It doesn't take a genius to notice we had an odd start to the year across most financial instruments including forex and stocks. But it certainly could take a genius to figure out how to invest in this new fragile market with profit.
From an Forex Inventory point of view, so far the fundamentals have pointed to a positive direction (i.e. Lower unemployment rates, better than expected tech company earnings, etc.). While technical analysis has pointed to a different direction (i.e. US dollar along with many stocks break below key support levels). Thus,the market sentiment has been all over the place with no clear direction.
On the one hand, Central Bank objectives from developed countries will diverge as they set the path of interest rates that correspond to their domestic conditions. On the other hand, financial markets will impose a limit on the extent to which interest rates can differ across countries.
According to researchers, the big losers will be emerging markets—especially those countries that rely on foreign capital for their growth strategies.
With this, as far as long-term stocks investing goes, this actually could be a good thing: Similar to the strategies discussed in previous articles, you could spread out limit orders on important support levels and slowly add on to your portfolio as the prices drop further.
But long term investing in forex has become rather challenging as the increase in volatility has made the forex dance floor more suitable for short term trading... Which obviously is riskier than the former.
Here are my current strategies from Forex Inventory for stocks and currencies -
1. Forex Views
In times of volatility, most currency investors turn into the so called "safe havens" which are basically the next best thing when things go south in the US. But what is really going on with USD? Here are some thoughts:
- US dollar, USD
Although we had the lowest jobless rate since November 2007 the market participants decided to focus more on the lower than expected Non-Farm Employment change last Friday. Under normal conditions, this type of mixed signal would confuse the USD, but this time it went straight down.
Why? I've got two words for you: Market Sentiment.
It doesn't help that Fed officials have let out the doves out one after another in their recent testimonies.
Up next in Fed head Janet Yellen, who is not necessarily known as a a hawk, so we could expect her to balance confidence with caution on her Wednesday testimony in front of lawmakers in Washington. Any negative signal on March interest rates could put USD in deeper trouble.
- Japanese Yen, JPY
So much for Bank of Japan (BOJ)'s negative interest rate policy! They must be disappointed, given that just two weeks after it announced negative rates, Yen has risen massively against all his major forex counterparts. Yen is a perfect example of a safe haven currency, and as we saw in the crash of 2008, he only gets stronger on global economy stress. As long as global stocks remain under pressure, we could expect the yen to gain.
- Australian Dollar, AUD
Aussie is the opposite of Yen, and freaks the hell out on global uncertainties. Therefore, together with his Kiwi (NZD) was conquering the lows especially as they dance against the strong Japanese Yen and Swiss Franc, CHF.
2. Forex Technicals
AUD/JPY pair has broken below a long-term upward channel as well as the Ichimoku cloud in the past couple of months. If the current market sentiment continues,we could expect the pair to dance all the way towards 50% Fibonacci at 79.
USD/JPY is a whole nother heart breaker, and has broken below the very strong 116 level which had not been broken since November 2014. The next stop is 50% Fibonacci at 113.50, unless Ms. Yellen comes to the rescue.
USD/CHF has confirmed a Double Top chart pattern and tested below the neckline and Ichimoku cloud. Next bearish stop is at 0.9550. Check out our education course for more details on technical analysis so you can come up with your own strategy.
Especially at times of volatility, it is very important to consider all 8 steps to choose the best currency pair to trade.
In any case, set your stop loss and profit targets a little loose from the levels I have mentioned to avoid getting kicked out of your trading position prematurely.
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