MIB40 and EURUSD Trading Strategy: The Italian Referendum December 2016

The Italian referendum is scheduled to be held on 4 December, 2016. The referendum was proposed back in April 2014, it has taken over two years to set the referendum date in Italy. The goal of the referendum is to provide to Government with more power, which requires a constitutional reform. The constitutional reforms including lower the number of members in the Senate from 315 to 100, the lower house will have most of the power, stripping the Senate from the ability to veto. The most discussed reform however is related to general elections. Renzi proposes that the political party that garners of 40% of the votes will instantly receive 55% of the seats. If no party has 40% of the votes in the first round, the 2 major parties will head for a second round where the victorious party will enjoy 55% of the seats, thus preventing a hung parliament and reassures political stability.

The Five Star movement, which enjoys increasing popularity since June 2016 criticize the proposed constitutional reforms. The latest polls are suggesting the YES and NO camp are neck-to-neck although there is still plenty of time the the referendum. Renzi initially stated he will step down if the referendum is rejected but it appears he experienced a change of heart on the matter and affirmed he will not resign if the referendum is rejected.

Fitch credit rating agency amended Italy’s outlook to negative due to the recent political instability. Based on past referendums Italy is not too fond of passing constitutional changes. Although Renzi assured no early elections will take place (next elections are due in 2018), if the polls continue to show a tie between the camps Renzi may offer early elections if the referendum is passed on 4 December, 2016. It is a well-known political tool that Renzi may exercise to secure a sufficient majority for the upcoming referendum. The European Central Bank (ECB) may also step in to Renzi’s rescue and extend the current asset purchasing program in its next meeting (expectations are for the announcement to be made in December), which may sustain the Italian market.

MIB40 Trading Strategy

As we have mentioned in recent months, the Italian index (MIB40) is positioned for a significant recovery, which is surprisingly inline with Euro Dollar.

MIB40 DEC16 Monthly Chart

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MIB40 Monthly Chart 23/10/16

MIB40 Monthly Chart 23/10/16

MIB40 Weekly Chart

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MIB40 Weekly Chart 23/10/16

MIB40 Weekly Chart 23/10/16

The MIB40 has painted reversed H&S on the monthly chart. Opting for a long trade that is solely based on the monthly chart requires a stop that exceeds +3,000 points, which is out of the question. The MIB40 is an extremely volatile index that may easily trade between 200 – 500 points per day. The weekly chart provides 2 possible entries. A weekly close above 17,200 may affirm further gains towards 18,600, or, a retracement towards 15,700 (approx.) may be sufficient to exercise dip-buying strategies in the index. We are able to extract a daily entry in the MIB40 upon a daily re-test of 16,600 (approx.). however, we prefer a break above 17,200.

Following a breakout we will be required to wait for a re-test to affirm this is indeed a successful breakout unless we can back up the resumption of the uptrend following the breakout (of 17,200) via intraday time frames. As opposed to our forex signals, this trade alert is likely to be issued during the European session but may be able to determine the timing of the signal once the market provides us with an entry. If our projections are inline with the market this may easily evolve into the trade of the year. As this is a volatile index (especially the gaps) the stop’s size is likely to be hundreds of points.

MIB40 broker higher during a classic Santa Clause rally rather than the Italian referendum. We chose not to initiate a trade in the index.

EURUSD Trading Strategy

We have noted a remarkably similar pattern in Euro Dollar Monthly Chart.

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EURUSD Monthly Chart 23/10/16

EURUSD Monthly Chart 23/10/16

Similar to MIB40, EURUSD monthly chart is painting reversed H&S on the monthly chart. We have been tracking tracking the pattern for some time. As we near the monthly close we would prefer EURUSD to test 1.0745 or even close below 1.0745. There are numerous possibilities for the trigger including the Fed and the ECB. If Mario Draghi extends the QE it may be EUR positive as we have seen in the past and trigger heavy buying in the Italy’s stock index. If the Fed does not hike or hike rates but warns no further hikes will be seen for some time the US Dollar may be heavily sold in the market.

Euro Dollar is likely to require a monthly close unless heavy selling is noted this week. The MIB40 may provide an entry in several days or several weeks. We released those strategies upfront so when an entry is provided we will attempt to capitalize over the strategy we presented here. Updates on EURUSD and MIB40 will be issued via email when found appropriate.

EURUSD Trade Alert

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EURUSD 4hr Chart 26/10/16

EURUSD 4hr Chart 26/10/16

EURUSD long at market price (1.0906)
Take profit: 1.1185
Protective stop: 1.0875
Risk Ratio (RR): 1 : 9 (approx.)
Estimated duration: 25 days

Note: We decided to use the initial monthly target for EURUSD. We have marked the key levels on the chart that will be updated on the website. If we notice EURUSD is stalling near the key levels we will consider exiting the trade.

