Note that this is my current view, but if market conditions change my view can change too. Generally I will trade in alignment with what I have noted here, though I will wait for a set-up before I enter. I base my view on technical and fundamental information. This is my beliefs and you are welcome to have opposite ones. Having a plan is more important than the actual direction for me.
- Wait DXY – MT is sideways volatile. The big news of course is that Donald Trump will be the next president of the United States of America and that Republicans control the administration, senate and house of representatives (meaning Trump can get his policies approved). The markets response to Trumps victory was like Brexit on steroids, a sharp sell off in equities followed by an even sharper recovery (the post Brexit recovery took days, the Trump one took hours). Since then we have then seen the emergence of dollar strength. This is on the back of three things: 1.The continued divergence in monetary policy between the US vs. Europe and Japan as rates should be hiked by the Fed in December with more to follow in 2017. 2. Trumps policies are seen as broadly supportive of growth, such as tax cuts and fiscal stimulus. 3. Strengthening US bond yields. Of course the picture is not all rosy with all the old risks on the horizon, plus a few more now (such as Trumps personality). I do anticipate the dollar strength to continue for now. I also anticipate that what Trump says or does will have a greater impact on markets than previous presidents, so we can expect volatility. Technically the DXY remains within the broad structure we have been tracking here and we can expect to 100 then higher.
- Buy GBP/USD. Trend– MT is bull normal. One thing that both the Trump victory and Brexit have perhaps shown (so far) is that the negative consequences are not likely to be as great as the media portrays them to be. We can all too easy get caught up in the rhetoric of fear that the media puts out in support of the status quo establishment, but in reality there are a mix of good and bad outcomes. We have also seen that in the news flow from the UK where things have continued to tick along. So while I do expect the market to still react negatively to news around Brexit, the contrarian in me see’s a long-term buying opportunity in the GBP (though I prefer vs. the EUR, rather than vs the USD). For the coming week, we remain in a bull normal MT so continue to buy GBPUSD.
- Wait USD/JPY. – MT is sideways normal. After a bearish initial response to Trump leading in the election polls, the pair recovered strongly, thanks in part to Trumps acceptance speech, which the market liked. We now have broken into a bull normal MT on both daily and weekly charts. Look to buy.
- Wait AUD/USD. – MT is sideways normal. We remain within the weekly sideways quiet MT, and last week rejected the highs on the back of the Trump victory. This is despite strong gains in Iron Ore and Copper, a bullish stock market, and the RBA outlining a neutral stance. We have almost broken out into a bear MT on daily charts, but given the bigger picture I prefer to wait for a confirmed break of 0.7450 to sell.
- Wait EUR/USD. – MT is sideways volatile. One thing the Trump victory does is highlight the strength of anti-establishment sentiment around the globe. This is highly likely to spill over into the Euro-zone, which will spell trouble for the single currency. At the very least it should keep the ECB in a dovish stance. From a macro point a trump victory could be the catalyst for the next leg down, given both the political risks on the horizon, monetary policy divergence and out-performance of the US economy due to tax cuts and fiscal stimulus. Weekly charts have turned bearish, and we are sitting right at key support. Trade a downside break this week. Long-term here is an idea:
- Wait NZD/USD. – MT is sideways volatile. A Trump victory followed by a rate cut and jawboning by the RBNZ has seen the pair fall sharply. The news is not all bad though, with the RBNZ sounding positive about the economy. One to watch for now
- Wait USD/CHF. – MT is sideways volatile. The SNB continue to struggle to hold back the tide of CHF appreciation with EURCHF pressuring lows. Wait on this pair for now, but I like to sell CHF when we get risk-off.
- Buy USD/CAD. Trend – MT is bull normal. A Trump victory is negative CAD and Oil remains pressured. Continue to buy.
- Sell EUR/GBP. Trend – MT is bear normal. There is a growing sentiment that that Europe will face it’s own share of political risks over the next couple of years. Additionally, my belief is that in the long-term a Brexit won’t have the negative consequences that tend to be espoused in the media. Look to sell for a long-term move lower:
- Sell EUR/CHF. Trend – MT is bear normal. Continue to sell, transitioning into a weekly bear MT.
- Wait AUD/JPY. – MT is sideways extreme. Wait.
- Wait NZD/JPY. – MT is sideways extreme. Wait.
- Wait GBP/JPY. Trend – MT is bull fast. Look to buy.
- Wait EUR/JPY. – MT is sideways normal. Wait.
- Sell CAD/JPY. Trend – MT is bear normal. Look to sell.
- Buy CHF/JPY. Trend – MT is bull normal. Continue to buy.
- Buy GBP/NZD. – MT is bull fast. Look to buy.
- Wait EUR/NZD. – MT is sideways volatile. Wait.
- Wait AUD/NZD. – MT is sideways volatile. Wait.
- Wait EUR/AUD. – MT is sideways extreme. Wait.
- Buy GBP/AUD. Trend – MT is bull normal. Continue to buy.
- Buy AUD/CAD. Trend– MT is bull normal. Continue to buy but careful of topping action here.
- Buy GBP/CAD. Trend – MT is bull normal. Continue to buy.
- Wait EUR/CAD. – MT is sideways extreme. Wait.
- Wait NZD/CAD. – MT is bull volatile. Wait.
- Buy GBP/CHF. – MT is bull normal. Look to buy.
- Wait CAD/CHF. – MT is sideways extreme. Wait.
- Wait NZD/CHF. – MT is sideways volatile. Wait.
- Wait AUD/CHF. – MT is sideways extreme. Wait.
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Economic calendar for the week ahead:
(MT = Market Type: Click for more information on market types.)
Trend: Market is trending in the direction I have listed and I expect it to continue.
Reversal: I am looking for a reversal against the current trend.
Breakout: The currency pair is breaking out of a range.
About the Author
Sam Eder is a currency trader and author of the Definitive Guide to Developing a Winning Forex Trading System and the Advanced Forex Course for Smart Traders (get free access). He is the owner of www.fxrenew.com a provider of Forex signals from ex-bank and hedge fund traders (get a free trial). If you like Sam’s writing you can subscribe to his newsletter.
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