Weekly FX Outlook – November 14-18

What a ride for the market this past week!  Nearly as good as an amusement park thrill ride, the U.S. presidential election was full of emotional anticipation mixed with fear, anxiety, and merriment while riddled with twists and turns.  Some market participants were elated, some sickened by all the uncertainty and volatility, and others to worried about what might happen to even experience the ride.  For those of us who jumped on, what a fun, thrilling ride as Donald Trump, who had less than a 25% chance of winning, won the election as the markets erupted with wild swings.  DOW futures took a nose dive of more than 700 points and the USD/JPY dropped more than 400 points before both rallied back after Clinton conceded.  As the ride came to a stop, Clinton had the popular vote but Trump had a stronghold on the electoral vote as both the U.S. House and Senate were won by the Republican Party.

By the end of the election and the week, many of the currencies found themselves near previous levels, the USD recovered, the EUR/USD fell to range lows, the GBP gained confidence on potential U.S trade agreements, and the USD/CAD enjoyed the high-life above 1.3500 as oil slide below the $44 handle.  The RBNZ decision to cut the interest rate to 1.75% from 2.00% was less than spectacular due to the election and market expectations, even though it took a 50 pip spike before fallen. 

For the week ahead, it’s another busy eventful week full of central banker speeches and headline risk events.  Monday, BoJ Kuroda updates the market on the Japanese economy and monetary policy followed by ECB President Draghi speaking before the Italian Treasury.  Tuesday, the RBA releases MPM minutes as RBA Governor Lowe speaks on Australian Economic Development.  Afterwards, the U.K. takes the stage with CPI, PPI, and RPI with Europe up next with German GDP & ZEW Economic Sentiment, then U.S. with Retail Sales and Empire Mfg.  After a slow start on Wednesday, Fed Bullard speaks in Switzerland followed U.K. Employment, CAD Mfg Sales, and U.S. PPI , IP, and Crude oil inventories.  Look for another burst of activity on Thursday in the Asian session with Aussie Employment data; then later, U.K. Retail Sales and EUR CPI and MPM.  Going into the U.S. session on Thursday, the USD may get a boost or knock depending on CPI, Philly Fed Mfg, Unemployment Claims, Housing Starts;  yet, expect some attention to be given to Fed Chair Yellen as she speaks before the Joint Economic Committee.  Friday ushers in SNB Maechler, ECB Draghi, ECB Weidman, Fed Bullard, and Fed George with North American traders looking to CAD CPI.

USD:  With the Dollar Index hitting 99 and the highly expected move by the Fed in December, look for the possibility for a USD retreat to a better level for USD bulls to buy.  Call it a technical correction, which can be a good move for the USD.  Retail sales, on Tuesday, is a highlight for the week with an expected 0.5% as Core Retail Sales may slip to 0.2%.  Empire Mfg looks to improve to -1.0 and Import prices up 0.5%. Inflation data with PPI rising to 0.3% on Wednesday; and Thursday, CPI expected at +0.4%. As for Voting Fed members speaking this week are Rosengren and Fischer on Tuesday, Bullard on Wednesday, and George and Bullard on Friday.

EUR/USD:  With a resounding round trip up to 1.1300 and back to 1.0850, EUR bears look for another test of a 1.08 break and test lower.  However, patient traders will wait for another opportunity to sell higher should the USD take a correction.  Tuesday looks to be the day with German GDP possibly slipping to 0.3% while Eurozone ZEW economic sentiment is expected near 14 from 12.3.  Technically, the pair sits at a range low near 1.0850 with a bearish tone as the 10-DMA drops below the 21-DMA.  Bids at 1.0800, 1.0775, 1.0750/40, 1.0710/00, 1.0660/40, 1.0600.  Offers at 1.0900/20, 1.0950, 1.10, 1.1050, 1.1100/20, 1.1150/70, 1.1200, 1.1240/50, 1.1285, 1.1300/10.

USD/JPY:   The pair continues to make yearly highs.  Traders look for a break of 107.00 after sizeable offers have been absorbed.  Should the USD rally, look for continuation to 108 level and possibly higher as the pair has risen from a Triple Bottom on the Daily chart breaking above a long-term descending trend line.  The 10-DMA rises above the 21-DMA suggesting a bullish run for the pair.  Bids 106.50, 106, 105.80/60, 105.35/25, 105, 104.80/60.  Offers at 107.40/50, 107.80/85, 108.10/25, 108.50, 109.10/20.

