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FX Setups for the Week of July 9, 2018

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– DailyFX Quarterly Forecasts have been updated for Q3, and are available directly from the following link: DailyFX Trading Guides, Q3 Forecasts.

– For trading ideas, please check out our Trading Guides. And if you’re looking for something more interactive in nature, please check out our DailyFX Live webinars.

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

Q3 Open Brings Deeper Dollar Pullback – But Can it Continue?

It’s been an interesting start to the second half of 2018 so far, as the US Dollar continues to give back gains from the Q2 rally, and this brings more questions around the sustainability of that bullish up-trend. As we move deeper into Q3, a bit of weekend risk exists around the British Pound as a key point in Brexit negotiations nears after today’s market close. As such, we’re looking to avoid the currency in this week’s FX setups, while also looking for a play on Euro volatility.

It’s important to note that the below setups are designed for next week’s trade, as a gap through support or resistance could vastly alter the setup and, as such, nullify its potential before the trade ever gets started.

Bullish EUR/USD on Hold Above 1.1685

It’s been a big week for the Euro, as strength returned after what became a troubling down-trend in Q2. And while sellers remained fairly active through most of the quarter, they seemingly got shy around the 1.1500 level, producing a double-bottom formation on two separate failed attempts to take-out the psychological level.

We’ve since seen a bit of improvement in some key European data points, most importantly: Inflation. Inflation for the month of June came-in at the ECB’s target of 2% for the first time in over a year, and this started to shake-up the possibility of a rate hike ahead of the ECB’s prior estimation of keeping rates at current levels ‘at least through the summer of 2019.’ This has helped to bring EUR/USD back-above a key zone of prior support/resistance that rests from 1.1685-1.1736, each of which are taken from longer-term Fibonacci levels. If prices hold above the 1.1685 Fibonacci level as we open trading for next week, the door opens for bullish positions, looking for prices to move towards the June swing-highs that rest between 1.1821-1.1850. Stops can be investigated at prior swing lows of either 1.1630 or 1.1590, which can be adjusted to break-even at the first target while the potential for secondary targets exists at 1.1950 or 1.2000.

EUR/USD Four-Hour Price Chart

eurusd eur/usd four-hour chart

Chart prepared by James Stanley

Bearish EUR/JPY on Hold Below 130.35

Conversely, if we do see that bearish theme come back in the single currency, EUR/JPY is near an interesting spot of resistance that can open the door to bearish continuation. The psychological level of 130.00 has been big in the pair of recent, and the June swing-highs grouped-together just a bit-higher, around 130.35. If we hold below this level on Monday, the door is opened for bearish continuation, looking for prices to move back-down towards 128.52, at which point stops can go to break-even, and secondary targets could be sought out at 127.30 and/or 126.50.

EUR/JPY Daily Price Chart: Test of Confluent Resistance Zone

eurjpy eur/jpy daily chart

Chart prepared by James Stanley

Bearish USD/CHF on Hold Below Parity

If we do see a grander break of USD-weakness, the short-side of USD/CHF remains attractive. We remain short the pair from our Analyst Pick last month, and while the setup didn’t initially show promise, resistance has held from below parity, and this has helped to tilt prices back-down towards prior lows.

At this point, the pair is testing through the bottom side of a symmetrical wedge after we printed fresh two-week lows. This keeps the door open for short-side exposure, and for those looking at stops above parity, initial targets can be set around the June swing-low of .9800 for an initial one-to-one risk-reward ratio.

USD/CHF Four-Hour Price Chart

usd/chf usdchf four hour price chart

Chart prepared by James Stanley

Bullish USD/CAD on Support Showing at 1.3060-1.3070

As that pullback in USD has heated up throughout this week, so has the sell-off in USD/CAD. The previously blistering up-trend continues to pullback, and prices are now nearing an interesting zone of confluent support potential. The price of 1.3065 marks the early June swing-high in the pair, and this is also the 38.2% retracement of the 2016-2017 major move in USD/CAD. This area projects in the same vicinity as a trend-line projection taken from the April-June swing-lows, and if we do see support set-in here during the early part of next week, the door opens for bullish strategies with stops below the 1.3000 psychological level, and initial profit targets directed towards 1.3225 followed by a possible secondary target at 1.3350.

USD/CAD Daily Price Chart

USDCAD usd/cad daily price chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

— Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX



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Forex

USD/JPY Rate Risks Fresh Monthly Highs as Overbought Signal Persists

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Japanese Yen Talking Points

USD/JPY remains overbought as Federal Reserve Chairman Jerome Powell strikes a hawkish outlook in front of U.S. lawmakers, and recent price action keeps the topside targets on the radar as the exchange rate initiates a fresh series of higher highs & lows.

Image of daily change for major currencies

USD/JPY Rate Risks Fresh Monthly Highs as Overbought Signal Persists

Image of daily change for USDJPY

USD/JPY bounces back from the session-low (112.71) even as U.S. Housing Starts contract 12.3% in June, with Building Permits narrowing 2.2% during the same period, and the dollar-yen exchange rate may continue to appreciate over the remainder of the week as the Federal Reserve appears to be on track to further normalize monetary policy in 2018.

The testimony from Governor Powell suggests the Federal Open Market Committee (FOMC) will continue to embark on its hiking-cycle over the coming months as ‘incoming data show that, alongside the strong job market, the U.S. economy has grown at a solid pace so far this year.’ In turn, Fed officials may show a greater willingness to implement four rate-hikes this year as the committee ‘believes that–for now–the best way forward is to keep gradually raising the federal funds rate, and the FOMC may continue to prepare U.S. households and businesses for higher borrowing-costs despite the growing threat of a trade war with China.

