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- Updated targets & invalidation levels ahead of NFPs
- AUDUSD scalp update- Shorts at risk into 7600
- Event Risk on Tap ThisWeek
Chart Created Using FXCM Marketscope 2.0
Notes:The USDOLLAR has continued to hold key slope support noted over the past few weeks with the index sharply higher after multiple attempts at a break lower last week. This support slope remains key and we will continue to reserve this mark as our bullish invalidation level with a break below targeting 11,854//80 & the February lows. Look for interim resistance at the descending TL off the monthly high with only a breach through 12,127 (high-day close) opening up a rally into the upper median-line parallel off the October high. That said, the USD correction scenario remains a risk heading into Friday’s highly anticipated Non-Farm Payrolls (NFP)with consensus estimates calling for a print 246K jobs as unemployment holds steady at 5.5%.
Notes:An update to the Thursday’s report, the Aussie has now taken out all our noted support targets with the risk of a near-term recovery mounting on a breach back above 7660 (near-term resistance). Bottom-line the short-bias remains in play while within this median-line formation (dashed blue) with interim support seen at 7602/10 (highlighted support) where the broader ML off the FOMC high converges on the 88.6% retracement & the operative lower MLP heading into Asia trade.
* It’s extremely important to give added consideration regarding the timing of intra-day scalps with the opening ranges on a session & hourly basis offering further clarity on intra-day biases.
Relevant Data Releases
Other Setups in Play:
- AUDUSD Reversal Scalp- Shorts Favored Sub 7850
- EURJPY Long Scalps at Risk Below FOMC High- Interim Support 130.60
- Webinar: Scalps Favor Dollar Correction- EUR/USD Eyes FOMC Highs
- Bullish USD Outlook Mired Post FOMC- JPY, GBP & Gold in Focus
—Written by Michael Boutros, Currency Strategist with DailyFX
For updates on this scalp and more setups follow him on Twitter @MBForex
Join Michael for Live Scalping Webinars on Mondays on DailyFXat 12:30 GMT (8:30ET)
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- Forex volatility prices remain high on another key week for major currencies
- Keep an eye on the Euro and US Dollar near key support and resistance levels
- High volatility prices keep us focused on our Breakout2 trading strategy
High volatility prices warn that the Euro, US Dollar, and other major currencies will see big moves in the week ahead. Here’s what we’re watching.
A highly-anticipated US Nonfarm Payrolls report tops foreseeable event risk this week, while ongoing uncertainty surrounding Greek financial assistance represents a substantial concern for the Euro.
Focus will be on the Euro/US Dollar exchange rate as it fails at key resistance and trades close to potentially pivotal support near $1.0760—a break below would lead us to watch for further weakness. And indeed EUR volatility prices in particular trade near multi-year highs as traders brace for the unexpected out of Greece. The potential for a major breakdown keeps us on the defensive until further notice.
Forex Volatility Prices Trade Higher on Key Week of Economic Event Risk
Data source: Bloomberg, DailyFX Calculations
Our trading strategy biases are mostly unchanged from last week as high volatility prices keep focus on our Breakout2 trading strategy. Yet it’s critical to note that things can change very rapidly—particularly in the Euro. Traders should limit trading leverage given clear market uncertainty.
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— Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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Volatility Percentile – The higher the number, the more likely we are to see strong movements in price. This number tells us where current implied volatility levels stand in relation to the past 90 days of trading. We have found that implied volatilities tend to remain very high or very low for extended periods of time. As such, it is helpful to know where the current implied volatility level stands in relation to its medium-term range.
Trend – This indicator measures trend intensity by telling us where price stands in relation to its 90 trading-day range. A very low number tells us that price is currently at or near 90-day lows, while a higher number tells us that we are near the highs. A value at or near 50 percent tells us that we are at the middle of the currency pair’s 90-day range.
Range High – 90-day closing high.
Range Low – 90-day closing low.
Last – Current market price.
Bias – Based on the above criteria, we assign the more likely profitable strategy for any given currency pair. A highly volatile currency pair (Volatility Percentile very high) suggests that we should look to use Breakout strategies. More moderate volatility levels and strong Trend values make Momentum trades more attractive, while the lowest Vol Percentile and Trend indicator figures make Range Trading the more attractive strategy.
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES IS MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION.
OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.
Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice. The FXCM group will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance contained in the trading signals, or in any accompanying chart analyses.
- EURUSD holds below mid-March trendline, looking below $1.0800.
- Waiting for calendar to turn before engaging JPY-crosses short.
- See the March forex seasonality report for trends in the QE-era.
The USDOLLAR Index continues to make headway into key short-term resistance levels that could ultimately mark a turning point for the buck. The broader index has turned its attention to the March 23 swing high/March 12 swing low area, with USDCAD‘s own technical formation on the H4 timeframe mirroring that of USDOLLAR (despite not being included in the calculation of the index).
While far from clear or guaranteed, these are additional signs that the greenback has and is continuing to work its way through weak hands in the wake of the March 18 FOMC meeting; this past week there was a -10.7% in net-long positions in DXY, per the CFTC’s latest COT report.
In a holiday shortened week, our attention is focused on two data that may help the US Dollar re-anchor itself to longer-term fundamental themes: the Euro-Zone CPI report on Tuesday (theme: the Euro-Zone is in a state of inflation disrepair that necessitates QE from the ECB); and the US Nonfarm Payrolls report on Friday (theme: the US labor market maintains its momentum, ultimately forcing a Fed rate hike in 2015).
