As widely expected, Merkel was already chancellor even before the electorate went to the ballot. Voter confidence was so strong that the composition of the next government was the topic of discussion. It was therefore no surprise that after her confirmation on Saturday, the Euro gapped higher on Monday. This was in line with expectations and as she begins her fourth tenure, it means success for the Euro. Further Euro support of course comes at the back of strong service sector and manufacturing activities last month. Euro rally should however be limited to recent developments in different major economies especially against the GBP and USD.
As news continue to filter in about possible tax reforms, the USD should be buoyed. Further USD gains is on the pipeline after Friday’s speeches by voting Fed presidents as Kaplan and Williams. Like Yellen, their speeches reflected hawkishness and a path towards one more rate hike this year even though the stock market is charting its way higher every single day. PM Theresa on the other hand disappointed investors with her flat speech. She made no mention of any terms so far negotiated about Brexit and if the UK was ready to pay the more than 50 billion pounds following the divorce. Her lack of comments was another reason to unload the Pound and immediately after her speech, the GBP tanked but this should be temporary as Carney speech comes Friday with MPC inclined to raise rates in the coming months.
This week, I will look to trade USDNOK all advised from technical developments. As observed in the weekly chart, the 200 period moving average is acting as flexible support and most importantly accompanied by oversold stochastics which is turning higher with higher lows. On the other hand, price action has been stellar with a series of higher highs and higher lows and a chance of testing resistance trend line at 7.85. In my opinion, the first level of resistance should be 8.00 which was last year’s low. If that turns out to be so, that should be the ideal first level of take profit.
The most pragmatic thing to do today is to stay put and wait for a break above resistance trend line. As noted, there was a gap up as the markets opened today. Therefore, investors should stay put and wait for a break above resistance trend line accompanied by a strong bullish candlestick as the day close. If these conditions are met, then long positions should be initiated with 8.00 and 8.30 as the 1st and 2nd levels of take profits.
So, trade as follows after the above conditions are met:
Stop Loss: Below 7.75
Take Profit: 8.00 and 8.30
Have a good trading day