Weekly Analysis 11 May – 17 May 2015

That has been the case the last two weeks. The US economic data has been quite disappointing during the first 3 months of 2015, but kept marching higher based on market expectations about the ECB QE programme. FED chairwoman Yellen’s speech had a positive tone this week and that’s promising. In the last two weeks we have seen the US data improve with 8 out of 10 data pieces positive, including jobless claims which are very important indicators of an economy. The only disappointing piece of data were the retail sales on Wednesday, yet the market kept beating on the Dollar. The only lifeline seemed to be comments from the ECB president Draghi on Thursday. One of the main reasons for the recent negative sentiment towards the USD was the assumption that the ECB might end the QE programme earlier if the economy in Europe picks up, but these rumours were dismissed. He made sure that everyone was clear that the programme would run its full course when he said that a few up ticks won´t change anything.  

The smaller period MAs have been providing resistance recently.
  
Another outstanding performance this week was the British Pound but that´s a different story. The economy is performing very well, even with all the drama that its neighbour and its biggest partner has gone through in the last five years. Right now it´s the best performing economy of the major ones and has been this way for a while. It has been unfairly affected by the Euro trouble and by the rate hike expectations between the FED and BOE; aside from both the Scottish independence referendum last autumn and the UK general elections. With those two events out of the way, the Pound is finally starting to trade based on its own economic outlook. GBP/USD had a 200 pip pop last Thursday evening post elections results and it has gained another 400 pips this week.
After the 50 MA gave way, the 100 MA provided resistance, but that is history now too. 

Technical analysis

EUR/USD continued its vicious climb this week, breaking last week´s high. It gave us a false hope at the end of last week when it retraced about 200 pips, but once the Stochastic reached the oversold area in the H4 chart, this pair traded sideways. That continued until Monday afternoon, then the uptrend resumed once again. The European data mostly disappointed, while the US data has not been all that bad. On top of that, the comments from Draghi were quite bearish for the Euro, despite this the EUR/USD kept marching higher. This shows that the market has made its mind up for the time being, so we’d better not fight it. The overbought Stochastic indicator on the weekly chart, combined with the doji candle and 20 MA all gave us hope of a more solid resistance. The price closed above last week´s high with the next psychological level at 1.15, but I doubt that will provide any meaningful resistance. Only the smaller period MAs have been providing resistance recently. After the 50 MA gave way, the 100 MA provided resistance, but that is history now as well. 

The 20 MA has supported this pair during the down moves.  

We are in the fourth wave of the Elliot Wave Principle. 

USD/JPY has been in a consolidation phase in the last 6 months after moving up about 2,000 pips in October and November. From the daily chart, we can see that an ascending wage/triangle is slowly forming. The Stochastic has perfectly signalled the price reverses during this time, whenever it was overbought or oversold; right now it is almost oversold, so maybe it´s time to buy this pair. The 20 MA in the weekly chart looks impossible to break – the price has reversed every time it has gone near it. In the monthly chart we can see the broad picture for this pair. After trading in a narrow range for a long time, this pair finally broke to the upside; it made two large moves up matched with two consolidation periods. Right now we are in the second consolidation phase. Are we going to have another move up in order to complete the fifth wave of the Elliot Wave Principle? We´ll see in the coming months, but the ascending triangle in the daily chart supports this scenario.   

In conclusion

The US Dollar had another rough week, but the main losses occurred versus the Euro and the Pound. It did decline against other currencies but the losses were very reasonable. The US economic data hasn´t been great but the European fundamentals are much worse, so the uptrend in EUR/USD will soon run out of steam. Until then, we´ll be very careful when selling this pair. The UK economy on the other hand is doing pretty well,  so I think that we´ll see this GBP/USD reach last year’s peak at 1.72 or beyond, but the safest pair to go long on GBP is EUR/GBP. We´ll consider opening a long-term sell forex signal targeting 400-500 pips if this pair retraces to 0.7400-50. We nearly closed the week in a nice profit, but the last wave of USD selling triggered the stop-loss in two of our signals. Next week, we´ll try to stay away from the market prior to the major data release and hopefully make some good pips. 

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