Forex Trading Opportunities for the Week Ahead 3 December 18: FXRenew

I plan my trading for the week ahead each weekend. Here are the Forex trading opportunities I will bestalking this week.

Note that this is my current view, but if market conditions change my view can change too. Generally I will trade in alignment with what I have noted here, though I will wait for a set-up before I enter. I base my view on technical and fundamental information. This is my beliefs and you are welcome to have opposite ones. Having a plan is more important than the actual direction for me. 

• Wait DXY.  – MT is sideways normal. The dollar index remains in the sideways MT. MT theory tells us that after rejecting resistance the most likely outcome is a period of consolidation after which a new trend breaks out. This period of consolidation is playing out now. The key to a potential change in direction for the dollar is a more dovish Federal Reserve outlook. Market participants believe their will be less hikes in 2019 than originally thought. We are seeing signs of this in Fed speak and the FOMC minutes. We can watch for further signs in Powell’s upcoming testimony this week. On the trade war front, Presidents Trump and Xi meet informally on 1 December to discuss trade. While there is a chance of a meaningful outcome, mostly likely it will be to agree to more talks, and there will not be anything said about halting upcoming US tariffs on Chinese goods. How this will impact the dollar? I’m not sure, price action has been inconsistent when related to trade war news. This week we have NFP to add to the picture. All in all I have switched from long USD to taking a short position with a wide stop (buying EURUSD). The risk reward is good if the dovish scenario does play out, but that is far from guaranteed so I will wait for more clarity before getting more aggressive.

• Wait GBP/USD. – MT is sideways volatile. Brexit is dominating the headlines and sentiment (of course). The EU has approved a Brexit deal but Prime Minister May needs to get it through UK parliament which is far from a done deal. The vote for this is on December 11th, after which a second vote could be held if the first vote is unsuccessful. The BOE has been outlining the negative consequences of a no-deal Brexit. For now the pressure will remain on GBP. Technically, we are near major support and if USD does weakening the pair could bounce from these levels, but that will likely be driven by the USD leg of the trade, unless we get some positive Brexit news surprises.

• Wait USD/JPY. – MT is sideways normal. I do suspect the key driver of USDJPY to be interest rate expectations. But, of course, JPY traditionally has benefited from risk-off flows when equities sell-off. The relationship seems to not be as strong right now, but if this bear MT does develop further then that correlation may come back into play and we see USDJPY much lower. Note that the BOJ continues to buy less bonds less often which is USDJPY bearish. Data was good out of Japan with the industrial output coming in twice what analysts expected. US bond yields are weakening.  Risks do seem skewed to the downside for the pair just now.

• Wait AUD/USD. –  MT is sideways normal. AUD is pressing against resistance at 0.73. A strong reversal pattern off these levels would be a nice technical sell signal. The picture is a bit bearish for AUD, which perhaps belies the recent uptrend. Iron Ore is breaking out to the downside. China PMI’s came in weaker than expected. House prices have been falling. The RBA (which meets this week) is not in a hurry to lift rates, though they will probably remain upbeat about the state of the economy. Stocks have been selling off which is traditionally bearish for AUD. The trade war situation is also bearish. The upshot of which, is if the technical pattern is strong enough, selling on a rejection of 0.73 might be a decent option.

• Wait EUR/USD. –  MT is sideways normal. There is a major reversal pattern in place on EUR, but as yet there has been no follow through. This can be expected, with consolidation often occurring after a rejection of support. The key driver of the next move in the EUR, I suspect, will be external. I.e. rate hike expectations in the US. Regionally, there has been some talk of the Italian government yielding to the pressure to reduce the budget deficit. The ECB’s Draghi retains confidence in economic performance but does acknowledge the risks. Data has not been great with disappointing PMIs and GDP, though wage growth is expected to accelerate this week. There are also concerns of US tariffs on European automobiles, but this has not been driving price action as yet. Wait for the direction to play out from here with a bias to buying.

