The Weekly Update: Trading the Euro During the North Korean Tension

North Korea and the FX Markets

North Korea conducted one of its biggest nuclear tests, which triggered a fairly large earthquake in the region. We updated last week that we will have to factor the US-Noth Korea tension into every entry in the market. CHF and JPY are the currencies that tend to benefit the most during a risk aversion mode as well as gold.

The key to establishing a trade in the market is whether we suspect the tension will continue. South Korea was against military action in North Korea as Seoul is likely to be almost immediately targeted by North Korea. Even in an event no military action is taken President Trump threatened to halt trade with any countries that carry business operations with North Korea, aiming at China.

Should the US administration place trade restrictions on China it may be sufficient to ensure the risk aversion mode will remain for some time. The implications of such trade restrictions or the nuclear test itself may force central banks remain on hold, particularly the Bank of Canada (BOC) and the European Central Bank (ECB) that are expected to provide their monetary policies this week.

We also have the brexit negotiations in the background along with hurricane Irma that is expected path is still uncertain. We may note similar market conditions that we have seen in last financial crisis in 2008 but it is unlikely to be seen until more clarity is provided.

EURNZD Daily Chart

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The Weekly Update: Trading the Euro During the North Korean Tension

EURNZD Daily Chart 03/09/17

We have mentioned EURNZD last week but decided to wait for the weekly close. As long as the price remains below 1.6670 we may be able to initiate the short trade.

Following the NFP figures on Friday the ECB countered EURUSD gains by stating that a a tapering plan for the QE may not be finalized until December, which sent EUR lower against a basket of currencies. This suggests the ECB is displeased with the recent EURUSD gains in the FX markets.

Based on the above Mario Draghi is unlikely to provide any new information regarding the ECB monetary policy, the renewed tension from North Korea supports the above. The ECB monetary policy is due on Thursday, shorting EURNZD means we must see a retracement within the next 24 hours.

From a fundamental angle, EURNZD may only retrace lower should the tension ease or should NZD act as safe haven, which we have seen in the past. From a technical angle it appears to be a short-term retracement rather than a medium-term reversal.

From a fundamental angle there is little support for the potentially short trade aside the ECB, NZD is often one of currencies that have the tendency to weaken during a risk aversion mode. We are heavily relying on the charts to establish the short trade.

We would have been more comfortable initiating 2 short EUR trades if it was not for North Korea. EURUSD tends to thrive during a risk aversion mode, we will wait until we near Thursday to consider increasing our exposure to the Euro.

EURNZD Trade Alert

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The Weekly Update: Trading the Euro During the North Korean Tension

EURNZD Daily Chart II 03/09/17

EURNZD short at market price (1.6613)
Take profit: 1.6150
Protective stop: 1.6777
Risk Ratio (RR): 1 : 2.7 (approx.)
Estimated duration: 10 days (approx.)

Price range: relevant as long as EURNZD remains above 1.6560.

Note: The potential drawdown is a re-test of 1.6750. If such a re-test takes place it means the entry was mistimed.

GBPAUD Trade Alert

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The Weekly Update: Trading the Euro During the North Korean Tension

GBPAUD Weekly Chart 04/09/17

GBPAUD long at market price (ask 1.6280)
Take profit: 1.6880
Protective stop: 1.6015
Risk Ratio (RR): 1 : 2.3 (approx.)
Estimated duration: 21 days (approx.)

Price range: relevant as long as GBPAUD remans below 1.6325.

Note: The potential drawdown is a re-test of 1.6085. If it occurs it is likely to be this week. This is a weekly entry that we were already aware of but refrained from it due to the potential drawdown. The announcement that may take place on 21 September may be sufficient to sustain GBP in the market.

There are some indications for a weak AUD, which is why we are opting for GBPAUD. In an event of further escalation in the tension that is emanating from North Korea GBPAUD is expected to hold.

05/09/17 UPDATE: EURNZD is trading at 1.6417 at the time of this writing.

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The Weekly Update: Trading the Euro During the North Korean Tension

EURNZD Daily Chart 06/09/17

(the screenshot of 05/09/17 was deleted by error, the above screenshot is from the following day)

We are closing 30% of the short trade at market price and shift the protective stop to the entry.

GBPJPY Trade Alert

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The Weekly Update: Trading the Euro During the North Korean Tension

GBPJPY Daily Chart 05/09/17

GBPJPY long at market price (ask 141.81)
Take profit: 144.50
Protective stop: 140.60
Risk Ratio (RR): 1 : 2.3 (approx.)
Estimated duration: 10 days (approx.)

Price range: relevant as long as GBPJPY remains below 142.00

Note: There was a dip lower in GBPJPY but a quick recovery was seen. It may suggest another leg lower is unlikely but cannot be invalidated. The potential drawdown is a re-test of 121.27.

07/09/17 UPDATE: Although it may appear to be a stop hunt as a short-lived spike was noted in NZDUSD, which triggered a spike in EURNZD, a new poll was released showing the opposition party are in the lead (New Zealand elections).

We are not re-entering EURNZD even though the recent gains are unrelated to the Euro. We already mentioned last week the polls could trigger unexpected volatility in NZD. From a technical angle this may be a re-test of 1.6620.

EURGBP Trade Alert

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The Weekly Update: Trading the Euro During the North Korean Tension

EURGBP Weekly Chart 07/09/17

EURGBP short at market price (0.9167)
Take profit: 0.8750
Protective stop: 0.9360
Risk Ratio (RR): 1 : 2.3 (approx.)
Estimated duration: 30 days (approx.)

