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The last few weeks were good to those who chose to swing trade  EURUSD, selling this pair on  tops, and buying it back on bottoms…

However, you should notice that this pair is actually narrowing its trading range since Oct 26, forming what we call in technical analysis -” a triangle shape”. this shape is bound to break some time in the near future, putting an and to the defined range we have right now ( between 1.3790 to 1.2990).

As for today, a very heavy buy order on EURUSD at around 14:00 GMT has triggered a quick move to 1.2816, however the sellers did not hesitate, and pressured the pair  straight back to 1.26, another  swing action out of so many.

The USDJPY is also narrowing its range so far this week, forming a triangle shape as well. The triangle breaking points are at this moment 96.36 on the down side, and 97.29 on the up side. Notice that a clear break is needed before we can say the range has been broken.

The British pound opened the week on the strong side after last week’s 6 year low against dollar (1.4556).
The recovery came as a natural process of taking profit by investors. A process we only see so often in the forex market - After so many traders joining to the party and shorting GBPUSD, making hundreds of pips in profit last week, the fear of losing these profits and the need to secure it are leading traders to close their positions and take profit,  their action revives the demand for sterling, resulting in its price going up against to the dollar. this goes on as the chain reaction of GBPUSD going up triggers more take profit orders.

So far the GBPUSD has completed a 500 pips (3.4%) correction since its bottom on November 13,
It might continue gaining in the short term, however the down trend is still very much intact, and the sterling is not out of the bush yet.

GBPUSD first major resistance level is around 1.5270, a clear break above it might send us to a more significant correction level aiming 1.5600.

On the down side, the first support area is at 1.4788, any break under this level might signal the end of the correction and a further move to test the bottom at 1.4556.

Europe’s biggest economy has now officially entered a recession, as it contracts the most in a dozen years this morning (GDP figures  -0.5 lower than the expected  -0.2).  All around the world the toll of the financial crisis is starting to effect the real economy - meaning people losing their jobs and not just numbers and stock  falling down.

The German GDP figures have pushed EURUSD under 1.24 this morning, however the pair corrected the move this afternoon and is now back to trade within its three week range of 1.25-1.31. I already mentioned that the pair was ripe for some swing trading this week and the week before, but pay attention to any further breaks under 1.25, since that might lead us to test 1.2330  pretty soon.

The GBPUSD  has breached its 1.5150 support level downward  yesterday without looking back, this is alway a sign for substantial selling power in the market. However it did stop at its main support level around 1.4830 (for now) suppling a good profit taking point   and  a quick buy opportunity for the intraday traders.

GBPJPY did break clearly under 148.2 the day before, leading to an immediate sharp fall to 139, just as i mentioned on yesterday’s post. Watch for the next support level at 137.4 and mainly for the one at 129.3.

(13:00 GMT)

The British Sterling continues to drop against major currencies after the bank of England revealed in its quarterly inflation report that inflation in UK would slow beneath 1% throughout the year 2009.

This was taken as further indication that the BOE will proceed slashing rates as we move into 2009.
As I mentioned yesterday, traders bet the difference in interest rate between the Euro and the Sterling will continue to widen, this in return formulates buying pressure on EURGBP which is now trading on a 12 year high above 0.82. ( it was trading around that level on 1996, years before the Euro was introduced to the public).

The GBPUSD is also trading on a 6 year low breaking under 1.5255, a level last seen on October 2002.
The next support area for GBPUSD is around 1.5150 , which was tested on August 02′, a level which may hold if reached within a week or so, the main support level is at 1.4838.
On the up side, the immediate resistance level of GBPUSD is at 1.5524.

The GBPJPY is also trading on the down side, after it lost 24% on its value since September 08′
Today it is trading just around 148.2 a major support area, a clear break of it might trigger some sharper selling, while a failure to cross 148 can send us back to 149.6
The next support area is at 137.4, and after it the main support at the all time low of 129.3 ( printed in 1995).

EURGBP has printed 0.8214 today , a level last seen in 1996. This pair is in a very steep up trend which started on Sep ‘07,
Since then,  the Euro gained almost 21% against the Sterling.

Only in the last three weeks EURGBP  managed to climb from 0.7758 (its main support level) to over 0.82 due to concerns that the UK economy will suffer even more than the Euro-Zone economy.
Currently, the interest on the sterling is lower than the interest rate on the Euro ( 3% vs 3.25%)
and many traders bet the Bank of England will continue slashing interest rates more aggressively in comparison to the ECB, widening the interest gap between them in the future.

However, according to eToro’s Top traders insight, as much as 89% of the traders sold EURGBP when it reached 0.8200 around 11:00am GMT today, just before it corrected to 0.8130.

The EURUSD did not gain support from better than expected ZEW figures earlier today ( actual reading of -53.5 not as bad as the -62.5 expected ) as it corrects down to meet its first support area of 1.2525
Basically we are trading in a range between 1.2525 and 1.3120 for the last two weeks, and as long as these levels hold, they supply a good basis for swing trading.

The German ZEW Report :  a Survey of  350 German institutional investors and analysts which asks respondents to rate the relative 6-month economic outlook for Germany, readings Above 0.0 indicate optimism, while readings below indicate pessimism.

