VantagePoint Forex Weekly Outlook July 5th, 2016
In the latest Forex Weekly Outlook, we are finally far enough away from the Brexit to start to see momentum level out. We saw a lot of action coming off of the historic vote but it’s only now that we can see whether those moves were exceptions or momentum shifting. How many markets saw follow through from their Brexit moves (hint: it was just a few)?
Forex and the U.S. Dollar
The U.S. Dollar Index has not seen any gains since the Brexit vote last week. We are coming off a mildly bullish close of 95.714 which is just above our key VantagePoint level for the week of 95.174. The problem the IDX faces is that as the risk returns to the market, the dollar moves lower. Our short term indicators and the neural index haven’t missed a beat as all four indicators have turned lower. The predicted RSI also moved below 60.0, a sign that strength is dissipating, but the predicted MACD is still suggesting there could be some signs of hope for continued strength.
The SPY continues to face massive resistance just north of 2100 this week around 2130. Only a sustained break above this level will take pressure off the downside movement. We saw an aggressively bearish move immediately following the Brexit results that was immediately negated by bullish trends every day since. Until we can start to see some normalcy return to the SPY, it’s best to take a guarded approach to trading this market.
The DAX mirrors the SPY’s bullish movements which should be a negative sign for the Euro taking into account the traditional intermarket relationships. As both markets continue to remain bullish, keep in mind that something has to give. Don’t get caught on the wrong side of one or both of these markets.
Oil is a major player for many of the major pairs. A mildly bullish close last week of 48.99, just above the key VantagePoint level of 48.69, isn’t receiving much support from our indicators. The neural index suggests short-term strength but our three predictive indicators are suggesting sideways movement. Oil is traditionally strong through the end of July. Keep that in mind as you plan your positions for the next few weeks.
Gold saw a big bull move after the Brexit, but removing that from the board, we see little gains in gold. Longs are favored as the week starts but a solid nonfarm payroll number will knock out gold’s momentum. We could see short positions become favorable by week’s end based on that report on Wednesday.
Intermarket relationships will remain key to the equities and will play a big role in the outcomes of the Forex pairs. Remember that the intermarket relationships will traditionally overpower any indicators you may be working with.
Forex Weekly Outlook for Major Pairs
Forex pairs are highly influenced but the global equities and understanding the relationships will almost certainly add to your success as a Forex trader.
Euro/U.S. Dollar (EUR/USD) is seeing trends that are bucking its traditional relationship with the DAX. While the Brexit caused an aggressively bearish candle, there’s been no follow through. Removing the Brexit bar, this pair is sitting at fair value, recovering its losses. Pushes to the upside or unlikely until the latter half of the week at best.
U.S. Dollar/Swiss Franc (USD/CHF) looks very similar to the IDX chart this week. Trend line resistance is around 0.9850. This pair seems to have stalled around the key VantagePoint predicted 18-day EMA level of 0.9713. If we break through that level, we can anticipate further downward movement. The predicted MACD is a concern for those looking to place short positions. The middle of the week could be ripe for long positions if we hold above the key level and the Euro starts to move lower. But the medium-term predicted difference moving above the long-term predicted difference doesn’t help. It’s acting as a leading indicator suggesting medium-term trends are weakening against the long-term that basically says the current momentum is losing steam.
British Pound/U.S. Dollar (GBP/USD) is still extremely tricky to figure out. If you can, we still recommend avoiding. For those that are interested, this was one of the few pairs that followed through with the Brexit movement. Be cautious for a false downside break. Markets can do well with a weak currency, and the FTSE is seeing nice bullish moves. The GBP closed last week at 1.3262 and an argument could be made that the levels are stabilizing in that area. Breaking below 1.3000 could make short positions highly desirable.
U.S. Dollar/Japanese Yen (USD/JPY) has been in a short position since June 3 and action has continued to move lower with some mild stabilization moments. Our key VantagePoint 8-day predicted EMA level of 103.20 would have to be taken out before longs would begin to be a consideration. Our indicators are all suggesting bearish momentum with the only thing that could break that momentum is a good nonfarm payroll number.
U.S. Dollar/Canadian Dollar (USD/CAD) has seen a new swing high that created a new supply trend line around 1.3100. Prices have been falling off that line since. We closed the week at 1.2907, virtually on top of the key VantagePoint level of 1.2904. Oil will be a very key market this week. If oil turns around and USD/CAD can hold at the key VantagePoint level, this pair could gain some bullish momentum.
Australian Dollar/U.S. Dollar (AUD/USD) saw a new lower trend line form post-Brexit and the price has been rising ever since. We also closed above the key VantagePoint level of 0.7431 at 0.7480. Entering a buying position for this pair will probably be a popular position with this data. All of our indicators are in agreement that a bullish trend is picking up steam.
New Zealand Dollar/U.S. Dollar (NZD/USD) is similar to AUD/USD once again but is performing slightly better. Long positions have been wiped out post-Brexit. The common occurrence of the week shows us the previous momentum picked up quickly. If we continue to have risk-off scenarios, we could see this pair sell off. If we break the previous sell high around the 0.7200 level, long positions could be enviable. What we do know, is that price continues to rise as we closed above all of our key VantagePoint levels at 0.7167.
The Forex Weekly Outlook is designed to help traders remain aware of the intermarket correlations of these global market relationships. You can become more profitable if you know how to get ahead of the trends and understand these relationships can potentially expand your portfolio.