I plan my trading for the week ahead each weekend. Here are the Forex trading opportunities I will bestalking this week.
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 bear normal. We are sitting in the middle of the range and direction from here is a little unclear. The key stories in the market are the sell-off in stocks and the continued rise in US bonds. There was no real catalyst to last weeks large decline in stocks with rising bond yields and trade fears cited as the culprits. But this is not new and the correction does look technical in nature with a double top forming on the Dow. Falling stocks may (in the short-term) be seen as bearish USD in particular vs. the funding currencies of JPY and EUR. Although I am not that sure how EUR will ultimately respond as it’s reaction to risk-off has flip-flopped a lot of the last few years. On the other-hand rising bond yields does need to be ultimately seen as bullish USD as you can earn more by holding USD. Some market participants do suggest that rising yields have the potential to pressure the US economy. But lets face it, yields are still pretty low and its not like they are going to double from here even with the Fed raising rates. Higher rates actually help savers and banks too lets not forget. So I don’t think that rates where they are now or where they are projected to go will be too much of a hindrance. President Trump has been complaining about the Fed rising rates. If anything this will likely keep Fed officials on the hiking path as they will want to be seen as independent and not influenced by politics. On the China front, there is talk of the US treasury branding China a currency manipulator but it seems they will likely not do so. Overall, I’m a bit unclear on where we head right now, but long-term I maintain my bullish USD view, in particular as I don’t think we have seen peak divergence in economic performance and monetary policy yet.
- Wait GBP/USD. – MT is sideways normal. GBP continues to find support on confidence that a Brexit deal will be done. It’s a big week ahead with the EU summit. If no deal is done or if we get some brinkmanship filter through to the media then GBP will probably sell-off quite a bit. Conversely, if a deal is done then a large rise can be expected. A stop buy order above 1.3350 could be a good way to play this. I do have a bullish bias long-term on GBP but these types of situations can have a binary outcome (either large fall or rise) which makes it a bit difficult. Wait for now.
- Wait USD/JPY. – MT is sideways volatile. Unfortunately we fell about 50 pips short of my long-term objective at 115 before the change in risk sentiment saw the pair sell off relatively rapidly. We still may well get there given the trajectory of US rates. But the immediate picture is focused on stocks. If stocks continue to sell off next week we can expect USDJPY to continue to fall – and I think this will be one of the better plays in that scenario (rather than focusing on JPY vs. the crosses). Otherwise, if stocks recover, once the pair has bottomed out, we can look for another attempt at 115.
- Wait AUD/USD. – MT is bear normal. There is a minor double bottom in place on the AUD. This may be a bit surprising considering the equity rout, but it is a reminder that that interest rate dynamic has changed. AUD is no longer the premier carry trade in the majors. Technically, we can expect a bounce, although I do expect the price action to be mostly driven by the USD next week. USDCNH is also a factor, if it continues to recover (go down) then this could support the Aussie too. Data has been ok out of Australia but is not the driving factor.
- Sell EUR/USD. Trend – MT is bear normal. A minor double bottom has formed on EURUSD so while we are in a bear MT, I don’t suggest selling again until we get a clear sign the downtrend is about to resume. As a funding currency, the EUR’s response to the equity sell-off was a bit more muted than I would have expected. In saying that, there was follow through in the following day. The ECB has been a bit hawkish, but as of yet data has not been particularly supportive of their view. The Italian budget is still an issue with a draft being presented to the ECB this week. If they don’t like it then it could cause a bit of bearish sentiment. Look to sell on a resumption of the downtrend, otherwise 1.18 becomes the key shorting level again.
- Sell NZD/USD. Trend – MT is bear normal. Like the EUR, I don’t recommend shorting until we see a clear sign the downtrend is resuming. There has been some positive sentiment in NZ around a larger than expected budget surplus. But global factors should continue to dominate this trade. Note, there is a dairy trade auction this week. The recent trend in dairy prices has been poor.
- Buy USD/CHF. Trend – MT bull normal. Despite the sell-off in equities, USDCHF barely fell, which is a bit surprising given CHF’s typical safe haven status. If stocks hold up then there is a good opportunity for the pair to head back towards parity and beyond.
- Wait USD/CAD. – MT is sideways normal. Despite the new free trade agreement CAD has weakened. Note the double top in WTI Oil which is a bearish factor for CAD. Data has been mixed. We can expect CAD to remain range bound for now.
- Wait EUR/GBP. – MT is bear normal. The pair bounced over the last couple of days. A move back toward .8850 and subsequent bearish reversal pattern would provide a selling opportunity. See the risks noted above on my comment on GBPUSD.
Crosses
- Buy EUR/CHF. Trend – MT is bull normal. Continue to buy.
- Wait AUD/JPY. – MT is sideways volatile. Wait.
- Wait NZD/JPY. – MT is sideways volatile. Wait or contrarian buy.
- Wait GBP/JPY. – MT is sideways quiet. Wait.
- Sell EUR/JPY. Trend – MT is bear normal. Look to sell.
- Wait CAD/JPY. – MT is sideways volatile. Wait.
- Sell CHF/JPY. Trend – MT is bear normal. Look to sell.
- Buy GBP/NZD. Trend – MT is bull normal. Look to buy.
- Wait EUR/NZD. – MT is sideways normal. Wait.
- Wait AUD/NZD. – MT is sideways quiet. Wait.
- Wait EUR/AUD. – MT is sideways normal. Wait.
- Buy GBP/AUD. Trend – MT is bull normal. Look to buy.
- Wait AUD/CAD. – MT is bear volatile. Wait.
- Sell GBP/CAD. Reversal– MT is sideways volatile. Sell off the top of the range.
- Wait EUR/CAD. – MT is sideways volatile. Wait.
- Wait NZD/CAD. – MT is bear volatile. Wait.
- Buy GBP/CHF. Trend – MT is bull normal. Look to buy.
- Buy CAD/CHF. Trend – MT is bull normal. Continue to buy.
- Wait NZD/CHF. – MT is sideways normal. Wait.
- Wait AUD/CHF. – MT is sideways normal. Wait.
Other Markets
- Wait USDSGD. – MT is sideways volatile. Wait.
- Buy USDCNH. – MT is bull normal. Continue to buy.
- Buy Gold. Breakout – MT is bull normal. Look to buy.
- Wait Oil. – MT is bull volatile. Wait.
- Sell S&P 500. Trend – MT is bear normal. Look to sell.
- Sell DAX. Trend – MT is bear normal. Look to sell.
- Sell Nikkei. Trend – MT is bear normal. Look to sell.
- Sell T-Notes. Trend – MT is bear normal. Continue to sell.
View bank reports and fundamental analysis in the chatroom (members only)
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.