There is a volatile mix of factors driving volatility in Forex markets this month, and without a good plan, retail Forex traders will be in for a painful surprise.
Central bank policies have roiled Forex markets, Greece is threatening markets with another crisis, and the Federal Reserve is getting ready to raise interest rates as the US economy grows faster than its peers. The truth is, these are the times that Forex trading was made for; when different economies are experiencing big disparities and big trends are happening in the currency markets.
Focus on the Big Picture
The difference between the Eurozone and the US are huge, and growing. So the best option is to keep the wind at your back and trade on the long side of the USD. Many trends in Forex come from differences in interest rates of the underlying currencies. This is what’s called a carry trade, when you sell a currency with a low interest rate, and buy one with a higher interest rate. In your MetaTrader4 account this usually looks like a credit to your account every time you hold a position overnight with a positive rollover rate.
This is what a trend is made of. The best currency pairs to trade right now are the US Dollar against any of the developed markets. Take your pick from the Eurozone, Japan, Australia, Canada, and so on. The biggest positives the US Dollar has going for it are a strengthening economy, a strong job market, and expectations of rising interest rates. Compare that to any of the countries mentioned above which are experiencing different combinations of recessions, deflation, falling interest rates, or massive quantitative easing operations.
Filter Out the Noise
With Greece threatening markets once again, Forex traders are reacting to every headline, and that makes for choppy markets. Keep these levels in mind when looking for short entries in EUR/USD and what targets you can expect.
Resistance levels
1.1360, 1.1400, 1.1500
Targets
1.1280, 1.1100
Overall, we think the Euro will end up around 1.0760 by the second quarter of this year. But traders should take it slow and attack each level methodically. Markets won’t hit all the levels all at once.
4-Hour Chart of EUR/USD
The end of February coincides with the time when Greece is expected to run out of cash and require a new funding agreement with the Troika. Until then, any headline can launch EUR/USD into resistances at 1.1360, 1.1400 and 1.1500.
The information provided is for educational purposes only and should not be considered as investment advice.
