1.2450 seems to be a key resistance level for EURUSD. Once broken, look forward for 1.2500 level.. I would recommend to take profit at 1.2490.. Enjoy

EUR USD WEEKLY TRADING STRATEGY FOR WEEK BEGINNING 4th June 2012

THIS WEEKS KEY DRIVER’S:

§  Any comments of Fed officials suggesting QE 3, especially Bernanke.

§  Eurozone and Euro area Services PMI on Tuesday.

Hence overall trend for this pair is determined by “risk on” and “risk off” sentiment of markets.

Fundamentals:

This week seems to be critical for the financial markets, last week’s weak's employment figures from US suggested that the problems of the Eurozone seems to have spread into the US economy. Last week USD gained versus all its counterparts but Japanese yen until Thursday, however Fridays dismal NFP report resulted in dollar negative, bringing the probability of QE 3 back again on the table.

Next week we have speeches from Fed officials throughout the week, which could create additional volatility in the market as any comments even accepting the slowdown of the US economy could be considered in favor and could result in weak US Dollar.

However the possibility of the QE 3 is under question, as currently despite of dismal US fundamentals the current flow of investment into the safe haven US Treasuries has fuelled the dollar demand. Now currently 10 year US treasury stands 1.45% which after adjusting for inflation shows yield of -0.60%. This means that the investors are paying the US government to park their funds at the time of this financial uncertainty.  This seems to be another argument against the feasibility of QE 3.

German bund and Swiss bond yield dipped below positive territory last week. Growing Eurozone uncertainty has resulted in repatriation of Japanese funds resulting 3yrs bond yield lower than 1 year for the first time. Analysts have argued against the Euro stating the CFTC report stating record short position in the single currency since the inception of the currency and may be the currency has been oversold as all the poor information now reflects in the price. However arguing to this, analysts suggest that the the CFTC report is not widely received by broad audience, we may see further short positions in the pair.

Current trend is highly correlated with the activity (or inactivity) of the ECB. Any decision made by ECB could result in the movement in favour of the Euro as the market players will interpret as a positive signal and would result in the "risk on" mood of the market. However, deteriorating banking situation in Spain and possibility of Greek exit from the Euro could result in further weakness for the Euro (provided the inactive ECB). As seen from previous instances in Ireland, Portugal and Greece, ECB has always been an 11^th hour helping hand and analysts across the market suggests that the worst is not over yet . This could mean that further weakness in the single currency is underway.

However technicals contradict the fundamentals. US Dollar index suggests that the bull run is losing its steam and is due for a dip. My trading model suggests to go long on this pair as the left leg formation on Friday was against the week’s trend. 

Technical’s:

·         Support and Resistance levels:

R3 – 1.2490

R2 – 1.2450

R1 – 1.2390

Now – 1.2325

S1 – 1.2300

S2 – 1.2230

S3 – 1.2200

Summary:

Overall, due rising probability of QE 3 in the US there could be a wave of dollar negative before the Greek election in 2 weeks time as logically nothing can rise straight up and is subject to correction. Fridays left leg formation signalled the above argument and hence this week I will go long on the pair in Asian market and ride the wave in the Asian time as they are yet to act on weak employment report from the US.

Take profit and Stop Loss is according to the above levels.

Note: Less leveraged position of this week as risk in the market is very high.

EUR USD Weekly Trading Strategy for week beginning 21st May 2012

THIS WEEKS KEY DRIVER’S:

§  Outcome of G8 meeting.

§  US economic data and Fed officials suggesting the feasibility of QE 3.         

§  Eurozone PMI and Spanish PPI.

Hence overall trend for this pair is determined by “risk on” and “risk off” sentiment of markets.

_________________________________________________________________________________ 

Fundamentals:

This week the key driver for this pair will be the probability of QE 3 in the US and economic condition in Eurozone and especially Spain. As the 2^nd round of Greek elections are delayed till 16^th of June, the question of Greeks exit from the Eurozone is off the table for the time being as the temporary government in the Greece does not have the authority to make such decisions or to implement austerity measures on the other hand.

