Forex Trading Weekly Outlook – 7/31/2016

Last week was quite eventful for forex traders. We had big announcement from the Fed and BoJ. I generally don’t like highly anticipated fundamentals because it tends to cloud the technical picture. So I’m glad those are behind us. This week we have non-farm payrolls, but beyond that it’s a pretty normal week.

Here’s a look at the trade tracker:

Screenshot 2016-07-30 10.10.25

Now let’s take a look at each pair individually:

EUR/USD

The Euro managed to move higher this week, but how significant was the move in the grand scheme of things? Let’s answer that by first looking at the weekly chart:

Screenshot 2016-07-30 10.15.54

We can see that all moving averages are still purely aligned to the downside. Price has managed to close above the 50-week SMA, but the 100-week is not far above. We also have trend line resistance coming into play a bit higher. So the weekly picture is still clearly bearish.

And unfortunately, stepping down to the daily chart shows we’re still clearly in a sideways trend:

Screenshot 2016-07-30 10.17.56

There’s really no trade here, especially considering we’re right smack in the middle of the range. Price could go either way at this point. So I’m still on the sidelines here.

USD/CAD

USD/CAD is a trading I’ve been stalking for weeks. I’ve been waiting for it to break it’s consolidation range and we finally saw that happen in a run up over 1.3200. The pair has since come back down, but I believe the damage has been done:

Screenshot 2016-07-30 10.38.11

That’s a 4-hour chart where we can see the triangle range break to the upside, and now a retracement that’s tested the 200-bar SMA. I’m currently long with an average entry of 1.3164, and while not ideal I still really like this trade.

Someone on ForexFactory asked me why on earth I’m still long this pair. This was my response:

The 4-hour is still in an uptrend. The 50/100/200 SMA’s are all pointing higher and price was supported today by the 200 SMA

Oil has been dropping, Saudi Arabia’s crude oil production has actually started going UP again, rig counts are heading higher, and summer is ending which is notorious for falling demand since the “summer driving” season is over. All of this adds up to more production and less demand. We all remember econ 101, right? More supply and less demand means lower prices for crude. That’s bullish for USD/CAD

ForexLive had this interesting blurb about the demand for Canadian dollars today. Basically, it’s likely temporary.

The USD weakness on Friday was surprising. But keep in mind Friday was month-end… meaning we often see flows that aren’t easily explained as fund managers balance their portfolios for the end of the month. This is a pretty good article that explains the concept further.

Now, I don’t think month-end flows are as easy to predict as that article makes you believe. But the concept is important in understanding that month-end moves aren’t necessarily rational or easily explained. Anyone who doesn’t understand this concept or chooses to ignore it does so at their own detriment.

So yes, we saw some action on Friday but we’ll need to see how things develop early this week to be able to determine if the weakness in USD/CAD is legitimate or not. With the fundamentals I mentioned above, I have a hard time seeing this pair make much progress to the downside.

And if we look at the daily chart, the pair should be well supported by the 50 and 100-day SMA’s:

Screenshot 2016-07-30 10.55.53

So yes, I remain long this pair and I’d love to hold the trade for weeks. It’s the one really solid swing trade I see in the markets right now and I’m hoping it finds its legs for us. The upside could be quite tremendous.

AUD/USD

Aussie had a big move higher on Friday, but I’d be weary about hopping in on a trade in this pair. It’s still stuck in it’s consolidation range:

Screenshot 2016-07-30 10.59.24

The RBA is also deciding on rates on Monday, and it’s widely expected that they’ll cut interest rates from 1.75% to 1.50%. That could send the pair lower again, back into the middle or lower bound of the range. But I’m not sure it will be enough to break us out of the range completely unless they keep rates unchanged.

So I’m still on the sidelines here until we see a break one way or another.

USD/JPY

Ahhhh…. USD/JPY 🙂

The BoJ disappointed markets last week and sent the pair reeling to the downside. Take a look at this daily candle:

Screenshot 2016-07-30 11.05.43

That’s a pretty huge move!

The trick now is finding a place to sell. You don’t want to chase a move like this because it could easily rip back on you in a correction. So where would we want to sell in an ideal world? I think the mid 103’s to about 104 would be ideal. Here’s a look at the 4-hour chart where I’ve highlighted that area with a blue box:

Screenshot 2016-07-30 11.13.36

Notice how this area acted as support in mid to late June. Then it acted as resistance on June 30th. Then on July 13th and July 25th it acted as support… until it finally dropped through. So this is clearly a key zone, and that’s where I’ll be looking to enter shorts.

But that level is a long ways off. Could we potentially catch some pips on the way up? Absolutely. Here’s a look at the 1-hour chart:

Screenshot 2016-07-30 11.16.07

Notice the divergence I’ve highlighted where price has clearly made a new low but RSI has not been able to follow. I’d be looking for at least a few more hours of basing before trying my hand at some longs. In fact, I’d probably drill down to even lower time frames to watch for SMA cross overs before entering.

I think this is a solid trade plan to start the week; definitely something to keep us busy!

GBP/USD

Sterling is still stuck in a range within a range. That sounds strange, but it’s easily understood when looking at the 4-hour chart:

Screenshot 2016-07-30 11.28.36

You should notice the bearish divergence I’ve illustrated. Price has made a higher high, but RSI has failed to go higher. Will we had lower now? I’m not sure, but it’s something I’m keeping an eye on. I prefer staying on the sidelines until we’ve at least broken through the darker blue rectangle.

So that’s what I’ll be keeping an eye on this week.

Remeber though we do have the BoE on Thursday. They’ll be deciding whether or not they’ll cut interest rates. Here’s a good summary of what to expect from that. Might we see a break of this range on that decision? I sure hope so!

GBP/JPY

The current picture in GBP/JPY is quite similar to that of USD/JPY. The pair moved substantially lower in Friday’s trading, but the move is starting to feel stretched. Let’s hop right to the 1-hour chart:

Screenshot 2016-07-30 11.31.56

We can see a few things here that argue for staying away from shorts. First, there’s trend line support that I’ve drawn with the grey line. I feel like this is a trend line that a lot of people are seeing.

We also have some clear divergence where RSI is higher now than it was on the last significant low put in on July 26th.

Sure, the price could run lower yet. And the magenta trend line support a bit below 134 would be a logical target. But I don’t feel like the risk/reward is there to hold shorts right now. I’d rather see a move higher to 136 or even a little further before looking to re-enter shorts.

So again, like USD/JPY, I may look to take a stab at longs before finding a solid place to short.

That’s what I’m seeing going into this new week of trading. I’m excited to get started and hope we see some solid trends develop. As always, trade safe!

 

 

Geppy

I've been involved in the forex markets for over a decade, initially starting as an FX trader at Allston Trading in Chicago. Eventually I went on and founded my own (non trading related) company. I spend my days working from home and trading forex, equity, and crypto markets.

2 thoughts on “Forex Trading Weekly Outlook – 7/31/2016

  1. Great job geppy. Keep it up. Your review is fast becoming a week starter for me. I particularly love your take on usdjpy n usdcad.

    1. Thanks, udo. Yes, those are the pairs I think are really in focus right now as they’re the ones showing the most potential for solid trade setups. Glad you’re enjoying the analysis!

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