Trade Leader Alex Kazmarck of SpotEuro presents forex market analysis.
A quiet market to start the week with fx markets in a tight range and equity markets higher, with the S&P hitting all-time highs. The US and UK holidays now behind us, I expect the markets to liven up.
I see a few opportunities in the short term for entry on the USDJPY, the EURUSD, and the AUDJPY currency pairs. I’ve highlighted some technicals below.
If you’ve missed an opportunity to short the EURUSD, the 1.3760 and 1.3800 levels are excellent will provide an entry point for new shorts. The latter should act as strong resistance given it supported the euro for the last 15 days in April prior to rising and failing at the 1.40 figure. The aftermath was a strong push to the downside with the 1.3600 level acting as short term support. The retracement, as noted on the chart, may occur during the next few days ahead of the Eurozone CPI flash estimate on June 2nd and the ECB rate announcement and press conference on June 5th. The 1.3905 is 50% of the aforementioned retracement of the sharp move lower from May 8th through the 15th of May. Another opportunity with more risk is to sell on a break of 1.3600. Stops should be set from 1.3850 to the 1.40 top, depending on leverage and risk tolerance.
The AUDJPY also had a setup in early May. A break of the wedge on the 19th of May was followed by 200 pips further to the upside. Since then, price has retraced to the 50% fib of 94.58 and is now looking to turn over and perhaps find another 200 pips profit for short positions. One caveat is that this is a play on USDJPY and AUDUSD of which I expect both to move lower in the short term, but with the Aussie underperforming, which would lead the AUDJPY lower. The upside to this trade is that there is a small chance the AUDUSD will fall while USDPY rises. Stops on the AUDJPY should be north of 95.00, with 96.00 acting as reversal for further AUD gains; though very unlikely.
Finally, the USDJPY, which has been trading within the 101 and 104 levels for most of the year. While I see longer term fundamentals supporting the dollar, the short term view may see the 100 figure tested. While I am uncertain of this, I am inclined to wait for a break or for more clarity. Currently, the 101 is 50% fib of the rally that took place in the final quarter of last year. The 100 level is 61.8% fib that could lead a strong supportive role within a larger move in favor of the dollar. Possible ways to trade this setup is a short on a break of 101 with take profit at 100. Another possibility is to buy any weakness from the current 101.90 level with stops below the 101 level. I would be more excited to buy between 98 and 100 for a longer term move.
There are many trade setups that occur on many different time frames. The main reason for failure within this business is the lack of risk management, and more often than not, discipline. If a trade setup does not work, it’s imperative to follow one’s trading plan. This is even more important when one includes the use of leverage.
Summer is usually a slow time for markets, but with volatility already at 20 year lows, this summer could be more interesting than the ones before. With the Fed tapering and interest rates on the rise, along with the market discounting other risk factors, especially China, I suspect this summer won’t end without an increase in volatility.