Forex Trade Alert for EUR/USD, USD/JPY, AUD/USD.

Forex Markets

We may be entering a new era of volatile exchange rates as countries devalue their currencies to improve their competitive position vis-a-vis their major trading partners. The Bank of England has already commenced quantitative easing, with a program to purchase £150 billion of government bonds. The Swiss National Bank followed, with measures to prevent appreciation of their currency. And now the Fed has pulled the inflation trigger, which is likely to weaken the dollar.

Be prepared for a series of retaliations as countries jostle for position. Playing tit-for-tat would be a no-win situation, destabilizing currency markets and further unsettling investors. But there are some existing anomalies, especially with China, that cannot be allowed to continue.

Japanese Yen

The dollar is testing short-term support between 95 and 96 against the yen. Failure would break the rising trendline, warning of another test of support at 87. Unless 87 is broken, however, the primary trend remains up. In the long term, failure of primary support (at 87) would target the 1995 low of 80, while breakout above 100 would offer a target of 110.

Euro

The euro is testing resistance at $1.35 after a sharp spike following the Fed announcement. Narrow consolidation would indicate further gains, while retracement that respects support at $1.30 would confirm the secondary up-trend. The primary trend remains down, but reversal below the band of support between $1.23 and $1.25 is unlikely in the next few weeks. In the long-term, failure of support would offer a target of $1.00; that is 1.25 – ( 1.50 – 1.25 ).

Australian Dollar

The Australian dollar broke out of its recent range (between $0.63 and $0.66) against the greenback and is testing resistance at $0.6850. Breakout would offer a target of the January high of $0.7250, while respect would indicate another test of $0.63. In the long term, failure of $0.60 would target the 2001 lows between $0.48 and $0.50. And breakout above 72.50 would offer a target of the September high of $0.85; calculated as 0.7250 + ( 0.7250 – 0.6000 ).

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.

~ Henry Ford

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