Weekly Analysis 20 April – 26 April 2015

The market this week

The forex market is in the hands of speculators at the moment.

Right now, the forex market is operating in a strange place and trading it is not straightforward. This is due to the major part of this market being dominated by the US Dollar pairs and going through some troubled times at the moment. From 2012 to mid-2014, the Euro was in an uptrend but this changed in May 2014 after the European Central Bank decision to cut interest rates. Since then, the US Dollar has been in a constant uptrend, helped by economic recovery and the possibility of a near-term rate hike. Many economists priced the first rate hike around the last quarter of 2014 or the first quarter of 2015. 

But the US economic recovery started to slow the pace in December 2014, which continues to this day. This week the data showed the same trend of the US economy. Still, the USD has made the biggest gains during this time, but that´s because most of the central banks of the major economies have been really aggressive in cutting rates. Now the tide has turned. Since the FED declared that they will base the rate hike decision on the economic data on their March statement, the US Dollar has been on a rough path, especially against the Euro. That´s strange because the US economy is in a much better place than the European economy, but the market expectations are often the deciding factor in the forex market. The data from both sides of the pond, this week has been a clear example of that. 

The 100 and 200 smooth MAs provided resistance first then it was the turn of the 50 and 100 simple MAs to take their place. 

The US economic data this week missed the expectations but so did the data in Europe. If we take Thursday, in particular, we can explain the last six weeks in just one day. The numbers showed that the German, French and the European economy, in general, is very weak, either in stagnation or with little growth, while the US economy is in a much better condition and is recovering well, although not with pace it had last year. However, the market didn´t care much and the USD got hammered instead, losing about 200 pips in the next 24 hours. Anyway, not all is lost for the Dollar. EUR/USD and JPY/USD are still inside the weekly ranges and a couple of good economic data pieces might see the USD bulls taking over again. The biggest winner this week is the British Pound, as it broke above the 1.50 resistance level (we´ll cover this pair in the pair analysis section).

Economic Data

Even though the economy in Europe is improving, it still continues to be weak and is right now just above flat. The Euro ZEW economic sentiment showed a good pickup on Tuesday but the German sentiment was not as good and the consumer confidence on Wednesday showed a decline. The rest of the data on Thursday was all below expectations; the Spanish unemployment increased by 0.1% against a 0.2% decline that was expected and the French, German and Euro Zone service and manufacture sector numbers showed a slow down month-on-month. The British retail sales were disappointing, contracting by 0.5%.

The first three MAs have been broke and we are looking at the 100 MA as the next level on the top side.

But all this didn’t hurt the Euro or the GBP. Since the attention of the market is concentrated on the US, the economic data from the rest of the world was overshadowed this week by the US data once again. The only good piece of US data, this week was the existing home sales on Wednesday, increasing 0.3 million from last month. The unemployment claims were expected at 288k, but this number was 294k. Even though last month´s manufacturing numbers were revised higher, this month´s numbers missed the expectations and the new home sales declined too, which sent the USD more than 200 pips down.  

Forex Signals

The volatility in the economic data this week translated into the market, and we saw some big moves and whipsaws. We had some good and bad runs; 24 signals were given this month, but the retraces were large and the support/resistance levels were often breached, resulting in late arrivals. Therefore, the number of losing signals was larger than usual and with 10 of them the win/loss ratio stands at 60/40%. After last week´s 120 pip profit, we closed the week in the red with a loss of 50 pips. We hope that next week the market takes a clear direction so we can make some nice profits and make up for these losses.

We are approaching the 20 MA in the weekly chart where we will consider taking a long-term sell position on GBP/USD. 

Pair analysis

As we mentioned above, GBP/USD has taken advantage of the USD weakness this week. Last Friday it finally broke above the 1.50 resistance level, but it fell back below it and closed the week around 1.4950s. It continued the retrace down on Monday until it hit the 100 and 200 MAS on the hourly chart, but the bulls saw this as a good opportunity to get in and it jumped more than 100 pips on Tuesday. It has only been a one-way direction since then and the 100 simple MA and 50 MA in green and yellow (respectively) have provided good support on the dips. On the daily chart, this pair has broken above 50 and 100 MAs and those are now the first lines of resistance if the tide turns. The weekly chart is interesting because we are approaching the 20 MA which has provided resistance in the past. We hesitated to sell this pair this time a month ago and missed a good chance of getting nearly 1,000 pips. So we might do so this time. 

USD/JPY moved above the moving averages in the first part of the week but slid back below. 

Unlike GBP/USD, which broke above the last 5-6 weeks range, USD/JPY continued to stay in this range like an obediently. It did it´s normal upward course during the first half of the week, breaking the moving averages in the hourly chart without much effort, but it returned back down in the last two days. Mind you, the tops are getting lower every time in the H4 chart and we can see that a descending wedge/triangle is being formed, which means that a breakout to the downside is possible. In the daily chart we see that the level where we are right now has provided resistance in January, and has turned into support since the price moved above it, but the price has been knocking at it quite often recently. This is a sign that sooner or later this level will have to let go, which corresponds with the descending wedge scenario on the H4 chart.  

This pair is forming a wedge/triangle in the H4 chart.

In conclusion

The US economic data this week has been all disappointing, apart from one half important piece.
Even though it´s been a little hard for the US Dollar, at the end of the week it didn´t lose any value against most of the other major currencies. This means that the sentiment will turn positive for the USD if we have a few good numbers next week and it will be in demand. So, we´ll try to be fast jumping in on the long side if we see such numbers. The only pair that gained against the USD was the British Pound and with the UK general election coming up we´ll try to avoid GBP/USD as much as we can. 

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ABOUT THE AUTHOR See More

Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.

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