Weekly Trading Lesson: Pick the Strongest Trends to Trade...Continued

Written by Thomas Long, FX Power Course Instructor

Last week we discussed that while the USD/CAD showed a strong downtrend through most of 2007, the current situation is a little unclear. We won’t be able to confidently know the direction of the trend until more trading has taken place, but that does not mean we should not trade. This is the time to search out the new currency pairs that are currently in strong trends on daily charts. As I write this I see the daily chart of the EUR/GBP to be in a strong uptrend with the daily chart of the GBP/CHF showing a strong downtrend. The relationship is the current weakness of the GBP. The reason is that the Bank of England has now adopted a bias towards lowering their interest rates instead of raising them. This is one of the main reasons the USD was weak in 2007 as they were the only major country lowering interest rates. Interest rates are the biggest determining factor in the value of a currency. Higher interest rates usually lead to a higher currency value while lower interest rates usually lead to a lower currency value. So now that the Bank of England is lowering interest rates, we see a weak GBP against most other currencies. Changing your opinion of the strength of the trend in each pair is something that has to be done frequently. Just because one made money selling the USD/CAD last year does not mean that this is the pair to trade this year. Finding the strongest trends to trade is still the first step in finding a solid trading opportunities.

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