So after a long struggle, EU turned bullish this week, as I predicted last week. And the bull run ended at 580-630, like expected, since that was the last FED resistance. This will be an important barrier to focus on next week. Right now bulls seem to be gaining strength to be able to break above…looking at H4, there is a lot of potencial for a strong bull move. The question is if we see a downmove first, when the week starts…we are now at 560…and I wouldn’t be surprised if we re-tested 500 or even lower. Even a fake break of 350 is still not out of question, but it doesn’t seem likely now. I am just saying, that even if we did start with a strong bearish move, for whatever reason, I would remain bullish…so the deeper we go, the better entries for the bulls into 850-950 as a first big target, after breaking above 630. If you look at the longterm USD chart, bulls are again weakening at the current strong supply zone…and when they give up, there should be a big drop of 500-1000 pips. So in my opinion, its better to collect longs at these levels than shorts…because fundamentally, everything that could go wrong, already went wrong…even the situation in Ukraine is not much of news anymore…the market seems to be focusing more on ECB talking about hiking for the first time in more than 10 years.
For the past 2 weeks EU was bouncing off the 1.05 zone and it looked like bulls will be able to defend it. Because even if pound was dropping, euro was still defending the 1.05 area, everytime it went a little under, hawkish talk from the ECB made it spike above 550. Until thursday, when bulls gave up early in the London session and once the area broke, they were showing no more power…like they gave up. Here is the thing…340 is a very strong support for the euro, a multiyear support, if it broke, there might be a small flash crash below, but I don’t think it would be long-lasting. If you look at EG, it also broke a multiyear support not so long ago, many people thought its just a start for the bears, but to the contrary, EG started a bull trend since then. Anyway, 340 didn’t break yet…we had a stop loss hunt on friday, breaking the previous low just by a few pips and quickly reversing to the upside, ending the day above 400. Looking at other dollar pairs, EU is showing bottoming patters on smaller time-frames, GU the same, but also AUD and NZD…very strong bottoming patterns on H1. I mean…if this doesn’t bring USD down, I don’t know what will. As for bullish targets for the EU, we have a small top at 630, which was created during the FED meeting. So being long from 350-400, I would be cautious around 580-630, to see how the area reacts. If the resistance breaks, then 850-950 would be likely next. But lets take it little by little…asian session started to buy the EU recently, so lets see if they start the week by doing so.
This week was first working out nicely, according to last week’s pattern.
We reached a strong resistance of 920 and bulls didn’t manage to stay above. Its the same level from a previous ECB meeting, so it won’t break easily, it seems. But after that, EU calmed down between 830-850 and was preparing for another attempt to break the high…BUT then friday happened and a crazy move on the pound messed up the plans for EU, too. For whatever reason GU overreacted to the retail sales data, which wasn’t even so bad and turned into a bloody friday, with a 200 pip drop, without any sign of bulls along the way. EU and GU are highly correlated, but EU was doing a good job resisting the drop. So since GU dropped 200 pips, the fact that EU only closed 35 pips below thursday’s closing price, was a big win for the bulls. GU should move towards 3000 next week and unless Le Pen wins french presidency on Sunday, EU should again make an attempt to break the resistance at 920. And I think they will do it this time…like they say, third time’s the charm. Right now Macron has a comfortable lead over Le Pen in the polls…the only thing that might cause trouble for him is a low turnout. If Macron wins, EURO should turn bullish for the time being.
There was nothing much to write about for the past 2-3 weeks, as we were stuck in a small USD range and a breakout didn’t happen either way. It might happen soon…and I expect it to break down. But first, it needs to break the strong support line you see on the USD chart below.
NFP this friday might have given a clue. Not only we had a very small range all of US session, which doesn’t happen often during a big news day, but we also had a strong bottoming on EU during London fix. Same thing goes for GU, which looks like its preparing for a big spike up. So selling EU/GU doesn’t seem like a good idea now, even though everything is possible during a time of uncertainty as now. But if you don’t mind some drawdown, the way up gives me a better profit to risk ratio, no matter the circumstances.
When it comes to UJ, we had another crazy week, which kept going up until 125 was hit and BoJ stepped in, as I expected. Yen became simply too weak too quickly and if BoJ didn’t intervene, it might have become risky for the economy. Looking at the chart, it created a nice top pattern and I expect Yen to gain some strength in the coming weeks. 120 might be tested again and if broken below, 118 is a good target for the bears.
