FX Setups for the Week of 6-18-2018
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A Busy Week for Global Markets as End of Q2 Nears
It’s been a busy week across global markets, and given the nature of some of the drivers that we’ve seen, there’s the potential for more as we move towards the close of Q2 later this month. Perhaps the most interesting item was the way that the US Dollar reacted to the one-two combo of the Fed and the ECB on Wednesday and Thursday. While the Fed’s rate hike did little to inspire USD-bulls, the ECB’s announcement of stimulus exit not more than a day later seemed to do the trick. And with a fresh bout of potential political risk in Europe, the single currency may be heading for deeper losses as the European Central Bank did little to inspire strength at their rate decision this week.
Next week is light on the data front, but we do have two additional rate decisions out of major Central Banks with the Bank of England and the Swiss National Bank set for meetings on Thursday of next week.
This seems an opportune time to take a watchful stance on EUR/USD, allowing the pair to either establish support above 1.1500 or to drive down to a fresh 2018 low that can open the door for a re-test of the 1.1200 handle. Below, we look at a series of setups away from EUR/USD while looking to handle individual themes of Euro weakness and US Dollar strength with extreme caution. It’s important to note that these setups are designed for next week: With potential political risk in Europe, a gap through support/resistance can vastly alter the nature of the setup, and as such, awaiting next week’s open could allow the trader to more proficiently focus on each respective theme.
Bearish GBP/JPY on Hold Below 148.00
Given the reaction that was seen on Thursday and Friday across equity markets, the potential for risk aversion has started to show. This can make the short-side of GBP/JPY attractive ahead of next week’s BoE rate decision, as a combination of both GBP-weakness and JPY-strength are themes that could align fairly well with increased risk aversion across global markets. GBP/JPY slipped below a key Fibonacci level yesterday, and is currently finding a bit of support at the 23.6% retracement of the February-May sell-off.
This can open the door to two different methods of entry. Traders can look to get short on bearish breaks below last week’s low around 146.00, with stops above 147.03 and targets directed towards 145.00; or, alternatively, looking for a move back to this week’s resistance that runs from 147.70 up to 148.00.
GBP/JPY Eight-Hour Chart: Bearish Continuation Potential
Chart prepared by James Stanley
Bearish USD/CHF on Hold Below Fibonacci Resistance
There’s a rate decision in Switzerland next week, and Thursday’s Euro weakness helped the Swiss Franc pullback from a recent spate of gains against the US Dollar. USD/CHF was in a near-parabolic move higher as we traded into May, but over the past month started to display indications of turning-lower. Thursday led into a strong top-side pop in the pair, and prices are now showing a Doji on the daily chart of USD/CHF.
This opens the door for potential reversals, and this could be an attractive way of fading the US Dollar’s strength after the ECB-fueled bullish breakout. Breaks above 1.0065, which would be fresh yearly highs, nullify the bearish setup in the pair, and this would be approximately 100 pips off of current market prices. This could be justified with an initial target at .9850, at which point stops can be moved to break-even, with secondary targets cast down to .9765.
USD/CHF Daily Chart
Chart prepared by James Stanley
Bearish EUR/NZD on Hold Below 1.6850
It was a pretty rough week for the Euro, as EUR/USD sank by almost three big figures following the European Central Bank’s rate announcement. And there may be more yet, as another bout of political risk will populate the headlines this weekend as the European stalwart of Germany moves towards a scenario that may produce a round of snap elections. This would keep interest revolving around the short-side of the Euro, but the more debatable manner is one of an amenable counterpart. The US Dollar is going through its own themes at the moment as the Fed just shifted to a more-hawkish stance, and setting up EUR/USD could be a bit difficult after that recent outsized move. One pair that does hold continued attractiveness on the short-side of the Euro is EUR/NZD.
EUR/NZD set a fresh five-month low yesterday, bouncing just shy of the 2018 swing low set in the second week of January. Prices have moved back-up towards last week’s resistance, running from the approximate 1.6785-1.6842. Should prices remain below this zone after next week’s open, the door remains open for short-side setups in the pair. Stops can be investigated above 1.6850, along with initial targets at 1.6600. Stops can go to break-even after that initial target, along with a secondary target set to 1.6500, followed by a third set to 1.6355.
EUR/NZD Daily Chart: Bearish Continuation Potential After Bounce From Five-Month Lows
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
