Different Stories

There are times in the market when currency pairs trend and move in similar fashions. Then there are times like now! We’re seeing a lot of different patterns in major currencies at the moment.

Chart 1 below shows that the Swiss Franc futures contract (SF-Spotv in ProfitSource) is currently trading at an all-time high against the US Dollar.

Chart 1

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For those new to futures trading, the Swiss Franc futures contract measures the value of the Swiss Franc against the US Dollar. The economic problems of the United States and the decline of US Dollar have been well documented so it is no surprise to see a new all-time high at this time.

But the Euro futures contract (EC-Spotv in ProfitSource) - also measured against the US Dollar - shows a very different story, as shown in Chart 2 below:

Chart 2

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As you can see, the Euro reached its all-time high against the US Dollar back in July, 2008. Since then we have seen a battle between these currencies, with sharp falls in the Euro followed by a sharp rise, another sharp fall and now a sharp rise leading into the current May, 2011 top.

Chart 3 below indicates the Australian Dollar (AD-Spotv in ProfitSource) is also trading around its all-time high but, unlike the Swiss Franc, has had a retracement from its May, 2011 top.

Chart 3

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The Japanese Yen has also made a new all-time high against the US Dollar after the Japanese earthquake in March, 2011, as shown in Chart 4 below:

Chart 4

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Looking at these four charts, you can see how weak US Dollar has been in recent years. You can also begin to see which currencies are in the strongest and weakest positions.

To me, the Euro looks like the obvious currency to short against the US Dollar now as it is clearly the weakest of these four currencies compared with the US Dollar.

Chart 5 below indicates that the trend on the weekly swing chart for the Euro futures contract has just turned down.

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You can also see that the swing ranges were hinting that the June top was a great ‘first lower swing top’ setup to trade short out of.

I believe the currency markets will provide some tremendous trading opportunities in coming years as the US Dollar fights back and the problems in Europe continue to play out.

If you are new to currency trading (or have never traded a currency before) I am sure you would benefit from joining me and the rest of the Safety in the Market team at our FX and Commodities Summit 2011 in Sydney on the last weekend in July. Over two-days we will be covering the ins and outs of currency trading and looking at where the markets have been and where they might be headed. Make sure you come along for what promises to be an excellent summit.