The Forex market opened this week with dollar falling against Euro and Yen after news of a  massive stimulus package launched by China.
The package is worth nearly 600 billion dollars, and is aimed at bolstering China’s weakening economy.
The package may also help the fight against the global economic slowdown, and that was the reason investors appetite for risk rose this morning, pushing up pairs like USDJPY, AUDJPY and EURUSD.

However, with the New-York session open sharply on the red , we are witnessing a change in the daily trend as Yen recovers its early losses today, now advancing below the 98 level on USDJPY and 66 on AUDJPY.  It is clear that Yen buyers are still eager to sell the Japanese currency on every opportunity for the last few weeks.

A report today showed the unemployment rate in the U.S is at 6.5%, a 14 year high.
This is certainly a weak figure which points out how the damage of the credit crisis is starting to affect the real economy in America.

As a result the dollar traded weaker against the EUR taking the EURUSD back to 1.27 where it started off  this week, before the climb above 1.3.

The USDJPY is also trading just around the levels it opened the week, after it topped at 100.56 and bottomed at 96.75

Generally it was quite a swingy week for the EURUSD and USDJPY just  as i projected on  Monday’s post.
The flow of information regarding interest rates and employment figures together with the most exiting U.S elections day in decades made it rather confusing for traders to pick a direction and stick to it.

Some traders live to swing their trades from one direction to another. Others prefer a trend to follow. The smartest thing However is to learn how to recognize a swinging environment from a trendy one, and then build your trading plan according to that recognition.
Surly one day I will write a post explaining how I do just that.

Obama’s victory yesterday was most expected by the markets, maybe this is the reason why wall-street did not share the same joy and excitement displayed in the streets of New-York and Chicago. At least not at the opening bell of the NYSE.

The dollar did trade lower against most major currencies  today, EURUSD crossed above the 1.3 psychological resistance area  fueled by  a fundamental report  showing that non-manufacturing industries shrank in October at the fastest pace on record. ( 44.4 while the forecast was 47.3)

{ the ISM Nom manufacturing PMI is a Survey of about 400 purchasing managers which asks respondents to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories}

Traders eyes are now set towards  the European Central Bank which tomorrow will make an interest rate announcement.
It is widely expected that the ECB will lower the benchmark interest rate by 50bp to 3.25% from 3.75%.

The announcement is expected at 12:45 GMT (Nov 6)
Of course any surprise might create a significant reaction in the Forex market.
The first resistance area of EURUSD is at 1.3260 and the first support area is at 1.2720.

The USDJPY is trading around 99 after it reached 100.5 yesterday, possibly now retracing for a natural correction of its advance from around 90 on late October.
The most important support area is at 98.2, a clear break bellow might trigger a dipper correction to around 97.

(16:00 GMT)
The results of the U.S election today will certainly have a long term effect over the Forex market.
The first mission of any chosen candidate would be  dealing with the current financial crisis.

It is believed that a victory for Obama would be good for the dollar in the long term. However, some believe that even a surprise victory of John McCain could support the dollar in the future. The reason - any president which is not George W Bush will be positive for the dollar ( since Bush practically neglected the dollar for the last 4 years, and the fact he is leaving office already creates a different attitude towards the dollar).

So far today the dollar is losing against the Euro and Aussie pushed by six straight green days in stock markets around Europe. The Australian central bank has chosen to cut rates  yesterday by 0.75 basis points to 5.25% ( more than the expected 0.5 basis points)

The USDJPY is also maintaining its Monday gains after breaking the first resistance area at 99.64 now aiming to test the psychological resistance area of 100.
A clear break of it could drive us quickly to 100.5 and then 101. However, take into account that  the USDJPY has advanced considerably since Oct 28 ( almost 7% ) and thus a natural correction to this move might be in the cards as well.

The Forex market opened today with most major currencies gaining against the Yen, however around the second half of the London session the tide has turned, and we see EURUSD and USDJPY back where they started.

We are ahead of an election week in U.S which revolves around the dark shadow of the financial crisis and a possible recession, we also have many important repots coming out later on.

The AUD rate statement due tomorrow (3:30am GMT) the RBA is expected to cut from 6% to 5.5%
Wednesday and Tuesday also include important trade balance and employment figures out of Australia.

On Wednesday we have employment figures out of U.S and New Zealand.

On Tuesday the Bank of England is expected to cut rates from 4.5% to 4% (12:00pm GMT)
and later on that day a ECB press conference which can supply us with clues to the Euro’s heading concerning future interest rates.

With so many political and fundamental events on the way, no wander the Forex market has open today with an indecisive tone, this might continue until the major events of the week are behind us.

Lastly, I have been getting some comments from fellow traders that the Forex market is beginning to behave “normally”  again - if there is ever a definition we can call “normal”. I have to agree that the market looks calmer, and there is a growing  attention to long term fundamentals from the side of traders and investors. Of course the volatility is still higher than the average, but there are obvious signs that to a growing number of  traders ( including yours truly ) confidence in the market is starting to come back.