Is The Trend Still Your Friend? Trend Analysis Week Beginning July 8th 2013
The week beginning July 1st ended as it began in the FX market, with virtually all the medium to longer term forex trends on the major currency pairs remaining unbroken. The euro continued its downward trend versus all of its major peers whilst the greenback continued its upward trajectory.
The euro's slump continued post the ECB's base rate decision and after Mario Draghi, the president of the ECB, held court at his post decision press conference. Similarly sterling continued its recent slump after the new BOE governor Mark Carney issued his "forward guidance" proclamation, whilst giving fore-warning that monetary easing (QE) may well be back on the MPC's 'menu', as a BOE economic stimulus measure, in August.
The Aussie dollar also continued its slump after briefly threatening to alter trend. However, market analysts, despite believing that the Aussie may be temporarily oversold, are of the unified opinion that the RBA (Royal Bank of Australia) has a huge opportunity to use base rates to stimulate the Aus. economy given that at 2.75% the Aus. base rate is dramatically out of step with other developed economies.
Yen displayed further weakness, this weakness was somewhat exaggerated versus other currencies displaying weakness, such as the Aussie and the Loonie (Canadian dollar) where yen lost considerable ground over the past week. Fundamental decision making by the BOJ, still pursuing what is referred to as "Abenomics" by way of open ended QE similar to the USA Fed, is causing a continual flight from yen. In a correlated trade the Nikkei index continues to rise; each day of the week beginning July 1st the Nikkei Index closed higher.
Major currency pair trend analysis week beginning July 8th 2013
EUR/USD
The most traded of currency pairs continued its downward trend last week, the latest trend began with a reversal of the previous bullish trend ending on June 18th-19th. Once the 200 simple moving average was breached on June 26th bearish sentiment has prevailed. The Heikin Ashi candles, when plotted on a daily chart, became more conclusive and bearish throughout the week, with the week ending with Friday's candle being closed with a downward shadow.
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Looking at the most preferred indicators for trading 'off the dailies' lends more support to the view that, barring some shock fundamental event, this current trend will retain its current momentum. PSAR is above price, RSI is yet to breach 30 not yet suggesting an oversold currency pair, the MACD is negative whilst the histogram continued to print lower lows throughout last week. The DMI, on an adjusted setting of 20 to help filter out noise, also remained negative whilst printing lower lows on the histogram. The stochastics, adjusted to a setting of 9,9,5 have reached the oversold zone of 20, however, they're yet to turn upwards from the zone that generally indicates an oversold security.
Based on the current chart analysis, and judging the current fundamental position in relation to the policies of the Fed and the ECB it would prove difficult to put forward justification for taking a long swing trend or position trade in EUR/USD.
GBP/USD
Cable has followed a similar pattern to EUR/USD over recent weeks. The sentiment for this major currency pair changed to bearish on June 18th-19th, since which time the 'sell off' has been parabolic. The pair began its slump after breaching the 200 simple moving average on its upward trajectory on or around the 18th-19th. Since rejecting this critical level the pair has lost circa 800 pips.
The Heikin Ashi cable candles, when plotted on a daily chart, are currently bearish, whilst all the commonly used trading indicators when trading 'off the dailies' are exhibiting bearish tendencies. PSAR is above price, the DMI adjusted to a level of 20 continued to find lower lows, whilst the MACD is equally negative and printing lower lows on the histograms. The stochastics (adjusted to 9,9,5 in an attempt to filter out 'noise') have yet to turn bullish still remaining below the twenty zone and the RSI reading is 30 suggesting the currency pair is not oversold.
Based on the current chart patterns and the underlying fundamental position currently present in the market, it would be extremely difficult to justify any long trend trade in cable.
USD/JPY
USD finally breached the 100.00 level versus yen during last week's trading sessions to end the week at circa 101.20. Once again, in a similar pattern to both cable and EUR/USD, the previous trend ended on the 18th – 19th June and the current bullish trend shows now immediate signs of reversing. All the trading indicators that have rendered EUR/USD and cable bearish are equally in force were USD/JPY is concerned.
Unless there is a major policy shift or announcement from the BOJ it would be reckless to call a reversal to the current trend. Traders would need as a minimum certain indicators to turn bullish before closing their current short and potentially opening a long swing trade.
AUD/USD
This commodity currency appeared to have bottomed out towards the end of June, however, thereafter fresh momentum was added to the downside courtesy of the RBA fundamentals policy decisions and commentary suggesting further devaluation for the Aussie in order to stimulate domestic export growth.
As with currency pairs already covered the most commonly used indicators preferred for trading 'off the dailies' are all bearish with very little evidence from the indicators or Heikin Ashi candles that a reveres in trend is imminent.
Metals
Spot gold had threatened to reverse sentiment during the week beginning July 1st. However, the bearish trend once again developed fresh momentum from mid week post certain policy decisions from the USA and Europe. Traders currently short spot gold need to fully concentrate given that several indicators are moving from their oversold conditions, such as the stochastic and the RSI. Silver followed an identical pattern.
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Metals traders need to remain vigilant given that several indicators are no longer bearish. However, many of the leading swing trading indicators would need to be bullish before traders should consider opening swing long positions.
Indices
The DJIA has proven difficult to trade over recent weeks. A 'classic' return to the 'risk on risk off' paradigm had looked likely from the 18th-19th June when the index slumped and safety was sought in the dollar, however, that pattern was short lived as once again, by the week beginning July 1st, the index rose, as did dollars. 15,000 naturally began to present an organic psyche level, the index has since recovered from its late June level to register over 15,150.
Whilst several of the chosen swing trading indicators are bullish traders would be advised to wait for further confirmation from the leading swing trading indicators before committing to long swing trades. The DMI being positive on an adjusted setting of 20 may provide the signal when combined with other bullish indications.
Oil
WTI oil started the new quarter in continued bullish mood, whilst the spread between the price of UK Brent and USA WTI has narrowed to less than five dollars a barrel for the first time in several years. Price advanced past 100 a barrel due to tensions in Egypt with regards to the removal of the current president and the ruling party. This impacted on worries over access through the Suez Canal and unfettered transport of crude through the SUMED, the Suez-Mediterranean pipeline.
All of the most favoured swing trading indicators are bullish WTI and it would be reckless to recommend a short position.
For traders currently long oil both the Heikin Ashi candles and the current chart pattern on the daily chart suggest that this current bullish move has more life. However, given the highly political and sensitive nature of the current Middle East situation, traders would be advised to monitor the situation closely.
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