Weekly Analysis 9 – 15 February 2015
The market this week
We're opening this week with a wonderful feeling, as it feels great when you finish the week with a nice Profit/loss ratio, after struggling in the previous week.
It would have been better if we didn´t give some of that profit back on Thursday, but we are 120 pips up for the week, with a few more hours left to trade and that´s not a bad result.
Last week we saw a USD short squeeze until Friday, when the employment change and the average earnings numbers, in particular came out much better than expected.
The US Dollar bulls, jumped in and it rallied for more than 150 pips.
We didn´t see a follow up of that move on Monday although, and that was a worrying sign for the USD bulls. That continued during the next three days until Thursday, when the fall in the US retail sales and the increase in the unemployment claims changed the balance in favor of the USD bears.
The economic data from the US has been shaky during February. Last week we saw the employment and earnings increase, but this week the retail sales fell massively and the unemployment claims increased. The US economy is still the best performing one if you compare it to the other developed countries, but the pace of the recovery has slowed down in 2015.
So we might see some corrections in the USD crosses in the near future.
The USD index failed to reach new heights after last Friday´s impressive data, and that supports the idea that the USD bulls are tired at the moment, and it´s very possible that the bears might take over for some time.
The most important news on Monday were the rumors that the EU had a plan for Greece, which helped the Euro gain 80 pips against the USD. That rumor was denied later on, but the Euro
didn´t give back those gains. The UK industrial production numbers on Tuesday showed a 0.2% decline, but as we said in the traders’ blog post, it was due to maintenance work in the oil and gas fields in the North Sea. Wednesday was very quiet regarding the economic data, so most pairs traded in a tight 50-60 pip range.
EUR/USD has finally broken out of the range on Thursday.
Thursday was quite different, we had a lot of important news and the market was really driven by it. The Australian unemployment rate increased from 6.1% to 6.4% and the Aussie Dollar fell nearly 100 pips on all crosses. The market was expecting a dovish BOE inflation report at 10:30 GMT, but it was neutral so the GBP rallied for nearly 200 pips. The US unemployment claims and the retail sales were really horrible, so the USD was battered during the entire day.
The disappointing US economic data continued on Friday with the consumer confidence falling from 98.1 to 93.6.
Forex Signals
The market was less volatile this week and as a result we have issued fewer signals, about 26 in total. We had great results in the first three days of the week where we made nearly 280 pips and had only 1 losing signal. The three AUD/USD sell signals on Monday and Tuesday, accounted for half of that profit. But the UK inflation report and the bad US data on Thursday cost us about 140 pips and I´m still beating myself over that.
Yet, we managed to close the week with more than 120 pips in profit. The win/loss ratio for the week is 73/27% so we are back in our natural territory regarding the ratio and the profit as well.
RSI and Stochastics have reached the overbought area.
Pair analysis
From the hourly chart we can see that EUR/USD have been trading in a 60-70 pip range during the first three days of the week. The support at 1.1280 proved to be too strong and the resistance at 1.1330-40 had to let go eventually. The disappointing US data on Thursday gave this pair the boost it needed and it reached 1.1440 on Friday morning. The 20 exponential MA in the daily chart provided good resistance last week and it looks like it has put a lid on the EUR/USD up move once more. The problem is that the Stochastics indicator is pointing up, unlike last week when it reached the overbought area at the same time when the price touched the 20 MA.
On the 4 hour chart though, the RSI and Stochastichs are both overbought so they contradict each other. Today and maybe on Monday next week we´ll see which one of the two time frames will decide the path for this pair.
EUR/USD has finally broken out of the range on Thursday.
GBP/USD have been in an uptrend in the last two weeks. In the 4 hour chart we see an inverse head and shoulders pattern which is explained in one of the articles in our strategy section.
The neckline has been providing resistance but it was broken last week and now it has turned into support. The daily chart shows that this pair might have formed a base for the time being because it has broken above the 20 and 50 moving averages which have provided strong resistance during the 2,200 pip downtrend. The Stochastics and RSI are near the overbought area but there´s still some room left if this pair continues higher. If it does, the 100 MA is the next target and by that time the Stochastics and RSI will be really overbought. I hope that it turns around to test the resistance at 1.5230-40 before making the next move up, because we have a sell signal open on this pair.
The head and shoulder formation is playing out.
The 20 and 50 MAs have been broken for the first time since the downtrend begun.
In Conclusion
We wrote last week that the 6-7 month USD uptrend seemed to have reached its limits and that we might see a reverse take place soon. The weakness of the US Dollar this week confirms that scenario and the US economic data is not helping the Buck. Therefore we´ll reconsider our strategy for the next 1-2 weeks until the retrace in the USD index is over. We made more than 100 pips this week though, so we leave you with a nice profit and wish you lots of love and a happy Valentine’s Day.
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