Forex Portfolio Update | MulderFX.com

The highlight of last week definitely in the last two trading days. ECB interest rate decision and especially the words of Trichet and NFP (nonfarm payrolls) figures, moved the Forex market. Trichet surprised the Forex market Thursday to talk about for the first time about possible rate hike. In our last update we already mention that this week EUR/USD could break through a important resistance or support level. We thought last week itself to 1.36, but we were wrong. EUR/USD broke the 1.3840-60 level and rose spectacularly Thursday and Friday above 1.40. By Trichet's words, the euro ended the absolute winner of the week, EUR/GBP, EUR/CHF, EUR/AUD, EUR/JPY, EUR/CAD, etc all broke key resistance levels.

By continuing riots in Libya, the oil price rose last week to highest level of 29 months. The Swiss Franc (CHF) won in value again because of uncertainty traders flight to safe haven currency. Only the call for a diplomatic solution increased, will it take place next week? In our last update, we indicated that we saw upside potential in USD/JPY. Only just for a short period, after NFP moved the USD/JPY very volatile, suddenly we saw 83.09, hours later this currency pair fell hard back towards 82.00. We did very profitable trades in this currency pair. We closed some long positions towards 83.09 and open new short positions around 83.00 level. Our forecast for next week for USD/JPY, between a range of 82.00 and 83.00. Will move USD/JPY below 82.00 or above 83.00 end of the coming week after major macro economic figures? We'll see.

February ended last Monday and with a very good month-on-month return of 39%. After a return of 35.6% in January, we are very satisfied. The month of March has begun and after four trading days, very volatile movements already in the return for March, we have seen -9% but also 11%. We ended this week just above the level of February. The volalititeit of return lies in the positions of EUR/USD and CHF crosses. We currently have 67 open positions, where most currency pairs are fairly well hedged. Example: EUR/CAD, we have three open positions, 1x long and 2x shorts. So not three positions with risk, but just one. In the EUR/USD and CHF crosses in this is not the case, of course our goal is hedge this positions but not at any price. What we mean is that we want a positive hedging position. We don?t want a short position in EUR/USD at 1.3920 and going long at 1.40, this is a negative hedge of 80 pips. Only last week moved the EUR/USD just upward without a significant decline. Patience is key and hope we will see in next update we hedged more in earlier mentioned currency pairs.

EUR/USD
Now the possible rate hike is coming, it is really the big question, what now? The question is or a possible interest rate step of the ECB will be positive for the euro for mid term/long term. What we have seen is that the spread between German and Greek government bonds were wider after Trichet?s words. Next week, Portugal, Ireland and Spain bonds under pressure again? To fight inflation, ECB will create a problem for mentioned countries? Also the question is here, to fight inflation, which inflation, isn?t a temporarily problem? Rising oil prices drives inflation up, but the oil prices didn?t rally because of more demand, no problems in the Middle East. In our view ECB will not eliminate inflation risk by raise interest rate. A step rate in April or later in our opinion could do more harm than good for the euro. Only in the short term it gives support to the euro because interest rate differentials between countries are leading for exchange rates. We have space to 1.4280 in EUR/USD the highest price of last 12 months. We would be surprised if we see this level.

Other currency pairs spotlight
USD/CAD: Due to rising oil price and gold price last week the Canadian dollar again print a new low against the U.S. Dollar, now under the 0.9700. We didn?t see this level before the crisis. The question is USD/CAD will descend further or there will be a significant rebound to parity? We think parity in USD/CAD in this month. We believe the Canadian economy very strong, but exports hurts by the strong Canadian Dollar. Besides a possible rate hike by BoC is not realistic after last meeting, a possible rate hike by the Fed is more likely after a series of good macro economic figures and inflation risk.

EUR/GBP: A very strong week for this currency pair, brought EUR/GBP above the 0.8600 level that we had not seen since January. Of course supported by the possible interest rate hike of the ECB. Next week's BoE's turn. Will be a correction in these currency pair? We think so, but in the begin of the week, the EUR/GBP may rise to 0.8640-55 level, but on Thursday the BoE rate decision could send EUR/GBP lower to possible 0.8500-50.

Expectations for next week
Will be there a similar week on the Forex market next week? A quiet start and on Thursday and Friday volatile sessions on the Forex market. Most important currency to watch is not the euro we think, but attention to GBP and CAD. Very important news on the agenda for these currencies. Furthermore, there are macro economic data from Switzerland on the agenda, traders will look more fundamental on the Swiss Franc and not as a safe haven currency. Naturally, Libya and the rest of the Middle East will have impact, one week of not more escalation, CHF will be weaken. Will break the EUR/USD also resistance level 1.40 next week after break of important resistance level last week or we?ll see a little correction, first back to support level 1.3870 and second support 1.3740? Next week will tell us more. One thing we know for sure, it will be an exciting week. Traders will take 'new' positions after last week of important news and also after a week were a lot of important support or resistance levels broken. We look with confidence to next week and are very curious how the performance will develop.