Currency Trading: DailyFX

Want to trade when you get home from work? Trade foreign exchange as it is one of the largest markets in the world.

Euro speculative shorts have moderated from a record but that changes little regarding the larger trend. In fact, a backtest of this idea reveals a negative equity curve.

As we have advocated in the last two editions of Weekly Focus, the arguments for buying the dollar have faded going into 2012. Not as a result of Europe’s debt profile becoming more sustainable but as a result of improved global economic data and a more aggressive easing of monetary policy by the major central banks. The Fed’s indirect promise of QE3 should the US economy slow again only confirms our expectation of a structural dollar downtrend. Not least against the commodity currencies but also against the stronger cyclical emerging market currencies. The outlook against the euro is less certain, though.
Kasper Kirkegaard, Senior Analyst, Danske Bank

US Dollar volatility trades near its lowest levels since the onset of the financial crisis in 2008; we favor further USD losses against the Australian Dollar and other forex counterparts.

The greenback bounced back on Monday, with the Dow Jones-FXCM U.S. Dollar Index advancing to a high of 9,763, and the reserve currency should continue to recoup the losses from earlier this year as the shift away from risk-taking behavior gathers pace.

Learn where to enter and exit once you find a strong trend to trade.

Canadian Ivey Purchasing Managers Index (PMI) surprisingly hits eight-month high in the first month of 2012, indicating faster pace of purchasing activity in the Canadian economy.

Risk appetite has gone on the defensive in early North American trade as EU officials struggle to approve the next tranche of Greek aid. The dollar is bid higher as higher yielding assets retreated. Here are the key levels to watch on EURUSD and USDJPY.

The erratic downside ratchet for the Dollar continues from the the last interim 1.0160 high. As each leg of this decline to the upside and the downside has developed in a 3 wave format, we suspect a Diagonal wedge pattern best defines the price action. The A leg would be complete with the drop to 1.0050 and the B wave with the erratic rally to fail 1.0160. The strongest part of the decline or C wave finished with the test of interim 99.60 support to prompt the messy D wave consolidation back to 1.0035. That suggests the terminal leg of this pattern or E wave will take a 3 wave structure of which we are probably ending the first leg or minor A wave with the dip to 99.30. As upside reactions fail 1.0000 down channel resistance expect a full test of 98.90 medium term consolidation support possibly as a flat bottom triangle. However, the market must regain 1.0035-1.0070 resistance to secure this larger range trade. Below 98.90 may well inject downside momentum to a secondary 97.60 target.

The erratic downside ratchet for the Dollar continues from the the last interim 1.0160 high. As each leg of this decline to the upside and the downside has developed in a 3 wave format, we suspect a Diagonal wedge pattern best defines the price action.

The Japanese Yen and U.S. Dollar were the top two performing majors in the overnight as the Greek debt saga took another turn for the worse. The Euro trailed the pack as Greece has backed the Euro-zone into a corner.

The USD begins the week on the offensive. The USDCHF, in particular, has broken through resistance.

Market sentiment waned on Monday as Greece struggles to secure a debt deal, and the shift away from risk-taking behavior should gather pace during the North American trade as European policy makers struggle to stem the heightening risk for contagion.

Oil prices didn't do much during last week, but there was a shift in the premium of Brent over WTI as it reached the highest level since November 2011.

The Euro remains under pressure into Monday and will be at the mercy of the developments out of Greece where market participants will be watching to see if a resolution can be reached…