Weekly Analysis 9 – 15 March 2015
Skerdian Meta • 5 min read
The market this week
In the last few weeks, the market has been somewhat quiet if you compare it to the volatility we saw in December and January. This week we saw some of that volatility return though.
We tried our best to take advantage of these moves whenever we saw a good technical or fundamental set-up. The top to bottom average daily range this week has been around 180 pips for EUR/USD and 150 pips for GBP/USD.
Monday started with full force, with the ECB on the market buying sovereign bonds in different European countries. At first, the rumors were that the ECB was buying around 30-50 million Euros a day worth of assets, but that was quickly denied by the ECB officials and the real amount was said to be around 2-3 billion Euros a day. The market has been waiting for nearly a year for the QE program to start, but many people were unsure how the Euro pairs were going to react once the program started. Well, we had a taste of it this week. The EUR/USD declined 400 pips in the first three days as the European bond rates kept falling. The German and French 2-year bond yields have already reached negative territory. The Euro had a breather on Wednesday and it rallied nearly 200 pips against the US Dollar and 100 pips against the British Pound as the traders took profit on the short positions. But the jump was short, EUR/USD resumed its downtrend and broke the 1.05 level. The resistance levels in the Euro pairs kept falling like dominos and parity against the USD looks very real now.
One other thing which cannot go unnoticed is the GBP weakness this week. We had several statements from various Bank of England (BOE) members, and it's Governor Carney on Tuesday and Wednesday. Apart from a comment that the BOE is not in a hurry to raise rates, nothing else was really dovish to push the Pound past the 1.4950-80 resistance, which was formed in January. Actually, the statements were pretty hawkish in my opinion, with phrases like “the UK economy will continue its good performance in 2015” and “the inflation has bottomed and will pick up in the coming months”. GBP/USD formed a base in January and it has been in demand in February, so my bias was bullish on the Pound. But the collapse that we saw this week is a good lesson that in this business we can´t stick to an opinion forever, but trade
Except for the decline in the manufacturing production on Wednesday which accounts for a small portion of the British GDP, the economic data from the UK has been quite good this week.
That contradicts the price action we saw in the Pound and this shows that at this moment the market is trading the rate hikes more than anything else. The trade balance deficit on Thursday came out below expectations and the previous numbers were revised lower too.
The price reversed when it touched the 20 MA after the weekly candle formed a pin.
Many economists think that the European economy has bottomed and will only expand from now on. The economic data which showed improvement this week supports this analysis. The
On Tuesday, the French industrial production came out at 0.4% against -0.2% expected.
The 0.7% increase in the French CPI on Thursday and the German WPI numbers on Friday show that the inflation is on the right path too.
The US data this week has been disappointing, but the Dollar kept ignoring it. The small businesses index and the JOLTS jobs opening missed the expectations on Tuesday. On Thursday, the unemployment data was better but the retail sales and core retail sales fell sharply, partly due to the cold weather during February. Friday was really bad with the monthly inflation numbers and consumer sentiment in decline.
Last week was really good for us and we made about 280 pips. The profit this week was a bit lower, but the good performance continued nonetheless as we closed it with a 160 pip profit. We started great on Monday when we had 4 out of 4 winning
Forex signals accounting for 100 pips. On Tuesday – we had a small loss but Wednesday set us back 160 pips when we got caught in the GBP selling. We recovered well on Thursday though, with a long term GBP/USD buy signal and a few other short term signals which resulted in a 170 pip profit in total for that day. The good sequence of winning trades continued on Friday and we closed the week with 17 winning signals out of a total of 23. The win/loss ratio stands at 76/24% which is lower than last week but still a good ratio.
GBP/USD wasn´t able to hold above the 100 MA.
The UK economy has been performing pretty well during last year and it´s in a better shape than the US economy at the moment, so fundamentally I don´t see a reason to be bearish on the Pound. But the technical analysis paints a different picture. A couple of weeks ago I was arguing with some other analysts who were bullish on GBP/USD from a technical point of view.
Their argument was that the 20MA had crossed the 10MA in the weekly chart and that was a bullish sign. But I like to use the MAs as support/resistance levels and in the weekly chart the price just touched the 20 MA two weeks ago and reversed. The 20 MA had acted as support before, during the uptrend so the chances were that it was going to turn into resistance. Apart from that, the
The 50 MA has provided resistance on the pullbacks.
EUR/USD has been moved by fundamentals recently, but it doesn´t mean we cannot use the technical analysis and indicators to trade it and to define risk. A good indicator in such times is the moving average (MA). The 20 MA during the first part of the week and the 50 MA in the last two days have offered good selling opportunities in the hourly chart. After this pair retraced and the Stochastichs indicator got close to the overbought area in the H4 chart, the 20 MA in that timeframe offered another good opportunity to sell as the price reversed back down. In the weekly chart we see a mild support around 1.01, after that the first meaningful support is the parity level.
20 MA and 50 MA have provided resistance.
The 20 MA in the H4 chart put a lid on the pullback on Thursday.
The ECB finally started pumping money into the European market this week and we saw the reaction in the Euro, which was negative as it kept breaking the support lines one after the other. It had an attempt to push higher against the USD on Wednesday but was unable to sustain the gains and it closed the week at extreme lows. This is a bearish sign so we expect further declines in the coming weeks, but we´ll be cautious because quick and violent squeezes might occur, just like the one we saw on Wednesday. We made a nice profit this week and hope to maintain the same performance next week.
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