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 normal. The dollar index remains in the sideways MT and the consolidation continues to play out. As mentioned, we are at an inflection point in the USD. Rate hike expectations for 2019 are being adjusted downwards. This is reflected in the bond markets with 10-year yields falling. The FOMC meet next on the 19th December and this is a live meeting with a rate hike expected. NFP on Friday came in weak with both the headline number and wage growth missing estimates. On the trade front, the CFO of the Chinese communications company Huiwei was arrested on behalf of the US in Canada for violating sanctions with Iran. This is not great for China/US relations. Last week at the G20 summit they did agree to a 90-day trade truce, but there are a lot of conflicting headlines about what was said. I hold the view that progress will be limited. Stock market volatility remains high but the risk-off in stocks has not translated to consistent appreciation of the USD as it normally does. CPI and retail sales are upcoming. Overall, I continue to favor USD weakness from these levels and am building into longer-term USD short positions.
- Wait GBP/USD. – MT is sideways normal. On Tuesday there is a parliament vote on Prime Minister May’s Brexit plan, although there is some talk the vote could be delayed in order to seek some extra concessions from the EU. Note that the market is pricing in the government losing the vote so we may not see much of a fall if it does. Conversely if there is a surprise victory then you would imagine the pound will appreciate a fair bit. If it is lost then the composition of vote will have some significance. Technically, we have a busted breakout of key support so there is an opportunity for a bounce from these levels.
- Wait USD/JPY. – MT is sideways normal. Given the falling stock prices and the weakening US yields you might expect USD to be lower. If bond yields and stocks continue to fall we can expect the pair to play catch-up. Selling a break through 112.00 into a bear MT looks like a good option.
- Wait AUD/USD. – MT is sideways normal. After a period of AUD out performance, we go the rejection of 0.73 that we discussed in last weeks report. The catalyst was poor GDP numbers out of Australia. The situation was not helped by risk-off in stocks and concern around US/China trade. Look for a move toward 0.7050.
- Wait EUR/USD. – MT is sideways normal. The EUR continues to consolidate after rejecting 1.1300. There is positive talk around a resolution to the Italian budget. The ECB is expected to end asset purchases this week, but will likely reiterate that monetary policy will remain accommodative. Data has not been great of the EU and continues to be the weak point. Look for a break above 1.1500 to get long.
- Buy NZD/USD. Trend – MT is bull normal. There is a little bit of topping action in the kiwi, but the pair is holding onto the bull MT. Cross rate demand for kiwi on AUDNZD will be helping. There was the first positive dairy auction (up 2.2%) in some months. There is some thought that government spending will prop up the economy in 2019, as will the easing in mortgage lending restrictions. Continue to buy, but do be cautious from these levels.
- Sell USD/CHF. Trend – MT bear normal. CHF continues to attract safehaven flows with a number of global stock markets in weekly bear MT’s and volatility in US stocks. Look to sell.
- Wait or sell USD/CAD. Reversal – MT is bull normal. A bearish hammer and subsequent bearish engulfing candle has formed off the key 1.34 figure. This type of price action can be expected after an important level like this is taken out. I do see this as a selling opportunity. OPEC have agreed to a production cut which should support the price of oil (which has sold off 35% in recent times). Canada had a record job number on Friday (the largest increase since 1976) with +94K v. 10k expected. The BOC was dovish last week and rate hike expectations for Jan have fallen from around 70% to 25% according to Bloomberg. With this jobs number and a potentially higher oil price the BOC may be keen to reassess. Look to sell.
- Wait EUR/GBP. – MT is sideways normal. Volatility remains high and we can expect the pair to be driven by Brexit news. Tread carefully.
- Sell EUR/CHF. Trend – MT is bear normal. Continue to sell.
- Wait AUD/JPY. – MT is sideways normal. Wait.
- Wait NZD/JPY. – MT is sideways normal. Wait.
- Wait GBP/JPY. – MT is sideways volatile. Wait.
- Wait EUR/JPY. – MT is sideways quiet. Wait.
- Sell CAD/JPY. Trend – MT is bear normal. Look to sell, low conviction.
- Wait CHF/JPY. Trend – MT is sideways normal. Wait.
- Sell GBP/NZD. – MT is bear normal. Continue to sell.
- Sell EUR/NZD. Trend – MT is bear normal. Continue to sell, but watch out for a reversal.
- Sell AUD/NZD. Trend – MT is bear normal. Continue to sell.
- Wait EUR/AUD. – MT is sideways normal. Wait.
- Wait GBP/AUD. – MT is bear volatile. Wait.
- Wait AUD/CAD. – MT is bull volatile. Wait.
- Wait GBP/CAD. – MT is sideways normal. Wait.
- Buy EUR/CAD. Trend – MT is bull normal. Continue to buy.
- Buy NZD/CAD. – MT is bull normal. Continue to buy.
- Wait GBP/CHF. – MT is sideways normal. Wait.
- Sell CAD/CHF. Trend – MT is bear normal. Continue to sell.
- Wait NZD/CHF. – MT is sideways normal. Wait.
- Wait AUD/CHF. – MT is sideways normal. Wait.
- Sell USDSGD. Trend – MT is bear normal. Look to sell.
- Sell USDCNH. Trend – MT is bear normal. Look to sell.
- Buy Gold. Trend – MT is bull normal. Look to buy.
- Sell Oil. Trend – MT is bear normal. Continue to sell.
- Wait S&P 500. – MT is sideways volatile. Wait
- Sell DAX. Trend – MT is bear normal. Look to sell.
- Wait Nikkei. – MT is sideways normal. Wait.
- Buy T-Notes. Trend – MT is bull normal. Continue to buy.
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(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.