FXML’s Forex Signals Analysis of September 15-21 2014
The market this week
This week, just like last week, the focus of the political and financial establishments was on the Scottish independence referendum. It has partially affected other pairs as well, such as EUR/USD, because a 'Yes' vote could cause a domino effect in other parts of the world and Europe, especially in Spain where the Catalonia province is pushing towards independence. There was a massive demonstration there last week consisting of about 500,000 participants. But this morning we got the results and the world is back in order. Continuing last week's progression, the movement in GBP/USD has been all ballot poll related this week as well.
We had a mixture of contradicting economic data out of US this week, with the important pieces leaning towards the bearish side, with data worse than expected. Nonetheless, the US dollar made reasonable gains across the board, except USD/GBP which was all about the ballot polls, as explained above. Euro fell 150 pips, CHF 100 pips and the commodity currencies also plummeted but the main loser this week was definitely the Japanese Yen. USD/JPY made about 250 pips of earnings this week. We weren't able to jump that train in time and when you miss the departure it's difficult to get in later; so we haven’t been able to open any trades or signals all week, up until this morning.
USD/JPY touched resistance dating all the way back to 2002 and retraced on the hourly chart, making a few pins, so we decided to take a small long with some hourly oversold indicators as guides. The main reason for the dollar strength this week was the FOMC economic projections and statement/press conference. Yellen, as always, tried to be a bit more dovish than what the economic outlook of USA shows, but other members of the FED board, even the ones that are usually dovish shifted their projections to a more hawkish one and are now in favor of raising rates. This alongside with the ongoing printing tapper gave the USD a bidding tone.
Signals
We issued 21 signals in total this week. This number is a bit light compared to 39 signals we provided last week. There are two reasons for the decrease in the number of signals; the first one being the uncertainty surrounding GBP this week. As was mentioned above, the GBP related pairs have been driven by voting polls and the economic fundamentals and technicals haven't had a say in this new environment. So we stayed clear of GBP/USD, only issuing 2 signals for this pair.
The other reason is the strong trend in USD/JPY, which we missed and then didn't encounter any definite opportunities to get in. Still we stand at around 100 pips of profit as I write. Three signals still remain open and hopefully we'll have more chances later today to issue signals. One of the benefits of a low number of trades/signals is that you minimize the losses. We had only 3 losses so far, giving us a 7/1 win/loss ratio or 85%/15% which is good by any standard. One of our mistakes this week was the sell signal in EUR/GBP on Wednesday. The pair was in a strong downtrend the whole week and the political outlook was unstable, so I would like to once again point out that trying to pick tops and bottoms is not a wise thing to do.
Pair analysis
We had some interesting economic data out of UK this week with unemployment claims falling more than expected and better revisions; earnings 3M/Year increasing 0.6% against 0.5% expected and better revisions from last month too; retail sales expending 0.4% MoM, but GBP/USD didn't really take notice of the economic news, acting only on various ballot polls. We can see from the daily chart that it has made a remarkable comeback the last two weeks reaching 1.6520 and closing the gap from a week ago. Technically it looks like the retrace could be over and with the voting uncertainty over we will return to economics for guidance regarding this pair. The 20 daily MA is holding so far, and the 1.6520/30 level which has been support on the move down is now providing resistance, with the red 100 smooth MA not far away. Personally I would look for a short on this pair next week, maybe waiting for it to touch the 100 MA.
GBP/USD daily chart – GBP/USD made a remarkable comeback this week, closing the gap from last week.
GBP/USD 4 hour chart – technically it looks like the retrace might be over and with the voting uncertainty over we'll be looking for short opportunities next week.
EUR/CHF has been very active the last two weeks as well. Last week we had two buy signals/trades in this pair with stops below the 1.20 peg. After a Swiss National Bank member mentioned in an interview that they might move the rates to negative the pair jumped about 50-60 pips to 121.10-20 and we took profit on those trades. With the pair moving lower this week and the possibility of an intervention by SNB we opened three more buy signals on this pair given the SNB Monetary Policy and rate decision was due on Thursday. Two of these trades are still open. The rates were kept unchanged and they said that they are ready and will act if the pair gets close to the 1.20 peg, but instead it dropped some 20 pips.
That shows you that when certain events go according to market expectations the impact is minimal or even goes in the opposite direction, and we see the biggest reactions when the market is caught by surprise. We know this pair is not the fastest mover, but with a stop below the 1.20 line in the sand we are almost guaranteed that at some point EUR/CHF will move up, slowly but surely. We might even get a bonus from the guys at SNB with an intervention making the pair jump some 200-300 pips at least. We've seen it before and there have also been rumors around that they might raise the peg to 1.25, so we'll have to harden our patience.
EUR/CHF daily chart – after a Swiss National Bank member mentioned in an interview that they might move the rates to negative the pair jumped about 50-60 pips to 121.10-20 and we took profit on those trades.
EUR/CHF 4 hour chart – when certain events go according to market expectations the impact is minimal or even on the opposite side, and we see the biggest reactions when the market is caught by surprise.
Final thoughts
The past week has been somewhat hectic with Forex pairs not following the economic data and technical analysis at some points. As stated above, EUR/CHF moved a bit lower even with SNB saying they will act and I'm sure they will. USD/JPY broke all levels and EUR/USD fell on some worse than expected data out of US Thursday afternoon and rallied on better US data in the evening. GBP was all over the place this week and Scotland voted to stay in the UK. Personally having lived in the United Kingdom for nearly half my life, I'm happy that they stayed in, after all they're one nation. To sum it all up, the most important thing for us, we closed another week with 100 pips of profit, which is not bad at all.
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