Analyst Picks

Martin Essex, MSTA , Analyst and Editor

Martin Essex, MSTA
My Picks:  Go short EUR/GBP
Expertise:  Fundamental and technical analysis
Average Time Frame of Trades:  Two weeks

Downside risk for EURGBP

- An important date to mark in your diary is March 4. On that day there is a general election in Italy.

-On the same day, the result should be known of a vote by members of Germany’s SPD on whether to join a grand coalition with Chancellor Merkel’s conservatives.

- The ‘wrong’ result in either or both could weaken EURGBP.

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Go Short EURGBP

A date to mark in your diary is March 4. On that day there is a general election in Italy and leading in the opinion polls is the anti-establishment Five Star Movement, which is broadly Eurosceptic. The right-wing Northern League is Eurosceptic too, so if either party becomes part of the coalition government that seems likely once the votes are in, the Euro could suffer.

On the same day, the result should be known of a vote by members of Germany’s center-left Social Democratic Party on whether to join a grand coalition with Chancellor Angela Merkel’s conservatives. If they agree, Germany will finally have a new government. However, if they disagree, then either Merkel will have to form a minority government or there will have to be fresh elections – both potentially negative developments for the currency.

In practice, this means political instability is as much a fear in the Euro-Zone as it is in the UK, where the political future of Prime Minister Theresa May remains under a cloud. If her ruling Conservative Party decides to replace her, or she decides to call a general election, the Pound would certainly suffer – but currently that seems less likely than it once did.

The current stability of EURGBP therefore seems unlikely to last much longer. One serious possibility is that political problems in Germany or Italy – or a breakthrough in the Brexit negotiations – knock EURGBP lower, particularly as the European Central Bank shows no sign of bringing forward its timetable for tightening Euro-Zone monetary policy.

EURGBP Price Chart, Daily Timeframe (September 1, 2017 to February 22, 2018)

EURGBP price chart

Chart by IG

As the chart above shows, EURGBP has mostly traded in a relatively narrow range between 0.90 and 0.87 ever since mid-September last year. However, if Germany’s SPD votes against a coalition government or Eurosceptics become part of a coalition in Italy, it can be expected to drop. Any move under the January 25 low of 0.8690 would be a strong sell signal, while only a climb above January 12’s 0.8929 high would dispel the negativity. A stop just above there would therefore be wise.

--- 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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Ilya Spivak , Sr. Currency Strategist

Ilya Spivak
My Picks:  Long USD/CAD at 1.2698
Expertise:  Global macro
Average Time Frame of Trades:  1 - 4 weeks

USD/CAD TRADING Strategy: Long at 1.2698

  • Break of key resistance hints at US Dollar trend reversal vs Canadian cousin
  • USD recovery driven by hawkish turn in Fed policy bets, defensive BOC tone
  • Long position activated, initially looking for test of a chart barrier below 1.29

A newly assertive US Dollar has broken through the bounds of a down trend defining price action against its Canadian counterpart since May, hinting at further gains ahead.

The greenback marked a bottom in late January amid speculation that the Fed is gearing up for a steeper rate hike cycle than expected. That was triggered by an unexpected surge in wage growth, which popped to a nine-year high. Underwhelming US CPI data briefly undermined follow-through but the release of minutes from last month’s FOMC policy meeting revived momentum, producing what looks to be a breakout.

On the other side of the equation, rhetoric out of the Bank of Canada has turned decidedly more timid. At last month’s policy meeting, Governor Stephen Poloz and company raised the benchmark lending rate but warned that stimulus was still needed, pouring cold water on expectations that a robust tightening cycle is ahead. An expectedly deep downtick in headline inflation has underscored the point.

A long USD/CAD position has been activated at 1.2698, initially aiming for a move higher to test long-standing resistance at 1.2896. A stop-loss will be triggered on a daily close below the 1.26 figure.

Just getting started trading USD/CAD? Check out our beginners’ FX markets guide!

US Dollar Poised to Gain Ground Against Canadian Cousin

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

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

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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 remains under pressure despite the mixed reaction to the Federal Open Market Committee (FOMC) Minutes, and the pair stands at risk for a larger correction as it carves a fresh series of lower highs & lows.

The summary of former-Chair Janet Yellen’s last meeting suggests the central bank will continue to implement higher borrowing-costs over the coming months as ‘a majority of participants noted that a stronger outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate.’ With that said, the FOMC under Chairman Jerome Powellmay prepare U.S. households and businesses for an imminent rate-hike as a number of 2018-voting members are scheduled to speak over the coming days, but Fed officials may continue to project a longer-run neutral rate of 2.75% to 3.00% at the March meeting as ‘some participants saw an appreciable risk that inflation would continue to fall short of the Committee's objective.’