GBP/USD:  After a 500 point move in the EUR/GBP this past week in favor of the GBP, traders may anticipate some profit-taking that will weaken the pair, which had been the strongest currency last week as the market feels the U.K. has a new friend in the White House.  UK inflation data on Tuesday has CPI up 0.2% m/m with Core CPI at 0.3% m/m.  Labor data on Wednesday will show unemployment rate unchanged at 4.9% with a slightly higher claimant count.  Retail sales on Thursday should rise 0.3%.  Technically, the pair is proving stronger and GBP bulls may allow a soft GBP to identify a bottom from which to work higher.  GBP bears still eye 1.20, but their numbers are dwindling.  The 10-DMA has overtaken the 21-DMA suggesting a possible shift higher, but be wary as the GBP tends to take strong swings as of late.  Bids at 1.2520, 1.2500, 1.2460/50, 1.2420/00, 1.2360/50, 1.2320, 1.2280, 1.2220, 1.216050.  Offers at 1.2600/20, 1.2630/40, 1.2700, 1.2770/90.

USD/CAD: As Crude sank below $44/bl with no OPEC agreement and excess global supply, the pair climbed higher stabilizing above 1.3500.  Traders look for a press higher; yet, USD/CAD bulls may first look for a temporary pullback to buy back in at a better price. Focus of attention this week is on CPI inflation data on Thursday, likely to rise to 1.6% y/y.  Technically, bullish sentiment remains as the pair presses higher in an Upward Channel with the 10-DMA rising above the 21-DMA.  Bids at 1.3500, 1.3460, 1.3435/25, 1.3400, 1.3345, 1.3300/1.3290.  Offers at 1.3600, 1.3640/60, 1.3700, 1.3760, 1.3800/20.

AUD/USD:  Aussie bulls gave it a good show above 0.7700 last week, but slid back into the 0.7500 range as the USD rallied post-U.S. election.  Traders are mixed as to the direction of the Aussie given the RBA recent comments, so it is expected that Thursday's jobs data will be the main event with forecasts ranging from 5K to 20K gain with the Unemployment Rate at 5.6%.  The 10-DMA has slipped below 21-DMA as an upward channel is nearing the end of its trend suggesting a possible test and break of 0.7500.  Aussie bears look a move lower from 0.7440 to 0.7360; a break thereof, 0.7300 comes into view.  Bids at 0.7535/25, 0.7510/00, 0.7460/40, 0.7420/00, 0.7380/60.  Offers at 0.7580/90, 0.7620, 0.7660, 0.7700/10, 0.7735, 0.7750/60/80.

NZD/USD:  Similar to the AUD/USD, the Kiwi ran higher breaking slightly above 0.7400 before falling all the way back and settling near 0.7120.  Technically, both the 10-DMA and 21-DMA are lower, but 10-DMA has yet to cross below 21-DMA.  Daily chart continues to show a developing Head & Shoulders pattern suggesting a weaker NZD in the long run.   For this week, the focus of the NZD will be on Tuesday's regular Global Dairy Trade data which may come in lower given the last two data numbers were much higher than expected.  Of note, NZD traders continue to pay close attention to the AUD/NZD with the prospect of break 1.0650 and rallying to 1.0750 on NZD weakness.  Bids at 0.7075/70, 0.7050/40, 0.7010/00, 0.6960, 0.6900/0.6890.  Offers at 0.7140/50, 0.7200/20, 0.7260, 0.7280/90, 0.7310/20, 0.7350.

Trade Opportunity:  AUD/NZD – Cup & Handle Pattern (Long Bias)

In the event of continued weakness of the NZD compared to the AUD, there exists a potential Cup and Handle pattern which suggests a bullish tone.  With the press up to 1.0650, the AUD/NZD completed a rounded bottom pattern in the 1-hour chart.  Typically, when price reaches the previous high after completing a round bottom, price will fade due to profit-taking which will see the pair slip back towards 1.06 and lower to 1.0580.  If the retracement of the cup pattern is held to a 1/3 to 1/2 pullback, then a long bias is in place.  In this case, look for price to rally to 1.0685, 1.0710, and 1.0735.

In the event, the retracement drops below 1.0580, look for a retest of 1.0530 to 1.0500.

If you want to gain the ability to recognize additional trade setups as market conditions change from day to day and get real-time market analysis, join the Compass FX Training Room.

Good trading,

Dean Malone

Compass FX

Disclaimer:  This Weekly Outlook communication is supplied by Dean Malone, a licensed broker and Forex specialist with Compass FX, an introducing broker located in Dallas, TX, USA.  It does not represent the views or opinions of Compass FX and its employees and associates. Furthermore, this communication is for educational purpose only and does not constitute an offer to sell or the solicitation of an offer to buy.  No representation is being made that any analysis, comment, forecast, or training will guarantee profits or not result in losses from trading.  Forecasts presented in this communication only reflect the author’s private opinion and should not be considered as guidance for trading. Compass FX bears no responsibility for trading results based on forecasts described in this communication. Trading in the off-exchange Foreign Exchange market (Forex) is very speculative in nature, involves considerable risk and is not appropriate for all investors. Therefore, before deciding to participate in Foreign Exchange trading, carefully consider your investment objectives, level of experience and risk appetite. Investors should only use risk capital when trading Forex because there is always the risk of substantial loss. Most importantly, do not invest money you cannot afford to lose. There is always the potential for loss. Your trading results may vary. Unique experiences and past performances do not guarantee future results.