28/10/16 UPDATE: The recent USD weakness was triggered by the FBI announcing it will investigate the new emails that are related to Hillary Clinton. 1.0980 is one of the key levels we mentioned in the strategy that if the price will stall around we will exit the trade.

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EURUSD 4hr Chart 28/10/16

EURUSD 4hr Chart 28/10/16

This is a tough decision to be made but we are closing EURUSD long trade at market price (1.0983) as we stated we would so in the strategy. It was a difficult decision but it had to be made.

We will attempt to re-enter EURUSD at or as we near the monthly close.

EURUSD Trade Alert

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EURUSD Weekly Chart 31/10/16

EURUSD Weekly Chart 31/10/16

EURUSD recent gains are the beginning of what we anticipate to be a monthly reversal. Due to the recent gains we are forced to take the long trade at a relatively high price. If we wait for a retracement and it will not appear we will no longer be able to enter the trade until a new entry materializes. Traders were expecting USD buying at the London fix (end of month) based on bank models. The banks were wrong, which created strong USD weakness.

EURUSD long at market price (1.0977)
Take profit: 1.1515
Protective stop: 1.0768
Risk Ratio (RR): 1 : 2.4 (approx.)
Estimated duration: 40 days

01/11/16 UPDATE: What we have seen in today’s session were safe-haven flows as the market begins pricing-in the probability of Trump wining the elections as stated in the strategy. Safe-haven flows were noted in JPY, CHF and Gold. Due to the gap higher in European indices we decided to wait for a higher price, which did not materialize. We will be looking for a new entry in European indices, Gold and JPY. The crosses, EURAUD and EURNZD often rise in such scenarios but we must have a technical entry in these crosses. We are unlikely to long CHF as there are risks for the SNB to intervene.

This is what appears to be the beginning of a monthly reversal as stated in the strategy. By the book we should not shift the stop but we wish to cut the potential drawdown. We are shifting EURUSD stop to 1.0815 and close 10% of the long trade at market price (1.0554).

02/11/16 UPDATE:  EURUSD is trading at 1.1101 at the time of this writing.

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EURUSD Weekly Chart 02/11/16

EURUSD Weekly Chart 02/11/16

We are closing 10% of the long trade at market price.

03/11/16 UPDATE: EURUSD is trading at 1.1105 at the time of this writing. We are closing 10% of the long trade at market price and shift the protective stop to 1.0840.

07/11/16 UPDATE: We are shifting EURUSD stop to the entry (1.0977).

09/11/16 UPDATE: Following the US elections votes counting Euro Dollar enjoyed moderate gains. EURUSD is trading at 1.1555 at the time of this writing.

Please click on the chart to enlarge:

EURUSD Weekly Chart 09/11/16

EURUSD Weekly Chart 09/11/16

We are closing 10% of the long trade at market price.

09/11/16 UPDATE: EURUSD peaked at 1.1295 before paring its gains in the market, triggering the protective stop at the entry. We have ended the trade with a decent profit.

USDJPY Trade Alert

106.05 is the nearest resistance. The latter monthly resistance is seen at 108.50, however, we are not layering a 300 pips stop. We are planning to use a tighter stop (intraday).This is a monthly entry that we have used to establish our prior trade in USDJPY. The recent gains that were seen after Trump won the US elections do not invalidate the monthly entry.

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USDJPY 4hr Chart 09/11/16

USDJPY 4hr Chart 09/11/16

USDJPY short at market price (105.80)
Take profit: 103.40
Protective stop: 106.78
Risk Ratio (RR): 1 : 2.5 (approx.)
Estimated duration: 9 days

Note: USDJPY may trade slightly above 106.05, however, the drawdown is expected to be minimal. Trading above 106.05 is not a guaranteed scenario.

25/11/16 UPDATE: USDJPY triggered the protective stop loss order as the Bank of Japan commenced its operations to curb the yield curve. We were aware the operations began but did not anticipate it will trigger such a rally in USDJPY and other JPY pairs and crosses.

EURUSD Trade Alert

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EURUSD Weekly Chart 25/11/16

EURUSD Weekly Chart 25/11/16

EURUSD long at market price (1.0602)
Take profit: 1.0890
Protective stop: 1.0505
Risk Ratio (RR): 1 : 3 (approx.)
Estimated duration: 10 days

Note: This trade is based on the monthly chart. There are elements of risk entering prior to the monthly close but there are early indications EURUSD is due to correct higher.

