Fed Powell USD Impact Strategies and Signals

Jackson Hole Summary

At Jackson Hole Fed Powell affirmed that gradual rate hikes benefit the US economy. He also suggested the gradual rate hikes may near the end, which triggered USD weakness against a basket of currencies. In our prior weekly forex signals we noted the risk of USD weakness, which is why we exited our short trade in EURUSD.

The news that Scott Morrison is the new Australian Prime Minister was behind AUD recent strength against a basket of currencies. Similar to EURUSD, we were concerned by the steep fall in AUDUSD. As the selling pressure was heavier than we have anticipated it increased the risk for a moderate recovery.

From the latest brexit developments it appears if a deal is struck with the EU it may around November, 2018. The UK is already preparing for exiting the EU without a trade deal.

Signals Setups

EURUSD Weekly Chart

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EURUSD Weekly Chart 26/08/18

EURUSD Daily Chart

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EURUSD Daily Chart 26/08/18

EURUSD weekly chart displays the dip that may provide a short entry in the currency pair. The price may still trade higher (possibly as high as 1.1745) before correcting lower. Initiating a trade at current levels may require to absorb some retracement should it materialize.

From the weekly chart’s angle the dip may be sufficient, however, we would like to minimize the potential drawdown and may wait for a firmer indication the corrective weakness is imminent.

EURUSD daily chart displays a reversed Head-And-Shoulders (H&S), the price was unable to close above the neckline. In an event fof a daily close above the neckline we may see further gains in EURUSD, which is why we will wait for a firmer entry. We are unlikely to attempt a long trade in EURUSD unless the price manages to break above 1.1765.

At the time of this writing we are uncertain whether EURUSD potential weakness may stem from a weak Euro or a firm US Dollar.

GBPCAD Daily Chart

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GBPCAD Daily Chart 26/08/18

GBPCAD is painting reversed H&S on the daily chart. The immediate risk we are noting is the shadow of the right-hand shoulder. There is a risk the price may temporarily spike towards 1.6650 before reversing higher. Once the neckline (in orange) is taken out the price may maintain its gains, targeting 1.7080.

EURAUD Daily Chart

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EURAUD Daily Chart 26/08/18

EURAUD Daily Chart 26/08/18

This is a fairly classic breakout strategy. EURAUD broke above the resistance, which was successfully tested. From the daily chart the entry appears to be fairly decent until shorter time frames are explored.

EURAUD 60min Chart

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EURAUD 60min Chart 26/08/18

EURAUD painted top H&S on the hourly chart where neckline gave way. It may suggest further weakness towards 1.5795. Due to the most recent hourly range it dented the possibility of further weakness but the risk remains.

Out of all the signals we presented we are currently leaning towards EURAUD but we are not ruling opting for GBPCAD in addition to EURAUD.

We will issue an update after the opening of the Forex market once the spreads stabilize.

EURAUD Trade Alert

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EURAUD Daily Chart II 26/08/18

EURAUD long at market price (ask 1.5858)
Take profit: 1.6095
Protective stop: 1.5739
Risk Ratio (RR): 1: 2.0 (approx.)
Estimated duration: 14 days

Relevant as long as EURAUD is below 1.5890

Note: The potential drawdown is a re-test of 1.5795.

GBPCAD Trade Alert

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GBPCAD Daily Chart II 26/08/18

GBPCAD long at market price (ask 1.6732)
Take profit: 1.7030
Protective stop: 1.6590
Risk Ratio (RR): 1: 2.1 (approx.)
Estimated duration: 21 days

Relevant as long as GBPCAD is below 1.6760

Note: The potential drawdown in GBPCAD is higher than EURAUD due to the shadow we discussed in the weekly update. It is also important to note that it will increase the negative swap that is incurred at the rollover.

The potential drawdown is a re-test of 1.6625, we are aware GBPCAD spread has yet to fully stabilize.

27/08/18 SIGNAL UPDATE: EURAUD is trading at 1.5895 at the time of this writing, we are closing 10% of the long trad at market price. The partial closure is intended to reduce the holding costs of the long trade, we will tighten the protective stop after the daily close.

27/08/18 II SIGNAL UPDATE: We are shifting EURAUD protective stop to 1.5800. We are still providing some room for retracements.

28/08/18 SIGNAL UPDATE: There are indications for corrective weakness in EURAUD. While we often absorb such retracements we are not keen on absorbing deep retracements.

The potential corrective weakness in EURAUD is 1.5845. There is no guarantee such a retracement will materialize but we are unwilling to absorb it. The risk for such weakness has been triggered from negative divergence on the 4hr chart.

Had we witnessed stronger gains in today’s session the potential retracement may have been minor. In addition, EURUSD may have provided a short entry but we must wait until we near the weekly close. At the time of this writing it appears to be related to a firm USD but we require more time to re-assess our stance.

Please click on the chart to enlarge:

EURAUD Daily Chart 28/08/18

EURAUD Daily Chart 28/08/18

We are closing EURAUD long trade at market price (bid 1.5937).


