The US dollar has broken down significantly against the Japanese yen during the week as the stock markets in New York have been crushed in ways that we haven’t seen since the financial crisis. At this point, we are testing the ¥108 region, which should be supportive. If the market breaks down below there it’s likely to go towards the ¥105 level over the longer term. That being said, we could get a bit of a bounce and go looking towards the ¥110 level above. That is essentially “fair value” for the overall consolidation.
USD/JPY Video 02.03.20
The overall consolidation runs from ¥115 to the upside down to the ¥105 level on the downside. Based upon this candlestick, I do think it’s more likely that we go looking towards the downside but don’t be surprised at all if we see some type of short-term bounce in the process. If we were to break down below the ¥105 level, it would be crucial at that point and we would probably see this market drop down to the ¥100 level, an area that has traditionally caught the attention of the Bank of Japan. To the upside, if the market was to take out the highs of the week, that would obviously be a very bullish sign, but I give that about a 5% chance of happening anytime soon. This is a market that you should be looking for opportunities to sell after bounces, but you may have to do so from shorter-term timeframe such as the daily or the four hour charts.
The British pound initially tried to rally during the week, reaching towards the 200 week EMA before rolling over. That shows signs of weakness, and perhaps more than likely going to show that the British pound is clearly susceptible to the global “risk off” situation that we find ourselves in. That being the case, it’s likely that we will continue to see a lot of back and forth and although the British pound is going to suffer at the hands of risk appetite falling, the reality is that there is significant support just below so if you are looking to buy the US dollar, although the trade may work in this pair, you may find better momentum in some of the other pairs, specifically the Euro.
GBP/USD Video 02.03.20
At this point, I believe that short-term traders will continue to try to fade rallies, but if we were to break down below the red 50 week EMA on the chart, that probably sends this market much lower, perhaps even as low as the 1.25 handle. At this point in time though it’s obvious that the markets are very jittery and it’s going to take very little to knock them over. As far as rallies are concerned, I would not believe them in this pair until we break above the 200 week EMA which is painted in black on the chart. At that point, we could go as high as the 1.35 handle over the longer term. Expect a lot of volatility but in the end, I believe that the US dollar will strengthen against most currencies.
The British pound broke down significantly during the week, slicing through the ¥140 level. At this point, the market is likely to test the ¥139 level, and if it breaks down below there it’s likely that we will continue to see exacerbated losses. At this point, it’s only a matter of time before that happens from what I see, and when that does kick off, we could drop rather precipitously. The market is clearly failing in general, as the Japanese yen is being used as a safety currency.
GBP/JPY Video 02.03.20
The size of this candlestick is of course rather impressive, and it has wiped out quite a bit of constructive action as of late. The coronavirus continues to cause a lot of headline risk out there, and clearly the Japanese yen being used as a safety currency isn’t that big of a surprise. At this point, rallies are to be looked at with suspicion, and as a result it’s very likely that the short-term rallies will end up being selling opportunities, and as a result it’s likely that the pair does eventually break down, but it could be very noisy along the way. Once this pair does break down, it’s likely that it could be looking at a move down to the ¥135 much quicker than anticipated. However, one has to wonder how much more fear there is out there when it comes to the markets in the short term, so a slight bounce really isn’t out of the question at this point in time.
The Euro has broken to the upside during the trading week to break above the 1.10 level. That of course is an area that should attract a lot of attention from a psychological standpoint, and it should be noted that the Friday session is forming a somewhat exhaustive looking candle. The weekly candle looks much more bullish though, so at this point it’s likely that we will have a bit of a fight in this general vicinity.
EUR/USD Video 02.03.20
At this point in time, most of the selloff of the US dollar has more to do with the stock market and people repatriating money back to their home countries as the US stock market got absolutely crushed for the week. Ultimately, this is a market that has been in a downtrend for some time, so quite frankly I don’t feel the need to try to buy this market, and the fact that the market is giving up quite a bit heading into the weekend suggests that the downtrend will continue to show itself. Ultimately, this is a market that I do think tests the lows again, but if we were to break above the red 50 week EMA then we have to somewhat reconsider the situation.
The European Union is very likely that in a recession, and the ECB is much looser than the Federal Reserve. Coronavirus cases are breaking out all over Europe, and as a result it’s much more palatable to short this market than trying to buy it. Fading rallies on short-term charts should lead to longer term decline still.
