The Weekly Update: Euro Kiwi and the Turkish Lira 12 August 2018

USDTRY and EURNZD

It did take several months but we have noted some currency pairs finally broke outside the range. Two major events dictated the tone in the Foreign Exchange (Forex) market this week.

China announced new tariffs on the US, which deepened the crisis between the countries. The side effects of tension in the market often reflects in a firm Japanese yen (JPY) and Swiss Franc (CHF).

The other event was fairly extraordinary. The US imposed sanctions on Turkey as President Trump insisted on the release of an American Pastor. The US deadline for the release was on Wednesday’s evening. Turkey was aware the sanctions will double if the American pastor is not released from his current house arrest.

As the sanctions doubled the Turkish Lira was heavily sold, over 10%, which is fairly extraordinary:

ddmarkets USDTRY

USDTRY Daily Chart 12/08/18

The spike in USDTRY spilled over to other USD currencies, which assisted USD gains in the Forex market. Some European countries are exposed to Turkey, in an event of a deeper financial crisis it may spill over to other countries. For the time being we are monitoring the markets, we are unlikely to attempt a trade in the Turkish Lira.

In our prior EURNZD signal in the market we exited the trade due to the market conditions. We have stated that we may re-enter following a firm daily close above the flag.

Please click on the chart to enlarge:

ddmarkets EURNZD 12/08/18

EURNZD Daily Chart 12/08/18

The dip on Friday may be sufficient to re-enter the cross, however, we can note the potential drawdown, which is approximately +120 pips. The odds for some drawdown are higher as the price rebounded off its lows prior to the weekly close.

As the potential target is around +600 pips we will have to decide whether we wish to wait for Monday’s close or initiate the trade at current levels. The potential drawdown is not guaranteed to materialize but it must be anticipated.

In an event we wait for Monday and the price corrects higher we may be unable to initiate a signal in EURNZD as the gains must be added to the size of the protective stop, which will only amplify the potential loss.

EURUSD downtrend has been affirmed by the weekly chart. Even if the price does correct higher the medium-term trend is bearish. We will tempt to identify whether the potential weakness EURUSD is linked to a weak Euro or a firm USD.

At the time of this writing it appears it is EUR-related based on our technical models where EURNZD is the only exception, which is disturbing but we are relying on the technical end of the market.

There are other potential entries but it may be too early to consider a trade in the pairs and crosses we are monitoring. Our focus for the opening of the Forex market is EURNZD.

EURNZD Trade Alert

Please click on the chart to enlarge:

The Weekly Update: Euro Kiwi and the Turkish Lira 12 August 2018

EURNZD Daily Chart II 12/08/18

EURNZD long at market price (ask 1.7318)
Take profit: 1.7750
Protective stop: 1.7130
Risk Ratio (RR): 1: 2.3 (approx.)
Estimated duration: 20 days

Relevant as long as EURNZD is below 1.7405

Note: The potential drawdown is a re-test of 1.7210. As noted in the strategy we are willing to absorb the potential drawdown. We cannot determine whether further weakness is due to take place until the middle of the week but in an event the price corrects higher we are unlikely to be able to initiate the trade.

The reason behind the potential drawdown is the rebound off the lows prior to Friday’s close.

GBPCAD Trade Alert

Please click on the chart to enlarge:

The Weekly Update: Euro Kiwi and the Turkish Lira 12 August 2018

GBBPCAD Daily Chart 14/08/18

GBPCAD long at market price (ask 1.6613)
Take profit: 1.7040
Protective stop: 1.6520
Risk Ratio (RR): 1: 4.5 (approx.)
Estimated duration: 3 days

Relevant as long as GBPCAD is below 1.6680

Note: The potential drawdown is a re-test of 1.6555. The risk in initiating a long trade at current levels is fairly high. There may be a monthly entry in GBPCAD but it will require a monthly close.

This is a daily entry, the UK CPI (due tomorrow) and Canada’s CPI (due on Friday) are the key events for GBPCAD. We are aware the risks for a hard brexit are rising. Any brexit-related news may trigger a fairly significant spike in GBP pairs and crosses.

By the book the trade may take 7 days, however, we are uncertain we will remain in the trade beyond the weekly close. We are aware of the negative swap but we are unlikely to remain in the trade for a prolonged period o time.

15/08/18 UPDATE: GBPCAD is trading at 1.6674 at the time of this writing, we are closing 20% of the long trade a market price. The partial closure is intended to reduce the holding costs of the long trade due to the negative swap.

16/08/18 UPDATE: We analyzed CAD against a basket of currencies. At the time of this writing it appears CAD may continue to weaken, however, GBPCAD was unable to break above a resistance level on the 4hr chart.

The main risk is GBP weakness that may drag the price lower. We will require to wait for the end of the Asian session to determine if the price was able to break above the resistance.

Under regular circumstances we would have tightened the stop and re-assess the trade prior to Friday’s close. The current conditions are fairly uncommon due to the trade war tension.

Please click on the chart to enlarge:

The Weekly Update: Euro Kiwi and the Turkish Lira 12 August 2018

GBPCAD Daily Chart 16/08/18

As a result we decided to close GBPCAD long trade at market price. (1.6734).

22/08/18 UPDATE: EURNZD is trading at 1.7318 at the time of this writing, we are closing 20% of the long trade at market price.

23/08/18 UPDATE: From the daily chart EURNZD path for further gains remain intact. However, on shorter time frames we do see the risk for some retracement (around 80 pips, which is minimal for the cross).

What we will attempt to do is re-enter EURNZD if the corrective weakness takes place within the next 24 hours. If the gains continue we may be unable to re-enter but it is a risk we are willing to take. Do note that if we re-enter EURNZD it will be during Friday’s session (Europe or US).

Please click on the chart to enlarge:

The Weekly Update: Euro Kiwi and the Turkish Lira 12 August 2018

EURNZD Daily Chart 23/08/18

EURNZD is trading at 1.7392 (bid) at the time of this writing, we are closing the long trade at market price with an attempt to re-enter on Friday should it correct lower.

(EURNZD posted a minor retracement before correcting higher, we were unable to re-enter).

All of the above trade updates on this page were issued via email to our members.