Good morning traders. Now that all the festivities are over its time to get back to chart face. Vamanos!
As I mentioned last Wednesday on the 2nd, the eurusd, our weapon of choice, has been trading resolutely in the 1.13 to 1.1450 range now for the past 10 weeks or so. While we were at 1.1465 to kick off the first day back last week, it couldn´t hold it or break out to the upside and we closed Friday at 1.1395. So we are back in the range awaiting anything that´s going to break us out one way or the other.
With regard to Eurozone data and economic fundamentals I can´t put together a strong case that takes us north of this range. The inflation outlook remains soft and with cheap oil its not going to rise any time soon. China appears to be weakening which is likely to hit German exporters in particular and with recent downbeat economic data, political turmoil in France, Merkels succession in Germany and Brexit, risks look to be on the downside.
On the other hand the Feds Powell was out on the wires on Friday sounding much more dovish than of late with a few comments which were geared to lifting the weak risk sentiment that has been holding back equities. I heard some analysts talking about “the Powell Put” echoing Greenspans famous ´put´ back in the 1990´s where the Fed effectively tried to establish a floor on equity valuations thus aiding risk sentiment. I think this is exaggerating the content of Powell´s words because of the weak sentiment context. In a nutshell Powell said
- wage data wouldn´t necessarily cause concern with regards to rises in inflation
- that he and the Fed will be listening carefully to markets
- that they will be patient, flexible and data dependent with monetary policy
- that they could slow the pace of balance-sheet drawdown should the need arise,
While this is really what you would expect any reasonable central banker to say, so we shouldn´t perhaps read too much into it, coming in the context of talks of recession in the US, markets will not be able to hold off from seeing this as a much softer stance from the Fed.
In which case if rate hikes are on hold or even possibly to be reversed should the Fed deem it necessary, a weaker USD could be hot on its heals resulting in the eurusd possibly getting a lift.
From a macro perspective then, we kick off the new year with at least some policy stance that could help us break the range. But… and you know what I´m about to say….we are traders not analysts so we do what we always do – mark up the charts, have a plan and trade what we see.
The Daily Chart
The daily chart above clearly shows the range we are working and have been for some time. If we are to get some testing of the upside and an eventual break I would be looking at something like I´ve noted with an initial break above and a retest. I´ve not drawn in the opposite scenario for now but if we got the flip side and a downside test I´d be looking for a similar break and retest.
The Hourly Chart
The levels on the hourly are fairly clear as per the marked up chart. Remember if we get a test upwards R1 might provide an initial scalp entry but would be a better place to get long if the momentum upwards continues. Similarly R2 (and maybe R3) might be good for a few bounce back pips but would also be good places to get long in a strong move either today or later in the week.
As ever trade the levels, watch the lower time frame charts and keep a close eye on the flow i.e. daily direction.
Have a good day amigos and lets make 2019 a great year :).