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EURUSD reversed.

The single European currency reflects the overall FX market the most in terms of demand/supply ratio for the world’s reserve currency -- the US dollar -- as the EURUSD currency pair has more than 60% share of the greenback’s trading volume. Besides, when it comes to the fundamental and macroeconomic side of things, Euro will be the only alternative to the US dollar until the Chinese government will release the renminbi (Chinese Yuan) fluctuating freely. Since the long-term strategy of the second world’s economy -- China -- looks to be solid, and the superpower country is not willing to change its path to a hybrid economy, USDCNH is poised to fluctuate on a small portion of the overall volume in offshore exchanges. Therefore, if you were looking for a strong currency, then you would not have much choice rather than Euro.  

The European Central Bank is in the same situation with the COVID-19 pandemic as other regulators in the world. To keep supporting the economy, to minimize the negative impact of lockdowns, the ECB is forced to keep interest rates at zero levels with enormous amounts of additional stimulus. But if we put ourselves in the Fed’s shoes, we’d got nothing to do as well. FOMC has to pump the same enormous additional liquidity into the financial system. In simple words, keep printing more and more dollars.

Now since the elections’ impact is almost off the table (traders and investors always anticipate fundamental events and risks involved but not act afterward), the level of volatility is getting lower, and, what’s even more important, the risk appetite is growing. Therefore, financial institutions start including in prices another bale of fresh bucks printed by the Fed. Would you sit on the cash when the inflation eats a constant portion of it? Or would you find a reasonable and secure alternative to the greenback? Euro looks to be one of the best choices. 

The technical outlook gives me an additional reason for a cautiously optimistic forecast about the EURUSD exchange rate. When I open an intraday chart with a four-hourly time frame, the first thing I see is the reversal head-and-shoulders pattern. The neckline of the H&S figure must have the right incline (i.e. the right shoulder is lower than the left one). Next, the post-election day brought high volatility to the FX market and EURUSD was not an exception. However, both upper and lower tails were quite high meaning that traders used to enter into the market from both sides when the pair was offering attractive entries in terms of the amplitude. As a result, the last red candlestick’s close formed the right shoulder at 1.1660. If you were able to see that close rate in the middle of the night on Wednesday, you could have had a brilliant entry point. 

Since then, EURUSD is rallying for more than 150 points, and my analysis shows that it gained another 100 pips at least. The rate has breached the 89bars SMA and entered into the previous ascending channel. For the technical analysis, that means that a double resistance has been eliminated, and the bulls won’t stop until the next one. I will keep holding longs for EURUSD targeting 1.1850 and 1.1875 in extension. 

Sterling to soar to 1.35 versus the greenback?

The British Pound is currently one of the most attractive currencies to buy, especially versus the US dollar and the Japanese yen. Several macroeconomic concerns used to hold Sterling from a rapid appreciation, however, they all seem to pass away shortly. First, the US presidential election is coming to a logical end, and the trick for GBP is that it can gain whoever will become the US President. 

Donald Trump has always been an ardent supporter of the Brexit process as the British economy could have benefitted from integration to the US orbit while getting out of Brussel’s influence. The faster the Brexit sage will come to an end, the faster the British economy will start performing in the same way it did previously. High level of income and spending among the British population, infrastructure investments, and the role of London as one of the most important financial capitals of the world should direct the funds' inflow to the UK’s financial sector more affluent.

Joe Biden is also a good choice for Britons just because of his program to improve the international trade environment, get closer to China and EU, improve the global investment sentiment, and increase the risk appetite. Besides, the additional fiscal and monetary stimulus would create lucrative opportunities for carry-flow speculators interested in bargaining on yield difference. The outflow of US dollars should create additional demand for other major currencies, while the British Pound looks more attractive compared to other slow-moving majors.

When it comes to the technical analysis, the squeezed H4 chart above points to a huge ascending triangle with a horizontal baseline at 1.3500 dollars per pound. After the freefall in March 2020, caused by the coronavirus panic sell-off, the GBP/USD currency pair is in a continuous uptrend. The graphical analysis shows an obvious support trendline with three solid touchpoints (failed tests) as buy opportunities. The last one has been posted just recently, and Sterling’s bounce towards mid 1.28 figure was attractive to enter longs with a swing trading strategy. Those traders who used the opportunity of the market’s concern related to political and economical issues can enjoy quite a crispy haul now. Let’s have a look at whether it’s worth taking profits at this level, or should GBPUSD gain another couple of hundred points.

Bullish signs are as follows: the latest H4 candlestick has a close rate above the exponential moving average with a period of 144 bars; the Relative Strength Index charted a bounce-by-trend pattern at around the middle zone; the buying pressure is constant above the psychological figure of 1.3000 dollars per pound. The lack of bullish momentum can be explained by two factors. First, market players are expecting a final verdict for the presidential election and want to see the equity market reaction before pulling the trigger. Big money never rushes. Second, the US Federal Reserve and the Bank of England are going to have their meetings this week to announce the volume of further supportive measures, i.e. the amount of additional liquidity pumped into the financial sector. 

