Forex

According to the Organization for Economic Co-operation and
Development (OECD), the fair value of the Canadian dollar (also
known as the loonie) based on purchasing power parity is $1.2350.
Sterling/dollar above $2? No. And euro/dollar at $1.50? We may see
it at $1.60 before the European Central Bank is forced to emerge
from its bureaucratic myriad and intervene. Yes, the dollar is oversold,
but technical forex traders know that currencies can remain in either
overbought or oversold territory for a long time.
So if you are a long-term trend follower, you may want to hold long
euro/dollar positions if you have them, while the pair holds above
the 21-week exponential moving average, and sell it if it goes below
this average on a closing basis. Figure 4 shows the weekly chart,
which is a better indicator for prop traders. Of course these are
just opinions, and not recommendations to buy or sell as such,
especially since forex trading can be risky with or without the use
of this information.
Shorter-term traders can follow the daily euro/dollar chart in Figure
5. An example of a trade that could have been taken includes buying
on a close above the 21-day exponential moving average (indicated
by the burgundy line) on Sept. 6, 2007, (see the first blue arrow) and
closing with a sell order on Nov. 30, 2007 (the red arrow), resulting in
a profit. Based on the crossover above this moving average and the
fact that the support from the 38.2 percent Fibonacci retracement
level held, the trader could have re-bought euro/dollar on Dec. 27
and continued to hold a long position as of the time of this writing
(Jan 7, 2007). If the pair fails to surpass its previous peak, then this
would be a strong warning for a decline. Past performances do not
necessary reflect future results, or the scenario above.

Some of the majors have already turned down.
For instance, the high-yielding pound peaked grandly on Nov. 9,
2007, with a bearish key reversal and, as Figure 6 shows (see the
previous page), it’s been declining ever since. However, the EUR/USD
pair has had additional weights dragging it down, as compared to
the other European currencies. The U.K. financial system has been
contaminated by the U.S. subprime crisis and high-yielding currencies
become vulnerable when the appetite for risk wanes — particularly
when they are not backed by the wealth of commodities. So, while
the sterling/dollar is oversold in the short term and should benefit
from a brief recovery, it should remain under pressure for as long as
the 21-day exponential moving average continues to resist.