Top Three Forex Price Action Themes for Next Week

Talking Points:

– This week’s calendar was light, though subsequent week’s picks adult intensely with mixed Central Banker speeches accented by a flurry of information points. If you’d cite video content, we discussed many of these same themes in yesterday’s webinar.

– Many pivotal FX markets continue to vaunt some form of stretch. EUR/USD view is during -1.75, Gold is during +3.83 and SPX is -3.06. Click here to entrance a IG Client Sentiment indicator.

– Looking to learn some-more about a Foreign Exchange market? Our FX Market Primer can help, and is accessible free-of-charge to any and all.

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This week was rather delayed on a news and information front, with a one notable motorist being reports around taxation cuts in a U.S. potentially being delayed, that combined a discerning blip of debility in U.S. equity markets that appears to have carried over globally. The awaiting of taxation cuts in a U.S. has turn a poignant marketplace driver, as a Dow Jones Industrial Average put in a pierce of some-more than 30% after a U.S. Presidential Election. While equity strength has turn rather standard for a march in a low rate, QE-heavy backdrop of today’s markets; 30% in a year is still utterly assertive by roughly any calculation, and this highlights a potentially dangerous thesis should taxation cuts not get pushed through, as my co-worker Christopher Vecchio discussed progressing this morning. The fact that this 30% slip happened while a) The Fed has hiked 4 times and b) a Fed has started to revoke a change piece creates this thesis all a some-more interesting, as a guarantee behind those taxation cuts appears to have speedy some rather assertive risk-taking function as rates sojourn intensely low in a face of a changeable backdrop.

Next week’s calendar picks adult considerably. Throughout subsequent week, we get a array of Central Banker speeches and this is accented with mixed information points of interest. Tuesday generally looks to be busy, as German and Italian GDP comes out forward of UK inflation. A small after we get FOMC Chair Janet Yellen vocalization with Mario Draghi, Haruhiko Kuroda and Mark Carney in Europe on an ECB panel, and this takes place around a time that 3rd entertain European GDP is set to be released.

Wednesday is also rather full, with US CPI and Retail Sales in a morning, followed by another entrance from Mark Carney after in a day. Australian practice finishes off a Wednesday outlay, and a week closes adult on Friday with a Canadian CPI news that will expected keep USD/CAD on a move. Below, we demeanour during 3 FX markets and themes of seductiveness as we pierce into subsequent week.

Is Dollar Strength Going to Follow Through, or Will Bears Comes Back?

Probably one of a some-more startling themes of this year has been only how aggressively clever a U.S. Dollar was as we came into a New Year. In a evident arise of a Presidential election, a Dollar was surging – along with bonds and this was widely being called ‘The Trump Trade’. This bullish pierce in a Dollar extended a pierce of strength that had indeed started in 2014; and only 6 weeks after a choosing we had uninformed 14-year highs in a Greenback.

U.S. Dollar around ‘DXY’ Weekly: Bullish Move Begins in 2014, 2017 Retraces 50% in First Nine Months

Top Three Forex Price Action Themes for Next Week

Chart prepared by James Stanley

But, as we changed deeper into a year, what started as a garden-variety pullback became a full-force sell-off. The focus around that thesis seemed to take place in March. This is when a Fed started articulate about a awaiting of change piece reduction, that adult to that indicate had roughly seemed taboo. But, as a Fed began articulate about how they wanted to start whittling down a $4.5 Trillion basket of bonds that they’d accumulated, marketplace participants began to diminution expectations for near-term rate hikes. The apparent proof being that markets did not design what had been a unequivocally pacifist Fed to all-of-the-sudden plead a twin tightening mandate, whereby a income supply was being tightened by both open marketplace operations and rate hikes.

As those rate expectations shifted-lower, so did cost transformation in a Dollar. DXY moved-into a bearish channel that denominated a currency’s transformation for many of a initial 9 months of a year. Eventually, in September, we ran into a pivotal Fibonacci level, that is a 50% retracement of that pierce that had started in 2014. And slowly, support began to uncover as buyers began display adult during higher-lows. The pierce still wasn’t nonetheless bullish, as sellers were stability to strike bullish cost spikes, though a change had begun as those highs began to get a bit aloft while a lows remained bid.

U.S. Dollar, ‘DXY’ Daily: 2017 Down-Trend Finds Bullish Break during Oct ECB

Top Three Forex Price Action Themes for Next Week

Chart prepared by James Stanley

As we pronounced a few weeks ago, what would solve that insurgency in a Dollar substantially wouldn’t be something directly-USD related, as a European Central Bank rate preference carried a high luck of a ECB fluctuating their impulse program. That effectively nullified a wish for aloft rates in Europe in a near-term, and as that debility was entrance into a Euro, a U.S. Dollar peaked aloft to finally mangle above a insurgency that had hold a highs for a improved partial of a past 3 months.

It was what happened after that ECB assembly that matters to us now: After prices in DXY found insurgency around a 95.00 level, prices tipped-lower; though bulls came-back to support a pierce during 94.44. This is only above that before section of insurgency that had run from 94.08-94.30; and this support has hold for roughly dual full weeks.