• Buy NZD/USD. Trend –  MT is bull normal. Kiwi remains in an uptrend. The RBNZ lifted some mortgage restrictions allowing banks greater flexibility in lending to home buyers with smaller deposits which is a positive. This is on the back of banks reducing lending rates. Consumer confidence was healthy. There is a dairy auction on Tuesday. Prices have been falling with increasing production the culprit (though they are off 20% in recent times which is not great). Poor china data and trade war fears don’t help. Overall the Kiwi has been the strongest currency in recent times. There is no technical reversal pattern as yet so continue to buy.

• Wait USD/CHF.  – MT sideways normal. With the recovery in stocks this week, CHF strength has eased. Bigger picture price action is suggestive of more downside to come, but further consolidation here first should not be a surprise.

• Buy USD/CAD. Trend – MT is bull normal. CAD has been the weakest of the major pairs mostly due to the 35% fall in Oil price over the last couple of months. There are signs the oil price may stabilize around there levels on the back of possible production cuts. Much depends on how the BOC views this fall and if it will mean they push back their rate hike plans. There is currently a 70% probability priced in of a rate hike in Jan. Data has been alright out of Canada so this may support CAD too. Technically, we are nearing key resistance at 1.34. Keep buying for now.

• Wait EUR/GBP.  – MT is sideways volatile. Volatility remains high and we can expect the pair to be driven by Brexit news. Tread carefully.

Crosses

• Sell EUR/CHF. Trend – MT is bear normal. Continue to sell.
• Wait AUD/JPY. – MT is sideways normal. Wait.
• Buy NZD/JPY. Trend – MT is bull normal. Continue to buy.
• Wait GBP/JPY. – MT is sideways volatile. Wait.
• Wait EUR/JPY. – MT is sideways quiet. Wait.
• Wait CAD/JPY. – MT is sideways normal. Wait.
• Buy CHF/JPY. Trend – MT is bull normal.Continue to buy.
• Sell GBP/NZD. – MT is bear normal. Continue to sell.
• Sell EUR/NZD. Trend – MT is bear normal. Continue to sell, but watch out for a reversal.
• Sell AUD/NZD.  Trend – MT is bear normal. Continue to sell.
• Sell EUR/AUD. Trend – MT is bear normal. Continue to sell.
• Sell GBP/AUD. Trend – MT is bear normal. Continue to sell.
• Buy AUD/CAD. Trend – MT is bull normal. Continue to buy.
• Wait GBP/CAD. –  MT is sideways volatile. Wait.
• Buy EUR/CAD. Trend – MT is bull normal. Look to buy.
• Buy NZD/CAD. – MT is bull normal. Continue to buy.
• Wait GBP/CHF. – MT is sideways volatile. Wait.
• Sell CAD/CHF. Trend – MT is bear normal. Continue to sell.
• Wait NZD/CHF.  – MT is sideways normal. Wait.
• Wait AUD/CHF. – MT is sideways normal. Wait.

Other Markets

• Wait USDSGD.  – MT is sideways normal. Wait.
• Wait USDCNH. – MT is sideways quiet. Wait.
• Wait Gold. – MT is sideways normal. Wait.
• Sell Oil. Trend – MT is bear normal. Continue to sell.
• Wait S&P 500. – MT is sideways volatile. Wait
• Wait DAX. – MT is sideways normal. Wait.
• Wait Nikkei. – MT is sideways normal. Wait.
• Buy T-Notes. Trend – MT is bull normal. Continue to buy.

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(MT = Market Type: Click for more information on market types.)

Trend: Market is trending in the direction I have listed and I expect it to continue. 

Reversal: I am looking for a reversal against the current trend.

Breakout: The currency pair is breaking out of a range. 

About the Author

Sam Eder is a currency trader and author of the Definitive Guide to Developing a Winning Forex Trading System and the Advanced Forex Course for Smart Traders (get free access). He is the owner of  www.fxrenew.com a provider of Forex signals from ex-bank and hedge fund traders (get a free trial). If you like Sam’s writing you can subscribe to his newsletter.