The Weekly Update: Does Italy Pose a Risk to the Euro?

NZD, EUR and JPY

Towards the end of last week we discussed our intention to focus on the New Zealand Dollar (NZD). Due to EURNZD and GBPNZD weakness on Friday we are unlikely to be able to long NZD. Once the Kiwi’s strength began the odds for corrective gains (in EURNZD and GBPNZD) are exceptionally higher.

We will admit that it is fairly disappointing we expected NZD strength to materialize at the beginning of the week rather than on Friday. We are expecting NZD strength to continue, at the time of this writing we are uncertain whether we will be able to join the anticipated trend.

Italy is likely to trigger some volatility across EUR pairs and crosses although we are not expecting it to a dominant factor in the short-term. Although it s a different scenario, when Alexis Tsipras gained power in Greece there was some reaction in EUR pairs and crosses but his threats to break from the EU diminished.

The US confirmed there has been progress in the negotiations with China, which may send a calming message to global markets. As a result the Japanese yen is expected to weaken at the opening of global markets.

JPY Signal Strategies

We have noted 2 potential entries in the market in CADJPY and GBPJPY.

CADJPY 4hr Chart

Please click on the chart to enlarge:

CADJPY 4hr Chart 20 May, 2018

CADJPY 4hr Chart 20/05/18

GBPJPY 4hr Chart

Please click on the chart to enlarge:

GBPJPY 4hr Chart 20/05/18

GBPJPY 4hr Chart 20/05/18

CADJPY recent dip may allow us to re-enter the cross. To recap, we were holding a long position in CADJPY, as there were some indications the cross may retrace lower we decided to exit the long trade. GBPJPY recent dip may also provide a long entry in the cross, similar to CADJPY.

As key economic data is due for GBP this week we cannot determine which entry may be more fruitful under the assumption the technical entry will not be invalidated by the market. As we are already exposed to JPY we will have to decide which cross we may opt for,

Both crosses are expected to gap higher at the opening of the Forex market at the time of this writing. If the gap is too high for our liking we may be forced to dismiss the entries.

The US may lay out its plan to deal with Iran on Monday. Speeches from central banks’ officials, the FOMC minutes  and the European Central Bank meeting accounts are the key events this week.

GBPJPY Trade Alert

Please click on the chart to enlarge:

The Weekly Update: Does Italy Pose a Risk to the Euro?

GBPJPY 4hr Chart II 20/05/18

GBPJPY long at market price (ask 149.47)
Take profit: 151.90
Protective stop: 148.58
Risk Ratio (RR): 1: 2.6 (approx.)
Estimated duration: 8 days

Relevant as long as GBPJPY is below 149.70

Note: The potential drawdown is a re-test of 148.80. We decided to opt for a more volatile cross as opposed to CADJPY. Should the gains materialize anticipated. if we note 150.20 acts as a resistance level we may decide to exit the trade.

GBPJPY triggered the protective stop following safe-haven flows into JPY pairs and crosses, we chose not to re-enter the market.

AUDNZD Trade Alert

Please click on the chart to enlarge:

The Weekly Update: Does Italy Pose a Risk to the Euro?

AUDNZD Weekly Chart 27/05/18

AUDNZD short at market price (bid 1.0916)
Take profit: 1.0600
Protective stop: 1.1045
Risk Ratio (RR): 1: 2.4 (approx.)
Estimated duration: 21 days

Relevant as long as AUDNZD is above 1.0875

Note: The potential drawdown is a re-test of 1.0980, this is a weekly entry, which may suggest limited drawdown may be incurred that can be tolerated. We should also write that President Trump tweeted the he will meet with North Korea’s leader, which contributed to the risk appetite.

GBPJPY Trade Alert

Please click on the chart to enlarge:

The Weekly Update: Does Italy Pose a Risk to the Euro?

GBPJPY Weekly Chart 30/05/18

GBPJPY short at market price (bid 144.60)
Take profit: 140.00
Protective stop: 147.05
Risk Ratio (RR): 1: 1.85 (approx.)
Estimated duration: 21 days

Relevant as long as GBPJPY is above 144.20

Note: The potential drawdown is a re-test of 146.50. The reason for the poor RR is the fact we are entering the market after some selling took place, the position of the protective stop does not change in such circumstances. As we are anticipating a bearish spike we decided to opt for the trade.

Our assumption is that should a spike materialize heavy selling may take place for 48 hours. There are risks in initiating a short trade at current levels, the Manufacturing data on Friday (UK) may set the tone for GBP pairs and crosses.

31/05/18 UPDATE: AUDNZD selling was heavier than we have anticipated. It has created room for possible corrective gain within the next several days. We are unwilling to absorb any retracements.

We will continue focusing on NZD while we reserve the option to re-enter AUDNZD at a higher price should we have the ability to do so.

Please click on the chart to enlarge:

The Weekly Update: Does Italy Pose a Risk to the Euro?

AUDNZD Weekly Chart 31/05/18

AUDNZD is trading at 1.0813 at the time of this writing, we are closing the short trade at market price. Do note the screenshot was deleted by error, which is why a lower price is displayed in the weekly chart.

03/06/18 UPDATE: We re-assessed GBPJPY, at the time of this writing we are expecting 146.50 to hold. We were aware of the risk GBPJPY can kick higher before reversing lower.

We decided to provide more room for the trade. We are not keen on widening stops, the risk is a spike near 147.00 which may or may not materialize. As a result we are shifting GBPJPY protective stop to 147.30.

05/06/18 UPDATE: Positive data form the UK kicked GBP higher against a basket of currencies. Using the daily chart, 146.50 was taken out by the market. There are 2 key resistance levels the cross, 147.10 and 147.50. If 147.50 is taken out the price it may continue rising.

We cannot continuously widen the protective stop. We are fairly confident GBPJPY weakness may stem from a firm JPY but there is a limit of how much we are willing to absorb in the current trade.

We have decided to shift GBPJPY protective stop to 147.70, which is above the latter resistance. We would like to highlight that the protective stop is unlikely to be shifted again (only a temporary adjustment to avoid the spread widening) and we will incur the loss if required.

06/06/18 UPDATE: Remarks from one of the ECB members regarding the upcoming monetary policy triggered some volatility in the market. As JPY weakened GBPJPY kicked higher, triggered the protective stop.


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


The Weekly Update: Does Italy Pose a Risk to the Euro?

The Weekly Update: Does Italy Pose a Risk to the Euro?