Analyst Picks

James Stanley , Currency Strategist

James Stanley
My Picks:  EUR/USD, NZD/USD, AUD/USD
Expertise:  price action - macro
Average Time Frame of Trades:  few days - few weeks

- DailyFX Quarterly Forecasts have been updated for Q2, and are available directly from the following link: DailyFX Trading Guides, Q2 Forecasts.

- 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.

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

US Dollar in the Spotlight

This week was marked by a continuation of US Dollar strength, and the Greenback has started to test an interesting area of resistance as we approach the end of the month of May. We’re currently testing the 38.2% Fibonacci retracement of the downtrend that started last year, and this level is also confluent with the 38.2% retracement from the larger uptrend that started in 2014 and ran into January of 2017. Adding a bit more interest to the equation is the fact that next week is heavy with USD risk. The calendar is loaded with USD announcements for every day of the week after Monday, which is a holiday in the US, and each of these data points will be key as markets get ready for the June rate decision out of the FOMC.

A rate hike at the June meeting has long been expected. The bigger question will get a bit of clarity from the bank’s dot plot matrix, and that revolves around how many additional hikes the Fed thinks that they might be able to push through in 2018. That FOMC rate decision is now just a few weeks away, circled on the calendar for June 12-13.

Below, we look at a series of setups designed for next week’s trade. There is a theme here, as there’s been a bit of bifurcation showing across USD-pairs. While both EUR/USD and GBP/USD have taken on a very bearish tonality; AUD/USD and NZD/USD are showing signs of bottoms being-in-place. We parse through each of these below.

AUD/USD – Staying Long, Looking for Re-Entry

This was one of our favored short-side USD setups a couple of weeks ago and we just hit the first target on the setup earlier this week; and this happened despite the fact that USD-strength has remained in a very visible manner, AUD/USD has continued to put in bullish price action. This keeps the pair as a point of interest for short-side USD approaches, and if this resistance in DXY does hold, the long side of AUD/USD could be of considerable interest.

At this stage, bullish approaches would be looking for prices to remain above the .7500 psychological level, with the swing-low of .7486 being used to help with stop placement. Stops can be set below that swing, allowing for initial profit targets at the level of .7634. At that stage, stops can go to break-even, and secondary targets can be directed towards .7680 and then .7750.

AUD/USD Four-Hour Chart: Bullish Continuation Potential

audusd four hour chart

Chart prepared by James Stanley

Bullish NZD/USD on Range-Fill Potential

NZD/USD was a big mover in late-April, early-May, and this was previously our favored way of looking for USD strength as that theme was coming-in. Behind that setup was a multi-year range that’s held in NZD/USD since the summer of 2016, and in five short weeks prices made a fast jaunt from resistance all the way down to support.

This week saw a bit of grind at that longer-term support as bulls have started to make their way back into the pair, and similar to AUD/USD above, the lack of bearish follow-thru even when the US Dollar was continuing to stage a run of strength was rather impressive; and highlights the potential for strength in the pair should the US Dollar begin to weaken.

NZD/USD Weekly Chart: Prices Spend Week Holding Near Range Support

nzdusd weekly chart

Chart prepared by James Stanley

Managing risk in this setup can be done in two different ways. Longer-term outlooks can directly trade the range, looking to get a stop below the absolute low in the formation, around .6781, to take on approximately 145 pips of risk (prices as of this writing). That could be justified with a topside move back to the .7200 level, with a near 1:2 risk-reward ratio. Secondary targets for that approach can be cast deeper into resistance, towards the .7335 level.

Alternatively, traders can take a shorter-term stance on the matter, looking to trade a shorter-term reversal of the prior bearish theme after a ‘big’ area of long-term support has started to come into play. This approach would be focusing-in on the higher-lows that have printed throughout this week, while looking to start managing the position a bit more actively once we got back to the .7000 big figure. This approach could look at stops below last week’s low of .6849, with initial targets set to .7000. Stops can to go break-even at that point, with secondary targets cast towards .7050, .7100 and then .7200.

