The Weekly Update: Brexit EU Summit and USD Strategy

Key EU Summit

EU Summit is due to take place on 19 – 20 October where a draft regarding the brexit is expected to be released. Speculations that EU is willing to agree to a 2-year transition period where the UK will still have access to the single market after completing its exit from the EU.

As we updated last week on Thursday we were planning to long GBP following the corrective weakness at the daily close but as the speculations on the transition deal gained ground GBP spiked higher against a basket of currencies, which significantly widened the required stop and forced us to remain on hold.

The UK has already began preparing for a ‘no-deal’ scenario, which if materializes is likely to be at the end of the year. The aim of these maneuvers is to apply pressure on the EU to make progress on the brexit negotiations.

Although the UK CPI is likely to impact GBP the EU summit is currently the key event this week. The second key event this week is Canada Consumer Price Index (CPI, due Friday). The Bank of Canada (BOC) tied future rate hikes to economic data. The CPI may trigger a fairly strong reaction across CAD pairs and crosses.

Due to the EU summit we may witness some volatility in the Foreign Exchange (Forex) market in the second half of the week.

USD Strategies

We mentioned USDCHF last week for some time as well as EURUSD. We have been rather cautious and waited for the weekly close for an additional confirmation.

EURUSD Daily Chart

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The Weekly Update: Brexit EU Summit and USD Strategy

EURUSD Daily Chart 15/10/17

USDCHF Weekly Chart

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The Weekly Update: Brexit EU Summit and USD Strategy

USDCHF Weekly Chart 15/10/17

USDCHF Signal Strategy

The recent weekly close may constitute as a re-test of the breached resistance. Re-tests often reduce the possibility of false breakouts. It is quite challenging to determine what may trigger the anticipated gains as there are multiple scenarios in which USDCHF may correct higher. If we exclude USD, CHF may weaken during risk appetite modes as we have seen after the French elections.

EURUSD Signal Strategy

We have been tracking the top Head-And-Shoulders (H&S) for some time. We were waiting for a daily close at 1.1880 which did not materialize. Once EURUSD posts a daily close below 1.1695 it may affirm a medium-term downtrend for the pair.

Initiating a short trade in EURUSD means incurring a potential drawdown of approximately +60 pips and we must also be aware of stop hunting operations as we suspect many stops are layered above 1.1880. We suspect Catalonia may be the trigger for potential weakness, the alternative is the ECB monetary policy.

As we are holding a long GBPUSD position (which may still correct higher even if EURUSD retraces lower due to the EU summit later this week) we prefer USDCHF over EURUSD.

Regarding the Canadian Dollar, we are monitoring CADJPY but it may take time for an entry to materialize. We are aware the cross is within a near proximity to its weekly support, we are unconvinced it will hold but as noted earlier we are waiting for an entry.

USDCHF Trade Alert

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The Weekly Update: Brexit EU Summit and USD Strategy

USDCHF Weekly Chart II 15/10/17

USDCHF long at market price (ask 0.9755)
Take profit: 0.9960
Protective stop: 0.9653
Risk Ratio (RR): 1 : 2.0 (approx.)
Estimated duration: 21 days (approx.)

Price range: Relevant as long as the price is below 0.9775

Note: The potential drawdown is a re-test of 0.9700. This is not the optimal risk ratio but we are still opting for the trade due to the positive interest at the rollover which may compensate.

17/10/17 UPDATE: USDCHF is trading at 0.9782 at the time of this writing, we are closing 20% of the long trade at market.

GBPNZD Trade Alert

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The Weekly Update: Brexit EU Summit and USD Strategy

GBPNZD Weekly Chart 17/10/17

GBPNZD long at market price (ask 1.8390)
Take profit: 1.8890
Protective stop: 1.8194
Risk Ratio (RR): 1 : 2.4 (approx.)
Estimated duration: 10 days (approx.)

Price range: Relevant as long as the price is below 1.8445

Note: The potential drawdown is a re-test of 1.8295. By the book it may take longer to acquire the target but we will not allow the trade to float in the market for some time as NZD is still supported in the medium-term. We can also note the potential for some gains in NZDUSD but our main focus is on GBP.

UK data on Wednesday and Thursday may trigger some volatility in GBP pairs and crosses but China GDP (due tomorrow during the Asian session) is one of the key figures as it may affect the commodity currencies (AUD, NZD and CAD).

It was a fairly tough decision but we decided to opt for GBPNZD. This is a weekly entry, the key support level we are relying on is 1.8310.

GBPNZD is an extremely volatile cross.

18/10/17 UPDATE: The announcement that is due from New Zealand may trigger significant volatility in NZD pairs and crosses. We noted that we are focusing mainly on GBP and not NZD,

This is another tough decision we have to make as the entry is still supported but we decided to close GBPNZD long trade at market price (1.8464). We were looking for a higher price in GBPNZD prior to the daily close and we are unconvinced it will materialize. As New Zealand First announced they will partner wit Labour NZD tanked against a basket of currencies including against GBP.

Please click on the chart to enlarge:

Sterling Kiwi Weekly Chart 22 October 2017

GBPNZD Weekly Chart 22/07/17

Nevertheless we had no choice but to exit the trade as we were not targeting NZD as its imminent trend was unclear.

20/10/17 UPDATE: This was a fairly tough decision as we the entry is technically supported but we still cannot determine how the market will react to Spain’s actions against Catalonia. Most of the reaction was limited to the IBEX35 at the time of this writing.

Please click on the chart to enlarge:

Dollar Swiss Daily Chart 20 October 2017

USDCHF Daily Chart 20/10/17

The main risk is safe-haven flows into CHF, which if materializes means EURUSD may gap lower with USDCHF. We will have to make tough decisions in the market, we are closing USDCHF long trade at market price (0.9836).


AS THE OBJECTIVE OF THE INTRADAY STRATEGY HAS BEEN MET IT IS NOW ACCESSIBLE TO ALL TRADERS


The Weekly Update: Brexit EU Summit and USD Strategy

The Weekly Update: Brexit EU Summit and USD Strategy