The USD ended last Friday’s session with a weaker tone as Forex traders perceived the US administration taking a softer position on Chinese trade tariffs in front of the APEC summit in PNG.
That assessment was proven very wrong as comments from both US and Chinese officials underscored the deep divisions on trade as well as military influence in the Southern Asian region.
In fact, the political chasm has become so wide between the two nations that the regional leaders were unable to agree on a final communique for the first time in the history of the APEC summit.
The sudden flare-up in trade tensions combined with more uncertainty surrounding this week’s Brexit meetings sets up the potential for a repeat October’s high volatility trade across global asset markets. It’s our view that the general “risk off” theme seen throughout most of October could return in the later part of November.
Some of the key data points for the week include the RBA minutes from their November 6th meeting, US Durable Goods orders on Wednesday and Euro Zone PMI data on Friday.
It’s worth noting that the US markets will be closed on Thursday in observance of the Thanksgiving holiday. This means that US markets will have a half-day session on Wednesday and inter-bank dealing desks will be very thin on Friday.
Historically, these thinner sessions have seen the G-7 currency pairs trade in very wide ranges during both Thursday and Friday’s sessions. With the potential for headline risk driving the Forex markets, we will have a look at some of the technical levels which could come into play this week.
The GBP/USD traded in a 400 point range between 1.2700 and 1.3100 last week. At 1.2850, the technical tone looks weak with the RSI and stochastics pointing lower. The low for the year was posted in August at 1.2660, we see this as a likely near-term target … unless a Brexit deal gets passed.
Our short GBP/USD position from 1.3055 was stopped out at 1.2920 with a nice profit. We suggest short-term traders can look to sell GBP/USD at 1.2880 with an initial target of 1.2610 and 1.2975 Stop.
The EUR/USD showed some bullish divergence on the daily RSI as it held the low 1.1200 last week. The pair finished the week above the 1.1400 handle, which prompted some commentators to call for a significant low being in place. And while the internal momentum indicators show scope for a move up into the 1.1475 range, we aren’t convinced the Eur/USD has changed its downward trend. At this point, only a break of the 1.1520 level would change the longer-term downtrend.
We are still holding short from 1.1560 with an initial target of 1.1215 and a 1.1485 stop.
The USD/JPY fell sharply into the weekend breaking the key 113.60 support line. The next key level is at 112.00. As the reserve currency of Asian, we expect to see more JPY strength if equity markets trade lower again this week. We are currently flat the USD/JPY and suggest selling the pair at 113.25 with an initial target of 110.20 and a 114.60 stop.
The AUD/USD reached a 3-month high last Friday and has traded above its 30-day moving average everyday this month. The daily stochastics are now close to 70.00 and the momentum looks stretched. The .7260 to .7280 area looks to be an inflection point. A close below that range would signal a significant high is in place.
Our trade suggestion to add to short positions at .7270 was filled, which lifts our average to .7255. We suggest holding short from .7255 with an initial target of .6925 and a .7425 stop.
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