The Weekly Update: GBPJPY and the Leading Indices

Heavy Selling Across the Indices

Heavy selling took place across the leading indices on Friday’s session. When similar selling took place in the past the Japanese yen (JPY) as well as the Swiss Franc (CHF) tend to benefit from safe-haven flows. It was on the case on Friday.

As the Fed is expected to continue tightening its monetary policy throughout 2018, the Non-Farm Payrolls (NFP) contributed to the possibility of 4 rate hikes this year it may mark the end of the Fed’s easing cycle. To recap, when the Fed first launched its QE programs it assisted the rallies we have seen across the US indices.

As the market is expecting the easing cycle to end it triggered the reaction we have seen on Friday. As it does not constituent as a risk-aversion event JPY and CHF did not benefit from any safe-haven flows. We should highlight that it is quite rare not to see safe-haven flows during such selling. As opposed to JPY, the Australian Dollar (AUD) was sold as it often does when similar selling occurred in the past.

AUD weakness was inline with our expectations when we instated the long trade in GBPAUD.

However, from a technical angle there may be a resumption of the downtrend, mainly in the Dow. There may be some corrective gains but unless the price is able to post a weekly close above the prior high we are unconvinced it is over. We will have to determine whether the next potentially leg lower may be triggered by expectations from the Fed or a risk-aversion event.

Last week we updated that we will look into USDCHF and NZDCHF. Following the weekly close we decided to avoid CHF pairs and crosses, at least at the opening of the Foreign Exchange (Forex) market. We also mentioned that there are warning signals that may suggest GBP may correct lower.

GBPJPY Weekly Chart

Please click on the chart to enlarge:

The Weekly Update: GBPJPY and the Leading Indices

GBPJPY Weekly Chart 04/02/18

GBP Signal Strategy

In the prior weekly update we presented the technical signal we noted in USDJPY (long). We decided not to opt for the trade due to the poor RR. USDJPY reached the target we presented at 110.30. As the price failed to post a daily close above 110.30 it may pave the way for corrective weakness.

If we cross USDJPY and GBPJPY there it is possible that GBPJPY expected weakness may be due to a firm JPY. At the same time we are also noting some indications for GBP weakness. At the time of this writing we will require more time to assess the trigger for GBPJPY potential weakness.

Although the following may sound obious to some, understanding which currency is expected to weaken or strengthen may allow us to increase our net short or long exposure to the currency’s pairs and crosses.

The challenging part is the location of the protective stop. The chart demands the protective stop to be layered above 157.95. We often refrain from heavy stops. We can layer a tighter stop but it will come with a price as if the weakness is not seen at the first half of the week the odds of the market triggering the protective stop may increase.

We will decide how we wish to proceed with GBPJPY after the opening of the Forex market.

GBPJPY Trade Alert

Please click on the chart to enlarge:

The Weekly Update: GBPJPY and the Leading Indices

GBPJPY Weekly Chart II 04/02/18

GBPJPY short at market price (bid 155.48)
Take profit: 149.20
Protective stop: 158.30
Risk Ratio (RR): 1 : 2.2 (approx.)
Estimated duration once triggered: 24 days (approx.)

Relevant as long as the price is above 154.60

Note: We are not layering the protective stop above 157.95 as discussed in the weekly update. The potential drawdown is a re-test of 157.60 (approx.). Such re-tests are not guaranteed to materialize but must be anticipated.

In an event we suspect GBPJPY is on course to 157.60 we will downsize our exposure to GBPJPY with a loss if required. At the time of this writing Friday’s high may hold if tested.

05/02/18 UPDATE: GBP weakness was triggered by reports Britain may not remain in the Customs Union. GBPJPY is trading at 154.30 at the time of this writing, we are closing 20% of the short trade at market price. The partial closure is intended to reduce the interest at the rollover and to have a greater ability to absorb retracements.

05/02/18 II UPDATE: As opposed to Friday, JPY is now enjoying safe-haven flows. The selling that is taking place in GBPJPY reminds us of the typical volatility for the cross we have seen several years ago. The Dow is not far from its nearest support, GBPJPY is nearing its daily support as well.

Due to the intensity of the selling we are reluctant to absorb any retracements in GBPJPY. The selling is too aggressive for our liking, which may only trigger corrective gains.

Please click on the chart to enlarge:

The Weekly Update: GBPJPY and the Leading Indices

GBPJPY Weekly Chart 05/02/18

GBPJPY is trading at 153.16 at the time of this writing, we are closing the short trade at market price.

EURAUD Trade Alert

Please click on the chart to enlarge:

The Weekly Update: GBPJPY and the Leading Indices

EURAUD 4hr Chart 06/02/18

EURAUD short at market price (bid 1.5775)
Take profit: 1.5515
Protective stop: 1.5895
Risk Ratio (RR): 1 : 2.1 (approx.)
Estimated duration: 3 days (approx.)

Relevant as long as the price is above 1.5740

Note: The potential drawdown is a re-test of 1.5840. It is a 4hr entry based on the weekly/monthly resistance.

06/02/18 UPDATE: As this is a 4hr entry we are not tied to the daily or weekly close

EURAUD is trading at 1.5704 at the time of this writing, we are closing 20% of the short trade at market price and shift the protective stop to the entry.

06/02/18 UPDATE II: We have a choice between lowering the protective stop or exiting the trade. The price rebounded off a daily support. We decided not to remain in the trade, EURAUD is trading at 1.5714 at the time of this writing, we are closing the short trade at market price.

AUDCHF Entry Order

Please click on the chart to enlarge:

The Weekly Update: GBPJPY and the Leading Indices

AUDCHF Daily Chart 06/02/18

AUDCHF long at 0.7335 (buy limit order)
Take profit: 0.7565
Protective stop: 0.7248
Risk Ratio (RR): 1 : 2.6 (approx.)
Estimated duration: 14 days once triggered (approx.)

Note: The potential drawdown is a re-test of 0.7288. In an event AUDCHF breaks above 0.7420 before correcting lower we may decide to cancel the order and dismiss the entry.

07/02/18 UPDATE: We are cancelling AUDCHF buy limit order as we have likely to have missed the entry. We are still uncertain whether we wish to initiate a long trade at a higher price based on the development of the corrective gains.


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


The Weekly Update: GBPJPY and the Leading Indices

The Weekly Update: GBPJPY and the Leading Indices