Forex Weekly Review

08 October 2016 – Dean Weekend Forex Market Review

What started off as a countdown to the US NFP (Non-Farm Payroll) data release quickly turned into uncovering the drama that unfolded in the GBPUSD early Friday morning. It has been a very long time since the NFP report had to live in the shadow of a bigger development.

The “official” consensus on the GBPUSD debacle is a flash crash. A flash crash can be explained as when an instrument has a deep and volatile crash in a very quick time frame, it is usually a result of algorithm trading and high-frequency traders that use lightning fast computer systems to enter and exit trades, sometimes when we have thin liquidity these systems can trigger trades which quickly snow balls. On Friday morning, the pair lost around 8% (over 1,200 pips) of value in a little over 5 minutes, the inevitable rally gave back about 900 pips – the round trip of this trade was 80 minutes – talk about extreme volatility.  The pair did calm a little in the London and NY session but the big question is where do we go from here? My thoughts are that Brexit discussions are going to create volatility well into 2017, we may find fewer traders prepared to pick the bottom and so I will stay away from this pair for now.

The EURUSD was again like watching grass grow. It continues to trade in a very tight range that seems to be getting tighter every week. At least this week we were able to define the range by spotting the triangle formation, the boundary lines on this triangle are definitely demanding respect. Neither buyers nor sellers are prepared to trade this pair with any conviction and I am only going to trade this pair once it breaks the formation, I am still left pondering however, what is going to be needed to break this range!

The USDJPY spent most of the week on a blaze upwards, we tracked the price all the way to 104.50, this was the high for September and we found immediate resistance again. There is an ancient proverb that states, “the only thing that goes straight up is smoke,” and this is what we experienced in the USDJPY – a week on the front foot only to come back to earth with a bang! It was aided in weak US data but the close in the Daily chart shows a beautiful Bearish Engulfing candlestick pattern formation, could this be a clue to the start of next week.

The USDCAD for me was the most disappointing pair of the week, despite a rollicking oil price and fantastic local data, the CAD could not quite find a foothold. Most will be looking for a nice recovery on Monday but the fact that it could not find momentum despite everything in its favour raises some red flags for me. We closed the day above a very key resistance level (1.3280), the first time we have seen a close at those levels since mid-March, this alone means I will treat this Forex pair with some caution next week.

The AUDUSD and NZDUSD was rather lacklustre this week and spent most of the week trading in its weekly support zones, we will have to see in our weekly prep if those zones have moved much but I suspect that next week, these two will be our main trading pairs. The USDZAR was very robust this week considering the weaker metal prices and continues to trade in the middle of our range.

With the pandemonium in “cable” yesterday I almost forgot to mention the NFP data yesterday – it missed its expectation on the lower end which created some short term USD weakness. The Fed continues to confuse us, Fed Mester was satisfied with the “solid” report, but Fed Fischer for me had the quote of the week calling the NFP a “Goldilocks report – not too hot, not too cold.”  It seems no one wants to put their head on the block, the Fed Funds Futures are pricing in a December hike at over 60% now, Yellen will speak next Friday and perhaps she may give us a further hint – I wouldn’t bet on it though!!

Weekly FX Ranges 10/10/2016 – 14/10/2016

EURUSD

Resistance                                        1.1235 – 1.1267

Support                                             1.1139 – 1.1090

GBPUSD

Resistance                                        1.2733 – 1.2780

Support                                             1.2400 – 1.2350

AUDUSD

Resistance                                        0.7635 – 0.7698

Support                                             0.7570 – 0.7530

NZDUSD

Resistance                                        0.7293 – 0.7338

Support                                             0.7153 – 0.7120

USDCAD

Resistance                                        1.3300 – 1.3350

Support                                             1.3140 – 1.3090

USDJPY

Resistance                                        103.80 – 104.30

Support                                             101.80 – 101.28

USDCHF

Resistance                                        0.9791 – 0.9835

Support                                             0.9738 – 0.9700

USDZAR

Resistance                                        14.0700 – 14.2348

Support                                             13.7920 – 13.5467

Enjoy the weekend!

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