Short-Term Currency Outlook: December 30, 2012

Main analysis

EUR/USD

EUR/USD: 1.3215

Short-Term Trend: Uptrend

Outlook: EUR/USD has traded sideways since our last update between 1.3155 and 1.3285. This sideways trading is likely to resolve with an upside breakout. To confirm we need a move abv 1.3305 level. The first upside target then is expected at 1.3520, then a rally toward 1.3720 is likely. On the downside, a move below 1.3150 will negate this bullish view and will risk deeper pullback toward 1.2995 level...

Strategy: Holding long from 1.3150 is favored. Stop=1.3150.

GBP/USD

GBP/USD: 1.6145

Short-Term Trend: Sideways

Outlook: GBP was under pressure initially but then recovered on Friday. We cannot confirm the completion of wave E on the chart above because the prices remain abv the November low at 1.5827. We need a move below this level in the first half of January to confirm a major reversal. Until that happens, the daily chart remains neutral and the trend is sideways. But a rally above 1.6310 is not expected....

Strategy: Holding short from 1.6170 is favored. Stop=1.6350.

USD/JPY

USD/JPY: 85.89

Short-Term Trend: Uptrend

Outlook: USD gapped up on Monday and rallied for entire week. Then on Friday a small reversal occured as the prices made a top at 86.62 but closed near the lows for the day. The daily chart of course, remains as bullish as before but based on the extended rise, we cannot rule out a downside correction now. In fact, a correction becomes more likely with each day.

A move below 85.50 will actually signal that such a pullback has started and weakness toward 83.80 may be expected in this case. From a trading perspective, we now have a tough choice: either to tighten the stop just below the market, or to risk a bigger part of our gains. You can make your own decision based on your risk tollerance and the amount of this position in your portfolio.

Strategy: Holding long from 81.30 is favored. Stop=85.40