· Last week in total was an average good week for me – but a bit irritating Friday evening as I missed out on a firm bid @ 1.4325 on the drop after Bernanke’s Jackson Hole speech. The low was 1.4329. It would have been a perfect long entry given what happened later in NY session. But life as a trader is like that. You miss out on some – but there always new opportunities coming afterwards. I thought NY went a bit too bullish towards the end and shortened a bit @ 1.4455. I had no intention of staying short over the weekend and closed the position out a couple of hours later with a few pips loss.
· Overall – I get more and more confident about the underlying strength for the EURUSD. We had a couple of negative macros as well as sentiment reports from EU last week. It only caused some minor dips and it has been a sort of trend lately that the dips for EURUSD become shorter and more short-lived. I addressed this in a paper last week, pointing out 4 reasons why the EURO is so strong against USD.
· There are several items on the economic calendar to look out for next week. Those I will pay special attention are:
o German CPI on Monday. This is a CPI I normally pay great intention to as it often can be seen as an indicator to whether further rate increases are in line for EURO. The higher German inflation figures are the more pressure there is on ECB to follow up by raising short term rates. This time I put less emphasis on the figure as I have seen EU and German inflation figures coming down slightly of late and I see it as rather unlikely that ECB will do further rate hikes this year.
o US Personal Income, Spending and Consumption Monday @ 12:30 GMT. While we know the revised US GDP from last week, there were some interesting mix of components on that figure which needs studying a bit further. As such I will analyse the three components on Monday, looking for signs that there might be some improvements on the domestic scenario for US. An economic recovery for US will be domestic based and these are three components to focus on.
o Some EU sentiment indices are out Tuesday morning @ 09:00GMT. I doubt they will have any impact on EURUSD direction – but there might be some volatility effects in the range of +/- 25 pips.
o Tuesday @ 14:00 GMT we get US Consumer Confidence. This will be an important sentiment indicator for the week and I will make a preparation note for this event. Later that day we also get the minutes from the last FOMC meeting and while Bernanke said it all at the end of last week, I likely will look for any dissidents among FOMC members.
o EU employment data are out Wednesday morning @ 09:00 GMT. While no big changes are expected I pay even more attention to the German figures out @ 07:55. Again – I don’t think this is a trend indicator for EURUSD but we might see +-30 pips volatility from the released data.
o Wednesday @ 13:45GMT Chicago PMI and 14:00GMT US Factory Orders are to pay notice to – but consensus seems to indicate no great interest for these figures.
o Chinese PMI is out Thursday morning and while I like to see the figures, I am often doubtful to their accuracy.
o Swiss GDP is out Thursday @ 05:45 and while not directly linked to EURUSD, it might be one figure to watch in context of CHF and the impact the strong CHF has had on the Swiss economy last quarter. I will make a paper on CHF at the start of next week and you can see this as a preparation note for this event.
o Later that morning we get German GDP @ 06:00 and this figure is interesting for me. In addition to some volatility, the figure might give me some input to where I see EURUSD is heading medium term. A preparation note will be made for this event.
o Some employment data of for US : 12:30 GMT Thursday and @ 14:00 GMT ISM manufacturing. Again data I will scrutinize for any signs to a US recovery.
o And then we finish off the week with one of the classic volatility figures as well as possible trend indicators: US non-farm payroll – NFP – Friday @ 14:30 GMT. It is one of the classic indicators to focus on, great for volatility play, which sometimes can be +/- 100 pips and often one to set a trend or extension of an existing trend. I’ll make preparation note for this event. The unemployment rate comes out at the same time.
An interesting week with a lot of opportunities for volatility play and short to medium term trading strategies. Events confirms the arguments behind the strategies – or – they open up for amendments to trading strategies. That’s why we monitor and analyse the events closely.
With the overall strength for EURUSD in tact and the move late in NY on Friday, the strategy on my part is still the same. To buy on dips – for moves higher this week than the high of last week. I think 1.4675 could be tested in a few sessions. Its a solid resistance point – but should 1.4700 break, then we might also test 1.4925 in a couple of weeks.
Where entry points will be and where stops should be put in place, I will get more detailed about when the week progress.
In any circumstances and with the financial turmoil that we now see in most markets, keep positions to small entries – enabling you to keep stops wide enough for volatility that reflects nervousness.
Good Luck to all of you.
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