USD is on breakout on many pairs. What is interesting is it is at such thresholds even though it is highly overbought and fundamentally it is difficult to understand why this move has been so dramatic considering the state of the US economy and the ‘Bailout Package’.

One explanation might be the overhead of the ‘Carry Trade’ and the unwinding of many other trades such as in Oil and other commodities that were high flying over the last few months. Remember that even Gold has been softening and gold is usually a flight to commodity in times of economic uncertainty. Also of note is we are at extremes in sentiment indexes that usually signal a reversal. With all of this going when we see a reversal it will be dramatic and add to the roller costar ride we seem to be on in many currencies.

So here’s my take on what we might see next:

Now with some relief on the credit markets, although I don’t believe this will help stem the coming recession it might give some temporary relief. As such this might be the climate required to cause a temporary reversal. I’m not saying there is a bottom in place on the EUR/USD or the GBP/USD, however we should be expecting that when a turn comes it should be dramatic and obvious.

What is usually the best trades during such times is to bet on the JPY. Japan went through a crisis of non-confidence some years ago and as much as their economy relies on world markets as much as everywhere else, they have been cleaning up their financial systems and should weather the storm better then the other G8 economies.

There are many possible counts by Elliott Wave standards and as such I am choosing to view this as a neutral indicator and will be looking for daily candles for clues on where the moves will be. For now, I still view the trend towards USD and JPY strength until a strong reversal takes place.

The EUR/USD has spent weeks in the oversold however the move does not appear over. Waiting for a strong reversal signal is recommended before changing your bias.

The GBP/USD is very much in a similar situation. So I am on the sidelines waiting here to pounce at the right time as well.

The USD/CAD is truly at a critical place. Having broken through both the .618 Fibo of the last major move down and breaking a long-standing trend-line. Much more of a move up strongly suggests the bottom may be in place for some time. Especially if commodities like Gold and Oil continue to soften. (Not to mention potash and copper).

EUR/JPY is a highly volatile pair however if you’re lucky enough to catch a strong downward move, you may consider keeping a small position on for the long haul as an expected a multy year correction is underway and the JPY should continue to strengthen for some time. If you don’t like the stop-losses required on this pair consider the CHF/JPY.

Good trading!

That's the $700 billion questions isn't it?

The truth is both exciting and also quite frightening. We are witnessing an historic time in the world financial markets, not just in the US. The fact remains that the US economy is something equivalent to 25% of the world economic output. You can't have a situation like this happening in the US without severe affect on the rest of the world. The world has not witnessed anything like this since 1929. When your kids and grand-kids go to University they will be taught about this time in economics and politics as being one of the greatest events of the last 100 years.

It will be interesting to look back on this 20 or 30 years from now to see how this event changed the world of finance and I'm sure, politics as well. With the most historic US election happening at the same time, Hollywood script writers couldn't have imagined such a scenario! As a result, all markets have been going sideways for days now waiting on a final outcome on the 'Bailout' plan. What happens this weekend will shape the future for many years to come. What is important to remember is that most world economies trail the US by about 6 to 12 months (in normal times). With this kind of event this will surely be accelerated and the spill over effect will ripple quickly throughout the rest of the world.

Because all markets are moving sideways awaiting more news, it is very difficult to read waves and patterns. So what happens immediately after a resolution on the plan is difficult to project. If you are planning to trade as the market opens and a final plan is approved, be prepared for the possibility of EXTREMLY volatile moves.

Please be cautious and trade with very good money management. Keeping risk below 2% of your account is strongly recommended.
As a result, this week I will simply be pointing out what I perceive to be the most important barriers. Breaks and turns will likely happen at the defined levels. The challenge will be in the volatility as this may cause false actions.

Cheers and good trading.

We are certainly in tumultuous times in all markets at present. I would suggest this condition will continue for some time. Weeks months or even years. We are witnessing the most volatile period in financial markets in our lifetime. This allows for greater swings in markets, producing many more opportunities than normal while also increasing the risk. In times like this more than any other, use good sound money management and only expose a very small margin of your account at one time. 2% or less in a very good rule.

This week, I present the EUR/USD and GBP/USD in 4 hour chart frames. This allows for a better view of the current patterns. Both are in a range that when broken should produce a very strong move.

The USD/CAD this week has appeared to have topped medium term. Now attacking it's monthly support, a break might produce a revisit of Par (1.0000) or lower. Watch that barrier at $1.0416

The EUR/JPY is of course reacting to the risk reduction with the Fed. Bail-out. A move up is expected. What I would be watching for however is a sudden reversal at the Carry-Trade does not like these very volatile conditions and when things turn again we may see a further very violent unwinding.

 
Cheers and good trading,
Pierre

It looks like Thursday was the start of a long overdue counter-trend rally in the dollar pairs with Friday being the break-out day. There is always the chance of a new low or sudden re-tracement, In fact I would expect a re-tracement of Friday's move at minimum, however I believe the dollar rally is over for a few weeks. Look for a weakening dollar for a while.

Looking at how strong the Dollar rally has been we should expect equal volatility at times in the counter-trend.