— Written by Christopher Vecchio, Currency Strategist
To contact Christopher Vecchio, e-mail firstname.lastname@example.org
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- Euro to Look Beyond German CPI, Focus on Greece Developments
- Aussie, NZ Dollars Drop Amid Commodities-Driven Risk Aversion
- Access Real-Time FX Markets Analysis with DailyFX on Demand
The preliminary set of March’s German CPI figures headlines the economic calendar in European hours. The benchmark year-on-year inflation rate is expected to register at 0.3 percent, rising for a second consecutive month. The outcome seems unlikely to offer much by way of lasting Euro volatility however considering the results’ limited impact on the near-term ECB policy outlook.
Rather, the single currency ought to be far more interested in Greece-related news flow. The government of Prime Minister Alexis Tsipras submitted a list of proposed reforms that it hopes will unlock the next round of bailout funding on Friday. The so-called “institutions” representing Greece’s creditors – the EU, the ECB and the IMF – began to evaluate the plan over the weekend, with a decision expected later today. Athens faces €5.8 billion in maturing debt this month in addition to the on-going expense of running the country.
Investors fear that if external funding is not secured, a cash crunch and subsequent default may lead to the country’s exit from the Eurozone. Such an outcome would be unprecedented, carrying with as-yet unknown implications for the financial markets at large. Avoiding that trajectory with an accord that keeps Greece within the currency bloc is likely to prove supportive for risk appetite, boosting high-yielding FX and weighing on the safe-haven Japanese Yen. Needless to say, failing to reach a deal stands to produce the opposite response.
Both sides of the negotiation are ultimately interested in a deal. Greek officials surely realize that sticking to their campaign promise of ending austerity at the cost of disorderly redenomination will probably compound the country’s economic woes and likely cost them their jobs. Meanwhile, EU and IMF officials no doubt prefer to avoid a “Grexit” scenario for fear of the precedent it may establish, particularly in larger countries with strong anti-austerity movements such as Spain. On balance, this means that some kind of accommodation is probably more likely than not.
The Australian and New Zealand Dollars underperformed in otherwise quiet overnight trade, falling as much as 0.4 percent each against their leading counterparts. The decline tracked a move lower on Australia’s benchmark S&P/ASX 200 stock index, pointing to risk aversion as the catalyst driving selling in the sentiment-linked currencies. The dour mood seems to have originated in softer oil and iron ore prices. Indeed, shares in the energy and materials sectors proved weakest on the session.
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— Written by Ilya Spivak, Currency Strategist for DailyFX.com
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Fundamental Forecast for Euro: Neutral
- Have a bullish (or bearish) bias on the Euro, but don’t know which pair to use? Use a Euro currency basket.
Continued general improvement in Euro-Zone data and a further build of commercial long positioning (now an all-time high of 271.9K net-long contracts) helped buoy Euro exchange rates for a second straight week, although the turn of the calendar from March into April may prove to be more difficult than days past. EURUSD rallied by +0.62% to close last week at $1.0885 and EURGBP jumped by +1.09% to £0.7321, yet both major EUR-crosses settled considerably lower than their high watermarks for the week ($1.1052 and £0.7385 respectively).
In the days ahead, the market has a chance to refocus its attention on two of the major drivers of Euro weakness in 2015: persistently low inflation in the Euro-Zone; and the sustained improvement in the US labor market that is driving a wedge between ECB and Fed policy expectations. On Tuesday, the March Euro-Zone CPI report will be released, where the CPI Estimate is due at -0.1% y/y from -0.3% y/y, and the CPI Core is expected at +0.7% y/y unch. On Friday, the March US Nonfarm Payrolls report is forecast to see job gains of +250K, the thirteenth consecutive month of at least +200K jobs growth in the world’s largest economy.
In a holiday shortened week, these data reports represent the two most obvious landmines to EURUSD traders. The propensity for these reports to impact the market is high despite the potential for diminished liquidity, as speculators have embraced the most bearish view of the Euro on record, having 221.K net-short contracts on the books for the week ended March 24, eclipsing the previous all-time high of 214.4K net-shorts set during the week ended June 5, 2012. Whereas Euro speculative shorts have grown in tandem with commercial longs digging in, speculative traders in the futures market have relinquished the aggressive bullish US Dollar view: Dollar Index (DXY) net-longs contracted by -10.7% to 71.2K contracts.
If EURUSD is to fall back, then, it will need to be due to a combination of soft Euro-Zone CPI data and strong US labor market data – not either/or, but both. Market measures of inflation expectations have steadied, but not by much: the 5-year, 5-year inflation swaps (FWISEU55) ended the week at 1.649%, just below the four-week/20-day average of 1.709%. The recent dip in inflation expectations (1.760% on March 20) can be attributed to the recent relief rally in the Euro, as data otherwise remains relatively strong.
The Citi Economic Surprise Index for the Euro-Zone hit +52.1 at the end of the past week, up from +40.2 from a week earlier. Euro-Zone data has been outpacing US data at its best clip in nearly four and a half years. Markets haven’t priced in the improved Euro-Zone data as a batch that would materially change the pace of ECB easing, however: Morgan Stanley’s ‘months to first rate hike’ index (MSM1KEEU) resides at 45.5 suggesting a December 2018 rate hike.
Overall, the big picture for the Euro remains unchanged, even as it continues to take shape: rising inflation expectations coupled with falling nominal bond yields means prospective real yields are being reduced, fueling the need for investors to search for yield outside of the region; this should accelerate capital outflows as Euros are exchanged for other currencies to as to invest in foreign assets. The time for this view to come back into focus may be nearing, as investors get a first-hand look at the policy differential between the ECB and the Fed with the data due in the days ahead. –CV
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