The Weekly Update: Trading the Extraordinary FX Volatility

FX Outlook

We have seen a relatively volatile week in the Foreign Exchange (Forex) market as a result statements that were made by central banks in regards to future monetary policies. Bank of England (BOE) Carney affirmed the central bank will discuss rate hikes in its future monetary policies, which sent GBP higher against a basket of currencies.

This was of a course a very different Carney that suggested last week he is against rate hikes. As we updated via emails, Carney’s speech was intended to be delivered on Thursday after the BOE monetary policy. Due to the Grenfell Tower incident the speech was postponed to the following week and Carney did chose not to alter the text, which was a mistake as we clarified.

Mario Draghi remarks lifted the Euro against a basket of currencies. The ECB was displeased with the market reaction and issue an unusual statement that the market misunderstood Draghi, which lead to a short-lived bearish spike in EUR pairs and crosses.

As today is the monthly close we re-assessed our position on the market. Our preliminary analysis suggests we may be on the brink of a firm USD and JPY weakness. It will require more time to affirm this is the case, once we have a technical confirmation we are likely to focus on the Japanese yen (JPY). As noted in our prior updates, we have expected JPY weakness to continue but were unable to join the trend without a hefty stop.

Re-entering GBP at current levels is challenging due to the required stops. It may take us 14 days (approx.) to have a medium-term entry in GBP pairs and crosses with a reasonable stop unless we attempt an inraday entry throughout these 14 days. We are unwilling to opt for GBPNZD until we have more concrete evidence that the odds for a sideways activity are low.

NZD Trading Strategies

Reports last week suggested President Trump is considering tariffs on exported steel from several countries including China. According to these reports the tariffs that were due to be imposed last week were postponed until after the G20 meeting that is scheduled to take place at the end of the week.

NZDUSD Daily Chart

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The Weekly Update: Trading the Extraordinary FX Volatility

NZDUSD Daily Chart 02/07/17

EURNZD Daily Chart

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The Weekly Update: Trading the Extraordinary FX Volatility

EURNZD Weekly Chart 02/07/17

We have been tracking NZDUSD for some time. There is a short entry in the daily chart, the potential drawdown is fairly minimal (a re-test of 0.7368). The Caixin Manufacturing PMI (China) may be trigger for the initial weakness but based on the chart it is possible for the weakness to also begin in the middle of the week.

As we are aware of the potential USD weakness we may have the option to opt for EURNZD (support line has been adjusted) but with a greater cost. We will have to endure negative interest at the rollover (higher than NZDUSD) with a potential drawdown of approximately 150 pips.

The weekly chart demands a 500 pips, which we find excessively large. We may have the ability to tighten the protective stop (below 1.5420) but we are currently leaning towards NZDUSD. We may enter EURNZD should the price near 1.5420 although we are aware fully aware such weakness is not guaranteed to materialize.

We will decide how we wish to proceed with our signals after the opening of the Forex market.

NZDUSD Trade Alert

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The Weekly Update: Trading the Extraordinary FX Volatility

NZDUSD Daily Chart II 02/07/17

NZDUSD short at market price (0.7321)
Take profit: 0.7150
Protective stop: 0.7395
Risk Ratio (RR): 1 : 2.3 (approx.)
Estimated duration: 14 days (approx.)

Price range: Should NZDUSD trade below 0.7290 and you did not opt for the trade consider reducing the trade size or dismissing the entry.

Note: The potential drawdown is a re-test of 0.7368. We decided not to opt for EURNZD due to the potential drawdown but we may opt for the cross should it re-test the price region we mentioned in the weekly update.

03/07/17 UPDATE: NZDUSD is trading at 0.7297 at the time of this writing, we are closing 20% of the short trade at market price.

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The Weekly Update: Trading the Extraordinary FX Volatility

NZDUSD Daily Chart 03/07/17

We are not shifting the protective stop as we may still incur a kick to 0.7368. The partial is meant to reduce the holding costs of the short trade.

GBPCAD Trade Alert

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The Weekly Update: Trading the Extraordinary FX Volatility

GBPCAD 4hr Chart 04/07/17

GBPCAD long at market price (1.6809)
Take profit: 1.7180
Protective stop: 1.6715
Risk Ratio (RR): 1 : 3 (approx.)
Estimated duration: 7 days (approx.)

Price range: Should GBPCAD trade above 1.6850 and you did not opt for the trade consider reducing the trade size or dismissing the entry.

Note: This is a 4hr entry.

USDCAD Trade Alert

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The Weekly Update: Trading the Extraordinary FX Volatility

USDCAD Daily Chart 04/07/17

We will first highlight we are taking a risk by increasing our exposure to CAD.

The entry in USDCAD is fairly decent with a relatively tight stop. The recent GBPCAD weakness is not concerning us, it is a volatile cross.

USDCAD long at market price (1.2971)
Take profit: 1.3115
Protective stop: 1.2925
Risk Ratio (RR): 1 : 2.8 (approx.)
Estimated duration: 7 days (approx.)

Price range: Should USDCAD trade above 1.2995 and you did not opt for the trade consider reducing the trade size or dismissing the entry.

04/07/17 UPDATE: USDCAD triggered the protective stop, we are not re-entering the market. We are uncertain this is a stop hunt but we do know that the selling in USDCAD triggered numerous stops, which brought the pair down to its current levels. Canada Manufacturing PMI triggered the selling due to thin market conditions.