U.S. Dollar, DXY Hourly: 94.44 is a Potential Bull Trap, Look for Support 94-94.30

Top Three Forex Price Action Themes for Next Week

Chart prepared by James Stanley

This could be a ‘trap-like’ level, however, as that support is well-worn over a past integrate of weeks, and a potentially some-more critical section only sits subsequent stream cost action. This would be that before section of resistance, and this could be a form of exam that could concede for a longer-term bullish thesis in a U.S. Dollar to continue. A revisit to this support section opens a doorway for bullish USD-exposure, with a appealing indicate of importance being that stops could be placed subsequent a before swing-low around 93.48.

U.S. Dollar around ‘DXY’ Four-Hour: Deeper Retracement Could Retain Longer-Term Bullish Structure

Top Three Forex Price Action Themes for Next Week

Chart prepared by James Stanley

EUR/USD: Will a Weakness Continue?

We can marker this adult in a many startling mainstay as well; as entrance into a year many banks continued with their relation targets on EUR/USD. But, as that U.S. Dollar debility was commencement to uncover and as European information began to tick-higher, markets started to price-in rate hikes out of a ECB for 2018. This was a sincerely anomalous thesis around a year: At no indicate did Mario Draghi ever contend that a ECB was deliberation impulse exit. As a matter of fact, he point-blank pronounced that they hadn’t on mixed occasions around a year when asked during ECB rate decisions.

Nonetheless, markets continued to price-in that awaiting underneath a hypothesis that a Euro-area wouldn’t need such a gargantuan impulse module as mercantile vitality had already started to show. This combined a bullish pierce in EUR/USD that, eventually, saw prices exam a 1.2000 psychological level. But life above 1.2000 wasn’t scarcely as accessible to EUR/USD as life below, and after a month of contrast that resistance, bears finally took-over to expostulate prices behind down to a pivotal section of support.

When a ECB announced an prolongation of stimulus, thereby nullifying a thesis that had driven a singular banking aloft for most of a year, a Euro broke-lower. This accounted for a down-side mangle by that pivotal section of support that had hold a lows in EUR/USD for some-more than dual full months.

EUR/USD Daily: Break Below Key Support Zone during Oct ECB Rate Decision

Top Three Forex Price Action Themes for Next Week

Chart prepared by James Stanley

After that down-side mangle of support, prices trickled-back towards this zone, eventually anticipating insurgency on a under-side of this area around final week’s Non-Farm Payrolls report. This was followed by a bearish response that lasted into Tuesday of this week, when EUR/USD set a uninformed three-and-a-half month low during 1.1553. Prices have given started to move-higher, and during this point, a large doubt is where sellers competence re-enter to continue this bearish move. The before swing-high that came-in around Non-Farm Payrolls could be a ‘trap-like’ turn for bears, not too separate from 94.44 in DXY during a moment. Prices in EUR/USD could, theoretically, pierce as high as 1.1837 while this bearish near-term structure remains. On a draft below, we’re looking during a section of intensity insurgency that could be operable for lower-high insurgency in EUR/USD.

EUR/USD Four-Hour: Deeper Retracement Potential While Longer-Term Bearish Theme Remains Intact

Top Three Forex Price Action Themes for Next Week

Chart prepared by James Stanley

Will a British Pound Finally Pick a Direction?

GBP/USD Daily: Long-Term Symmetrical Wedge Testing Support

Top Three Forex Price Action Themes for Next Week

Chart prepared by James Stanley

The British Pound has been in a news utterly a bit of late. While Brexit play continues to stock a headlines, a rising army of acceleration in a economy have been distant reduction debatable; and this eventually prodded a Bank of England to plead a initial rate travel for a economy in over 10 years.

These are both routinely bullish factors for a currency, as rising acceleration drives aloft rates which, eventually attract collateral flows (demand). And while this has happened, during slightest to some grade around this year; that attribute appears to have damaged down, during slightest somewhat, as a Bank of England stays uber-cautious around mercantile activity associated to Brexit. When Mark Carney warned that rate hikes were on a setting in August, a British Pound held a poignant bid to convene all a approach adult above 1.3650. But, in a arise of those comments, Mr. Carney started to advise that any rate hikes would be delayed and gradual, alluding to a fact that a BoE was not on a verge of some tectonic change with rate-setting policy. This topsy-turvy that before bullish move, and this kept a British Pound in a infamous operation as we approached a BoE’s rate preference in November.

When a BoE finally did travel rates for a initial time in 10 years, the British Pound collapsed. If we’re looking during a pierce on shorter-term charts, it looks troubling. But longer-term charts uncover that we were unequivocally only mean-reverting within a longer-term range-like area. The day after that rate travel saw support come-in above a before swing-low, and so distant this week we’ve watched prices crawl-higher with some component of anxiety to a March/August trend-line in a pair.

GBP/USD Four-Hour: Cable Congestion Past Month, Including Through a Rate Hike

Top Three Forex Price Action Themes for Next Week

Chart prepared by James Stanley

Cable’s cost transformation stays sloppy. We’ve been following dual barriers in a bid of removing a directional disposition on a pair, with a area of 1.3320-1.3350 functioning as insurgency while 1.2982-1.3026 serves as support. Once Cable breaks above insurgency or subsequent support, directional approaches can turn attractive. But, until then, this is sloppiness that traders should be really clever around.

UK acceleration comes out on Tuesday, and this has been a large pull indicate for a banking of recent. This could be an well-suited time to get a improved review on what competence be around a subsequent dilemma for a British Pound and a U.K. economy.

— Written by James Stanley, Strategist for DailyFX.com

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