Will Risk Aversion Continue This Week? September 28th 2015 Forex Analysis
Last week we had heavy risk aversion that continued through the end of the week. I talked about this a lot last week because it matters to forex traders a great deal. When risk aversion is heavy in the market the US Dollar will more often than not be very strong. This was certainly the case last week and should we see further selling off in equities this week we will more than likely see further US Dollar strength. Like always this is a case by case basis and something that needs to be addressed during the day as this changes rapidly.
Another interesting point to start the week is the EUR/GBP. Looking at the daily chart the EUR/GBP is at a major daily high. As long as this level holds and I would favor EUR/USD shorts and GBP/USD longs. Obviously knowing what the dollar is doing will be the final piece of the puzzle that will need to be addressed once the trading day begins and the markets open.
EUR/USD Continues To Consolidate
The EUR/USD has been forming a very large upward triangle type formation that can be seen on the daily or weekly chart. The main reason I point this out is not because of the chart formation itself but rather the simple fact that the price has been compression. If you go back and look at last weeks forex market commentary I talk a lot about the same type of compression that occurred in the US equity market. The reason this is so important is it very often indicates the next large move is soon to come. As of right now I really don’t have a strong bias on the direction of the next break. Looking at the COT data there is no conclusive evidence supporting a break to either side. Like I mentioned last week, I would rather wait for the break of the pattern and the retest of the breakout point. This will give us a high probability indication of the next direction.
As far as today is concerned I will continue to trade in either direction based off of any valid stop run of the pre-selected manipulation points. Additionally it will be key to continue watching the EUR/GBP for directional bias. If the EUR/GBP holds the current daily highs then a short is the better option for the EUR/USD. If however the high begins to break then the EUR/USD long will be the higher probability.
Major Daily Support On GBP/USD
The GBP/USD is at a very interesting point. To the downside the Pound is at heavy daily support. If this level breaks and holds then a retest of the overall lows around 1.4570 becomes very likely. At this point I think keeping directional bias open is the best decision. We have some quality manipulation points on today’s chart and I would be happy to take a trade from any of the listed levels if a stop run validates once the price gets there.
Like with the EUR/USD, it will be important to keep an eye on the EUR/GBP for directional bias. The EUR/GBP is at a very important level and if the highs hold then a GBP/USD long will be the better option. If the EUR/GBP breaks and holds above the daily resistance highs then a GBP/USD short will become the better option.
Forex News For September 28th 2015
US PCE Core y/y 8:30 AM Eastern: This is a news item that really doesn’t have a huge impact on the market but it has moved the market 15+ pips on the spike in the past. Generally it is the Y/Y number that deviates and is the one to watch. This month 1.3 is the expected number.
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