The Australian dollar initially gapped lower to show signs of weakness, turned around to fill that gap, and then broke down to reach towards the 0.65 level during the Friday session. That of course is a large, round, psychologically significant figure, and therefore it’s likely that the market will react there. We are starting to see a slight bounce during the Friday session, but if we were to break down through that area it opens up the door down to the 0.63 handle which is the bottom of the financial crisis area.
AUD/USD Video 02.03.20
At this point, the market looks as if it could bounce, but bouncing from here could be a nice selling opportunity at signs of exhaustion, and the 0.67 level above will probably offer a bit of a “ceiling” in the market. If we were to break above that level it would change a lot of things but right now, I just don’t see that happening. At this point, the market is likely to bounce a bit, but I look at that bounce as an opportunity to pick up the US dollar “on the cheap.” Ultimately, if we were to break down below the 0.63 level underneath, that would be a disaster for the Aussie. The US dollar should continue to attract quite a bit of inflow due to safety concerns, and of course the fact that the Australians are so highly levered to China itself. With this, keep in mind that we are in a downtrend for a multitude of reasons to begin with, so buying is extraordinarily dangerous.
The US dollar has broken down rather significantly during the training session on Friday, as we continue to see a run to safety and the financial markets. The Japanese yen is reasserting itself as a safety currency, as we have seen in spades over the last several sessions. The US markets have been selling off, and therefore money is flying out of New York as more concerned about coronavirus hit the headlines. As I record this, the Dow Jones Industrial Average is down 900 points, and looking very much like it’s going to reach 1000 lost yet again.
USD/JPY Video 02.03.20
The USD/JPY pair is getting close to the 200 day EMA, an area that will of course attract a lot of attention. At this point, I think that the 200 day EMA could cause a little bit of a bounce, but if we do break down below there then the longer-term trend suddenly becomes negative again. The ¥110 level is essentially “fair value” in the longer-term consolidation area and we have just gotten smoked by a false break out. Because of this, it’s likely that we may return to ¥110 again, as market memory dictates. However, the market is literally moving by the most recent headline, and to be honest the correlation between the S&P 500 in the USD/JPY pair has returned to the norm again, so pay attention to this correlation, as we are getting oversold, and it’s a matter of time before we get some type of nasty bounce. In other words, you can’t short the market quite right now, as you would be “chasing the trade.” That being said, it will be interesting to see what happens next but I would advise keeping a very small position regardless of what you choose to do.
The British pound initially tried to rally during the trading session on Friday, just as it did on Thursday. However, just as we had seen on Thursday, the sellers overwhelmed the pair, and the British pound cannot hang on to gains. It looks at this point that the market is going fully into a “risk off” type of situation. I believe also that the British pound is suffering not only due to the fact that the global markets are complete mess, but the fact that the never-ending source of tension between the UK and the EU continues. Ultimately, I do think that the greenback is a bit oversold against most currencies, but the British pound will probably continue to be a little bit more insulated.
GBP/USD Video 02.03.20
If we break down below the 1.28 handle, it very well could open up the door to at least the 200 day EMA. At this point, it’s likely that the market would have a serious fight on his hand to determine the direction of the trend overall pair the market turning around and recapturing the 1.30 level though would be rather bullish and showed just how strong the British pound is in general. At that point, I would anticipate that the basing pattern would be somewhat completed, and we should go looking towards 1.35 handle. However, as things are starting to develop on the coronavirus front and the massive amount of money going into the US bond markets, that’s looking less likely by the day.
The British pound has broken down significantly during the trading session on Friday, as we continue to see a major breakdown and risk appetite. The Japanese yen is acting as a safety currency again, so having said that it’s likely that the markets will continue to drive toward the yen until the overall attitude of traders around the world stabilizes. Having said that though, it’s difficult to imagine a scenario where we will see some type of major turnaround right away. On the other side of that equation is the fact that the market is getting oversold, so a bounce is probably very likely. Even if that’s the case though, it’s very difficult to simply just jump in and buy this market because it is “cheap.”
