Analyst Picks

Ilya Spivak , Sr. Currency Strategist

My Picks:  Short EUR/JPY at 124.03
Expertise:  Global macro
Average Time Frame of Trades:  1-6 months

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Talking Points:

  • EUR/JPY Strategy: Short at 124.03
  • Candlestick setup hints Euro down trend vs. Yen may be resuming
  • Short position looking for decline to test 123.00 figure once again

The Euro put in a bearish Dark Cloud Cover candlestick pattern after testing critical resistance, hinting a move lower against the Japanese Yen may be ahead. The reversal follows a test at the intersection of recently broken neckline support and the upper bound of a month-long down trend.

From here, a daily close below resistance-turned-support at 122.89 opens the door for a challenge of the 38.2% Fibonacci retracement. Alternatively, a push above the June 20 high at 124.65 sees the next major upside barrier at 125.82, a double top.

Risk/reward parameters appeared acceptable and a short EUR/JPY position was activated at 124.03. The trade initially targets 123.01, with a stop-loss to be triggered on a daily close above 124.65. Profit on half of exposure will be taken and stop moved to breakeven upon hitting the first objective.

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EUR/JPY Strategy: Down Trend May Be Resuming After Bounce
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Jeremy Wagner, CEWA-M , Head Forex Trading Instructor

My Picks:  Long EUR/USD
Expertise:  Elliott Wave, Technical Analysis
Average Time Frame of Trades:  2 days - 2 weeks

EUR/USD has been grinding sideways for the past month. This appears to be a sideways consolidation prior to another trend higher. From an Elliott Wave perspective, the wave count appears incomplete to the upside.

Long EUR/USD on a Dip

In the idealized picture above, it appears we are in wave (iv) of 3. If correct, we can anticipate possible stopping points for wave (iv) and trade in the direction of the larger trend, which is higher.

Interested in learning more about Elliott Wave Theory? Download the beginner and advanced guides.

EUR/USD 4 Hour chart with Elliott Wave labels (June 19, 2017)

On the live chart above, we see how a ‘c’ wave is needed to complete a flat pattern. Wave relationships put the potential stopping point for wave ‘c’ and wave (iv) near 1.10-1.11. Therefore, we will look to buy a dip into this price zone.

If price continues to drop below 1.0906, then the wave picture as established above is incorrect and we will need reassess the patterns.

As a result, a trader can use 1.0906 as a stop loss for any bullish trades.

We will target new highs above 1.13 and EURUSD may eventually see 1.16-1.17 on a successful breakout higher.

Sentiment is lining up nicely with the Elliott Wave picture. As we speak, live trader positioning is set at -2.3, which means 70% of traders are net short. We use this as a contrarian signal and want to look for areas to establish a long position. Learn more about trading with sentiment by downloading the IG client sentiment guide.

---Written by Jeremy Wagner, CEWA-M

Other recent articles by Jeremy:

Are we there yet? (EUR/USD)

USD/CAD Appears to Resume a Longer Term Downtrend

Follow on twitter @JWagnerFXTrader .

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Tyler Yell, CMT , Forex Trading Instructor

My Picks:  Bearish USD/CAD on BoC’s Hawkish Surprise & Fed’s Hawkishness In Doubt
Expertise:  Technical Analysis, Sentiment, Intermarket Analysis
Average Time Frame of Trades:  3-8 Weeks

Point to Establish Short Exposure: On pullbacks below 1.3390

Spot: 1.3212

Target 1:1.2970 (YTD Low)

Target 2:1.2460/2404 (Fib expansion target + 2016 low)

Invalidation Level:Close above 1.3390 (May 18 close)

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

Fundamental & Technical Focus:

The Canadian Dollar was not expected to steal the show this week given the FOMC announcement and the Bank of England’s first rate announcement after the fumbled UK snap election ahead of the formal Brexit negotiations, but that is exactly what happened. Earlier in the week, two central bankers in Canada, Deputy Governor Wilkins and BOC Governor Stephen Poloz provided the market with a dose of hawkish language that caused markets to begin pricing in a possible BoC rate hike in H2 2017.

