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The Euro (EC-Spotv in ProfitSource) looks like it may have commenced its next move to the upside. At the time of writing the Euro is trading around 400 points higher than the low it made last Friday, January 23rd. I had been watching Monday, January 26th for the low, but the 23rd is close enough for me! Chart 1 below shows this.
Chart 1
click to enlarge
If this chart begins a bullish move, it will mean that the Euro Currency is gaining in strength when compared with the US Dollar.
Many traders make the mistake of assuming that this also means the US Dollar will weaken against other currencies as well.
However, each currency has its own unique cycle. While some currencies, such as the Swiss Franc and the Euro, will have similar cycles, they are nevertheless very different, and should be treated as separate currencies.
Chart 2 below shows two Currency Pairs overlaid in ProfitSource. The black line is the Euro/US Dollar Currency pair, and the blue line is the US Dollar/Japanese Yen Currency pair.
Chart 2
click to enlarge
In the first example I have circled above, you can see that the currency pairs are moving in opposite directions. In the second example I have circled, they are both moving in the same direction.
This is why we need to treat each market separately.
It is still my belief that the US Dollar will have a poor year in 2009, and that the Euro will have a very strong year.
However, let’s take a look at the current chart of the US Dollar / Japanese Yen (FXUSJY in ProfitSource).
Chart 3 below shows that the US Dollar is forming a potential Double Bottom against the Yen, which is typically a Bullish signal.
Chart 3
click to enlarge
I am expecting the Dollar/Yen to move out of this Double Bottom, rising into late April, which I believe will be the high of the year.
After this, we could see the US Dollar make a new All Time Low against the Yen by the end of 2009.
From reading my articles, hopefully you can see that I am bullish on the US Dollar against the Yen – for now – but bearish on the US Dollar when compared to the Euro.
Different markets have different cycles. Focus on one market at a time. Markets are like people – after all they are made up of people – and they each have their different highs and lows, and moments of optimism and pessimism.
Be Prepared!
Mathew Barnes
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