Weekly Analysis 01-07 June 2015 - Forex News by FX Leaders

Weekly Analysis 01-07 June 2015

Posted Sunday, June 7, 2015 by
Skerdian Meta • 6 min read

This week we witnessed a 180 degree reversal in market sentiment.
This week we witnessed an 180-degree reversal in market sentiment. 

The market this month

This week we witnessed an 180-degree reversal in market sentiment. While the first two weeks of May were extremely bearish towards the US Dollar, the last two weeks were opposite. The start of June has been difficult for the USD, with a late Friday turnaround. The 60k jump in the employment change figure and a pickup in the hourly earnings put the Dollar back in the game. There are several factors that contributed to a shift in the market direction this week. The Greek-EU/IMF negotiations, which nearly closed, ignited the market and started the reversal.
An ECB statement and president Draghi press conference followed this deal. The market sentiment in itself was the third component of this market pattern this week.

Monday was relatively quiet and the market tried both sides, long and short. But on Tuesday morning, various Greek officials hit the wires with talk of finalizing the negotiations of debt repayments. The deadline for the next payment was Friday June 5th, so the market got excited and ran away with the idea of a closed deal. Later that day the deal was denied by EU official Dijsselbloem and negotiations postponed by the Greeks with intentions of raising the stakes. But the idea that there was no other way than to strike a deal kept the EUR/USD well bid. That sentiment quickly spilled onto other pairs, spurring a massive USD sell-off.

We opened a sell signal just below the 100 MA which was acting as resistance.
We opened a sell signal just below the 100 MA which was acting as resistance.
  

On Wednesday afternoon, ECB President Draghi gave the Euro another boost which sent USD lower across the board. He mimicked the last two week’s sentiments of officials, however, the most interesting comment was the announcement that the ECB will not interfere to stabilize the bond market. There has been a close correlation between the European bonds (German bonds in particular) and the Euro; whenever the bond yields go up, EUR/USD goes up as well. So the bond/bund yields jumped immediately after those comments, pulling EUR/USD 200 pips up with them.

Another factor of the USD reversal, this week was the market sentiment. The sentiment is determined by several factors, but you can tell which way it is leaning with the economic news. When the sentiment was positive/bullish against the USD, the impressive US data sent the Greenback 100-150 pips higher while the disappointing data proved no more than a hiccup. This week we can tell that the sentiment reversed when the USD fell on its back with negative economic data.

The 113.80-114 area proved to be solid resistance this week.
 The 113.80-114 area proved to be solid resistance this week.

Economic Data

Europe started the week on the right foot as the manufacturing figures for May beat expectations, while the core price index and personal spending in the US was disappointing. The positive data from Europe continued through Tuesday, with a 0.2% jump in the inflation flash estimate. We had some good construction data from the UK as well that morning, while the US disappointed again with the factory orders falling 0.4% month-on-month. Wednesday was another good day for Europe; the service sector expanded while the unemployment fell by 0.2%. The US trade deficit declined by $11 billion but the non-manufacturing PMI showed a 2-point decline.  The retail sales in Australia came out 0.4% below expectations on Thursday morning and the trade deficit increased by 2.5 billion AUD.

Last week´s pin candle signalled a possible long, which is what happened this week.
Last week´s pin candle signaled a possible long, which is what happened this week. 
 

The 4k decline in unemployment claims showed the continuation of the positive trend in the US unemployment and the unit labor costs increased 1.7% from the previous month, which is a good sign regarding wages. But the US employment change data stole the show on Friday when it jumped 60k. The unemployment rate went up 1% but that was balanced by the 1% increase in the participation rate. The weekly earnings increased as well by 0.3% so the USD gained about 200 pips across the board.

Signals

We started the week pretty well with nearly 100 pips on Monday, but we got caught on the wrong side by the Euro rally on Tuesday and Wednesday which caused damage. Some Greek officials announced that the EU/IMF-Greece negotiations were coming to an end so the market got excited and the Euro went over the roof. We had an open sell signal on EUR/USD and another on EUR/GBP from the previous day. The EUR/GBP signal was based on the 100 MA in the H4 chart. This was supposed to act as resistance as you can see on the chart below. It gave us a profitable signal on the first attempt but was breached on the second one.

After forming an inverse hammer on Thursday, this pair fell more than 200 pips on Friday.
After forming an inverse hammer on Thursday, this pair fell more than 200 pips on Friday.
  
Besides those Forex signals, we had pending sell signals on GBP/USD and EUR/USD which were placed the night before. As you might have witnessed, all those signals got smoked and sent us about 160 pips down. Therefore, we worked hard on the remaining days and pulled ourselves back up. Buying USD/JPY at the 113.80-114 resistance area proved to be a very successful strategy for us as we opened several signals, all of which closed in profit.

The doji in the daily chart was a good selling signal.
The doji in the daily chart was a good selling signal.

In total we opened 27 signals this week, 19 of which resulted in profit and 8 hitting stop loss. That gives us a win/loss ratio of 71:29,  just a tad lower from our long-term performance average. Most of the signals were EUR/USD sell signals and USD/JPY buy signals. We endured most of the losses from the EUR/USD sell signals during a rally in the Euro, while the USD/JPY signals were the most profitable at 95 pips gained. On Wednesday evening we were 165 pips down, so we were more careful on Thursday and Friday, and ended positively with a 50 pip profit.

Pair analysis

Last week we mentioned that the uptrend of the last 6-7 weeks in EUR/USD came to an end, which was confirmed by the big bearish candle. However the pin in the daily chart signalled that a long was still possible here for a few hundred pips. You might not believe candlestick patterns but they sure work most of the time, as you can see from the weekly chart. It´s not exactly a trend reversal but you could have milked more than 500 pips from this week´s candle top to bottom. In the daily chart we can see another example of a candlestick pattern with positive implications; on Thursday the price formed an inverse hammer after an uptrend, indicating a reverse is possible. Besides that, the stochastic was overbought. This pair fell more than 200 pips the next day. It´s true that the fundamentals have a big say in this game, but strangely enough they line up quite well with the technicals more often than not.

The 100 smooth MA in the H1 chart provided strong resistance at the top.
The 100 smooth MA in the H1 chart provided strong resistance at the top.

On the daily chart we can see that AUD/USD gained about 200 pips on Tuesday, partly due to the general weakness of the USD and partly because of the Royal Bank of Australia (RBA) holding rate at the same level at 2%. Maybe the traders were expecting a slight rate cut or a more dovish statement, so they went long on this pair with no return. But the 50 and 100 MAs proved to be too strong a resistance to break above. After it formed a doji on Wednesday it declined for two straight days, erasing all the gains that this pair made during the first part of the week. It closed the week about 80 pips above this years low at 0.7630, and now this level looks very vulnerable. If this resistance levels goes, there isn´t much in the way until 0.70 which is 600 pips away. If that happens we won´t sell the breakout immediately; instead, we´ll wait for a retrace up and a retest of this level. If it holds it means that the breakout is genuine and then we´ll go short.

In conclusion

This market started this week on great hopes of a Greece/EU deal, which put a strong tone on the Euro and sent it to 113.80s against the USD. EUR/USD demand turned into a general USD sell off, and put the Buck 200-300 pips lower against most pairs. Although we have often seen the Greek state playing chicken, and the debt repayment deadline on Friday has expired. That turned positive for the USD, coupled with great employment figures that afternoon and added strength from a late moment rally. The European and Greek officials are going to be very busy this weekend trying to close the deal. If that happens, the Euro will shoot up and will be a great opportunity to sell EUR/USD. We had a rough week, but we were able to close in profit, which is a relief. 


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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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