Carolyn Wilkins said in a prepared text that the BoC, “will be assessing whether all of the considerable monetary policy stimulus presently in place is still required.” In other words, easing is no longer in the picture and tightening is now the question in play. On Tuesday, Poloz shared that while it’s too early to celebrate, the BoC sees that the “economy is gathering momentum” and the BoC’s interest rate cuts have “done their job amid the weakness in energy markets.

The comments allowed the Canadian Dollar to post its biggest two-day gain in a year vs. the USD, and the gains continued throughout the week. To be fair, the Fed had their own hawkish surprise on Wednesday, but there is the doubt that the Fed will be able to hold true to their hawkishness as US Data per the Citi Economic Surprise Index has hit its lowest reading (showing large and persistent economic disappointment relative to economists’ expectations) since 2011.

So after the dust settled on the week, it appears that the Bank of Canada is on the move when markets were focused on the mounting losses in Crude Oil. You can tell the market was surprised by looking at front-end yields from Canadian sovereign debt that moved much more than front-end US sovereign debt yields. The Canadian 2-year yield rose by 20% or 17bps as markets sold fear of sooner-than-expected BoC action. The front end yield on US sovereign debt is practically unchanged, and yields ended lower on the weak as weak US data continues to mount.

When looking at the price chart, you can see a potential behavioral shift is developing. You can see that a choppy uptrend from May 2016 in USD/CAD is in peril and a breakdown could bring a similar move lower as we saw in early 2016. If the breakdown extends, which this pick is anticipating, we could see a move to and through the current 2017 low and toward the 2016 low of 1.2460.

Join Tyler in his Daily Closing Bell webinars at 3 pm ET to discuss market developments.

Strong/ Weak Analysis for Friday, June 16, 2017

Bearish USD/CAD on BoC’s Hawkish Surprise & Fed’s Hawkishness In Doubt

Further BoC hawkishness could propel CAD vs. USD toward 2016 lows

Bearish USD/CAD on BoC’s Hawkish Surprise & Fed’s Hawkishness In Doubt

Created by Tyler Yell, CMT

Sentiment Analysis: Retail longs fight the trend in USD/CAD, possibly to their own peril

Bearish USD/CAD on BoC’s Hawkish Surprise & Fed’s Hawkishness In Doubt

USDCAD: Retail trader data shows 71.6% of traders are net-long with the ratio of traders long to short at 2.52 to 1. In fact, traders have remained net-long since Jun 07 when USDCAD traded near 1.35068; price has moved 2.1% lower since then. The number of traders net-long is 3.1% lower than yesterday and 27.0% higher from last week, while the number of traders net-short is 2.1% lower than yesterday and 25.4% lower from last week.

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

Happy Trading!

---

Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com

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Contact and discuss markets with Tyler on Twitter: @ForexYell

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David Song , Currency Analyst

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

EUR/USD struggled to hold its ground following the European Central Bank’s (ECB) June 8 interest rate decision as the Governing Council lowered its inflation forecast and intends to run its EUR 60B/month asset-purchase program for the foreseeable future. However, President Mario Draghi and Co. appear to be gradually changing their tune as officials now anticipate euro-area interest rates to ‘remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases.

Even though the ECB remains in no rush to remove the zero-interest rate policy (ZIRP), central bank officials appear to be soften the dovish outlook for monetary policy as they anticipate a stronger recovery, and the Governing Council may show a greater willingness to wind down its quantitative easing (QE) program over the coming months as ‘the risks surrounding the euro area growth outlook are considered to be broadly balanced.’ With that said, the euro-dollar exchange rate may continue to retrace the decline from earlier this year as the ECB shows a greater willingness to gradually move away from its easing-cycle.

