The Year Comes to a Close. 2022’s Final Trading Week Begins
False Breaks Thrive in Low Liquidity. Beware!
As the final trading week of 2022 begins, it looks like many traders have already switched off their PCs and switched on their Winter Holidays mode. The market is sluggish and even EUR/USD, which is the world’s most liquid currency pair, has been trapped in a narrow congestion zone.
Last week’s PCE Price Index was probably the last important release of the year but even that couldn’t pull the market out of its slumber. The PCE Index (year over year) showed a decrease from a revised 6.1% to 5.5%, while the Core version dropped from 5.0% to 4.7%. Under ‘normal’ circumstances, this would have sent waves of volatility across all USD pairs, considering the incredible amount of interest surrounding U.S. inflation.
Taking a look at the charts, we can see that almost nothing happened. EUR/USD remained tame, sitting quietly in its narrow range. The Dollar Index (DXY), which measures the Dollar’s performance against 6 other currencies was almost unaffected by the release.
What Can We Expect This Week?
If a high-impact release fails to move the market, then it’s almost sure that this week’s low-impact events will go mostly unnoticed. But in the Forex market, nothing is 100% sure and we should keep that in mind.
In times of low liquidity, a sudden influx of capital can create a bigger reaction than usual. This is often a time when S/R levels get broken but the break is not necessarily a true one. As soon as the market goes back to its normal, pre-Holiday liquidity, the true direction will be revealed. That can either be a continuation of the breakout or a reversal.
As for economic events, we only have two releases this week: the U.S. Unemployment Claims scheduled for Thursday at 1:30 pm GMT and the Chicago PMI scheduled for Friday at 2:45 pm GMT. The rule of thumb is that the market will mostly disregard these releases but surprises can always happen.
Technical Outlook – EUR/USD
Until September, the year 2022 belonged to the bears as far as EUR/USD was concerned. Since June 2021, the pair traveled from 1.2200 to parity and below, reaching a low of 0.9535, in a textbook downtrend.
The last time EUR/USD traded below parity was in 2002, so we can say that this year we’ve witnessed Forex history. But as we know, what goes down must come up and that’s exactly what happened in September.
The climb was fast and strong but now it is showing signs of slowing down. It’s unclear whether that’s due to end-of-year sluggishness or other reasons. The bears could be salivating over the current high price and could be getting ready to step in. But as I said above, probably the true direction will be revealed in 2023. We wish you good trading in 2023 and a Happy New Year!