Mixed pro-growth support from this weekend’s G8 meeting suggests room for fiscal expansion. As seen previously that the politicians act slower than the market and thus this decision could result in a rebound on the risk taking and hence result in bulls returning to EUR USD pair.

Scheduled remarks from feds Kocherlakota, Lockhart, Plosser and Dudley will be much awaited suggesting the direction of the US Dollar. Now looking at the US dollar index in the figure 3 it could be summed that the greenback is losing steam against its counterparts  last week and additionally Figure 1 suggests that  due to rising probability of QE 3 the Dollar was weak against the yellow metal and Japanese Yen. 


Charts: (Week beginning 14/05/2012) USD vs. Currencies, EURO vs. Currencies and USD Index vs. S&P 500

Technicals:

·         Support and Resistance levels:

R3 – 1.2955

R2 – 1.2878

R1 – 1.2830

Now – 1.27762

S1 – 1.2730

S2 – 1.2710

S3 – 1.2620

·         The system that I have developed is suggesting to go long on this pair for this week, this I believe was the trend of Friday as more and more dollar shorts were liquidated.

Summary:

Overall, due rising probability of QE 3 in the US and loosening of Ms Merkel’s stand for austerity USD is expected to give back some of its gains since last 2 weeks in the first half of the week, moreover it will be the most volatile period of the week.

Trade for this week is to go long when the Asian markets open and ride the wave caused in the Asian markets. Trade position is according to the above support and resistance levels. Also note that if the single currency drops below 1.2620 level than I would suggest traders to take loss as there is no significant support until 1.20 level (It’s a free fall zone for Euro after that)..

Note: Less leveraged position is used this week as risk in the market is very high.

EUR USD Trading Strategy for week beginning 14th May 2012

EUR USD Weekly Trading Strategy:

THIS WEEKS KEY DRIVER’S:

§  Greek political situation.

§  Spanish economic condition, especially measures to tackle bad loans of Spanish banks.

§  Eurozone growth concern, as Q1 GDP and CPI is due this week.

Hence overall trend for this pair is determined by “risk on” and “risk off” sentiment of markets.

Fundamentals:

Ongoing political uncertainty in Greece is depressing the single currency. On one hand Greek exit plans are discussed openly by central bankers of Eurozone, and on the other hand is a hope for coalition government in favour of austerity. This has been a theme of last week’s trading and is certainly going to be a theme of next week. European stock is expected to be widely sold out due to rising concerns of contagion effect from Greek exit. Spain stands outside Greek border desperately watching not only Greek resolution but concerned about its position when the bond traders turn their focus on the next troubled economy i.e. Spain. Not only Spain but Portugal and Ireland stand in a firing line if Greece exits Euro, experiencing contagion effect.

Apart from Greek political development, other key issues driving this week’s trend are :-

14^th May (Monday) - German Wholesale price index at 6:00AM GMT

15^th May (Tuesday) – French CPI data due at 5:30AM GMT

15^th May (Tuesday) – Eurozone GDP (1^st estimate) due at 9:00AM GMT

15^th May (Tuesday) – US CPI due at 12:30AM GMT

16^th May (Wednesday) – St Louise president Bullard to talk on US Economy and Monetary Policy at 4:30PM GMT

16^th May (Wednesday) – Minutes from prior (April) FOMC Meeting released at 6:00PM

Additionally   

Charts: (Week beginning 07/04/2012) USD vs. Currencies and EURO vs. Currencies

Technicals:

·         Support and Resistance levels:

R3 – 1.2775

R2 – 1.2809

R1 – 1.2846

Now – 1.28871

S1 – 1.2950

S2 – 1.3000

S3 – 1.3041

      The trading system that I have developed based on the theories of behavioural finance and seasonality in market suggests going short on this pair for this week, hence forecasting more dollar strength in coming week.

