Analyst Picks

David Song , Currency Analyst

My Picks:  Bullish EUR/USD
Expertise:  Fundamental and Technical
Average Time Frame of Trades:  2 - 10 Days

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EUR/USD continues to approach the August 2015-high (1.1714), with the pair breaking to fresh monthly highs even as the European Central Bank (ECB) remains in no rush to remove the zero-interest rate policy (ZIRP).

The reaction to the ECB interest rate decision suggests there’s budding speculation for a ‘taper tantrum’ as the Governing Council will discuss the fate of the Public Sector Purchase Programme (PSPP) in the autumn. With the non-standard measure set to expire in December, President Mario Draghi and Co. may start to wind down its asset-purchases over the coming months as ‘incoming data, notably survey results, continue to point to solid, broad-based growth in the period ahead.’

Unless the ECB extends the deadline for the quantitative easing (QE) program, the euro-dollar exchange rate may exhibit a bullish behavior throughout the second-half of the year as the ECB gradually drops its dovish outlook for monetary policy.

EUR/USD Daily

EUR/USD Daily Chart

DailyFX 3Q Forecasts Are Now Available

Topside targets remain on the radar for EUR/USD as the pair clears the 2016-high (1.1616), with both price and the Relative Strength Index (RSI) preserving the bullish trends from earlier this year. A closing price above the 1.1670 (78.6% expansion) hurdle may spur a more meaningful run at the August 2015-high (1.1714) as the momentum indicator appears to be pushing back into overbought territory, with the next region of interest coming in around 1.1810 (61.8% retracement) to 1.1860 (161.8% expansion).

EUR/USD Sentiment

Track Retail Sentiment with the New Gauge Developed by DailyFX Based on Trader Positioning

Retail trader data shows 24.6% of traders are net-long EUR/USD with the ratio of traders short to long at 3.06 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.06683; price has moved 9.2% higher since then. The number of traders net-long is 15.0% lower than yesterday and 9.8% lower from last week, while the number of traders net-short is 11.1% higher than yesterday and 12.0% higher from last week.

For More Updates, Join DailyFX Currency Analyst David Song for LIVE Analysis!

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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Michael Boutros , Currency Strategist

My Picks:  Near-term Setups in USD/JPY, EUR/GBP & NZD/USD
Expertise:   Short-term Technicals
Average Time Frame of Trades:  1-3 Days

Here's an update on the setup's I’ll be tracking into the weekly open. Find a detailed, in-depth review of all these setups and more in this today’s Strategy Webinar.

USD/JPY 240min

USD/JPY 240min Chart

Price broke below channel support late-last week and after reversing of key resistance at 114.37/60. The focus range to start the week is 112.32-113 with a downside break (favored) targeting more significant confluence support at 111.57/78- this threshold is defined by the 100-day & 200-day moving averages and converges on the June opening range highs & near-term channel support. A breach above Friday’s range high would be needed to shift the focus back towards the monthly highs.

Join Michael on July 21st for a Live Webinar on the Foundations of Technical Analysis- Register for Free Here!

USD/JPY Sentiment
  • A summary of IG Client Sentimentshows traders are net-long USD/JPY - the ratio stands at -1.07 (48.2% of traders are long)- Weak bullish reading
  • Long positions are 7.8% higher than yesterday but 1.5% lower from last week
  • Short positions are 22.6% higher than yesterday and 5.3% lower from last week
  • Whilewe typically take a contrarian view to crowd sentiment, positioning is more net-short than yesterday but less net-short from last week and the combination of current sentiment and recent changes gives us a further mixed USDJPY trading bias. That said, I’ll be looking for a near-term recovery to fade while below structural resistance.

What do shifts in retail positioning hint about the broader USD/JPY trend? Learn how Sentiment can help your trading in this free guide!

EURGBP: The pair posted an outside weekly-reversal bar off confluence resistance last week, keeping the focus lower while below the January highs at 8852. A break below near-term slope support highlighted last week targets subsequent support objectives at 8700 & 8664. Keep in mind we have the UK Consumer Price Index (CPI) on tap overnight.

See our New 3Q projections in the DailyFX Trading Forecasts.

NZD/USD:We’ve been looking for Kiwi exhaustion for the past few weeks and I still think the pair remains at risk while below daily slope resistance discussed in today’s webinar. That said, IG Client Sentiment has continued to pullback from extreme short-side positioning and leaves the long-bias vulnerable heading into the start of the week while below resistance. An assertive break below the 2017 high-day close at 7301 would be needed to validate a near-term reversal in the pair.

---Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michaelon Twitter @MBForex contact him at mboutros@dailyfx.com or

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Tyler Yell, CMT , Forex Trading Instructor

My Picks:  Bullish EUR/GBP on Pullback to 0.8760
Expertise:  Technical Analysis, Monetary Policy, Intermarket Analysis, Fixed Income
Average Time Frame of Trades:  2-5 Weeks

Point to Establish Long Exposure: Retracement to 0.8760

Spot: 0.88202

Target 1:9000 (Psychological Level)

Target 2:0.9225 (2016 High)

Invalidation Level:0.86516 (June low)

If you are looking for other strong trading ideas, check out our Trading Guides

Fundamental, Sentiment, & Technical Focus:

First, we look at the fundamental picture, which does not appear to be improving, as GBP Bulls would like. On Thursday, The Bank of England released their Q2 2017 Credit Conditions Survey, which may point that BoE Governor Carney will be stock in the realm of Japan as a central banker who holds back on normalization as others plunge forward like the Bank of Canada and the ECB.

