Managed Forex Accounts for Savvy Investors

From the Prudent FX Team

Executive summary
With the year coming to an end in two weeks, traders took advantage of the negative market sentiment and traded in favor of safer assets. The U.S. dollar rallied to near the highs of the year, trading just above January opening levels of 1.2900 against the euro. While we don’t anticipate another such rally before the holidays, we wouldn’t be surprised as the Eurozone keeps coming under attack by the ratings agencies. Almost weekly, Fitch, S&P, or Moody’s threaten to or take action against the member states or their big banks, highlighting the risk that’s inherent in dealing within the region.
“A comprehensive solution to the eurozone crisis is technically and politically beyond reach. Of particular concern is the absence of a credible financial backstop. In Fitch’s opinion this requires more active and explicit commitment from the ECB to mitigate the risk of self-fulfilling liquidity crises.” – Fitch Statement, December 16, 2011
Fitch is of course speaking about the role of the ECB as the lender of last resort, which isn’t allowed to act in such a way due to its mandate. The rest of the financial markets including commodities will play off these fears as uncertain economic conditions will lead to slower growth. While risks remain high and until market participants are convinced of some credible financial backstop, we are sure of only two things: volatility will remain high and the risk-off trade should prevail.

executive summary
Our 3 Major Market Concerns:
EuroZone Debt/Financial Crisis Sovereign Downgrades Excessive Volatility
Headlines
Dudley: Fed’s Dollar Lines Shield U.S. from Europe – December 16, Reuters Dollar Usurps Gold as Safe Haven – December 17, The Financial Times Eurozone Crisis and China Fears Weigh on Crude – December 17, The Financial Times Draghi Warns of EuroZone break-up – December 18, The Financial Times
Eurozone Bank Failures Could Cause US Credit Squeeze: Kaufman – December 18, Reuters

eur | weekly recap & outlook
Fundamentals:
- Risks from contagion remain very high; sovereign and bank downgrades a concern
- Peripheral borrowing remain at unsustainable levels
- ECB being politicized and pressured into being lender of last resort
- European Union without Great Britain creates more instability and further uncertainty
- Weak economic growth coupled with austerity measures will continue to negatively impact the economies
Technicals:
- MAIN TREND: BEARISH (cautious) - Expecting range trading between 1.2900-1.3150 - Immediate resistance at 1.3150, followed by 1.3400 - Immediate support at 1.2950 and 1.2880 - Weekly OUTLOOK: Range Trading

gbp | weekly recap & outlook
Fundamentals:
- *UK in danger of being isolated if leaves European Union* - Sovereign debt downgrade a concern - Weak economic growth may lead to further monetary action by BOE - IMF growth forecast from revision from 1.6% to 1.1% for 2012 - Problems within EU threaten UK’s political relationship with the 17 member nation - Risks of contagion from Europe
Technicals:
- MAIN TREND: BEARISH - Important low set at 1.5400, break is needed before confirming further depreciation - Important highs set between 1.5720 and 1.5780, as well as 1.5900 - Immediate resistance at 1.5580 - Immediate support at 1.5500 and 1.5480 - 1.5000 will be important psychological level before 1.40 is exposed - Weekly OUTLOOK: Expecting break below 1.5550 or above 1.5700

jpy| weekly recap & outlook
Fundamentals:
- Political problems as Prime Minister’s ratings continue to decline - INTERVENED IN THE MARKET – ~10 TRILLION YEN SPENT on October 31st - Bank of Japan is concerned that the overvalued yen will hurt the domestic economy
- Lack of consistency within global markets have made fundamental data less important, specifically for Japan as its currency is used as a safe haven during times of uncertainty
- Bank of Japan intervention is expected below the 76.50/76.00 level
Technicals:
- MAIN TREND: BULLISH (cautious) - Floor at 76.00 very important - Currently trading near post intervention closed price of 78.00 - Moves dependent on more intervention if market retests record lows - Resistance at 78.20 and 80.00 - Support at 77.30 and 76.80 - Weekly OUTLOOK: Expecting range trading below 78.00; break above opens room to 80.00

chf| weekly recap & outlook
Fundamentals:
- Swiss National Bank policy to sell unlimited amount of Swiss franc to support domestic companies supports a bullish dollar outlook; should remain in place during term of European crisis
- SNB to continue selling the Swiss franc indefinitely below the 1.20 EUR/CHF level continues to supports the dollar - USD/CHF will react to movement in EUR/CHF as SNB’s focus is on euro reserves - Rumors of further SNB policy changes – a call for negative interest rates to help depreciate the franc
Technicals:
- MAIN TREND: BULLISH - Break above .9300 pushed into mid .95s, now retracing. Expecting continuation during 2012 with high risk of
volatility and uncertainty - Expecting .9400 and .9950 as main resistance levels in coming months, which are 50% and 61.8% retracement
levels respectively of the yearlong descending trend that started at 1.1770 level in June 2010 to the lows of .7075 set in August 2011
- Any move in USD/CHF is dependent on that of EUR/USD and EUR/CHF, as the latter is supported by SNB policies - Push to parity may happen during the next euro sell-off - Weekly OUTLOOK: Cautiously bullish

cad|nzd|aud| weekly recap & outlook
USDCAD
Fundamental: - Fundamentals in the background due to concerns over lack of progress being made within the eurozone and potential
fallout that may occur if problems worsen - Canadian economy continues to weaken; closely tied to the U.S., which may be on the brink of slipping back into a
recession
- Sluggish economies will lead to lower oil prices, higher unemployment rate, and may cause the Bank of Canada to decrease interest rates, further weakening the Canadian dollar
- Must keep an eye on oil prices and employment levels; decreases in both will be of concern
Technical:
- MAIN TREND: BULLISH - Double Top at 1.0500 - Resistance at 1.0400 followed by 1.0500 - Immediate support at 1.0320, followed by 1.0220 and 1.0100 - Weekly OUTLOOK: Bullish only on break of 1.0500

NZDUSD
Fundamental: - Downside correction from all-time highs may now be complete - Problems in EuroZone now beginning to impact New Zealand; eyes on RBNZ and interest rate policy - Price action will most likely be dependent on Eurozone developments
Technical:
- MAIN TREND: BEARISH - Important resistance area is now .7800 and .7900, followed by .7980, and .8050 - Immediate resistance at .7600 and .7650 - Immediate support at .7500, followed by .7450 - Weekly OUTLOOK: Consolidation above .7500

AUDUSD
Fundamental: - Market continues to adjust to risk aversion - Interest Rate policy will be closely monitored as a decrease will hurt the Aussie dollar - Eyes on economic data as well as risks from eurozone contagion
Technical:
- MAIN TREND: BEARISH - Expecting consolidation near .9900, 61.8% retracement of Sept-Nov rally - Immediate Resistance at .9980, followed by 1.0030 - Immediate Support at .9900 and .9880 - Weekly OUTLOOK: Consolidation around 1.0000

outlook
With the year-end fast approaching and the market still uneasy with Eurozone progress, we could see a lot of volatility before the last day of the year. On the other hand, investors may decide to stay out until the first few weeks of January as protecting profits may be more important. Either way, caution should be exercised during the next two weeks as liquidity dries up during holidays. We are looking for officials from the Eurozone to make statements during this time to get the markets ready for 2012. They will most likely continue to outline positive meetings and any rallies based solely on hope will not last. A stronger dollar by way of risk aversion is most likely going to continue next year. Happy Holidays everyone!