Latest FX market analysis and trade views

Tuesday, May 15, 2018

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.

Thursday, April 12, 2018

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.

Sunday, February 25, 2018

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.

Sunday, February 18, 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.

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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.

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.

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.

If you are interested to get instant daily market analysis and trading signals in real time conditions, please contact author: lucas.tyler.ssfx@gmail.comWhatsApp group: https://chat.whatsapp.com/EGGPSVGdu1tA6t3xkFd9OgTelegram channel: https://t.me/freshtradeviewFacebook group: https://www.facebook.com/groups/183205868960490