This could cause a rapid rally of high-yield assets, and GBPUSD would not be an exclusion. Technically speaking, Sterling has to break through the 78.6% Fibonacci Retracement level at 1.3050. That will open the road towards the median resistance line slightly above 1.3200, and the triangle’s baseline at 1.3500 in extension. Patient traders with a deep buffer in the account balance can freely use a small portion of free margin to go long on Sterling. Remember though that GBPUSD is that kind of currency pair that can add surprising false whipsaws into the price action, so standing temporary under the water of 100-150 pips should not be a huge surprise but a chance to add more volume to longs. 

How the U.S. elections uncertainty will impact the Forex market (part I)

Uncertainty leads to high volatility. This centuries-old rule works perfectly in modern markets despite all of the technological breakthroughs, artificial intelligence, etc. The first day after the US elections impacted gaps on several major assets in the Forex market. The directionless and nervous price action was seen in the US dollar index measuring the greenback’s strength versus the volume-weighted basket of six major currencies as well. At the time of writing (10:40 AM GMT), EUR/USD was losing -0.2% of its exchange rate, GBP/USD was easing by -0.80%, while the rest of the majors followed the same direction with an approximately similar trading range. 

The capital flow to the greenback happens when traders and investors are not ready to impose too much risk in their portfolios, so they rush back to safety. Besides, the US 10-year Treasuries yield was plunging -13%, confirming the higher-than-average demand for safe-haven bonds. Therefore, the greenback was strong across the board on Wednesday.

When looking at the 4-hourly chart setup above, the first thing which catches the eye is the bearish gap on Wednesday open. However, the greenback bulls reacted with immediate demand, pushing DXY much higher than the daily low. On top of that, the US dollar index kept gaining during the European trading session. 

What's interesting from a technical point of view, is that on the one hand, the H4 rate is well above both Ichimoku resistance curves - baseline and conversion line, while the leading span is confidently bullish. The lower band of the gap was limited by the bottom of the cloud, offering a brilliant enter opportunity for intraday traders. Bounce-by-trend patterns and extremely oversold conditions on both oscillators prompted reversal signals as well. The overall outlook tells me that the descending channel that held DXY in September - October this year, is already in the past. The longer-term ascending channel seems to come back in play with the current rate approaching the upper band of it. A possible breakout could impose the acceleration of the uptrend. 

In the short-term perspective, fast and sensitive oscillators such as Williams %R are overbought. That could influence a short-term retracement or a lack of further bullish momentum to drive the greenback higher. Slower oscillators like Stochastic RSI (which smoothes too much noise by the way) are on the way to turn bullish, breaking through the middle level. Technically speaking, the US dollar index should continue strengthening versus major currencies, so it would be a bit early to go long on such majors as EUR/USD, GBP/USD, AUD/USD.

Gold analysis: technical take.

As far as the financial markets are seeking direction in the uncertain environment of coronavirus pandemic and US elections, the technical analysis becomes more essential for understanding the background of future trends. It’s been written and said many words about the price of gold as the safe-haven asset and the demand for the yellow metal from the side of speculators amid exceptionally high levels of liquidity in the financial system. The long-term fundamental outlook is definitely in favor of the price of gold. The only question I currently have is what is an attractive level to enter long positions on gold from a technical point of view. 

The most interesting timeframe to analyze, in my opinion, is the H4 chart as it combines the mid-term perspective with intraday price swings. The daily chart shows nothing to me, while the H1 chart is full of unnecessary noise. The chart setup below combines two different types of technical indicators with an in-depth graphical analysis and simple moving average. The SMA period I usually choose among Fibonacci numbers, and one of the most preferred is 89 as it reflects a much longer period and smoothes the noise related to short-term price fluctuations. ADX and DI, Chaikin oscillators have the default period, no need to change a thing there.

First of all, I pay much attention to the so-called median lines when I arrange an in-depth technical analysis. It’s not hard to build a support or resistance trendline, but they are not so informative as median lines as they do not show consolidation ranges. For example, you see that the uptrend is likely, but you struggle to identify the best entry point from which the price will soar. 

The most important median line on the chart above is the lower dashed green line. Four green arrows below it and one red arrow above it highlight reversal points of the intraday price action. Besides, the price of gold was in the consolidation range on October 23-28 before the bearish breakout. The recent bullish rebound was supported by the short-term support trendline, the angle of which does not look like it will hold for too long. On the other hand, the latest rally was limited by an important horizontal static resistance at $1909.13 per ounce, which coincides with the median. Therefore, if the bulls want to continue the upside pressure, which by the way is confirmed by long downside shadows on the latest candlesticks, then the price of gold has to clearly break the double resistance and chart several close quotes above $1910 per ounce. Once that happened (and I think that that’s just a matter of time), the next target will be shifted to a range between $1926.24 and $1930.48 per ounce. 

Indicators point to two concerns for the bulls. The ADX and DI indicator still have a bearish surplus as the red line is above the green line. Also, the mainline is below the threshold, which shows a weak momentum and thus the inability of bulls to keep the buying pressure. On top of that, the Chaikin oscillator has gone too far north from the middle line, promising a bearish retracement in the nearest future. Even if the price action will be range-bound, the oscillator must reload the overbought condition. Such a combination of two bearish factors allows me to wait for a deeper rebound south and therefore, a more attractive price for long positions. Shorting gold might be dangerous, given the overall bullish sentiment in the medium-term. This is why I prefer having a wait-and-see position, looking forward to attractive entry points for longs with the swing trading strategy.

