While I still think that EUROPE could have a big say in the FX market moves as I look ahead in the short and medium terms, it is the USD that has caught my eye more vis-à-vis its reactions to events whether economic or geopolitical.
For some time, I have spoken about market complacency, more often than not attached to stock market traders than anything, but of late there is a feeling of, I don't know whether to call it complacency or apathy to some market events.
A classic point of reference was last Friday’s NFP data. You knew ahead of time that they were going to be blowout numbers as TRUMP tweeted ahead of the release that he was looking forward to seeing them. Had the data been poor it would have been one of the classic own goals in politics the world would have ever seen. It was obvious to most, that he knew the numbers.
223,000 new jobs, average hourlies to 0.3% and a new low in the unemployment rate to 3.8%; by any stretch these are great numbers. They also, in my opinion nailed on another 0.25% rate increase by the FED in June.
I expected the USD (DXY) to end the week approaching or above recent highs around 95.00, instead it struggled throughout the day and finished the week with a rather awkward looking INVERTED HAMMER candle.
Technically, it would lead us to believe there may be some USD downside potential on the horizon.
This does not sit well with my medium and longer-term MACRO / FUNDAMENTAL views. Yes, I know that some world hotspots have cooled, and this should be USD positive, but I can understand some reasons as to why the USD (DXY) may be uncertain. (When I can see arguments on both sides that I can mentally validate, I usually pull back my trading activity, and WEEKLY FX PREMIUM subscribers would have already noted this, initially this was primarily due to the nature of last week containing NFP, but I did not add more positions, whether LIVE or by LIMIT ORDER after the data).
I believe that the failed NAFTA negotiations and the EUROPEAN UNION tariffs are weighing in.
TRUMP has given maybe an olive branch to the Canadians stating that instead of NAFTA he would favour bi-lateral agreements separately with Canada and Mexico. This may suit Ottawa more than trying to square peg a round hole with Mexico involved, but having said that, listening to Prime Minister Trudeau over the past 48 hours it may be a hardline U.S. stance that is blocking a NAFTA resolve so a bi lateral agreement may be no easier!
The EUROPEAN UNION story, frankly on this one on what I can see and read it may be that the EU that needs to remove their rose-tinted glasses. Now there may be other aspects, and there probably are, but the high profile 10% on U.S. imported vehicles in comparison to 2.5% going into the U.S. looks to me that TRUMP has a fair appeal to fair trade. On first glance it does look rather one-sided. There may be more to this that I am not privy to, but no-one is leaping forward with anything to dampen down this headline grabber.
The major head-line grabber for me though is that TRUMP’S approach on raw rather than finished goods will harm the U.S. economy. If he was on finished goods only I can understand his position better, but raw materials only inflate assembly costs to final price of say a car. Who pays the higher price?
Will another policy walk-back begin?
Obviously, EUROZONE concerns could flare up at the drop of a hat via the political uncertainties in both ITALY and SPAIN and this in my opinion will keep the single currency pressured.
On one hand I am saying technically the USD could weaken, then I am writing that the EUR will not strengthen too far because of political uncertainty.
Add to this the up-coming OPEC meeting where it is likely production increases will get a green light. We also have an initial meeting between NORTH KOREA and THE U.S. in Singapore on June 12th. We also have ongoing issues vis-a-vis trade issues with the U.S. and CHINA.
What am I saying?
CONSOLIDATION... I think we are potentially heading into news on both sides that could just create sideways consolidation in the DXY and the EUR/USD, which are so tightly linked.
OIL is the joker. It all depends how much the OIL production shift is to see if this would tip the scales one way or another. My thoughts are that OPEC does NOT want to rock the boat here, they will just signal a production increase to cover the lost production on the open market via VENEZUALA and IRAN.
This CONSOLIDATION would in my opinion see the DXY in a 92.00-95.00 range and this would keep the EUR/USD in a broader 1.1500 -1.2000. I believe it will take something big to shift these ranges for a while in any case.
- FX - FORWARDS, BACKWARDS & SIDEWAYS:
1.1. THIS WEEKS TRADE INFORMATION: ECONOMIC DATA:
NOTE: Only the items that interest me are listed here.
1.2. THIS WEEKS TRADE INFORMATION: GEOPOLITICAL EVENTS:
1.3. BIAS CHART - USD MAJORS SUPPORT and RESISTANCE:
1.4. USD INDEX (DXY) OVERVIEW – MY THOUGHTS:
Looking at the chart below: -
- We appear to have peaked at 95.00.
- Despite strong NFP data the DXY failed to capture new highs following the data release and completed the week with a rather miserable looking INVERTED HAMMER candle, which would technically indicate some downside momentum.
- I believe that with so much geopolitical RISK weighing in on the USD that we could see a period of DXY consolidation between the 92.25 lows and 95.00 highs.
Time will tell what the next move will be for the USD, but without doubt there is much to consider. Technically we should move lower and whilst I would not disagree with that view my thoughts are just that we consolidate.
1.5. USD MAJORS - TRADING CHARTS:
Geopolitical events are starting to take their toll on the single currency. ITALY, SPAIN, GERMANY and BREXIT all have serious ramifications for not just the EUROZONE but also the EUROPEAN UNION.
