Article originally published on innerfx.com and republished here with permission
Let’s see what this week brings and whether there might be some interesting trade setups developing
I’ll start with the EURUSD, which is the most popular currency pair.
As you can see, the pair is still into a relatively narrow range since topping at $1.49. But why? and here is the answer:
Riiight! Notice how the number of contracts decreased massively since the market has topped.
I said it many times before and I say it again: it’s the bad news coming from both Europe and United States that are forcing EURUSD to stay into a range. Since none of the two currencies is supported by sound fundamentals, there’s no where one can go away from other. Investors, speculators, gamblers – call them however you want, but be aware that most of them wouldn’t participate into this race of two sick horses.
To sum up the COT chart: Some people are surprised that the EUR is still holding well against the USD while the Eurozone is in such a mess? Well, if it sounds comfortable, then you should know that the same number of people are surprised that the dollar is still quoted at 1.44 against the EUR and not 2+
If the lowest pip spread is the reason why you’re trading EURUSD, then you should consider trading slightly higher time frame charts in different pairs, to compensate for higher spreads, because there are better opportunities to look at.
From the FX Calendar, some of the most notable events to influence the EURUSD in the coming days are: German Zew on Aug 23, German Ifo on Aug 24, Initial Jobless Claims on Aug 25, Bernanke’s Speech on Aug 26 and last but not least – Trichet’s Speech on Aug 27 (that’s next Saturday).
Next is the GBPUSD
Notice all the nice reversal candles in the chart below.
Friday’s closing candle suggests a reversal, though we’re above recently breached resistance around 1.6450, so I’m extra careful selling at this point, as this could be a corrective decline to retest the new base. Anyway, it’s worth a sho(r)t, maybe on break of support @1.6450 with an initial stop into the recent top side and a target around 1.61
Things look different on the weekly chart but I rather focus on the daily one right now and ignore the weekly until the pair eventually breaks above 1.65
Other than US economic events mentioned earlier, the UK GDP figure on Aug 26 is one of the most important this week
Scanning the charts for trade opportunities while the market is at extreme/record levels is a bit difficult. But since there aren’t many factors likely to change this trend anytime soon, except maybe for the short-lived spikes caused by interventions or rumors, it’s best to sell it on rallies and breaks lower, but not first attempts against fresh lows. The pair used to bounce after testing new lows but breached lower on later attempts. As you can see in the highlighted region below earthquake’s low, it recovered fast then BoJ intervened. Now we’re back into support zone and recent daily bars are suggesting a recovery, so it’s best to wait until we either see some decent upside pullback or until next test @76.
And now for the funny picture – hey, it would have been “sad” if this would happen only once in a while, not every single day, but it’s shockingly funny how people just don’t get it and keep doing the same stupid thing over and over again.
Good luck to all those buying it since it was quoted at 90. It’s always the hope that dies last.