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 made gains last week until Friday when the currency sold off after President Trump tweeted that the US will be implementing a series of Tariffs on Mexico unless they stop the flow of illegal immigrants into the US. The bearish price action may also be in response to month end flows and it is certainly due to risk aversion with USDJPY leading the pack lower. The index remains right around the the key 97.70 level and is just off the recent highs. USD bears should not get too excited yet. A clean break of .97 would move the index into a daily bear MT, but we need to remember that USD has been in buy dips mode for a long time and unless the Fed becomes a lot more dovish I suspect it will remain in that mode. The market is pricing in a high chance of a rate cut later this year. This is in contrast to the Fed’s stated stance. The June FOMC meeting will give us some tips as to if the trade concerns are enough to change the Fed’s mind. If they do start to hint at a rate cut, this erodes one of the USD’s main advantages over it’s counterparts – the positive carry you get for holding USD. If they reiterate their current stance, then this may force the rate cut crowd to reevaluate their position, leading to USD buying. This type of divergence in views is often an opportunity. Another important driver is safe haven flows. There is a triple top forming on major stock markets and we are seeing investors rotate out of stocks into bonds. Buying US bonds requires buying USD. This is of course positive for the dollar. On the flip side it is driving yields lower. Still, unless the Fed cuts, US bond yields remain an attractive proposition. Risk aversion is also good for the dollar due to it’s liquidity. The dichotomy is that if the trade disputes are seen to be worse for the US than it’s counterparts (which they are not as yet), then the USD becomes less appealing. As you can see there is a variety of conflicting forces at work. In these situations I prefer to trust the trend.
- Sell GBP/USD. – MT is bear normal. The pair remains in a clear bear MT. The bullish engulfing candle on Friday is not strong, but may lead to the temporary upside. Given the turmoil is UK politics and the uncertainty about Brexit, 1.23 remains the longer-term target.
- Sell USD/JPY. – MT is bear normal. JPY remains the currency of choice in this risk adverse environment. Stocks are volatile and vulnerable. Technically, the picture is not pretty for stocks and market participants view the escalating trade war as negative. Sliding US bond yields add to the bearish picture for USDJPY. 107.50 would be the next obvious target but 105.00 is not out of the question.
- Sell AUD/USD. – MT is bear normal. Price action is suggestive of a temporary bounce. The bearish picture for the Aussie is well known to the market. Trade wars are not good. The RBA may cut rates up to three times this year and data has not been great. Risk off in stocks is not generally good for the Aussie, although this is less so now interest rates are much lower than in the hey days of the carry trade. Despite these factors, the pair rose slightly in the last week. Perhaps this is a sign that the negativity is priced in. Or perhaps it is in anticipation of this coming weeks RBA announcement. I suspect traders will struggle to see any long-term upside is AUD just yet and that selling rallies will remain the most productive strategy. Ideally a move to .70 would act as a selling opportunity.
- Wait EUR/USD. – MT is sideways quiet. There was an attempted breakout of the sideways quiet MT on EURUSD, but a morning star candlestick patterns suggests we will stay range bound for now. The pair is still holding below the key 1.12 figure. European data has been poor and the Italian budget deficit conflict with the EU has reared it’s ugly head again. These factors combined with the positive carry you get for being short the pair should keep the EUR as a sell on rallies proposition. Note, the ECB meets this week and this event could prove to be a catalyst for a break of the range one way or the other depending on how dovish they are.
- Sell NZD/USD. – MT is bear normal. The pair remains a sell for now, but price action is suggestive of a period of consolidation. The NZ budget was released last week, but did little to move the market. Eyes will remain firmly on trade concerns and risk-off flows. There is a dairy auction on Tuesday. The last auction saw a small slide in prices.
- Sell USD/CHF. – MT bear normal. Risk off flows have been benefiting CHF. The pair remains a sell.
- Wait USD/CAD. – MT is bull normal. A bearish hammer off the breakout level puts the recent bull MT at risk. The BOC outlined a number of concerns at it’s meeting last week. Oil has been getting a bit smashed which is not helping CAD. Probably the favorable (for CAD) yield differential is what is holding the pair back from a further rise.
- Buy EUR/GBP. – MT is bull normal. There is some sign that bull MT may top out here. The pair rejected the recent high and the formation of a bearish hammer candlestick pattern is suggestive of at least some temporary downside. Continue to buy, but be cautious here.
- 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.
- Wait EUR/AUD. – MT is sideways normal.
- Sell GBP/AUD. – MT is bear normal.
- Wait AUD/CAD. – MT is sideways normal.
- Sell GBP/CAD. – MT is bear normal.
- Wait EUR/CAD. – MT is sideways quiet.
- Wait NZD/CAD. – MT is sideways 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.
- Buy Gold. – MT is bull normal.
- Sell Oil. – MT is bear normal.
- Sell S&P 500. – MT is bear normal.
- Sell DAX. – MT is bear 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 Consistent Trader 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-industry traders (get a free trial). If you like Sam’s writing you can subscribe to his newsletter.