FX Setups for the Week of March 18, 2019
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End of Q1 Nears, FOMC on Deck for Next Wednesday
The end of Q1 is near with but two weeks of trade remaining before the door opens to Q2. It’s been an interesting outlay for a number of reasons, key of which is the return of the risk trade as the Fed shifted into a more moderate stance following the troubling equity sell-offs in Q4. This carried impact through the FX market, as an early-year surge of Yen-strength soon took a backseat to prior themes of Yen-weakness. This has helped USDJPY to put in a respectable showing so far in Q1, and this keeps the door open for further topside as the Q2 open nears.
The big item for next week is the FOMC rate decision on the calendar for Wednesday. There are minimal expectations for any adjustments or signals of adjustments to rates. The big topic of interest will be the balance sheet and how the Fed will look to continue with run-off, focusing on what the FOMC anticipates as the composition of the portfolio once they’re finished with Quantitative Tightening.
Bullish USDJPY on Hold Above 110.70
While the US Dollar has found a few different setbacks over the past week, highlighted by last week’s NFP report that helped to push DXY off of a big resistance level, USDJPY has held up fairly well. This highlights how a weak US Dollar hasn’t been as weak as the Japanese Yen, and this is a theme that shouldn’t be foreign to FX traders as Yen-weakness has continued to carry a strong correlation to risk-on market themes. The opposite theme has held true as well, with Yen-strength becoming of interest as risk-aversion themes have taken-hold across global markets.
This can keep the pair in an attractive spot for strategies built-around USD strength. The pair has thus far struggled to maintain above the 112.00 level, so traders would likely want to incorporate either an initial target or a break-even stop move upon a re-test of that level. A bit-higher is another potential area of resistance at 112.34, and this could function as either an initial target (if 112.00 is being used for a break-even stop move) or a secondary target.
USDJPY Eight-Hour Price Chart
Bearish USDCNH on Hold Below 6.7400
On the other side of the US Dollar, USDCNH remains of interest. I began looking for a reversal in the pair last November as USDCNH tip-toed up towards prior highs. Given the backdrop, with the US-China trade dispute going along with an intense focus on currency-devaluation from President Trump, it didn’t seem an opportune time for the PBoC to allow for a top-side breakout in USDCNH which would likely garner considerable attention.
Since then, the Yuan has been guided-lower and prices have been confined to a bearish channel. I began looking at additional short-side setups coming into this week, and the first target was hit fairly quickly before prices bounced-up to prior resistance. With prices still adhering to this bearish channel, the door can remain open for more. The same initial target as last week may remain of interest around 6.7000 and, a bit-lower, secondary targets remain of interest around the 6.6750 area.
USDCNH Daily Price Chart
Bullish AUDUSD on Hold Above .7000
Also on the side topside of USD-weakness is the of AUDUSD, which I had looked at last week on the basis of support holding above the key psychological level of .7000. While there isn’t much around the Australian economy to get excited about at the moment, the currency has had a difficult time trading below .7000, historically speaking. There have been a few instances of as such, most recently around the open of this year’s trade; but each time buyers have pushed prices back-above, giving rise to the continued defense of that level outside of any exogenous shocks. Last week saw the .7000 level come into play but buyers responded before bears could test-below, and this was somewhat of the basis for including this market in last week’s FX Setups.
For next week, the potential for further gains remains as the pair holds near weekly highs. Above current prices, the prior zone of interest around .7125-.7150 remains, and the long-term zone of support/resistance remains from .7185-.7206, which could function as topside targets accompanied with a break-even stop move.
AUDUSD Four-Hour Price Chart
Bearish USDCAD on Hold Below 1.3470
I had looked into this setup in yesterday’s webinar, highlighting this specific zone of resistance for the potential re-opening of bearish strategies. Earlier in the month of March I had looked at bullish reversals in the pair, largely using an Oil proxy as WTI had just run into a key level of resistance. That resistance held and didn’t come back into play until this week when buyers posed a brisk topside breakout. At this point, WTI has pulled back to find support in that prior zone of resistance, and this can keep the focus on the long side of Oil which can, in-turn, keep the long side of the Canadian Dollar of interest.
WTI Crude Oil: Support Bounce From Prior Breakout Resistance
Initial targets could be sought around the prior zone of 1.3236-1.3259, at which point break-even stop moves can be investigated. Secondary targets could be sought at the same level that was used for support earlier this month, around the 1.3132 Fibonacci level; and if traders did want to look for a larger down-side move, the 1.3066 level lurks just-below that.
USDCAD Four-Hour Price Chart
Chart prepared by James Stanley
To read more:
Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts 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
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--- Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX