By Susan Wade
Arguably the best tool for assessing the status of global currencies is the U.S. dollar index. As a rule, whenever it rises, and the US dollars strengthens, other global currencies weaken relative to it.
If we look at the data gathered by the index since mid-2014, we can see that currency ETFs representing the Canadian, British, European, Australian and Japanese currencies have all been set on downward trends since this period. Interestingly, however, many of these trends began to level off at the start of February. If these prices continue to break lower, they represent an exciting shorting opportunity for those trading forex, whilst any rally above these short-term consolidations sets the stage for an uptrend to take hold.
If you’re trading, here are a few tips on the ETF trade levels to keep an eye out for…
British Pound Sterling
The latest data indicates that the pound has managed to push above the descending trend line that’s endured since July 2014. Although this doesn’t mean that the currency is back to full strength, it’s looking a lot healthier than most other exchange-traded funds. Its current rally is the most notable since the decline began, with commentators suggesting that resistance of around $153 should be expected. If the price can push beyond this, it’s likely that this rally is actually the emergence of a longer-term uptrend that would herald potential buying opportunities for savvy investors.
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The Euro
The euro’s decline experienced a rather dramatic acceleration through late December and January, but February saw the price begin to stabilise. Minor support has now developed at $111, although any drop below should be seen as an indication that the downtrend is set to resume and the current situation is nothing more than a lull in the storm. Traders should keep an eye out for any rallies that take the currency between $114.75 and $115.75, as these will represent shorting opportunities for those bold enough to take them.
The Japanese Yen
The Japanese yen’s current lockdown began in December, and after a sharp multi-month decline, it’s now moving in a choppy range. Based on the height of this range, the approximate target should be viewed as roughly $77.50, with any rally above $83.87 potentially signalling an advance.
The Australian Dollar
The Australian dollar spent February ranging between $78.52 and $76.88. Traders should be looking to short at around $78.52. If a break occurs, further shorting opportunities will arise at the descending trend line of around $80. However, if the price falls below the consolidation low of $76.88, you should think of targeting approximately $75.25. Should higher swing highs or higher swing lows occur, these should be taken as an indication that the trend may be beginning to reverse itself.
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Written by Susan Wade