From my perspective this is simply a SELL THE RIPS trade.
We are out of the channel but moves higher are currently being held at 1.1715.
1.1750 would be a great price and above it if you are lucky, the way things are at the moment would seem like a bargain. 1.1950 looks a great as well and my preferred entry level but I think given all matters at the moment maybe a dream!
No change in thoughts from last week.
My DOUBLE TOP pattern is in play as you can see on the chart below. The 200 DAY SMA (Green line) should now act as resistance and the downside move should see an attack on 1.3300 and if the double top plays out the measured move is to 1.3030.
My chart may look a little complicated but entry levels at the DOUBLE TOP breakdown (1.3700), the 200 SMA (1.3580) and at previous support (1.3450) all offer reasonable entry levels.
A nice HAMMER to end the week. There is a bit of AUD news this week, not least Trade Balance data but also the RBA Rate Statement. The clever move may be to see the RBA out of the way before making any commitments with the AUD although whilst I do expect FIREWORKS from Philip Lowe, RBA Governor it may be time to signal updated and different forward guidance.
We need to see 0.7650 broken to see the bulls resume control, without this and with USD strength in the markets my bias is still lower albeit I think we are just range bound at the moment.
Two nothing candles after a BIG BULL one to end the week.
My FUNDAMENTAL views with this currency pair is that it should be moving lower, however, recent moves question this.
On a point of notice for the first time in about 4 years I no longer hold AUD/NZD positions. I had an entire broker account set up for this pair alone! I am on a wait and see with the AUD to decide on that specific pair.
With regards to the NZD/USD, after a large Adrian Orr, RBNZ Governor inspired move lower we are now pulling back. The 38% retracement of that move (in BURGUNDY) is 0.7050. Let’s see do we fall back at that point, or, what?
NAFTA is off.
Trudeau is flexing his muscles and TRUMP is now talking in terms of a bi lateral agreement to replace NAFTA. What does it all mean? Feck all I think!
From a technical viewpoint the USD/CAD is consolidating nicely into the triangle pattern on the chart below.
To add some spice, the BOC changed its “verbal’s” at last week’s Interest Rate Statement and it was read HAWKISH. The markets are now pricing in a July rate increase.
Looks like a nice potential BULL FLAG being formed.
The issue with this pair is that even with the EUR/USD falling and this pair having an inverse relationship to the EUR/USD, that is NOT in play at the moment. All of the geopolitical issues are weighing in on the CHF as a FLIGHT TO SAFETY trade.
Given its bullish run of late a good pullback would not go amiss given the longer-term opportunities that possibly lie with this pair should the EUR/USD continue to fall.
I closed a short trade with this pair just prior to NFP last Friday.
My thoughts are still the same at the moment, that is to sell into RIPS. Maybe using the trend line as a barrier is one opportunity, and, the 200 DAY SMA is another area that should have interest.
This is a hard pair to gauge at the moment we also have a BOJ meeting soon. Geopolitical events, Flights to Safety, Gold, Bonds and OIL all weigh in on the pair to larger or lesser extents.
- THE WEEKLY FX PREMIUM TRADING SUMMARY:
2.1. WEEKLY FX PREMIUM PERFORMANCE HIGHLIGHTS:
MAY 2018: 897 net profitable pips
2018 TOTAL: 6,412 net profitable pips
2.2. WEEKLY FX PREMIUM PERFORMANCE SUMMARY:
(Incorporating the last 5 WEEKLY FX PREMIUM TRADES)
You can get on board and join my FX PREMIUM subscribers and subscribe to the “10,000 pips a year” group from as little as CAD$10 for the first 10 days and then CAD$150.00 per month, currency conversions for CAD$150 are roughly as follows: -
- GBP £90 per month
- EUR €100 per month
- USD $120 per month
- JPY 12,700 per month
- AUD $150 per month
Go to my websitewww.weeklyfxdrivethru.comfor more details under the TAB – “SUBSCRIBE”.
- TRADER EDUCATION:
No item this week.
- WEEKLY FX PREMIUM SUBSCRIBERS ONLY:
4.1. TRADING REVIEW:
4.2. OPEN TRADES... HOW WILL I TRADE THIS WEEK:
4.3. SENTIMENT,FUNDAMENTAL & MACRO THOUGHTS:
4.3.1. OVERVIEW OF MY MACRO THOUGHTS & IDEAS:
4.3.2. THE MARKET SENTIMENT CHART:
4.4. CURRENT LIVE TRADES & LIMIT ORDERS:
4.4.1. CURRENT LIVE TRADES:
4.4.2. CURRENT LIMIT ORDER TRADES:
4.5. FX BROKER NEWS:
- THE FINAL SHOT:
Nothing more to add here, I have said enough except,
Always remember longevity in Forex trading can only be achieved through trading with good RISK and MONEY MANAGEMENT, and above all set your position sizes in accordance with the size of your account and allow for some flexibility.
The Pip Accumulator
BLOG VERSION: #284 FREE NEWSLETTER
DATE: 3rdJune 2018