NZD/USD Hourly Chart: Bullish Reversal Potential in Shorter-Term Move

nzd/usd hourly chart

Chart prepared by James Stanley

EUR/USD: Deeper Breakdown Potential as Crisis Potential Edges-Higher

In April of last year, Euro markets gapped-higher and never really looked back, spending most of the rest of the year trending-higher. The catalyst there was the resolution of the first round of French elections, and when it became obvious that the second largest economy in Europe would not be faced with a decision between two candidates that many in the press called or considered ‘extreme,’ the Euro jumped-higher and continued to rally in a rather impressive manner.

It appears as though that shoe has now moved to the other foot. Italy is in the midst of a bit of political uncertainty, and there’s a fear that this could grow into Spain to produce another crisis in Europe. In Italy, a coalition government between the 5-Star movement and the far-right League have many worried about Italy’s continued role in the Euro-Zone. Italian bond yields have shot-higher this week, and this has helped to drive a deeper run of weakness in EUR/USD.

We had previously triggered short positions in the pair off of a re-test of 1.2000, and that setup has limited out; so the complication at this point is one of re-entry while the pair sits at multi-month lows, and there aren’t any great near-by points of support to use for short-side breakout approaches.

This opens up the possibility of lower-high resistance inflections, and we’ve added three different levels that can be used inside of 1.1850. The first of these levels would be geared for aggressive approaches, using the recent swing around 1.1676. The deeper two levels, around 1.1750 and 1.1790 can be utilized with swing and longer-term approaches.

EUR/USD Hourly Chart: Deeper Bearish Potential as Political Risk Takes the Spotlight

eur/usd hourly chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

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

Contact and follow James on Twitter: @JStanleyFX

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Tyler Yell, CMT , Forex Trading Instructor

Tyler Yell, CMT
My Picks:  Bearish EUR/JPY
Expertise:  Intermarket Analysis, Derivatives, Technical Analysis
Average Time Frame of Trades:  1-3 Weeks

The BIG Idea on Bearish EUR/JPY

EURJPY is back on the radar after hitting the lowest levels since June, and the trend lower may continue for reasons that JPY bulls have come to love.

In short, Japan remains one of the world’s largest creditors, and when risk-sentiment turns sour, Japan is often the first to respond. The drama in Italy and Spain have caused sharp repatriation of JPY as the JPY has strengthened to the highest level since June against the EUR, and further drama may take EURJPY lower toward the lower 120 JPY per EUR zone.

Another way you can look at this relationship is by charting JPYEUR as opposed to EURJPY. This is a natural inverse but helps to visualize how JPY is strengthening as the BTP-Bund spread blows out above 200bps. This week, Allianz said they view a likely move toward 300bps.

Italian Drama Is Showcasing A Strengthening Yen

Please add a description for the image.

Data source: Bloomberg

Options have been clear in that global investors are set to protect against further JPY gains and particularly against the EUR. The correlation of falling EUR/JPY has aligned with a widening BTP-Bund spread which measures perceived risk of sovereign debt between Italy and Germany.

Increasing Premium for EURJPY Puts Favors Lower EURJPY Spot

Please add a description for the image.

Data source: Bloomberg

Traders can also see this relationship via the options market. Risk reversals are a simple to visualize way of understanding where the perception of risk is skewed. The chart above shows the ratio over a 3-month tenor.

A falling risk reversal means that puts, a bet on downside prices, are receiving a premium to calls over a fixed time-frame and tend to pull down the spot price.

Technically Speaking

Point to Establish Short Exposure: Pull-back to 129 JPY to EUR

Spot: 127.5 JPY to EUR

Target: 124 JPY to EUR, prior resistance, Fibonacci level

Invalidation Level: 131.3 May 22 high

If you are looking for other strong trading ideas, you may enjoy our FREE Trading Guides

The BIG Picture on EUR/JPY:

Bearish EUR/JPY on Accelerating Italian Political Drama

Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

IG Client Sentiment Highlight: EURJPY may continue to fall based on contrarian bias

Bearish EUR/JPY on Accelerating Italian Political Drama

Chart created by Tyler Yell, CMT

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EURJPY prices may continue to fall.

More for your trading:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q2 have a section for each major currency, and we also offer a excess of resources on USD-pairs such as EUR/USD, GBP/USD,USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our popular and free IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a surplus of helpful trading tools, indicators, and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions.

Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feedhas intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

---Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.

Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.

Discuss this market with Tyler in the live webinar, FX Closing Bell, Weekdays Monday-Thursday at 3 pm ET.

Talk markets on twitter @ForexYell

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Ilya Spivak , Sr. Currency Strategist

Ilya Spivak
My Picks:  Short USD/JPY at 110.09
Expertise:  Global macro
Average Time Frame of Trades:  1-6 months

USD/JPY TRADING Strategy: SHORT at 110.09

  • Yen looks to extend gains after US Dollar uptrend breaks down
  • Price action powered by risk aversion linked to trade war fears
  • Down move marks continuation of decline from December 2016

Find out what other traders’ USD/JPY positions say about the on-coming price trend!

The US Dollar looks likely to suffer deeper losses against the Yen after prices slid below trend support guiding them higher since late March. A look at the four-hour chart reveals prices tellingly retested the broken downside barrier as resistance and held there, bolstering the case for bearish conviction.

US Dollar vs Japanese Yen - 4-hour chart

The perennially anti-risk Japanese unit launched broadly higher amid as trade war fears resurfaced. US President Donald Trump expressed displeasure with bilateral US/China negotiations and later went on to call for a probe of auto imports that seems reminiscent of the run-up to the hike in steel and aluminum tariffs.

Turning to the daily chart, the move is revealed to come after a rejection at falling trend line resistance capping the upside since mid-December 2016. Support lines up in the 107.83-108.83 congestion area, with a break below that targeting a chart inflection point at 106.78

Yen Looks Poised to Build on Gains vs US Dollar

Risk/reward parameters appeared attractive and a short position was activated at 110.09, initially targeting a descent to test support near the 109.00 figure. A stop-loss will be activated if the longer-term falling trend line is breached on a daily closing basis.

FX TRADING RESOURCES

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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Nick Cawley , Analyst

Nick Cawley
My Picks:  Pending Long USDJPY on Further Weakness
Expertise:  Technical and Fundamental Analysis
Average Time Frame of Trades:  One Day to One Month

Check out our New Trading Guides: they’re free and have been updated for the second quarter of 2018

USDJPY Short-Term Sell-Off Does Not Change the Medium-Term Trend

The latest risk-off move has seen USDJPY move sharply lower and test the lower boundary of the uptrend started in late-March. The news Wednesday that the US has launched a national security investigation into car and truck imports, sparked fears of a new round of tariffs. With potential trade wars back in the headlines, the safe-haven JPY received a boost, despite the negative effect any new tariffs would have on the Japanese automobile sector.

USDJPY has rallied off a low of 104.634 on March 25 and peaked at 111.398 on May 21. This solid uptrend is currently being tested around the 109.680 which coincides with the 50% Fibonacci retracement of the December 6 to March 25 move. The pair have also just broken below the 200-day moving average around 110.165.

Fundamentally the US dollar remains strong with another two or potentially three 0.25% interest hikes expected in 2018, with the next one a near certainty in June. The interest-rate sensitive 2-year UST currently yields 2.525%, just off its recent near-decade high at 2.595%, and further downside yield moves are likely to be very limited.

To give us flexibility and protection for a further escalation of any negative trade news, we would look to buy USDJPY at the 50% Fibonacci retracement level around 108.493. On the upside we will place two profit targets of 109.70 and 110.80 along with a tight stop-loss at 107.70 – just below the top of the reverse head and shoulder on the April 23 bull candle.

The IG Client Sentiment Indicator shows retail are 51.2% long USDJPY – normally a mildly bearish contrarian indicator – but recent changes in positioning highlight a mixed trading bias.

USDJPY Daily Price Chart (April 2017 – May 24, 2018)

USDJPY - Pending Long on Further Weakness

Entry Point: 108.500.

Target 1: 109.70.

Target 2: 110.80.

Stop-Loss: 107.70.

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

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David Song , Currency Analyst

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

EUR/USD bounces back from a fresh 2018-low (1.1717) as a growing number of Federal Reserve officials tame bets for four rate-hikes in 2018, but the summary of the European Central Bank (ECB) meeting may keep the pair under pressure as the Governing Council remains reluctant to move away from its easing-cycle. At the same time, recent price action suggests the bearish momentum remains in play as the Relative Strength Index (RSI) continues to flash an extreme reading, with euro-dollar at risk for further losses as long as the oscillator sits in oversold territory.

