Weekly Outlook – Feb 8th-12th

Great Monday again Folks. We had a fabulous week last week and it was almost a textbook news trading week. It has been sometime since we have had such a week where every event followed through quite according to place. However, it sure pays to be there at the right time when it happens. This is why you should never have a bias whether you should or shouldn’t take a trade. Just plan for the worst and expect the best. Chances are, you will hit a home run once in a while.

A quick summary of how our trades worked out last week;

1) AUD Rate Decision – 100 pips

2) Gbp Rate Decision – 103 pips 1 position
279 pips 1 position (floating)

3) Gbp – NFP Report – 142 pips

Total for the week – 624 pips

Notice that these are just trades that we have taken based on news events only. I occasionally take trades based on technical formations which i didn’t included in this compilation.

As a fundamentalist, i believe news trading is one of the best ways to make money in the FX trading scene. Lots of schools and technical traders for that matter, strictly warn you not to trade the news. As always, in trading, there is no right or wrong. Choose a style that fits you and stick with it.

Ok, let us quickly run through what happened last week in terms of overall currency movements against the USD;

Eur – - 1.39%

Gbp – - 3.01%

Jpy – - 1.09%

Chf – - 1.00%

Cad – - 0.22%

Aud – - 1.63%

Nzd – - 1.89%

Gold – - 1.29%

Just like the last week, risk aversion continues and we have now seen almost 3 absolute weeks of unprecedented strength from the USD.  There was no surprise with the heavy selloff in GBP, as we had clearly mentioned in our post last week that the QE(Quantitative Easing) decision could be a big one from UK and sure enough it was. Gbp has lost almost about 300 pips since then from that decision against the USD and almost 400 pips against the Jpy.

Question now is, will USD continue to strengthen or have we seen its peak already?

For that, let us look at a few pointers;

1) On the USD Index we have seen from 26th Jan, we are well into an overbought region already. It is definitely too late to enter the trend as it is in such an overbought region for a good 2 weeks now.

USD Index well overbought for 2 weeks now

Most importantly, notice how there is a divergence between both the RSI and the Index. This could be a sign of the trend slowing down with the USD but we don’t know for sure until we see an actual decline. For now, the rise is getting slower or is limited, in my opinion.

2) Let’s look at another perspective;

Again on the USD index, this time with Fib drawings, notice how we are finding support at just about the 38.2 level mark. This is the 61.8% mark since the highs of ‘09 March. This is a key area which we watch for reversals, with fibs in mind. Therefore, if retracements are to go beyond the 78 level, we could well possibly see a decline. This is a wait and see period with both studies as given here and above.

USD Index now in the 38.2% retracement zone

USD Index price action is well above the 50,100 and 200 SMAs.

3) On the fundamental side of course, for this week, we don’t have any strong economic/sentiments reviews. There is US Trade balance. Retail Sales and Unemployment claims expected this week. These are strong news releases, but do/will not change the overall outlook of the dollar strength as of now.

I therefore expect a week that will continue in the same direction as last(though with slower strength) or a week with some slight correction after the heavy falls during the last few weeks, especially last. Overall, i expect no major shifts in strength this week. With good volatility as always in FX, we can expect good trades for short term directionless trading setups.

Happy Trading,
Seeni

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