The first week of winter for 2016 - Weekly Analysis 04 - 10 January - Forex News by FX Leaders

The first week of winter for 2016 – Weekly Analysis 04 – 10 January

Posted Sunday, January 10, 2016 by
Skerdian Meta • 6 min read

The last two abnormal holiday weeks of 2015 are a thing of the past. Now, we are back to business in forex and the price action is back to normal. We finished 2015 with a nice profit and seems that we have started the week in the same manner, making 271 pips this week. We increased the number of signals to our normal weekly average of 20-25. The US Dollar had a good run against all the currencies apart from the Yen in the first half of the week, but the Euro fought back from this and closed the week slightly higher.

All traders are back in business after the holiday season

Forex Signals

The last two weeks the price was choppy and the moves were irrational because of the holiday period and year end cash flows. Therefore, we have increased the number of forex signals to 22 (during the holiday season it was around 10-12). It seems our great luck from 2015 (over 4,000 pips) has continued, as we made 271 pips this week. Often a good start leads to a good finish, so we are on the right path for a successful month and successful year. Out of 22 forex signals 17 were closed in profit, 4 hit stop loss, and the USD/JPY long-term buy forex signal remains open. This gives us a win/loss ratio of 82:18, which is above the long-term average.

The stochastic is oversold, so we think USD/JPY will reverse and our signal will reach TP soon.
The stochastic is oversold, so we think USD/JPY will reverse and our signal will reach TP soon.

We didn´t start off well on Sunday evening and Monday morning because we got caught on the wrong side of the market when USD/JPY declined nearly 200 pips – so we lost 80 pips. But later that day we recovered most of our losses with three winning signals and closed the day with a minimal 5 pip loss. On Tuesday, we only managed to issue three signals  all of which were closed in profit and made 68 pips. Wednesday was more shaky so we opened seven forex signals and five of these closed in profit with the other two in loss (overall 42 pips). On Thursday, we issued four forex signals all of which hit take profit so we made 100 pips from them. On Friday, we had two winning signals worth 50 pips for us, which brought the total to 255 pips for the week.  

The market this week

The week started on Sunday evening when the Bank of Japan governor Kuroda commented about how the Japanese economy has improved. We aren’t sure where his other hawkish comments come from, because from the economic data the economy is in deflation and the other sectors are experiencing difficulty as well. Nonetheless, the Japanese Yen has rallied against other currencies the entire week until Thursday evening. USD/JPY fell about 300 pips only to have a short-lived jump after the great US employment report on Friday. The Chinese stock market had another troubled week, losing more than 10% of its value and that has added strength to the Yen as it is considered a ‘safe haven’ currency.

Regarding the other currencies, the US Dollar has been well bid against the ‘risk’ currencies, such as the commodity dollars and the British Pound. GBP/USD broke below last year´s low (around 1.4560s) and closed the week well below, so the break is official according to the forex textbook. However, we´ll have to wait and see next week if the price will continue down or move back above the support level. USD/CAD continued its epic uptrend, finally breaking clearly above the 1.40 level and reaching a 13-year high at 1.4167. During the first half of the week, EUR/USD declined from 1.0945 to around 1.0710 but it reversed to touch the Monday highs once again after the FED FOMC meeting minutes were released. The FED minutes showed that all the FED members were in line for the December rate hike and have agreed to 3-5 hikes in 2016 (which is pretty belligerent). The US employment numbers on Friday came out at 292 k against the 200 k expected, but the USD still couldn´t make any gains against the Euro or the Yen this week.

The Chinese Caixin manufacturing data on Monday showed once again that this sector is in contraction. The US ISM manufacturing PMI was similar, while the UK manufacturing sector is still expanding (even though it missed the expectations). The British construction sector continues to impress as the PMI numbers beat expectations on Tuesday, while the European inflation missed out. The US ADP non-farm employment change and the trade balance came out above expectations on Wednesday, but the ISM non-manufacturing data was slightly below. The FOMC meeting minutes came out hawkish later in the evening, but the US Dollar went down. The Australian building approvals declined by 12.7% on Thursday morning, and so did the Eurozone unemployment rate when it came out at 10.5% against 10.7% previously. The US unemployment claims came out roughly as expected later that day but on Friday the non-farm employment numbers really surprised the market when they posted 292k new jobs in December, against 200k expected. The initial reaction on the US Dollar was a 40 pip jump but it quickly reversed and ended up down on the day.

Economic data

The Chinese Caixin manufacturing data on Monday showed once again that this sector is in contraction. The US ISM manufacturing PMI was similar, while the UK manufacturing sector is still expanding (even though it missed the expectations). The British construction sector continues to impress as the PMI numbers beat expectations on Tuesday, while the European inflation missed out. The US ADP non-farm employment change and the trade balance came out above expectations on Wednesday, but the ISM non-manufacturing data was slightly below. The MFOMC meeting minutes came out hawkish later in the evening, but the US Dollar went down. The Australian building approvals declined by 12.7% on Thursday morning, and so did the Eurozone unemployment rate when it came out at 10.5% against 10.7% previously. The US unemployment claims came out roughly as expected later that day but on Friday the non-farm employment numbers really surprised the market when they posted 292k new jobs in December, against 200k expected. The initial reaction on the US Dollar was a 40 pip jump but it quickly reversed and ended up down on the day.


Pairs analysis

The Japanese Yen had its revenge on the US Dollar this week, making gains on every day, meaning USD/JPY has declined. On the H4 chart, we can see that the slight downtrend of the last three weeks has accelerated this week and every attempt to move higher and reverse has seen the sellers jump in and has fail. We saw that even after the strong employment report on Friday the USD couldn´t break above the 118.80 support-turned-resistance level. The 20 MA (in grey) added additional strength to that level and this pair reversed back down to end the day near the lows. On the monthly chart, the price is just above the 20 MA and may bring an end to this retrace. On the weekly chart, the stochastic is oversold and the RSI is pretty close to being oversold which is another reason for our opinion that the retrace is coming to an end.  

The downtrend has accelerated this week
The downtrend has accelerated this week

The 20 MA may be a tough support line to break
The 20 MA may be a tough support line to break

While the US Dollar declined against the Yen, it gained ground against the British Pound. GBP/USD has been in a strong downtrend in the recent months, and in the last few weeks, it has picked up the pace. As we can see on the H4 chart, the 20 MA (which is the smallest timeframe of the four MAs we use) has provided resistance on every retrace. This means that the selling pressure is quite strong. On the hourly chart, we see that it was the 20 MA and the 50 MA which kept the downtrend intact. If you have a look on the monthly chart on your platform, you can see that the price broke below last year´s low at 1.4560 and closed the day around 1.4520. The next line of support comes around the 1.4220s (2010 low) and then at 1.35 ( 2008 low).  

The 20 MA has provided resistance during the downtrend
The 20 MA has provided resistance during the downtrend

On the H1 chart, the price has met the 50 MA in yellow twice this week
On the H1 chart, the price has met the 50 MA in yellow twice this week

The week in conclusion

We closed 2015 with many pips in our account and on the right foot. The normalizing price action has helped us to improve our performance from the past two weeks, and we made 271 pips this week and increased the number of forex signals. The FOMC meeting minutes were a bit hawkish and the employment report was quite strong, but even so the USD couldn´t make gains against the Euro and the Japanese Yen. Next week, there isn’t much on the economic calendar until Friday when the retails sales are published. So, we´ll have to wait and see if the better employment numbers translate into better sales.  

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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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