Last week we saw an extreme move in the Dollar breaking down below support and making both recent and all time lows against many currencies. We did not expect the extreme nature of this move and believe that at least ¼ of last week's move is overdone in the near term. We are expecting a dead cat bounce out of the dollar this week and we may even look back at this as a head fake rather than a breakout. We continue to advocate the use of options for those picking tops or bottoms in these markets as stop hunting has been rampant these last few days.

Europe
Euro, Pound, Swiss Franc

EUR/USD:

The Euro has now broken through the critical 1.50 level and the only question is can it now stay above it. We suspect that in the near term it will fall back below 1.50. In the past the ECB has expressed frustration with the Euro above 1.50 and we suspect that they may guide the currency lower or at least sideways in the near term. The last thing they want is a currency that keeps climbing, and they are at the point where too much of a good thing is becoming a bad thing.

GBP/USD:

The cable has now hit and backed off of channel resistance near 1.9950. We expect that level to hold near-term and are looking for the cable to retest the 1.9650 level later this week. We are range trading which means we are taking both long and short signals within the range, but this week our bias is to the short side. Longer-term long traders should look to add to positions on these dips.

USD/CHF:

The Swissy has just completely broken down this week. We expect the 1.03 level to hold as support this week, but we are not looking for a big bounce, just stabilization. We will not trade this pair from either side until things stabilize. We are looking for a range between 1.03 and 1.05 to be built.

Asia
Yen, Australian Dollar
USD/JPY:

The yen also fell off a cliff as global investors ran for the exits from the infamous carry trade. We feel this move has been overdone in the near term and expect the lows near 102.50 to hold this week. We are looking to begin to build a long position this week near these lows targeting a move back above 105.

AUD/USD:

The Ausi has begun to back off of its highs. We have the RBA meeting to raise rates again this week. The quarter of a point that they are expected to deliver this week is already priced in, so do not look for much upside follow-through on the back of that rate hike. We are looking to short this pair after the rate hike with stops above last weeks highs. This is a counter intuitive trade but it worked the last time the hiked rates.

North America
Canadian
USD/CAD:

The Canadian fell well below parity and even briefly pierced the December 28, 2007 lows. This week we are looking for the pair to retest parity. We are really only bullish for the week and expect to sell short again on a rally over parity. We would use the rally this week to accumulate puts.

Derek Frey is Head Trader at Odom & Frey Futures & Options.

Risk Disclaimer
Past performance is not indicative of future results. Trading futures and options is not suitable for everyone. There is a substantial risk of loss in trading futures and options.