Forex ECN: The Wave of the future.
(PRWEB) October 25, 2011
Recent statistics report that the EUR/USD currency pair accounts for 28% of the $4 trillion US average volume that changes hands each day in the Foreign Exchange Currency Market (Forex). That is equivalent to $1.12 trillion in that currency pair alone. With so much at stake, the uncertainty and speculation that is looming over the euro has currency investors’ undivided attention. The euro does seem to be holding up pretty well, all things considered, as explained in greater detail by InvesTechFX.
The euro had plunged dramatically beginning in late August, closing below its opening level for the year by October 3. It seemed very likely that a new low for the year would be made as the possible default by Greece sent currency speculators scurrying for the safety of the dollar.
A strong uptrend that featured substantial positive gains then took the euro well back above the year’s open when it appeared that other ECM countries were considering lengthening Greece’s repayment time frame along with reducing the total amount owed. US economic issues, high unemployment and falling equity markets provided assisted in the euro’s recovery. Both economies have been struggling against recessionary forces that have plagued them since 2008.
Now, further bad news involving dire economic forecasts for Italy and Spain, along with the reluctance of France and Germany to commit to solving Greek problems, has stalled the euro at a level almost precisely mid-way between the high and low for the year, leaving investors scratching their heads trying to discern what direction the euro will take next.
A scheduled summit meeting of European leaders seemed to offer some hope of a resolution, but whether this meeting will take place, or a bona fide solution becomes present, it has left the EUR/USD trapped in a range where it remains for a clear trend of any kind to emerge.
Forex trading this week has been choppy, with prices hovering in a narrow 200 pip channel between 1.3700 and 1.3900, and most of the activity taking place in close proximity to 1.3800. Attempting to trade this pair at this particular moment is appearing quite problematic, as the world is awaiting a clear, unambiguous plan to deal with euro zone countries’ inability to meet their obligations.
Other pairs based on the euro and the dollars are experiencing a similar dilemma. Trend traders are well-advised to observe and leave the markets to the scalpers and swing traders. Anyone with the good fortune to have sold the top back in late August, or bought the bottom in early October, can hold, but should strongly consider taking profits.
One effective strategy at the moment for short term forex traders is to use the negative correlation that currently exists between the EUR/USD and the USD/CHF. As long as this relationship persists, traders can use one pair as an indicator of what action to take in the other. For example, if the EUR/USD can break a significant resistance level before the USD/CHF breaks an important support level, it may be safe to conclude that the USD/CHF will indeed break support and can be sold. More aggressive traders can simultaneously buy the EUR/USD.
Conversely, if the EUR/USD breaks support prior to the USD/CHF penetrating resistance, a buy anticipating the USD/CHF to actually break above resistance may be indicated. Here, the more aggressive trader can sell the EUR/USD.
Finally, if resistance holds in the EUR/USD and support holds in the USD/CHF, sell the former and buy the latter.
The key to utilizing this strategy is to keep trade duration short. A false breakout by either pair in either direction is always a distinct possibility. Keep trade size small, also. If the correct direction is picked and a worthwhile trend forms, the luxury of taking partial or full profits or adding size to a profitable trade is available to those who resist greed and pay heed to the high probability of prices returning to their previous range.
Current market conditions in the EUR/USD and any other currency pairs that contain one or the other of these major currencies favor technical traders. News traders have to play the waiting game. The edge technical traders enjoy comes from the fact that dire economic forecasts and predictions of euro zone country defaults have happened in the past and will doubtless happen in the future. Being able to interpret these events objectively without being influenced by conflicting announcements is what technical trading is all about.
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