The Weekly Update: The Syrian Effect and GBPJPY

Syrian Safe Haven

The tension between the US and China is continuing to dominate the markets. At the beginning of the week there were reports negotiations are expected to commence between the US administration and China. As President Trump revealed at the end of last week his intentions to impose additional tariffs on China did trigger a limited reaction.

Very similar to President Trump’s approach to NAFA negotiations we suspect the announcement was made to gain the upper hand in the negotiations. What could trigger some volatility in the market is the alleged chemical attack in Syria.

The prior chemical attach lead to a contained military reaction by the US. Although the market reaction at the time was short-lived it was fairly aggressive. Based on the chart we struggle to find any technical evidence for JPY strength but we will act in great caution.

GBPJPY Update

GBPJPY did post a daily close above 150.45, however, as the cross retraced lower from its highs the entry may come with a high risk, especially if the US strikes Syrian forces again. We will re-assess GBPJPY after the opening of the Forex market.

Please click on the chart to enlarge:

We also discussed the Canadian Dollar for some time. At the time of this writing it appears the NAFTA negotiations may end this week. We noted 2 potential entries, GBPCAD and USDCAD. As GBP may continue strengthening throughout 2018 (we are still waiting for a firmer confirmation in EURGBP) we will focus on USDCAD.

USDCAD Signal Strategy

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The downtrend in USDCAD may have already been affirmed by the market. Our only ability to enter USDCAD is on dips. We require some retracement in USDCAD (which may or may not materialize). As opposed to standard support and resistance levels we have a price range where we may initiate a short trade.

Initiating a short trade at current levels requires a fairly large protective stop along with fairly high potential drawdown. Our assumption is that should we have an entry it may be by the end of the week.

Although we already discussed GBPJPY we would like to highlight that from a technical angle we may have a long entry in the cross at market price, from a fundamental angle it will be entangled with risks. We will make a final decision after the opening of the Foreign Exchange market.

GBPJPY Trade Alert

Please click on the chart to enlarge:

GBPJPY long at market price (ask 150.74)
Take profit: 154.40
Protective stop: 149.00
Risk Ratio (RR): 1 : 2.0 (approx.)
Estimated duration: 21 days (approx.)

Relevant as long as GBPJPY is below 151.10

Note: The potential drawdown is a re-test of 149.25. We debated whether we should wait for Monday. If the potential drawdown materialize it may be within the next 24 hours.

Although the entry is technically supported it does not fully align with the market fundamentals at the time of this writing. We are relying on the technical end of the market in the entry but we must highlight the risk we are taking as discussed in the weekly update.

09/04/18 UPDATE: We are shifting GBPJPY protective stop to 150.20. We will be relatively close to the market. The reason why we are not exiting GBPJPY is because we have no technical reason to do so aside tightening the protective stop to prevent a larger loss. USDJPY was closed to reduce our market exposure to JPY.

10/04/18 UPDATE: A lot of activity is taking place near Syria by US forces. President Trump is due to make an announcement regarding Syria within the next 24 hours. There are warning signals in GBPJPY. They are insufficient to provide a short entry but they are relevant to whoever is holding long positions.

Please click on the chart to enlarge:

It was a fairly tough decision as we already tightened the stop but we are closing GBPJPY long trade at market price (151.66). We will re-assess the markets once some clarity is provided on a possible US military action against the Syrian regime.

EURNZD Trade Alert

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EURNZD long at market price (ask 1.6719)
Take profit: 1.7140
Protective stop: 1.6500
Risk Ratio (RR): 1 : 1.9 (approx.)
Estimated duration: 14 days (approx.)

Relevant as long as EURNZD is below 1.6770

Note: The potential drawdown is a re-test of 1.6525. This is not a regular trade. We are providing more room for the trade than what is technically required as we are planning to roll the trade over the weekend.

It is a fairly poor risk ratio as a result but as we are targeting a potential risk aversion mode due to Syria it is a risk we are willing to take.

13/04/18 UPDATE: EURNZD gains in today’s session are not related to the risk aversion mode we are attempting to capitalize on. The technical entry kicked into play, however, the gains are too strong for our liking.

We are closing 20% of EURNZD at market price (1.6778) as a precaution, we are likely to tighten the protective stop after the opening of the market on Sunday. We will also consider whether we wish to increase our short net exposure to currencies that tend to weaken during a risk aversion mode.

GBPJPY Trade Alert

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GBPJPY short at market price (bid 153.39)
Take profit: 150.85
Protective stop: 154.60
Risk Ratio (RR): 1 : 2.1 (approx.)
Estimated duration: 10 days (approx.)

Relevant as long as GBPJPY is above 152.95

Note: The potential drawdown is a re-test of 153.80, possibly a short-lived spike above. We would have preferred initiating the trade at a higher price but we will absorb the potential drawdown which may or may not materialize.

The weakness is expected to begin on Tuesday. however, there is a minor possibility that we may be in a minimal profit by the daily close. We should add that as opposed to the prior updates there are indications for a weak GBP.

17/04/18 UPDATE: EURNZD is trading at 1.6853 at the time of this writing, we are closing 10% of the long trade at market price and shift the protective stop to 1.6770.

17/04/18 UPDATE II: GBPJPY is trading at 152.98 at the time of this writing, we are closing 20% of the short trade at market price.

18/04/18 UPDATE: Although it may appear EURNZD has been posting steady gains in the market it is a cross that is capable of trading +200 pips in a single day. The recent gains are fairly minimal.

Please click on the chart to enlarge:

We are noting some struggle around the daily resistance in the past 24 hours. We are reluctant to absorb any retracements. We are aware that NZ CPI may kick EURNZD above the daily resistance, however, we have decided to close EURNZD long trade at market price (1.6895).

18/04/18 UPDATE II: The lows of the day were rejected by the market at the time of this writing. We have a choice between shifting the protective stop to the entry (where there is a fair possibility the stop may be triggered) or exiting the trade.

Please click on the chart to enlarge:

This was a fairly tough decision to make. We decided to close GBPJPY long trade at market price (152.64). Should the selling resume we may have the ability to initiate a long trade in the cross, possibly some time within the next 14 days.

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

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Last Updated on April 22, 2018