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 price action in the Dollar Index is quite interesting at the moment. The index took out the recent high before sharply reversing to form a bearish engulfing candle on Thursday to form a minor double top. Friday saw some follow through and we are now back below the key 97.70 level. The sell-off looks to be mostly about profit taking although some market pundits have suggested that it is because of poor US data and rate cut expectations have subsequently increased. While it may be tempting for some to call for a top in the dollar we need to remember that the fundamentals have not really changed (one or two bad reports is not anything to panic about) and the recent market conditions have been range trading. The dollar is being sold on rallies and brought on dips within a broad uptrend (which made a new high only two days ago). Risk-off drivers are in play with major stock markets in the throes of forming potential triple tops. The escalation in trade wars is making the market nervous. Both sides are preparing for a long stand off. But of course this is exactly how skilled negotiators would prepare. So its hard to tell if this is a bump in the road or a actual roadblock. On top of this it’s hard to tell how this will impact the dollar. What we do know is that yields are higher in the US, economic performance is better, the central bank is being patient and the dollar uptrend is intact. Because of this, the safer bet is to continue to buy USD on dips. Note there is a holiday on Monday in the US (and UK) and this could lead to exaggerated moves (due to low liquidity), in particular due to the European elections on Sunday.
- Sell GBP/USD. – MT is bear normal. A morning star candlestick pattern has formed on Friday, more on the back of USD weakness than anything else. This could lead to a temporary bounce, though the long weekend in the UK could act as a circuit breaker. The big news in the UK is of course the resignation of PM May. Pundits are still trying to figure out what this might mean for Brexit, through the consensus is now the chance of a hard Brexit has increased. This uncertainly should keep the pressure on GBP and 1.24 remains a likely near term target. Bigger picture I still think there is a good opportunity to buy GBP, but we want to wait for a strong long-term signal first.
- Sell USD/JPY. – MT is bear normal. The reversal we talked about last week has proved only temporary and we are back in the bear MT. US bond yields have been falling with bonds such as attractive safe haven play at the moment. Stocks remain dicey and volatile. These factors both play into the yen’s hands. If stocks make new lows and the pair can hold below 109.00 then there is not much to stop a move to 108.00 or in the longer-term 105.00.
- Sell AUD/USD. – MT is bear normal. Price action is suggestive of a temporary bounce. This should provide a good selling opportunity. A strong technical rejection of 0.70 would be perfect. Bill Evan’s of Westpac has come out with a call for three rate cuts this year. This would halve the rate from it’s current level down to 0.75%. We should get one of these in June. Interestingly. Iron Ore prices and Aussie stocks are performing well. But this is not enough given the back-drop of rate cuts, trade wars and global risk off. Watch out for China data to under-perform in the coming week.
- Wait EUR/USD. – MT is sideways quiet. The bullish engulfing candle and associated price action is the mirror image of the dollar index (EUR is a major component of it) so the same applies here in reverse. Essentially that means sell EURUSD on rallies until proven otherwise. We actually have a sideways quiet MT and normally a break of this is a good selling opportunity in a bigger picture downtrend. We can watch for this – ideally with a fundamental catalyst. European data continues to be tepid so the divergence theme remains intact. The European elections are on at the moment with the first results out on Sunday. It is likely that the results will be pro-EU, but that there will be more support for anti-EU parties. This could lead to a gap on Monday and possibly volatile price action given the public holidays in the US and UK.
- Sell NZD/USD. – MT is bear normal. A bullish engulfing day formed on Thursday and the momentum followed through on Friday. This is not a strong sign of a technical bottom as yet. Kiwi remains weak after the RBNZ cut rates and with negative risk-sentiment. The target for this move remains 0.6450. The NZ government releases its budget next week, but this is not likely to move markets much.
- Sell USD/CHF. – MT bear normal. The large sell-off in stocks and oil on Thursday saw the pair benefit and we are now firmly within the downtrend. We can expect CHF to remain a safe-haven of choice if stocks continue to be pressured.
- Wait USD/CAD. – MT is sideways quiet. The Canadian dollar is perhaps fundamentally one of the more attractive options. Data has been strong, yield spreads have moved in favor of CAD and the BOC is upbeat. The recent sell-off in oil is the main negative. We have been stuck within a range for a fair while now. If the USD weakness continues a break below 1.3400 could be an interesting option.
- Buy EUR/GBP. – MT is bull normal. The trend in EURGBP in May has been relentless with the pair blasting through a couple of resistance levels. We have hit the next one now at 0.8850. Long’s might want to be a bit careful now as these extended moves have a habit of correctly sharply.
- Sell EUR/CHF. – MT is bear normal.
- Sell AUD/JPY. – MT is bear normal.
- Sell NZD/JPY. – MT is bear normal.
- Sell GBP/JPY. – MT is bear normal.
- Sell EUR/JPY. – MT is bear normal.
- Sell CAD/JPY. – MT is bear normal.
- Wait CHF/JPY. – MT is sideways normal.
- Wait GBP/NZD. – MT is sideways normal.
- Buy EUR/NZD. – MT is bull normal.
- Wait AUD/NZD. – MT is sideways quiet.
- Buy EUR/AUD. – MT is bull normal.
- Wait GBP/AUD. – MT is sideways normal.
- Sell AUD/CAD. – MT is bear normal.
- Sell GBP/CAD. – MT is bear normal.
- Wait EUR/CAD. – MT is sideways quiet.
- Sell NZD/CAD. – MT is bear normal.
- Sell GBP/CHF. – MT is bear normal.
- Sell CAD/CHF. – MT is bear normal.
- Sell NZD/CHF. – MT is bear normal.
- Sell AUD/CHF. – MT is bear normal.
- Wait Gold. – MT is sideways quiet.
- Sell Oil. – MT is bear normal.
- Sell S&P 500. – MT is bear normal.
- Wait DAX. – MT is sideways normal.
- Sell Nikkei. – MT is bear normal.
- Buy T-Notes. – MT is bull normal.
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(MT = Market Type: Click for more information on market types.)
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.