How the bond yields and equities will affect the currency market in October

The first trading week in October was coinсident to the start of the fourth quarter in 2018. Key events that took place in this past trading week raised a lot of questions to traders and investors worldwide, and it was especially sensitive not only for the bonds and equities market players but also for currency speculators. Several unusual tendencies and divergences have been seen among different sectors in the financial markets, and these factors might have a huge impact on a potential shift in the focus for currency traders. I will try to explain a couple of the observations that I’ve had this week in order to be ready for such changes in the nearest future, and to make money on that, of course.

The fact number one. 10-year bond yields in the U.S. soared to 7-year high levels recently and reached the level of 3.21%. Well, it is not something extraordinary in the scope of the growing American economy, isn’t it? I mean, the economic expansion leads to the tightening cycle in the interest rates by the Federal Reserve, acting in to prevent overheating of the economy. But why do we see such an emotional and dramatic reaction by the market players, especially in the equities sector? Let’s try to figure out step-by-step. What is the mechanism for U.S. Treasuries? What drives the yield? The answer is always related to supply-demand stuff. The yield is determined by the nominal interest rates (set by the regulator), the inflation expectations and the market expectations of changes in these benchmarks.

So, for example, you are an investor who wants to buy a long-term U.S. government debt. Let’s say, you are interested in the 10-year period. You see that the current yield (your income at the end of the agreement) is 3.21% yearly. But at the same time, you predict that the real yield will grow as the Federal Reserve hikes the rates (3 hikes this year, one more hike is expected in December, and two more hikes are pencilled by FOMC for the next year). So, it is in your best interest to wait a couple of months and buy the same amount of government debt (10-year Treasuries), but with more benefit as the yield will grow. The same story happened to the vast majority of bond market players this week. Sellers were at the same level as before, but buyers stayed on hold after the Fed Chairman Powell noticed a possible acceleration in the interest rates hikes due to inflationary risks. Sellers were dominating at the bonds market and the price for Treasuries went down and the yield surged (the price is opposite to the yield).

The fact number two. That situation with the bond yields created a fear in the equities market. U.S. stock plunged 2-3%, finishing the trading week with the worst performance since May 2018, and coming off the recent all-time highs. The main concern was related to a single question: is the economy strong enough to withstand so many interest rate hikes? Traders understand that the increase in the borrowing costs creates an additional pressure on businesses, and that change might slow down the growth in corporate earnings, and the attractiveness of shares could be lower in this case. Add here the bullish speculative growth of the equities’ value, which started to show signs of a bubble, and you will get an average investor who is sitting on the multi-months profit, looking for the best time to take them in the pocket by closing long positions. What do you need to do if you want to close a long position? Right, sell. So, my point is that traders were looking for any reason to get out of the market, and, I think, the market reaction for Powell’s speech was overestimated, as it always happens.

But let’s get back to the currencies. The reason why I wrote so many words about the parallel universe is that markets do not exist in a vacuum. All of the financial sectors are related to each other and the impact of the bonds and equities markets is huge when it comes to the currencies. So, what was the greenback’s behaviour in this environment? It was going up, yes. At least, the U.S. dollar index grew 0.52% on weekly basis, but it went off the weekly high at 96.12, finishing the trading week at 95.60. But the correlation between the U.S. stock indices, the 10-year bond yields and DXY has certain changes. Moreover, the structure of the greenback’s growth compared to its peers was a bit different from the recent periods, and here are my suggestions why.

The daily chart above compares the U.S. dollar index (blue line), S&P 500 (red line) and U.S. Treasury-notes 10-year yields (yellow line). There is an obvious correlation between DXY and US10Y in the period of Spring 2018 when talks about rate hikes from the Fed were dominating in the market. We have a similar situation now when market players discuss faster-than-expected tightening by the Fed and US10Y had an immediate reaction. The stock indices sell-off is nothing but correction, in my opinion, and the things will get back to normal growth in a couple of weeks at least (or even much sooner than that). But why is the greenback pulling down? Why does DXY not react on the huge spike in the 10-year bond yields? I mean rising yields in the U.S. should attract overseas buyers and create an additional demand for dollar assets. The only explanation that I found is that the currency market delays with the same bullish reaction, and we might see much more active greenback bulls this week, when the CPI and PPI reports will be published, as there is an assumption that the inflationary pressure might be accelerated in September.
Another factor that is holding the greenback from a rapid expansion is that the vast majority of investors and currency traders are already long on the dollar index, and they need something much more powerful than Powell’s speech in order to increase the overall volume of long dollar positions. Add here a restructure of the DXY growth: it is going up versus commodity currencies (especially AUD and NZD, the weakest ones among majors), emerging market currencies (there is no demand for high-risk assets in the scope of the worldwide economic slowdown concerns and recent turmoil in Argentina, Turkey and Russia), Swiss franc (which is out of big six in the sense of trading volume after the plunge in 2015) and Euro (EUR/USD is going down, yes, but the bears’ achievements are very limited, to be honest). The British pound is showing first preliminary signs of reversal after multi-months bearish market, the Canadian dollar is hovering around 1.30 level without any significant movement from it.

