The first month of the year is almost behind us and so far we can say that end of 2016 market moves were reversed all this January. Not all the pairs acted the same way, but the U.S. dollar is moving in an incredibly correlated manner across the dashboard.
Because of this, trading in these markets is unusually risking as overtrading is a potential danger. If you trade the EURUSD on the short side and USDCHF on the long side, it is like you’re having two similar positions on the same currency pair.
The cross that represents the two majors is, the EURCHF, is doing virtually nothing, just sits in a tight range. The same is true in the case of EURUSD and USDJPY, as the EURJPY cross is holding within a one hundred and so pips range.
Volatility on some pairs is extremely low, making it difficult to make an honest buck in this environment. However, most likely things are about to change in the near future as some important events happened.
Firstly, President Trump took the Oval Office and from the first day, some major decisions have been taken, like the withdrawal of the United States from the TPP deal (Trans Pacific Pact). This was a promise made during the Presidential race, so it is no surprise to see it come true.
The U.S. dollar didn’t react much to the news. We saw some push higher on the inauguration day and late in the last week, only for the start of this week to see those gains evaporating. We’re back in wait and see mode.
Secondly, the U.S. GDP (Gross Domestic Product) is due this Friday and the print is relevant as next week the FOMC (Federal Open Market Committee), as well as the NFP (Non-Farm Payrolls), are due.
Will the Fed raise rates, or it will wait until March? If we’re to guide by last week’s Yellen’s speech, I wouldn’t be surprised to see this happening.
The key, though, stays with the equity markets. DJIA is not able to let 20k out of sight, so look for it to relentlessly try for it until finally, it will give up.
This, in turn, should keep the USDJPY bid on any dips, with or without a bit of help from the Fed. To sum up, while ranges are small as the dollar is not moving, end of the trading week might bring positioning for next week’s Fed decision. Especially if the GDP this coming Friday will print better than expectations!