Ever since Putin invaded Ukraine, nothing is as before on the markets. Since we get contradicting “news” every day, many times from various sources that can’t be really verified, its been a mess. I am trying to find some common sense in all this…and looking at the USD chart and friday’s PA, if USD doesn’t print a bearish candle, then I will be really surprised. Unless something serious happens in Ukraine, it should drop. Ideal would be some kind of a peace deal, obviously, but I am not expecting that so soon…so just things not getting worse will be good enough for now. As for FED on wednesday…market has already priced in a 50bp rate hike and another 5-6 hikes this year. Now it looks like we will only get a 25bp rate hike next week and probably no more than 2-3 this year. And even that 25bp is not 100% confirmed…but FED will probably do it, just to pretend they are doing something. Obviously, when it comes to inflation, no rate hike would be big enough and they know it…with the post-covid economy boom and the current war in Ukraine, inflation will go up, no matter what. But if they hike rates too quickly, it would be a distaster for the fragile economy. So while normally, a hike would be positive news for the dollar, next week it might do the opposite…
You never go full retard!
Lets all hope for some peaceful resolution next week, so we can start trading regular technicals and fundamentals again.
In the last forecast I was talking about a strong resistance of 1480 and a possible re-test of 1280-1320. Now we arrived at those levels…so the question is if these levels hold up. If they do, we should see 1450+ again. If not, there might be good buying opportunities 100 pips lower or so, around 1180-1200. The Ukraine crisis might cause some “fake” drops below the current “ECB” levels. I say fake, because I expect EU to go up towards 1600 eventually, based on both fundamental and technical analysis. So I am looking into buying, the only question is where and when. The only delay is caused by US intelligence which is pushing for a conflict in Ukraine for some reason. All week we have contradicting information from Ukraine and the US. US intelligence wants either a conflict or at least a tension for some time. We can only speculate why, but the message is clear, I have been reading “news” all week, one contradicting another every 5 minutes and the only side escalating this is the US side. So next week this clown show might continue and we will see what the market does with it. De-escalating the tensions and coming up with diplomatic solutions is the best option for everyone, obviously, so lets hope for some common sense. Trade with caution!
This week we had a logical move on the US dollar, after an unexpected rise the week before. Looking at the weekly chart, dollar bulls still managed to stay in the uptrend, but it will not hold for much longer…the weekly engulfing candle is the first sign of a trend end. Dollar bulls might be still pushing higher early next week, but it should be a good week for both bulls and bears. EU is at a strong resistance of 1480, so if bulls don’t manage to break and stay safely above, we might see a correction down again. Its tough to tell how deep it might go, we will have to let the market decide on that. I would prefer to see 1280-1320 again, which is where ECB started the move from, to see if it can hold a re-test or not. If not, it might go down below 1200 again. Either way, for me its a “buy the dip” scenario still. My EU target for this year is 1720 and higher. GU on the other hand didn’t manage to stay above 3600, even after another rate increase, so it might be safer to wait for lower levels to start buying again. I would prefer 3300 or lower to buy with more confidence. My bull target for GU is 3720, so just like EU, its about finding good areas to buy for me.
Next week is a FED week, so expecting some range play until wednesday and other than weakness early next week, I won’t predict much. EU and GU should gain a little on monday, 50-60 pips, maybe more and other than that I would advise to wait for wednesday. It can easily happen that USD will weaken before FED, then gain some during the meeting, just to continue weakness from thursday again. But that is just my speculation, so lets focus on easier trades before that. EG did some heavy bottoming over the past 2 weeks and should move up towards 8500 and higher. But this is a tough pair to trade…it can stay in small ranges for a long time, so I hope it won’t get stuck below 8400 for too long. Once 8400 breaks, 8450 should be an easy target…after that lets see what happens. Eventually 8570 should be taken out, but like I said…its impossible to predict the time when it happens. Easiest trade of the week could be EURCHF, as it arrived at a strong demand zone, on a friday, with some good bottoming during the US session…so the upmove could start as early as monday. Some German data is being released on monday, so if that is positive, it could provide the necessary boost. And following the data coming out of the EU lately, its been highly positive, so monday’s news should be “green”, too.