Although the recent volatility remains comparatively low in the FX market, many critical events happened this past week, especially in the scope of technical analysis. The U.S. dollar index closed the week at the highest level since May 2017 as EUR/USD re-tested the multi-year low at 1.0920.
Take two scenarios: In scenario one, you are holding a long EURUSD position. You are considering to sell the position and go long JPY instead. In the end, you didn’t, Yen rises and you miss out on 50 pips of profit. In scenario two, you are long JPY. You sell your position and buy EURUSD instead. Had you held on to your long JPY position, you would have profited an extra 50 pips.
The volatility dropped this past week in the financial markets in general and in the foreign exchange in particular. The main reason might be related to crucial events happened in the fundamental side of things. For one, the meaning of the FOMC meeting and rate decision cannot be underestimated.
As a species, humans have evolved to become risk adverse and cautious. Early humans faced an infinite number of obstacles that could lead to death- carelessness hunting, being excluded from the pack, eating a deadly plant, and so on. People who were reckless or risk takers often died before they could pass down their genes. Therefore we are the descendants of those who remained cautious and survived.
Global financial markets are getting ready for probably the most crucial fundamental event for the rest of the year – the FOMC meeting, rate decision, economic statement and Powell’s press conference.
Although USD/CAD charted seven straight green candlesticks on the weekly timeframe recently, the pace of growth left many doubts about further appreciation. Only in August, the bulls had four failed attempts to break through round-figure static resistance at 1.3350. Traditionally, the market comprehends the lack of uptrend progress as a weakness.
The summer of 2019 has been unusually active in the financial markets. Such a volatile vacation season happens once a decade and most of the events should have long-term consequences. Many traders are scratching their heads trying to understand what those events might lead to and how to position themselves on a long-term basis before the active Autumn season.
In the 1970s, a Harvard psychologist conducted an experiment. She went to a library and approached a photocopier where a line was being formed. She walked up to the first person in line and said: “Excuse me, I have five pages. May I use the machine?” Her success rate was 60 percent. She then repeated the experiment, this time by saying, “Excuse me, I have five pages. May I use the machine because I’m in a rush?”.