Price range: relevant as long as EURGBP remains above 0.9120

Note: We are not expecting to be in a significant profit in today’s session as this is a weekly entry. We would have waited for the weekly close but we do not know whether the UK manufacturing PMI or the NFP will trigger heavy selling in EURGBP on Friday.

+100 pips potential drawdown in EURGBP is relatively large to absorb but the aim of the short trade in to increase our exposure to GBP prior to Theresa May’s brexit speech. We generally do not issue trades 24 hours prior to the NFP, it was a tough decision to make.

10/09/17 UPDATE: GBPJPY is trading at 142.64 at the time of this writing, we are closing 20% of the long trade at market price and shift the protective stop to the entry.

11/09/17 UPDATE: GBPAUD is trading at 1.6401 at the time of this writing, we are closing 20% of the long trade at market price.

11/09/17 UPDATE II: GBPJPY is trading at 143.75 at the time of this writing, we are closing 40% of the long trade at market price. This is daily entry as opposed to GBPAUD and EURGBP. We noted last week that we do not wish to remain in JPY for an extended period of time.

This will be the last partial realization in GBPJPY. The trade may either trigger the protective stop that we will adjust after the daily close, the take profit order tomorrow or we may manually exit the trade within the next 48 hours.

11/09/17 UPDATE III: GBPJPY is trading at 144.09 at the time of this writing.

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The Weekly Update: Trading the Euro During the North Korean Tension

GBPJPY 4hr Chart 11/09/17

We are closing the long trade at market price.

NZDCAD Trade Alert

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The Weekly Update: Trading the Euro During the North Korean Tension

NZDCAD Daily Chart 11/09/17

We decided to opt for NZDCAD and not to increase our exposure to GBP.

Initiating a long NZDCAD was also a tough decision as we are not pleased with the prior false entries but we can tolerate the stop if triggered, which cannot be said on GBPCAD given our GBP exposure. From a technical angle the entry is sufficient, which is why we are opting for the long trade.

NZDCAD long at market price (ask 0.8789)
Take profit: 0.8960
Protective stop: 0.8717
Risk Ratio (RR): 1 : 2.1 (approx.)
Estimated duration: 4 days (approx.)

Price range: Relevant as long as NZDCAD remains below 0.8815

Note: Should the price break below 0.8750 (which is the potential drawdown) it may head for the protective stop’s region. This is a daily entry.

12/09/17 UPDATE: NZDCAD is trading at 0.8850 at the time of this writing, we are closing 20% of the long trade at market price.

12/09/17 UPDATE II: NZDCAD is trading at 0.8870 at the time of this writing, we decided to close the long trade at market price.

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The Weekly Update: Trading the Euro During the North Korean Tension

NZDCAD Daily Chart 12/09/17

It was a tough decision but we are constantly making tough decision in the market. It can reach the take profit, however, the strength of the rally may encourage firm retracements. This was a daily entry and not a weekly entry.

12/09/17 UPDATE III: GBPAUD is trading at 1.6518 at the time of this writing, we are closing 20% of the long trade at market price. This was a tough decision but we find the partial liquidation to be appropriate. More data is due from the UK and Australia tomorrow ahead of the BOE monetary policy.

12/09/17 UPDATE IV: We marked 1.6620 on GBPAUD weekly chart. Although the high was 1.6389 it was within a near proximity to the potential resistance. GBPAUD is not EURUSD, it is extremely volatile. The most recent rally in GBPAUD is not encouraging. By the book we are meant to absorb 100 – 150 potential retracement. Bearing 1.6620 we do not wish to remain in the trade.

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The Weekly Update: Trading the Euro During the North Korean Tension

GBPAUD Weekly Chart 12/09/17

GBPAUD is trading at 1.6567 at the time of this writing, we are closing the long trade at market price.

EURUSD Trade Alert

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The Weekly Update: Trading the Euro During the North Korean Tension

EURUSD Daily Chart 13/09/17

EURUSD long at market price (ask 1.1887)
Take profit: 1.2090
Protective stop: 1.1804
Risk Ratio (RR): 1 : 2.3 (approx.)
Estimated duration: 7 days (approx.)

Price range: relevant as long as EURUSD remains below 1.1900

Note: This is not an orthodox entry but we found the potential take profit to justify the risk. This is daily entry. The key support is at current levels and at 1.1820, which is the potential drawdown.

14/09/17 UPDATE: We are not entirely pleased with the progress of EURUSD. The dip lower failed to reach 1.1820, which means it may take place tomorrow. There is no guarantee it will to do so but we must anticipate all scenarios. We do not have a valid reason to exit the trade but we are closing 20% of the long trade at market price (1.1905).

15/09/17 UPDATE: EURUSD is trading at 1.1968 at the time of this writing.

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The Weekly Update: Trading the Euro During the North Korean Tension

EURUSD Daily Chart 15/09/17

We are closing 20% of the long trade at market price prior to the US economic data.

19/09/17 UPDATE: Reports regarding the future ECB monetary policy in October triggered the recent bearish spike in EURUSD. We suspect EURNZD short entry we noted may be due to a weak Euro due to the recent ECB reports.

We decided to close EURUSD long trade at market price (1.1970).


AS ALL THE SIGNALS IN THIS PAGE ARE CLOSED THE STRATEGIES ARE NOW ACCESSIBLE TO ALL TRADERS



The Weekly Update: Trading the Euro During the North Korean Tension

The Weekly Update: Trading the Euro During the North Korean Tension