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 faced a near-term pullback following the Federal Open Market Committee’s (FOMC) June rate-hike, but the broader outlook remains tilted to the topside especially as the European Central Bank (ECB) adopts a less dovish tone going into the second-half of the year.

While speaking at the ECB’s Forum on Central Banking, President Mario Draghistruck an improved outlook for the monetary union and noted that ‘deflationary forces have been replaced by reflationary ones, with the comments suggesting the Governing Council will look through the weakness in euro-area inflation as price growth is largely dampened by temporary factors. Even though the ECB remains in no rush to remove the zero-interest rate policy (ZIRP), President Draghi and Co. may continue to alter the outlook and look to wind down its quantitative easing (QE) program over the coming months as the asset purchases are intended to run until December.

With the ECB now forecasting the euro-area to expand an annualized 1.9% in 2017, a growing number of Governing Council officials may display a greater willingness to gradually move away from the easing-cycle, but market participants appear to be unconvinced the Federal Open Market Committee (FOMC) will deliver three rate-hikes in 2017 as Fed Fund Futures still highlight a 50/50 chance for a move in December.

EUR/USD Daily

EUR/USD Daily Chart

Topside targets remain in focus for EUR/USD as the pair takes out the August-high (1.1366) and extends the bullish sequence carried over from the previous week. A close above the 1.1350 (50% expansion) hurdle may spur a more meaningful run at the 1.1400 (61.8% expansion) handle, with the next region of interest coming in around 1.1480 (78.6% expansion).

The Relative Strength Index (RSI) also reinforces a constructive outlook for EUR/USD as the oscillator breaks out of the bearish formation from the previous month. Keep in mind, failure to push into overbought territory may generate a near-term correction in the exchange rate as the bullish momentum shows signs of exhaustion.

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

IG Sentiment

Retail trader data shows 20.3% of traders are net-long EUR/USD with the ratio of traders short to long at 3.93 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.0589; price has moved 7.4% higher since then. The number of traders net-long is 7.2% lower than yesterday and 42.1% lower from last week, while the number of traders net-short is 8.5% lower than yesterday and 13.7% higher from last week. For more information on retail sentiment, check out the new gauge developed by DailyFX based on trader positioning.

--- 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, USD/CAD & NZD/USD
Expertise:  Short-term Technicals
Average Time Frame of Trades:  1-3 Days

Near-term Setups in USD/JPY, USD/CAD & NZD/USD

Here's an update on the setup's I’ll be tracking and levels to know heading into the close of the month. Find a detailed, in-depth review of all these setups and more in today’s Strategy Webinar. The focus shifts back to key US data with the Personal Consumption Expenditure (PCE) on Friday highlighting the economic docket this week.

USD/JPY 240min

USD/JPY 240min Chart

Our focus into the close of the month is on the 110.75-112.25 range with the outlook weighted to the topside while within this pitchfork formation. From a trading standpoint the risk remains for a set-back into support before resuming higher and we’ll be looking to fade weakness early in the week. A breach above targets the upper parallels / 113.05.

Near-term Setups in USD/JPY, USD/CAD & NZD/USD
  • A summary of IG Client Sentimentshows traders are net-long USD/JPY - the ratio stands at +1.66 (62.5% of traders are long)- bearish reading
  • Retail has remained net-long since May 17- Price has moved 1.9% lower sine then
  • Long positions are 2.2% lower than yesterday and 14.8% lower from last week
  • Short positions are 4.6% higher than yesterday and 15.6% higher from last week
  • While broader sentiment continues to point lower for the pair, traders are less net-long than yesterday and compared with last week and softens the bullish signal / highlights the risk for a near-term reversal higher. That said, the focus remains constructive while above key support at 110.75.

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

USD/CAD: The reversal off key resistance and bearish invalidation last week at 1.3334 keeps our focus lower in USDCAD and is a favored play on general USD weakness. The outlook remains unchanged with a break below key support at 1.3141 needed to fuel the next big leg lower in the pair.

See our 2Q USD/CAD projections in the DailyFX Trading Forecasts.

NZD/USD:We’ve been looking for Kiwi exhaustion but price has simply not turned over. I’m still of the mindset that we’ll see a reprieve here, but patience is the name of the game. The advance remains vulnerable near-term while below the yearly high-day close at 7301 with a break below 7250/60 now needed to shift the focus lower.

