With the first half of 2012 over, it’s a good time to spot opportunities that we may have missed in specific currency pairs. With the currency markets naturally being dominated by headlines (the Eurozone sovereign debt crises and Chinese economic prospects), the tendency to be focused on the near-term is an understandable myopia.
However, a scan of monthly patterns in the currency pairs gives us a big-picture vantage point. It also provides insights into powerful multi-year underlying forces that don’t fade away on headlines. The monthly patterns filter out the noise of weekly and daily trading. There are two compelling technical patterns involving the euro. This is not an accident as the chaos in Europe cascades throughout global markets; Europe is a major contributor to world GDP and other regions react to European economic expectations.
Once you gain some distance from the time lines of intraday trading and map the higher level patterns in the currency markets, you can see some new trading opportunities.
The first example is the EUR/AUD. By pitting the euro against the Aussie we have two underlying markets very sensitive to global growth concerns. It also is a currency pair at an extreme level, which will be hard to maintain (see “Uncharted territory”). The Aussie has begun to weaken this year after a very strong uptrend. The euro also has strong bearish headwinds as the sovereign debt issues of several members still have not been resolved.