Analyst Picks

David Song , Currency Analyst

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

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The shift in EUR/USD behavior may continue to take shape over the coming months as the pair preserves the upward trend from late-2016, but the mixed rhetoric coming out of the Federal Open Market Committee (FOMC) and the European Central Bank (ECB) may produce range-bound conditions as market participants weigh the outlook for monetary policy.

It seems as though Chair Janet Yellen and Co. will continue to tame expectations for an imminent rate-hike at the Fed Economic Symposium in Jackson Hole, Wyoming as most officials ‘saw some likelihood that inflation might remain below 2 percent for longer than they currently expected, and several indicated that the risks to the inflation outlook could be tilted to the downside.’ In turn, the FOMC may attempt to buy more time at the next interest rate decision on September 20, with the U.S. dollar at risk of facing a more bearish fate over the coming months as central bank officials remain reluctant to implement higher borrowing-costs.

At the same time, the ECB may carry its asset-purchase program into 2018 as Governing Council start to discuss ‘the risk of the exchange rate overshooting,’ and President Mario Draghi and Co. may come under pressure to carry the non-standard program beyond the current December deadline as inflation continues to run below the 2% target. Nevertheless, the ECB may continue to ‘stress that the economic expansion had strengthened and that risks to the growth outlook were broadly balanced’ as the central bank raises its GDP forecasts, and a growing number of Governing Council officials may look to taper the asset-purchase program over the coming months as ‘reflationary forces, which referred to the recovery of inflation from levels below its long-term trend, had replaced risks of deflation.’

EUR/USD Daily Chart

EUR/USD Daily Chart

DailyFX 3Q Forecasts Are Now Available

Near-term outlook for EUR/USD remains capped as the pair trades within a downward trending channel after failing to fill-in the gap from January-2015 (1.2000 down to 1.1955). Nevertheless, a bull-flag formation appears to be taking shape, with the broader bias tilted to the topside as the pair preserves the upward trend from late-2016. At the same time, the Relative Strength Index (RSI) reflects a similar dynamic, with the oscillator at risk of flashing a bullish trigger as it appears to be threatening the series of lower-highs carried over from the previous month.

EUR/USD Retail Sentiment

EUR/USD Retail Sentiment

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

Retail trader data shows 29.3% of traders are net-long EUR/USD with the ratio of traders short to long at 2.42 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.06841; price has moved 10.0% higher since then. The number of traders net-long is 28.4% lower than yesterday and 7.8% lower from last week, while the number of traders net-short is 5.1% higher than yesterday and 1.6% lower 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.

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

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James Stanley , Currency Strategist

James Stanley
My Picks:  Bullish EUR/USD, Bearish 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.

Next week brings the widely-watched Jackson Hole Economic Symposium, and an appearance from ECB President Mario Draghi and a speech from Fed Chair Janet Yellen are sure to keep market interest revolving around this event. Much as we saw in 2016, the U.S. Dollar has spent most of the year heading-lower. While a low was set in May of last year, that low has yet to avail itself for 2017; but at last year’s Jackson Hole Symposium, the one-two combo of Janet Yellen and Fed Vice Chair Stanley Fischer helped to evoke a bullish move in the Greenback as they warned of upcoming rate hikes.

One Presidential Election and three rate hikes later, we have a veritable mess in the U.S. Dollar. Prices in DXY are currently trading below the low from last August. We’ve even seen last August’s swing-low come-in as near-term resistance on DXY, and this highlights just how aggressive this year’s sell-off in the Greenback has been. While the Dollar remains pinned down towards one-year lows, a bear flag formation has begun to show, as we discussed earlier this week.

U.S. Dollar Hourly via ‘DXY’: Bear Flag Formation

U.S. Dollar Setups Ahead of Jackson Hole: EUR/USD, GBP/USD

Chart prepared by James Stanley

This opens the door for setups on either side of the Greenback, which we look at below. We had discussed these setups at length in our Thursday webinar, and if you’d prefer a video accompaniment, you’re more than welcome to check out the video of that archived event.

Bullish EUR/USD for USD-Weakness Continuation

The Bullish EUR/USD trade of 2017 appears to be finally facing some element of a test. After a near-parabolic move through July ran the pair up to fresh yearly highs, bulls have started to show waning motivation. We’ve been discussing a zone of confluent support in EUR/USD from 1.1685-1.1736, which up to this point has held, at least on a relative basis. But as the lows come-in a bit lower and as the highs taper off a bit shorter, the prospect of a deeper retracement begins to look a bit more attractive. The zone around 1.1600 could be particularly attractive for a deeper retracement in the pair, as this can open the door for bullish continuation of the longer-term trend. Alternatively, a top-side break of the prior swing-high at 1.1790 would entail a bullish break of the bull flag, which can also open the door to bullish continuation strategies.

EUR/USD Hourly: Bull Flag Remains, Deeper Support Sought for Bullish Continuation

U.S. Dollar Setups Ahead of Jackson Hole: EUR/USD, GBP/USD

Chart prepared by James Stanley

GBP/USD for USD-Strength

The British Pound has been rather weak for most of August. This comes after another dovish outlay at the Bank of England was followed by a rather solid NFP report in the first week of the month. A continuation of soft data out of the U.K. helped to drive the pair lower, and at this point, we’re operating at a fairly interesting area of support on the chart.

We looked at this confluent support zone in the pair on Tuesday, as Cable had run-down to a projected trend-line that’s confluent with a Fibonacci level at 1.2848. What we wrote then still applies: A downside break of the prior swing-low at 1.2809 opens the door for short-side continuation in the pair. This would allow for traders to look to prior support, at the under-side of the trend-line and the Fib level at 1.2848, for resistance in setting up the short position.

