The Weekly Update: Catalonia Calls for Referendum and USDTRY Analysis

Digital Derivatives MarketsResearch, Weekly Market Analysis

Weekly Market Analysis

We have our trades firmly in place ahead of a busy trading week. In our recent capital markets research, we have taken multiple trades in the Forex market as well we commodities, XAU/USD and crude oil. Our trading strategy for stocks in the banking sector  ahead of the European Central Bank (ECB) ABS program may also kick into play this week as the ECB is due to reveal more details on the upcoming Quantitative Easing (QE) program on Thursday. That also leads us to our short trade in EUR/CHF, which has been evolving around our entry for quite some time. We believe the Swiss National Bank (SNB) will fail to intervene in the Forex market and the 1.2000 floor is likely to be violated by the market.

To add more fuel to the intense trading week we are expecting, Catalonia leader Artur Mas has called for a public referendum for independence, scheduled to take place on 9 November, 2014.  The referendum was sparked by Scotland’s recent referendum for independence,  which many market analysts had foreseen. An emergency meeting has been scheduled for Monday to declare the referendum as illegal for the reason it violates the constitutional law. We are uncertain how the market will digest the news if at all, but in a scenario where the constitutional court declares the Catalonian referendum as legal, heavy trades are likely to be loaded in to the Forex market, particularly in EUR pairs and crosses and gold.

Direct FX Intervention in NZD

If you recall, the Reserve Bank of New Zealand (RBNZ) has warned the New Zealand Dollar is likely to weaken in the near term in one of its rate statements. The central bank hinted what was about to happen in the FX markets and it was not just the market forces.

Data from New Zealand’s central bank, the Reserve Bank of New Zealand (RBNZ) revealed the bank directly intervened in the Forex market, allocating as much as NZD 9.6 billion for weakening the New Zealand Dollar. As the data was released NZD was again heavily sold against a basket of currencies. Now that the market is aware of the FX intervention more traders are likely to cut their NZD holdings. The data was released at 02:00am GMT.

South Korea is Eyeing the Japanese yen

As we have mentioned last week, South Korea exports are likely to take a hit from the weak Japanese yen (JPY), affecting South Korea’s competitiveness in the market. Should JPY continue to weaken against  the South Korean Won (KRW),  the Bank of Korea may directly intervene in the FX markets, forced to participate in the currency war.  Despite the calls for further gains in USDJPY by market analysis, the Bank of Korea may be post an  imminent threat to Dollar-yen bulls. To recap, USD/JPY benefited from the Government Pension Investment Fund (GPIF) bill.  Changing the structure of Japan’s GPIF by pro-stimulus personnel may have a great impact on JPY, hence the pricing-in effect in JPY pairs and crosses.

USDTRY Technical Analysis

USDJPY current levels are nearing the critical point in which the Central Bank of the Republic of Turkey (CBRT) held an emergency meeting in which was decided to raise rates in order to strengthen the Turkish Lira, which lead to a marginal decline of over +1,000 pips. A monthly entry is possible we must wait for the end of the month. We will attempt to capitalize over the 4hr chart in order to join the expected downtrend with a reduced stop loss order.

USDTRY 4hr Chart

Please click on the chart to enlarge:

USDTRY Technical Analysis 28/09/14

USDTRY 4hr Chart 28/09/14

 A bearish divergence is noted  on the 4hr chart as well as the monthly chart. The protective stop loss order will be placed above the resistance level (2.2672) while our take profit is based on the weekly chart. Executing a short trade in USDTRY means a hefty positive swap during the rollover. Our intention, aside the trade triggering our take profit is to hold to the short position as well long as possible with the protective stop loss order at the entry. We may accumulate a decent profit just from the interest rate differentials, similar to a carry-trade model but with a tighter stop and take profit.

Take profit: 2.0915
Protective stop: 2.2854
Risk Ratio (RR): Over 1 : 6

As the Forex market is closed we cannot provide an entry. Once the market will open at 21:00 GMT we will asses the current price of USDTRY and determine our entry. This page will be updated once an entry is provided and a notification will be sent to our subscribers. You may subscribe to and benefit from instant market updates.

Key Economic Figure

Aside the US Non-Farm Payrolls that is due on Friday, the ECB monetary policy on Thursday is by far the key economic figure for this week as we have specified earlier on.

29/09/14 UPDATE: We are initiating the short trade in USDTRY with the above stop loss and take profit at market price (2.2626).

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Last Updated on October 3, 2017