Review & Analysis: Increase Volatility
| 15 November 2011
Forex Volatility Increases Squeezes GBPUSD Trade
The contagion and ill-effects of the European crisis still haunts the financial and stock market in spite of the short lived relief of the political change of the interim governments in Greece and Italy. The market sentiment which was fueled by fears amid political instability in Greece & Italy; not to mention the weak fundamentals from the trade deficit widening in the U.K.
Which prompted the European majors to continue to head south of the charts. While the continued demand for the USD as primary & safety currency choice supported the US Dollar Index to hold above the 77.05 levels. As early as the American trading sessions on Monday, have started and all through out the entire mid-trading sessions, the market price behavior particularly the GBPUSD have been really 'squeezed' with volatility and price extensions lower. Which have given back the gains that it had made from the previous day's trading. The obvious bull and bear spreads were traded heavily between major institutional players with at least 150-200pips in both directions for the past couple of days. Swing and day speculative traders would have found this extremely dangerous as more market capitulation were seen along the entire trading sessions.
GBPUSD DAILY Fig.1
The GBPUSD established trading range is between 1.5808 - 1.6160 inclusive of extensions from October 26, 2011. The wide range and consolidation period shows the ectreme uncertainty of bull and bear trades struggling to dominate the market especially with the movements of the past closing and opening days of the trading week. But the increase market shift of prices can change at any given notice coming towards the mid-end of the week's trading. Currently, the GBPUSD is at the lower band of the support at 1.5883. Almost all traders and investors have concluded that even with the partial political resolution in Europe, it still does not change the fact that these countries in Eurozone would be heading to recessionary period for a longer period. Thus, the fundamentals would be for the European majors to be in the defensive. and moving lower to retest the 1.5800 psychological support levels. these extension levels maybe pick before an actual recovery can be seen on a technical basis.
GBPCHF DAILY Fig.2
The GBPCHF cross rate is holding steady in spite of the strong weakness of the Pound and likewise the USDCHF is being supported with the strength of the US Dollar. The established higher trend for the USDCHF is intact with daily pullbacks at the low 0.8945. And the current price at 0.9112 as of this writing. A pullback of the Pound with a steadier USDCHF Fig.3 would prove to support the GBPCHF and attempt a breakout above it's daily resistance (R1)level at 1.4550. Once it does, extensions could be at the 1.4680 as the initial objective.
The combined trading strategies applied is currently an overall a net positive result. As percentage trading has been effective even if and whenever all positions would be settled at current levels. Maintaining several positions that would level the playing field against adverse price fluctuations maybe a bit expensive; however the necessicity to protect net exposure from the amount of funds placed over a period of time is vital to the success of a net positive result with a controlled / manageable losses from other positions. As these trades are a series of connected cross trades with wins and losses, but the overall aim is to have a positive end-result which matters the most and not on a per trade basis.
USDCHF DAILY Fig.3
