Currency Strength Ranking after Black Monday
10:30 AM (EST) Update
If we learned anything from Monday's market meltdown, is that the strength of major currency pairs may have shifted. Some of the strongest stars on the forex dance floor fell and possibly suffered injuries that may need some time to recover from. Some of the weak currencies turned into safe-haven to fill the spot of the sick and injured. So who are the new stars of the forex party, and how should we change our pairing strategy? Here is our "after-panic" currency ranking for this week, Billboard Hot 100 style.
1- Mr. Japanese Yen
He is back! The meltdown in Chinese equities and in other Asian stock markets has allowed Mr. Yen to emerge as possibly the best safe-haven bet in the region, with the brewing geopolitical tension between South/ North Korea also convincing Asian traders to fly to safety. That is why we saw a whopping 300 pips drop in 15 minutes in the USD/JPY pair as Ms. USA (one of the lower ranking forex dancers) danced against Mr. Yen. Mr. Yen was even strong enough to bring down the semi-injured British pound.
2- Mr. Euro
Who would've thought that the problematic Mr. Euro would get back on his feet so fast to even outperform the British Pound? I mean, yes, we had been noticing signs of strength ever since Greece managed to secure its third set of bailout funds, and with Tsipras’ resignation it seems that euro bulls are feeling giddy. However we still have the upcoming elections which could stir up a bit of trouble again but maybe now that the debt drama is out of the picture the European shared currency could benefit from improving euro zone fundamentals and dance high again.
3- Mr. Swiss Franc
Comparing Mr. Euro, Mr. Franc and Mr. Pound on the EUR/CHF and GBP/CHF charts, you'll notice that Mr. Franc falls in between the two currencies in terms of strength. This could be explained by the threat of SNB intervention in the minds of Invest Divas/ Divos.
4- Mr. British Pound
As seen on the EUR/GBP forex dance floor, Mr. Pound fell behind Mr. Euro on Monday's top 8 currency list followed by Bank of England (BoE)'s super disappointing data on Thursday.
Falling in the losers zone, Ms. USA had one of the most dramatic days in a long time against most major currencies. With the sudden equity market selloff and concerns over China and many traders still on summer vacation as I explained yesterday, Ms. USA outperformed massively yesterday.
However the good news is that the US markets opened higher on Tuesday which means that investors are shifted back from their beach mode and are back to their desks to manage yesterday's panic.
With September's rate hike already out of the picture, we should now pay close attention to each and every unemployment/ GDP numbers out in the next 3 months. While China's troubles have lowered the possibility of a December rate hike, a super positive quarter may get Fed head Janet Yellen and her gang to double think the situation.
Another factor impacting Ms. USA is oil prices which have tumbled to lowest point in 9 years. So even with the recent tumble and global turmoil, Ms. USA might have another chance to get up and brush off the dust, Katy Perry style.
6- Mr. Canada
Comparing the USD/CAD pair with the remaining losing dancing currencies, Mr. Canada comes right after Ms. USA as the pair rallied during yesterday's panic. Technically speaking, the pair remains in its long-term uptrend and could even reach the highs of 2007 at 1.37.
7- Mr. Aussie
We are reaching the bottom of the losers zone! Not surprisingly, the commodity currencies that have the highest level of dependency on China come in the bottom of our list. As the world's second largest economy, China's problems are sure everyone's problems but this is more true with Mr. Aussie and Mr. Kiwi. Comparing the AUD/CAD and AUD/NZD chart from Monday shows that Mr. Aussie was stronger than Mr. Kiwi but couldn't bring down the Canadian dollar as the pair touched down the two year low of 0.9350.
8- Mr. Kiwi
And the loser is... [drum rolls please] Mr. Kiwi! Thanks to yesterday's panic attack, Invest Diva University students with short positions on Mr. Aussie and Mr. Kiwi were able to exit with profit. This is what I love about forex! No matter what happens, there is always opportunity in the markets.
While this morning the markets seem to be recovering, it is probably safe to watch out a little more before making judgments about a trend change in a long run. As far as pairing currencies goes, we want to pair up the strongest with the weakest. This brings us to the NZD/JPY pair which dropped from 82 to 71.50 in the matter of minutes on Monday, putting an end to its consolidation, and could be on its way to completing a saucer pattern targeting 70 and 67 in extension.
Book your private lesson with me now to learn more about this week's trading opportunities.