USD/JPY: Uptrend Still Intact, Despite Recent Selloff
The 4-hour time frame of USD/JPY shows that the uptrend is still very much intact, despite the selloff we saw on Friday. As it turns out, Japan’s Finance Minister gave some comments downplaying yen weakness but these were only politically-motivated prior to the weekend’s G20 meetings.
Earlier today, a former BOJ Governor remarked that the central bank could do more to curb yen strength and ward off deflation for the year. This sets the stage for this week’s BOJ monetary policy statement, which could contain more clues on what the central bank plans to do in order to meet their inflation targets.
A potential retracement could take place for USD/JPY as the pair looks ready to resume its uptrend prior to the actual BOJ statement. The chart shows potential retracement zones depending on how strong the selloff will be.
Stochastic is in the oversold zone, suggesting a potential bounce is ready to take place. In fact, the oscillator made a bullish divergence as it made lower lows while the price had higher lows.
The pair could find support at the 92.00 area which has held as support last week or it can pull back as low as the 91.00 major psychological level which is in line with the trend line and is a former resistance zone.
Once the uptrend resumes, the pair could rally back up to test its former highs around 93.00 or even break beyond that level and reach the 94.00 mark, depeding on whether comments against yen weakness come out or not. Traders could start pricing in their expectations for the upcoming BOJ statement as well, which is projected to contain plans on how the central bank will keep deflation at bay.
Last week, ECB Governor Mario Draghi mentioned during his rate statement that the central bank is monitoring the euro's appreciation very closely. This caused a strong selloff for EUR/USD as traders feared a possible currency intervention later on.
The longer-term uptrend is still very much intact though as seen from the rising trend line on EUR/USD's 4-hour chart. Last week's selloff could be the start of a huge correction, at which the pair could pull back to the 1.3300 major psychological level.
As you can see from the chart below, 1.3300 lines up with the 50% Fibonacci retracement level and is a resistance turned support zone. Traders have also shown a lot of interest on this level as seen from the consolidation above and below the major psychological mark. On top of that, 1.3300 is right on the long-term trend line, which could continue to act as support and keep the pair on its uptrend. Stochastic reached the oversold zone and is moving north, suggesting a return of euro bulls this week.
Take note that Draghi has a speech later today and he might grab this opportunity to talk the euro down even further, presenting an event risk for this trade. On the other hand, he could admit that the ECB or other European finance officials aren't ready for an actual intervention just yet. If that's the case, the euro could resume its rally fueled by improving fundamentals in the euro zone.
A long trade at 1.3300 with a stop just below 1.3200 and a target around the recent highs at 1.3700 presents a good reward-to-risk ratio of 4:1.
The New Zealand dollar was able to bounce back against the Greenback during yesterday’s trading, thanks to the G7 statement saying that central bank should make their monetary policy decisions based on economic performance and not currency devaluation.
There were no economic factors that supported this bounce so NZD/USD might resume its selloff pretty soon, especially since it’s heading close to the .8450 minor psychological level. The 4-hour time frame reveals that this level has held strongly in the past and could continue to do so if it gets tested this week.
Take note that the US will be printing its January retail sales figure during today’s New York session and both core and headline figures are expected to show a 0.1% increase. A weaker than expected reading could trigger a dollar selloff and push NZD/USD back to .8450.
If the resistance at .8450 holds, a possible target could be around the recent lows near .8300 and the rising trend line. A stop 25 pips above the .8500 major psychological resistance would yield a 2-to-1 reward-to-risk ratio in this case.
New Zealand will be printing its quarterly retail sales figure for Q4 2012 on Friday’s early Asian session and, judging from the same period’s weaker than expected jobs figures, we might see a negative reading or a downside surprise. If that happens, the rising trend line could be broken and NZD/USD could fall until the next support around .8150.
Trade Setup for the Day: Short AUD/USD (February 14, 2013)
AUD/USD is on a falling channel on the 4-hour time frame and is currently testing the top of the range around 1.0350. This is in line with a Fibonacci retracement level and is a minor psychological resistance. With no reports due from Australia for the rest of the week, the downtrend could resume as fundamentals in the country remain poor.
A short trade around 1.0350 or a few pips lower with a tight stop above the channel and a target at 1.0250 would offer a good reward to risk ratio.
Trade Setup for the Day: Short EUR/JPY (February 15, 2013)
EUR/JPY just formed a complex head and shoulders pattern or a triple-top on the 4-hour time frame. The pair is currently testing the neckline while stochastic is in the oversold region, which means that it could consolidate for a bit before breaking down before the end of the week.
Euro zone just released weaker than expected GDP reports earlier this week, pushing the region deeper into a technical recession. Germany posted a contraction of 0.6% for the last quarter of 2012 while France showed a 0.3% decline in economic activity. This fueled expectations of a rate cut or further easing from the ECB later on, causing a sharp euro selloff right after the release.
