While the holiday season is typically a time for cheer, the markets don’t usually reflect this.
As with previous years, the last weeks of December are characterised by subdued trading activity, primarily due to the absence of institutional traders and market participants who take a step back from active trading.
The forex market thrives on liquidity, and a thinly-traded market teeters on unpredictability. With liquidity drying up and stop-hunters lurking, this week will demand sharp strategy and eagle-eyed focus.
With the most interesting news being a speech by the Bank of Japan this week, there is little to shake up the markets.
This holiday-induced inactivity brings both risks and opportunities to the table.
Looking at the charts, we see this annual pattern particularly evident in smaller movements in the USDX, where traders are advised to look for bullish activity near 106.80 or 106.00. Patience and precision are essential during these times, as the possibility of false signals is heightened.
The EUR/USD and GBP/USD pairs, for instance, are trading within well-defined ranges, with potential bearish price action forecasted at around the 1.0475–1.0560 and 1.2650–1.2705 levels, respectively.
This setup implies the possibility of controlled short-term strategies but warrants a cautious approach. Any deviation from these patterns may create false breakouts due to the low market participation.
On USD/JPY, prices are currently consolidating. The market outlook suggests bullish price action around 154.80 or 153.80, signalling that traders could capitalise on key support zones even in quieter times.
Similarly, the USD/CHF pair reflects a consolidation phase, with bullish expectations setting near 0.8885 or 0.8830, which are worth monitoring for strategic entries.
These muted movements will likely persist until early January, with normal trading volumes expected to resume after January 6, 2025.
The dynamics of the AUD/USD and NZD/USD pairs further emphasise this season’s cautious sentiment. While AUD/USD could show bearish action near 0.6300 or 0.6320, it also opens up bullish opportunities around 0.6160 or even as low as 0.6020.
The NZD/USD pair follows a similar narrative, with bearish indicators at 0.5720 or 0.5740 and bullish setups near 0.5565.
Both pairs show the example of adapting to short-term fluctuations without being swayed by the lack of broader market direction.
USDCAD stands out with a potential for bullish price action at 1.4250, after consolidating in its current range. This pair’s behaviour reflects a more defined trajectory compared to others, offering a possible haven for traders looking for stability during this period.
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