The positive jobs report resulted in rally in the US Dollar.
There is a lot of downward pressure on the major currencies because the US Dollar has been gaining strength. Back in January of this year we predicted that the US Dollar would put in a short to medium term bottom – which it has done.
The implications of this has been weakness in other major currency pairs.
USDJPY
I think what’s happening with the Japanese Yen is one of the most important markets right now to watch.
The Japanese Government has made it clear by their actions that they are in a full on “currency war” with the US. And we have seen the Japanese Yen just getting annihilated – down almost 20% since its highs in September last year.
This has obviously resulted in a very powerful upward trend in the USDJPY pair. We also know that big traders like George Soros have switched from Gold to the Yen trade.
Over the short term I am looking for the USDJPY to eventually hit 100 this year.
But I actually think that that is a very modest prediction on the USDJPY. Long term I am looking for USDJPY to head to 124 and even 150.
That may seem rather unlikely or surprising to many people – but we have to look at this in the wider context of where it has been before. We need to remember that the USDJPY was actually at 260 back in 1985.
So for me – I am not looking to load up on this pair until we have had a decent correction or pullback. This is going to be one of the best long trades of 2013.
EURUSD
If we wanted to see confidence in the Euro-dollar last week, then we haven’t seen it reflected in the currency market. It still remains relatively weak – and again that’s mostly due to the US dollar strength.
I am looking for the euro to head lower to its next support levels. The first is the 200 Daily moving average (a key level which is observed by almost all the major funds) – this is at 1.2850. However, I actually expect the Euro will most likely break this level and head to its November 2012 lows of 1.2650.
So for the moment, any rallies in the Euro are shorting opportunities.
GBPUSD
Well one thing we have to remember about Britain is that we are still only HALF way through the “Great Deleveraging” that began in 2008 – which means that we have another 4 more years of businesses and corporations concerned with Deleverage – paying off debt as opposed to more borrowing.
This would also explain the recent downgrade of the UK last month.
So yes investors are seeing more easing by the Bank of England to try to stimulate the British economy.
The British Pound has broken through a major support level – which were the 2012 bottoms at the 1.52 level.
Again, as with the Euro, any rallies in Cable are shorting opportunities. We are due for a correction, but I am looking for GBPUSD to see more downward pressure and head to its next monthly pivot at 1.4560 level – If we break that level and close below it, then I don’t see any major support on Cable until 1.3500.
Alessio Rastani is a forex and stock market trader at www.leadingtrader.com .