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Currency Market: Weekly FX commentary and EM trades

Brian Twomey Brian's Investment

The only difference to currency markets from last week is Non USD pairs EUR/USD, GBP/USD, AUD/USD and NZD/USD begins the week severely overbought. Same story as last week, EUR/USD remains a problem currency pair.

Not only is EUR/USD current levels not correct but EUR/USD lost Correlational control to its cross pairs. EUR/USD improved Vs EUR/JPY at +64% but USD/JPY at +97% should offer EUR/JPY price paralysis to movements. While EUR/USD sits at deep overbought, noise informs a lower EUR/USD only increases price pressures to move higher. EUR/USD's price normalizes at high 1.2400's and currently trades between 10 and 15 year averages from 1.2058 to 1.2603. Expect EUR/USD to maintain problem status for week's to come.

EUR/USD to EUR/GBP correlates -32%, GBP/USD runs -95%. Note 90's to correlations.

Massively oversold USD/CAD 10 year average is located at 1.2086, EUR/CAD 14 year at 1.4543, AUD/CAD 5 year at 0.9582 and NZD/CAD 10 year at 0.8788. Not only are CAD cross pairs deeply oversold as the same story last week but USD/CAD owns the cross pairs by Correlation standards. EUR/CAD runs +98%, NZD/CAD +83%, GBP/CAD at 76% and AUD/CAD at +73%.

USD/CAD not only owns 4 cross pairs but ownership informs the cross pairs are USD pairs particularly when correlations to EUR/USD, GBP/USD, AUD/USD and NZD/USD run solid negatives.

Last week GBP/CAD closed at 1.6967 and massive oversold. Trade instructions were long anywhere. GBP/CAD rose 156 pips to 1.7123. This week, GBP/CAD closed at 1.6951 and massively oversold. Trade instructions this week remain the same as last week. Long anywhere to target 1.7116 then 1.7178.

Neutral USD/JPY appears to maintain correlation ownership to AUD/JPY +98% yet +97% to AUD/USD. NZD/JPY at +96% also Correlates to NZD/USD at +94%.

CAD/JPY +97%, CHF/JPY +89% and +98% to GBP/JPY yet GBP/USD also correlates to GBP/JPY at 98% to offer price paralysis and the same situation as EUR/JPY.

USD/JPY owns CAD/JPY and CHF/JPY cross pairs which means the cross pairs are USD currencies. The remainder JPY cross pairs require significant movements to change correlations to USD/JPY or non USD.

Deeply oversold USD/CHF Correlates to GBP/CHF at +73% yet GBP/USD at +94%, AUD/CHF correlates to USD/CHF at +68% yet +94% to AUD/USD, NZD/CHF correlates to USD/CHF at +61% yet +90% to NZD/USD.

The viable trade category this week is USD/CAD and Cross pairs as well as EUR/USD, GBP/USD, AUD/USD and NZD/USD.

Problem pairs this week includes: EUR/USD, EUR/CHF, GBP/NZD, AUD/NZD and GBP/AUD. Watch GBP/AUD in particular as its price is ready to explode.

Problem pairs for EM includes: USD/DKK, USD/HRK, USD/HUF, USD/INR, USD/KRW, USD/MYR, USD/PHP, USD/PLN, USD/RON, USD/RUB, USD/SEK, USD/SGD and USD/BGN.

DXY close at 90.23 resides 1 pip below its range from 90.24 to 91.57 then 92.89.

Gold next break is located at 1846.05 then 1870.01 and top at 1937.62. Gold strategy is short rallies to target much lower prices upon a break at 1693.27.

The 10 year yield held its range for the past 3 months from 1.3305 to 1.8448.

USD in the EM space sits at extreme oversold.

Oversold USD/BRL from 5.2376 targets 5.3975

USD/CNY from 6.4325 targets 6.4681

USD/DKK from 6.1137 targets 6.1650

USD/HRK from 6.1941 targets 6.2573

USD/HUF from 294.70 targets 298.59

USD/MYR from 4.1120. Short 4.1174 and 4.1188 to target 4.1086.

USD/PLN from 3.7426 targets easily 3.7633 then 3.7727

USD/RON from 4.0503 targets easily 4.0648 then 4.0715

USD/RUB from 73.7955 targets 74.78 then 74.96

USD/TRY from 8.2399. Short 8.2818 and 8.3155 to target 8.1470.

USD/ZAR from 14.0593 close. Entry 14.0447 and 14.0210 to target 14.1871.

Author

Brian Twomey

Brian's Investment

Brian Twomey is an independent trader and a prolific writer on trading, having authored over sixty articles in Technical Analysis of Stocks & Commodities and Investopedia.

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