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FX Setups for the Week of May 28, 2018

FX Setups for the Week of May 28, 2018

2018-05-25 17:37:00
James Stanley, Currency Strategist
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- 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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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