GBP/JPY Video 02.03.20
If we break down below the ¥139 level, then the bottom will fall out of this pair and we will continue to go much lower. It should be noted that the British pound has held up a little bit better against the Japanese yen over the last several months, so this pair may have further to fall than other ones. When compared to other pairs such as the AUD/JPY and the NZD/JPY, there’s much more real estate to the downside if we do get a complete breakdown and collapse in confidence. Rallies at this point will probably be sold into unless of course something changes drastically, so we will probably have to look towards the weekly chart in order to make a bigger decision. If that’s the case, pay attention to how it breaks and of course my analysis here on longer time frames. This clearly looks very bearish at the moment though.
The Euro rallied initially during the trading session on Friday again, but as time wore on, the market participants started selling it in order to form a rather bearish looking candlestick. Ultimately, the 1.10 level is a major area and it makes sense that resistance would show up in this area. At this point, the market looks very likely to go looking towards the lows again, because quite frankly we are in a large downtrend and quite frankly the European Union is starting to see an explosion in coronavirus cases. I do believe that the market is starting to look at the fact that the European Union is almost into a recession, and certainly looks as if it is going to head in that direction.
EUR/USD Video 02.03.20
To the upside, the market does break above the top of the candlestick for the day, then we could see a bit of a melt up, but I don’t think that’s going to be the case. Quite frankly as we go to the weekend a lot of people will have wanted to close the long position that they may have had in the Euro, as the US dollar continues to offer safety over the longer term. Granted, there was a repricing of the US dollar due to concerns about the coronavirus expanding in the United States, but at the end of the day we are in a downtrend and nothing has changed in the European Union, and therefore we should continue to see plenty of weakness.
The Australian dollar has been hammered during the trading session on Friday, but at this point it’s likely that the market will have to bounce a bit due to the fact that it is oversold. Granted, the Australian dollar is highly sensitive to the Chinese economy and what’s going on there, which of course is getting crushed by the coronavirus situation. A lack of demand for copper and other raw materials out of Australia will probably continue to suffer, so at this point I think it’s likely that the market will sell the Australian dollar is a bit of a proxy. Furthermore, the US dollar is picking up quite a bit of momentum due to the fact that the markets are completely freaking out around the world, as the coronavirus has seemingly accelerated.
AUD/USD Video 02.03.20
The market participants will more than likely sell into any rally that we get at this point, so looking for signs of exhaustion will be the way to go. I believe at this point, it’s a matter of time before you get some type of opportunity to sell this pair. Quite frankly, if we do break down below the lows of the Friday session, it is of course a selling signal, but I much prefer selling rallies Sibley because we are a bit overextended. I still believe that this pair is probably going to go looking towards the 0.63 handle, which was the bottom of the financial crisis back over a decade ago. To the upside, I believe that the 0.66 level could offer more selling, and most certainly the 0.67 level will. All things being equal it’s likely that the market could see a bit of a bounce late in the Friday session just due to short covering.
The Euro is trading lower shortly after the U.S. opening on Friday after the single currency hit its highest level since February 4 earlier in the session. The rally this week has been fueled by speculation of a sooner-than-anticipated rate cut by the U.S. Federal Reserve in the wake of the rout in U.S. equity markets and increasing fears of a global recession.
At 12:34 GMT, the EUR/USD is trading 1.0996, down 0.0004 or -0.03%.
The EUR/USD rally began to fizzle and the Forex pair turned lower after a key market gauge of long-term Euro Zone inflation expectations fell to a record low on Friday as concerns about the spread of coronavirus intensified.
The five-year forward fell to 1.1182%, its lowest level ever. It measures expected Euro Zone inflation over a five-year period, Reuters reported.
Daily Technical Analysis
The main trend is down according to the daily swing chart. However, momentum is trending higher. The main trend will change to up on a trade through the last main top at 1.1095. The main trend changes to down on a move through the last swing bottom at 1.0778.
The first main range is 1.1239 to 1.0778. Its retracement zone is 1.1007 to 1.1062. Today’s rally stopped inside this zone at 1.1053.
The new short-term range is 1.0778 to 1.1053. Its retracement zone at 1.0916 to 1.0883 is the next potential downside target.
Daily Technical Forecast
Based on the early price action and the current price at 1.0996, the direction of the EUR/USD the rest of the session on Friday is likely to be determined by trader reaction to the main 50% level at 1.1007.
