Weekly FX Outlook – November 21-25

Over this past week a number of Fed speakers leaned bullish encouraging a stronger U.S. Dollar and highly expected interest rate hike in December.  The surprising Trump victory did not cause the sky to fall, the world to spin off its axis, and the markets to crash as some in the press had exaggerated. On the contrary, the Dollar Index rallied to above 101, the USD/JPY nearly touched 111.00, and the U.S. equity markets quickly regained levels before the election.  As the USD strengthened, the EUR/USD slipped to previous monthly lows near 1.0580 as ECB President Draghi gave no indication of tapering on Friday as some had expected.  Across the pond, Brexit fear-mongering weakened again as U.K. economic data, such as employment and retail sales, continued to show signs of improvement. The USD/CAD remained buoyant around 1.3500 with the USD strength and still no agreement among OPEC members.  The commodity currencies, AUD and NZD, attempted to hold to their respective highs but gave up the fight as Aussie jobs data came in less than expected and the NZ Dairy Trade data did little to help in light of the USD strength – both pairs dropping over 400 pips in the last 2 weeks.

 

With the U.S. Thanksgiving Day holiday and month-end trailing behind, a majority of traders are expected to take profits on the latest U.S. Dollar strength.  An expected USD correction could stall the EUR/USD from falling further, which Euro bears wouldn’t mind the opportunity to sell again at a better price near 1.0750/1.0800.  Yet, it will be interesting to see if the EUR/USD tests sell stops and barrier options near 105.50 before a potential bounce higher – traders may wait to see how the market reacts to that level before committing.  Of note, the past 2 weeks has seen the EUR/USD decline from 1.1300 to 1.0580; so, a technical correction is favored, especially if USD bulls take profits.  On another note, the USD/JPY has rocketed almost 10 big figures since the U.S. Presidential election low near 101.  Again, USD bulls may be looking to take profits, and for those who missed out on the USD/JPY buying spree may be looking for another chance if the pair slips back to the 108 area.  The GBP/USD is a coin toss as some traders hold out for mid-term run down to 1.20, while others look for a retest of current highs due to better U.K. economic outlook.  If the EUR and GBP oscillate in the midst of minimal data, a possible USD correction, and rhetorical UK’s EU referendum political viewpoints, traders may prefer to trade the EUR/GBP.  Commodity currencies may get some reprieve if the USD weakens on profit-taking.  Yet, should the USD and U.S. equity markets remain resilient, look to the commodity crosses, such as the AUD/CAD, EUR/CAD and AUD/NZD to provide trade opportunities.

 

USD:   The week starts quiet with no risk events until Existing Home Sales with a lower revision on Tuesday followed by Wednesday’s line-up with a higher Durable Goods Orders, a rise in initial claims to 245k from a 43-year low at 235k, lower New Homes Sales, a decline in the University of Michigan Consumer Sentiment, and the November FOMC meeting minutes which may give the market more clarity as to the potential U.S. rate hike in December. Friday’s Good Trade Balance may be of little significance due to lack of U.S. market participation.

EUR/USD:  ECB President Draghi speaks before the European Parliament on Monday.  Most traders do not look for Draghi’s comments to slow down the Euro descent as it continues to slide lower to test the 105.50 level and lower, unless the USD corrects. Tuesday is the first key risk event with Eurozone Consumer Confidence. There is a mix of Mfg and Services PMI data but nothing thru Wednesday's with the Eurozone Mfg PMI expected to be steady near 53.2 while Services may lift to 53.0.  German IFO on Thursday is likely to be steady at 110.5.  Technically, the pair has a strong bearish bias and momentum while it sits at yearly lows near 1.0850.  Daily chart shows 10-DMA extending further below the 21-DMA.  Bids at 1.0550, 1.0520, 1.0500, 1.0485/75, 1.0460/50, 10420/00.  Offers at 1.0625, 1.0660, 1.0700/20, 1.0735/50, 1.0820/35, 1.0850/60, 1.0900, 1.0950.

USD/JPY:   A light data week with Trade data on Monday is expected better, and CPI on Friday could see Nationwide Core CPI higher at -0.4% with Tokyo Core CPI coming in better at -0.3% from -0.4%.  With the overwhelming strength in the USD, the pair has become well overbought nearly touching 111.00.  The key play this week will be “Dip-buyers” looking to enter on a decline from 110 to 108.  The 10-DMA has extended well above the 21-DMA showing continued strength, so an anticipated correction may be limited. Bids at 110.20/10, 109.50, 109.20, 108.50, 107.75/50, 107.25, 107.00, 106.85.  Offers at 111.00/20, 111.40/50, 112.00 with Buy Stops above.

