What a start to the year we have had so far. Central banks around the world continue to make their marks in the market. This Sunday there's the Greek parliamentary election which could bring down the EURO even further. I recommend to stay away from trading the EURO on Monday to give time for the dust to settle.
NEWS summary
Bank of England (BoE): 2 members on the Monetary Policy Committee (MPC) had changed their votes on interest rate from 'increase' to 'hold'. After many months of hinting a rate increase, BoE has effectively return to square 1.
Bank of Canada (BoC): Perhaps the biggest surprise of this week was the sudden 0.25% interest rate cut for Canada. BoC said that dropping commodities prices have led to the decision which was aimed at lowering the CAD to compensate for loss of income. This move was not anticipated by the market and the CAD dropped over 300 hundred pips across the board.
European Central Bank (ECB): Mario Draghi announced the much anticipated Quantitative Easing (QE) program but it was much larger than expected. 60 billions EURO a month for 18 months with option to extend further.
US Dollar
Fundamental:
Since most of the pairs that I review involve USD, I will do USD fundamental separately to avoid repetition. USA is a oil importer (they buy oil) and the combination of record low oil price and strong USD could be the beginning of a new growth phase. Consumer confidence and NFP figures in the second half of 2014 also support a good year in 2015.
AUDUSD
Fundamental:
There're increased pressure for Reserve Bank of Australia (RBA) to cut interest rate following the BoC. In fact, market has priced in this expectation, evident in the simultaneous drop in AUD when BoC announced their rate cut. A possible reason for this is because both Australia and Canada are commodities exporters whose incomes have dropped severely and now they look to devalue their currency to make up for the shortfall, particularly against USD because commodities are priced in USD. Iron ore prices continue to fall by 2% in the last week. Fundamentals remain short bias.
Technical:
price has broken support 0.800 and closed at 0.7912 at the end of trading on Friday. Next daily support level is 0.7800 and below that is 0.7560 . I see an opportunity to go short on this pair as below. Next week is AUD news heavy so position should be placed by end of trading day Monday.
Entry @ 0.7980 (look for retrace on smaller time frames)
Stop @ 0.8150 (-170 pips)
TP1 @ 0.7810 (+170 pips)
TP2 @ 0.7580 (+400 pips)
EURUSD
Fundamental:
QE will devalue the Euro in the short to medium term. The Greece election could possibly accelerate this fall because one of the parties in the election has been talking of leaving the Eurozone if elected. Market is fearful that if this party wins they would do so and possibly cannot afford to even pay back the interest on the bail out (in Euros) that Greece received when it was part of the Eurozone. There's no reason to not short this pair based on fundamentals.
Technical:
Last week I spoke of watching for the break of the lower boundary of monthly support 1.1380 . That has well and truly been broken so green lights to start shorting again. There's only 2 minor support levels at 1.1100 and 1.0800 before we hit parity 1.0000 . Trading this pair has been deceptively simple in the last 2 months. You could have gone short anytime on the daily chart, put your stop at the last swing high and make easy pips. However, there is no trading recommendation until we know the outcome of the Greece election.
GBPUSD
Fundamental:
Personally, I have found that GBP responds most to inflation, interest rate and unemployment so I will only focus on these 3 key areas. With yearly inflation at 0.5 % and the recent vote change from 2 of the MPC members, BoE is unlikely to raise interest rate. There was a small decrease in monthly unemployment but this could be due to Christmas as the figure is not seasonally adjusted (topic for another day). Overall, fundamental is bearish on this pair.
Technical:
Last week I mentioned that this pair is sitting on very strong monthly support and price could get messy in the 1.5100-1.4800 range. On 8 hour, I see resistance at 1.5030 but nothing below that until 1.4820 . For the aggressive trader, consider watching the smaller time frames for a retrace up to the 1.5080-1.5100 range to go short for best risk reward . Price would have to close above 1.5280 on daily before we can say that there is a short term rally.
EURJPY
Fundamental:
I'm not familiar with Japanese fundamental but given the state of the Euro, I would say that fundamental is bearish for this pair.
Technical:
Price has broken weekly support 135.50 and is now sitting at another weekly support level 131.00 . As with any Euro pair, I recommend waiting until at least Tuesday to see how market reacts to the outcome of the Greek election. Remember, no trade is always a winning trade. I can see 2 support resistance levels on 8 hour: 132.70 and 131.20. From Tuesday, I will be looking to sell if price gets close to 132.70 with target around 131.40 .