A sustained move under 1.1007 will indicate the presence of sellers. The next downside target is a downtrending Gann angle at 1.0995. This is a potential trigger point for an acceleration to the downside.
If 1.0995 fails as support then look for a potential break over the near-term into the short-term retracement zone at 1.0916 to 1.0883.
A sustained move over 1.1007 will signal the presence of buyers. The first upside target is a downtrending Gann angle at 1.1029. Overcoming this angle will indicate the buying is getting stronger with potential upside targets coming in at 1.1053 and 1.1062.
Taking out 1.1062 could trigger a surge into a resistance cluster at 1.1095 – 1.1096.
GBP/USD saw some downside pressure around the middle of the week but momentum in the decline has slowed as buyers have held the pair above important support.
The bigger development for the UK this week has been in the equity markets rather than the exchange rate. The UK FTSE declined to fresh lows now seen since the summer of 2016 earlier today and is down more than 11% this week. The equity index is weighed by a global shift to risk aversion after it became apparent earlier in the week that the Coronavirus has started to spread at a more rapid pace outside of China.
In the currency markets, more meaningful moves are seen in commodity currencies and safe-haven currencies. The former tend to sell-off when investors turn risk-averse while the latter typically gain.
The dollar has been under pressure which seems to have limited the decline GBP/USD this week. Investors have become increasingly certain that the Federal Reserve will deliver a rate cut to combat the negative impacts the Coronavirus will have on the US economy. The CME FedWatch Tool, which tracks pricing in the Fed Fund Futures markets to determine market probabilities of interest rate changes, shows a rate cut is fully priced in for next month’s Fed meeting. The data further shows a one in five chance of the Fed delivering a 50 basis point cut rather than the typical 25 basis points.
The UK will start official trade negotiations with the EU next week which could lead to an increase in volatility in the exchange rate. The pound to dollar currency pair trades at an important technical inflection point and the direction from here will likely be driven by developments in trade negotiations.
Support at 1.2859 has held the exchange rate higher on two attempts now since yesterday. Beyond the level, there is further support near 1.2820 which stems from the lower bound of a declining trend channel.
GBP/USD appears to be on the verge of a breakdown as it continues to hold below a major horizontal level at 1.2961. Further, the pair has also been holding below its 200-week moving average since dropping below it in the early month. The technical outlook suggests the pair is reversing trend from the bullish run that began in September.
Over the near-term, resistance is seen at 1.2924 followed by 1.2961.
A weaker dollar is helping to keep Sterling supported. In this context, any communication from the Fed regarding a potential upcoming rate cut will be important in addition to developments in EU trade negotiations.
GBP/USD bulls are holding the pair above technical support at 1.2859 which continues to be a hurdle for bears over the near-term.
Volatility is likely to increase next week once trade negotiations with the EU commence.
Dear traders, the EUR/USD broke above the key resistance zone at 1.0950. The breakout and strong bullish impulse invalidated the bearish outlook. What is next for this pair?
4 hour chart
The EUR/USD made a close and reverse. The confirmation of the bullish reversal took place after price action was able to break above the channel resistance (dotted red) and long-term trend line (dotted red). Price could now be in a bullish wave C (green). The bearish swing has probably completed a wave C (purple). More upside is likely at the moment.
1 hour chart
The EUR/USD break seems to be a wave 3 (orange) pattern. After completing a sideways correction in wave 4 (orange), price broke again to the upside. The next target could be as high as 1.11. Eventually a bearish retracement is expected to take place. If pullback is mild, then more upside is expected.
The analysis has been done with the help of SWAT method (simple wave analysis and trading)
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The week started with a decline of 3.3% in the S&P 500 (SPY), but unlike other times the index dropped sharply, buyers have failed to step in to support the index. Rather, the downside momentum has been accelerating and risk sentiment has been deteriorating across the markets on concerns that the Coronavirus has become a real threat this week for countries aside from China.
Gold has been an exception to the shift in sentiment as the yellow metal peaked after a notable rally to start the week. In the Forex market, however, currencies are showing a textbook shift to risk aversion. The Japanese yen, known as a safe-haven currency, has advanced nearly 3% against the greenback in the week thus far. The Swiss franc also falls into this category and has made notable gains.
