Trading in currency options this week is likely to be dominated by two principle factors, namely the currency markets reaction to the G20 meeting currently taking place in Korea at present, and secondly how this translates for the US dollar. Whether anyone believes that any agreement or accord will be reached, is almost irrelevant, as the currency markets will ultimately decide if these global powers will ever agree on a unified policy to the current problems, or that each country will simply act alone to combat the crisis and devalue it's own currency, by fair means or foul. In last week's war of words, we saw Germany enter the fray, as it joined the debate expressing concerns over a strong and strengthening Euro, which closed last week hovering below the 1.4000 level. This is despite the rhetoric from the ECB and President Sarkozy, who continue to maintain that Europe is in better shape economically to weather the storm than the US for example, which is continuing to devalue it's currency using quantitative easing, despite the protestations of Treasury Secretary Geithner last week. Whatever the outcome over the weekend, which increasingly looks like being a damp squib as usual, currency options trading next week is likely to be marked by some volatility early in the week as the currency markets absorb any statements from the weekend, and react accordingly.
The USD index, which provides an excellent guide to US dollar sentiment for trading dollar denominated currency options, managed to stop the rot, largely as a result of the sudden and unexpected rise in interest rates in China, and ended the week marginally above the short term 9 and 14 day moving averages on the daily chart. On the weekly chart the long legged doji candle of two weeks ago was followed last week by a subsequent doji candle, indicating a possible turning point from a technical perspective, but any temporary respite for the US dollar is likely to be capped by the 200 week moving average which sits firmly above, and with the 9 week now crossing this key indicator, this is adding further pressure with a bear cross signal. From a fundamental perspective however, much will depend on the outcome of the G20 meeting on Sunday night, and Monday morning should be both interesting and lively following Friday's dull and lifeless trading session, as traders stepped aside and waited for the meeting to get underway. You can watch the latest analysis for currency option trading this week on the following video which I hope you find both useful and informative.
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