Analyst Picks

David Song , Currency Analyst

My Picks:  Bearish AUD/JPY
Expertise:  Fundamental and Technical
Average Time Frame of Trades:  2 - 10 Days

AUD/JPY may stage a larger recovery ahead of the Reserve Bank of Australia’s (RBA) next policy meeting on October 4 as the pair rebounds from a key support zone, while Governor Philip Lowe and Co. are widely anticipated to keep the benchmark interest rate at the record-low of 1.50%.

AUD/JPY Daily

AUD/JPY Daily Chart

The low-yielding environment may continue to benefit the Australia dollar as the RBA looks poised to retain a wait-and-see approach throughout the remainder of the year, and AUD/JPY may continue to retrace the decline from the summer months as it breaks out of the near-term range and continues to find support around 75.80 (23.6% retracement) to 76.10 (38.2% expansion). With that said, a closing price above 77.90 (38.2% retracement) may spur a run at the September high (79.12), but the 100-Day SMA (77.92) may continue to act as a key hurdle as the moving average kept the pair capped throughout the summer months.

In turn, the bearish trend from back in 2014 may reassert itself over the near to medium-term should AUD/JPY ultimately stage a failed run at the September high (79.12).

Get our top trading opportunities of 2016 HERE

--- Written by David Song, Currency Analyst

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

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Walker England , Forex Trading Instructor

My Picks:  AUD/USD Pending Breakout
Expertise:  Technical Analysis
Average Time Frame of Trades:  1Day-1Week

Market Condition: AUD/USD Pending Daily Breakout

Target 1: 1X Range84 Pips

Target 2: 2x Range168 Pips

Invalidation: Continued Consolidation

AUD/USD Daily Chart

AUD/USD Pending Breakout

(Created using Tradingview Charts)

After breaking higher in yesterday’s trading the AUD/USD is now consolidating with the creation of an inside bar. If prices close at present levels, this will suggest that yesterday’s high is acting as resistance at .7695. Support may be alternatively found at yesterday’s low of .7611. Traders may use either of these points to plan for both bullish and bearish breakouts. It should be noted that this inside bar trading range, measuring 84 pips. Traders may use this value to find initial bullish targets near .7779, and bearish targets near .7527

In the event of a false breakout, traders may consider using half the distance of the range to create an initial 1:2 Risk/Reward ratio. Traders should also remember that it is possible that the AUD/USD may continue to consolidate. In this scenario, traders may elect to leave pending entry orders, or trade the ensuing range.

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Michael Boutros , Currency Strategist

My Picks:  Near-term Setups in USDJPY, USDCAD & AUDUSD- USDOLLAR Range in Focus
Expertise:  Technicals
Average Time Frame of Trades:  1-2 Days

The BoJ, FOMC & RBNZ are on tap over the next 36hours and as such I’m primarily focused on JPY & USD crosses for now. Here are the setups we’ll be tracking into the releases - I’ll be giving a final update in the webinar tomorrow morning on SB Trade Desk.

USDOLLAR Daily

USDOLLAR Daily Chart

The U.S. Dollar Index has set an impressive monthly opening range between key support at 11850 & Fibonacci resistance at 12018 – we’ll be looking for a break of this key range to validate a near-term directional bias heading into the FOMC rate decision & subsequent presser with Chair Jannet Yellen.

USDJPY- The potential for a washout here is significant as speculative retail positioning continues to build- approaching extremes not seen since the lows in price were registered back in August. This is USDJPY so expect volatility – We’ll be on the lookout for a move into key support levels just lower for a possible exhaustion / long-entries. I highlighted this setup in today’s Scalp Report.

USDCAD- Loonie remains of interest heading into tomorrow as USDCAD continues to trade within the ascending median-line formation highlighted last week. Near-term support rests with the weekly opening-range low at 1.3135 with our near-term bullish invalidation now raised to 1.3085. A breach above the 200-day moving average at 1.3255 would be needed to fuel the next leg higher.

AUDUSD- We’ve been talking about the long-side of the Aussie for a few days now and while ultimately I do still want to be long, heading into tomorrow the risk remains for a drop into key structural support before resumption of the broader uptrend. Interim support rests at 7500 with our broader bullish invalidation level steady at 61.8% retracement of the May advance at 7380. A breach above 7610 would be needed to validate a near-term breakout.

For additional insights, including analysis of intraday, daily, weekly and monthly charts, member only webinars, Twitter updates, and specific trade plans, subscribe to SB Trade Desk (click here for more info).

