Forex Trading Analysis - Grexit On Hold, Election Volatility to Continue

What We Are Watching
Greek Election Fallout
Yen Weakness
Will Aussie Strength Continue

I’ll start off by saying that I hate trading during election turmoil. A little more than two years in my trading career was the Gore/Bush recount election drama. For weeks, stocks would spike higher and lower based on which lawyer was speaking and telling the world that their candidate was going to win. After yesterday’s Greek election that sent the pro-bailout parties in the driver’s seat to set up a coalition, Forex traders will be awaiting the formal creation of a new Greek government. But, while the ultimate results seem a little predetermined, don’t be surprised if we don’t see our share of drama first.

The first shot of confusion was sent immediately after the exit polls started to indicate that the New Democracy party was headed for victory. Evangelos Venizelos, the head of, PASOK, the third largest party by seats and the expected coalition partner of New Democracy suggested that a unity party be formed. While he didn’t state that including Syriza in the coalition is prerequisite for PASOK joining, Venizelos comments are foreshadowing some political maneuvering going on. This suggests that we could easily see the New Democracy party forced to make concessions are their stances. For Forex traders, this will probably ultimately lead to lots of news driven moves up and down until a formal government is created.

EURUSD Gaps Higher, Aussie & Yen Look More Interesting

As expected, the EURUSD gapped higher to start the week and has hit a high of 1.2750. Since than it has fallen to a low of 1.2672, but has recently climbed back to 1.2720. At SwiftTick, we stated our opinion last week that we view Greek related strength as an opportunity to short. But we will admit that we are a little surprised to see the pair hold up as well as it has after dipping below 1.2700. As such, although we ultimately like the short side, we would prefer to see the pair make another drop below 1.2700 before shorting.

What looks more interesting this morning are the moves in the Aussie and Yen. On Twitter on Friday we went long the AUDUSD at 1.0040 after it hit a June trading high and broken above 1.0015 resistance (the trade was closed for a small gain as we prefered to flat going into the weekend). The clear break above parity along with the pair’s subsequent strength appears to be showing that Forex traders are getting excited again about the Aussie’s prospects. As such, taking a short in the EURAUD may be an ideal way of potentially taking advantage of a fall in the Euro while riding the Aussie’s momentum. Alternatively, the AUDUSD could be worth picking up on the long side on any dips.

Elsewhere, the USDJPY is back above 79.00 this morning. The pair is reversing it move from Friday where it had fallen to 78.60 after word that the Bank of Japan was keeping Monetary Policy on hold. While the USDJPY has had difficulty maintaining moves below 79.00 this month, the reality is that the Fed looks likely at this point to apply stimulus soon. Also, with G-20 Meetings taking place today, we wouldn’t be surprised if the US is involved in any coordinated stimulus efforts again. As such the USDJPY could see selling pressure pick up again, especially if 79.00 support fails.

The author can be reached at ronf@swifttick.com

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