FX Setups for the Week of March 18, 2019
Forex Talking Points:
– DailyFX Quarterly Forecasts are available directly from the following link: DailyFX Trading Guides, Q1 Forecasts.
– If you’d like more color around any of the setups below, join in our live DailyFX webinars each week, set for Tuesday and Thursday at 1PM Eastern Time. You can sign up for each of those sessions from the below link:
Tuesday: Tuesday, 1PM ET
Thursday: Thursday 1PM ET
Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.
End of Q1 Nears, FOMC on Deck for Next Wednesday
The end of Q1 is near with but two weeks of trade remaining before the door opens to Q2. It’s been an interesting outlay for a number of reasons, key of which is the return of the risk trade as the Fed shifted into a more moderate stance following the troubling equity sell-offs in Q4. This carried impact through the FX market, as an early-year surge of Yen-strength soon took a backseat to prior themes of Yen-weakness. This has helped USDJPY to put in a respectable showing so far in Q1, and this keeps the door open for further topside as the Q2 open nears.
The big item for next week is the FOMC rate decision on the calendar for Wednesday. There are minimal expectations for any adjustments or signals of adjustments to rates. The big topic of interest will be the balance sheet and how the Fed will look to continue with run-off, focusing on what the FOMC anticipates as the composition of the portfolio once they’re finished with Quantitative Tightening.
Bullish USDJPY on Hold Above 110.70
While the US Dollar has found a few different setbacks over the past week, highlighted by last week’s NFP report that helped to push DXY off of a big resistance level, USDJPY has held up fairly well. This highlights how a weak US Dollar hasn’t been as weak as the Japanese Yen, and this is a theme that shouldn’t be foreign to FX traders as Yen-weakness has continued to carry a strong correlation to risk-on market themes. The opposite theme has held true as well, with Yen-strength becoming of interest as risk-aversion themes have taken-hold across global markets.
This can keep the pair in an attractive spot for strategies built-around USD strength. The pair has thus far struggled to maintain above the 112.00 level, so traders would likely want to incorporate either an initial target or a break-even stop move upon a re-test of that level. A bit-higher is another potential area of resistance at 112.34, and this could function as either an initial target (if 112.00 is being used for a break-even stop move) or a secondary target.
USDJPY Eight-Hour Price Chart
Bearish USDCNH on Hold Below 6.7400
On the other side of the US Dollar, USDCNH remains of interest. I began looking for a reversal in the pair last November as USDCNH tip-toed up towards prior highs. Given the backdrop, with the US-China trade dispute going along with an intense focus on currency-devaluation from President Trump, it didn’t seem an opportune time for the PBoC to allow for a top-side breakout in USDCNH which would likely garner considerable attention.
Since then, the Yuan has been guided-lower and prices have been confined to a bearish channel. I began looking at additional short-side setups coming into this week, and the first target was hit fairly quickly before prices bounced-up to prior resistance. With prices still adhering to this bearish channel, the door can remain open for more. The same initial target as last week may remain of interest around 6.7000 and, a bit-lower, secondary targets remain of interest around the 6.6750 area.
USDCNH Daily Price Chart
Bullish AUDUSD on Hold Above .7000
Also on the side topside of USD-weakness is the of AUDUSD, which I had looked at last week on the basis of support holding above the key psychological level of .7000. While there isn’t much around the Australian economy to get excited about at the moment, the currency has had a difficult time trading below .7000, historically speaking. There have been a few instances of as such, most recently around the open of this year’s trade; but each time buyers have pushed prices back-above, giving rise to the continued defense of that level outside of any exogenous shocks. Last week saw the .7000 level come into play but buyers responded before bears could test-below, and this was somewhat of the basis for including this market in last week’s FX Setups.
For next week, the potential for further gains remains as the pair holds near weekly highs. Above current prices, the prior zone of interest around .7125-.7150 remains, and the long-term zone of support/resistance remains from .7185-.7206, which could function as topside targets accompanied with a break-even stop move.
AUDUSD Four-Hour Price Chart
Bearish USDCAD on Hold Below 1.3470
I had looked into this setup in yesterday’s webinar, highlighting this specific zone of resistance for the potential re-opening of bearish strategies. Earlier in the month of March I had looked at bullish reversals in the pair, largely using an Oil proxy as WTI had just run into a key level of resistance. That resistance held and didn’t come back into play until this week when buyers posed a brisk topside breakout. At this point, WTI has pulled back to find support in that prior zone of resistance, and this can keep the focus on the long side of Oil which can, in-turn, keep the long side of the Canadian Dollar of interest.