The selloff could continue until the end of the week even as traders position themselves for the G20 Summit. The yen could continue rallying heading off into the weekend as G20 leaders could criticize Japan for resorting to loose monetary policy to weaken their currency. Traders who have short yen positions could take profits on their trades and possibly result in an overall yen rally.
A short trade below the neckline (124.00) with a 100-pip stop will offer a 2:1 reward to risk ratio if you’re aiming for the next support area around 122.00 or a 4:1 reward to risk ratio if you’re aiming for the 120.00 handle.
Trade Setup for the Day: Short GBP/USD (February 18, 2013)
Weak fundamentals have been weighing on the pound for the past few days as the odds are tilted towards further monetary policy easing from the BOE. GBP/USD is consolidating around the 1.5500 handle at the moment but another breakdown and selloff could be in the works.
A possible retracement play could also unfold if the pair pulls back to the 1.5650 mark, which is in line with a former support level and the falling trend line on the 4-hour time frame. Placing your stop above 1.5700 would yield a pretty decent reward to risk ratio.
A breakout play could materialize if GBP/USD trades below the 1.5475 level and it could go all the way down to the 1.5300 area. A stop above the 1.5500 line in the sand would translate to an excellent reward to risk potential. Be mindful of stochastic crossing above the oversold area though as this could indicate whether the pair will be retracing or simply breaking down this week.
Take note that the U.K. is set to print its claimant count change report and show another decrease in jobless claimants for January. Also, the BOE will be printing its latest monetary policy meeting minutes midweek and reveal how many policymakers are favoring further easing and how many would rather stay put. A division tilted in favor of further easing could trigger a stronger pound selloff later on.
Trade Setup of the Day: Straddle EUR/USD (February 19, 2013)
EUR/USD has been trading cautiously so far as the pair is currently consolidating into a pennant on the 4-hour time frame. With the euro zone printing weaker than expected GDP for Q4 2012 and consequently getting buried deeper in a recession, it seems that the path of least resistance is south.
The pair has also formed a head and shoulders pattern on the 4-hour time frame, suggesting a selloff if the neckline around 1.3300 breaks. Take note that this is a strong level as it was a former resistance turned support and also in line with the rising trend line connecting the pair’s lows.
The catalysts for this week include the German ZEW economic sentiment figure for February. This report is due today and could show a downside surprise as euro zone’s largest economy reported an economic contraction lately. Also scheduled for this week are ECB head Draghi’s speeches and the release of the European Commission’s economic forecasts. Italian elections are also coming up and the ongoing political troubles and risk of a hung parliament could also weigh on the euro.
For those who don’t want to commit to a direction and would rather wait for momentum, setting a buy order above the pennant might also work if the economic releases and events turn out better than expected. After all, expectations may have already been long priced in so the slightest amount of good news could allow the pair to resume its rally.
Trade Setup for the Day: Long NZD/USD (February 20, 2013)
NZD/USD’s uptrend is still intact as the rising channel on the 4-hour chart seems to be holding. The pair just tested the top of the channel last week when New Zealand released stronger than expected quarterly retail sales data but has since been unable to sustain its rally.
This week, the New Zealand dollar is edging lower against the U.S. dollar as traders are exercising caution ahead of the central bankers’ speeches and the release of various monetary policy meeting minutes throughout the week.
A midweek reversal could be in the works though if the pair finds support around the .8350-.8400 area, which is at the bottom of the rising channel. Stochastic is still pointing down though, suggesting a further move down south. However, there seems to be no catalysts for a breakdown below the channel so it’s reasonable to assume that it could bounce from the next support area.
Going long at the .8350 minor psychological level with a stop loss below .8300 and a profit target at .8500 would yield a 4:1 reward-to-risk ratio. Despite the recent run of weak employment data from New Zealand, the RBNZ is still one of the more hawkish central banks around as they aren’t looking to ease monetary policy anytime soon.
Trade Setup of the Day: Short GBP/USD (February 21, 2013)
GBP/USD just broke below the long-term support at 1.5350 and the next area of support is around 1.5000 then at 1.4300. The pound has been selling off aggressively lately as the United Kingdom has been printing weak data and the BOE emphasized its commitment to weak monetary policy at the expense of stronger inflationary pressures. This puts the British economy at risk of stagflation, which could be more damaging to growth later on.
On the other side of the fence, the U.S. dollar has been enjoying a strong rally for the past few trading sessions after the FOMC meeting minutes revealed that the Fed was actually considering overlooking its employment and inflation targets. Recall that Fed Chairman Bernanke said previously said that the economy has stalled and that the expansion will just be moderate. However, in their latest monetary policy meeting minutes, policymakers showed more confidence in the economy and even suggested withdrawing asset purchases soon.
The pair’s breakdown below 1.5350 represents a pretty significant signal that pound bulls are no longer willing to defend the support zone. Unless Fed officials retract their recent hawkish remarks, the U.S. dollar could continue to be boosted by upbeat monetary policy expectations.
Meanwhile, weaker than expected figures from the U.K. could push GBP/USD all the way down to the 1.5000 major psychological support. If that level still breaks, GBP/USD could keep selling off until the next lows around 1.4300.