Image of Fed Fund Futures

Keep in mind, Fed Fund Futures now highlight a greater than 60% probability for a December rate-hike, and expectations for higher interest rates may continue to prop up USD/JPY especially as the Bank of Japan (BoJ) sticks to its Quantitative/Qualitative Easing (QQE) Program with Yield-Curve Control.

With that said, USD/JPY may continue to exhibit a bullish behavior as the exchange rate initiates a bullish sequence and pushes to a fresh monthly-high (113.14), and the topside targets will stay on the radar as long as the Relative Strength Index (RSI) sits in overbought territory.

USD/JPY Daily Chart

Image of USDJPY daily chart

  • Broader outlook for USD/JPY remains constructive as both price and the RSI preserve the bullish trends from earlier this year, with the pair at risk of extending the advance from earlier this week as it carves a string of higher highs & lows.
  • Another close above the 112.40 (61.8% retracement) to 112.80 (38.2% expansion) region opens up the Fibonacci overlap around 113.80 (23.6% expansion) to 114.30 (23.6% retracement).
  • Will keep a close eye on the RSI as it trades in overbought territory, with a move below 70 raising the risk for a pullback in the exchange rate as the bullish momentum wanes.

For more in-depth analysis, check out the Q3 Forecast for the Japanese Yen

Interested in having a broader discussion on current market themes? Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

Image of DailyFX economic calendar

Additional Trading Resources

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2018.

— Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.



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EUR/CAD Chart Triangulating, Downside Break Favored

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Check out the DailyFX Q3 Euro Forecast forecast for our intermediate-term fundamental and technical perspective.

EUR/CAD is a cross-rate we’ve been watching recently given its technical positioning on the daily/weekly chart and its price action on the 4-hr chart. The top and drop in late-June put price back below a slope rising up from February 2017 in addition to the bottom of a shorter-term channel since the end of May.

Since declining below these thresholds we’ve seen a weak response. Looking at the 4-hr chart, we initially viewed the price sequence over the past month+ as an upward leaning head-and-shoulders pattern, but more recently with a contraction in price action we are seeing a triangle form. It could make for a complex right shoulder, but focus is now centered on the developing wedge. (Either way, whether one considers it a bearish wedge break or H&S breakdown, bias is the same…)

Given the context of the aforementioned daily slope/channel as well as the chart leaning lower off the March high, a downside break of the wedge is preferred. An undercut will initially have a swing-low from mid-June in focus in the vicinity of 15150/115, followed by a line running over January right around 15000 (yes, this t-line could be the neckline of a broader head-and-shoulders pattern). Beneath there lies the low near 14900 from the end of May.

EUR/CAD Daily Chart (Slope in play)

EUR/CAD Chart Triangulating, Downside Break Favored

Check out these 4 core tenets for Building Confidence in Trading.

EUR/CAD 4-hr Chart

EUR/CAD 4-hr chart, wedge forming...

We’ll take it one step at a time. A break below the bottom of the pattern on the 4-hr will have the trade in motion, with a stop placed back inside the pattern. Targeting 15150/115, 15000/4917. We’ll play it by ear as targets near – if momentum is strong, then looking to extend the trade, if momentum stalls then look to start peeling off the position.

On the flip-side, in the event of a breakout to the top-side and recapture of the aforementioned slope, traders may want to play the wedge breakout from the long-side – but given it will be uphill, on this end it is likely a trade which will be avoided.

***Updates will be provided on this idea and others in the trading/technical outlook webinars held on Wednesday and Friday. If you are looking for ideas and feedback on how to improve your overall approach to trading, join me on Thursday’s for the Becoming a Better Trader webinar series.

For another recently expressed bearish bias on this cross, check out Tyler Yell’s take on EUR/CAD.

Resources for Forex & CFD Traders

Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX



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British Pound May Rebound on UK Inflation Uptick

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TALKING POINTS – UK CPI, BRITISH POUND, POWELL, BEIGE BOOK, US DOLLAR

  • First UK CPI gain in seven months might boost British Pound
  • US Dollar may extend gains on Powell testimony, Beige Book
  • Lull in top-tier event risk makes for quiet Asia Pacific trade

A lull in high-profile event risk translated into quiet consolidation across the G10 FX space in Asia Pacific trade. Volatility might make a comeback in European market hours however as UK CPI data comes across the wires. The headline on-year inflation rate is expected to rise to 2.6 percent, marking the first increase in seven months.

The British Pound suffered heavy losses yesterday ahead of a House of Commons vote on an amendment that would force the UK into the EU customs union if no new post-Brexit trade agreement were reached. Prime Minister Theresa May opposed the move and speculation that it might pass anyway stoked worries about an imminent leadership challenge.

The government prevailed by a razor-thin majority, de-escalating the situation at least somewhat. That coupled with a strong CPI print that reminds investors of an incoming BOE interest rate hike might offer Sterling a lifeline. The priced-in policy path reflected in OIS rates puts the probability of tightening at Augusts’ meeting of the rate-setting MPC committee at a healthy 77.6 percent.

Later in the day, another day of testimony from Fed Chair Powell is in focus. This time, he will appear in the House of Representatives having spoken before a Senate Committee yesterday. A hawkish lean in those comments drove the US Dollar higher yesterday, as expected. More of the same coupled with an upbeat Fed Beige Book survey might keep the greenback on the offensive.

See our free guide to learn how to use economic news in your trading strategy!

ASIA PACIFIC TRADING SESSION

British Pound May Rebound on UK Inflation Uptick

EUROPEAN TRADING SESSION

European Trading Session Economic Calendar

** All times listed in GMT. See the full economic calendar here.

FX TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter



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