In strategising for the next year, Marquez believes that it is important for a trader to take a step back from whatever time frame he or she is trading and take a look at the bigger picture. As the year comes to an end, Marquez Comelab takes this opportunity to review the long term charts of the forex market to see where the market is in relation to where it had been.

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AUDJPY

The Australian's strength peaked over the Japanese Yen a couple of weeks before the end of 2005. For the first half of the this year, the market began to retreat from that previous peak. It made two troughs and two peaks. Shortly after June, the market continues the bullish trend that began after mid-2004.

AUDUSD

The lowest point was around 0.7444 at April 2001. From there, it rose to 0.8000 by Feb 2004. Since then, the market had been consolidating. 2006 had been the third year where it gained no significant ground. A playground for trading ranges. Something to take note of for the future: from 2004 to 2006 it made a higher trough (bullish sign) and it is about to approach a three-year S/R level. When the time comes, I'm sure traders will look towards how quickly or sluggishly, buy orders are soaked up as the market approaches that level.

CADJPY

I have only began looking at this pair this year so I don't have much data on it. It is traversing from a relatively wide channel. Perhaps one may be better off having used range-trading methods to trade this one. However, having said that I don't know if its recommended moving forward because I don't know where it is at on a longer-term timeframe. It might just be consolidating like the AUDJPY and AUDUSD.

Just recently, the excitement got the bulls to drive the prices above an S/R level after the CADJPY bounced off the trendline. The bears and bulls who have profits to realise, sold, causing the market, as a whole, to retreat and rest.

EURAUD

I have only began looking at this chart late last year. It seemed to have begun a bearish decline since after July this year but overall, it was a ranging market to trade since mid-March.

EURCAD

The EURCAD became interesting for trend-followers since October.The market had been making higher lows then. It broke through a support level. The significance of this move becomes even more evident if you view it on the daily charts. Does this signify a fundamental shift in the way the EURCAD should be traded in the next few months or even years?

EURCHF

We can see a story emerging with the charts we have looked at so far. The Euro had been strengthening: evident over its appreciating value over the CHF and the CAD. However, it is important to know that against the Aussie, the Euro was barely holding its own. The Aussie had been appreciating over the JPY, USD and the EUR over the last few months of the year. Note that the Reserve Bank of Australia had been increasing interest rates during the past year.

EURGBP

Fundamental realities between the two economies (EURO users and Sterling users) show that the EURO is losing its battle against the GBP. This year, after failing to make a higher peak, it also failed to keep making higher troughs. For the last half of 2006, we can see a consolidation period when long term traders and investors struggle between the idea of staying bullish or whether they should take whatever losses or profits they have and join the bears.

EURJPY

This is a phenomenal bull market since late 2000. After a three-year rest in between (2003-2006), the EURJPY pierced through a support level. The optimists grew in numbers and caused excess demand for the Euro over the Yen which in turn, strengthened the EUR over the Yen.

EURUSD

This is consistent with the fact that the EUR was a strong currency during the course of 2006 (except with the AUD and the GBP).

GBPCHF

For about a year and a half (early 2005 to mid 2006), the GBPCHF fluctuated inside a channel of 800 to 1000 pips: very relatively narrow compared to its past behaviour. On July 24th however, it broke out of a resistance level. It took about a week for people to change their strategies and positions, bought more of the Pound in exchange for the Swissi.

This chart has taught me so much and it is the primordial element which triggered me to look at trading and the market using a completely different approach: a study which is still ongoing.

GBPJPY

On June 5, before I went to New Zealand and to Belgium, I remember blogging about this pair. I wrote:

"An interesting formation happening on the daily chart of the GBPJPY. The troughs had been rising at a faster rate but there seems to be an S/R level...There is no MACD - Price divergence on the troughs, although, there might be a MACD-price divergence on the peaks...If a breakout occurs, I wonder if it will be big enough to cause a ripple in the weekly charts".

When I returned in August, the GBPJPY already made its upward break. It was the start of an upward climb which continued until the end of the year.

I remember running a basic 1-Bar Donchian-based trading system on this weekly chart just the other week. I found it would have been disastrous to those trying to trade it that way. This is because although the rate of upward change was consistent, it was slow and controlled. One would have been better off fading this market if they were trading weeklies. I, on the other hand, was still developing my own method to know when and how to fade markets.

GBPUSD

The year 2006 for the GBPUSD meant covering the ground that was lost in 2005. As it is now, the GBPUSD is approaching the highest point it reached since September 1992 (not seen on this chart). Over the past 6 years, the charts tell us that there are fundamental forces which is driving market participants to prefer the pound than the dollar. Will they continue to exist in 2007? Are the bulls exhausted? Will there be new bulls? If so, what will be their reasons?

NZDUSD

It is consistent along all the currency pairs that during 2006, the USD weakened against most currencies. In this chart, it strengthened against the Kiwi but lost its footing mid-year. This pair is also something I have only started looking at since August.

USDCAD

In this pair, we see that in the year 2006, the USD began to gain its strength against the Canadian. Even though, it was valued the similarly against the Canadian at the end of 2005, it at least interrupted a downward trend that began in 2003.

USDCHF

At the start of 2006, those who are bullish on the US Dollar against the Swissi got disappointed when the Dollar failed to rise beyond the 1.3200 mark. As soon as they were convinced there is not going to be a bullish stampede, they closed and/or reversed their positions. It is obvious that many marked the previous support as their take-profit level.

USDJPY

We can see here that the Yen appreciated over the dollar at the beginning of the year but the dollar recovered its footing just before the middle of the year and approached its previous peak in the year 2005.

2006 SUMMARY

If we rank the individual currencies in terms of their strength (dictated by demand, obvious from its value) relative to other currencies, the strongest-to-weakest currencies for 2006 had been: GBP, EUR, AUD, NZD, CHF, USD, CAD and the JPY. This means the GBP was the most sought after, whilst the JPY was the one being exchanged for the other currencies.

What do you do with this information? If you are interested in finding out the reasons why the market does what it does, you can read up more on the fundamental factors affecting the supply and demand of these currencies. Find out of these factors are still likely to exist in the next few months or years and trade accordingly. Personally, the information does not affect my current trading system but I will still keep it in mind because it is a piece of a bigger puzzle in this trading game.

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About The Author:

Marquez Comelab is the author of the book titled: The Part-Time Currency Trader, a book for novice and intermediate traders. It shows how anybody can develop their own trading methodology to trade the currency (forex) market. See: http://www.marquezcomelab.com .

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