WTI Crude Oil: Support Bounce From Prior Breakout Resistance
Initial targets could be sought around the prior zone of 1.3236-1.3259, at which point break-even stop moves can be investigated. Secondary targets could be sought at the same level that was used for support earlier this month, around the 1.3132 Fibonacci level; and if traders did want to look for a larger down-side move, the 1.3066 level lurks just-below that.
USDCAD Four-Hour 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 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
Brexit Newsflow and Political Manoeuvres
Sterling (GBP) Price Fundamental Forecast:Neutral
Q3 2019 GBP Forecast and Top Trading Opportunities
No UK Data Next Week Will Leave Sterling Vulnerable to Rumor Risk
Sterling has nudged higher over the week, aided principally by slightly better-than-expected wages, jobs and retail sales data. UK inflation also edged higher and in a world without Brexit, these releases would have the Bank of England discussing whether the current monetary policy was appropriate or if it needed to be tightened. However, as has been the case for many, many months, Brexit is still the driver for Sterling and will remain so until October 31.
Next week there is no market moving hard UK data of note, leaving Sterling at risk of Brexit rumors and news flow. The UK market will also be holiday-thinned next week, leaving GBP potentially exposed to outsized moves in limited liquidity markets.
Brexit news flow continues unabated with the latest batch of headlines suggesting that a cross-party alliance of MPs may come together to form a national unity party if UK PM Boris Johnson loses the expected vote of no-confidence likely to be called in early September. The current Labour Party leader has said that he will act as interim PM is this succeeds ahead of an early general election with the Labour Party promising a second referendum. According to reports, four prominent remainer Conservative MPs are involved in talks with Corbyn.
Sterling technical are covered in a different section but the chart below shows a familiar pattern. Since late-April there have been three occasions when moves lower are met with a quick reversal before the overall bearish pattern takes over. Will the current move prove to be the fourth occasion?
GBPUSD Daily Chart (December 2018 – August 16, 2019)
Crude Oil Price Outlook Bearish, Eyeing January Lows on Long Bets
Crude Oil Technical Forecast: Bearish
- Crude oil prices struggled sustaining upside momentum this past week
- Technical signals on the daily, 4-hour chart hinting at weakness ahead
- IG Client Sentiment offering stronger bearish crude oil contrarian bias
Build confidence in your own Crude Oil trading strategy with the help of our free guide!
Crude Oil Technical Outlook
Crude oil prices struggled to sustain upside momentum this past week as US recession fears plagued risk trends and the sentiment-linked commodity. From a technical standpoint, this falls in line with oil’s dominant downtrend since the middle of April when the commodity fell through rising support from the end of last year.
Looking at the oil daily chart, gains during the front-end of the past 5 trading days were tamed by a falling channel of resistance going back to the middle of July (parallel red lines below). Horizontal resistance also held at 57.38, former highs from February. This left crude oil sitting just above the lower boundary of psychological support which is a range between 54.55 and 55.41.
If descending resistance continues to define near-term price action in the commodity, we may see crude oil extend weakness down the road. Prices may eventually end up at the next critical psychological area between 50.41 and 52.08. This range held as support on multiple occasions such as in June and back in January. Meanwhile, near-term technical signals also hint towards downtrend resumption.
Crude Oil Daily Chart
Crude Oil Chart Created in TradingView
Zooming in on the crude oil 4-hour chart below, rising support from August 7 was taken out this past week. As such, a close under 54.55 may pave the way for continued declines. Otherwise, the upside challenge for the commodity is taking out descending resistance from the middle of July which would expose the July 31 high at 58.79 down the road.
For more updates on crude oil, including fundamental developments, feel free to follow me on Twitter here @ddubrovskyFX.
Crude Oil 4-Hour Chart
Crude Oil Chart Created in TradingView
Crude Oil Sentiment Outlook – Bearish
Meanwhile, IG Client Positioning is offering a stronger crude oil bearish contrarian trading bias. Traders are further net long on August 16 than compared to the prior day. To learn more about how you can use this in our own trading strategy, join me every week on Wednesday’s at 00:00 GMT as I uncover what market positioning has to say about the prevailing trends in financial markets.
