What a tough week for traders! They say: earnings reports season. Well, it’s good in most cases. U.S. indices even posted all-time highs on Thursday and Friday. Some bulls talk about continuation of a strong trend, some analysts started to post long articles convincing traders that we are heading into a new bubble forming in stocks.
But what is the background? – Uncertainty. Tax cuts promised in US: any concrete steps or programs? – No. Political stability in old Europe? – No. They got strange things happening in France before upcoming President elections, Greece has the same bailout troubles. In Asia, Chinese FOREX reserves fell first time in six years… Those are reasons why precise metals prices like GOLD, SILVER and PLATINUM continue rising. USD index pulled back a bit from its three-month lows.
My observation of the previous week trading was that markets traded separately from each other. Every currency lived its own life, without looking at general direction. British pound lives its own life rather long time after Brexit concerns started to weigh on the currency, so it’s not a big surprise. But other markets used to move in a strong correlation with US stocks and US dollar index. Can someone tell me, why AUD and NZD was going down in the first part of previous week despite rising price of GOLD? Can someone explain why the price of OIL bounced back up after such a surprising huge number of Crude oil inventories in US (13.830M with 2.529M barrels expected)?? So, our point is that we need to keep very cautious in multi assets trading. We need to make more deep analysis on each separate currency and its behavior in the market.
Let’s divide them and try to get the profit not from all of them in the same time, but from one-by-one. We will use technical analysis together with fundamental one, looking ahead of the economic calendar for the upcoming week.
EUR/USD trades in a tight range of 200 pips roughly for quite a long time. German Q4 GDP is due on Tuesday 07-00 AM GMT with expectations 0.5% and previous reading 0.2%. German CPI is also to be released at the same time with expectations -0.6% which is not giving too much options to ECB to stop their quantitative easing policy. German ZEW economic index to be released at 10-00 AM GMT together with EU quarterly and yearly GDP and Industrial production. We do not forecast any huge impact for EUR from that data. Seems like someone is getting an advantage of low EUR and there is no reason to change this situation. This pair behavior will depend mostly on situation with US dollar. Technically, you can take a quick look at EUR/USD H4 chart below.
US reports start also on Tuesday with Producers Price Index (13-30 GMT). Janet Yellen testifies (two days), you can watch it starting from 15-00 GMT. Wednesday continues with prices data with Core Consumer Price Index, Retail Sales and Core Retail Sales (13-30 GMT). All these reports will be watched closely by Fed, determining how fast we will see the next rate hike. Thursday data from the largest economy in the world: Building Permits and Philadelphia Fed Manufacturing index.
We would consider shorts of EUR/USD from attractive levels (1.0770 – 1.0820) depending on intraday momentum and sentiment. As you can see above, this week is rather packed with reports from United States, so there could be high volatility on the markets. We could use such a strategy: watch the price action during European session, wait for US reports and make your decision depending on how strong they are. Do not stay in the market too long, close your positions in 2-4 hours after the report released. Watch US stocks indices and precise metals to understand the market sentiment.
USD/JPY bounced back above 113 during the last week. You can find below H4 chart. The pair has found strond support level slightly above 111.50. We observe a strong bullish signal from the price breaking the top of Ichimoku Equilibrium cloud. Lines are also placed to continue bullish momentum. But remember about strong correlation of this asset with stocks indices. It will continue its upside movement as long as stocks indices will rise.
This week price action will depend on the bunch of news from US (see above) and Asia: Chinese CPI on Tuesday 01-30 AM GMT. Official comments from both US and Japan governments could give Rather strong support to USD/JPY especially after the meeting of Trump and Abe, which took place last week. Japanese companies are interested in the low exchange rate of local currency to compete overseas, and We are sure that this issue was one of the topics in negotiations. Seems, they have found a touch base, looking back at the market reaction.
GBP/USD. This week is heavily packed with data from Great Britain. CPI and PPI on Tuesday, Average Earnings and Claimant Count Change on Wednesday, Retail Sales on Friday together with comments from British government about Brexit plan will affect pound volatility this week. Technically, the pound is in the middle of its range. We would highlight a green median (see the H4 GBP/USD chart below), which is most probable target for the price. But everything will depend on data from both sides of Atlantic this week.
Technically Crude OIL is in upside range. It’s been supported by two red lines (see H4 chart below). This week is important not just because of usual weekly oil inventories report on Wednesday, but also because of OPEC monthly report on Tuesday. Some rumors started to appear in the market, that OPEC is going to place new cuts in the productions, which could help the price of black gold to break above 55 dollars per barrel and open road for new highs.
So, this week is packed of economic important events. Watch them closely and do not forget to take your profit!