Currency trading has traditionally been the realm of professional traders. Even today, buying and selling currencies requires a forex account, which often carries stricter capital requirements than opening a traditional equities account. With the rise in popularity of niche exchange-traded products, any investor can quickly and easily add exposure to global currencies. In this article, we take a look at several currency-related charts to try and determine where active traders will be focusing their attention over the coming weeks and months. (See also: Profit From Forex With Currency ETFs.)
Missile tests by North Korea have triggered a flight to safe-haven assets such as gold and into currencies such as the Swiss franc. Taking a look at the chart of the CurrencyShares Swiss Franc Trust (FXF), you can see that the upward pressure in recent weeks has led to the bullish crossover between the 50-day and 200-day moving averages (MAs). This long-term buy signal is known by traders as the golden cross and is one of the classic signs that marks the beginning of a major uptrend. From a risk management perspective, traders will likely remain bullish on the Swiss franc until FXF closes below $96.10, which is equal to the support implied by the 200-day MA. (For more, see: Use This ETF to Trade the Swiss Franc.)
The Bank of Canada is expected to meet Wednesday, with the potential for another interest rate hike in response to strong economic growth in the country. Taking a look at the chart of the CurrencyShares Canadian Dollar Trust (FXC), you'll see that the Canadian dollar is trading within one of the strongest uptrends anywhere in the public markets. This chart is also an interesting example of how major moving averages such as the 50-day or 200-day can act as major guides for long-term trends, and most traders will use these levels for determining the placement of their stop-loss orders. With the recent break above the swing high of $79.45, traders will expect the bullish momentum to continue and will likely place stops below $77.85 in case of an unforeseen shift in fundamentals. (For more, see: The Canadian Dollar: What Every Forex Trader Needs to Know.)
Active traders will be keeping a close eye on the European Central Bank (ECB), as many expect it to signal plans for phasing out its stimulus packages. Taking a look at the chart of the CurrencyShares Euro Trust (FXE), you'll notice that the euro is trading within a defined channel pattern. Given the move toward the lower trendline, most active traders would expect this to act as a strong level of support and will likely watch for a resultant bounce toward the resistance of the upper trendline. (For further reading, check out: Behind the Euro: History and Future.)
The Bottom Line
Foreign currency exposure has traditionally been left to professional investors due to account restrictions and the level of sophistication required for trading. However, with the rise of exchange-traded products such as those listed above, it is now possible for average traders to add low-cost solutions for accessing trends in global currencies such as the Swiss franc and the Canadian dollar. (For more, see: The Top 3 Currency ETFs.)
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.