The euro showed a somewhat delayed reaction to the recent shift but has advanced as market participants wind down risky trades for which the single currency is often used for funding. Further aiding EUR/USD is a weaker dollar after the futures market signaled that a US rate cut might come as soon as next month.
At the start of the week, the CME FedWatch Tool indicated a roughly 50% chance of a rate cut in June. The data now shows a quarter basis point fully priced in for the March meeting and a roughly one in five chance of a 50 basis point cut.
Meanwhile, European Central Bank President Christine Lagarde downplayed the potential impact of the virus on Thursday. Lagarde commented that policymakers need to determine if the virus will become a “long-lasting shock” and further said, “we are certainly not at that point yet.” Her view was confirmed by ECB member Vasiliauskas earlier today who added that the ECB could set an extraordinary meeting if need be.
Two things stand out in the current rally in EUR/USD. First, there is a lot of momentum behind the move, and second, the rally follows a momentum-driven decline that dominated most of the month.
Implied volatility is at a one-year high and the fact that most of the losses from the first three weeks of the month have been wiped out suggests there is a strong conviction behind the upward move. Combine that with developments in other markets, and the general shift to risk aversion, and there is little reason to step in the way of the current bullish trend in the currency pair.
Having said that, there are some notable technical hurdles that bulls may face in the session ahead. The 100-day moving average comes into play at 1.1052 and the 200-day moving average currently falls at 1.1098. In between the two moving averages, a horizontal level is seen at 1.1075.
To the downside, support is found at 1.1000 which is a level that acted as major support between November and January.
Developments in other markets point to an acceleration in risk aversion while EUR/USD implied volatility has reached a one-year high. This type of scenario favors trend continuation strategies rather than mean reversion strategies.
Several areas of technical resistance come into play in the session ahead, buyers might look to step in at 1.1000 if the resistance areas trigger a pullback.
This week on global stocks was absolutely brutal. We dropped from almost all-time highs to the lowest levels since October. Almost 4 months of rises wiped out in a week. That has to hurt. On the Forex Market, we have the dominance of safe heaven currencies: CHF and JPY. In this analysis, I will analyze the situation on the Japanese Yen.
First, Yen Index. First signs of power appeared on Monday, when the index confirmed the false breakout below important mid-term support (827). Other steps were made on Wednesday and Thursday, when the price broke the mid-term down trendline and the horizontal resistance on the 837. Yesterday’s candle just made everything clear – buyers are fully controlling the situation at the moment. Sentiment for Japanese currency is currently positive.
Now, USDJPY, which we analyzed recently. In our previous analysis we pointed out the giant symmetric triangle and the breakout to the upside. In theory, that was a great buy signal. Just in theory though as in practice, the price met a worthy opponent – highs from the 2019. This is were the price reversed and created a false breakout pattern. Now we are back below the upper line of the triangle, which is a very negative signal for the nearest future.
Now, everyone’s favorite, one and only – GBPJPY. Here, the situation is pretty clear. The price broke the 141 support, which automatically switched the sentiment into a negative one. This level was a crucial resistance from October to December 2019 and later a crucial support, till yesterday. Price staying below this area is definitely pessimistic.
The US dollar got hit initially during the trading session on Thursday, as money continues to flow out of the United States stock indices. Having said that though, the market does look as if it is trying to find its footing and of course although the Japanese yen has been acting more like a safety currency all of a sudden, the reality is that there is much more impact on the Japanese economy in the short term then there is the US. I think at this point a lot of this is just money being forced from one border to another in order to close out positions.
USD/JPY Video 28.02.20
Looking at this chart, we could very well turn around and go looking towards ¥111 level, but we need to cross the ¥110 level first. A daily close above there it does instill a little bit of confidence, and it’s also possible that some of the short-sellers in the stock markets will have to close out their positions going into the weekend. That by its function may drive this price back up as well. Alternately, if the market breaks down below the 50 day EMA we could have the bottom fallout, and then go looking down to the ¥108.50 level. That’s a little less likely, but it is something that you need to be aware of as the Japanese yen typically acts as a safety currency, but with the coronavirus being in that region and so heavily represented, these days are quite normal as I’m sure you have noticed.