Comments from Atlanta Fed President Raphael Bostic suggest the central bank will continue to normalize monetary policy over the coming months, but there appears to be limited interest in extending the hiking-cycle as the 2018 voting-member on the Federal Open Market Committee (FOMC) anticipates ‘two more’ rate-hikes over the remainder of year. In turn, Chairman Jerome Powell and Co. may utilize the FOMC Minutes to anchor interest rate expectations, and the central bank may show a greater willingness to tolerate above-target price growth for the foreseeable future as ‘market-based measures of inflation compensation remain low.’

Meanwhile, the ECB may largely endorse a wait-and-see approach for monetary policy as the Governing Council struggles to achieve its one and only mandate for price stability, and the central bank may merely stick to the current script as ‘measures of underlying inflation remain subdued and have yet to show convincing signs of a sustained upward trend.’ As a result, more of the same from President Mario Draghi and Co. may produce headwinds for the Euro as the ECB continues to expand its balance sheet. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

EUR/USD Daily Chart

Image of EURUSD daily chart

EUR/USD snaps the series of lower highs & lows from the previous week, with the failed attempt to 1.1670 (78.6% expansion) to 1.1680 (50% retracement) raising the risk for a near-term rebound in the exchange rate. However, the Relative Strength Index (RSI) continues to flash an extreme reading as it sits in oversold territory, with euro-dollar at risk of a further decline as long as the oscillator holds below 30. In turn, the break of the December-low (1.1718) keeps the 1.1670 (78.6% expansion) to 1.1680 (50% retracement) region on the radar, with the next region of interest coming in at the November-low (1.1554).

For more in-depth analysis, check out theQ2 Forecast for the Euro

Additional Trading Resources

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2018.

--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

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Martin Essex, MSTA , Analyst and Editor

Martin Essex, MSTA
My Picks:  Prepare to Short EURCHF
Expertise:  Economics and Technical Analysis
Average Time Frame of Trades:  Next few days

EURCHF has fallen steeply since May 14, dropping in six of the past eight sessions, and could now be poised for an even more significant decline. However, it might be wise to wait a little longer before shorting the cross.

Looking first at the weekly chart, there are two important trendlines to take note of: the first connecting the 2015 lows (after the January crash) with the 2017 lows, and the second joining the 2017/18 lows. The former is still some way away but the price is currently sitting right on the latter.

EURCHF Price Chart, Weekly Timeframe (May 2015 – May 2018)

Latest EURCHF weekly price chart.

Chart by IG

This can be seen more clearly on the daily chart below. The price has already fallen through the 100-day, 50-day and 20-day moving averages so it is clearly in a downtrend but it would be useful to see a clear decline through the trendline support for confirmation – particularly as there is now an “oversold” warning from the 14-day relative strength index, or RSI.

EURCHF Price Chart, Daily Timeframe (November 17, 2017 – May 22, 2018)

Latest EURCHF daily price chart.

Chart by IG

Once that support is breached, the initial target would be the February 27 low at 1.1482, followed by the February 8 low at 1.1447. As for the upside, there is now very strong resistance just below the psychologically important 1.20 level, which capped the price in the second half of April and into May.

Before that, the price would have to move back above all three of the moving averages mentioned, which should slow down any attempt to rally. The downside is therefore favored over the upside, but waiting for the trendline breach would be better for all but the bravest.

Resources to help you trade the forex markets

Whether you are a new or an experienced trader, at DailyFX we have many resources to help you: analytical and educational webinars hosted several times per day, trading guides to help you improve your trading performance, and one specifically for those who are new to forex. You can learn how to trade like an expert by reading our guide to the Traits of Successful Traders.

--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

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Tyler Yell, CMT , Forex Trading Instructor

Tyler Yell, CMT
My Picks:  Bearish NZD/USD on pullback toward 0.7000
Expertise:  Intermarket Analysis, Technical Analysis
Average Time Frame of Trades:  1-3 Weeks

The BIG Idea: NZD weakness has best been seen lately when pitted against the Australian Dollar. Inflation remains absent in New Zealand while they’ve come off the floor in Australia, which has had the RBNZ and RBA whistling a different tune of late.

