Trading Tip – We are approaching the point where liquidity has already been ravaged by market conditions and the ranks will soon be thinned even further as the market closes for the holiday. Clearly, this is not the time to take on new trades – though this does not mean we can set out potential opportunities for the New Year. One particularly interesting range candidate is EURGBP. Congestion is a frequented characteristic for this pair over the long-term; but these long periods of back-and-forth are interspersed with forceful breakouts. It is best to highlight the risks for this pair and strategy rather than trying to convince ourselves of its appealing attributes. From a fundamental perspective, we have significant event risk on the docket. Full dockets from both sides are headlined by particularly the particularly influential German employment change and BoE rate decision. Wading deeper into the currents, we also have to consider speculative sentiment trends and interest rate speculation will pick back up – both significant drivers for this pair. For the strategy itself, the necessity in maintaining a realistic risk/reward profile means our stop is relatively tight. A wider stop is advisable; but then again, compensation has to be adjusted to maintain a long-term payout scheme for range trading – and the upside potential is simply too limited.

Event Risk for the Euro Zone and the UK

Euro Zone – There will be plenty of rate speculation and forecasting growth trends with the euro next week. The economic docket is choked full of meaningful data that can rouse short-term volatility and influence the currency’s long-term, fundamental trends. Among the most market moving economic releases on deck, we have the advance Euro Zone inflation forecast; the German employment change; and the round of regional confidence indicators. If these readings were ranked for impact, the jobs figure would top the list for its timeliness. However, the inflation report will have a direct line on altering expectations for the ECB’s time table for monetary policy. Furthermore, the confidence figures are perhaps better suited for forecasting broader growth trends.

UK – While there are many notable indicators scheduled for release on the UK calendar; the headline event for the week is the BoE rate decision. The central bank may not change its benchmark lending rate; but any changes in the bond purchasing program or notable shifts in commentary can stir speculative interests just as readily as a bigger change. Looking beyond this single event, there are plenty of other indicators to watch should the pound near a meaningful technical level and find itself lacking only volatility for a breakout. Consumer credit figures, consumer confidence, retail sales, housing sales and a range of other releases can easily spark price action.

We are approaching the point where liquidity has already been ravaged by market conditions and the ranks will soon be thinned even further as the market closes for the holiday. Clearly, this is not the time to take on new trades – though this does not mean we can set out potential opportunities for the New Year.