US Dollar Recovery To be put to the Test though Busy Week in Forex
Euro May Find Strength in Renewed Fundamental Trends, Data
British Pound at a Crossroads Ahead of Bank of England, US NFP’s

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Forex Weekly Trading Forecast - 01.04.10

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In this article you will find 8 different trading ideas for 2010, each representing the personal opinion of a DailyFX analyst. In fact, exchange rate forecasts are often wrong because no one can really predict the future (at least we can’t). However, by looking at the same investment theme from different angles you may improve your chances of making profitable trades in 2010.

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Forex Trading Recommendations for 2010

We are approaching the point where liquidity has already been ravaged by market conditions and the ranks will soon be thinned even further as the market closes for the holiday. Clearly, this is not the time to take on new trades – though this does not mean we can set out potential opportunities for the New Year.

Read the rest here:
A EURGBP Range Setup for the New Year

The Korean Won is up 32% since March, and 8.2% on the year. At the same time, it is 20% below is 2007 year-end level, as well as 13% weaker than the 2006 average of 955 and 15.5% weaker than the 2007 average.

Focusing only on the Won’s appreciation would probably cause some technical analysts to back off, while comparing it only to the highs of a couple years ago would lead others to pile in, without knowing examining other indicators. In my opinion, this is a situation in which technical analysis – because of the potential to send conflicting signals – falls short. Ergo, let’s turn to the fundamental picture.

The Korea Won has adhered closely to the overarching forex narrative. When the credit crisis struck, investors fled from Korea, and the Won lost 50% of its value practically overnight. With the return of risk-taking in the second quarter of 2009, however, the safe-haven appeal of the Dollar faded, and the Won rebounded strongly. With the potential end of the carry trade in sight, however, the Won has stuttered, and some analysts portend a decline in the near-term.

However, while many currencies will no doubt experience a correction if/when the Fed raises interest rates, the Korean Won probably won’t be one of them. Korean investments have certainly been buoyant of late, but not nearly to the same extent as in other emerging markets, where it could be argued speculative bubbles are now forming. In addition, Korean interest rates are hardly lofty; its benchmark rate is only 2%, hardly enough to justify a carry trade strategy in and of itself.

Instead, investors have been flocking to Korea for the economic fundamentals. Despite an appreciating currency, Korea’s trade surplus is on pace to hit a record $45 Billion this year, with a healthy $15-20 Billion forecast for 2010. In fact, the rising Won has has virtually no effect on exports, as Korean companies had prudently assumed that the Korean Won would be even more expensive (based on 2007 levels). In the automobile industry, for example, “New models being introduced now were designed and engineered two years ago to keep the company in the black even if the won strengthened to 900 to the dollar.” For that reason, analysts expect 2010 will be a banner year for the economy. After a modest expansion in 2009, GDP is projected to grow by 4.5-5% next year, the third highest among large economies, behind only China and India.

The Central Bank of Korea is also operating as though the Won will keep appreciating, irrespective of what happens to the carry trade. In one session last week, it intervened in forex markets to the tune of $500 million, with the goal of depressing the Won. With the recent expiration of a currency swap with the Fed, this is just as well, as Dollars could soon once again be in short supply. Korean monetary policy remains expansionary, but if the economy takes off in 2010 as expected, the Central Bank will have no choice but to raise rates and keep inflation within its target range.

In addition, there is now talk of turning the Korean Won into an international currency. ” ‘Korea has the opportunity to upgrade the won’s global status as a host country of the G20 2010 Summit.’ International use of the Korean won has been insignificant, although the nation’s share in international trade and finance has increased quickly,” analysts have observed. That the government of Korea is looking to promote the Won as a stable currency implies that it is comfortable with the prospect of further appreciation.

In short, the Won will probably be one of the standouts in 2010. Many currencies will suffer as changes in global monetary policy and the appearance of asset price bubbles cause investors to back off of the carry trade and exit certain emerging markets. South Korea won’t be one of them. With strong fundamentals and a growing profile, it’s no wonder that most analysts expect the Won to appreciate by another 10% in 2010.

Given that tomorrow is the first day of 2010, we won’t have to wait long to find out! On that note, happy new year!

Korean Won Headed Up, Despite Unwinding of Carry Trade

Oil prices continue to grind higher with the $80/barrel level now close ahead while gold and silver have rebounded higher with added support possible ahead as weekly US jobless claims figures cross the wires.

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Oil Advancing Toward $80, Gold and Silver Find Support

The British Pound may turn volatile ahead of a report showing house prices rose at the fastest pace in over 2 years in December despite a weak foundation behind the outcome as thin pre-holiday liquidity conditions persist.

Read more from the original source:
British Pound Volatility May Continue as House Prices Gain Most in 2 Years

This year has been challenging for the UK currency

Continued here:
Sterling gains in thin trading volumes as the dollar is sold before New Year

Australia’s Private Sector Credit grew at an annual pace of 0.8% in November, the least in nearly 17 years, threatening to undermine a self-sustaining economic recovery after the boost from government stimulus abates and arguing against another interest rate increase when the Reserve Bank of Australia holds their next policy meeting. Indeed, the softer tone of recent economic data has forced an aggressive reduction in the market’s RBA yield forecast, with a Credit Suisse gauge of priced-in rate hike expectations showing traders now see a 41% chance of additional tightening in February as compared to 80% just two weeks ago.

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Read more:
Australian Rate Outlook Dims as Private Sector Credit Falters

Measures of fear and risk are certainly skewed by the unusual conditions that have set in over the last few weeks of 2009. Looking at those indicators that are based on volatility, we see the effects of thin liquidity; but then again, it is also difficult to make an objective assessment of activity through stymied volume and open interest. In these types of conditions, we need to lengthen our horizons and look at the trends that have developed over the past month, three months and year. Risk – and the premiums that it entails – have dropped off significantly over the year. But looking back even further, risk is still high relative to the average levels of the past five to ten years and beyond.

Originally posted here:

Unusually cold temperatures for the eastern United States, ongoing political turmoil and a steady rebalancing of supply-and-demand has maintained oil’s advance long enough to mark the commodity’s most consistent bull wave in over four months. While much of Wednesday’s progress was founded on the momentum in the impressive 16 percent-plus upswing of the past three weeks, there were additional fundamental components to keep the market elevated.

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Crude Oil Extends its Strongest Rally Since October as the Dollar Settles, Inventories Contract

Forex options and futures market sentiment points to short-term US dollar pullbacks, but overall positioning favors further dollar appreciation through the New Year. We previously called for continued US Dollar gains as markets unwound their previously one-sided positioning. Yet a more recent shift in market sentiment actually suggests that USD positioning is at bullish extremes—leaving the resurgent currency at risk of short-term pullbacks.

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The US dollar, British pound, and Canadian dollar will face key event risk in the coming week, but the greater issue will be the return of liquidity following almost two weeks of low-volume holiday trade.

Read more from the original source:
US Dollar to Face Surge in Volumes, Fed Meeting Minutes, & Non-Farm Payrolls

If not trading very short-term swings or holding longer-term positions, it is not advisable to trade through the year-end liquidity drain. While it may seem that thin markets and leveraged volatility are ingredients for quick range trades; the rhyme and reason to fundamental and technical setups is dampened and the resulting price action is highly unpredictable.

See the rest here:
Can an Appealing CADJPY Range Play Out Despite Market Conditions?