The Weekly Update: The Market Volatility Is Far from Over

Mnuchin and President Trump

In our prior updates we suggested that 2018 is expected to be a volatile year in global markets. Last week most of the volatility was triggered by remarks from Steven Mnuchin that a weak US Dollar will be beneficial for the US. Muchin prior stance was a firm USD. The statement suggested Mnuchin has changed his opinion on the US Dollar and the markets reacted in accordance.

As there were no significant events in the background the market chose to cling to these remarks which were later attempted to be negated by President Trump (that he favours a firm USD).

We would also like to highlight that it was not an extraordinary market volatility. We have seen unusual volatility over the years where EURUSD spiked over 600 pips in a relatively short period of time. We suspect similar volatility is likely to be seen throughout 2018.

BOJ Kuroda’s remarks on Friday triggered JPY strength across a basket of currencies. Kuroda stated the inflation is nearing its target, adding some expectations the central bank may further reduce its monthly purchases.

USDCHF Signal Strategy

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The Weekly Update: The Market Volatility Is Far from Over

USDCHF Weekly Chart 28/01/18

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The Weekly Update: The Market Volatility Is Far from Over

USDCHF Daily Chart 28/01/18

USDCHF weekly chart displays the breakout the took place following the weekly close. The price may correct higher to re-test 0.9440, which if holds suggests the downtrend is expected to resume, targeting 0.9140. USDCHF daily chart provides fairly high odds for corrective gains in the currency pair, however, we will need to see strong gains above 0.9140 to invalidate the bearish outlook for the pair.

One of the events where we may witness both EURUSD and USDCHF trading lower is a risk event in the euro zone, in which case CHF may benefit from safe haven flows.

EURUSD Signal Strategy

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The Weekly Update: The Market Volatility Is Far from Over

EURUSD Weekly Chart 28/01/18

We have been monitoring EURUSD weekly chart for a couple of weeks. The recent weekly close may have affirmed a short entry in the currency pair. The price may still re-test high or temporarily trade above 1.2500 before reversing lower, which is the potential drawdown.

The difficulty with assuming a risk aversion event may take place is that we have no indication for a strong JPY at the time of this writing. One of the alternatives is that USD corrective gains may be deeper than expected.

USDJPY Signal Strategy

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The Weekly Update: The Market Volatility Is Far from Over

USDJPY Daily Chart 28/01/18

Corrective gains in USDJPY may be limited to 110.30, which is similar to USDCHF daily chart that suggest limited USD strength before a resumption of the weakness. We are not setting a higher target for USDJPY.

We are leaning towards opting for both USDJPY and EURUSD as USDJPY requires a fairly tight stop. The difference between Dollar yen and Euro Dollar is the time frame (daily and weekly). We found no reason to dismiss daily entries. We will wait for the opening of the Foreign Exchange (Forex) market to determine how we wish to proceed.

We did consider avoiding USD pairs and crosses but EURUSD is a fairly decent entry that we have been tracking for some time.

EURUSD Trade Alert

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The Weekly Update: The Market Volatility Is Far from Over

EURUSD Weekly Chart II 28/01/18

EURUSD short at market price (bid 1.2415)
Take profit: 1.2020
Protective stop: 1.2600
Risk Ratio (RR): 1 : 2.1 (approx.)
Estimated duration once triggered: 20 days (approx.)

Relevant as long as the price is above 1.2350

Note: The potential drawdown is a re-test of 1.2540. We have to give the price some room as we cannot determine whether 1.2500 will be re-tested. Should the price retrace lower in accordance to our expectations we are expecting the selling to be fairly aggressive. We remind that this is a weekly entry.

GBPAUD Trade Alert

The Weekly Update: The Market Volatility Is Far from Over

GBPAUD Daily Chart 29/01/18

GBPAUD long at market price (ask 1.7390)
Take profit: 1.7740
Protective stop: 1.7230
Risk Ratio (RR): 1 : 2.3 (approx.)
Estimated duration once triggered: 10 days (approx.)

Relevant as long as the price is below 1.7425

Note: The potential drawdown is a re-test 1.7265. We should say that 1.7358 should hold, this a mere precaution in an event of a short-lived spike, similar to our prior trade in GBPJPY. If timed correctly the gains are expected to take place within the next 24 hours. Australia’s CPI is due later this week.

30/01/18 UPDATE: GBPAUD is trading at 1.7495 at the time of this writing, we are closing 20% of the long trade at market price and shift the protective stop to 1.7330.

31/01/18 UPDATE: GBPAUD is near the initial resistance level we marked at 1.7658. We would have preferred smaller gains in today’s session or a daily close above 1.7658. What may happen is that the price could re-test 1.7658 and then post some retracement.

Remaining in the trade is based on how much of a potential retracement we are willing to incur. We waited until we near the daily close but the odds of closing above 1.7658 is a low. The choice we have is either to shift the protective stop to 1.7520 (which is a tighter stop than what is demanded by the daily chart) or exit the trade.

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The Weekly Update: The Market Volatility Is Far from Over

GBPAUD Daily Chart 31/01/18

There is no evidence GBPAUD uptrend is expected to reverse but we have decided to close the long trade at market price (1.7611). It is always tough making these decisions when the trend remains intact but these decisions have to be made.

05/02/18 UPDATE: EURUSD is trading at 1.2375 at the time of this writing, we are closing 10% of the short trade at market price.

07/02/18 UPDATE II: In USDCHF strategy (in which we chose not to opt for) we marked 0.9440. As USCHF and EURUSD are somewhat correlated there may be some corrective gains in EURUSD.

EURUSD is trading at 1.2265 at the time of this writing, we are closing 20% of the short trade at market price and shift the protective stop to 1.2508.

07/02/18 UPDATE III: We would first like to stress that EURUSD is not similar to our prior trade in GBPJPY. In GBPJPY we were not meant to exit the market from a technical angle but due to the intensity of the selling we had to liquidate the position.

In EURUSD there is a technical risk for corrective gains, should the potential gains exceed our estimation it can trade as high as 1.2500. We are deriving these projections from USDCHF and EURUSD. If we remain in the trade and EURUSD does correct higher we may require to remain in the trade longer than we have anticipated under the assumption the entry will remain intact.

We can adopt a wait-and-see approach and wait another day to see if USDCHF is able to post a daily close above 0.9440 but there are no technical indications that it will materialize at the time of this writing.

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The Weekly Update: The Market Volatility Is Far from Over

EURUSD Weekly Chart 07/02/18

We decided to close EURUSD short trade at market price (1.2259). We highlight that there is no long entry in EURUSD, we are reluctant to short USDCHF. We will wait for more clarity in USD pairs and crosses. It was a tough decision but it had to be made.


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


The Weekly Update: The Market Volatility Is Far from Over

The Weekly Update: The Market Volatility Is Far from Over