Good morning Traders.
Hope you all had a good weekend and are up for some more eurusd range trading this week.
Actually maybe not. Pres. Trump was out and about this weekend at the Conservative Political Action Group meeting and came out with these comments:
“I want a strong dollar but I want a dollar that does great for our country, not a dollar that’s so strong that it makes it prohibitive for us to do business with other nations and take their business,”
This has been taken as another broadside at Powell and the Fed to add to his past disparaging remarks. Whether this will lead to anything more than bluster from Trump is anyone´s guess but if the ´too strong dollar´ theme gets some momentum we could see a trip higher in the eurusd. I doubt it will sway Powell from what he believes needs to be done for the US economy but I´ll keep an eye out for how this might pan out.
From our model performance pov we had another profitable month. See below. While February was a tough month to trade and we had to use zones as well as exact entry levels due to the ranging and choppy nature of the pair, we still pretty much figured out where the best trades were. For more detailed info on our performance and the strategy behind it see here. If you want to dig further and learn what I do in precise detail there´s info on my website.
The Data Slate this week
For this week the two standout data events are the ECB on Thursday and NFP on Friday. The ECB is expected to come in with a dovish hold and an announcement of a new Targeted Long Term Refinancing Operation designed to take some potential pressure off banking finance but essentially more QE.
Their economic forecasts will be key and probably point to some response in the face of a weakening eurozone economy. What they can do is limited but any indication of pushing rate changes further out from what we already know (i.e. this summer) would add to the pressure on the Euro versus the USD. If the divergence is seen to widen this won´t help any move up in the eurusd.
If NFP is in line and or strong on Friday this would only add further weight to the idea of widening USD / Euro monetary policy divergence. It doesn’t look too rosy for the eurusd from a macro stand point. But we need to see what happens at the end of the week.
Of course we have the Brexit saga which could throw out some interesting moves on the cable this week (and hence affect the euro) and we have the US China trade talks.
Re the trade talks it looks like the outcome is priced in and its only a matter of time before we get confirmation that a deal has been done. The key will be the detail and terms of the end result. We could be looking at a buy the rumour, sell the fact trade here. If we do get some risk off we need to watch what happens to the USD to consider our options for the eurusd.
NB: I won´t be here from Thursday of this week until Monday 18th as I´ll be taking a break for a skiing holiday. Nothing like the mountains to clear the head and refresh the system!
The Weekly Chart
Instead of looking at the Daily chart which tells us nothing we don´t already know I thought we´d see whats happening from a weekly perspective. The chart clearly show resistance at the 1.14 level which we failed to close above. Above here we have the 1.1460 key level which forms the next level of higher time frame upside resistance. However, while we are in this range nothing is clear. We could get a test higher up to resistance or we could just as easily test lower such is the ambiguity of the price action.
But and this is the important thing, we know where the reaction points are. So we watch for price to get into these areas and fade if the pa looks favorable on the lower time frames. First touch of either S or R is always best as you well know.
The Hourly Chart
Key zones and levels as per.
As I write (7.45 am CET) we are just sitting on the pivot at @ 1.1360. First test down into S1 should be watched for bullish pa and bought if appropriate. If it comes down tests S1 and moves below look for retests from the underside to get short. The inverse is true for tests into R zones. While we are in this range levels and zones will guide our trades both for first test trades of either S or R and for retests should they break.
Someday we will perhaps get a break one way or the other but for now we are range trading – as we have been for some time now :).
Have a good one.