The Weekly Update: AUDUSD and GBPUSD, Our Prime Targets

Central Banks Policies

We are in the midst of a tightening cycle by some of the key central banks, which is having a significant impact on global markets. The Fed has already expressed its willingness to normalize the balance sheet by the end of the year, the European Central Bank (ECB) is expected to reduce its QE by the end of the year with a possible deposit rate hike.

The Bank of Canada (BOC) joined the tightening cycle by hiking rates, which may have some impact on CAD in the medium-term. The Bank of England (BOE) affirmed it will be discussing rate hikes in its future meetings due to the rising inflation, which is affecting GBP as we updated in numerous occasions via emails.

The tightening phase is likely to continue dominating global markets until the end of 2017 where only the brexit negotiations may have the ability to mutate this phase. In recent months all our trades in GBP were long positions as we are expecting GBP to continue rising in the FX markets.

As we noted in our prior updates we cannot long GBP via inflated stops and allow the trades to float for several months as it is not our approach to the market although some traders may prefer such a strategy. We have missed an entry in GBPCHF as discussed last week as well as GBPNZD and AUDNZD.

Once we miss an entry (such as GBPCHF) we do not attempt to force a trade in the market as on most occasions it is entangled with risks regardless of the outcome. We will however discuss GBPNZD and other GBP pairs and crosses.

GBPNZD 4r Chart

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The Weekly Update: AUDUSD and GBPUSD, Our Prime Targets

GBPNZD 4hr Chart 16/07/17

We could have chosen to the daily but we believe the 4hr chart emphasizes the range in the cross we have been discussions for some time. The black arrow points to a stop hunt that took place in NZD pairs and crosses that we managed to survive. Another stop hunt was conducted when GBPNZD approached 1.7660, which was the bottom of the current range.

We believe many algorithms initiated long trades in the cross with the protective stop layered beneath the range. The stop hunt cleared the majority of the stops but the more protected stops that were layered beneath 1.7510 remained in the market. Day trading would not have required to layer a stop below 1.7510 so we suspect most of the stops that were cleared were by day trading algorithms.

The reason why we did not initiate a long trade following the stop hunt is because the price did not rebound higher but stalled around 1.7660. This was a warning signal the price may attempt to trigger the heavier stops that were layered beneath 1.7510 and required a hefty stop, which we refused to implement.

If we were to enter GBPNZD we would need to see a break to the upside with a re-test of the breached resistance level. The price may break higher without a re-test but we cannot enter GBPNZD until these conditions are met as the alternative is to implement a large stop (400 – 500 pips) and risk floating in a drawdown while paying interest on at the rollover.

GBPAUD Weekly Chart

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The Weekly Update: AUDUSD and GBPUSD, Our Prime Targets

GBPAUD Weekly Chart 16/07/17

The reason why we elaborated on GBPNZD as it to further understand GBPAUD. There may be a long entry in GBPAUD weekly chart and the 4hr chart also suggests further gains may be seen. However, the risk is not the entry but the potential drawdown.

As this is the second re-test in the weekly chart numerous stops are layered below 1.6710 to 1.6310. As the entry is likely to be picked up by algorithms we may witness a bearish spike towards 1.6310 if not lower which must be corrected by the end of the week. Whether it materializes or not it must be anticipated, which means the required stop is around +600 pips, which we find excessively large.

We can risk a +200 pips stop but the odds of the market triggering the order are relatively high. There is no short entry, we simply anticipating a scenario which we must do in every trade. We did break below the range but we are unconvinced this is a successful breakout that could have reduced the possibility of a spike lower in GBPAUD.

In regards to other pairs, we cannot force our way into the market. It may take more time until we have some retracements. We have noted 2 potential entries, however, we are unlikely to enter the market today unless a significant bearish gap takes place at the opening.

GBPUSD Weekly Chart

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The Weekly Update: AUDUSD and GBPUSD, Our Prime Targets

GBPUSD Weekly Chart 16/07/17

AUDUSD Weekly Chart

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The Weekly Update: AUDUSD and GBPUSD, Our Prime Targets

AUDUSD Weekly Chart 16/07/17

GBPUSD Strategy

We have noted the lower re-test a few weeks ago but as GBP began ranging we avoided the entry. We were looking for the price to close at or near the support, which did not materialize and the price kicked higher. Once the gains began we would not enter the market as it widens the stop, which is why we have avoided GBPUSD for a few weeks.

The recent gains managed to break above the neckline, however, we require some retracement in order to enter. If we attempt entering at market price we risk incurring +120 pips drawdown (approx.) and remaining in a drawdown until August. GBPUSD is not GBPNZD. If there is a retracement this week or a gap lower at the opening we may enter the market. If the price maintains its uptrend without correcting lower there is little we can do.

We did mention GBPUSD is targeting 1.3800 at the time of this writing, however, it would mean holding the trade for possibly 4 months.

AUDUSD Strategy

Very similar to GBPUSD, we have also noted the breakout in AUDUSD. As opposed to GBPUSD this is a standard breakout. We will require a some retracement in order to enter, which may materialize any time this week. If no retracement takes places we will have to dismiss the entry.

We do not require a weekly close and it is possible the price in both GBPUSD and AUDUSD will trade below the support lines during the week. We may also see a breakout in EURCHF but we need the breakout to first materialize. We cannot enter any of JPY pairs and crosses at the time of this writing.

