A Volatile Week Lies Ahead of US!
Eric Furstenberg • 4 min read
Hello, traders! I hope you’re still having fun in the markets! Last week didn’t exactly offer the explosive market movement I'm always looking for. This was to be expected, however, as we didn’t have many important events to fuel astronomical volatility. There were one or two moves that weren’t too bad, I suppose. The S&P 500 printed a new all-time high on Thursday, and followed through on Friday, doing the same. The Euro had a pretty disappointing week and gave back 151 pips against the US Dollar.
I’m excited about the week ahead. We have a lot of economic data out of many countries like Japan, China, Australia, U.S.A, U.K, Eurozone, and Germany. These news events include CPI, retail sales, GDP, PPI, and also employment data numbers. Besides these data points, we have testimonies by FED chair Janet Yellen on Tuesday and Wednesday which could deliver substantial market volatility. I hope we get some ripping moves out of these events!
Let’s see where we can make some good profits, shall we?
EUR/USD – A Victorious Week for the Bears
EUR/USD Weekly Chart
The Euro bears fought back this week and almost took out the previous week’s low on the EUR/USD. The pair managed to close below its 20-week exponential moving average last week, which opens up the probability of a further decline in the weeks ahead. I wouldn’t be surprised if the pair traded down to the 2017 low which was set on the 3rd of January, even though it might take a few weeks to get there. I’ll be on the lookout for short opportunities, and will keep you updated on how the technicals unfold in the next few days. My first area of interest for a short entry is in the region of the 20-day exponential moving average. Look at this daily chart:
EUR/USD Daily Chart
The blue line is the 20-EMA, which often acts as dynamic resistance in a downtrend. The plan is to wait for the price to retrace to this red circle near the 20-EMA, and then to observe the price action in this area to see if we get some rejection candles on the daily chart, or either on the smaller timeframes like the 4-hour or hourly charts. Rejection candles like pinbars, or bearish engulfing bars are what I’m looking for. Two bar reversal patterns can also do the trick. As I said, I’ll let you know if I see something meaningful.
As you can see in the chart above, the RSI indicator (which is set to 5 periods with levels 15 and 85) is relatively oversold. This confirms that we should wait a bit before entering into short positions. The higher probability short entries normally occur when the RSI value is above 50, and preferably in the region of 70 to 90. Remember that the setting I use is not the standard setting and that RSI works best when combined with other technical indicators and candlestick triggers.
USD/CAD – Still Bearish
USD/CAD Weekly Chart
The USD/CAD popped higher last week but failed at the 20-week exponential moving average. This makes the short-side appear even more attractive at the moment.
The Canadian labor market data came in much better than expected on Friday, which is really positive for the Canadian economy. This, together with the climbing oil price, could further strengthen the Canadian Dollar in the short to medium term. The technicals also suggest a further decline in the USD/CAD exchange rate. Remember that the USD/CAD moves lower when the Canadian Dollar strengthens against the US Dollar.
Let’s look at a daily chart of the USD/CAD:
USD/CAD Daily Chart
Here you can see that the price closed below the 200-day moving average again on Friday, and also below the 20-day exponential moving average. I reckon we’ll encounter some splendid selling opportunities on this pair in the days ahead.
GBP/USD – Trading Sideways, But For How Long?
GBP/USD Daily chart
The GBP/USD is respecting the 20-EMA as support at the moment. If the 20-EMA holds as dynamic support in the days and weeks ahead, we could see a strong bounce in this pair.
If you’re trading this pair, you need to keep an ear open for important Brexit headlines. The Pound is very sensitive to news about this theme at the moment. For now, I favor the topside, although the GBP/USD isn’t my favorite currency pair to trade at the moment. I like to trade instruments which are trending, like for instance, the S&P 500:
S&P 500 – Strong Bull Trend in Play
S&P 500 Daily Chart
I don’t really need to say anything about this stock index. This chart speaks for itself. The price is cruising effortlessly higher, and the 20-EMA is acting as strong dynamic support. The price is overbought at the moment, and if you’re looking for a perfectly-timed long entry, you might want to wait for the price to move closer to the 20-EMA before entering.
I’m still holding on to my long positions on this index, and reaping the benefits of trading with a strong trend.
That’s all for today folks. Stay tuned for more market analysis, and have a brilliant week in the markets!