Weekly FX Recap: It’s a Long Way to the Bottom

Noam Stiekema

Just remember short-term pain can empower you and as a direct result creates the foundations for many long-term opportunities.

Weekly-FX-Recap-Euro

By José Ricaurte Jaén, Senior Algo Trader at The Guardian Advisors & TradersDNA

“I just lost a lot of money. I am a Spanish citizen working in London. Suddenly, I do not know what to do next. I believe the British Pound is going to make a comeback. Should I exchange my hardworking money now or wait for a rebound?”

There is good and not so good news to face today. Just remember short-term pain can empower you and as a direct result creates the foundations for many long-term opportunities.

Today we are going to review together long-term charts so you understand what risk currencies are adjusting from a technical perspective and why the race is not longer to the top, but just heading towards the ground floor.

And boy! This time is going to be fun. The opportunities in currency trading knocking your door won’t last long, so if you are in “hope mode” or “miracle mode” do not sweat it and open your eyes, because it is a long…long way to the bottom.

EURGBP

Monthly – Resistance: 0.8780      Support:  0.7660

EURGBP!Monthly

There are two scenarios that need to materialize to push the single currency closer to parity against the Cable:

  1. As discussed in the previous edition of this Weekly FX Recap; BoE has/will cut interest rates in a poor attempt to provide massive liquidity to the system. However, to apply this Central Bank textbook play, the FTSE 100 has to trade close to 5100 points. Timing matters the most when the storm gets closer.
  2. The next scenario is a direct continuation of the Brexit revolution: Scotland gets its desired independence to remain in the EU + Article 50 of the Treaty of Lisbon is called in less than three months.

Although, you may think the outlook for the EU is complicated, wait and see how things are turning for the UK. On the technical view, the cross keeps trading it bullish trend initiated in early 2001 without any intentions to head back to 0.68 cents.

To the left on the chart, note the historical levels, around August 2007 the euro marched with all it has towards 0.9582 and beyond. There is enough evidence from both perspectives; fundamental and technical.

As prices trade above the 50 SMA on the monthly chart, make no mistake no miracle will bring back the UK to the European Community. Therefore, buyers are concentrated around the support 0.7660 marching with brave determination towards 0.9700.

This time, is going to be different, and 1.0320 to 1.0550 may be the final stop; the United Kindom is in for a financial surprise.

EURJPY

Weekly – Resistance: 115.37       Support:  110.29

EURJPY!Weekly

Monthly – Resistance: 119.08    Support:  107.24

EURJPY!Monthly

Fun fact: there are more than 50,000 people in Japan above 100 years old. Another one, in school they make students clean the classroom facilities. Interesting information; don’t you think?

The first one explains the demographic time bomb Japan deals with on daily basis. Its population is agin. The second scenario explains either their strong ethic values or how they are cutting cost by not having a janitor; either way both realities make sense.

Think about it for a minute; Japan played low to zero interest rates for more than +20 years. It ran out of options, why would they waste card now?

Economist, PhDs and all the Financial Gurus in the world may continue explaining why Japan will eventually change its monetary policy, but they failed over and over again because the game changed and nobody realizes it.

On the Technical View, since October 2014 the cross traded a bearish channel with little to non-recovery. From left to right, follow the black trend line, every single pullback was good enough to start another short position.

What is the issue now? The cross is trading in a new bearish trend, and the next realistic support is around 107.24. As things are not getting any better for the single currency in the medium-term, expect more sellers as soon as it recovers towards 115.30 level.

EURAUD

Monthly – Resistance: 1.5072      Support:  1.4093

EURAUD!Monthly

What goes up must come down… We cannot deny it anymore; the European Community requires a massive re-organization at so many levels. As long as there is not action plan in place, the euro value will continue to deteriorate.

This short-term weakness provides the platform for countries like Australia and New Zealand to adjust their trade policies. However, the scenario provides interesting opportunities for traders to take advantage of the positive carry trade and a long way to the next bottom.

On the Technical View, price closed and opened below the bullish trend line, this pattern provides enough evidence to initiate a short position towards 1.4096. The Fibonacci 61,8%, 1.4684 level is going to be the new resistance.

USDCAD

Daily – Resistance:  1.3080           Support:  1.2690

USDCAD!Daily

With No Federal Reserve hikes in 2016, and nowhere to go except “Safe Haven” currencies, some institutions and traders are going to take a risk somewhere to improve their poor returns. Oil may work as a “hedge” trade.

However, on the Technical View, there is evidence to consider a push to the downside. The USD/CAD trades inside a triangle formation just waiting for a breakout to establish direction.

Please, do not forget the gargantuan amount of issues the US dollar faces, however, this short-term weakness can lead in the next 24 months to experience a massive rally in the greenback.

Happy days for Risk-off trades, but as everything in FX; it may not last long.

 

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