Potential Forex Trade Setups. In the previous article our resident ex hedge fund trader and professional analyst Fotis Paptheofanous showed in great detail how he studies the global macroeconomic climate and then uses that information and data to trade for clients and his own money. In this way he is able to use a “top down” approach to his trading. He first studies what is currently happening in the financial world and how that will affect currencies, gold, oil etf’s, stocks etc
From this detailed study he then plots which indices and commodity pairs to concentrate on in the coming weeks and months. In this article Fotis takes the previously mentioned data and this is how he intends to trade currencies in the coming weeks and months. This information was first made available as a gift a couple of weeks ago to members of my forex mentor program and Fotis has kindly agreed to share it here. Usually this information and the previous report would cost you many $100’s per month.
If you missed the report here is the link: Global Macroeconomic Outlook
In this section we will provide specific trading ideas based on fundamental and technical factors.
For example, last week after the release of key economic indicators from the UK, it was quite obvious that UK’s economy is doing much better than anticipated and the Bank of England hinted at a possible key rate increase within the next six months.
Therefore we wanted to buy GBP strength against other currencies that had more “gloomy” outlooks regarding their economy and a totally different policy regarding interest rates, such as the Japanese Yen for example.
We issued an alert to buy GBP against JPY after a breakout of a triangle pattern around 159,30. This is what happened:
The USDJPY rally may gather pace during the final week of November as the slowing recovery in Japan undermines the Bank of Japan’s (BoJ) pledge to achieve the 2% target for inflation by 2015, and the deviation in the policy outlook may continue to spur higher highs in the exchange rate as the Fed looks to taper its asset-purchase program in the coming months.
The fundamental developments due out next week may produce additional headwinds for the Yen as the headline reading for Japanese inflation is expected to hold steady at an annualized rate of 1.1% in October, but a weaker-than-expected print may put increased pressure on the BoJ to further embark on its easing cycle in order to encourage a stronger recovery.
Technically speaking Nikkei, which is very correlated to the USD, has broken July’s highs on the upside but the USDJPY must still face the resistance from July’s highs at 101,52. Is the JPY simply lagging or is the Nikkei wrong? We cannot know that at this moment but if the trend is established we will be looking to go long as well.
We do not have a clear setup yet because I suspect that many investors are waiting to see if the USDJPY breakout is a fake or not.
On the AUDJPY a possible breakout below 93,00, could be an indication that a larger retracement to the down side is underway.
The Aussie came under intense selling pressure last week as home-grown and overseas developments conspired to weigh on the currency in tandem. The move downward began with the unraveling of risk appetite amid fears that the FED may begin to scale down its stimulus efforts sooner than expected after minutes from October’s FOMC meeting printed on the hawkish side of investors’ forecasts. It was compounded by disappointing economic data out of China as HSBC’s China Manufacturing PMI gauge revealed that factory-sector activity slowed more than economists expected in November.
However it was the Reserve Bank of Australia Governor Glenn Stevens that put the nail in the coffin, saying in a much-publicized speech that central bank was “open-minded” about FX market intervention. The RBA chief argued that the currency is above expect levels in the medium term and warned that although officials are still unconvinced about whether the benefits of intervention outweigh the costs, current inaction doesn’t mean the RBA will always remain on the sidelines.
Current economic conditions in Australasia region don’t favor either the Aussie or the Kiwi. We are looking for a short position from 0,8200 to 0,8250.
The Euro has clearly benefited from the collapse of “commodity” currencies (AUD, CAD) as was seen this week. The commodity currencies hemorrhaged ground across the board from late-Wednesday through Friday’s close (thanks to the Fed), and there was clear evidence of a rotation out of the higher yielding currencies into lower yielding but growth-friendly currencies – the European bloc.
The drop in oil prices hasn’t helped the CAD which is a major oil exporter and we will be waiting for long USD setup in the coming weeks.
In the next article Fotis shows you how he intends to trade equities, crude oil and where next for gold. To See the article CLICK HERE
If you have any questions or comments please leave them in the box below
Author: Marc Walton