Global FX: The Central Bank Week Ahead
Faraday Research | Mar 13, 2017 10:36AM ET
It’s a central-bank bonanza this week as the Fed, BoJ, BoE and SNB are poised to update the market.
Here’s a technical snapshot of how the major FX pairs are shaping up.
h3 EUR/USD/h3EUR/USD’s ‘short squeeze’ entered its second phase last week as the market pressed up into 1.0700.
We’re seeing a whole host of theories in the press as to why EUR/USD is rallying into a Fed rate hike but to give any of these theories too much attention would be a mistake. EUR/USD is a market that is going through a volatile period of consolidation and therefore much of what we’re witnessing is simply random walk price behavior.
In order to identify profitable trading opportunities we have to focus our attention on the non-random elements of the price chart:
We know that short-term momentum is now bullish and this may present ‘trend continuation’ trade setups on lower time-frames. We also know that a key level of resistance lies at 1.0800 and any move into this zone is likely to be met with significant selling pressure.
Cable spent the back end of last week coiling within a series of tight trading ranges.
In fact Friday’s inside ‘doji day’ was the smallest range recorded in over two weeks.
Given the intensity of Friday’s price compression it comes as no surprise to see Cable showing signs of range expansion today. What is a surprise is the direction of this expansionary move – against the dominant downtrend.
Should prices put in a strong close today this may lay the foundations for a deeper retracement up into 1.2300. However, a close back within Friday’s range would signal trend continuation.
h3 USD/JPY/h3
We highlighted last week that USD/JPY looked set to break its pattern of lower highs. After two very tight sessions on Monday 6th and Tuesday 7th the market burst higher, printing a new swing high in the process.
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Despite Friday’s lacklustre close, USD/JPY’s structure has a distinctly bullish feel to it ahead of key statements from the Fed and BoJ this week.
Look out for lower time-frame buy signals along the projected ascending trend line.
Having bounced from 0.7500 support the Aussie is now faced with multiple layers of resistance.
Previous support at 0.7600 and the descending trend line created by last week’s lower high are the primary areas to watch for sell signals. Along with these structural resistance levels, weakening commodity prices is also likely to cap the Aussies recovery.
Having said that, the Aussie remains the strongest of commodity trio and therefore buying it against the Kiwi or CAD remain attractive options for those who are looking to sidestep central bank risk this week.
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