The Weekly Update: Analysing the Chaos in the Forex Market

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Mario Draghi and JPY

Mario Draghi threats of negative deposit rate triggered heavy selling across EUR pairs and crosses in the Forex market. Although we do not expect the European Central Bank (ECB) to take any action until the Spanish elections the market did not share our views. Focusing on the upcoming, we have been stating for quite some time the Bank of Japan (BOJ) may expand its Quantiative Easing (QE) program by up to 10 trillion yen and at the time of this writing it appears the market has yet to fully price-in the probability of such actions by the BOJ.  What we have also noted is that Dollar yen weekly chart is currently not in line with our JPY projections.

USDJPY Weekly Chart

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The technical pattern will probably force some algorithms to load short USDJPY trades into the market. If this is a technical distortion as technical analysis is not bulletproof as you may already know, many traders may be taken off guard should the BOJ easing resume or at least express its intention to do so. We have explored other JPY pairs and crosses and we are receiving mixed signals from the charts. We are aware the US Advance Gross Domestic Product (GDP) is due on Thursday ahead of the BOJ monetary policy meeting.

Due to the technical end of the market we are on hold in regards to JPY pairs and crosses until further clarity is provided. If USDJPY gaps higher at the opening of Forex market we ma tempt a short trade but with a very tight stop that we may choose not to hold onto when we near BOJ monetary policy meeting.

EURAUD Technical Analysis

Last week we attempted to long AUDUSD but after posting moderate gains following the People’s Bank of China (PBOC) to slash rates the price was unable to sustain the gains and triggered the stop that we shifted to the entry after realizing partials in a fair profit.  Although this may appear to negate our prior strategy for AUDUSD it appears EURAUD is due for corrective gains.  We have spotted the possibility for a bullish flag on the daily chart that may also be seen in the weekly chart.

EURAUD Daily Chart

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EURAUD Trading Strategy

Although we are not displaying the 4hr chart we made note of the Hammer that was painted on Friday that may suggest a bottom has been made. We will set the take profit a demanded by the chart but will constantly monitor to chart to ensure there are not temporary gains we are anticipating as we are also relying on the 4hr hammer. The Australian CPI will probably be the trigger in EURAUD but if the PBOC resumes its Yuan devaluation in the Forex market strong gains may be seen in EURAUD.

EURAUD target can be placed at the upper resistance of the flag or  above the 2015 high while anticipating a bullish breakout will be affirmed. It will take an extraordinary event to lift EURAUD above its 2015 high and although we are not ruling it out we prefer a more conservative target at the time of this writing, 1.5990. Please note negative interest will be seen at the rollover but we are not expecting to hold onto the for more than 10 days.

If EURAUD gaps higher or the opening price is below 1.5182 we may have to revise our entry. A higher price will significantly increase the size of the stop and dent the risk reward ratio while a break below 1.5182 may negate our strategy for the cross.

The trade alert’s details will be sent to you via an email after the opening of the Forex market.

EURAUD Trade Alert Details

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EURAUD long at market price: 1.5238
Take profit: 1.5990
Protective stop: 1.5073
Risk Ratio (RR): 1 : 4.5 (approx.)
Estimated duration: 10 days

27/10/15 UPDATE: EURAUD is trading at 1.5285 at the time of this writing. AUDUSD is kept below 0.7250 due to a large option that is set to expire later on today (over $1.0 billion).

Please click on the chart to enlarge:

We are closing 20% of the long trade at market price.

27/10/15 UPDATE II: EURAUD is trading at 1.5328 at the time of this writing.

Please click on the chart to enlarge:

We are closing 10% of the long trade at market price and shift the protective stop to the entry and patiently wait for the Australian CPI.

28/10/15 UPDATE: EURAUD is trading at 1.5487. We are closing 30% of the long trade at market price.

Please click on the chart to enlarge:

We are shifting the protective stop to 1.5300. As we suspected, the Australian CPI triggered moderate gains in EURAUD.

28/10/15 UPDATE II: EURAUD is trading at 1.5549 at the time of this writing.

Please click on the chart to enlarge:

We are closing 20% of the long trade at market price. We will wait for the London close to shift the protective stop ahead of the FOMC statement.

28/10/15 UPDATE III: We are shifting the protective stop to 1.5414 ahead of the FOMC statement.

28/10/15 UPDATE IV: EURAUD posted a low of 1.5414 before reversing higher. We have ended the trade with a decent profit and minimal negative interest at the rollover.

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Last Updated on October 28, 2015