The Weekly Update: Targeting the Fed Monetary Policy

GBP Brexit Update

From a technical angle the past week has been relatively calm in the Forex market. We did see some volatility in GBP pairs and crosses due to the brexit negotiations but it is far from the volatility we have seen in recent months. The Non-Farm Payrolls (NFP) had minimal impact on the FX markets.

There has been an agreement on Ireland’s boarder, which may unlock the next phase of the negotiations over a future trade deal with the EU. The UK has buckled under the pressure as Theresa May did state earlier this year that the UK will not pay a penny to the EU (referring to the divorce bill which the UK will pay the EU). The EU summit this week (Thursday) will determine whether future trade deal with the UK can be negotiated.

As noted in our prior forex signals in the weekly update GBP is still positioned for corrective weakness. The neckline in EURGBP weekly chart is holding, the spike below triggered numerous stops and may have probably lured traders into shorting the currency pair before correcting higher.

We cannot short any of GBP pairs and crosses without a hefty stop. We attempted to capitalize over EURGBP via a tighter stop, which was unsuccessful as a minor profit was garnered. We did mention that the UK Consumer Price Index (CPI) may trigger GBP weakness, however, we are not layering what we refer to as ‘explosive’ stops. GBP may continue to remain volatile until the end of the week.

NZDUSD Signal Strategy

Prior to the Fed monetary policy on Wednesday inflation data from the US may trigger some volatility across USD pairs and crosses. While the Consumer Price Index (CPI) will be closely observed the Producer Price Index (PPI) on Tuesday mat provide some indication to the CPI.

Last week we mentioned that we noted potential short entries in USDCHF and USDJPY. While USDCHF retraced lower following the corrective gains that took place Dollar yen remained buoyant, which we are fairly displeased with but decided to provide more time for the entry.

NZDUSD Daily Chart

Please click on the chart to enlarge:

The Weekly Update: Targeting the Fed Monetary Policy

NZDUSD Daily Chart 10/12/17

As we have some early signals for USD weakness, we found NZDUSD to be the most appropriate currency pair. As we discussed in our prior NZDUSD signal strategy the objective of the top Head-And-Shoulders (H&S) has already been acquired. The price struggled correcting higher as the neckline of the reversed H&S was tested on numerous occasions and remained firm.

The number of shoulders do not weaken the reversal pattern. Once the neckline (in blue) gives way it may pave the way for stronger gains in NZDUSD, which may be linked to the Fed monetary policy. To recap. Janet Yellem is expected to leave the Fed in early 2018.

NZDUSD Trade Alert

Please click on the chart to enlarge:

The Weekly Update: Targeting the Fed Monetary Policy

NZDUSD Daily Chart II 10/12/17

NZDUSD long at market price (ask 0.6841)
Take profit: 0.7050
Protective stop: 0.6765
Risk Ratio (RR): 1 : 2.6 (approx.)
Estimated duration: 4 days (approx.)

Price range: Relevant as long as NZDUSD is below 0.6865

Note: The potential drawdown is a re-test of 0.6823. We have given ourselves more distance from the market in an event of a short-lived spike.

11/12/17 UPDATE: It was announced that Adrian Orr will be new RBNZ governor in early 2018. The news triggered a rally across NZD pairs and crosses.

Please click on the chart to enlarge:

The Weekly Update: Targeting the Fed Monetary Policy

NZDUSD Daily Chart 11/12/17

NZD reached the neckline of the reversed H&S. Should it fail to post a daily close above the neckline we may have no choice but to exit the trade. We were not expecting such gains to materialize in less than 24 hours after initiating the trade. As the neckline is being tested at the time of this writing we are closing 20% NZDUSD long trade at market price (0.6907).

11/12/17 UPDATE II: NZDUSD daily close may be sufficient. Corrective weakness often follow breakouts, which we will absorb if materializes. We are shifting NZDUSD protective stop to 0.6828.