      Summary:

Overall, due to rising Greek uncertainty and fading probability of QE3, USD is expected to gain significantly in the first half of the week, moreover it will be the most volatile period of the week.

Trade for this week is to go short when the Asian markets open and ride the wave caused in the Asian markets. Trade position is according to the above support and resistance levels.

EurUsd update. 

USD is currently consolidating ahead of Non Farm Payroll which is out at 12:30PM(GMT). The pair has currently found some support at 1.3100 level and is likely to test it again. 

Strategy:

Due to May Day holiday in the UK, I would expect lack of liquidity in market and especially ahead of the NFP traders have taken their money off the table. Hence one must expect extreme volatility. If NFP news are positive then i would expect the pair to break 1.31000 level and test 1.3040 and then 1.3000 level.

EURUSD is finding some support at 38.2 fibonacci level at 1.3150. Holding here for a while, If it breaks then next resistance will be 1.3100

Week beginning 30th April 2012

THIS WEEKS KEY DRIVER’S:

§  US employment news this week (this could suggest the feasibility of QE3).

§  Spanish economic condition.

§  Spanish and Italian bond yields.

§  Any data coming out from China confirming hard landing (could trigger risk off mood of markets.)

Fundamentals:

This week’s focus again remains the US employment data that could suggest the future of largely expected QE3. Last week has been really choppy with first round of FOMC meeting and Bernanke’s comments on the possibility of QE3 if essential, however also raised a point of rising inflation which could overthrow the possibility of QE3.

Deteriorating economic condition in Spain is again a question. With 25% unemployment rate and rising economic uncertainty will force the government for fiscal loosening causing further deterioration in its budget trajectory. This was conceived at S&P and hence downgraded Spanish sovereign debt rating from A to BBB+ with a negative look. Spain’s generous unemployment package is making the matter worst as now the unemployed are de-incentivised causing the unemployment rate to even look worst. Overall, situation in Spain is looking grim especially when the youth unemployment rate is around 50%.

Around the world we are expecting more stimulus from BOJ in order to tackle deflating economy. Although BOJ Governor Shirakawa has mentioned that he is not willing to carry on stimulus every month however is keen to see inflation level reaching 1% target level. However the government may pass a law to increase its influence on bank and would like to raise its inflation target to 2%. Hence we expect potential weakening of yen for prolonged period.

Weak economic projects from the US has affected the greenback drastically across the board, USD has been weaker against all major counterparts including Gold. USD was certainly affected as a result of risk sentiment caused due to weaker economic data from the US. The charts below shows both EURO and USD against major currencies, we can see that USD was weaker against all major currencies however the similar is not true for EURO as despite of the rising sovereign debt crises EURO has appreciated vs. USD.                                                                                                                                                      

Technicals:

·        Support and Resistance levels:

R3 – 1.3380

R2 – 1.3310

R1 – 1.3282

Now – 1.3250

S1 – 1.3130

S2 – 1.3060

S3 – 1.3000

        

•       The trading system suggests to go long for this week on the pair hence forecasting more dollar weakness in coming week.
•         Looking at the 30 Minutes Chart, it looks like the market is experiencing a short-term resistance at 1.3270 level. Hence if broken then would place my trade at that level for take profit at second resistance.
•      USD Index dropped more than half a percent in on 27th which was mainly experienced during European and North American trading session. Hence this must also be noticed in Asian session as they didn’t trade the weaker US fundamentals. Hence we would experience dollar weakness in early Asian session.
•      Although it looks like risky trade to go long at the moment on this pair, considering the weakness in the single currency unit. 

Summary:

Overall, the markets are poor condition and the rising sovereign debt crises is causes shift in the market. Despite of Euro being weak against other counterparts, it still weighs higher on USD due to fundamental weakness.

Trade for this week is to go long when the Asian markets open and ride the wave caused in the Asian markets. Trade position is according to the above support and resistance levels.




(Please accept my apologies. Due to technical difficulty, I was unable to upload the charts.)

This weekend will be first web post of my FX analysis. If any suggestions then please let me know.