The recent performance of the various currencies reveals two very distinct trends: on the one hand, the British pound is attempting to assert its supremacy over the rest of the world; on the other, the Japanese yen is doing exactly the opposite. Since the start of the year, sterling has performed well against the Nordic currencies (NOK and SEK) and commodities (AUD and NZD), while struggling to assert itself against the Swiss franc.

Conversely, the yen continues to suffer from monetary policy. Against the current trend of other central banks, the BoJ is artificially keeping Japanese interest rates under pressure. The main consequence is a collapse of its currency simply through the interplay of interest rate differentials. Currency traders can borrow (sell) yen at low rates to buy currencies with much more attractive interest rates. Excluding frictional costs (mainly bank charges), a simple USDJPY carry trade can generate a return of over 5% per annum. Not counting currency fluctuations. That's how attractive the yen is as a hedging currency.

To continue our overview, this week we'll be looking at resistance at 1.0785 on the EURUSD to continue the downward momentum towards support at 1.0543, where we'll be on the lookout for any buying moves to change our currency holdings and profit from a recovery in the EURO.