GBP/USD Four-Hour: Cable Continues Testing Confluent Support

U.S. Dollar Setups Ahead of Jackson Hole: EUR/USD, 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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Paul Robinson , Market Analyst

Paul Robinson
My Picks:  EURGBP, Pending Short
Expertise:  Technical
Average Time Frame of Trades:  Several days to several weeks

See our fundamental outlook on the Euro and Sterling in the Quarterly Forecasts.

EURGBP is trading at a pretty significant area of resistance by way of the October 7 spike-high (GBPUSD ‘flash crash’) and its subsequent retest. Not only are current levels important, but there is a technical pattern (rising wedge) which has been in development for over a month now. Given the rising wedge is arriving at resistance and the often-times bearish nature of these patterns, a break to the downside could be swift. Buyers who have been buying with little consequence (retracements) are caught off guard which can lead to a rush for the exit once those winning positions turn into losing ones.

We have to keep in mind, though, these can also lead to squeezes higher outside of the pattern, so it is important to wait for a confirmed break of the lower trend-line before getting fully involved. With that said, a break higher above the top of the pattern and the 10/11 retest-day will quickly bring into focus the spike high from 10/7. This is where the potential for a fake-out breakout arises; an initial squeeze (sucking in fresh buyers) leads to a stall and quick reversal back through the other side of the rising wedge. These can turn out to be even more powerful events as an even larger crowd of longs liquidate.

Bottom line, in either event the lower trend-line needs to break first. Looking for targets on a trigger we first turn to the trend-line rising up from May, then the significant band of support extending back to November surrounding 8850.

Daily

EURGBP – Confluence of Pattern and Resistance Make for a Compelling Set-up

Trade Criteria:

Entry: Daily close below bottom-side trend-line

Stop: Tight stops could be placed above the confirmation bar, more conservative stops to avoid whipsaw would be placed above the highest point of the pattern.

Targets: May trend-line, 8850

Paul conducts webinars every week from Tuesday-Friday. See the Webinar Calendar for details, and the full line-up of all upcoming live events.

---Written by Paul Robinson, Market Analyst

You can receive Paul’s analysis directly via email by signing up here.

You can follow Paul on Twitter at @PaulRobinonFX.

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Michael Boutros , Currency Strategist

Michael Boutros
My Picks:  Near-term Setups in AUD/JPY & NZD/JPY
Expertise:  Near-term Technicals
Average Time Frame of Trades:  1-3 Days

Here's an update on the setup's I’m tracking into the start of the week. Find a detailed, in-depth review of all these setups and more yesterday’s Strategy Webinar.

AUDJPY 240min Chart

AUD/JPY 240min Timeframe

We highlighted this key support zone in AUDJPY last week at 85.45 and the rebound is now testing near-term downtrend resistance. The focus is on this slope for now. IF we breach, look for follow through surpassing 86.93 to confirm the reversal targeting 87.55/64. Near-term bullish invalidation now raised to 85.84.

New to Forex? Get started with our Free Trading Guide!

NZDJPY 240min Chart

NZD/JPY 240min Timeframe

We’ve been tracking this breakdown in NZDJPY since last week with the decline taking out targets into 79.36. A late-week rally off slope support has carried over with the advance taking price through channel resistance today. The pair failed to accelerate on a breach above this trendline and current price action still has me looking for exhaustion again. Near-term bearish invalidation now lowered to 81.12 with a break sub 79.77 needed to mark resumption of the medium-term downtrend targeting 79.36, 78.79 & the 78-handle.

Join Michael this Friday for his bi-weekly Webinar on the Foundations of Technical Analysis- Register for Free Here!

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

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

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Jeremy Wagner, CEWA-M , Head Forex Trading Instructor

Jeremy Wagner, CEWA-M
My Picks:  Sell CHF against USD and EUR
Expertise:  Elliott Wave, Technical Analysis
Average Time Frame of Trades:  2 days - 2 weeks

The increasing tensions in Korea have caused CHF, a perennial risk averse player, to strengthen earlier this week. On Wednesday, EUR/CHF sold off nearly 180 pips and USD/CHF sold off nearly 130 pips.

We think this Swiss Franc strength is over done as the technical patterns still have options towards higher levels in the USD/CHF exchange rate.

As a result, we turned bullish USD/CHF today in anticipation of a return to CHF weakness.

We answered the question earlier if USD/CHF can rally while US and Korean tensions are high. It appears USD/CHF may have completed a W-X-Y downward correction on July 21.

USDCHF at Support Trend Line

Zooming in on an intraday chart, prices appear to be respecting a simple support trend line. Notice that we are witnessing divergence on the Relative Strength Index (RSI) as prices hit the trend line. This suggests downward momentum is slowing.

Therefore, we are bullish USD/CHF with a stop loss below Friday’s low at .9582. We will set a first target at the previous swing high of .9770, which yields a positive risk to reward ratio. The second target, if we get there will be near .9900.

We are mildly bullish EUR/USD as well. Therefore, being long USD/CHF and long EUR/USD yields a long EUR/CHF exposure.

---

See how positive risk to reward ratios can affect trader profitability. Read our Traits of Successful Traders research.

If you are new to trading FX, we have created this guide just for you.

Written by Jeremy Wagner, CEWA-M

Follow on twitter @JWagnerFXTrader .

Join Jeremy’s distribution list.

Recent Elliott Wave article by Jeremy:

Dow Jones Industrial Average drops for 2 days in a row. What is next?

Crude oil prices stuck in a sideways triangle consolidation.

Gold prices advance in preparation for $1296 retest.

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