It is possible that NZD weakness may stem from central banks’ monetary policies. As the RBNZ affirmed it is unlikely to hike rates, should the BOE and ECB begin tightening it may press NZD lower until the end of the year. We are writing this with great caution as both of above central banks have yet to publish their monetary policies.

We will wait for the markets to open but unless a significant gap takes place we may enter the market at anytime this week, possibly even as soon as Monday.

AUDUSD Strategy Update

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The Weekly Update: AUDUSD and GBPUSD, Our Prime Targets

AUDUSD Weekly Chart 18/07/17

We were waiting for a lower price in order to initiate a long trade in AUDUSD. The price posted a minor retracement before kicking higher over +120 pips. We have anticipated the resumption of the uptrend but we required a deeper retracement.

Had we opted for the trade without such a retracement the potential drawdown would have been over +100 pips with a fairly large stop. We will make no attempts to join AUDUSD uptrend as the entry was missed.

GBPUSD Trade Alert

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The Weekly Update: AUDUSD and GBPUSD, Our Prime Targets

GBPUSD Weekly Chart 18/07/17

GBPUSD long at market price (1.3030)
Take profit: 1.3420
Protective stop: 1.2875
Risk Ratio (RR): 1 : 2.5 (approx.)
Estimated duration: 30 days (approx.)

Note: We can still incur a +80 pips drawdown but the price is within the region we would have initiated the long trade. 1.2970 was the area we were focusing on, however, we have to highlight we cannot determine if the price will indeed reach that level.

GBPAUD Trade Alert

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The Weekly Update: AUDUSD and GBPUSD, Our Prime Targets

GBPAUD Weekly Chart 18/07/17

GBPAUD long at market price (1.6413)
Take profit: 1.6970
Protective stop: 1.6200
Risk Ratio (RR): 1 : 2.4 (approx.)
Estimated duration: 21 days (approx.)

Price range: Relevant as long as price is below 1.6480.

Note: We are unconvinced AUDUSD rally has ended and more gains may be seen. We are there fore expecting GBPAUD bullish correction to be as a result of a strong GBP.

Initiating this trade means we are completely exposed to GBP, which is a fairly risky maneuver but there early indications GBP bullish retracement may be imminent (within the next 24 hours). Another risk we are taking is initiating the trade prior to the weekly close, this is not GBPUSD.

The potential drawdown is a re-test of 1.6310.

18/07/17 UPDATE: GBPAUD is trading at 1.6471 at the time of this writing, we are closing 10% of the long trade at market price.

Please click on the chart to enlarge:

The Weekly Update: AUDUSD and GBPUSD, Our Prime Targets

GBPAUD Weekly Chart 18/07/17

The partial closure is intended to reduce the holding costs of the long trade and to somewhat reduce our exposure to GBP.

19/07/17 UPDATE: GBPUSD is locked in a range while AUDUSD corrected higher, which has pressed GBPAUD lower. Although this does not negate the entry in GBPAUD we closing 10% of the long trade at market price (1.6374) as a precaution.

24/07/17 UPDATE: We are shifting GBPAUD protective stop to 1.6150. It is a fairly large adjustment but it must be made.

30/07/17 UPDATE: Following the weekly close we are shifting GBPUSD protective stop to 1.2930.

01/08/17 UPDATE: GBPAUD is trading at 1.6571 at the time of this writing, we are closing 20% of the long trade at market price. GBPUSD is trading at 1.3204 at the time of this writing, we are closing 30% of the long trade at market price.

02/08/17 UPDATE: We are noting early indications for a bearish spike in GBP pairs and crosses. Although this is a weekly entry, if materializes it may mean witnessing a 100 – 150 pips spike lower before a resumption of the uptrend.

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The Weekly Update: AUDUSD and GBPUSD, Our Prime Targets

GBPAUD Weekly Chart 02/08/17

This means the trade may continue beyond our estimated duration and decided to close the long trade at market price (1.6600).

02/08/17 UPDATE II: The challenging part in GBPUSD is that the BOE monetary policy may trigger our take profit tomorrow from a fundamental angle. However, there are already warning signals we may witness some selling in tomorrow’s session from a technical angle.

By the book we are not meant to be paying attention to these signals as this is a weekly entry but it may mean witnessing a large dip in the open profit before a resumption of the uptrend.

We will have to see a daily close above or near 1.3270, which may weaken the warning signals we are seeing at the time of this writing, which we struggle to see happening.

Please click on the chart to enlarge:

The Weekly Update: AUDUSD and GBPUSD, Our Prime Targets

GBPUSD Weekly Chart 02/08/17

We can wait for the daily close but we adopting a tougher approach and close the long trade at market price (1.3227). It was a tough decision but it had to be made (we captured the screenshot of the weekly chart with a delay, which is why the chart is displaying a higher price).


AS ALL THE SIGNALS IN THIS PAGE ARE CLOSED THE STRATEGIES ARE NOW ACCESSIBLE TO ALL TRADERS



The Weekly Update: AUDUSD and GBPUSD, Our Prime Targets

The Weekly Update: AUDUSD and GBPUSD, Our Prime Targets

Last Updated on October 2, 2017