Crude Oil IG Client Positioning
FX Trading Resources
— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
Into the Jackson Hole Vortex
Traders shouldn’t be surprised if gold prices spend most of the week trading sideways ahead of the Federal Reserve’s Jackson Hole Economic Policy Symposium.
Weekly Fundamental Gold Price Forecast: Neutral
- Gold prices (as well as other precious metals) continue to outperform in an environment defined by falling real sovereign yields – that is, inflation-adjusted yields remain in negative territory.
- Traders shouldn’t be surprised if gold prices spend most of the week trading sideways ahead of the Federal Reserve’s Jackson Hole Economic Policy Symposium.
- The IG Client Sentiment Index shows that gold prices in USD-terms (XAUUSD) may give back some of their recent gains in the days ahead.
See our long-term forecasts for Gold and other major currencies with the DailyFX Trading Guides.
Gold Prices Week in Review
Gold prices, no matter how you measure them, had another good week. Not one major currency gained ground against gold, with gold prices in EUR-terms (XAUEUR) leading the way higher with a 2.11% rally. Now, gold prices in EUR-terms (XAUEUR) are quickly approaching the all-time high established in October 2016; for many of the gold-crosses, fresh all-time highs have already been achieved (gold prices in AUD-terms (XAUAUD), gold prices in GBP-terms (XAUGBP), and gold prices in NZD-terms (XAUNZD) come to mind).
But the central focus of most market participants is gold prices in USD-terms (XAUUSD), and that too produced another strong week, adding 1.11%. Gold prices, regardless of the currency basis, have been on a strong run higher in recent weeks in part to the global monetary response to the US-China trade war; we’ll get clarification on the state of global easing this week as central bankers from around the world descend on Jackson Hole, Wyoming for the Federal Reserve’s annual Economic Policy Symposium.
Global Trade War Concerns Keep Gold Prices Elevated
Despite improved trading conditions for global equity markets in recent weeks, not much has changed in a positive manner along the US-led trade war front. Sure, there is a détente in the US-China trade war after the US tariffs at a clip of 10% on $300 billion of imported Chinese goods were pushed back from September 1 to December 15.
Yet there is a strong argument to be made with central banks unveiling more accommodative, dovish policy in recent weeks – a trend that is expected to continue – the fundamental backdrop for gold prices remains bullish in the long-term horizon. Falling sovereign bond yields (particularly German Bunds, UK Gilts, and US Treasuries since the start of May) continue to drop lower, and as a result inflation-adjusted yields remain in negative territory – good news for precious metals.
Volatility Tamped Down Ahead of Fed’s Jackson Hole Meeting
The Fed’s Jackson Hole Economic Policy Symposium this coming week should keep volatility tamped down in the days ahead. Traders typically don’t like to stake out significant positions ahead of the Fed’s annual summit; indeed, at the end of August, many trading desks have been left absent for summer vacation.
Beyond the prospect of an unforeseen development (see: US President Trump’s tweets) in the US-China trade war, the week leading into the Fed’s Jackson Hole Economic Policy Symposium is likely to be a quieter one – even if there are several significant pieces of data set to be released.
Other Top FX Events in Week Ahead
Early in the week, on Tuesday, gold prices in AUD-terms (XAUAUD) will be in focus with the release of the Reserve Bank of Australia’s August meeting minutes. Gold prices in AUD-terms (XAUAUD) are holding near their all-time highs ahead of the minutes. Elsewhere, the commodity currencies will remain in focus with the release of the July Canada inflation report on Wednesday, drawing attention to gold prices in CAD-terms (XAUCAD).
Elsewhere, gold prices in EUR-terms will come into focus with the release of the August Eurozone PMIs, particularly as odds for more easing from the European Central Bank at their September policy meeting have crept higher in recent weeks.
Net-Long Gold Futures Positioning Just Off the Yearly High
Finally, looking at positioning, according to the CFTC’s COT for the week ended August 13, speculators decreased their net-long gold futures positions to 290.1K contracts, down slightly from the 292.6K net-long contracts held in the week prior. The market is still the most net-long since September 2016 despite the slight moderation in bullish positioning.
FX TRADING RESOURCES
Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher, email him at email@example.com
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