Weekly Forex Report by Odom & Frey Futures & Forex

This week we start off with a holiday here in the States. As usual the lack of volume will cause volatility to be more extreme than normal. Global stock markets continue to fall as they begin to realize that the problems here in the US will not be fixed anytime soon. This is also causing the carry trade to be unwound and that continues to push the pairs against the Yen lower. We are expecting this slide to bounce this week. We do not expect it to be an all out turn around but rather just a dead cat bounce. Bottom line continues to be to buy Dollars even in the face of impending rate cuts at the end of the month.

This week we start off with a holiday here in the States. As usual the lack of volume will cause volatility to be more extreme than normal. Global stock markets continue to fall as they begin to realize that the problems here in the US will not be fixed anytime soon. This is also causing the carry trade to be unwound and that continues to push the pairs against the Yen lower. We are expecting this slide to bounce this week. We do not expect it to be an all out turn around but rather just a dead cat bounce. Bottom line continues to be to buy Dollars even in the face of impending rate cuts at the end of the month.

Europe – Euro, Pound, Swiss Franc

EUR/USD:
The Euro continues to slide and we continue to sell rallies and target a move to 1.43 and possibly all the way too 1.38. The early part of this week may see a brief rally and if we do we advocate selling into it and covering again by weeks end.

GBP/USD:
The cable is the one exception to the buy dollar rule that we currently have. This pair is likely to see a retest of the 2.00 level by Valentines day. We are therefore buying dips like we are seeing this morning.

USD/CHF:
The Swissy has been held in a very tight range. It is fighting two opposing forces. The first is the carry trade, which the Swissy is related to and the second is the falling Euro which it is obviously related to. Since those two forces are moving in opposite directions it is keeping this pair frozen. Bottom line though is that the forces of the Euro will outweigh the carry trade so we are buyers of dips rather than sellers of rallies.

ASIA – Yen, Australian Dollar

USD/JPY:
As I mentioned this pair is suffering due to the carry trade being exited. We need to see the US stock markets stabilize before this pair can turn back up. While every monetary official here in the US said publicly last week that they need to act now, as usual we have since then seen nothing in the way of help. (“I am from the government and I am here to help” LOL). Bottom line is that we continue to buy small long positions in this pair betting on a bounce to 110.

AUD/USD:
This pair is has seen a sharp correction since testing the 90 level. We are now buyers below .8650 targeting another test of the 90 level in February. We are doing it with low leverage as a larger pullback in commodities could hold this pair back from any major rallies in the near term.

North America – Canadian

 

USD/CAD:
This pair has also been stuck in a range but for different reasons than the Swissy. We continue to sell rallies and are now short from 1.0301, with a target of parity. This pair is another where we would prefer to be short dollars but that is really more a statement about wanting to long the Cad rather than short dollars. The Eur/cad short would be an even more pure short play for those who do not mind the wild volatility that is inherent in that cross.

Questions or Comments?
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Email the author directly: Derek@OdomandFrey.com

Derek Frey
Odom & Frey Futures & Forex
645 Mayport Rd. Suite 4E
Atlantic Beach, FL 32266

Toll Free: 866.636.6378
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www.odomandfrey.com

Derek Frey, O & F’s co-founder and head trader, is one of the leading experts in the Futures & FX markets. He is regularly quoted by The Wall Street Journal, Bloomberg, The National Post, and Reuters. Mr. Frey has also published articles for Option Trader Magazine and Pit News. His market comments are sought after by traders around the world and he can be heard on etvfutures every week.