GBP/USD:  A mix of second tier data on Tuesday with Public Sector borrowing and CBI Industrial Orders.  Wednesday, the key risk event is the UK Chancellor Hammond's Autumn Forecast Statement providing an overall assessment and outlook for the 2017.  Friday, the key risk event is the second estimate of GDP which should confirm at growth rate at 0.5% q/q. GBP bears continue to eye 1.20, but their numbers continue to decline as ‘hard-Brexit’ fears subside.  Technically, the pair is retracing into the post-election environment as the 10-DMA rolls over in close proximity of crossing the 21-DMA suggesting a shift lower back to the 1.2300-1.2150 range.  Bids at 1.2320/00, 1.2270, 1.2250, 1.2220/10, 1.2160/50, 1.2135/20/15.  Offers at 1.2380, 1.2410/20, 1.2465/75, 1.2500, 1.2550, 1.2600/20, 1.2630/40, 1.2700.

USD/CAD:  Crude finished last week higher showing the first weekly gain in more than a month amid optimism that OPEC will finally reach a production cut agreement at the next official meeting in Vienna on November 30.  The move in Crude caused some volatile fluctuation in the pair as it attempt to break 1.3600 and then took a nose-dive to 1.3400 and bounced back close to 1.3500 where it started the week. Expect a drop in the Wholesale Trade data on Monday and an increase in Retail Sales on Tuesday to as much as 0.7% from -0.1%.  If the USD corrects and OPEC rumors are favorable, a better Retail Sales number could strength the pair enough to see a correction back to 1.3300 or lower. Technically, the pair is still ascending with the 10-DMA and 21-DMA rising in parallel, but it’s more of a grind than a run.  Bids at 1.3460, 1.3435/25, 1.3400, 1.3345, 1.3300/1.3290, 1.3260/50.  Offers at 1.3600, 1.3640/60, 1.3700, 1.3760, 1.3800/20.

AUD/USD:  In the post-election environment, Aussie bears are finally enjoying a clear break below a rising wedge pattern on the Daily chart.  Technicals are aligned bearish with momentum studies biased down as the pair dropped below 0.7370, the mid-year July low.  The 10-DMA has dropped further away from the 21-DMA suggesting a strong bearish sentiment; yet, consider a potential bounce if the USD weakens. Aussie data is very limited and unlikely to sway the market with Monday’s Leading Index and Wednesday's Q3 construction work done expected better. Bids at 0.7320/00, 0.7280, 0.7250, 0.7225, 0.7210/00, 0.7180/70, 0.7150.  Offers at 0.7380, 0.7400, 0.7420/25, 0.7460, 0.7500/10.

NZD/USD:  The Kiwi got a lift to 0.7060 high late last week as the AUD/NZD slide nearly to 1.0450.  Yet with another USD bid tone, the pair turned negative to close out the week below the 200-DMA near 0.7000.   Technically, the 10-DMA has fell through the 21-DMA and both are pressing lower.  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 quarterly Retail Sales, Core Retail Sales, PPI and monthly Trade Balance.  Retail Sales is expected lower to 1.% from 2.3%.  In the midst of NZD weakness, traders look for a test and break of 0.6960/50.  Yet, with a potential USD correction, be prepared for a bounce to 0.7100/20.  Bids at 0.7000, 0.6990, 0.6980, 0.6960/50, 0.6920/10, 0.6880, 0.6810/00.  Offers at 0.7060, 0.7100/20, 0.7140/50, 0.7200/20, 0.7260, 0.7280/90, 0.7310/2050.

 

Trade Opportunity:  NZD/USD – Head & Shoulders   (Short Bias)     

The Daily chart of the NZD/USD shows a developed Head & Shoulders pattern.  With the recent strength in the USD, the pair broke below the rising neckline and the 200-DMA at 0.7025.  Look for a test of 200-DMA.  If the 200-DMA holds, Kiwi bears will press for the flat neckline at 0.6950, a key level to break to see continuation of the pattern. In the event price breaks below 0.6950 and maintains a daily bearish outlook, target 0.6885, 0.6810, 0.6730, and 6685.  If price breaks above the 200-DMA and rises, target 0.7065, 0.7120, 0.7160, and possibly 0.7220. 

The Traders Dynamic Index Pro shows overall sentiment (Yellow line) dropping below the 50 level while current sentiment (Green line) has dropped below the 32 level.  Look for current sentiment to test the 32 level break, especially if the 200-DMA is tested, but the direction of the current sentiment and overall sentiment are aligned bearish.  Then, look the current sentiment to drop back below the 32 level as the overall market sentiment aims for the 32 level.

 

If you want to master 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.