Well, last week didn’t turn out to be a good week for USD bulls. Retail sales and headline CPI contracted and in my opinion, this really shut down hopes of a September hike which anyway expectation-according to Fed Fund trackers is below 30%. When this was released, the USD dipped and major currencies like the Euro, Pound, Kiwi and Aussie broke above major resistance lines. This is important development and while we should be wary of false break above resistance, we should shift and focus on this week’s ECB meeting. Many investors expect this to be a psychological preparation as the ECB sets on tapering and probable realignment of doing away with purchasing asset backed securities and focusing mainly on sovereign bonds for a further 6 months. The statement will likely be reworded and things like downside risks will be done away with to reflect the hawkish view of King Mario and other members. Should this be the case, then somehow, inflation projection should be lifted to “self-sustaining” rather than “supported through QE” and this will be a victory lap for the ECB. Germany Bunds might also lift towards the fair value of 1.0%. I will also shift my focus towards the Pound and with inflation and retail sales data on the cards this week, it will either be a breaking or strengthening point for this currency. Talks of possible rate hike in August 3 will increase if prices increase in June.
I will trade the GBPJPY. I will look to buy the Yen and with their meeting on July 20th, much will be on stake especially now that Abenomics seems to be futile and globally central banks are hiking rates. Technically, there is a double tops forming on the weekly chart and overbought stochastics printing sell signals in the 4HR chart. In fact there is a pin bar which has formed in that time frame. In the daily chart, prices are stalling and failing to break above 148 highs which was reached in May. It is overstretched and price momentum is waning.
Since there is a confirming sell signal after that pin bar candlestick, sell and place your stop loss above today’s highs and aim 300 pips just to start things off.
Trade as follows:
Stop Loss: 148
Take Profit: 144.20
Have a good trading day.