We would like to add that EURAUD did not retrace lower and maintained its uptrend. We planned to re-enter the trade following some retracement, which was insufficient:

EURAUD Daily Chart 31/08/18

EURAUD Daily Chart 31/08/18


28/08/18 SIGNAL UPDATE II: We did see some CAD strength on expectations Canada will reach a deal with the US (NAFTA). However, what prevented GBPCAD from correcting higher following CAD strength were remarks from Theresa May regarding brexit, saying it will not be ‘the end of the world’ if Britain exits the EU without a deal.

These remarks triggered GBP weakness, which pressed GBPCAD to its current levels. The majority of Theresa May’s remarks regarding brexit weakened GBP against a basket of currencies.

As we updated yesterday we did not expect the trade agreement between the US and Mexico to affect CAD. We are shifting GBPCAD protective stop to 1.6560, which is a +30 pips adjustment.

GBPCAD may be heading towards 1.6590. We are providing more room for the trade in an event it will be short-lived if materialized. We will begin liquidating the trade should the cross remain below 1.6700 within the next 24 hours.

29/08/18 SIGNAL UPDATE:  GBPCAD is trading at 1.6816 at the time of this writing, we are closing 20% of the long trade at market price.

29/08/18 SIGNAL UPDATE II: We are shifting GBPCAD protective stop to 1.6774. We will be relatively close to the market but due to the strength of today’s gains some retracement is often seen.

The reason why we are remaining in the trade as brexit is major event, we cannot rule out another leg higher but we are reluctant to provide much room for corrective weakness.

Only in an event we will be too close to the market prior to Canada GDP (12:30pm GMT, Thursday) we will take action.

USDCAD Trade Alert

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USDCAD Daily Chart 29/08/18

Canada’s deadline to reach an agreement with the United States (NAFTA) is Friday. As we updated yesterday we are uncertain Canada will in fact seal a deal with the US.

We would have preferred a slightly larger dip in USDCAD, which we would have tightened the protective stop. We are opting for USDCAD (daily entry) as we have the ability to tighten the protective stop in GBPCAD.

USDCAD long at market price (ask 1.2912)
Take profit: 1.3195
Protective stop: 1.2775
Risk Ratio (RR): 1: 2.0 (approx.)
Estimated duration: 7 days

Relevant as long as USDCAD is below 1.2945

Note: The take profit is slightly higher in an event of significant volatility on Friday. As the dip was minimal the price may trade lower before trading higher.

We must highlight another leg lower is not guaranteed but it must be factored into the protective stop, which is the protective stop is larger than technically required.

This is a daily entry, despite the 7-days estimated duration (which is based on the daily chart) the trade may very well end within the next 48 hours. Canada’s GDP is due tomorrow.The potential drawdown is a re-test of 1.2810.

30/08/18 SIGNAL UPDATE: We decided to reduce our exposure to CAD ahead of the weekly close. We may decide to re-enter next week depending on the outcome of the NAFTA negotiations between the US and Canada.

Please click on the chart to enlarge:

GBPCAD Daily Chart 30/08/`8

GBPCAD Daily Chart 30/08/`8

It is a tough decision as we are closing the trade to cut our exposure to CAD. GBPCAD is trading at 1.6888 at the time of this writing, we are closing the long trade at market price.

30/08/18 SIGNAL UPDATE: We are shifting USDCAD protective stop to 1.2924. There indications for some retracement, we do not wish to be to close to the market as we may witness a firm USD within the next several weeks, we may have a stronger confirmation at the weekly close.

It appears USD is benefiting from safe-haven flows due to the US – China trade tension. There were reports earlier that suggested President Trump may impose new tariffs on USD 200 billion of Chinese imports as soon as next week, possibly 25%.

We are fairly displeased with EURUSD weakness in today’s session as it forces us to wait for the weekly close to consider a short trade in the currency pair. We cannot initiate a short trade at current levels prior to the weekly close due to the potential drawdown.

In an event there is irregular volatility in tomorrow’s session we may not wait for the weekly close. Should we be too close to the market (USDCAD) prior to the weekly close we may temporarily widen the protective stop until the reopening of the Foreign Exchange market.

31/08/18 SIGNAL UPDATE: USDCAD is trading at 1.3035 at the time of this writing, we are closing 20% of the long trade at market price.

31/08/18 SIGNAL UPDATE II: As we anticipated, there is no agreement between the US and Canada at the time of this writing, confirmed by the Canadian Foreign Minister. It does not necessarily mean to say there will not be a trade deal but CAD is weakening as a result.

We have layered a higher take profit in anticipation for a more significant reaction. We are uncertain whether the US will impose new tariffs on Canada as President Trump recently said an agreement may be made beyond Friday (today).

Please click on the chart to enlarge:

USDCAD Daily Chart 31/08/18

USDCAD Daily Chart 31/08/18

As a result we decided to close USDCAD long trade at market price (1.3079).

All of the above trade updates on this page were issued via email to our members.