28/11/16 UPDATE: EURUSD was taken based on the monthly chart and timed via intraday time frames. If EURUSD fails to close above 1.0655 in the next 15 minutes (approx.) there is a fair possibility it may dip to 1.0578 (approx.). As we did not enter at the monthly close we may take action within the next 20 minutes. If we time our entry via intraday time frames we have to pay attention to intraday time frames. We usually do not issue trade updates during the European session but we may take action at the 4hr close.

28/11/16 UPDATE II: EURUSD is trading at 1.0634 at the time of this writing. We are closing 20% of the long trade at market price and shift the protective stop to to 1.0598. If the stop is triggered we will consider re-entering at the monthly close.

(We were asked via email why don’t we exit EURUSD and re-enter at a lower price. There is a minor support at 1.0608 that could support the intraday weakness if tested. We are uncertain whether it will hold but as the support is present we chose not to exit the trade. We could have layered the stop below 1.0578 but we know we took the trade prior to the monthly close and prefer limiting our exposure in EURUSD. )

28/11/16 UPDATE III: EURUSD triggered the protective stop that was shifted to 1.0598. We will wait for the monthly close to consider a re-entry. Euro Dollar peaked at 1.0684 in Monday’s session (at the time of this writing) but was unable to cling on to its gains.

AUDCHF Trade Alert

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MIB40 and EURUSD Trading Strategy: The Italian Referendum December 2016

AUDCHF 4hr Chart 27/12/16

AUDCHF long at market price (0.7386)
Take profit: 0.7470
Protective stop: 0.7360
Risk Ratio (RR): 1 : 3 (approx.)
Estimated duration: 3 days

28/12/16 UPDATE: AUDCHF is trading at 0.7402 at the time of this writing. The cross is testing the neckline of the reversed H&S.

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MIB40 and EURUSD Trading Strategy: The Italian Referendum December 2016

AUDCHF 4hr Chart 28/12/16

We are closing 20% of the long trade at market price and shift the protective stop to the entry. This was a 4hr entry, which is why we must adjust the stop based on the 4hr chart rather than the daily close.

28/12/16 UPDATE: AUDCHF triggered the protective stop at the entry, we chose not to re-enter the market.

NZDJPY Trade Alert

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MIB40 and EURUSD Trading Strategy: The Italian Referendum December 2016

NZDJPY 4hr Chart 28/12/16

NZDJPY long at market price (80.99)
Take profit: 81.90
Protective stop: 80.64
Risk Ratio (RR): 1 : 2.5 (approx.)
Estimated duration: 48 hours

Note: This is a 4hr entry. The 21MA (in blue) concretes the support.

29/12/16 UPDATE: As we do not wish to roll any trades over the weekend due to the holiday on Monday we are taking action as we near the 4hr close.

Please click on the chart to enlarge:

MIB40 and EURUSD Trading Strategy: The Italian Referendum December 2016

NZDJPY 4hr Chart 29/12/16

NZDJPY is trading at 81.12 at the time of this writing. We are closing 30% of the long trade at market price and shift the protective stop to 80.84. By shifting the stop we are providing room for a minor retracement and downsizing our exposure.

29/12/16 UPDATE II: As we near the daily close we are shifting the stop to 80.70 as the spread tends to widen. We will re-adjust the stop after the daily close once the spread is stable. As we are unlikely to roll the trade over the weekend we are shifting the take profit order to 81.70 (the stop was shifted back to 80.84. the take profit order remained at 81.70).

30/12/16 UPDATE: NZDJPY corrected higher and is struggling with the neckline at the time of this writing prior to the 4hr close.

Please click on the chart to enlarge:

MIB40 and EURUSD Trading Strategy: The Italian Referendum December 2016

NZDJPY 4hr Chart 30/12/16

We are closing 20% of the long trade at market price (81.30) and shift the protective stop to 81.01.

30/12/16 UPDATE II: NZDJPY is trading at 81.28 at the time of this writing, we are closing 10% of the long trade at market price and shift the protective stop to 81.12.

30/12/16 UPDATE III: NZDJPY triggered the protective stop that was shifted above the entry to 81.12.

MIB40 and EURUSD Trading Strategy: The Italian Referendum December 2016

As all trades are closed this page can now be accessed by all traders. Open trades and relevant intraday strategies are restricted to members only. We have been providing trade alerts in the Forex market since May 2014.
MIB40 and EURUSD Trading Strategy: The Italian Referendum December 2016
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MIB40 and EURUSD Trading Strategy: The Italian Referendum December 2016