FX Corner: EUR-JPY, USD-CHF And S&P 500 - My 3 Best Trades Of The Week

|
Includes: FXA, FXB, FXE, FXF, FXY, SPY, UUP
by: David Belle

Summary

EUR-JPY facing downside pressures.

USD-CHF is looking to countertrend in the short term.

S&P 500 is still a buy until central banks stop.

A recap and update of last week's trades.

Last Monday I provided three trades that I was going to take that week. I said they would be on an intra-week basis but they're probably longer-term now, considering the price action after the FOMC wasn't as vicious as I had thought it would be. The previous article can be found here.

A quick update on the trades:

AUD-USD (FXA, UUP)

As I had stated, I was waiting for the break of the resistance and a retest of that resistance level as support. I am currently long and will look to add at 0.7633 when we find support after the break of resistance.

GBP-CAD (FXB, GGB)

I'm still waiting for this entry. None of my entry criteria have changed.

EUR-GBP

I missed this trade because price did not achieve the desired level. Slightly annoying because the reward was good and there was a valid resistance lower (clearly).

Here are new entries that I have identified and the reasoning as to why I shall take them. All trades will have a minimum R of 1.5.

EUR-JPY (FXE, FXJP)

  • Direction: Short

  • Entry: 124.67

  • Stop Loss: 125.28

  • Target 1: 123.66

  • Entry 2: 123.64

  • Stop Loss 2: 124.02

  • Target 2: 122.57

  • Trade 1 R: 1.71

  • Trade 2 R: 2.92

I'm taking this using a Wyckoffian principle for a market top. Essentially, we have had a rejection of higher prices in mid-May (an upthrust), followed by long distribution and then a retest of higher prices. I'm looking at the 124.67 level to short at as a flip zone. Essentially, I want a test of previous supply (as has happened three times previously and price hadn't followed higher). Target 1 is a test of long accumulation, noted by the fall in price from the highs and sideways movement at support. I'd look to lock in profit here and add in a new position, or simply trail my stop (or both) to target 2 at 122.57. After this there is the potential for a stop cascade through support, but that is a long way off.

Fundamentally, EUR longs are at the largest net amount for non-commercials since mid-2014.

One can see that here:

Barchart.com

For me, this would indicate that there should be some relief to the downside to clear out some weak longs. At the same time, short-term Japanese monetary policy is stable, and I see yen flows increasing due to specific uncertainties that could occur over the next few weeks. People seem to be turning slightly more risk-off also.

USD-CHF (UUP, FXF)

  • Direction: Long

  • Entry: 0.9758

  • Stop Loss: 0.9720

  • Target: 0.9855

  • R: 2.62

H4 Chart

Daily Chart

I've noticed a short squeeze possibility here on USD-CHF. You could argue there is a mini inverted head and shoulders with a temporary bottom. I'd play up to the flip zone as a target here where support was previously heavy.

I'd also play this short too from that target:

There is a big downside wick that caused the current move upward, so my target for the short would be 0.965.

I think this is a purely technical play. There is no specific fundamental reasoning for this trade, it simply follows my strategy.

S&P 500 (SPY, VOO)

  • Direction: Long

  • Entry: 2440

  • Stop Loss: 2430

  • Target: 2453

  • R: 1.53

In a previous article, I mentioned that until we stop seeing Swiss National Bank buying US equities, there is no reason not to be long equities. I stand by this fully. I think excusing the whipsaws we have seen, it is pointless to not continue to be avid buyers. The dollar is also still weakening, and with the dollar/US indices correlation quite negatively strong at the moment, buying support and trading to the weekly high is definitely the short-term strategy for making the most from this market currently.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.