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Next week brings rate decisions from two of the world’ largest economies, and while little change is expected to rates, the details surrounding each of these meetings can help to drive volatility in a number of related markets as we move deeper into this year. On Thursday morning, we hear from the European Central Bank and later that night/Friday morning, we hear from the Bank of Japan.
Below we look at three setups of interest in the FX market as we move towards next week. It’s important to note that the setups below are designed for next week, as a weekend gap through support or resistance can vastly alter the state of each setup.
Bullish USD/JPY: USD-Strength Potential as ECB, BoJ Take the Spotlight
Both the European Central Bank and the Bank of Japan have shown little willingness to discuss the prospect of stimulus exit. Despite the fact that economies in both Europe and Japan have shown marked improvement over the past few years, each remains at ‘pedal to the floor’ levels of emergency accommodation; and at no point have we seen an actual strategy or even a discussion around such for when this might actually change. As a matter of fact, the statement could be made that both Central Banks have been rather evasive around the issue.
But as we walk into a week with rate decisions out of both economies, and given the softening backdrop in related data, both Draghi and Kuroda may get some room to operate in order to talk their currencies-lower. Inflation in both Europe and Japan is continuing to soften while inflation in the US continues to rise, and this could create an ideal context for the ECB and BoJ to offer some dovish comments that could bring on weakness in each currency.
In USD/JPY, we have a bullish channel that’s been active for the past two weeks, and this helps to keep the door open for topside setups. Support at the prior swing-high around 107.30 opens the door for topside exposure, allowing for stops to go below the double-bottom from earlier in April at 106.61. Alternatively, if we do not get the check-back to support after next week’s open, bullish breakouts could be sought on topside moves through 107.90, which is the current two-month high in the pair.
USD/JPY Four-Hour Chart: Bullish Continuation Potential
Chart prepared by James Stanley
Bearish NZD/USD on Longer-Term Range Potential
This has been our favored long-USD setup, and we published an Analyst Pick on the pair on Wednesday. Since then, prices have run down to our first target and stops have been adjusted to break-even, but given the veracity of the sell-off seen thus far, the door remains open for more.
NZD/USD has been range-bound since the summer of 2016. This range has already lived through a few different cycles, and for a large portion of 2018 price action has been battering around this longer-term resistance zone.
NZD/USD Weekly Chart
Chart prepared by James Stanley
From Wednesday of this week, an impulsive move has taken over and prices have quickly run down towards April lows. We’ve seen support holding through mid-day on Friday, but sellers don’t yet appear finished. One target from the previous setup remains a bit lower towards the .7000 psychological level, but at this point, taking on short-side exposure would likely need some element of a pullback so that traders can more adequately manage risk. On the below chart, we look at two areas of potential ‘lower high’ resistance that can open the door for additional short-side setups in the pair.
On the hourly chart below, we’re looking at two such zones: An aggressive area that runs from .7239 up to .7248, and another that straddles the .7300 psychological level. Resistance showing at either of these levels after next week’s open keeps the potential for short-side continuation alive.
NZD/USD Hourly Chart
Chart prepared by James Stanley
Bullish GBP/CAD After a Brutal Week in the British Pound
We looked at the topside of GBP/USD over the past two weeks, and that theme held promise in the first portion of this week as the pair flew up to fresh post-Brexit highs. But that strength couldn’t hold, and after UK inflation numbers for the month of March were released on Wednesday, a nasty reversal followed that the British Pound still has yet to recover from.
We discussed why GBP/CAD may be a more attractive alternative for GBP-strength in yesterday’s webinar, and as we walk into next week, the prospect of continued upside remains for GBP/CAD. Prices have been pulling back in the pair over the past month, and this came after a week’s worth of resistance built-in on the 50% retracement of the 2015-2016 major move. This morning’s support showed just ahead of the 38.2% Fibonacci retracement of that same study, and this is the same area that had helped to set support in early-March.
GBP/CAD Daily Chart: Bullish Continuation Potential
Chart prepared by James Stanley
To read more:
Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.
Forex Trading Resources
DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.
If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.
--- Written by James Stanley, Strategist for DailyFX.com
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