Hello from the other side of a three-day-holiday in New York fellas! While I don’t recommend trading on the first day of a trading week, we have many hot market moving economic events coming up so a diva gotta prepare.
First off: Don’t get fooled by market sentiment on the first trading day of the week. They do not predict the rest of the week’s movements.
Now that I got that off my chest, let’s take a look at the fundamentals, technicals, and the Invest Diva Diamond analysis for a bunch of currency pairs as they dance on the forex dance floor.
1- British Pound Volatility Ahead
Poor Mr. British Pound (GBP) has been on a free fall since December 2015 versus most major currencies, especially the Japanese Yen and the US dollar.
On Tuesday, Bank of England (BOE) governor Mr. Carney slammed any immediate hopes on an interest rate hike, as “the world is weaker and U.K. growth has slowed”. Add the oil-price collapse to the boiling pot and you’d get the recipe for continued low inflation, which together, would keep Mr. British Pound on his toes.
Low inflation is the only thing helping the Brits with their shopping, however if consumer prices rise faster than worker’s wages, they’ll be f#%*ed.
The UK’s Employment numbers are due on Wednesday January 20th at 9:30 AM GMT, and investors are concerned that wages won’t improve in pace with inflation.
Analysts are also worried about UK’s retail sales report scheduled to be out on Friday January 22nd at 9:30 AM GMT. A recent survey by the British Retail Consortium showed that December was a weak month for retailers despite the rise of real incomes and consumer sentiment. Even holiday shopping seems not have helped the retailers. Not only that, but we might also see a bit of adjustment from November’s significantly better-than-expected figures.
With that, any further negative fundamental signals from the UK could send Mr. British Pound to the bottom of the forex dance floor. Except for one thing:
2- GBP/USD is approaching the strongest support level, EVER
While the fundamentals are currently gloomy for Mr.British Pound, there is one hope still left for him: Ms. USA. Checking in with the GBP/USD monthly forex chart, we notice that the pair has never broken below the current 1.42- 1.40 level; it has tested it in the past in 2010, 2008 and 2001, but never broken below it.
So there is still a chance that the pair would hold around this area for a bit regardless of negative fundamental news.
On the flip side, the GBP/JPY pair is rapidly approaching the 38% Fibonacci retracement level thanks to Japanese Yen strength and Chinese headaches.
GBP Investing Strategy
When looking at Mr.British Pound versus other currencies, he might loose his leading capabilities soon due to the GBP/USD support level and let the other currencies lead him on the forex dance floor. As a result, the fundamentals may not have as much negative impact on him in the next couple of months, and set him up for weird reactions.
If GBP/USD fails to break below 1.42 – 1.40 once this week’s volatility is over, you could expect a correction coming up across major GBP crosses. Alternatively, a break below this support zone could open doors for historic drops to God knows where. You have been warned!
3- ECB’s Draghi to Speak | EUR/USD ready to shake
Mr. Euro (EUR) has been waiting for a big bang for a long time. In his dance room versus Ms. USA (EUR/USD) his range is getting smaller and smaller, now dancing within a tiny symmetrical triangle and inside the Ichimoku cloud. Invest Diva students would know that this could precisely be the calm before the storm.
And the upcoming Europe Central Bank (ECB) press conference on Thursday at 1:30 PM GMT could give the pair just the bang it needs. ECB’s president Mario Draghi, also known as super Mario, will likely say the bank is ready to act towards easing but will be mindful of pre-committing to more action after December’s policy measures fell short of heightened market expectations.
We may not see more easing from the bank any time soon, as many analysts put the time-frame somewhere between March to June 2016, triggered by lower oil prices and lower inflation in the Euro zone. And with Iran adding to the global oil supply and the shrinking demand, there is still room for oil to fall.
EUR/USD Investing Strategy
As you may know, my long-term outlook has been bearish for EUR/USD, especially if it manages to break below the 1.05 level. For now, we will be looking at the direction of the break out of the triangle for shorter term trades.
Here are the recommended supports and resistance levels* for EUR/USD forex trading strategies:
| Support Levels | Turning Point | Resistance Levels |
|---|---|---|
| 1.05 | 1.07 | 1.11 |
| 1.00 | 1.10 | 1.15 |
In any case, set your stop loss and profit targets a little loose from the below levels, because the naughty currency pairs sometimes change their mind right before a psychological level just to piss the forex trading crowd off. This technique helps you avoid getting kicked out of your trading position prematurely.
*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.