Given the RBNZ starting to sound more like an Emerging Market central bank after their new mandate at the hands of PM Ardern included employment, the RBNZ is likely to let their currency drop so their economy does not.

Falling Financial Conditions Alongside Falling NZDUSD Is Just What RBNZ Ordered

Please add a description for the image.

Data source: Goldman Sachs, Bloomberg

You can see that the GS financial conditions index (FCI) for New Zealand continues to fall alongside the NZ Dollar. This is a similar development as seen in healthier emerging markets that have seen stable or falling financial conditions despite a rising dollar as their currencies have weakened and their central banks have responded in kind.

Given the lack of inflation, and falling NZ Dollar after a dovish performance from Orr, NZ may be in the form of a goldilocks environment where the deteriorating exchange rate in light of little inflation and no credit crisis on the horizon can help the terms of trade and traders looking for more NZ Dollar weakness.

Technically Speaking

Point to Establish Short Exposure: Pull-back to 0.6950

Spot: 0.6922

Target: 0.6800 (November pivot)

Invalidation Level: 0.7050 (May Opening Range High)

If you are looking for other strong trading ideas, you may enjoy our FREE Trading Guides

The BIG Picture:

Please add a description for the image.

Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

IG Client Sentiment Highlight: NZ Dollar Set to Fall on Rising Bullish Retail Bias

Bearish NZD/USD on Deteriorating NZ Fundamentals, Dovish RBNZ

Chart created by Tyler Yell, CMT

The number of traders net-long blue line, has risen aggressively as NZD continues to fall. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests NZDUSD prices may continue to fall.

More For Your Trading:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q2 have a section for each major currency, and we also offer a excess of resources on USD-pairs such as EUR/USD, GBP/USD,USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our popular and free IG Client Sentiment Indicator.

Popular Forex Trading Resources:

DailyFX offers a surplus of helpful trading tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions.

Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feedhas intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

---Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.

Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.

Discuss this market with Tyler in the live webinar, FX Closing Bell, Weekdays Monday-Thursday at 3 pm ET.

Talk markets on twitter @ForexYell

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Paul Robinson , Market Analyst

Paul Robinson
My Picks:  Bearish GBP/USD & GBP/AUD
Expertise:  Technical
Average Time Frame of Trades:  Several days to several weeks

For intermediate-term fundamental and technical analysis on your favorite currencies and markets, check out the DailyFX 2Q Forecasts.

GBP/USD Weak Price Action

Cable’s inability to rally over the past couple of weeks following the precipitous decline off the April high has it positioned to move towards support around 13300, where there are several swing highs/lows from October-December.

A lot of the juice has been squeezed from the short-trade here, already, but as far as the path of least resistance, short-term traders appear to still have room before running into a potential turning point. In the event 13300 gives way with force, there isn’t anything substantial until near 13000.

Check out these 4 ideas to help you Build Confidence in Trading.

GBP/USD Daily Chart (No Rally following decline points to more weakness)

GBP/USD daily chart, weakening price action

GBP/AUD Forming a Descending Wedge

Price action in sterling-aussie continues to weaken with bounces growing increasingly smaller. This is taking shape while slightly breaching a trend-line extending higher from the August low. The descending wedge taking shape suggests we will soon see another leg lower.

A firm drop below 17900 will have GBP/AUD rolling downhill, with the next targeted level of support arriving around 17600, the bottom of a consolidation period during February and March.

GBP/AUD Daily Chart (Price action weakening)

GBP/AUD daily chart, weakening price action

GBP/AUD 4-hr Chart (Descending wedge)

GBP/AUD 4-hr chart, descending wedge forming

Resources for Forex & CFD Traders

Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

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Ilya Spivak , Sr. Currency Strategist

Ilya Spivak
My Picks:  Short EURCAD (pending)
Expertise:  Global macro
Average Time Frame of Trades:  1-6 months

EUR/CAD TRADING Strategy: PENDING SHORT

  • Euro perched at trend-defining support against the Canadian Dollar
  • Fundamental forces seemingly favor of a breakdown versus bounce
  • Waiting to assess risk/reward after technical trigger before trading

The Euro finds itself at a decisive technical boundary against the Canadian Dollar. Prices are perched squarely at support defining the rising trend from February 2017 lows. The move down from March 2018 highs guiding the cross to its present position may alternatively amount to a falling channel defining the newly emerging down trend or a Flag continuation pattern preceding uptrend resumption. Which of these ultimately proves correct will be determined when prices either break rising trend support or bounce from it to breach the downward-sloping resistance.