The only currency which has to decline versus the greenback is supposed to be Japanese yen, and USD/JPY was showing perfect price action in the second half of September, but the bulls’ gains are limited amid recent sell-off in equities. Moreover, my suggestion is that USD/JPY together with EUR/USD, GBP/USD, and, accordingly, EUR/JPY and GBP/JPY should renew the bullish market in the tight correlation to the stock indices, once equities will find the bottom and reverse back North. Any disappointment in U.S. PPI and CPI data this week will ease woes about the 10-year bond yields, and stocks will pick up the bullish momentum again, increasing the worldwide risk appetite.

With that in mind, I am looking at USD/JPY in the scope of long positions in the medium term perspective. I suppose that the recent retracement is deep enough for the healthy correction from the technical point of view. The lowest price on Monday (112.79) exactly fits with 38.2% Fibonacci Retracement level of the bullish price action which started on August 21 (daily chart below). The latest top of the market is also placed around 113.00 level (113.17 to be precise). So it is normal for any asset to come back down to the breached level before making new achievements in the uptrend. The green dotted median magnetic line attracts the bulls, and they would not hesitate to use such a brilliant opportunity to test that line, in my opinion.



The intraday H4 chart below has several confirmations about that suggestion as well. Ichimoku Cloud Indicator with modified settings (13, 34, 55, 34) has completely bullish sentiment, and the support of the lower line of the span also held USD/JPY from the further slide. I expect USD/JPY to trade above 115.00 level (at least the first test with possible pullback) in 5-8 trading days from now (till October 19). Although, the main condition for that is the bullish reversal for equities in the United States (the rest of the world will follow one way or another). I already went long on USD/JPY (aggressively), and I’m ready to add more volume around 112.25/50 in a worth-case scenario.

This is why I keep selling cable.

There were some rumours about sterling to spike above 1.32 in 48 hours after Barnier had announced a Brexit deal last week. I thought: 'alright you can buy it, I will sell sterling with the pleasure 'cause I've got at least six reasons to do that'.

Just have a look at the H4 chart below and you'll get what I mean. I will consider taking profits around 1.2730/50 support.

Has cable found a local bottom?

This Tuesday is going to be huge for British pound traders. The cable dropped almost 1000 pips after failing to break 1.45 resistance four weeks ago. Three consecutive bearish weekly candles were caused by fundamentals, which disappointed traders in their expectations for much more tight BoE monetary policy than it’s been previously anticipated. Economic reports showed weaker figures, Brexit negotiations with EU are not giving any light at the end of the tunnel, UK government is divided as never before. Add here demand for the greenback on geopolitical tensions, concerns of much slower worldwide economy, rising U.S. Treasury yield - and you will get enough factors for the pound to slip not only below 1.40, but also to test 1.35 support.

Last trading week showed a slowdown in USD rally. Mainly because of U.S. Inflation failed to meet expectations, which eased investors fears in four Fed rate hikes this year. Stock indices picked up a momentum, closing the trading week on a positive note. Most of the major currencies, including pound had a breather after strong USD rally. The biggest question is about what’s next? Will we see a consolidation range before finding next direction? Or will the greenback face a bearish correction?
Technically speaking, there is a huge probability for the DXY (US Dollar Index) to test 91.00 level before any further development, and here is why. First of all, there is a clear and strong reversal bearish signal - Doji candlestick pattern. DXY could not break through strong resistance - Simple Moving average with period of 55 weeks. This fact is not surprising, cause the index has been below SMA55 exactly one year-to-date, and it would not be easy to break it through with the first attempt. Simple rule in trading from levels: ‘failed to break - pullback’ is in play.

In addition, there is an extremely overbought level in BB indicator, which has to be reloaded anyway, before making any conclusion about the next direction. Talking about technical targets, the level of 91.00 - 90.50 has to be highlighted due to several support lines placed in that range currently: SMA21 and support trendline, which worked well already three times in 2018, holding CLOSING weekly prices.
But let’s get back to the cable analysis itself. GBP/USD is going to experience a test of fundamentals factors today, extremely important for further Bank of England policy. Earnings and employment figures are scheduled to release and these reports are going to show is the British economy strong enough to withstand tightening from the regulator. In case if the report will beat expectations, we might see the pound rallying across the board.
GBP/USD technical analysis tell us about a local bottom on daily chart around 1.3500 level with several failed attempts to break it. RSI14 is still in oversold territory, showing slight signs of bullish divergences. Simple Moving Average with 55 days period, which used to support the pound several times since November 2017, has to be the nearest target for cable correction in case if the fundamentals will come out in favor for pound bulls. Range of 1.3850 - 1.3900 looks to be lucrative enough to take profit for aggressive traders.

How to trade FX in geopolitical tensions environment

The main topic for the markets nowadays is possible Middle East conflict escalation. It’s not the first year or even decade of this war for the oil influence. Saudi Arabia, Iran, Israel, Turkey, Russia, Great Britain and United States - this list is not even full of the countries interested in oil reach region. Trade war topics US - China eased and went out of the focus after Chinese official comments in the direction of negotiations. Syrian topic weighs on investors’ risk appetite and confidence, so we should not expect big gains in worldwide equities until the dust will settle. 

