Analyst Picks

Kristian Kerr , Sr. Currency Strategist

My Picks:  Lowering Stop in Short USD/JPY
Expertise:  Technical, Time Cycles
Average Time Frame of Trades:  Few Days - Few Weeks

USD/JPY continues to come under pressure and fell to levels today not seen since the surprise QE announcement by the BoJ in October of 2014. This is obviously a zone of psychological importance so the volatility we are seeing (and talk of possible intervention) around it, this morning is not all that surprising. The exchange rate is also well below its 1-year standard deviation channel which is usually a decent metric for identifying markets that are oversold so the risk is rising for a multi-day counter-trend recovery in my view. This is all countered by the clear year-long head & shoulders pattern that was triggered earlier this week as it suggests the risk for a broader liquidation remains high. I am lowering my stop to just above 113.60 and letting things play out.

Short USD/JPY from around 121.50. Took profit on ½ of original position near 119.38. Lowering stop on remaining position from 117.60 to just over 113.60.

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Tyler Yell, CMT , Forex Trading Instructor

My Picks:  Bearish AUD/USD Lacking Upside Push into 1-Yr Resistance Point, Downside Favored
Expertise:  Elliott Wave, Technical Analysis, Intermarket Analysis
Average Time Frame of Trades:  1 Week - 3 Weeks

Bias: AUDUSD Lacking Upside Push into 1-Yr Resistance Point, Downside Favored

Point to Establish Short Exposure: Breakdown Below 0.6972

Spot: 0.7093

Target 1: 0.6826 January 15/20 Low

Target 2: 0.6775 127.2% Expansion of the August 24-December 4 Range

Invalidation Level: Close below 0.7169 (November 30th low)

Highlights:

  • China’s Future Monetary Policy Remains a Negative Impact for AUD
  • FXCM Trading Book Shows Flat Retail Sentiment as AUD/USD Has Traded Sideways Since August
  • USDOLLAR Has Been Sold On View That Fed Will not Hike In 2016, Yet Yellen Hasn’t Been So Dovish

Fundamental & Technical Focus:

2016 has been a confusing year for the Australian Dollar. Most of the uncertainly lies around how negatively impacted the Australian Dollar could be by China’s turbulence as they transit from a production based economy to a consumption based economy. However, the confusion now remains around the potential of capital controls so that the PBoC doesn’t have to spend as much of the FX reserves as they have trying to support the currency from too much volatility. Recent readings from the PBoC show drawdowns of their reserves to be averaging a little north of $100B per month.

Should China work to prevent capital fleeing the country, Australia could be one of the worst affected by the decision. While the situation is pure speculation now, it aligns with the larger bearish sentiment in global risk markets where AUD often does not fare well. Even though the US Dollar has not fared well in February as speculation about rate cuts start to build, the head of the Fed was not dovish enough on Wednesday’s testimony to support many of those USD bearish claims.

The culmination of this trade working out would be the US Dollar having a future that is not priced in with hikes coming from the Fed this year and the AUD being hurt by the potential for China to curb capital flows from citizens. Such a move could also bring the RBA to look at cutting interest rates from an elevated level from many other central banks.

Should the scenarios come onto the scene, we would likely see new lows in the AUDUSD. If we do not, we likely will not, and that is why this in an entry order based trade and not an “at market” trade.

Chart:

Bearish Downside Favored As AUD/USD Lacking Upside Push into 1-Yr Resistance

Technically, a few points stand out to me, least of which is that is coming up against elevated levels on the 1-yr Standard Deviation Channel. The channel is one reason why I think selling a breakdown makes more sense than selling a pull back. Additionally, the price has also come into the 78.6% Fibonacci retracement at 0.7220 level before turning back lower 260 pips. If the first move lower was a sign of things to come, the trend lower could resume soon.

Shorter-Term Chart (8 = H4) Red Channel Remaining is 1-Year 2nd Std. Dev.