In the 2Q Credit Conditions Survey, the reinvestment expectations from businesses were particularly concerning. On page 10 of the survey (access here), business loan demand for the purpose of “capital investment,” which is accounting speak for hard assets to grow and sustain earnings in a business is shrinking and has been falling since early 2016. In July, we heard Carney & Co. say that they would be focusing on the reinvestment of businesses as one of three key metrics that composed of Brexit negotiations outcomes that would be favorable to the UK economy, business growth, and wage inflation.

That would help us to believe the BoE, and their respective MPC may be left behind as other’s pull forward and favor looking tactically for GBP opportunities in the near-term.

When looking at options pricing, which is a compliment to sentiment analysis, EUR/GBP is worth our attention. Across G10 + Crosses, the premium being paid by options traders for upside protection (read: EUR/GBP breakout) is the highest over the coming month for EUR/GBP. The second and Third place goes to EUR/USD, and EUR/CAD respectively. This EUR focused options premium shows that options traders expect both EUR strength and GBP weakness particularly, but also more broad EUR strength.

As of July 13, the premium being paid for out of the month EUR/GBP calls over the coming month to out of the money puts of 0.47X, and currently leads 23 currency pairs that make up G10 + crosses with the highest out of the money call premium.

For more ideas like this, check out our FREE live weekly webinars here

On the technical side (chart below), EUR/GBP may provide better levels to sell, but I will be watching 0.8760/50 as a zone of support to begin building exposure. Given the choppy nature of this market for 2017, it’s hard if not impossible to pinpoint when a breakout will occur from a range. However, the scene appears set for a move back to the 2016 high of 0.9225 if not higher. A break above 0.8949, the July 12 high will be an indication that further Sterling weakness or EUR strength is upon us.

IGCS Highlight:

Bullish EUR/GBP on Increasing GBP Risks & Options Pricing

EURGBP: Retail trader data shows 38.8% of traders are net-long with the ratio of traders short to long at 1.58 to 1. In fact, traders have remained net-short since May 16 when EURGBP traded near 0.84424; theprice has moved 4.6% higher since then. The number of traders net-long is 7.9% lower than yesterday and 25.2% lower from last week, while the number of traders net-short is 23.5% lower than yesterday and 16.5% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURGBP prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURGBP trading bias. (Emphasis mine)

EUR/GBP remains in Bullish posture as UK Fundamentals deteriorate:

Bullish EUR/GBP on Increasing GBP Risks & Options Pricing

Created by Tyler Yell, CMT

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Happy Trading!

Tyler Yell, CMT

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Martin Essex, MSTA , Analyst and Editor

My Picks:  Take profit on long EUR/CHF trade
Expertise:  Economics and Technical Analysis
Average Time Frame of Trades:  Few days - Few weeks

Want to know where EUR could be heading? Check out our new Trading Guides: they’re free and have just been updated for the third quarter of 2017

A week ago, we wrote that EUR/CHF looked to have made a decisive break to the upside and was now well placed to return to the highs between 1.11 and 1.12 reached in the first half of last year.

As the chart below shows, the 1.11 level has now been hit and it might be sensible to take profits.

Chart: EUR/CHF Daily Timeframe (April 2017 to July 13, 2017)

Take Profit on Long EUR/CHF Trade

Chart by IG

The cross has been in an uptrend for the best part of a month but has now dipped just below the support line connecting the higher lows in the channel. It’s not a decisive break yet and the price could yet rise further but, for now, it might be wise to book the profit made.

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

For trading advice, check out our live webinar calendar

For help trading profitably, you can also check out the IG Client Sentiment Data

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James Stanley , Currency Strategist

My Picks:  long USD/JPY, long GBP/USD
Expertise:  price action + macro
Average Time Frame of Trades:  few days - few weeks

- For trading ideas, please check out our Trading Guides. And if you’re looking for something more interactive in nature, please check out our DailyFX Live webinars.

To receive James Stanley’s Analysis directly via email, please sign up here.

This setup looks to take advantage of US Dollar volatility as we head into the end of the week.

I’ve recently caught my final limit in my last USD/JPY setup from the previous Analyst Pick. In that one, I had paired up long EUR/USD with long USD/JPY in the effort of hedging around the U.S. Dollar ahead of an expected interest rate hike from the Federal Reserve. The long EUR/USD piece was stopped out at break-even the morning of the rate hike, while the USD/JPY part of the setup hit its final limit at 113.25. (Another long EUR/USD setup was enacted last week, and remains active with one target remaining).

I had taken a GBP/USD setup earlier in the week and ate a stop, and at this point I believe that I was simply too early on the continuation trade. Since then, we’ve seen a return of bullish price action in Cable as the pair has broken-above a bull flag formation, (discussed in our GBP/USD Technical article earlier in the morning); so I will use this pair as my weak-USD leg for this USD-hedge. The long-USD portion will be in USD/JPY, as the pair appears to be in the process of working on a ‘higher-low’.

We still have considerable headline risk with day two of Fed Chair Janet Yellen’s Congressional testimony, so stops will be widened out to give each of these trades some room to work. This means position sizes will be lowered accordingly to compensate for wider stops.

Long USD/JPY at Market

Stops below 111.70

Break-even stop move at 114.00

Target 1: 114.50

Target 2: 115.50

Target 3: 117.00

Long USD/JPY, Long GBP/USD

Chart prepared by James Stanley

Long GBP/USD at Market

Stops below 1.2800

Break-even stop move at 1.3000

Target 1: 1.3100

Target 2: 1.3250

Long USD/JPY, Long GBP/USD

Chart prepared by James Stanley

--- Written by James Stanley, Strategist for DailyFX.com

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Contact and follow James on Twitter: @JStanleyFX

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