The market players almost ignored Fed minutes, released on Wednesday. More hawkish rhetoric of the regulator caused some buybacks of the greenback versus major currencies, but gaines were very limited. Main reason of the support for USD, as for the worldwide reserve currency, remains geopolitical story. Most heavy volume traded pair EUR/USD eased off the weekly highs, coming back to H4 Simple Moving Average with 89 period. ECB meeting minutes to be released today, but we should not expect any major reaction from the market even if it will come out much more hawkish, than anticipated. EUR would continue bullish daily trend only in case of stable worldwide outlook and growing demand for stock indices.

Technically speaking, the intraday picture on H4 chart (below) is rather mixed, with first support at 1.2327 (SMA89) and local lower closing price at 1.2234 level. This 100-pips range is expected to play a supporting role, as the long-term (daily and weekly) trend is still bullish technically, and the market expectations for the ECB to start tightening are still strong. The best way to trade this pair is to wait for a bounce from the bottom of this support range and go long, using buy-and-hold strategy. Aggressive intraday traders could consider short-term longs in the range of 1.2300/25, but the stop-loss and take-profit orders in this case should be rather tight, together with the time restriction.

Another indicator of risk/fear barometer is USD/JPY. It’s been recovering from low levels after brutal sell-off in March recently, but as far as the fears of possible war escalation are in focus, the gains could be limited. We might see a sharp jump-in back to safe haven Japanese yen currency in case if the Middle East conflict will keep weighing on stock indices.

Key technical levels to watch: 107.40 and 107.80. This resistance range is rather attractive for bears and we do not expect the pairt to break through this range this week. Sell-highs strategy is likely with 106.60 target (Ichimoku cloud top-range) and 105.80/106.20 in extension. H4 chart is illustrated below.

One of the most attractive currencies and biggest gainers versus the greenback this week is Canadian Dollar. As long as the oil prices are rising on geopolitical tensions, Canadian housing market is strong and NAFTA negotiations are supporting factors for the loonie. We might see further currency appreciation despite some oversold signs on the technical picture intraday. Once NAFTA deal is released, the USD/CAD could dive below 1.2500 in a heartbeat.

There are also potentially interesting moves in GBP/USD and NZD/USD pairs, but it seems to be a bit early to make any conclusions and use wait-and-see strategy. Anyway, BoE Governor Carney’s speech on Thursday is definitely not to be missed especially in the scope of further BoE tightening.

FX weekly outlook Feb 26 - Mar 2

Overall financial market’s sentiment has been positive this past week. There were not much of risk-on rush though, due to several factors to be clarified. First sign for potential faster tightening by ECB came from meeting of EU finance ministers this week. A spanish hawk, mr de Guindos has been nominated as ECB Vice-President. Next several months will show, whether is he going to be first candidate to replace Mario Draghi, ending a long-term era of cheap borrowed funds in Europe.

One more important topic has been discussed on other side of Atlantic. FOMC January Meeting Minutes have not resolved all questions about possible faster hiking path of Federal Reserve this year. This was the last meeting for Yellen as Fed Chairwoman. Next big event for the market is new Chairman, Jerome Powell, testimony on the economy before congressional committees. Equities, bonds and currencies will be looking for direction depending on how hawkish will be his views at the speed of tightening.

US Dollar was recovering during this past week, working out bullish divergences on daily chart. However, this recovery was limited, as sellers were reacting on equities’ bullish rallies. General direction remains the same on long-term perspective. Fundamentally, there is not reason for world reserve currency to appreciate together with strong and sustainable recovery of the world-wide economy. Risk appetite attracts traders to buy high-yield assets, emerging markets are among biggest gainers.

EUR/USD has found a rock solid support at 1.22 level, with huge volume demand at this level and lots of buy orders placed. The only delay for bulls is political risks hedging. There will be elections in Italy and important SPD vote in Germany on March, 4, so we should not expect the pair to appreciate significantly next trading week. But we might see a repetition of weekend gap the same way as it happened in May 2017, right after French elections.

Technically speaking, there is a sideway consolidation range, with resistance to be breached more likely. Levels to watch for long positions: 1.22000 and 1.22500. Key fundamental events to monitor next week: US PCE Deflator, which is used by Federal Reserve to control inflation, and Eurozone Flash Inflation report.

British pound bears failed to push the pair lower than support levels from previous week, despite weaker-than-expected UK GDP Q4 reading, revised down to +1.4% YoY from +1.5% expected. Next week’s UK PMI report is going to show whether BoE would have additional pressure to tighten faster than previously anticipated. 1.40000 resistance looks as important pivot point to breach before sterling performs further strength.

USD/JPY recovered previous losses, testing resistance at 108.00 level this past week. Fundamentally, Japanese economy confirms sustainable growth, and BoJ officials are not interested in further strength of the currency, continuing injecting additional liquidity to the system and intervening verbally. Next week’s Chinese Manufacturing PMI will influence risk appetite from Asian investors. In case of a strong reading and with a condition of bullish equities, USD/JPY might test 109.00 resistance.

USD/CAD bounced from overbought levels last Friday on stronger-than-expected Inflation report. 1.27000 levels looks to be a tough task for bulls, so the pair should pullback down to 1.25000 support in case of fundamental environment will be in favor for BoC to keep hiking interest rates in 2018.

