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