Please note, that this article comes from my archive. Check the actual date in the header.
What a busy week we had in the beginning of the season! Important events on the market and a huge news flow kept currency trading in a very intensive way during the last week, despite the holiday in US and Canada on Monday and quiet NY trading session on Friday. Normal volumes are back to the markets, lowering the volatility and making the price action much more predictable than it was in August. Summer vacation season had volumes of trading 30/35% lower than usual. Three major central banks had rate decision meetings previous week.
Australian dollar kicked off early Tuesday. RBA left the rates unchanged and posted a statement, which pushed the pair AUDUSD higher initially. We observed a pullback down of prices failing to breakthrough psychological level of 0.8000. However, the greenback weakness across the board helped aussie to have a sustainable and clear daily close above that level, clearing the road for further appreciation. Industrial and precision metals are at very high levels, Chinese industrial production and imports picked up a strong recovery pace. These are the factors supporting aussie despite the fact that RBA expressed concerns about appreciation of the currency.
Bank of Canada continued on Wednesday. It was rather big surprise for market players to see BoC hiking the rates second time in during three months. But it was not a surprise for us. Shorts of USDCAD right before the rate decision was a good call, profiting 200 pips in few hours, and even more in the next couple days. Some of the observers posted a suggestion that the Rate Statement, indicating a ‘cautiousness’, signalled no more rate hikes from the regulator. We think that that ‘cautiousness’ was an additional reason for the rate hike, widely unexpected. The thing is that with the Canadian economy growing faster-than-expected, there is a possible bubble in local financials and housings. The amount of debt in private sector is growing mostly because of mortgage. So the central bank hikes the interest rate in order to prevent creation of the bubble and to have a room for maneuver in a worse case scenario. So we would not be surprise if the tightening cycle will continue.
Technically, USDCAD is far below weekly SMA200, first time in four years. Weekly closing price is lowest since May 2015. On the monthly chart below, you can see that prices have kissed SMA200 (1.2027), without significant pullback so far. This blue bold line on the chart will be crucial technical support in the next couple months. Further down, we can find a support around 1.1887, Ichimoku cloud upper level. The indicator shows first signs of possible monthly long-term uptrend. Of course, we need to see more confirmation before making such a conclusion. Meanwhile, we’ll be looking for retracements to renew or add shorts in the nearest days and weeks.
Next week’s economic calendar does not have much of data coming out from Canada, so the trading will be determined by the greenback direction and Crude Oil prices in the scope of Irma’s impact.
Euro Central Bank had the rate decision meeting as well. It was the event, markets has been waiting for. The main question was not about the move from regulator. ECB left the interest rate and deposit facility rate unchanged, as widely expected. Investors and traders worldwide were expecting the Press-conference in order to find some hawkishness in words of mr. Draghi. The speculators were afraid to hear a verbal intervention from Super Mario. At the same time, they needed a confirmation from ECB officials about possible moves out of the QE and towards the tightening cycle. The markets were satisfied by the phrases and words they heard.
After usual volatility, EURUSD moved higher, closing the week above psychological 1.2000 level, but below technically important 1.2060 level, where heavy-volume postponed orders are placed. Sustainable and clear daily close prices above 1.2060 will force sellers to move postponed orders higher and will clear the road to upside further. We used to trade in the range of 1.2200/50 couple years ago. It was tough as well. We suppose, it will be next range to fight for, after Euro bulls will win this local fight for 1.2060. We need to remember that EURUSD has most volume of trading among all FX pairs, so we should not expect moves of 200 pips per day from it.
Intraday traders should look at three things on H4 chart (below). First is the red dotted median line. It’s been broken before the ECB on Thursday after rather long time of consolidation below it. Second is blue SMA89 line, which is around 1.1893 currently. The third is fast RSI14, which is not overbought thanks to the slight correction we saw on Friday. It would be good signal for bulls, when RSI14 heads to 50% level.
One of the conditions, necessary for ECB to move, is strong economic data from Eurozone. Next week is full of economic reports to confirm the strength of the European economy. Key reports are: German and Spanish CPI, EUR Industrial production and wages. USD weakness has been one of the main components in recent EURUSD uptrend. So, the traders and investors will try to see further signals on the other side of the Atlantic: US PPI, Federal Budget Balance, Core CPI and Retail Sales.
We’re still bullish on the pair with buying dips intraday trading strategy. By the way, net short speculative USD positions are at highest level since mid 2013.
Among other interesting assets, we would highlight:
GOLD and SILVER, posting new local 2017 highs,
USDJPY breaking important technical support level,
USDZAR, bouncing from support after dramatic fall.
One of the wild cards in FX trading next week could be the British Pound. It had a short-term rally recently against majors, after consolidating in a very tight range. We have a huge doubt about the continuation in sterling’s strength. This doubt is based on a suggestion that Brexit had deeper reasons than just moving out of the Eurozone. British officials have a strategic course to shift to American orbit and tighten the long-term alliance. This step could have a support for USA in a trade war announced by Trump, with a consequence of further long-term weakening of the pound. MPC Governor Carney does not hide the fact, that he is interested in further depreciation of the currency. So, fundamentals could go in a divergence with technicals.
Economic calendar next week is packed by important reports from Britain: CPI and PPI, Average Earnings Index, Claimant Count Change, Retail Sales, BoE MPC Meeting minutes.
Here is the daily GBPUSD chart
MACD indicates a bullish mood of the price momentum, which is above its 89-day Simple Moving Average. But fast RSI14 heads into overbought territory and local highs are still below highs posted in early August. We would see a deep pullback to the previous consolidation range of 1.2800/3000, if the prices failed to have a sustainable breakthrough local highs around 1.3223.
Shorting one weak currency versus another weak currency (GBPUSD) is not the best trading strategy. So, we’ll be looking stronger opponents. EURGBP, GBPJPY and GBPCAD are among sterling crosses to watch for attractive levels for shorts. GBPCHF could be lucrative next week as we the SNB rate decision is also scheduled. You can find below H4 intraday charts of the sterling crosses.
While EURGBP, GBPCHF and GBPJPY already gave good levels for new shorts, we expect GBPCAD to have a deeper retracement from the dramatic slide last week after BoC.
Shorting pound could be rather aggressive and risky trading strategy for the next week. We take in count possible weak fundamentals in this strategy. But we do not forget about possible bullish sentiment in case of strong reports. So it would be better to monitor the economic reports closely before pulling the trigger.
Please note, that this article comes from my archive. Check the actual date in the header.
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