  

What is happening with the greenback?

The biggest story of the past trading week on the financial markets was U.S. inflation. Rumors and talks about fast inflation increase caused worldwide equities deep correction a week before, creating a fear that U.S. economy could have a slowdown. But smart money was acting aggressively from the start of the week, buying equities at lower prices comparing to January peaks, and indices showed strong recovery, while Treasuries continued to slide. 10-year Treasury yields (inverse relation to the price) rallied to almost 3% this week, pricing in more tightening from the Federal reserve together with higher inflation.

The main economic report was U.S. CPI on Wednesday, which showed slightly higher-than-expected reading, and the price action was dramatic across the board. Initial reaction was to sell equities, which dropped 1% in minutes, and buy USD, following additional demand for Treasuries. EUR/USD dropped more than 100 pips from the highest rate in early European session. Smart money stepped in, reversing this move and we've seen completely opposite ending of Wednesday trade, with stock indices rallying more than 1.5%, Treasury yields going up sharply and EUR/USD performing bullish run, breaching 1.2500 important level third time this year.

I've been waiting for something like this, observing overreaction of the market players based on nothing but rumors. The explanation of such unexpected for most traders action is very simple. Yes, inflation picks up the momentum, exactly as FOMC predicted in October. Yes, Federal Reserve will be forced to hike, exactly as they told before. But this also tells about U.S. economy strength, confirming wage growth and stable consumption, which has to lift corporate earnings and create additional demand in equities and thus risk-on market investment sentiment. Treasuries, however, lose their attractiveness as mid- and long-term investment assets, covering just inflation and not producing additional profit. Money must work and what is happening at the markets currently is the that huge volume smart money is looking for repositioning to high-yield assets and more attractive markets.

Next question was about talks that Federal Reserve could be forced to hike more aggressively in 2018 due to faster inflation growth. Such scenario could make borrowing costs much more expensive for corporate sector and consumers, slowing down the economy growth. But as the CPI report was not that scary, it did not give any background for such talks. Fears eased, risk-on sentiment came back to the markets. The greenback as world reserve currency loses its’ attraction. There is a huge flow of capital coming back to equities from long-term savings sealed in U.S. Treasuries. Investors are getting out of cash USD, putting funds to work more effectively. This process creates additional demand for other currencies on Forex market, lowering the rate of USD.

You can find below a comparison daily chart of U.S. Dollar index with 10-Year Treasury yields. There is an obvious change of correlation started from December 11 2018.

If you are interested to get instant daily market analysis and trading signals in real time conditions, please contact author: lucas.tyler.ssfx@gmail.com
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EUR/USD perspective for the week ahead

EUR/USD posted 1.2555 local high this week, but retraced on Friday. Some analysts started to talk about EUR/USD reversal, as the pair bounced back down from 100- and 200-months simple moving averages. I do not see any fundamental background for such a reversal scenario. Eurozone economy is strong and there are talks about ECB to lower the Quantitative Easing program and start tightening cycle much faster than it was previously expected. Further bearish slide is possible, but buyers should step-in with huge volume in the range of 1.2250-1.2375, the same way that they were doing three weeks in a row. Next week economic calendar is full of European reports, which might confirm the economy strength and support the pair. Two main releases influencing the pair are FOMC and ECB meeting minutes. If the first one will ease the chances for 4 rate hikes this year in U.S. and if the second will confirm rumors for faster ECB actions, EUR/USD will reach 1.2700 level in very nearest future.

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Kiwi and Aussie to strengthen further?

Commodity currencies like AUD and NZD have finished correction. One of the biggest gainers against the greenback last week was kiwi. Strong economy, new RBNZ hawkish governor, expectations of monetary policy tightening were the fundamental factors supporting the pair. In addition, commodity market picked up the momentum on strong equities bullish rally. Aussie was a bit slower, but also gained against the greenback. I expect further appreciation of both NZD/USD and AUD/USD next week in case if there would not be any disappointment from economic calendar, which is rather packed with events from both countries.

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Wil the South African Rand keep soaring?

Emerging markets are definitely gainers from the weak U.S. dollar story. One of the best performances past week was shown by South African rand on positive political changes. New President seems to be much more suitable for foreign investors, seeking for high-yield gains. USD/ZAR lost 3% of it's value, breaching very long-term resistance at 11.80 level. Weekly chart tells me about 10.90 as the next target, so the rally should continue in case of no major shocks to the worldwide economy.

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Weekly FX outlook Feb 12-16

Please note, that this article's date is February 11 and it is a part of weekly analysis for my subscribers.

This past week trading was nervous and volatile at all of the financial markets. Main topic was a dramatic sell-off in U.S. equities, with S&P 500 Index losing almost 10% of its’ peak value. Despite the absence of major economic data releases from U.S., Treasuries continued the slide and 2-Year yields breached 2.8%. This sharp increase in borrowings cost weighs on confidence of homeowners, consumers and businesses, creating uncertainty whether the economy will be able to overcome the end of cheap funds period. As majority of Central Banks worldwide are heading to tightening cycles, we could see a further decline in demand for bonds. At the same time, the biggest question for now is about how deep will stock indices decline further? Have they already found the bottom, or will this technical correction turn into a long-term bearish market?