Bearish Downside Favored As AUD/USD Lacking Upside Push into 1-Yr Resistance

AUD/USD – Recently Topped At 26-Week Moving Average & Std. Deviation Channel

Second resistance: 0.7240 Feb 4 & Std. Dev. Band Resistance

First resistance: 0.7172 January 6 high

Spot: 0.7095

First support: 0.7023 21-DMA

Second support: 0.6972 Feb. 9 low

Sentiment (per our Speculative Sentiment Index):

Bearish Downside Favored As AUD/USD Lacking Upside Push into 1-Yr Resistance

The ratio of long to short positions in the AUDUSD is nearly flat lining at 1.04 as 51% of traders are long. Short positions are 7.2% below levels seen last week. We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are long gives signal that the AUDUSD may continue lower. The trading crowd has grown further net-long from yesterday but unchanged since last week. The combination of current sentiment and recent changes gives a further bearish trading bias

The Trade:

I am looking to sell AUD/USD if we break below the February 9 low of 0.6972. I would like to sell on a break of support as opposed to a retracement because the sentiment doesn’t provide its usual cues and if the USDOLLAR doesn’t strengthen (needed for trade to work) the price could move back up to the top for the longer-term range in the 0.7300/7400 zone. Upon this sellable break, a stop would be placed 100 pips above entry near 0.7092. The target is at 0.0.6775, which is a 127.2% expansion of the August 24-December 4 Range. This target aligns with a favorable risk: reward ratio that our Traits of Successful Traders report found to be one of the best things a trader can do to ensure long-term sustainability in your trading.

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Walker England , Forex Trading Instructor

My Picks:  EUR/CAD Trend Retracement
Expertise:  Technical
Average Time Frame of Trades:  1 Day - 1 Week

Target 1:1.5110 (February Low)

Target 2: 1.4731 (100% Fib Extension)

Invalidation: Breakout above 1.5890 (61.8% Fib Retracement)

EUR/CAD Daily Chart

EUR/CAD Retraces to Resistance

(Created using Marketscope 2.0 Charts)

The EUR/CAD has retraced to key resistance after declining as much as much as 995 pips from the 2016 high at 1.6105. Current resistance is found at 1.5723 using a 61.8% Fibonacci retracement that measures the distance between the previously mentioned high and standing February low at 1.5110. If today’s daily bar closes below this value, it opens the market to potentially turn back towards values of support. Potential bearish targets for the EUR/CAD include the current low at 1.5110 and a 100% Fibonacci expansion near 1.4731.

In the event that prices fail to turn lower, traders should continue to monitor the 78.6% retracement value at 1.5890. A move above this point suggests that a longer-term bullish move may be developing for the pair. In this scenario, traders may begin looking for the EUR/CAD to challenge and breakout above the current yearly high.

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Jeremy Wagner , Head Forex Trading Instructor

My Picks:  Long EUR/USD
Expertise:  Elliott Wave, Technical Analysis
Average Time Frame of Trades:  2 Days – 2 Weeks

The EUR/USD is pressing a resistance level that is critical from an Elliott Wave technical analysis perspective.

We’ve written about several times through December 2015 how the September 3, 2015 low of 1.1087 is critical to the medium term outlook for the pair. A break above 1.1087 essentially eliminates the immediate bearish outlooks and increases the probability of a push to 1.14-1.17.

As a result, we will look to initiate a long position on a break above 1.1090 with an ultimate target near the August 2015 high near 1.17.

Market Interpretation

Market Condition: Breakout

Bias: Long EUR/USD

Entry: 1.1090

Stop Loss: 1.0800 (-290 pips)

First Target: 1.1400 (+310 pips)

Second Target: 1.1720 (+630 pips)

EUR/USD Tests Key Resistance 1.1087

In the article below, a break above 1.1087 eliminates scenario #1 and leaves scenarios #2 & #3 still viable. The preferred count, scenario number 3 is show above and suggests we are in a ‘C’ wave higher that likely retests 1.1720.

FXCM’s Speculative Sentiment Index (SSI) is favoring this move as well as we’ve seen the sentiment reading drop like a rock from -1.4 to -2.2. Price tends to move opposite of SSI so with SSI dropping, look for price to continue higher.

Watch the live SSI feed near this 1.1087 critical level. If SSI continues to drop on a break higher, that increases the probability of scenario #3 in the December 11, 2015 post below.

Suggested Reading: Buy or Sell – EUR/USD Prepares for FOMC Meeting

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Surprised that the EURUSD might increase? Read the Q1 2016 EUR Forecast for a description of why a period of range might soon come to an end. [Free registration required]

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