The Weekly Update: Analyzing Euro Dollar Recovery

FX Signals 17 June 2018

Last week the European Central Bank (ECB) confirmed its Quantitative Easing (QE) program will end at the end of 2018. In addition, the next rate hike may only take place in 2019. The news pressed the Euro lower against a basket of currencies.

Our EURJPY forex signal was positioned for EUR weakness, which we decided to close at approximately +155 pips. We noted bullish signals in EURUSD and EURCAD, we decided to remain on hold to re-assess the Euro against a basket of currencies following the weekly close.

President Trump imposed new tariffs on China, which retaliated and imposed new tariffs on US imports. The trade war between the countries has lead to heavy selling in crude oil and gold on Friday. There were reports on Friday the German government may collapse on immigration disagreements. At the time of this writing the German government stands, we should add that little reaction was seen on Friday to these reports.

The Bank of England (BOE) monetary policy is scheduled to take place on Thursday. There may be some  brexit-related news on Monday but the BOE monetary policy may have a significant impact on GBP. We noted some entries in GBP pairs and crosses, all entangled with some risks as we will shortly elaborate on.

GBPNZD Daily Chart

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GBPNZD Daily FX Chart 17/06/18

GBPNZD Daily Chart 17/06/18

The price range in GBPNZD may potentially lead to a bearish flag. In addition, the 21 Daily Moving Average (DMA, in purple) may cross the 200DMA (in orange), which did not take place since 2017. The risk for the technical signal is that the price can still kick higher.

If the weakness does not begin by Monday’s close the risk of drifting in a drawdown until Thursday (BOE monetary policy) may be substantial. We did note a potential entry in GBPAUD but the signal is GBPNZD is slightly firmer.

NZDUSD Daily Chart

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NZDUSD FX Daily Chart 17/06/18

NZDUSD Daily Chart 17/06/18

We noted NZDUSD to struggle to break above 0.7055. The move lower has painted the left-hand shoulder of a reversed H&S. Based on the last 2 trading sessions NZDUSD may still trade lower on Monday before reversing higher. If we do see some retracement in NZDUSD it may reflect in corrective gains in GBPNZD.

Further weakness in commodities may reflect in a weaker NZD, however, we are relying on the technical end of the market. Any reassurance that a trade war is not imminent may lift NZD higher.

EURUSD FX Signals

We noted 2 potential entries in the Euro, EURUSD and EURCAD.

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EURUSD FX Weekly Chart 17/06/18

EURUSD Weekly Chart 17/06/18

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EURCAD FX Daily Chart 17/06/18

EURCAD Daily Chart 17/06/18

EURUSD bullish signal was discussed in our prior forex strategies. Based on Euro Dollar weekly chart the price is expected to re-test 1.2070 and paint the right-hand shoulder of a top H&S. Although it is rare, if the price breaks under 1.1500 it may mark the right-hand shoulder, which may trigger heavier selling in EURUSD.

EURCAD provided a bullish signal last week, which we decided to dismiss due to the ECB monetary policy. The entry kicked into play, assisted by heavy selling in crude oil. The price has reached the neckline (1.5345). A daily close above the neckline may provide a long entry in the cross.

Aside the BOE monetary policy there are several key events this week. Central bank speakers on Wednesday may trigger some volatility in the FX markets. Canada Consumer Price Index (CPI) as well as OPEC meeting (both due on Friday) may inject volatility into CAD pairs and crosses.

For our forex signals this week we have several choices, we will make a final decision after the opening of the market.

GBPNZD Trade Alert

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GBPNZD Forex Signal 17 June 2018

GBPNZD FX Signal 17/06/18

GBPNZD short at market price (bid 1.9132)
Take profit: 1.8720
Protective stop: 1.9300
Risk Ratio (RR): 1: 2.5 (approx.)
Estimated duration: 14 days

Relevant as long as GBPNZD is above 1.9080

Note: This is a fairly tight stop given the volatility of the cross as some risks are taken. The potential drawdown is a re-test of 1.9190.

NZDUSD Trade Alert

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NZDUSD Forex Signal 17 June 2018

NZDUSD FX Signal 17/06/18

This was a fairly tough decision to make. The negative swap in EURUSD is somewhat soaked by GBPNZD, however, we need more evidence EURUSD volatility has increased. Due to the rate hike by the Fed the volatility in EURUSD may increase with time.

We decided to opt for NZDUSD. It will increase our exposure to NZD, however the protective stop for NZDUSD is tighter than EURUSD as it is a daily entry rather than a weekly entry and the negative swap is fairly minimal.

NZDUSD long at market price (ask 0.6940)
Take profit: 0.7075
Protective stop: 0.6888
Risk Ratio (RR): 1: 2.8 (approx.)
Estimated duration: 10 days

Relevant as long as NZDUSD is below 0.6950

Note: The potential drawdown is a re-test of 0.6915

19/06/18 UPDATE: NZDUSD triggered the protective stop following President Trump’s threats to slap China with new tariffs, estimated to be worth USD 200 billion. We are not re-entering the market.

EURUSD Trade Alert

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EURUSD FX Signal 19 June 2018

EURUSD Weekly Chart 19/06/18

EURUSD long at market price (ask 1.1557)
Take profit: 1.2050
Protective stop: 1.1396
Risk Ratio (RR): 1: 3.0 (approx.)
Estimated duration: 24 days

Relevant as long as EURUSD is below 1.1630

Note: The potential drawdown is a re-test of 1.1500. We gave ourselves more distance from the market in an event of a short-lived spike.

21/06/18 UPDATE: GBPNZD was trading around the entry prior to the BOE monetary policy. One additional member voted for a rate hike, which triggered a spike in GBP pairs and crosses.

GBPNZD triggered the protective stop, we are not re-entering the market.

24/06/18 UPDATE: As this is a weekly entry we cannot tighten the protective stop. This means we are willing to absorb any retracements in EURUSD. To maintain some form of risk of management we are closing 10% of the long trade at market price (1.1660).

01/07/18 UPDATE: Horst Seehofer wishes to resign, the CSU national group chief Alexander Dobrindt does not wish to accept the resignation. EURUSD has recovered its losses prior to the opening of the market.

Decided whether to remain or exit EURUSD is a fairly tough decision. From a technical angle the uptrend appears to be intact. The price may still re-test 1.5000 but there is a stronger case for further gains.

Please click on the chart to enlarge:

The Weekly Update: Analyzing Euro Dollar Recovery

EURUSD Weekly Chart 01/07/18

The main factor is the fundamental end of the market. Although the odds for the market re-testing 1.5000 are low we would rather not absorb it. Although it has been a difficult decision to make we are closing EURUSD long trade at market price (1.1665).

Note: The price in the chart is showing 1.1670 as the price snapped lower seconds before issuing the signal update.


AS THE OBJECTIVE OF THE STRATEGIES HAS BEEN MET THE ANALYSIS IS NOW ACCESSIBLE TO ALL TRADERS


The Weekly Update: Analyzing Euro Dollar Recovery

The Weekly Update: Analyzing Euro Dollar Recovery

Last Updated on July 12, 2018