Trade Setup for the Day: GBP/USD Short (February 22, 2013)
There might be a chance to catch the GBP/USD selloff at a better price today as the pair appears to be retracing to the 38.2% Fibonacci level on the 4-hour time frame. On a longer-term chart, the pair has already broken down from a significant level of support at 1.5350 and appears to be headed further south.
Stochastic is deep in the overbought region in the 4-hour chart, which suggests that the pullback could be over soon. In addition, the 38.2% Fibonacci level is in line with the 1.5250 minor psychological mark, which could act as resistance.
Setting a stop above the 61.8% Fibonacci retracement level seems like a reasonable line in the sand as it is close to the former support at 1.5350. For those already short the pair, scaling in at the 1.5250 area could allow you to press your advantage. Aiming for the next major support level at 1.5000 or lower would yield an excellent reward-to-risk ratio.
Trade Setup for the Day: Short EUR/USD (February 25, 2013)
EUR/USD consolidated around the 1.3150 and 1.3200 major and minor psychological support levels at the end of last week and continues to move sideways in that area today. The downtrend on the 1-hour time frame is still intact and suggests a potential continuation of the selloff.
Take note that EUR/USD is currently trading below the 1.3300 major psychological support level and bottom of the longer-term trend line. After breaking below this support zone, a reversal of the previous uptrend could be in the works.
Stochastic is neither in the oversold or overbought territory though, which means that traders are still undecided where to take this pair. If it does rally, it could pull back until the 1.3300 area. That’s right in line with the falling trend line and the 61.8% Fibonacci retracement level. If the bearish sentiment is much stronger, the pair could simply break down from consolidation.
Shorting at 1.3300 with a 100-pip stop and a profit target at 1.3200 or the previous lows would be roughly a 1:1 trade. Setting a tighter stop of 50-pips would improve the reward-to-risk ratio but it might not be enough breathing room for this pair since ECB Governor Draghi has a speech today.
Trade Setup of the Day: Short GBP/USD (February 26, 2013)
GBP/USD made a huge gap down over the weekend but price pulled right back up and the pair starting to close the gap completely. The previous week’s close is around 1.5241, close to the 50% Fibonacci retracement level. Stochastic is already in the overbought region, hinting at another potential move down.
Shorting around 1.5250 with a stop above the 1.5300 major psychological level and aiming for the 1.5100 area would be a good day trade with a reward-to-risk ratio of 3:1. If you’re going for a longer-term short position, aiming for the 1.5000 round number with a trailing stop would help you press your advantage and protect your profits.
Take note that Bank of England Governor King is giving a speech today. He just voted in favor of further easing, according to the minutes of the latest monetary policy meeting. The last few times that happened in the past five years, the central bank actually implemented further asset purchases in their next interest rate decision or within the next three months.
Given the Federal Reserve’s intention of tapering off asset purchases, fundamentals are in favor of a GBP/USD short trade. However, Fed head Ben Bernanke is also scheduled to give a speech during the U.S. session today. It’s his semi-annual testimony in Congress so it could be a major market mover.
Trade Setup of the Day: Long AUD/USD (February 27, 2013)
AUD/USD is approaching long-term support at the 1.0200 major psychological level and a potential bounce could be in the cards. Stochastic has been deep in the oversold region for the past few weeks, suggesting that Aussie bears are running out of selling power.
Aside from that, the stochastic has made a bullish divergence with price as the oscillator made higher lows while price made lower lows from the start of the year. This also hints at a possible bounce, depending on market catalysts.
There are no major reports due from Australia this week and the big market mover from the US, which is Fed head Bernanke’s speech, was already finished. In his speech, Bernanke talked about the recent FOMC meeting minutes and the timeline for the withdrawal of asset purchases. He did mention that the benefits of further asset purchases outweigh the risks though, which meant that the expected tapering off of stimulus will not take place anytime soon.
A swing long trade at 1.0200 or at market with a wide 150-pip stop and a target at the top of the range (1.0600) would yield a little more than 2.5-to-1 reward-on-risk.
Trade Setup for the Day: Short NZD/USD (February 28, 2013)
NZD/USD is still on a strong downtrend, as seen from the formation of a falling trend line on the 1-hour time frame. The pair has also just broken below the .8300 major psychological support earlier this week, confirming the strong bearish bias on this pair.
After consolidating around the .8250 minor psychological level at the start of the week, the pair is pulling up for a quick retracement before possibly resuming its downtrend. It just rallied past the 38.2% Fib level but appears to be finding resistance at the 50% Fibonacci retracement level, which is in line with a former support area.
However, the trend line is still a few pips higher than this resistance zone while stochastic hasn’t crossed down from the overbought area yet. This suggests that the pair has enough room to climb before actually selling off. The 61.8% Fib seems to be a better entry point in this case.
Shorting around .8350 with a stop above the .8400 major psychological level and a target of .8200 would yield a 2:1 reward-to-risk ratio.