Market players expected Hillary Clinton to win. What a surprise they got when Donald Trump took the lead after falling behind for quite some time (in terms of votes). When the financial world realized that Trump would win, he responded with a big risk move. The shares sold out dramatically, a large amount of money flowing into the assets of safe havens like the Japanese yen and gold. The US dollar weakened significantly against all major currencies except the Canadian and Australian currencies. The two of them were even weaker than the dollar, because as commodity currencies they are particularly sensitive to falling risky moves. The Japanese yen, the Swiss franc, the British pound and the euro rose en masse against the dollar in a very short period of time. For example, the yen earned more than 400 pips against the dollar in just a few hours.
However, investor sentiments quickly shifted from risky to risky. These deteriorating moves were soon reversed, and some of those currencies even eventually lost more against the U.S. dollar than they initially gained. One such currency is the Euro. Let’s look at EUR / USD:
EUR / USD per hour
Here you can see the massive Euro-pop on Wednesday. It is obvious that many long-time traders have been caught on the wrong side of the market. Many of these traders were forced to leave their positions when the market changed abruptly later in the day. Therefore, I never rely solely on thorough analysis when making trading decisions. Many times the market either overreacts to the underlying catalysts or ignores it. Sometimes there is a reaction to a particular catalyst, but far weaker than expected. Can the market ever effectively appreciate the basics? Technical analysis, on the other hand, is a much better way to determine where the market is going. It is updated more often, which means we can quickly see if something really important has happened in the market. For example, if someone has a short position on EUR / USD and the price gradually goes down, the appearance of a very large 5-minute bull candle of say 60 pips would really concern the merchant. This could indicate a reversal of the trend or that a very sharp correction is on the way. Here is the daily EUR / USD chart:
EUR / USD daily chart
EUR / USD certainly seems very negative at the moment, and many traders who bought the initial rebound were stopped when it reversed. This liquidation of positions only added momentum to the sharp rejection that followed the initial rejection. The outlook for the pair remains negative for now, and perhaps we could come across good opportunities to sell it over the next few days.
GBP / USD
Through all the turmoil and instability this week, the British pound has been doing pretty well. While the U.S. presidential election did punish the euro, it actually helped the pound gain some more ground. Check out this GBP / USD daily chart:
GBP / USD daily chart
There was a lot of gambling on this pair on Wednesday, but on Thursday the pound solidly outperformed the dollar. There is certainly a lot of underlying strength in the British pound, and GBP / USD and other pound pairs could definitely offer excellent trading opportunities in the near future. GBP / USD posted a good strong day on Thursday and rose 147 pips.
USD / JPY
The pair also reversed the initial losses they suffered on Wednesday. See the following table:
USD / JPY hourly
We really saw some big moves in the foreign exchange market this week! Where the market is moving, you need to make money, and increased volatility can get you to your goals faster.
Notice how the 20-EMA (blue moving average) began to act as a dynamic support soon after the price broke it. The area is marked with a red rectangle in the diagram above.
I’m excited about all the instability, and maybe we’ll get some trading within a few days. Maybe we could get juicy kickbacks at 20-EMA for example per hour. Just make sure the market continues to form higher and lower levels if you choose to enter for a long time.
For all practical reasons, we have not scheduled any important publication of economic data for tomorrow (Friday). There is a speech by Mr. Poloz from BOC (Bank of Canada) at 15:50 GMT that could cause market shifts, but I doubt we will get much action out of that.