Week of February 27 Report

The only wish I have about the past trading week is to forget it as quickly as possible. You would think of losses, but it’s not the main reason. Sometimes markets are tough, sometimes they are just frustrating.

I was trying to trade the same way I did last several months. And I realized that it’s a wrong way to trade nowadays. Something changed. Some trigger switched. I can understand thin markets on Monday, Feb 20 because of the US and Canada holiday. I can understand choppy trade on Tuesday due to the lack of significant economic reports. I can understand that despite several reports released on Wednesday, the markets did not show too much volatility cause they have been expecting FOMC Meeting Minutes to understand the next move from biggest regulator. We’ve seen German Ifo Business Climate Index, British GDP, EU CPI, Canadian Core Retail Sales, US Existing Home sales. And what? – Nothing. I tried to trade some majors like EURUSD and USDJPY during the Minutes release, but decided to forget about these assets for now.

There are big questions about the lack of two things: volatility and certain direction. I mean trend. You cannot find it nowadays especially when it comes to majors. So, what should a good trader do in such case? – Yes, change his tactics. If you do not have a good daily profit on some assets, isn’t it the time to switch your attention to some other assets? What about trading metals? What about to turning towards exotics?

I traded USDZAR and USDMXN on Thursday. And that trading was pretty successful. South African rand and Mexican Peso managed to post new local highs versus the greenback (I mean lows of USDZAR and USDMXN). Other exotics like Norge Krone, Polish Zloty and even Hungarian Forint followed the same direction. It was not huge, but it was a daily profit. At least those pairs have some volatility, which is the best friend of the Profit. The main advantage of a small retail trader is in his flexibility. Imagine huge institutional traders or hedge funds, they are obligated to trade major currencies, and it’s not that easy for them to switch to some exotics with comparatively low trading volume.

We have also noticed a small movement on USDCAD on Friday after surprisingly strong Canadian CPI report on Friday. Worth-than-expected US New Home Sales in January could not give too much power to USD bears. In addition, some local profit-taking on Friday lifted the greenback slightly higher at the end of the trading week.

Big week ahead. Markets are expecting a huge Plan from US President on tax cut and economic stimulus. Every trader and investor will be listening and watching Trump on Tuesday during his speech to Congress. Will he be able to give a support for the greenback? Or should we expect the same disappointment as we noticed several times before right after his speeches? That’s a big question. We’ll look at couple of reports before the speech: US January Pending Home sales on Monday, Feb 27; US Q4 GDP and CB Consumer Confidence on Tuesday. But we do not expect too much impact from those reports. Most probably, the main sentiment of the trading week would be formed after the POTUS' speech.

What do we have in terms of the technical analysis picture? First of all, I want to show you daily chart of the USD Index. It’s the cost of USD comparing to a basket of six major currencies based on the trading volume.

Euphoria started.

OK, let’s take a look at the fear assets. Precision metals (GOLD, SILVER, and PLATINUM are on the move. It’s a strong sustainable trend on the upside. Moreover, GOLD managed to have closing daily and weekly (!) prices above the 50% Fibonacci Retracement level of the downside move, which took place last year. What does it mean? Technically, the price action sets up to test important daily resistance level of 1280.00 USD per ounce. Fundamentally, investors are not satisfied and confident about current situation in worldwide economy. They started to come back to safe heaven. That’s why all precision metals continue their uptrend. Look at the daily charts:

DJPY as the risk-appetite indicator looks heavy as well. Daily Ichimoku Equilibrium Chart is totally bearish. After failed attempt to break through Tenkan-sen (yellow, resistance level of 113.80), the price slipped back down to 112 yen per dollar. It has a huge potential to draw new local lows, breaking the level of 111.69. Daily closing price below this level would be a strong bearish continuation signal. Have a look below:

All of the factors described above (low volatility and uncertainty, growing precision metals prices, heavy US dollar index and bearish USDJPY) are not giving too much support for the greenback versus exotic currencies as well. One of the biggest stories last several weeks is South African Rand strengthening. USDZAR posted new lows at 12.7831, levels have not seen since August 2015. Keeping in mid the fact that this pair is rather volatile, we would consider short on pullbacks strategy. We see attractive levels in a range of 12.9900 – 13.0200 for the fresh shorts entry points. You can find H4 chart below:

Be ready to add shorts in a worst case scenario if the price will try to reach higher levels around 13.0400..13.0600. Overall technical picture looks bearish and we do not see any reasons or signs for reversal.

May the Profit be with you and do make it official!