Forex Trading Opportunities in December
After an eventful November, we are now heading into the last month of the year. For traders, this means reviewing this year’s performance, market environment, as well as making plans and setting goals for the next year.
In our update from early November, we looked at the status of the US stock market, which had then already broken down from its upwards pointing trading range. As we will see, things are still not looking too good for this market, although we are now trading at a slightly higher level.
In terms of forex, it’s been rather boring to watch the US dollar this past month, with the US Dollar Index pretty much back at where it started last month. First, however, let’s take a look at the stock market on Wall Street, which is an important driver for the US dollar:
US stock market
Although prices have moved a bit higher, we cannot conclude that we’re seeing a recovery in the US stock market just yet. We are still well below the levels from the previous uptrend and the all-time high from back in September.
As can be seen in the chart below, we can now draw a downward pointing trendline on the S&P 500 chart, although it is still uncertain if this trendline will continue to be respected by the market.
Another interesting observation on the S&P 500 chart now is that the price has remained below the key 200-day moving average line. This is an indicator that is closely watched by many financial institutions such as hedge funds, helping them determine whether the market is in downtrend or uptrend. As per this definition, the US stock market is now officially in a downtrend, and some large institutional investors will thus be short rather than long in this market.
US dollar unchanged
Moving over to the currency market, the US dollar has just completed a rather uneventful November. The US Dollar Index (DXY), which compares the US dollar to a weighted basket of other major currencies, is virtually unchanged since last month.
Interestingly, the level from our previous market updates also coincides with the red resistance line formed by the peak from mid-August.
However, the US Dollar Index has still managed to remain within the uptrending trading channel indicated by the two black lines in the chart. As long as it remains within that channel, we should expect further moves up for the dollar, which will normally translate into weakness for other currencies in dollar-related FX pairs.
New wave of selling in Bitcoin
Although not something we normally cover, many readers are interested in the bitcoin market and like to keep an eye on it.
Looking at the longer-term weekly chart of bitcoin, we can clearly see where it is coming from and how its performance has been over the past two to three weeks.
As can be seen from the chart, the number one cryptocurrency has come a long way down from its peak at nearly USD 20,000, and is now trading just above the 4,000 level, where it has found some support.
The sell-off over the past two weeks has been particularly dramatic for bitcoin, bringing it down from the long-standing support around the 6,000 level, in one of the sharpest sell-offs in bitcoin’s history.
The question now is if the support area found round 3,700 will be enough for bitcoin to bounce back, or if it will instead continue lower towards the 2,000, and ultimately 1,000 levels. According to some commentators, this could be the final “capitulation” the market has been waiting for in order to form a solid foundation for the next run higher. If that’s true, this may be one of the best times to enter the bitcoin market that we will see in a long time.
USD/AUD broken uptrend
Another interesting observation over the past month is that we’ve finally seen some action in the USD/AUD pair again, as it broke out of a long-lasting uptrending trading range on November 1.
The pair has now bounced back from the key support level at 1.3609, as indicated by the green line in the chart. This line will be crucial in deciding the next move for the USD/AUD pair. If it breaks, expect the greenback to move lower relative to the Aussie dollar. If the level holds, however, we may see the pair resume its uptrend again soon.