After the first month of 2020 has passed, it’s time to take a look back to see how our predictions for January worked out. Remember that trading is all about continuous work and improvement, and reviewing our past trades is therefore an important part of it.
Although it is of course fine to take a break from your daily routine now and then, remember that preparations should always be made so that you are ready whenever the market presents an opportunity to you. That is also precisely why we produce these market overviews for you each month.
So, with that said, let’s see what has happened in the forex market in January, and where some opportunities can be expected to be found in the month ahead.
Stocks see correction
The stock market, once again represented by the broad-based US S&P 500 index, is finally showing signs of a correction after a continuous rally that has lasted since October of last year.
This time around, the most likely trigger for the sell-off is the fears that are spreading about a new virus coming out of Wuhan, China. And although it is not the virus itself that is scaring investors, it is the potential for an economic impact of virus fears that worries traders and money managers.
And given the pretty extreme measures that have been taken in China to contain the spread, an economic impact will most likely be felt around the world, particularly in the travel & tourism industry.
However, it’s important to keep in mind that a scare like this don’t really change the underlying fundamentals. Once the virus fears have been put behind us, be ready to pick up attractive stocks on the cheap again. Because with every crisis, comes an opportunity!
US dollar/Aussie dollar
Looking at the chart of the US dollar/Aussie dollar reveals something interesting this month. Like many others, we too believed the Australian dollar (AUD) was finally breaking out of a falling trend against the US dollar (USD) last month, but look what happened. The price reversed and jumped straight back into the trading channel where it has been since mid-2018!
The truth of the matter here is that the reversal was indeed very strong, with the USD gaining more than 4% on the AUD over the course of 4 weeks. And the strongest reaction has occurred over the past few days alone, likely related to the “risk-off” sentiment that is also hitting the stock market these days.
As long as the strong momentum is maintained, it’s way too soon to short this pair. The price is right now facing resistance, however, but a reversal lower must be confirmed in the charts before it would be prudent to take a trade.
Lastly this month, we will take a look at the EUR/USD currency pair that so many traders are keeping a close eye on.
Looking at the daily timeframe, the chart now suggests that the pair has broken down lower from a triangle pattern that has been formed since October last year. And although there are still several areas of support below the price, the break-out by itself is a bearish sign that will most likely lead to lower prices ahead.
If resistance holds at the 1.10 level, however, there may be some opportunities for riding the reversal higher. But if it doesn’t hold, expect the next major level of support to be around 1.09, down by about 1.13% from the current price.
It’s still a bit too early to tell if the break-out signals a continuation of the previous downtrend for the euro, but observing what happens in the next few days as the price approaches these important support levels should give a clue.
In any case, always be prepared to change your approach as the market deals you a new hand.
Join our free trading seminars in 2020
If what we have discussed above sounds interesting, and you want to learn more about how news events, geopolitics, or even just chart patterns can be interpreted to make profits, then you should join or next forex trading seminar in Australia. We regularly host free forex trading seminars around Australia, and will continue doing so throughout 2020.
We look forward to seeing you there!