A Guide To The EURUSD For Both Forex Traders Via Traditional Spot Market & Binary Options
The following is a quick review of the likely trend for the coming week of the EURUSD and the drivers behind it. If you understand the likely direction of the weekly EURUSD trend, then if you trade it with multi-day or weekly time horizons the odds are in your favor. The weekly trend may or may not be relevant to those trading shorter intraday time frames. The following is a useful overview of the trend and its fundamental and technical drivers for both:
Spot forex multi-day swing traders who want to understand the overall trend and what’s driving it
Forex binary options traders using daily and weekly binary options. If you’re not familiar with these as an alternative or complementary instrument to traditional leveraged spot forex trading, you should at least be familiar with these. See the end of the article for a quick introduction and links to further resourcesEURUSD BIAS: BULLISH for the coming week
This is our conclusion based on the below analysis. While traders must do their own analysis depending on their chosen time frame and trading style, this conclusion suggests that
Spot EURUSD traders maintain a bias to the long side, buying on tests of relevant support levels
EURUSD binary options traders should consider buying EURUSD CALLS, especially on successful tests of support levels in your chosen time frame. We suggest some relevant support/resistance levels below for the weekly EURUSD chart. These will be useful for those trading daily and weekly EURUSD binary options.BULLISH FUNDAMENTAL TREND DRIVERS INCLUDE
Continued widening short interest rate advantage for the EUR
Continued risk appetite that favors the higher yielding EUR over the USD. This risk appetite is driven by ongoing QE keeping risk appetite resilient despite enormous fundamental problems with the EUR debt crisis, including:
- Growing admission that Greece, Portugal, Ireland debt to be restructured
- Implied losses to EU banking system which holds most of these bonds, both in major EU banks and ECB
- Growing evidence of austerity fatigue among debtor nations (see here for details)
- Growing evidence of bailout fatigue among debtor nations (see here for details)
Weakening US recovery (see here for details) suggests that next week’s FOMC rate statement will suggest neither rising rates nor a complete end to QE before the end of 2011 at earliest.BEARISH FUNDAMENTAL RISKS TO THE EURUSD UPTREND
- Next week’s US Q1 GDP reading. Annualized GDP has been revised drastically lower from 3.1% in the prior quarter to just 1.9% for Q2 of 2011. If the reading misses even this modest expectation it could feed risk aversion. Ironically, a weaker US economy might hurt risk appetite and thus help the USD.
- EU debt crisis issues could resurface as they did in Mid-March
- Continued rising risk appetite as reflected in the S&P 500 weekly chart, our preferred single chart barometer of overall risk appetite.
- Note the below weekly chart of the S&P 500, which shows a continued robust uptrend.
S&P 500 WEEKLY CHART COURTESY OF ANYOPTION.COM 03 apr 24 0242
For example, in the chart above, key bullish indicators include:
- The index closed the week back within the Double Bollinger Band Buy Zone (the area bounded by the upper 2 standard deviation (yellow) and 1 standard deviation (green) Bollinger Bands, suggesting the odds are with further upside. Note how just staying long when the index was in this area kept you in the uptrend despite all the bad news since August 2010. Those needing a review of Double Bollinger Bands, see 4 RULES FOR USING THE MOST USEFUL TECHNICAL INDICATOR, DOUBLE BOLLINGER BANDS
- The shorter, more sensitive SMAs continue rising above slower SMAs. The 10 week SMA (blue) is rising and has crossed above the slower rising 20 week SMA (orange), which in turn has crossed above the slower rising 50 week (red).
The obvious negative here, of course, is that the index faces strong 10 week resistance around 1350. However given the above signs of strong momentum, we are less concerned about major resistance levels because this index and other risk assets have been regularly breaking above resistance levels since the summer of 2010. While fundamentals win out in the long term, it can take a long time for fundamentals to assert themselves. Thus when trading multi-day or weekly time frames, we don’t fight the trends.BULLISH TECHNICAL INDICATORS SPECIFIC TO THE EURUSD
Given that the EURUSD strongly correlates with risk appetite, it’s not surprising that the EURUSD reflects the same bullish indicators on its own weekly chart below.
EURUSD WEEKLY CHART COURTESY OF ANYOPTION.COM 05APR 240505
Here too, key bullish indicators include:
- The EURUSD remains firmly within its Double Bollinger Band Buy Zone (the area bounded by the upper 2 standard deviation (orange) and 1 standard deviation (green) Bollinger Bands, suggesting the odds are with further upside. Note how just staying long when the index was in this area kept you in the uptrend despite all the bad news since mid-February. Those needing a review of Double Bollinger Bands, see 4 RULES FOR USING THE MOST USEFUL TECHNICAL INDICATOR, DOUBLE BOLLINGER BANDS
- Since mid February (highlighted by the arrow pointer in the chart) the shorter, more sensitive SMAs continue rising above slower SMAs. The 10 week ... TO VIEW THE REST OF THIS POST PLEASE VISIT: http://globalmarkets.anyoption.com AND SEE ARTICLE BY SAME NAME UNDER THE WEEKLY TAB
DISCLOSURE & DISCLAIMER: AUTHOR SHORT THE EUR FOR PERSONAL PORTFOLIO. 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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