Looking for more trade ideas? Review DailyFX’s 2016 3Q Projections

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

Follow Michaelon Twitter @MBForex contact him at mboutros@dailyfx.com or ClickHere to be added to his email distribution list

Join Michael for Live Scalping Webinars on Mondays on DailyFX and Tuesday, Wednesday & Thursday’s on SB Trade Desk at 12:30 GMT (8:30ET)

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Tyler Yell, CMT , Forex Trading Instructor

My Picks:  Bullish USD/ZAR: Looking To Buy On Break of Lower High @ 100-DMA (14.58)
Expertise:  Elliott Wave, Technical Analysis, and Intermarket Analysis
Average Time Frame of Trades:  1 Week - 3 Weeks

Bias: Bullish USD/ZAR Stop Buy on Possible Fed Hawkishness

Point to Establish Long Exposure: Daily Close > 100-DMA @ 14.5800

Spot: 14.0000

Target 1: 15.4700 (50% Retracement of 2016 Range)

Target 2: 16.0079 (61.8% Retracement of 2016 Range)

Invalidation Level: Close Below 61.8% Retracement of Aug-Sept. Range (13.7880)

Fundamental Backdrop to Trade of Long USD/ZAR:

Hunting for Yield has been a common theme in 2016. Central Banks are, “pushing on a string,” to quote Bridgewater CEO, Ray Dalio, as economies seem to be debt-heavy and growth light. However, as many astute traders and investors know, yield doesn’t come without cost. The cost comes at the risk of the yield being matched with high-volatility, and when volatility does show up, those that were seeking yield begin to seek safety first.

As September winds down, we have an environment where many traders are not looking to a possible Federal Reserve rate hike. Per data from Bloomberg, the probability of a rate hike from the Federal Reserve is priced in, which means a greater than 50% chance is seen by looking at the Fed Funds Futures market and deriving probabilities from the pricing of that market.

Traders should note that last time the Federal Reserve hiked rates on December 17, emerging markets were offered aggressively over the following month, which led to the 2016 high in USD/ZAR in early January. The South African Reserve Bank or SARB will also meet on Thursday, and they are expected to leave the policy rate unchanged at 7%.

Trade Setup:

Bullish USD/ZAR Stop Buy on Possible Fed Hawkishness

The first key point of the trade is that we’re interested in a buy stop order or entry order to enter this trade. The level that we’re looking to enter at should the market close above is the 100-DMA at 14.58, which also aligns with the higher-low of the September 2016 range. For those unfamiliar with a buy-stop order, a buy-stop order is an order to buy a currency (or any market traded asset), which is entered at a price above the current offering price or what is perceived to be a less favorable price. Should the market reach your preferred level, your trade will be triggered when the market price touches or goes through the buy-stop price.

The reason why traders are interested in using a buy-stop order is that entering only when the market reaches a level you’ve predefined as worth entering at least shows that the market is beginning to move in your favor. While a profitable trade is not guaranteed, an entry being triggered helps show you that momentum is moving in your favor.

The targets in focus should this trade get triggered are two key Fibonacci retracement levels of the 2016 range. First, the 15.4700 level is the 50% Retracement of 2016 Range, and it shows a shorter-term or swing target should price carry through the 100-DMA. The second target is at 16.0079, and it would have price reaching the 61.8% Retracement of 2016 Range should a Dollar breakout or EMFX breakdown emerge.

Key Technical Levels:

USD/ZAR – Awaiting A Break-Away Move Above 14.5800

2nd Resistance: 14.5800, 100-DMA

1st Resistance: 14.2146, Opening Range High (Week of September 19, 2016)

Spot: 14.0250

1st support: 13.972, September Closing Low

2nd support: 13.8315, September Intraday Low

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Ilya Spivak , Currency Strategist

My Picks:  Short GBP/JPY at 135.56
Expertise:  Global Macro
Average Time Frame of Trades:  1 week - 6 months

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The British Pound showed signs topping of below the 139.00 figure against the Japanese Yen, with prices producing a bearish Evening Star candlestick pattern. The pair subsequently pushed below trend line support guiding the move higher from swing lows set in mid-August, reinforcing the case for a reversal. Near-term support is now at 133.42, the 38.2% Fibonacci expansion. A daily close below this barrier opens the door for a test of the 50% level at 131.75.

Fundamentally speaking, the case for a Yen recovery seems compelling. Reports suggesting Bank of Japan officials are struggling to find common ground continue to surface. If Governor Kuroda has his way, the BOJ will emphasize negative rates over targeting monetary base expansion, an approach that has received a dubious reception from the markets thus far. The Yen is likely to rise if investors are underwhelmed when the central bank delivers a comprehensive policy review later this month.

Risk/reward considerations turned acceptable after the break below the 23.6% Fib at 135.49 and I have entered short GBP/JPY at 135.56, initially targeting 133.42. A stop-loss will be activated on a daily close above 136.76, the 14.6% level. I will take profit on half of the position and trail the stop-loss to the breakeven level when the first objective is reached.

Yen May Rise Amid BOJ Discord, Driving GBP/JPY Lower

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

Contact and follow Ilya on Twitter: @IlyaSpivak

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