GBPCAD triggered the protective stop, we are not re-entering the trade. The pressure came from USDCAD, stops were already triggered on the last leg and selling resumed.

05/07/17 UPDATE: NZDUSD is trading at 0.7272 at the time of this writing, we are closing 10% of the long trade at market price prior to the FOMC minutes, stop was shifted 0.7317.

EURNZD Trade Alert

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The Weekly Update: Trading the Extraordinary FX Volatility

EURNZD 4hr Chart 05/07/17

EURNZD long at market price (1.5569)
Take profit: 1.6050
Protective stop: 1.5375
Risk Ratio (RR): 1 : 2.5 (approx.)
Estimated duration: 21 days (approx.)

Price range: Should EURNZD trade above 1.5620 and you did not opt for the trade consider reducing the trade size or dismissing the entry.

Note: Should EURNZD post a firm break below 1.5520 we may drift in a drawdown until next week as it increases the possibility of re-testing 1.5445. We will display the 4hr chart but we are heavily relying on the weekly chart.

There will be negative interest at the rollover, if time correctly we should be in some profit by the end of the week. It was a difficult decision but we decided to opt for the trade.

GBPNZD Trade Alert

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The Weekly Update: Trading the Extraordinary FX Volatility

GBPNZD 4hr Chart 06/07/17

GBPNZD long at market price (1.7812)
Take profit: 1.8110
Protective stop: 1.7660
Risk Ratio (RR): 1 : 2.5 (approx.) (corrected to 1 : 2)
Estimated duration: 5 days (approx.)

Note: The trade must be in some profit within the next 12 hours as we used the 4hr chart. This is quite a risk we are taking but we decided to opt for GBPNZD. The potential drawdown is 40 pips. Again, this is a risk we are will to take. If we note GBPNZD is breaking below the support in the chart that we will shortly update we may downsize the position.

We shifting EURNZD protective stop to the entry.

06/07/17 UPDATE: EURNZD is trading at 1.5647 at the time of this writing, we are closing 20% of the long trade at market price. The partial closure is intended to reduce the holding costs of the long trade at the rollover. We may shift the protective near the 4hr close.

06/07/17 UPDATE II:  The gains took place at a rapid pace, which means we may witness a +100 pips retracement before a resumption of the uptrend. We are uncertain whether such a retracement will indeed take place but it must be anticipated. This is simply due to the recent rally.

If such a retracement was to take place it may attempt to trigger stops in the process. The only was reason we are exposed to this is because we used the 4hr chart.

As a stop hunt may be carried we are not shifting the protective stop and rely on the weekly chart. This means the trade may be in a drawdown until next week. We will require another leg higher in order to shift the protective stop, which may reduce the possibility of a stop hunt.

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The Weekly Update: Trading the Extraordinary FX Volatility

EURNZD 4hr Chart 06/07/17

We would rather not realize more partials but we have little choice. As a precaution are closing 10% of the long trade at market price (1.5683).

06/07/17 UPDATE III: We are shifting NZDUSD protective stop to 0.7305.  Today is the third consecutive session the priced rejected the lows, which is why the stop was shifted. In an event we are close to the market prior to the US Non-Farm Payrolls (NFP) we may exit the trade.

06/07/17 UPDATE IV: GBPNZD was unable to break above the prior 4hr high, which lead to the recent weakness. In regular circumstances we will not be taking any action but we would like to control our exposure to NZD. GBPNZD is trading at 1.7818 at the time of this writing, we are closing 10% of the long trade at market price.

07/07/17 UPDATE: NZDUSD is trading at 0.7282 at the time of this writing. We are closing the short trade at market price.

07/07/17 UPDATE II: EURNZD is trading at 1.5666 at the time of this writing, we are closing 10% of the long trade at market price and shift the protective stop to 1.5595. These measures were taken as the spread will widen when the data (NFP) is released.

We are also shifting GBPNZD protective stop to 1.7540 prior to the Non-Farm Payrolls.

07/07/17 UPDATE III:  EURNZD is trading at 1.5671 at the time of this writing, we are closing the long trade at market price.

This is a 4hr entry, the current range does not reduce the possibility of re-testing the lower support (marked in orange in the chart). It was a tough decision but we have to follow the chart that we used despite our projections for NZD.

09/07/17 UPDATE: We were expecting GBPNZD to break outside the range, which did not take place. We are still uncertain USD and JPY weakness has ended and cannot opt for these currencies at current levels. We are unable to tighten the stop at current levels, however, should we note further weakness in the cross we will begin downsizing the position.

11/07/17 UPDATE: GBPNZD is trading at 1.7833 at the time of this writing, we are closing 20% of the long trade at market price.

11/07/17 UPDATE II: GBPNZD is trading at 1.7873 at the time of this writing, we are closing 30% of the long trade at market price and shift the protective stop to the entry. It is a fairly aggressive maneuver but it is a 4hr entry and not a daily or weekly entry.

11/07/17 UPDATE III: From a technical angle, GBPNZD failed to successfully break outside the range, which is the technical reason for the recent weakness. GBPNZD triggered the protective stop at the entry, we have ended the trade with some profit.


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



The Weekly Update: Trading the Extraordinary FX Volatility

The Weekly Update: Trading the Extraordinary FX Volatility