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.

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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.