I bet, there is no analyst or economist in the world, who can answer this question. Some of them say, that it’s a perfect time to buy equities on the long-term basis, as prices eased from peaks and became more attractive. Anyway, there should be a consolidation period before bullish rally, with possible whipsaws on the bearish side and investors have to be convinced by a several weeks recovery before they will put higher stakes on the table.

The best currency to hide from such turmoil is Japanese Yen, as the concerns do not come from Asia. USD/JPY has always been a risk-appetite indicator and safe-haven asset, but the main profits last week came from yen crosses versus weaker currencies, like AUD and GBP. Australian dollar’s correction extended in the beginning of the past week as Retail Sales report disappointed investors. AUD/USD was down 1.05% and AUD/JPY lost 2.53% on weekly basis. But as AUD/USD buyers stepped in on Friday trading, and the pair found a local support on Daily timeframe, AUD/JPY continued to slide. In case if the uncertainty will continue to weigh next week, aussie-yen cross would keep declining further. Daily charts below. Nearest supports: AUD/USD 0.73357, AUD/JPY

Trading strategy without stop-loss orders

Stop-loss orders are useful. They limit your possible losses and execute an automated cut in case if the prediction was wrong. Most of FOREX courses teach a beginner to use stop-loss order on every single position they open, and this approach has a logical background.

But I noticed that there are lots of examples, when the price action reverses right after triggering my stop-loss and goes exactly in my direction without me in the market. I have loss in such case, instead of having profit after generally correct prediction.

Moreover, I was wondering why brokers teach beginners about to put stop-loss orders so insistently? The answer is simple. They have information about levels, where the biggest volume of stop-loss orders is placed, and this information allows them to hunt. Just try to think what happens, when a stop-loss order is triggered.

For example, you have a long position of EUR/USD with an entry price at 1.24000 and stop-loss order at 1.23500. Imagine a big market player, who have enough liquidity volume to move the market by injecting sell positions. The result is the slide of the price, reaching and triggering your stop-loss, which is a sell action. If your volume is big enough, the price action continues to fall, moving even lower for some distance. Let’s say 10 pips further South. What is the next action of such a hunter? He closes his short positions with profits at 1.23400 and opens long positions, according to the general trend. The price reverses and moves back to the level where it started if not above 1.24000. What do you have as the result: stop-loss triggered -50 pips. What does have that hunter as the result: DOUBLE profit +120 pips.

Of course, small traders do not have even a chance to compete with huge market players due to the difference in volume. But they can have accounts deep enough to withstand such a temporary price actions. And small traders can be smart enough to realize that these movements are fake.

The strategy to trade without stop-loss orders is dangerous, so traders must have an accurate calculations of possible negative impacts like margin call, and use risk management rules in a highly disciplined way. Timing is also crucial. Traders who use weekly trading plan have to be patient enough and be ready to add a second barrel of their positions in the same direction on a reasonable distance from the first entry point, in case if it went underwater and in case if the main trend direction has been chosen correctly.

Weekly trading plan

Every successful FOREX trader has to have a trading plan. There are a lot of different strategies when it comes to timing. It is very important to coordinate your targets and stop-loss orders with the timeframe of your trading plan.

My experience tells me about an important cycle in trading, which is one week. I usually work on my trading plan for a week ahead, and main job during the trading is to check if the suggestions were right and execute the plan according to the price action. Of course it is tough to have an exact prediction about possible retracement depth and exact time of reversals. But this timing helps me to maximize the profits and balance them with potential risks.

Before starting to work on my weekly trading plan, I analyze the previous week and double check all of the levels, that I targeted on my previous plan. It is very important to keep the direction together with the trend, and not to position trading against the market. I usually choose one direction according to bigger timeframes like weekly and daily. And I try to avoid attempts to catch all of the market movements. So if the price action goes against my prediction, I just stay out and use wait-and-see tactics.

This approach requires patience. A trader has to be like a sniper, camouflaged in a bush position, waiting for his target. Once he sees his target clearly, and once he is confident about good chances for his bullet to reach the target with one shot, he pulls the trigger.

There has to be a plan B though. The sniper has to be ready for a possible miss and prepare for a second shot. But this is another topic to discuss in the scope of trading strategy without stop-loss orders.

TOP 5 skills of a profitable FOREX trader

Most of beginners lose their first investment due to very common mistakes. This post is dedicated to the main directions, that every beginner should work in, developing skills which can help to become profitable in financial markets. These ideas come from the experience, most of these rules must be executed on daily basis. It’s also very important to make the analysis of daily trading, underlying main reasons of possible losses happened. Such a habit could help to avoid the same mistakes in the future, which is the main purpose of learning.

Psychology.

It is the main direction of beginner’s work, it does not have to be on the last place of the list, as many educational courses indicate. “If you cannot control your emotions, you cannot control your money”. Warren Buffett.

Two common features of human being have the most impact on your daily trading results: FEAR and GREED. Fear has different options like ‘fear of missing out’, when traders have a good analysis but open positions too early; and ‘fear to pull the trigger’, when the situation with the analysis is the same but there is no enough willing to make the decision. Greed makes you running for more profits after having first successful deals, and you jump into overtrading or forget about risk management rules.

