Hi traders, how’s your weekend going? I had a very short trading week since as of Wednesday, I was out of the country for a business trip, so no trading from then on. I did, however, have one trade in the beginning of the week that I want to go over with you and we’ll get to that in a minute.
Last week was also filled with fundamental news releases, so, on the one hand, it was a good time to be away since I don’t trade news releases. On the other hand, I saw most of the previous week’s outlook unfolding really nicely (like CHFJPY, GBPCHF and NZDUSD) without being able to trade them. Then again, new opportunities will always present themselves, so I’m just looking forward to the new week!
On the US Fed rate hike
Last week finally had the much anticipated US Fed rate hike event, which went down a bit different than most people thought it would. A rate hike is basically a positive event for the USD, so many were expecting a rally after the hike. However, on Tuesday I mentioned this on Twitter:
The Fed rate hike is completely priced in. I wouldn’t be surprised to see an initial spike up and then a drive down. Who’s left to buy?
— Felix De Vliegher (@smartfxlearning) March 14, 2017
And then on Wednesday, this happened:
An initial short run up when the FOMC statement was released and then a huge sell-off at the time of the FOMC press conference.
It makes sense. Think about it. The market was pricing in a 100% rate hike already, so the hike was no surprise. Everyone who wanted to had already positioned themselves. Additionally, there was one dissenter (Minneapolis President Neel Kashkari), so the decision to hike rates wasn’t unanimous.
And greedy as the market is, we were already looking for signs of even more improvement and potentially 4 rate hikes for 2017. Unfortunately, this didn’t happen. Fed chair Janet Yellen mainly kept the same tone as in previous statements and the Fed’s economic projections stayed pretty much the same as what they released in December. Hence the sell-off.
Current market behaviour
We just talked about the USD sell-off, so no surprises here. There was an initial run-up at the beginning of the week (“buy the rumour, sell the facts”), but the USD ended sharply lower for the week.
Being inversely correlated, gold did exactly the opposite of the dollar. We could see a sharp rally after the FOMC announcement and the precious metal ended the week much higher.
Past week trade review
In this week’s trade review, I want to highlight a 1H trade I took on EURJPY.
We can first see a prolonged uptrend on eur/jpy. At some point, however, we could see much more bearish signals, which indicated that price might have reached a top. When the price strongly crossed the moving average (which it had been respecting so far) after showing a pin bar, I got interested.
I got in after a strong push down and break of the local lows. My stop loss was just above the drive candle and my take profit was at an intermediate support level where resistance turned into support multiple times. As you can see, my profit target would’ve been hit, but since I had to leave on my business trip, I closed the trade early on Wednesday for about a 1R profit.
What got me into this trade was a couple of things:
- Long uptrend that was slowing down, much more bearish signals
- Pin bar and drive down, crossing the 20 moving average
- Shift in direction (higher highs and higher lows to lower highs and lower lows)
The upcoming week
As far as news releases, it will be an average week. There are some higher impact economic releases, but nothing out of the ordinary. Let’s have a look:
- Tuesday: RBA Meeting minutes, GBP CPI and CAD retail sales
- Wednesday: US existing home sales, crude oil inventories and NZD interest rate decision
- Thursday: GBP retail sales and US new home sales
- Friday: German manufacturing PMI, US durable goods and CAD core CPI
For this weekly forex outlook, I’m keeping an eye on the following pairs:
Follow my published ideas on TradingView.
I’m looking at the daily chart only for AUDCAD. Price has been showing clean swings in the past couple of months and the current price swing has been going on for most of 2017. Recently, there have been stronger bearish bars in the uptrend, but the price is still supported by a relatively weak CAD and a stronger Aussie.
This might change soon. The price is nearing the previous swing high, which last time set in motion a very strong sell off after a large pin bar. This indicates to me that there might still be some sellers left at this level and the market will be watching this level closely. Although we don’t really see any signs of a reversal yet, we might see something play out in the next week. Even then, it might be too early to actually enter a trade like this, but it’s one I have on my radar.
The euro has been on a roll lately! We can see on the 4H chart of EURCAD that a reversal is now underway. The price was in an uptrend for quite some time, made a high and then sold off strongly. It seems to have trouble to make new highs right now while breaking the local lows of the uptrend.
On the daily chart, this move makes sense. If we look a bit to the left, we can see that this has been a support-turned-resistance level that has been untested for a very long time. The shift in direction dynamics is exactly what you would expect from the price at such a level.
The price has been hovering around the moving average, but I reckon is ready to make a move lower. The only thing I’m waiting for is a strong drive down, as a final confirmation that the trend reversal has set in.
EURNZD looks very similar to EURCAD, although I like EURCAD a little bit more. Nevertheless, EURNZD is also a classic reversal in the making, but I will wait for some more confirmation on this setup first. On the daily, we can see that after a very strong rally, the price seems to have found a swing top. This coincides with a level that has been tested around November last year. These two tests both resulted in a very strong sell-off.
On the 4H, we can see some typical signs of a reversal: overextended trend, some final bullish exhaustion candles and then the bearish push down. There wasn’t a complete follow-through, which is to be expected with a reversal after such a strong uptrend. However, the price found a lot of resistance at the second attempt up and failed to make higher highs. We can see multiple pin bars and the final bearish drive down.
I’ll wait for the price to break the lows around 1.52300 first, before re-evaluating the setup and potentially taking a position.
To close with, let’s have a look at GBPCHF. This pair has been in a very nice trend for a while now and has clearly shown that it’s in a reversal already. I’ve not indicated it on the charts, but you can definitely see a head and shoulders pattern there, together with all the other classic reversal signals I’m looking for: RSI divergence, an overextended trend (261.80% Fibonacci extension), higher highs and higher lows.
If it weren’t Friday and I wasn’t away for business, I would’ve already entered on the very bullish second-to-last candle. No worries, though, there are still plenty of opportunities to get into this setup and the potential upside is quite big, without too much intermediate resistance on the way up.
One note of warning, though: this is a setup with the UK pound. There’s a lot of uncertainty around when UK prime minister Theresa May will announce her Brexit article 50 plans and this might potentially have a big influence on the pound. It’s very likely that if I take a position in this setup, I will do so with a reduced position size to mitigate the risk.
Good luck trading!
What setups are you looking at? Share your thoughts in the comments!
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