Charts & Trade Setups [Euro-Dollar, Cable, Beast, & U.S. Dollar-Yen]

RemixTrades

It’s time for some charts. In the past month, my posts focused on either fundamental, psychological, or quantitative factors regarding currencies. In today’s post, I’ll be focusing on charts and trade setups.

Note: On all charts, Blue Line = 200 simple moving average (“SMA”), Orange Line = 100 SMA, Green Line = 55 SMA, Purple Line = 21 SMA.

We’ll start with the $GBPUSD. Since talking about fundamentals reasons to short the Pound Sterling in the longer term, the currency has not seen a lot of action. In relation to the U.S. Dollar, the Pound has only drifted slightly to the downside.

At the time of writing, given the performance of global equities  and the recent economic data, my bearish bias on Cable ($GBPUSD) continues to stand. I’m still looking to short from the 1.5580-1.5600 level, or even the 1.5700, all the way into the 200 daily SMA. If the pair closes below the 200 SMA, I’m looking for the 1.5321 level, followed by the 1.5112 level.

Click on images to see Full-sized CHART

The S&P 500 ($SPX) is currently testing the 1,040 level. A break below this major support would easily see Cable at the 1.5300 level as investors seek the safety of the U.S. Dollar. It’s going to take a substantial rally in the global markets to see Cable break above the 1.5700 level and regain the 1.5900 zone. While it can happen, I see it as the lower probability outcome in the week.

However, the highly volatile and impactful U.S. Non-farm payrolls number comes out this Friday, which means that anything could happen.

The $GBPJPY cross is also looking bearish. The pair recently tested its broken daily trend line and failed to hold above it. It’s now trying to close below the 130.80 once again and re-test its lows. The bounce of the trend line followed by a close below 130.80 paints a very bearish picture for the pair. It’s now more severe because the hope of an intervention by the Bank of Japan is disappearing. When the pair closed below 130.80 on August 24th, the Yen was gaining across the board and BoJ intervention rumors surfaced across trading floors.

It now seems that the BoJ will not be intervening in the near-future. As a result of the aforementioned factors, I would be looking for a re-test of the 2010 low of 126.76. The only catalysts that could possibly reverse the pair are a BoJ intervention and/or great manufacturing + jobs number from the US.

The Euro-U.S. Dollar ($EURUSD) chart seems to be neutral. Until the pair break above the 1.2783 or below the 1.2610 levels, I see the cross as range bound and would be looking to sell and buy the top and bottom of the range, respectively. At the 1.32-1.33 level, I thought Euromesia was at play. At 1.2800, the pair was near its natural level. Now, I need to see a breakout in order to form a momentum bias.

The last cross to analyze is the $USDJPY. Last week, I talked about how we would likely see more downside in the cross as yields continued to decline and the threat of central bank intervention faded. As the chart below shows, the down trend is intact and the pair needs to close above the 21 SMA before thinking about a reversal. I don’t have any specific targets on the downside, but I would be looking for 83.00, followed by the big round psychological level of 80.00

Overall, the idea would be to short any rallies until the pair closes above the 21 SMA and/or good U.S. data starts to be consistently better, starting with the jobs number this Friday.

I will also note that MACD and Stochastic bullish divergences appear to be emerging on the daily chart.

That’s all for this week’s chartology session. And remember to look for inter-market and possible data confirmation when trading based on chart setups.

Lastly, what’s your favorite setup right now?


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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