Good morning traders.
Far from sticking around at the crossroads eurusd slammed into reverse gear and headed securely back into the range from the end of last year. So we now have the 1.13 to 1.1450 range well and truly back in play. Whether it sticks around in here for another few months, decides to test higher again or fancies a shot at lower prices is unclear to me. But that doesn’t matter from our perspective because whatever it does – we will trade it:).
Yesterday we had a good model strategy trade from S2 which gave us +26 if you let it play out or +10 if you followed me and closed early. S1 was a -13 loser. Therefore we either ended the day ( from a model pov) at either +13 or -3. Moreover, if you took what I mentioned also yesterday into consideration that our levels can quickly change their purpose and switch from Support to Resistance dependent on price action, there was a nice trade short from the retest of S1 which could have netted you another +26 (or more if you managed it manually).
However you chose to trade the levels there was money to be made.
So did anything happen from a macro perspective yesterday? Oh yes, we had the Brexit rout in UK Parliament – I almost forgot. Joking aside it seems at the moment that the market was not unduly ruffled by the biggest historic defeat suffered by a sitting UK government since the 1920´s.
Cable (gbpusd) whilst on the back foot leading up to the vote signaled a sharp reversal in fortune and was bid up almost 200 pips overnight.
It looks like there is a chance that Brexit might be pushed back further with a possible extension to Article 50. My take on sterling is that the market is leaning on the side of PM May having cross party talks and going back to Brussels with a clear plan that will pass a House of Commons vote and that the EU knowing this and assured that such a plan would pass through Parliament will offer concessions probably on the Irish backstop to try to solve the issue.
It may have been the EU´s plan all the time – they have form when it comes to last chance saloon deal making. Besides they also have €39b to lose it they don´t switch tack.
This is just my take of course as who knows what happens next. Maybe Mays Govt. will not pass the vote of confidence tabled by the Labour leader Jeremy Corbyn last night but I very much doubt it. I mention all this sterling stuff by the way because it directly impacts the euro. I know you know but just in case anyone is new to this.
So we go on with Brexit, and perhaps on and on and on …….!
In other news we had the Feds Kaplan and George out yesterday jawboning their take on the rate hike cycle and it was notable that both were very dovish on any further hikes this year. This should help propel the euro to the upside but I suspect there to be a fair degree of caution as the economic and political situation in the EU is far from robust.
So what do we do. Same as always…trade what we see.
Ok lets look at the charts.
As is clear we are right back in the range we were in for the last quarter or so of last year, the top at 14.50 to 1.15 and the bottom at 1.13.
There is a good argument that says if we cant go higher then we will go lower and test the downside. Alternatively we may stick around in the range until we get anything significant that can help us make a clean break higher.
Right now your guess is as good as mine. In which case I wont try and provide any clear bigger picture or longer term view. Until the chart or the macro environment gives me a strong clue as to where we might be headed I´ll let the market do what it likes and refrain from predictions.
On the point of predicting moves or at least trying to, there are time when the macro picture might be a bit messy but the chart clearly gives you a clue as to where its going. When this occurs I am not averse to forecasting. Indeed it is a very good method for capturing big moves. However, right now I have no clear read on direction.
Levels as per.
NB: I´ve added a dotted line which I have not labelled although I suspect it will be important in direction. The 1.1420 ish level has acted as a pivot of sorts for some time so if we get a break above it and retest higher I would be more inclined to expect higher prices. If we test it and move sharply down again then that would make me more comfortable with downside moves. Thats as good as I can do vis a vis forecasting directional movement.
Trade the levels, maintain model strategy stops and targets (13 and 26, 2x risk) if you cant be at your charts full time and remember our levels can work both ways in a strong directional move.
Ok – bring it on:).