We have finally come to the witching month for the market. From this day onwards, liquidity will decline and will have the knock-on effect of reluctance to increase positions. Normally this doesn’t make too much of an impact in the first week, slightly more in the second week and from that point onwards the deterioration in liquidity will increase steadily through to the end of the first 7-10 days in January. However, following what has been a long, winding road in 2015 - that has us led to this door into December – it does make me wonder whether the deterioration in liquidity could arrive much earlier. As I mentioned last week, Decembers tend to have one of two characteristics: a deathly, dull and defensive market prone to whipsaws and consolidation or a stronger trending move. The description above tends to lend itself to the latter option…
Yesterday’s, the dollar lost out against the Swiss franc while the euro weakened against the dollar. GBP/USD dithered like a pregnant duck. The development was a typical representation of lack of interest and suggestive of the trending outcome. Therefore, keep this firmly in mind and should a trend develop, be aware of the potential to hold a position, building it up as it continues.
This development could start today. The initial moves may well be a little messy – and this is the time to take a minimum trade to ride out the potential volatility of the early foundation waves – before adding to the position once the follow-through is seen.
As mentioned in yesterday’s video outlook, USD/JPY is in a strange place. In terms of the decline to 116.16 I am just surprised by the shallow nature compared to what I had expected – a minimum of 110 was my expectation. Now that we have reached the span of the 48-week cycle low I’m sitting and waiting for a stronger signal and I think we’ll resolve this over the next 1-2 weeks. In the meantime, EUR/JPY still needs a push lower but this has some camouflage considering the less certain development in EUR/USD and USD/JPY at this point.
Remain patient and look for an opportunity for a stronger move over the coming week.