In regards with the Federal Reserve, the fresh updates from Chair Janet Yellen and Co. may spark a larger correction in EUR/USD as the committee appears to be on course to deliver three rate-hikes in 2017, and the fresh batch of central bank rhetoric may heighten the appeal of the greenback should the Federal Open Market Committee (FOMC) unveil a more detailed exit-strategy. Nevertheless, the Fed may project a more shallow path for the benchmark interest rate as officials note ‘market-based measures of inflation compensation remained low; survey-based measures of longer-term inflation expectations were little changed on balance,’ and the greenback may come under pressure if the FOMC looks to further delay the normalization cycle.

Have a question about the currency markets? Join a Trading Q&A webinar and ask it live!

EUR/USD Daily

EUR/USD Daily Chart

The broader outlook for EUR/USD remains constructive amid the shift in market behavior, and the pair may attempt to mark fresh monthly highs over the coming days as long as it holds above the Fibonacci overlap around 1.1140 (23.6% expansion) to 1.1160 (38.2% expansion). However, the lack of momentum to test the November-high (1.1299) raises the risk for a near-term pullback in EUR/USD especially as the Relative Strength Index (RSI) comes off of overbought territory, with a break/close below the near-term support zone opening up the next downside region of interest around 1.0980 (50% retracement) to 1.1020 (50% retracement).

IG Sentiment

Retail trader data shows 29.6% of traders are net-long EUR/USD with the ratio of traders short to long at 2.37 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.06045; price has moved 6.2% higher since then. The number of traders net-long is 5.8% higher than yesterday and 4.9% higher from last week, while the number of traders net-short is 0.5% higher than yesterday and 2.7% lower from last week. For more information on retail sentiment, check out the new gauge developed by DailyFX based on trader positioning.

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

If you’re looking for trading ideas, check out our Trading Guides

--- Written by David Song, Currency Analyst

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

To be added to David's e-mail distribution list, please follow this link.

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Nick Cawley , Analyst

My Picks:  Pending Long GBP/JPY
Expertise:  Fundamental/Technical Analysis
Average Time Frame of Trades:  One to Several Weeks

Nick Cawley, Analyst, June 13, 2017

My Picks: Pending Long GBP/JPY

Expertise: Fundamental/Technical Analysis

Average Time Frame of Trades: One week to several weeks

New to the markets? See our Trading Guides.

GBP bulls should look at GBP/JPY as a potential long position despite the recent weakness in the pair. The British Pound has been under downward pressure in the last few days after the UK General election threw up a shock result with the ruling Conservative party losing its narrow majority in the House of Commons and instead having to forge an alliance with the Democratic Unionist Party (DUP) to continue ruling the country. Sentiment however has now turned slightly in favour of Sterling with the market expecting a slightly ‘softer-Brexit’ a positive for the UK currency.

Recent hard UK data also has given the GBP a boost with rising inflation - +2.9% vs a prior month’s 2.7% - likely to bring forward monetary tightening, although this may be many months in the future as Brexit negotiations continue to stay the Bank of England’s hand.

From a technical stance, the latest stochastics show the pair nearing the 20 level, normally a sign that the market is oversold. A look at the momentum indicator also highlights that while the pair remain in a downtrend, levels are becoming stretched at -1.910. In the last six weeks the momentum indicator has ranged between – 3.940 (May 29) and +8.314 (April28).

In addition, the latest moving averages point to potential downside although the pair are nearing the 100-day ma and need to trade above 141.20 – currently at 139.950at the time of writing - to signal a possible upside shift.

GBPJPY: Daily Timeframe (December 24, 2016 – June 13, 2017)

Pending Long GBP/JPY

Charts by IG

Check out our Free Online Foreign Exchange Trading University here

Entry – Set up long GBP/JPY position at 137.110 (Filled April 18 gap).

Stop – 20 ticks below 17 April (7-month) low at 135.400.

Target 1 June 2 high at 143.940.

Target 2 – 20 ticks below May 10 (6-month) high at 147.950

Looking for additional trade ideas? Read our quarterly review trading guide here

---Written by Nick Cawley, Market Analyst

You can follow Nick on Twitter @nickcawley1

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