By: Christopher Lewis
With the fourth quarter of 2011 rapidly approaching us, it is time to look at some of the currency pairs and what they may have in store for traders.
The EUR/USD pair will more than likely be a bit of a challenge to traders, as it will be extremely sensitive to headlines coming out of both the EU and the US. Both economies are in trouble if we are honest about it, but the credit crisis out of Europe could take the lead role in determining how this pair plays out over the next couple of months. With the Europeans finding themselves in a very difficult predicament involving the Greeks, as well as some other countries, I find it hard to think this pair will not fall.
You must remember however that in these types of situations, whenever “good” or “less bad” news comes out about the crisis, you can often have a wicked snap back in pricing. Because of this, I am looking for the pair to have a generally negative bias, but extreme swings in pricing. The 1.35 area is in play at the time of writing, and the 1.30 area isn’t hard to imagine by the end of the year – but it will be based upon some kind of news as opposed to a grind.
The cable finds itself in an interesting position. While the UK isn’t as bad as the EU currently, the country’s banks are knee-deep in the muck when it comes to the EU’s problems. The fact this is true will weigh heavily on the banking sector in the UK. Unfortunately for the UK, the banking sector is huge and will certainly play havoc with the British economy. As a result,Forex predictions for the Pound aren't overwhelmingly positive.
The area to watch will be the 1.5850 area. If the GBP/USD can close below that level on a daily candle, there is a real threat to the downside. Some of the possible targets below include the 1.55 and 1.50 levels. This pair is sensitive to the global risk appetite in general, and as such should be greatly affected by it. If the stock markets continue to fall, it will only be a time before this pair falls. Also adding to the pressure is that a couple of members of the Bank of England left the door open for more quantitative easing.
With the Swiss National Bank making an announcement that they “can no longer tolerate the EUR/CHF being below 1.20” and that they are “willing to buy unlimited foreign currency in order to weaken the Franc” the CHF is certainly an interesting currency at the moment. There are a couple of different things that could come of this, but the most likely scenario is that the SNB has put a floor in the XXX/CHF pairs for the medium-term.
Because of this, the USD/CHF suddenly becomes a lot different than it once was. This used to be a pair that was a matching of two safe haven currencies. However, with the SNB willing to weaken the Franc, that is no longer true. In fact, this will basically reverse the psychology of the pair as it used to be the Franc would beat out the USD for safe haven status, but this pair will lean towards the USD side when times are tough, and we expect them to be tough in the 4th quarter. We think the USD/CHF continues toward the parity mark during the 4th quarter, although it might be a bit of a grind at times.
All of these Forex predictions are based upon a less than stellar outlook for the global economy. The European problems are much more dire than people have thought previously, and it appears that Europe is stuck with several options: none of them good.
Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.
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