The entire week was extremely quiet, with very narrow trading throughout the week as the markets were void of any significant news impact. But last night at the Jackson Hole Symposium, both Fed chief Janet Yellen and ECB chief Mario Draghi injected volatility back and more importantly, changed the dynamics of the EUR/USD.
EUR/USD surged from 1.177 to as high as 1.1941 before closing at 1.192 – a first Weekly break and close above 1.19 in more than 2 years since 2015.
On the H4, it was a clear cut successful textbook-style inverted H&S breakout, with the 2015 high acting as the neckline to breach.
Technically, EUR/USD should be poised for a continuation to the upside in the subsequent days to weeks as there are no near term resistance for now, except to crack and close above 1.2 perhaps?
Upon opening bell, EUR skyrocketed to the moon, strengthening massively against all other currencies, after news broke that Emmanuel Macron and Marine Le Pen are through to the second and final round of the Elections.
I had a bullish inclination on the EUR/USD end of last week. Even though it was in the right direction in the end, I did not enter the trade because of the huge uncertainty of holding it over the weekend.
If I was wrong, the magnitude of losses due to this large gap would’ve caused some damage.
My opinion for now is not to touch any EUR pairs for these 2 weeks due to the Elections and any surprise outcome will not respect any technical or fundamental understanding.
The gap has already done its damage to accounts and chart patterns; give it time to settle down and reshape.
EUR/AUD is possibly forming the right shoulder of the H&S pattern.
If it is successful, this should take us all the way down to 1.38742 region.
Note that it has rejected nicely almost exactly at the same zone as the left shoulder.
Going down another time frame lower, we can see that the upward momentum is increasing at a decreasing rate.
Looking top-heavy and possibly ready for a good reversal, especially from C-D-E.
Furthermore, it has rejected the top of the left shoulder region at least 5 times, which should be telling.
The focus for the upcoming week will centre around GBP, with the other pairs taking a backseat.
UK Prime Minister Theresa May is expected to kick start the United Kingdom’s departure from the European Union.
It will happen on 29 Mar and I’m expecting spreads to be widened more than usual and GBP-related pairs to be highly volatile – perhaps why GBP/JPY has yet to make a clear directional push, being extremely choppy.
No clear bias from me, just another wait-and-see situation.
The DXY is still trapped within the 99-100 zone, with declining or less-significant movement for the USD-related pairs over the past week.
Trading USD-pairs should be tricky again for this week.
I’m still biased towards a break of the textbook head and shoulders neckline overall.
JPY-pairs are currently making a recovery after being pummeled pretty badly through the past week, with USD/JPY leading the way with a convincing superficial rejection of 110.6 area.
I am expecting the recovery across the JPY-pairs to be short-lived before it gets punched back down again.
Overall sentiment is very bearish for me.
As for EUR-pairs, not much comment on it, except that the EUR bulls have run its course and its about time it retreated a little.
On the financial newsfront, not much going on except for the Brexit-launch on 29 Mar.
Meanwhile, keep your risk in check and trade safe.
Currently have no positions open since the start of the week, most of my shortlisted pairs have been invalidated and waiting for new signals to show up.
Another week of patient waiting and sitting on my hands.
JPY pairs were hammered yesterday while the rest are all still stuck in limbo – no decisive movement yet.
DXY is now back down to <100 after last night, currently trading in a tricky range between 90-100 again.
Although my general bias is a medium-term bearish outlook for the Dollar, but do be careful when trading USD-related pairs for now as it is not going to be a smooth ride. Unless either 90 or 100 is broken decisively, expect erratic behaviour every now and then.
On the other hand, NZD is having its monthly RBNZ cash rate announcement tomorrow at 4:00 AM Singapore time, so do watch your risk on that front as well – from my experience, NZD movements tend to be pretty powerful when it comes to cash rate releases.
No clear bias on NZD from me.
Last night’s FOMC was largely predictable by most traders – in the sense that all sentiments of a rate hike has been fully priced in over the past few weeks.
In my previous post, Where is DXY (Dollar Index) headed now? and Weekly Analysis, I mentioned that DXY will still give way to the downside despite a rate hike of 25bp.
Indeed, USD/XXX pairs all fell pretty harshly.
Being a strong believer of technical analysis, there was simply NO reason for USD to climb, despite what Yellen said.
Previously, I have also shared with you how the gurus trade the big news – Weekly Focus/News Trading Strategy.
Similarly, I positioned myself well in the day and took a +4.35% equity gain out of last night’s movement.
This managed to push my equity to further highs, which also crashed through my psychological growth barrier.
Moving forward, there is still the BOJ, SNB and BOE decisions later on in the day.
No immediate plans to trade today since too much volatility on multiple currency fronts is not what I am looking for.
Shall take a step back and wait for new opportunities to present themselves.
Thursday, usually around late morning/early noon – BOJ Rate Release
Thursday, 4:30PM – SNB Rate Release
Thursday, 8:00PM – BOE Rate Release
(All in GMT +8, Singapore time)
So if you’re trading on Thursday, do take note of the above events and trade safe.
I will be monitoring if the USD will still give way to the downside, following the assumption that whatever expectations of a rate hike has already been priced in.
If it hikes, this will be the first rate hike of 2017, with the previous hike on Dec 14 2016. I am personally expecting a 25bp increase.
On the JPY front, I will be looking for bearish opportunities within the JPY cross pairs, especially GBP/JPY – which has the potential to free fall on the Daily timeframe.