Could you give same tips or advice for trading during the last weeks of the year? 

My advise for traders is it is okay to “fall in like” with the whatever you are trading, but try not to “fall in love” with anything.   It is probably not the time for a long term love affair with anything.

Other advise: Don’t be shy to take profits or partial profits when you have them. If you don’t feel comfortable, take a loss and finally, be patient on your entries.  Great trade entries often come from being very patient – even if you end up missing a trade or two.  The goal in December is to make what you can, don’t blow up and look forward to January.

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