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.
- Sell DXY. – MT is bear normal. A minor double top and rejection of key resistance around the .98 figure has seen DXY shift into a bear MT. There should be more downside to come. If you recall, the main driver of the uptrend in USD was divergent monetary policy and economic performance. While the fat lady has not sung yet, this divergence is not as pronounced as it was. A simple glance at the bond market will tell you this. US yields have been plummeting and the market is pricing in three rate cuts this year. The caveat has been that the Federal Reserve has been stressing patience and there is a chance they don’t come to the party. Recent negative developments in international trade tensions and weaker US data have seen the Fed begin to murmur that perhaps there will be a cut – and soon. My thought is that the market is possibly over-shooting what the Fed will do, and that while we will have a cut or two, we perhaps won’t get a third. On the flip side of the coin, the counterparts are not performing that great either. So while we do have less divergence than before, it is likely US yields will remain appealing and economic performance will remain relatively strong. In the meantime, sentiment is clearly bearish USD, and positioning has been overbrought. This is suggestive of further USD selling in the week ahead, but we may well see buyers return around 0.96 or 0.95. I will be waiting until then to get long USD. If these levels get broken I will re-assess. Watch for inflation data this week and then the FOMC meeting on the 18/19 June.
- Wait GBP/USD. – MT is sideways normal. The temporary upside outlined in last weeks report has persisted and we are now in a sideways MT. Compared to other major pairs, the recovery has not been strong – but it has been enough to form a bullish engulfing weekly candle. Economic performance has been good and the BOE is one of the more hawkish central banks out there. Brexit concerns continue to hold the pair back with elections being held for May’s replacement. I would love to buy around 1.25 or 1.24 so will wait to see if those levels get taken out. Watch out for GDP data to be weaker and later in the week for Job numbers.
- Sell USD/JPY. – MT is bear normal. Despite a recovery in stocks, the pair is sitting at recent lows. Firstly, this does beg the question of why stocks are recovering given the trade tensions and if the hints of further easing by the Fed going to be enough to break though the triple top that is forming. Secondly, JPY strength is a reflection of the bond market and the fact that convergence probably benefits the negative rate currencies more than the others (given they have little room left to ease). For now, there is nothing to knock us out of the short call so keep selling.
- Sell AUD/USD. – MT is sideways normal. In a classic expression of buy the rumor and sell the fact, the pair rose after the RBA cut rates. Of course, USD weakness was a driver here. AUDUSD could be one of the better plays for USD bulls. Data has been poor and AUD is traditionally exposed to a weaker China. The topping on the cake is that the RBA has room to cut rates further. The consensus is that rates will be cut once more this year, but there is scope for another cut on top of that. So if the Fed cuts rates twice rather than three times and the RBA cuts rates three times rather than twice, we have a mis-pricing which could see the AUD drift lower. So this bounce to the key .70 figure looks like a selling opportunity to me.
- Buy EUR/USD. – MT is bull normal. The pair has formed a bottoming pattern and broken out into a bull MT. The ECB, while dovish, was not as dovish as expected by market participants. This combined with the perception that the Fed will cut rates has lead to a recovery in the pair. A long-term change in trend is not a done deal. As well as the reasons outlined above for DXY, economic performance in the EUR region is tepid and the area is exposed to political risk with Brexit and conflict with Italy over it’s budget deficit. My belief is that there will be a temporary rise in the the week ahead, but after that the pair will top out around 1.15 which will provide a selling opportunity.
- Buy NZD/USD. – MT is bull normal. The Kiwi was one of the strongest currency pairs in the past week. This was despite a further fall in milk prices. Better than expected trade data, no further rate cuts and a robust NZ stock market perhaps make the currency one of the more appealing options from these levels. There is no bottoming pattern in place on the charts so I am a bit undecided where the currency is going to head longer-term. I do think it is a buy this week though.
- Sell USD/CHF. – MT bear normal. The bear MT continues. A bit of caution needs to be had until the pair cleanly breaks support. Given all the risk-off concerns, selling CHF remains an appealing option.
- Sell USD/CAD. – MT is bear normal. As befitting such divergent fundamentals, USDCAD sold off aggressively to close the week. Poor employment data out of the US has contrasted with two months of very good numbers out of Canada. Yields spreads are well in favor of the CAD and do suggest the pair should be lower. Oil is struggling but some hope may be found, with OPEC holding course with their production cuts. I favor selling USDCAD in the week ahead. selling AUDCAD is also a good option.
- Buy EUR/GBP. – MT is bull normal. The trend is very strong in EURGBP. Sometimes on the crosses you can get these extended move. The first part of the move was on the back of GBP weakness. This next leg up will be on the back of EUR strength. There is not much resistance in the way. If we do get back to 0.91 I will be looking to short the pair.
- Sell EUR/CHF. – MT is bear normal. Watch for a bounce.
- Wait AUD/JPY. – MT is sideways quiet
- Wait NZD/JPY. – MT is sideways normal.
- Sell GBP/JPY. – MT is bear normal.
- Wait EUR/JPY. – MT is sideways normal.
- Sell CAD/JPY. – MT is sideways normal.
- Buy CHF/JPY. – MT is bull normal.
- Sell GBP/NZD. – MT is bear normal.
- Sell EUR/NZD. – MT is bear normal.
- Sell AUD/NZD. – MT is bear normal.
- Wait EUR/AUD. – MT is sideways quiet.
- Sell GBP/AUD. – MT is bear normal.
- Wait AUD/CAD. – MT is sideways normal.
- Sell GBP/CAD. – MT is bear normal.
- Wait EUR/CAD. – MT is sideways quiet.
- Wait NZD/CAD. – MT is sideways normal.
- Sell GBP/CHF. – MT is bear normal.
- Sell CAD/CHF. – MT is bear normal.
- Wait NZD/CHF. – MT is sideways quiet.
- Sell AUD/CHF. – MT is bear normal.
- Buy Gold. – MT is bull normal.
- Sell Oil. – MT is bear normal.
- Wait S&P 500. – MT is bear volatile.
- Wait DAX. – MT is sideways normal.
- Wait Nikkei. – MT is sideways normal.
- Buy T-Notes. – MT is bull normal.
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(MT = Market Type: Click for more information on market types.)
About the Author
Sam Eder is a currency trader and author of The Consistent Trader 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-industry traders (get a free trial). If you like Sam’s writing you can subscribe to his newsletter.