US Tax Reforms and CPI
The US tax reforms are one of the contributors to the fairly tight range we saw last week in the Foreign Exchange (Forex) market. The details of the proposed reforms are less relevant to trading but the conflict is between the House and the Senate.
This is creating uncertainty and questioning President Trump’s ability to pass reforms. Based on the charts the uncertainty is likely to clear by the end of the week. The US and Canada’s Consumer Price Index (CPI) figures are more significant than the UK CPI. The Bank of England (BOE) is expecting inflation to peak at 3.2% in October.
We are unconvinced whether a higher UK CPI figure will have a significant impact on the market. Should next month’s CPI come in above expectations it could trigger moderate gains in GBP pairs and crosses.
The US CPI is perhaps the most significant should inflation come in below market expectations as it may dent the possibility of another hike from the Fed in December. The Producer Price Index (PPI, due on Tuesday) may trigger the first reaction in USD pairs and crosses.
The NAFTA negotiations will continue on the 15 November. We are noting potential CAD weakness but at the time of this writing this is still insufficient to provide an entry. We are aware of the news related to the Trans-Pacific Agreement (TPP) but the CPI is far from significant.
Yellen, Carney and Kuroda are due to speak this week which may trigger some volatility in the market. BOE Carney is probably the key speech as he may refer to the UK CPI that is expected to be released prior to the speech. We will re-assess GBP on Monday.
NZDUSD Signal Strategy
We have discussed NZDUSD last week and refrained from initiating the trade Thursday due to the tight range many currency pairs were held in throughout the week.
NZDUSD 4hr Chart
Please click on the chart to enlarge:
NZDUSD 4hr Chart 12/11/17
We are displaying the 4hr chart but we would like to note that this is a daily entry. NZDUSD recent dip may be sufficient to initiate a long trade in the market. There are some indications for USD weakness against a basket of currencies, at the time of this writing it does appear USD weakness may be short-lived but not against NZD.
China Industrial Production data is the key release for NZD, we would rather not rely on the US PPI. Should we note significant USD selling in the first half of the week we may consider shorting EURUSD as we have been tracking the currency pair for some time in our prior weekly updates.
NZDUSD Trade Alert
Please click on the chart to enlarge:
NZDUSD 4hr Chart II 12/11/17
NZDUSD long at market price (ask 0.6929)
Take profit: 0.7095
Protective stop: 0.6855
Risk Ratio (RR): 1 : 2.2 (approx.)
Estimated duration: 10 days (approx.)
Price range: Relevant as long as the price is below 0.6945
Note: The potential drawdown is a re-test of 0.6880.
14/11/17 UPDATE: NZDUSD triggered the protective stop at 0.6855, we are not re-entering the market. NZD was sold against a basket of currencies, we have not seen any weakness in the commodity currencies aside NZD.
It is unrelated to China economic data, once 0.6680 gave way numerous stops must have been triggered, which forced the price lower.
EURAUD Trade Alert
Please on the chart to enlarge:
EURAUD Monthly Chart 15/11/17
EURAUD short at market price (bid 1.5580)
Take profit: 1.4905
Protective stop: 1.5880
Risk Ratio (RR): 1 : 2.1 (approx.)
Estimated duration: 30 days (approx.)
Price range: Relevant as long as the price is above 1.5475
Note: The potential drawdown is anywhere between the entry price and 1.5800. It is a fairly large stop but we remind that this is a monthly entry.
21/11/17 UPDATE: EURAUD is trading at 1.5489 at the time of this writing.
EURAUD Monthly Chart 21/11/17
Please click on the chart to enlarge:
We are closing 20% of the short trade at market price.
05/12/17 UPDATE: AUD recent rally is not surprising and it has been well-anticipated. Any traders that opted for GBPAUD (which we were reluctant to do) manage your trade in accordance.
We are aware Australia’s GDP is due during the Asian session, however, we are reducing our exposure to AUD. EURAUD was based on a monthly entry, we may have to remain in the trade beyond our estimated duration.
Please click on the chart to enlarge:
EURAUD Monthly Chart 05/12/17
This was a tough decision to make but we are closing EURAUD short trade at market price (1.5498).
AS THE OBJECTIVE OF THE STRATEGIES HAS BEEN MET THE ANALYSIS IS NOW ACCESSIBLE TO ALL TRADERS
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Last Updated on December 14, 2017