Whats with the Crosses??

Hi All,
For the past 1-2 weeks, all the crosses seem to have been caught in a range, a big range in fact with no breakout on either side. Thankfully for traders like us, the range is not very small as to make it impossible to trade but the range is big enough to allow us to take trades on either side. But the important point here is that no trend has been established on either side and so big gains cannot be got especially for those who are in for the long term as we are not sure which side the crosses are going to go.

Till about a month back, we were sure that the crosses were moving up and so all that one had to do was take a trade in the long direction and simply wait to rake in the profits. This was possible as the trend was up. But now, there is no clear trend and this makes only range trading possible and not swing trading. This type of trading is useful for day traders but no good for long term trades as they are still not sure which side they need to take the trade.

But why this indecision in the crosses? One of the reasons would be risk aversion, another would be the weak dollar and another could be the stock markets. As can be seen, there is a general aversion towards risk over the past 2 week and the money is now being taken out of the carry trades and moved on to places where there are lesser risks. Second, the dollar is very weak nowadays, so weak that it cant even seem to rise against the yen, which is one of the weakest currencies. This weak UJ pair tends to pull down the other crosses though the currencies like GBP, EUR etc. in themselves might be strong. Next, the global stock markets have all been overheated and they need some cooling down which is what we can see happening over the last few days in some of the stock markets.

I assume that Japan would raise their interest rates In August or atleast in September which would lead to even more correction in the crosses in the short term once the rates are increased. But again, the fundamental difference in the interest rates would continue to persist which should see the crosses rise again. It should be an interesting few months ahead.

Happy Trading!!