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

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

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James Stanley , Currency Strategist

My Picks:  Long EUR/USD, Short 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.

I’m still carrying some long USD/JPY exposure from the previous setup ahead of the Fed’s rate hike two weeks ago as only the first target has executed; but as we open a new week with a plethora of drivers, the bar is looks to be incredibly high for a continuation of USD-strength. But given that litany of drivers are expected to hit the headlines this week, the Dollar is set to move. Below, I look at a setup on either side of the Dollar – looking to EUR/USD for USD-weakness and GBP/USD for USD-strength.

Long EUR/USD at Market – Stops below 1.1050

Current IG Client Sentiment Showing at -2.58-to-1(as of this writing), and this is bullish for EUR/USD.

I tried to catch a bullish move here two weeks ago but got stopped-out at break-even around the FOMC move. The motivation for the bullish side of the pair is the continued strength showing on longer-term charts as the upward-sloping channel that’s dominated EUR/USD price action for much of 2017 still applies. Over the past few weeks we’ve seen some bearish factors for the pair flare, such as another dovish ECB-outlay or the hawkish Fed hike, yet longer-term support remains respected. Stops will be set below the prior swing-low of 1.1074, with some additional ‘wiggle room’, while a revisit of resistance at 1.1280 will open the door for a break-even stop move.

Long EUR/USD at Market

Stop sub-1.1050

Break-even stop: 1.1280

Target 1: 1.1350

Target 2: 1.1500

Long EUR/USD, Short GBP/USD

Chart prepared by James Stanley

Short GBP/USD at Market – Stops above 1.2834

If USD strength does continue to elicit bids, I like the idea of looking for continued weakness in the British Pound. While the Japanese Yen may still provide some element of weakness, the muddy waters around Brexit combined with what has been an uber-dovish BoE could continue to provide some pressure. Another revisit of the 1.2750 resistance level this morning makes the prospect of bearish continuation appear a bit more attractive, and this can open the door to short-side setups. We looked at the technical setup last week in the article, The British Pound Breakdown.

Stops are set above the post-Election swing-high of 1.2829 with some additional cushion, with targets set towards the prior swing-low of 1.2604 and then the major psychological level of 1.2500.

Short GBP/USD at Market

Stops above 1.2834

Break-even stop move + Target 1: 1.2604

Target 2: 1.2500

Long EUR/USD, Short 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

My Picks:  Short NZDUSD
Expertise:  Technical
Average Time Frame of Trades:  Several days to several weeks

What’s inside:

  • NZDUSD trading at two upper parallels
  • Turn lower would be consistent
  • Favoring entries on pullbacks in light of weak momentum

What’s driving the FX market? Find out in our trading guides.

NZDUSD has rallied impressively over the past six weeks, running higher by over 500 pips from a nearly year-long lower parallel to a pair of upper parallels. The push higher since Thursday smacks of a retest of the ‘blow-off’ type day seen back on 14th, with a key reversal-day on the 19th sandwiched in between then and now. The price action, in of itself, is compelling, but the fact this is playing out at two parallels combined with the generally mean-reverting nature of NZD and risk/reward profile gives this set-up its attractiveness.

On a secondary note, the most recent COT report shows large speculators ramping up their net long position to the highest level since before taking a dive lower in 2013.

At the time of this writing kiwi is trading at 7271. An entry at current levels with a stop placed at 7334 (above the 6/14 high) and a target of 7105 (above the 3/21 swing-day high & 200-day MA), offers an appealing risk/reward ratio closing in on 1:3. The slightly more aggressive target on this trade is to look for kiwi to trade down to the slope rising up from August 2015; momentum at the time of reaching the first target will dictate whether it is worth holding all or part of a position for the extra 50 pips or so.

For the short-term minded traders, looking for short set-ups on the 4-hr or hourly time-frame may be the preferred approach, trading within the scope of the broader idea.

NZDUSD: Daily

NZDUSD Short at Market Off Upper Parallels

Trade Criteria:

Entry: At market, near current price

Stop: 7334

Targets: 7105, ~7055 (w/momentum through 1st target)

Paul conducts webinars 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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Ilya Spivak , Sr. Currency Strategist

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

To receive Ilya's analysis directly via email, please SIGN UP HERE

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.

Need help building your FX trading strategy? See our guides and join our live webinars!

EUR/JPY Strategy: Down Trend May Be Resuming After Bounce
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