From a fundamental perspective, the downside scenario seems somewhat more compelling. A cautious improvement in Canadian economic news-flow relative to consensus forecasts over the past six weeks has been echoed in an upward shift in priced-in BOC rate hike expectations. A hike at the July policy meeting is now carries an implied probability of 75.5 percent. Meanwhile, the ECB may begin to signal a delay in winding down its QE program. A rate increase seems firmly off the table in the near term.

As it stands, an actionable trade setup is absent. An opportunity to enter short may be presented either on a break through trend support confirmed on a daily closing basis or a bounce that demonstrably stalls at channel/Flag resistance. Risk/reward considerations will need to be evaluated if either of these developments occurs to determine whether taking on exposure makes tactical sense beyond technical and fundamental considerations. In the meantime, having EUR/CAD on the radar as an emerging opportunity seems prudent.

Euro vs Canadian Dollar Daily Price Chart

FX TRADING RESOURCES

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak onTwitter

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Nick Cawley , Analyst

Nick Cawley
My Picks:  EURGBP - Pending Short as 200-dma Nears
Expertise:  Technical and Fundamental Analysis
Average Time Frame of Trades:  One day to two weeks

Check out our New Trading Guides: they’re free and have been updated for the second quarter of 2018

Update – Trade Opened on May @ 0.88315

Our short EURGBP positioned was opened on May 10, just above the 200-day moving average. Our targets remain the same – see story below.

EURGBP - Pending Short as 200-DMA Nears * Update*

Original Story - - EURGBP Bounce Opening a Short Trade Opportunity

Two weak currencies battling it out for dominance in a trading pair opens the door for a short-term trading opportunity, especially after a sharp move. Both the ECB and the BoE are currently unable to proceed with any kind of monetary tightening as inflation stymies policy normalization. While UK interest rates are being pushed further back – an August 0.25% rate hike is currently priced around 42.5% - and may not happen at all this year, the first interest rate hike in the Euro-Zone is not likely until mid-2019 at the earliest and even then, it is likely to be 0.10%. In addition, with Euro-Zone growth slowing down and inflation remaining stubbornly below target (near to 2%), the ECB are likely to extend their bond buying program when it ends at the end of September for at least three months, keeping monetary policy looser for longer.

On the charts EURGBP is now nearing its most expensive level since September 2017 readings, according to the relative strength indicator and is nearing its 200-day moving average which it rejected twice in the last week.

Looking at EURGBP, today’s sharp jump in the pair – after the BOE MPC meeting – may offer an opportunity to short EURGBP. We look to open the position just above the 200-day moving average, currently at 0.88315 and will place a stop just above the intersection with the short-term upward channel at 0.89000. Our first target is the recent double low at 0.86820 with our second target at the April 17 low at 0.86200.

Chart: EURGBP Daily Price Chart (April 2017 – May 10, 2018)

EURGBP - Pending Short as 200-DMA Nears * Update*

Entry Point: 0.88315.

Target 1: 0.86820 – Recent double low.

Target 2: 0.86200 – April 17 low.

Stop-Loss: 0.89000

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

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Technical analysis news


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Gold Price Rise May Lose Steam on Powell Speech, Risk Recovery

Gold prices may find themselves on the defensive once again as risk appetite recovers while a speech from Fed Chair Jerome Powell strikes a hawkish tone.
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New Zealand Trade Surplus to Curb NZD/USD Losses

Updates to New Zealand’s Balance of Payments (BoP) may curb the recent weakness in NZD/USD as the region is anticipated to post a trade surplus of 198M in April.
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US Dollar Technical Outlook: USD Flies to Fresh Yearly Highs

The USD is up more than 6% from the yearly lows with price now testing technical resistance. These are the updated targets & invalidation levels that matter from here.
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