The British pound has been all over the place during the trading session on Thursday, as we continue to see a lot of push and pull when it comes to not only the British pound, but currencies in general. The markets look as if they are going to continue to pay attention to the coronavirus issues, and what that means for the various economies in the world. That being said though, Boris Johnson stated during the trading session that unless the United Kingdom get some type of Canada style free-trade agreement with the European Union and unless it’s obvious by June, he’s walking away from negotiations. That may have weighed upon the British pound a bit, but at this point there is a lot of support just below.
GBP/USD Video 28.02.20
To the upside, the 1.30 level above is looking very likely to be a resistive barrier, with the 50 day EMA hanging around there and certainly will continue to affect the market as well. That being said, the market is likely to see a lot of volatility, but I do think we are getting close to a point where we should see some type of support come in and try to lift this market. From experience I would say that it looks like the market is trying to form some type of basing pattern, which is always a very noisy and difficult thing to trade through. However, if you are a longer-term inclined you may be able to buy this market and simply hang on through all of the choppiness. However, for the shorter-term trader it’s probably more of a range bound market with a slightly upward tilt over the longer term that you should be looking at.
This pair of course is very sensitive to risk appetite in it seems as if the Japanese yen is suddenly acting like a safety currency again. Because of this, the market has sold off everything against the JPY over the last 24 hours, but this pair may have a bit of negative pressure put upon it by Boris Johnson suggesting that the United Kingdom needs to get a Canada style free-trade agreement with the EU, and it should be clear by June or he will walk away from the negotiations. At this point, it’s hard to tell how much that is affecting the price, but the reality is that the market is in a bit of a consolidation phase with the ¥141 level offering support anyway.
GBP/JPY Video 28.02.20
To the downside, I see the ¥140 level as psychologically important, so it is worth paying attention to. I think at this point we are sitting on top of massive support levels at not only the ¥141 level, the ¥140 level, but also the ¥139 level. In other words, there are a ton of buyers underneath waiting to step in at the first signs of good news. Most likely, we will bounce from somewhere near this area and try to reach towards the ¥145 level again as it would simply be a typical bounce around the consolidation area. If we were to break down below the ¥139 level, that would obviously be very negative but at this point that doesn’t look like the base case scenario.
The Euro has gained during the trading session again on Thursday, reaching towards the major sell off area, and at this point I think that it makes quite a bit of sense that we will see this market pullback. Most of what’s been driving this currency pair has been Europeans taking money back from New York, driving flows back across the Atlantic Ocean. However, when you look at the underlying fundamentals between the two economies, it is only a matter of time before the Euro gets hammered again, as the economic situation in the United States is much stronger than the European Union.
EUR/USD Video 28.02.20
When you look at the significant sell off heading into this, it does make sense that there was a relief rally anyway. At this point, it’s likely that the market will go looking towards the 1.08 level and perhaps even lower than that longer term. The Euro doesn’t reflect the lack of yields in the European Union, nor does it reflect the fact that money has been reaching towards US bonds. Longer-term, I do think that we not only go lower from here, but I think we go much lower. Rallies at this point continue to be selling opportunities but we do not have the candlestick to suggest that quite yet. The simple matter of taking your time and being patient should pay off nicely, as it is only a matter of time before the markets focus less on viruses and economic reality. We are in a downtrend, but had gotten a bit oversold.
The Australian dollar has rallied significantly during the trading session on Thursday from extremely low levels. That being said though, there are plenty of areas where the Australian dollar is going to run into trouble above, so quite frankly this is not the time to be buying. IEC the 0.66 level as an area that will be little bit resistive, but after that, it’s very likely that the market could go towards the 0.67 handle. That is an area that is crucial from a longer-term standpoint, and therefore I would expect a lot of selling in that area.
AUD/USD Video 28.02.20
The Australian dollar of course is very sensitive to what goes on in Asia, and then by extension China. As long as there is a lot of disruption in China, it will have a major influence on what happens with the Australian economy, as they supply so much in the way of commodities and raw materials for the Chinese economic engine, not only from the export side but also from the construction side. A perfect proxy for the Australian dollar most of the time is going to be the copper market, which have been taken out to the woodshed. Because of this, the Australian dollar will continue to suffer and for myself, I am not interested in buying the Aussie dollar until it closes above the 0.6775 handle on at least a daily chart, if not a weekly chart. The Australian dollar still has further to go to the downside given everything that’s going on in Asia.