Keep in mind, the account of the European Central Bank’s (ECB) January meeting may also spark a mixed reaction as President Mario Draghi and Co. largely endorse a wait-and-see approach for monetary policy, but more of the same from the Governing Council may keep the euro-dollar exchange rate under pressure especially as the central bank warns the ‘recent volatility in the exchange rate represents a source of uncertainty.’ Interested in having a broader discussion on current market themes? Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

EUR/USD Daily Chart

EUR/USD Daily Chart

Keep in mind, the broader shift in EUR/USD behavior may continue to take shape in 2018 as the ECB moves away from its easing-cycle, but the pair may face a larger pullback over the days ahead as it carves a fresh series of lower highs & lows.

At the same time, the Relative Strength Index (RSI) appears to be deviating with price, with the oscillator on the cusp of flashing a bearish trigger as it threatens the upward trend carried over from late last year. In turn, the 1.2230 (50% retracement) region is on the radar as it sits just above the February-low (1.2206), with the next downside region of interest coming in around 1.2130 (50% retracement). Want to learn more about popular trading indicators and tools such as the RSI? Download and review the FREE DailyFX Advanced trading guides!

--- 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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Michael Boutros , Currency Strategist

Michael Boutros
My Picks:  Near-term Setups in USD/JPY, AUD/NZD, Ripple (XRP/USD)
Expertise:  Technical Analysis
Average Time Frame of Trades:  1-3 Days

Here's an update on a few of the setups we’ve been tracking this week. For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy.

The Return of Yen Strength?

USD/JPY 120min Price Chart

USD/JPY Price Chart - 120min Timeframe

I’m’ on the lookout for a near-term exhaustion on this rebound in the USD/ JPY setup highlighted in yesterday’s Scalp Report. For now the focus is on fading strength into confluence slope resistance at the 108-handle. A downside break of this channel is needed to get things going with such a scenario eyeing initial targets at the median-line / 50% retracement at 107.73.

Learn the traits of a successful trader in our Free eBook!

AUD/NZD Price Tumbles Towards Support

Stay short AUD/NZD with price now approaching initial support targets at 1.0662 & 1.0626. Look for initial resistance at 1.0740s with bearish invalidation up at 1.0771. I highlighted this setup including the near-term trading levels in today’s AUD/NZD Scalp Report.

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

Ripple Price Slide to be Bought

XRP/USD 240min Price Chart

XRP/USD Price Chart - 240min Timeframe

Last week I noted that, “the immediate advance looks a bit vulnerable here but the broader focus remains weighted to the topside while above the monthly / yearly low-day close. From a trading standpoint, I’ll favor fading weakness into structural support OR buying a break and retest of the median-line (1.2956) as support for a move back towards the 1.6177.” Ripple prices are breaking below confluence support at 1.0148 and the game-plan remains unchanged from my previous update. Look for initial support targets at 9003 backed by 8230 with bullish invalidation steady at 7600.

Ripple IG Client Positioning

Ripple IG Client Sentiment
  • A summary of IG Client Sentimentshows traders are net-long Ripple- the ratio stands at +21.01 (95.5% of traders are long) – bearishreading
  • Retail has remained net-longsince Dec 25th; price has moved 61.5% lower since then
  • Long positions are 4.4% lower than yesterday and 4.6% higher from last week
  • Short positions are 21.9% higher than yesterday and 2.5% lower from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Ripple prices may continue to fall. Retail is less net-long than yesterday but more net-long from last week. The combination of current positioning and recent changes gives us a further mixed Ripple trading biasfrom a sentiment standpoint.

---

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-Written by Michael Boutros, Currency Strategist with DailyFX

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

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James Stanley , Currency Strategist

James Stanley
My Picks:  Bearish USD/CHF
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.

We looked into the short-side of USD/CHF earlier this morning in the effort of catching a lower-high in the pair. While many have been watching EUR/USD or even USD/JPY as USD-weakness came roaring back last week, an arguably smoother trend has started to show in USD/CHF.

Just last week the pair put in a bearish break below a bear flag formation, and that led into fresh two-year lows just a few days later. The US Dollar finally found some element of short-term support last Friday, and that Dollar strength helped USD/CHF retrace back towards a key zone of resistance that runs from .9386-.9408. When we looked at the pair’s price action this morning, bullish momentum hadn’t yet showed any signs of slowing down. We had identified an area of short-term support around .9350 that could open the door for short-side setups, and in the aftermath of the FOMC minutes release, prices traded through that support, opening the door for bearish continuation strategies.

Stops can be set above .9470 to get risk levels outside of prior resistance. This would amount to a little over 100 pips of risk, which could be justified with targets cast down to the prior two-year low of .9257.

Initial targets can be set inside of the prior two year low. That two-year low was at .9257, and initial profit targets can be set to .9261 to get just inside of that prior marker, at which point stops can be adjusted to break-even. Secondary targets can be set to the fresh two-year low, set just last week, at .9184.

USD/CHF Four-Hour Chart

usdchf four hour chart

Chart prepared by James Stanley

To read more:

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

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

To receive James Stanley’s analysis directly via email, please SIGN UP HERE

Contact and follow James on Twitter: @JStanleyFX

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