APRIL 11-15 EURUSD WEEKLY OUTLOOK, STRATEGY, TRADE IMPLICATIONS
FX risk hedged income, low risk forex, macro market outlook
Seeking Alpha Analyst Since 2009
Cliff Wachtel, CPA, MBA, former Chief Global Markets Analyst, Director of Market Research, New Media and Training for a number of leading online Forex and CFD brokerages. His focus includes global market drivers, forex, currency hedged and diversified income investing, and related topics like MLPs, REITS, BDCs, etc. He is also the author of The Sensible Guide To Forex , [https://www.amazon.com/Sensible-Guide-Forex-Smarter-Survive/dp/1118158075 ] a book dedicated to providing safer, simpler ways for active traders and passive long term income investors to use forex markets to limit risk of your currency being debased by central bank policies. Since the Great Financial Crisis began in 2007, Cliff was among the first financial writers to focus on stocks that provide steady, high yields currency diversification for insurance against currencies being steadily devalued. Articles focus on both top income stocks for exposure to multiple quality currencies, and safer, simpler less demanding types of longer term forex trades than commonly covered on other forex sites. He also posts a variety of articles on topics ranging from weekly strategic global market analysis, conservative forex trading, assorted special reports, currency diversified income investing, binary options, and trader training articles via multiple websites. His home sites include: globalmarkets.anyoption.com, thesensibleguidetoforex.com, caesartrade.com, globalmarkets.com, and others. Most can also be found at leading financial websites like seekingalpha.com, businessinsider.com, and forex sites like forexfactory.com and fxstreet.com. His work is regularly translated into numerous languages, including Spanish, French, Italian, Turkish and Russian, Arabic, German, and Chinese, often with his express knowledge and permission! He has appeared in a variety of offline publications including Forex Journal, and John Nyaradi’s book, Super Sectors, in which he was interviewed along with other market experts like Jim Rodgers, Dr.Marc Faber, John Mauldin, Robert Prechter, and Tom Lydon. Prior to his current positions, he was Chief Analyst at avafx.com, and a 30+ year financial market veteran as investor, trader, writer, analyst and advisor to private clients and institutions. He attended Vassar College and Cornell University, and is a certified public accountant. He’s married with 5 children and lives in Jerusalem, Israel, where he can follow Asian markets in the early morning, Europe through the workday, and the Americas at night.
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 RallyUS 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 PICTUREThe simple technical picture says yes. Let’s look at the big picture. Note that the weekly EURUSD chart below shows nothing but upward momentum.
EURUSD WEEKLY CHART COURTESY OF ANYOPTION.COM 01apr09 2222
- Price remains so firmly within the upper Double Bollinger Band buy (upper red and green bands) zone it closed the week above it. See 4 RULES FOR USING THE MOST USEFUL TECHNICAL INDICATOR, DOUBLE BOLLINGER BANDS for a review of how to interpret these.
- 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
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.
- 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.
- 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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