13/12/17 UPDATE: As US the Core CPI missed the market expectations USD is being sold at the time of this writing. As no other significant data took place (we will discuss GBP in a separate update) the market reaction is exaggerated.

Please click on the chart to enlarge:

The Weekly Update: Targeting the Fed Monetary Policy

NZDUSD Daily Chart 13/12/17

We were hoping we will not see a rally in NZDUSD until the Fed monetary policy. The recent gains brought NZDUSD to a daily resistance level. The uptrend may remain intact but it may mean remaining in the trade longer than our estimated duration.

This is a tough decision to make but we are closing NZDUSD long trade at market price (0.6982).

EURNZD Trade Alert

Please click on the chart to enlarge:

The Weekly Update: Targeting the Fed Monetary Policy

EURNZD Daily Chart 13/12/17

This was a fairly tough decision. The ECB and the BOE are due to hold their monetary policies tomorrow, the EU summit on the brexit is also expected to take place. These are relatively violent crosses as well. The required stop in EURAUD and EURNZD is the same (approx.) while GBPNZD is demanding over +300 (approx.).

We decided to opt for EURNZD. China Industrial Production is the risk event in Asia that may weaken NZD against a basket of currencies.

EURNZD long at market price (ask 1.6844)
Take profit: 1.7400
Protective stop: 1.6580
Risk Ratio (RR): 1 : 2.1 (approx.)
Estimated duration: 7 days (approx.)

Price range: Relevant as long as EURNZD is below 1.6890

Note: This is a daily entry. Please note it is a fairly large stop as the potential drawdown is a re-test of 1.6630, which if materializes may be tomorrow.

14/12/17 UPDATE: We are reducing our exposure prior to the ECB monetary policy and due to the negative interest that will be incurred at the rollover.

Please click on the chart to enlarge:

The Weekly Update: Targeting the Fed Monetary Policy

EURNZD Daily Chart 14/12/17

EURNZD is trading at 1.6898 at the time of this writing, we are closing 20% of the long trade at market price.

EURAUD Trade Alert

Please click on the chart to enlarge:

The Weekly Update: Targeting the Fed Monetary Policy

EURAUD Daily Chart 14/12/17

We decided to opt for EURAUD. This is a risk we are taking mainly due the technical entry. The gains appear to be imminent. The entry is not as firm we would have liked but due to the size of the protective stop we are opting for the trade.

EURAUD long at market price (ask 1.5371)
Take profit: 1.55540
Protective stop: 1.5310
Risk Ratio (RR): 1 : 2.8 (approx.)
Estimated duration: 5 days (approx.)

Price range: Relevant as long as EURAUD is below 1.5385

Note: This is daily entry but we chose to display the 4hr chart. The potential drawdown is a re-test of 1.5355.

15/12/17 UPDATE: As we are planning to have all open trades closed over the weekend of 22 December we have decided to close EURAUD long trade at market price (1.5398).

Please click on the chart to enlarge:

EURAUD Forex Signal 15/12/17

EURAUD 4hr Chart 15/12/17

* Our original screenshot was deleted by error, a new screenshot was taken, which is why the chart is showing a lower price.

We expected the gains to be imminent, the spike below 1.5355 that occurred during Europe rather than Asia delayed the gains. EURAUD may still correct higher but the progress has been too slow. It is rather disappointing but we found it to be the best approach.

19/12/17 UPDATE: Similar to USDCAD trading signal, under regular circumstances we would have remained in the trade. Our concern is a retracement towards 1.6890 which may or may not materialize.

Please click on the chart to enlarge:

EURNZD Forex Signal 19/12/17

EURNZD Daily Chart 19/12/17

It was a very tough decision but we wish to ensure no trades will be rolled over the upcoming weekend. We are closing EURNZD long trade at market price (1.6948).


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


The Weekly Update: Targeting the Fed Monetary Policy

The Weekly Update: Targeting the Fed Monetary Policy

Last Updated on December 20, 2017