Traders should not fight with the emotional features of human being, it is impossible. The best way is to CHANGE them with some more useful features. For example, I use logic to deal with my fears. I’m asking several questions to myself before opening any position. Instead of being greedy, I’m trying to be thankful to the market for giving me a profitable possibility.

Think big.

I know it’s not easy to put yourself in a shoes of a hedge-fund money manager, which operates billions of dollars. Especially if your account is small. But I ask myself couple of simple questions before entering the market: “What would I do if I was at such position? Is the current price of an asset attractive enough for me to buy/sell? Or should I wait for a better price?”

Most beginners are like a crowd of small animals, they have the same emotional guidance to run in the same direction. Big market players set traps to catch as many of them as it is possible. Remember couple simple rules: You make profits when someone loses. Buy when there blood in the streets and sell to the sound of trumpets.

Simple analysis.

Traders should avoid overthinking when they analyse the market conditions before entering. This leads them to a point when they trick themselves and get into own trap of complication. Most of the profitable positions have simple explanations. For example, you determine a long-term trend on bigger timeframe, wait for a retracement and join the party. Of course, fundamental and technical aspects have to be taken in count, together with money management rules.

Usually it happens like this. Technical picture draws some setup, fundamental event plays role of a trigger to start the technical setup workout. Traders need to be on the right side of the market and this is exactly the main purpose of your analysis.

Timing.

Let’s say you’re in the market. You have convinced yourself to buy/sell an asset. You have several fundamental and technical reasons behind this decision. All you need is just wait until the price will reach your target. You can close your position if something changes especially on the fundamental front, like a force-majeure or any unpredictable event. But if the environment remained the same, why would you close your position too early?

Profitable math is very simple. Minimize your losses and maximize your profits. Sometimes all you need is just to be patient enough and control your emotions. However, in case if you were looking for a reversal, and the position you entered continues to move in the same direction during a very short period of time like 15-30 minutes, you should admit your mistake and close it. Cause waiting too long could make you stuck with a lose.

Strategy.

Always remember about your goals. Why are you here? Are you intended to have fun or gamble and become addicted? So why are you crying about your losses in this case? Or do you want to make profits? How much and how long? What is the amount you can afford yourself to invest?

Any success must be planned.

EUR resistance before ECB.

The strength of EUR is determined not only by the weakness of USD, but also by traditional political and economical stability of the European Union. Low unemployment, strong wage growth and consumption, sustainable manufacturing production and export together with easy access to financial credit market at accommodative low interest rates, makes Eurozone very attractive for foreign investors from all over the world, including Asian and Middle East rich regions. These capital flows create an additional demand for EUR not only versus the USD, but also supporting cross rates like EUR/JPY, EUR/CHF, EUR/NZD, etc.

This past week, Eurozone positive economical reports were released: November Trade Balance; German, Italian and Eurozone CPI; EU current account. EUR/USD, as the most heavy trading volume currency pair, gained 0.19%, testing 3-year high rates on past Wednesday. The pair closed the third trading week in 2018 above significant technical and psychological level of 1.2220, showing a potential trend direction for whole year ahead.

Such a comparatively slow appreciation of the currency versus the greenback, was related to the upcoming important political decision in Germany, the biggest economy in Eurozone. This Sunday vote will determine the fate of the government, which still has not been created after October Parliament elections. In case if Social Democrats will approve Grand Coalition with Angela Merkel government, EUR/USD could continue bullish trend. But if the politicians will fail to finalize negotiations, there could be a negative impact for the pair, creating additional uncertainty for upcoming months.

Next week’s economic calendar is packed with important reports and events. Main focus is ZEW survey and IFO report, but traders and investors will wait for European Central Bank interest rate decision on Thursday, followed by ECB President Mario Draghi press-conference. On one side, the market players noticed a tweak from the regulator about possible tightening decision in “early 2018”, much earlier than was widely expected previously. On the other side, there could be a concern, expressed by ECB officials, about rapid EUR appreciation since the last meeting. Export-oriented economies like Germany might have additional competition pressure because of currency gaining strength.

Cable's fall like a rock or rocket skyhigh?

British pound was one of the fastest growing currencies this past week, gaining 1.58% versus U.S. Dollar. Last time when we’ve seen the sterling above 1.3900, was the Brexit vote day in June 2016. On the fundamental front, except the USD weakness, analysts underline potential agreements between UK and EU for ‘softer’ divorce deal. This outcome of the historical decision could help British economy to avoid aftershocks and uncertainty, creating additional demand the currency, which has been undervalued during last 18 month.
Economical reports were mixed last week though: strong CPI in line with the expectations at 3.0% YoY in December, stronger-than-expected PPI, and disappointing Retail Sales declining 1.5%, the largest drop in 7 months. Next week direction will have an impact from Unemployment and Earnings figures and Q4 GDP report.

Trading sterling assets is traditionally lucrative, with the proper risk management due to high volatility. Most of the last week’s profits came from GBP/USD, GBP/JPY and GBP/NZD pairs. Potential technical retracement is likely, which should give traders a chance to consider re-entering to long positions, following the long-term uptrend.