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August 4, 2016

4 Forex Trades To Put On For Year End

If you are the type of trader who likes to put on medium to long-term currency trades then this article is for you. In this post, you will be introduced to four forex trades that you can put on for the second half of 2016.

Sell USD/CAD

Sell the US dollar against the Canadian dollar with a target price of 1.23 and a stop-loss level of 1.33.

Chart data as of 10am US CST, Aug. 4, 2016, courtesy of Investing.com

Oil prices have stabilized after the rollercoaster in Q1/2016 and the recent disruptions to Canadian oil production due to wildfires in the Canadian province Alberta should only be temporary. Therefore, the improving trend in Canadian fundamentals should continue. Furthermore, Canada’s June employment report suggests that domestic demand will provide continuing support to inflation, bringing it closer to the 2% inflation target range set by the Bank of Canada.

Sell USD/NOK

Sell the US dollar against the Norwegian krone with a target price of 7.90 and a stop-loss level of 8.75.

Chart data as of 10am US CST, Aug. 4, 2016, courtesy of Investing.com


Positive developments in the energy markets promise support for the NOK, as highlighted in a more positive economic growth outlook by the Norwegian Central Bank in June. While the effect of Brexit still implies plenty of uncertainty, it is unlikely to stand in the way of a gradual reduction in the NOK’s undervaluation. Furthermore, according to Starling Capital Analyst Carlos Lopez, “interest rate traders are currently pricing in two 25bps rate hikes before the end of the year, which would boost the value of the Norwegian Krone against the US dollar and other currencies.”

Sell CHF/JPY

Sell the Swiss franc against the Japanese Yen with a target of 101 and a stop-loss at 107.

Although the UK referendum result has not generated tremors on a global scale, it did trigger significant volatility and considerable flight to safety. The Japanese yen has proven to be the only straightforward hedge against drops in risk appetite, while the Swiss franc has somewhat lost its safe-haven appeal. Compared to the close of 23 June 2016 (the day of the UK referendum), the Swiss franc is effectively flat, while the Japanese yen has appreciated by almost 5%.

Chart data as of 10am US CST, Aug. 4, 2016, courtesy of Investing.com

Market turbulences from the Brexit vote should largely stay confined to UK-based assets over the long term, but short-term investors’ risk appetite will remain fragile. Fundamentally, and aside from the “safe haven” argument, the yen remains to be undervalued.

Global economic developments, as well as central bank monetary policy (the Bank of Japan is on hold while the Swiss National Bank stands ready to intervene if the Swiss franc strengthens more) are set to further strengthen the downward trend in CHF/JPY on during the remaining months of the year.

Sell GBP/USD

Sell the British pound against the US dollar with a target price of 1.26 and a stop-loss at 1.36.

Chart data as of 10am US CST, Aug. 4, 2016, courtesy of Investing.com

The result of the ‘Brexit’ referendum has tumbled the UK into a prolonged period of economic, political and legal uncertainty, which is bound to cripple domestic economic activity, foreign investment and sentiment for the British pound for the remainder of the year. The new Prime Minister Theresa May has indicated that she wants a swift start to the ‘Brexit’ negotiation process but in reality UK’s leadership is taking more of a wait-and-see approach in the hope to adequately assess and gauge the actual economic impact of Britain leaving the European Union. If the ‘Brexit’ does not go as smoothly as the British government is hoping for, the pound could see a detrimental drop in value for a prolonged period of time. Therefore, selling the pound against the US dollar into year-end should generate a profit.  

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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