What can I say?
There are not many times that I am lost for words… but fair play to Draghi.
The reaction he received from the markets to the ECB Monetary policy announcements and his press conference last Thursday, must have had him checking his calendar to check to see had his birthday and Christmas rolled into one!
I always plan what my approach is going to be ahead of big news events; Trade, or not trade. I have either a bearish or bullish bias in my mind pre the news release and finally I select one, two or maybe three “go to” pairs to focus on.
Draghi pulled it off…
He delivered what I would describe as a HAWKISH move but with DOVISH undertones and the market bought it as he provided a lesson to all central bankers on how to do it as he jawboned the euro lower.
While I admired Draghi’s abilities, from a trading perspective, I didn’t react well, one of my worst ever trading reactions. I decided enough was enough, I was expecting levels to hold, which did not. I will NOT chase currencies lower on high beta news events, that, in my opinion is just stupid and high risk. I scalped a bit, made a few $$$, but vis-à-vis my supporting subscribers I screwed up big time. I did not react fast enough, and I decided that enough was enough and went to watch the World Cup Russia v Saudi Arabia.
When I came back to my screens, Holy Mother of God…. I did not expect the depth of the selloff that had happened.
Where next for the EUR/USD?
Here is what is going through my mind at the moment vis-à-vis the single currency in no particular order….
- CENTRAL BANK MONETARY POLICY DIVERGENCE (FED v ECB)
- BREXIT
- TRADE WARS (USA v EUROPEAN UNION)
- ITALY (BONDS – NEW GOVERNMENT – CAD TRADE DEAL)
- GERMANY (COALITION WOBBLES)
It’s not an extensive list by any stretch but, when combined this list has the ability if all hit around the same time to send the EUR./USD sub 1.1000. Personally, I think when the dust settles that level will feature a great deal in conversations.
Back in early 2017 when the EUR/USD was at 1.0340, there were calls for below parity. Listening to some of the “Pundits!” it was just a waiting game for the announcement on CNN that hell had in fact frozen over!
Mind you, CNN could not announce that unless TRUMP was directly involved. For those of you not privy to U.S. TV stations, CNN in the U.S. only has one subject and has had that same subject for over two years… TRUMP.
I digress…
The charts below are the EUR/USD daily and monthly plus the USD index (DXY) daily charts.
Let me make the following observations below each chart looking at matters from my perspective:
- Long-term, we are in a down sloping channel, that has been very well respected.
- The channel is 8/9 years old and has to be taken VERY seriously.
- It is about 1,500 pips wide, which as you can see has allowed for many powerful FX moves whilst being contained within the channel parameters.
- The “NUT TO CRACK” is the multiple previous horizontal support / resistance levels from 1.1450 to 1.1570. A break lower through 1.1450 will open up 1.1200 and then 1.1000 in my opinion.
- To break the “NUT” we will need a geopolitical event in my opinion.
Pick one from my list above!
A couple of interesting points to mention here.
- The BEAR FLAG measured move extension confluences with the 261.8% Fibonacci extension of the last move off the lows to highs. This comes in basically at 1.1000.
- Beyond this level there is “GAP FILL” required from April 2017 at 1.0740.
EUR/USD SUMMARY:
In my opinion moves back to 1.1640-1.1650 look like great short opportunities.
Right now, given the Central Bank Monetary Policy divergence, the single currency is in my opinion a “SELL THE RIPS” trade opportunity.
We must however bear in mind that any moves lower will not be in a straight line. It could take several months for the single currency to make its move lower.
What I will say and emphasize, is that the Central Bank Divergence is a huge factor to bear in mind when looking to place trades that you want to stay live in for more than a couple of hours.
Do not long-term trade against a Central Bank unless you enjoy pain. There will be periods of USD weakness moving forward but FUNDAMENTALLY I cannot see these being anything or than a short-term correction or consolidation within the overall direction.
Given ALL factors at hand after the FED, ECB and BOJ, the three largest Central Banks of the G7, the USD stands alone with its HAWKISH Monetary Policy position and forward guidance is as HAWKISH as it can be. This is in a direct contradiction to the positions of both the ECB and BOJ.
- I have been pushing this chart on TWITTER quite a bit of late via @pipaccumulator.
- Pre the ECB I had a BEAR FLAG set up. That has gone now, and the previous BULL FLAG which I thought would be redundant is now back in play. The measured move is 96.46.
- “IF/ SHOULD” …. the BULL FLAG plays out, where would that place the EUR//USD?
I would say somewhere between 1.1200 and 1.1300.
- In my opinion there would be SERIOUS USD momentum should the BULL FLAG play out and a strong possibility of a squeeze higher.
Could 100.00 be a target, maybe a revisit to the TRUMP high of 103.80?
This would have the EUR/USD sub 1.1000.
Those are my takeaways from it all, time will tell what will happen.
I would enter a word of caution here, after such a large move lower with all the chart indicators in “oversold” areas, be careful selecting your entry level.
The TRADE WARS are heating up as well, so one may say that EUR cross-rates may offer a better opportunity. The EUR/JPY is one to think of given its proximity to China and flight to safety issues.
FOREX REVIEW:
1. FX – FORWARDS, BACKWARDS & SIDEWAYS:
1.1. THIS WEEKS TRADE INFORMATION: ECONOMIC DATA:
NOTE: Only the items that interest me are listed here.
