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Cliff Wachtel
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Cliff Wachtel, CPA, is currently the Director of Market Research, New Media and Training for Caesartrade.com, a fast growing forex and CFD broker. He covers a variety of topics including global market drivers, forex, currency hedged and diversified income investing, and is currently working on a... More
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  • APRIL 11-15 EURUSD WEEKLY OUTLOOK, STRATEGY, TRADE IMPLICATIONS 0 comments
    Apr 9, 2011 11:33 PM | about stocks: FXE, ERO, ULE, UUP, UDN, EUO
     An analysis of the EURUSD outlook from both the USD and EUR perspectives and strategy guidelines for the week ahead for forex traders of both forex binary options, traditional spot market and forex ETF traders.

    No EURUSD profit taking selloff has emerged thus far even after Trichet’s refusal to commit to immediate further hikes, as markets still believe they are coming, and that the EUR’s yield advantage over the USD will grow larger before the Fed begins raising USD rates.

    US Dollar Weekly Outlook: Risk Appetite, ECB Tightening Pound USD, & What’s Needed For A USD Rally

    US Dollar Bias: Short Term Bearish As Selloff Plays Out, Longer Term Neutral

    US Dollar Bias: Bearish for the coming week, neutral, beyond that, due for eventual bounce.

    • EUR post ECB rate hike selloff deferred as markets see EUR yield advantage widening, ignore growing PIIGS problems
    • Current combination of fundamental and technical factors, as well as sheer momentum, favor further upside from 1.4500+ as high as 1.4800 before serious retracement, though the way up may be far from steady.
    • FOMC minutes show a growing (but still minority) number of hawks among monetary policy makers, but no one sees meaningful chance of rising rate expectations for the USD any time soon.
    • The dollar tumbles to 16-month lows against the Euro and breaks serious support along the way
    • US Earnings also could be a factor over the coming 3 weeks, more bearish for the USD than bullish, regardless of outcome. Good earnings feed risk appetite, hurt USD, bad ones hurt US economy, hurt USD. Great earnings may help USD IF accompanied by continued jobs, spending gains.
    • USD Needs at least one of the following to rally:
      • Strong risk aversion that frightens markets into the USD, unwinds carry trades. Likely source of this, one or more of the 3 crises (EU, Japan, MENA/oil prices) threatens growth
      • EUR weakness- whatever the reason, though sovereign default/exit from EZ is the likely driver of any sustained drive lower
      • Continued improvement in jobs, spending days, rising inflationary pressures to up probability of Fed rate hikes

    Meanwhile, the USD trend is lower, and we go with trends regardless of personal opinion. Does that mean it’s still safe to short the EURUSD?

    EURUSD TECHNICAL PICTURE

    The simple technical picture says yes. Let’s look at the big picture. Note that the weekly EURUSD chart below shows nothing but upward momentum.

    ScreenHunter 01 Apr 09 22 22 1024x668  APRIL 11-15 EURUSD WEEKLY OUTLOOK, STRATEGY, TRADE IMPLICATIONS

    EURUSD WEEKLY CHART COURTESY OF ANYOPTION.COM  01apr09 2222

    • Shorter term (and thus more sensitive) rising SMA’s continue to cross over their slower, also rising SMAs. The rising 10 week SMA (blue) has crossed over the 20 (yellow), 50 (red), 100 (purple) and 200 (pink) SMAs, and the same can be said for the other, longer ones: rising and crossing above slower but also rising SMAs

    Other Bearish Technical Evidence

    • The USD Index, heavily influenced by the EURUSD, broke below its short term bear flag formation to fresh yearly lows just above the 75.00 figure.
    • USD weakness is being confirmed by other asset groups – as gold, silver, oil, and other hard asset USD hedges moved higher this week
    FUNDAMENTAL EVIDENCE, HOWEVER, FLASHES CAUTION ABOUT NEW EURUSD SHORTS

    The short version: those looking to establish new EURUSD or other USD shorts may want to consider waiting until the EURUSD pulls back to the lower end of its weekly Bollinger Band Buy Zone around 1.3960, which has the additional support of the 20 week SMA (blue). Here’s why.

    Never mind that the current 16 month USD lows themselves beg for some pullback, there are only two real fundamental pillars for the EURUSD rally at this time.

    1. Sustained growing yield advantage in favor of the EUR:

    a)       Not so much from increasing Fed hike expectations as slowing ECB rate hike expectations – THAT remains the big threat to continued EURUSD rally.

    b)       The divergence in the euro’s and dollar’s rate forecasts producers a strong and constant pressure (similar to the performance of the Australian dollar against its low-yielding counterparts when the RBA was in the middle of its hawkish regime). However, this drive is not guaranteed; and in fact, it faces considerable risks going forward.

    1. Continuing risk appetite: this underpins both the overall appeal of the EUR and expectations for further rate increases

    Either of these could change quickly, especially given the current 3 crises in Japan, MENA, and the EU, and they would likely change together, compounding the impact on the EUR.

    Indeed, the most immediate risk is reduced expectations for ECB rate hikes. Why are we more focused on the European central bank (ECB) than the Fed? The Fed is likely to sustain its very slow but steady approach towards normalization; however ECB rate hike expectations could change fast. If optimism collapse, rate expectations will recede and demand for a safe haven will reverse carry funds.

    Euro Weekly Outlook: Hopes For Further Rate Hikes, Technical Picture Outweigh Risks From Japan, MENA: But What If The PIIGS Unite?

    Euro Bias: Short Term Bullish, Longer Term Neutral Between EURUSD 1.45 – 4.4800

    • EURUSD Uptrend Becomes More Entrenched
    • Two more rate hikes expected before yearend, next hike due in July, per Eonia swaps market
    • ECB 25bps Rate Hike, Post Hike Selloff in the Euro Short-Lived As Markets See Widening Yield Gap With USD

    TO VIEW THE REST OF THIS POST SEE ARTICLE BY SAME NAME UNDER THE WEEKLY TAB AT:
    http://globalmarkets.anyoption.com



    DISCLOSURE & DISCLAIMER: AUTHOR SHORT EUR NO OTHER POSITIONS, THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY AND NOT TO BE CONSTRUED AS SPECIFIC TRADING ADVICE. RESPONSIBILITY FOR TRADE DECISIONS IS SOLELY WITH THE READER







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