Weekly Analysis 18 May - 24 May 2015 - Forex News by FX Leaders

Weekly Analysis 18 May – 24 May 2015

Posted Monday, May 25, 2015 by
Skerdian Meta • 5 min read

The USD and the Euro are fighting on the fence at the moment.
Market sentiment turned positive towards the USD this week.

The week in review

Last week we mentioned that the market had made up its mind about selling the US Dollar, especially against the Euro. This remark was unjustified; although the US economic data has softened recently and the Euro Zone data has not been as bad as it used to be a year ago, the US and the European economies are at very different stages. Europe has just started the QE programme and the economy has barely bottomed. On the other hand, the US has ended the QE programme and the economy is growing at a quicker pace than its counterparty across the Atlantic. As we can see from the figure below, the FED is very close to hiking the interest rates while the ECB is not, making it the most bearish central bank of the larger/advanced economies. 

The chart above is the reason I thought that the EUR/USD rally we saw in the last two months was unjustified. This week was another story; the USD turned tail Monday morning and marched against all of the major currencies. The US economic data continued the same soft trend of posting mixed numbers, yet the market did not take notice and the USD remained well bid. We left USD/JPY at the bottom of the range last week around 1.19, but this week it closed in the extremes at 121.50s. It felt like the market would use any excuse to buy the US Dollar, because any piece of data which came out slightly above the forecast pushed the Buck hundreds of pips up, while the disappointing data was entirely ignored. 


The smaller period MAs have been providing resistance recently.

It has been a similar story in all the USD pairs but the biggest loser was the EUR/USD. The coordinated statements on Tuesday morning from two top ECB officials, Coeure and Noyer, made it clear that the ECB wouldn’t allow appreciatio of the Euro at any cost. After all, they made a huge effort to send the Euro down below 1.05. The market took a hint and turned negative, sending this pair nearly 400 pips down in a little more than 48 hours. The only currency that put up a fight against the USD was the British Sterling. The UK retail sales on Thursday showed that the economy is still the best performer of the developed countries and the Pound remained pinned the whole week, especially against the Euro. But US inflation numbers on Friday delivered the final KO to the rest of the USD pairs.   


After the 50 MA gave way, the 100 MA provided resistance, but that is history now too. 

Economic Data

The economic data this week has been somewhat ignored by the market, except from the UK retail sales on Thursday morning. Although their inflation slipped to negative territory on Tuesday, the m/m retail sales increased by 1.2% which boosted the GBP. But the MPC official bank voting last Wednesday by BOE members resulted in favour of keeping the interest rates at the current level. The US started the week positively with the housing starts and building permits posting some impressive numbers on Tuesday which helped accelerate the USD rally during the first half of the week. The unemployment claims on Thursday continued their positive trend, but the miss in the existing home sales and the Philly manufacturing PMI stopped the USD rally. Afterward, USD resumed its uptrend on Friday after the CPI came out slightly better than expected.

The theme of this week has been the statements from central banks officials and politicians, which started on Tuesday. Two CB officials who reassured the investors about their determination to stick to the QE programme until the very last day. That put a very bearish tone to the Euro, losing ground against all other currencies. Its economic data didn’t help the Euro either; the German and the Eurozone ZEW economic sentiment as well as the Euro trade balance numbers came out well below expectations on Tuesday. On Thursday we had eight important data pieces, such as manufacturing and services PMI, but only 2 of them posted positive numbers while the other six were a disappointment. 


I was hoping the 20 MA would turn this pair around, but neither that nor the doji candlestick could provide enough resistance.  

Signals

Last week, market sentiment was bullish on the Euro and bearish on the US Dollar, but we had a EUR/USD long term sell signal. Well, this week the sentiment turned around and we took some nice profit on this decision. On Friday, we also opened another long term sell signal just before the US CPI data and booked 130 pips (you may have noticed). We used this bullish USD sentiment this week as our main strategy and most of the signals were long USD. That worked out fine and the results have been very positive, except for Friday morning when we had a bad run during the USD retrace. The number of signals has been a bit low but we closed the week with a nice 200 pip profit. The most profitable pair for us this week was EUR/USD where we only opened sell signals. We issued 21 signals in total, 16 of which closed in profit and 5 hit stop loss. So we returned to our usual long term win/loss ratio of 76:24.


An ascending triangle/wedge is being formed. 
  

Technical analysis

First off, let´s start with EUR/USD and see the damage that has been done this week. From the weekly chart we see that this pair has made 5 consecutive bullish candles, but this week closed as a bearish engulfing candle, erasing the last two week´s gains and the price moved back below the 20 moving average, which are very bearish signs. Besides that, the Stochastic is overbought and is already heading down together with RSI. The bearish sentiment is clearly seen on the daily chart – not a single day which closed with gains. The first meaningful support comes at 1.0980-1.10 where we see the 50 daily MA in yellow. The Stochastic just reached the oversold area but RSI has some more room to go until the bottom. We cannot see any meaningful moves on the H4 chart either; the only half decent retrace happened on Friday morning, but buyers were quickly crushed in the afternoon.  


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


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

We haven´t covered this pair in more than two months so it´s about time we had a look. EUR/GBP has been in a downtrend for the last 18 months. It had an attempt to turn up four weeks ago but the 20 MA (previously resistant) denied any further gains and crushed the hopes for the bulls. Both Stochastic and RSI are heading down with plenty of wiggle room before hitting bottom. The daily chart shows a similar story to EUR/USD with Friday the only exception, since it closed with minimal gains. In the daily chart we can see that the 20 MA has provided solid resistance during this week´s downtrend, until Friday when the price broke above it. The next decent support on this pair comes at 0.70; once that level is broken the door is wide open to the downside, so we´ll watch that level closely next week.   

In conclusion

We witnessed a total shift in market sentiment towards the Euro and the US Dollar this week. EUR/USD closed as bullish as possible last week, but turned on a dime Monday morning. The last few weeks the market used any excuse to sell the Dollar and this week it couldn´t get enough of the Buck. This turnaround was helped by the ECB officials who pledged to throw every Euro they have into the market. We finished the week with around 200 pips of profit and hope that next week we keep the same performance. To wrap up this weekly analysis, one piece of major FX news. Six major UK and US banks were fined nearly $6 billion this week over Fx manipulation in the London interbank offered rate (LIBOR). I hope they and other banks have learned their lesson and maybe the forex market will be a better place for the ordinary retail trader after this? 

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About the author

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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