1.2. THIS WEEKS TRADE INFORMATION: GEOPOLITICAL EVENTS:
1.3. BIAS CHART – USD MAJORS SUPPORT and RESISTANCE:
1.4. USD INDEX (DXY) OVERVIEW – MY THOUGHTS:
Looking at the chart below: –
- Pre the ECB I had a BEAR FLAG set up. That has gone now, and the previous BULL FLAG which I thought would be redundant is now back in play. The measured move is 96.46.
- “IF/ SHOULD” …. the BULL FLAG plays out, where would that place the EUR//USD?
I would say somewhere between 1.1200 and 1.1300. - IN my opinion there would be SERIOUS USD momentum should the BULL FLAG play out and a strong possibility of a squeeze higher.
Could 100.00 be a target, maybe a revisit to the TRUMP high of 103.80?
This would have the EUR/USD sub 1.1000.
The USD is like a freight train running down a hill at the moment. We are due to consolidate following big FED and ECB moves.
A week ago, technically we looked short being the obvious direction. Now, we are looking upwards!
There is a quote from an old UK Prime Minister, Harold Wilson, who said that “A week is a long time in politics”.
I can say the same thing about FX. In the past week we have seen Technicals blown away and now new Technicals being positioned in place.
1.5. USD MAJORS – TRADING CHARTS
EUR/USD:
A couple of interesting points to mention here.
- The BEAR FLAG measured move extension confluences with the 261.8% Fibonacci extension of the last move off the lows to highs. This comes in basically at 1.1000.
- Beyond this level there is “GAP FILL” required from April 2017 at 1.0740.
- This is without doubt in my mind a “SELL THE RIPS” currency pair given all the facts provided at this present time.
- Pullbacks to 1.1640- 1.1650 are, in my opinion, great shorting opportunities.
GBP/USD:
No change in thoughts from last week.
My DOUBLE TOP pattern is in play as you can see on the chart below. The 200 DAY SMA (Green line) should now act as resistance and the downside move should see an attack on 1.3300 and if the double top plays out the measured move is to 1.3030.
This is a very difficult pair to trade as many people think it’s going to move much higher before it resumes its downtrend. The chart can be interpreted as constructive to the long side. For now, I would be very careful trading the GBP based upon the fact that Theresa May has a BREXIT House of Commons vote to contend with this week and the rhetoric between the UK and EU is ramping up.
AUD/USD:
We are now well below the trend line support that will now act as resistance. This pair looks broken and whilst below 0.7520 it is a “SELL THE RIPS” opportunity.
NZD/USD:
We are heading nicely towards trend line support at 0.6920.
A break through this level should set up a 0.6850 test. I still believe ultimately that the John Key low of 0.6500 will be tested this year.
We need to get back above 0.7000 for the bulls to have any real say in my opinion.
USD/CAD:
We are now breaking out higher and, in my opinion, could possibly move as high as 1.3600 looking at the triangle break pattern.
It is a powerful move higher given the fact that we have broken through a 2-year-old trend line.
It is still a danger to get too heavily involved with this pair given U.S. / Canada tariff issues. I think NAFTA is now off the table until 2019. TRUMP however could withdraw from NAFTA and this should send this pair much higher, very quickly based upon uncertainty etc.
USD/CHF:
Looks like a nice BULL FLAG coming into play very soon.
USD/JPY:
A nice triangle break will be on the cards very soon.
At the moment the pair looks bullish and a bullish break would favour many people. However, the pattern has been maintained in a very orderly fashion and it is quite likely that we see this pair pushed lower from trend line resistance c.111.50.
Time will tell.
2. THE WEEKLY FX PREMIUM TRADING SUMMARY:
2.1. WEEKLY FX PREMIUM PERFORMANCE HIGHLIGHTS:
June so far: 376 net profitable pips
2018 TOTAL: 6,788 net profitable pips
2.2. WEEKLY FX PREMIUM PERFORMANCE SUMMARY:
(Incorporating the last 5 WEEKLY FX PREMIUM TRADES)
You can get on board and join my FX PREMIUM subscribers and subscribe to the “10,000 pips a year” group from as little as CAD$10 for the first 10 days and then CAD$150.00 per month, currency conversions for CAD$150 are roughly as follows: –
- GBP £90 per month
- EUR €100 per month
- USD $120 per month
- JPY 12,700 per month
- AUD $150 per month
Go to my website www.weeklyfxdrivethru.comfor more details under the TAB – “SUBSCRIBE”.
3. WEEKLY FX PREMIUM SUBSCRIBERS ONLY:
3.1. TRADING REVIEW:
3.2. OPEN TRADES… HOW WILL I TRADE THIS WEEK:
3.3. SENTIMENT,FUNDAMENTAL & MACRO THOUGHTS:
3.3.1. OVERVIEW OF MY MACRO THOUGHTS & IDEAS:
3.3.2. THE MARKET SENTIMENT CHART:
3.4. CURRENT LIVE TRADES & LIMIT ORDERS:
3.4.1. CURRENT LIVE TRADES:
3.4.2. CURRENT LIMIT ORDER TRADES:
3.4.3. SPECIFIC TRADES RELATED TO BREXIT:
3.5. FX BROKER NEWS:
4. THE FINAL SHOT:
Nothing more to add here, I have said enough except,
As usual…
Always remember longevity in Forex trading can only be achieved through trading with good RISK and MONEY MANAGEMENT, and above all set your position sizes in accordance with the size of your account and allow for some flexibility.
Scott Pickering
The Pip Accumulator
Twitter: @pipaccumulator