It isn’t difficult to find a range trade in the currency markets today; but that is more due to the state of liquidity rather than a natural settling in activity. For this reason, it is important to be very cautious with trading congestion patterns come next week. EURUSD’s double bottom at 1.31 looks to be very clear and is well supported by technicals; but short-term momentum and uneven market depth could cause problems.
[B]Why Would EURUSD Hold a Range?[/B]
[B][/B]
· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 1.3740 (SMA, Fib)[/B]
[B]-Range Bottom: 1.3100 (Fib, Pivot)[/B]
· Scheduled event risk is exceedingly light on both sides of the market over the coming week. After a quiet start to the new trading period (Monday is a market holiday for Europe), the calendar’s for both the euro and dollar will remain relatively staid. However, consumption, production and sentiment data from the US docket could offer some volatility. Aside from these fundamental markers, traders will focus closely on general sentiment for guidance.
[B][/B]
· The EURUSD’s technical setup brings with it a sense of anxiety. There is notable support developed in the even 1.31 level – refined recently by a 50 percent Fib retracement of the March rally and as a pivot. However, despite the obvious interest in the aforementioned floor, we cannot ignore the bearish trend in swing highs recently.
[B][I]Suggested Strategy[/I][/B]
[B][/B]
· [B][U]Long[/U][/B][B]: Half-size (or smaller) entry orders will be set at 1.3145, well above the established lows.[/B]
· [B][U]Stop[/U][/B][B]: An initial stop of 1.3025 is widen enough to cover a double bottom and modest volatility. To secure profit, move the stop on the second lot to breakeven when the first target hits.[/B]
· [B][U]Target[/U][/B][B]: The first objective equals risk (120) at 1.3265 and the second[/B][B] target will be 1.3385. [/B]
[B]Trading Tip[/B] – It isn’t difficult to find a range trade in the currency markets today; but that is more due to the state of liquidity rather than a natural settling in activity. For this reason, it is important to be very cautious with trading congestion patterns come next week. EURUSD’s double bottom at 1.31 looks to be very clear and is well supported by technicals; but short-term momentum and uneven market depth could cause problems. Looking ahead to the open on Monday, the European markets will be closed for the extended holiday; while Asian and US traders will dive back into the fray. This could leverage volatility and concentrate speculative interests to drive breakouts. Considering this risk, our strategy must be defined by conditionals. Before considering entry and exit conditions, positioning is set low due to the potential for an unfavorable break. Our exposure will be at most half our normal size. The suggested entry is not aggressive; and the stop is set intentionally wide. This leaves our targets at a less than favorable distance; but that is nonetheless necessary for a reasonable risk reward profile. Timing is another important factor. While there is little event risk on the docket, we don’t want to be exposed to breakout potential for too long. Therefore, we will cancel open orders by Tuesday or should spot hit 1.33 first. What’s more, we will take profit on existing positions should our strategy not play out by Thursday.
[B]Event Risk for Euro Zone and US[/B]
[B]Euro Zone[/B] – Event risk is very light for the euro next week – at least in terms of scheduled economic releases. Looking at the economic docket, the only notable second tier indicators due to cross the wires are lagging ones. Picking up late in the week on Thursday, the Euro Zone consumer inflation data for March and industrial production numbers for February will provide guidance for ECB expectations and forecasts for the first quarter pace of growth. However, interest in the central banks activities are fading as the region’s benchmark lending rate approaches zero. Benchmarking economic activity is far more influential through the medium-term at this point as investors are now looking for signs that the Euro Zone can recover from its recession quickly and without major damage.
[B]US[/B] – The US economic calendar holds more economic releases than many of its major counterparts; but the data’s influence on the dollar will likely be the same as its fundamentally-quiet contemporaries. Spread out pretty evenly over the week, the economic fodder will cover consumption trends, consumer sentiment, construction activity, factory activity and various grades of inflation. The market is already prepared for an ongoing recession; so the reaction to disappointing data will be muted. Alternatively, another round of positive readings could start to encourage speculation the world’s largest economy is finally emerging from the worst of its ongoing slump thanks to the cumulative efforts of the US government. It won’t likely be this causal or straightforward though. The Fed has expressed concern recently that a ‘feedback’ loop could tip the economy into a deeper recession should the cycle of pessimism not be broken.
[I]
[B]Data for April 13 – April 20[/B]
[B][/B]
[B]Data for April 13 – April 20[/B]
[B]Date (GMT)[/B]
[B]Euro Zone Economic Data[/B]
[B][/B]
[B]Date (GMT)[/B]
[B]US Economic Data[/B]
Apr 16
Euro Zone CPI (MAR)
[B][/B]
Apr 14
Advanced Retail Sales (MAR)
Apr 16
Euro Zone Industrial Production (FEB)
[B][/B]
Apr 15
Industrial Production (MAR)
Apr 17
Euro Zone Trade Balance (FEB)
[B][/B]
Apr 16
Housing Starts (MAR)
[B][/B]
Apr 17
U. of Michigan Confidence (APR P)
Questions? Comments? You can send them to John at <[email protected]>.[/I]