The difference between success and failure in Forex trading is very likely to depend upon which currency pairs you choose to trade each week, and not on the exact trading methods you might use to determine trade entries and exits. Each week I am going to analyze fundamentals, sentiment and technical positions in order to determine which currency pairs are most likely to produce the easiest and most profitable trading opportunities over the next week. In some cases it will be trading the trend. In other cases it will be trading support and resistance levels during more ranging markets.
Big Picture 3rd September 2017
Last week, I saw the best possible trade for the coming week as long of the Euro, and short of the U.S. Dollar. The result overall was negative: the EUR/USD currency pair fell by 0.49%.
There have been two major events over the past week: some key U.S. economic data, and North Korea’s seemingly successful test of a nuclear hydrogen bomb over the weekend.
The news agenda this week will be dominated by the fallout (no pun intended) from the North Korean weapons test, and the European Central Bank’s scheduled monthly bid rate release and press conference. There is little U.S. data due.
Following the current picture, I see the highest probability trade this week as long of Gold, and short of the U.S. Dollar.
Fundamental Analysis & Market Sentiment
The major sentiment dominating the market, at least at the start of this week, will be concern over the North Korean nuclear test, which arrives at a time of already increasing tensions on the Korean peninsula. War is not seen as a realistic near-term probability by most analysts, yet it seems increasingly probable that North Korea is arriving towards an ability to strike distant targets with powerful nuclear warheads. This will be a major challenge to the U.S. administration, which has yet to react as at the time of writing.
Sentiment will move in favor of safe-haven assets, perhaps strongly so, and if the U.S. issues a bellicose response, sentiment will become more nervous. Safe haven, risk-on sentiment can be expected to be bad for stocks, and good for precious metals, the Swiss Franc, and possibly the Japanese Yen, although I am nervous of the Yen continuing to effectively hold such a role due to Japan’s close proximity to North Korea. I prefer to focus on precious metals. “Risk-on” sentiment is also poor for stocks.
Turning to the U.S. data, while the GDP number of 3% was ahead of expectations, the Non-Farm Payrolls data was disappointing. Stocks remain unimpressed, and the U.S. Dollar is largely unchanged, so I do not see U.S. data as having a great influence upon the market this week.
Technical Analysis
U.S. Dollar Index
This pair printed a large doji candlestick, with a low which exceeded the 1-year low price. Although the candlestick is not a classic doji, the fact that the low was briefly touched and rejected does signify indecision and the possible beginning of a more significant upwards movement. However, there is a clear long-term bearish trend and the price has carved out new resistance above, while closely following a dominant bearish trend line. The resistance level at 12012 has been rejected, holding almost to the pip.
Gold
Last week this pair printed a strongly bullish candlestick closing near its high, after breaking out past a key resistance level at $1295.90, which had held over several months and already produced a double top. I highlighted this last week, and forecasted that a bullish breakout was more likely to happen that a bearish reversal, which was correct. The price has already made a new 10-month high, and may even gap up above the next resistance level at $1337.10 when the market opens this week.
Conclusion
Bullish on Gold; bearish on the U.S. Dollar.