The difference between success and failure in Forex/CFD trading most likely depends on which assets you choose to trade each week and in which direction, and not on the methods you might use to determine trade entries and exits.
At the start of the week, it is a good idea to look at the big picture of what is developing in the market as a whole and how those developments are influenced by macro fundamentals, technical factors and market sentiment.
Fundamental analysis and market sentiment
Last week saw renewed risk-off sentiment in the market after US inflation data came in slightly lower than expected at an annualized rate of 3.1%, while the following day the Federal Reserve telegraphed a more accommodative program of rate cuts, which market consensus now expects to begin in March rather than May 2024. This sent the US dollar lower while US stock indexes soared.
Last week there were several other important central bank releases and other important data:
- The US PPI came in at zero, as expected.
- US Retail Sales – significantly stronger than expected, indicating a buoyant US economy.
- Bank of England policy rate and monetary policy summary: Rates remained unchanged as expected, the Bank warned there was "a long way to go" on inflation.
- SNB Policy Rate and Monetary Policy Statement: Rates remained unchanged as expected, Bank warned about inflation.
- UK GDP: worse than expected result, with the economy contracting by 0.3% monthly.
- New Zealand GDP: was significantly worse than expected, showing a monthly contraction of the economy by 0.3%.
- Flash production in the US, UK, Germany and France. Services – data was mixed but better in the US and better overall in the services sector.
- US Jobless Claims: Slightly Better Than Expected.
- US Empire State manufacturing index – significantly worse than expected.
- Change in UK claimant count (unemployment claims): Slightly better than expected.
- Chinese industrial production – worse than expected
The week ahead: November 18 – December 22
Next week will likely see a significantly lower level of volatility in the markets, as there will be fewer very important data releases, although there will be statements from the Bank of Japan and the Reserve Bank of Australia. The key data released this week are, in order of importance:
- Core PCE price index in the United States
- Final GDP of the United States
- US CB Consumer Confidence
- Bank of Japan press conference
- UK CPI (inflation)
- Canadian CPI (inflation)
- Canadian GDP
- Reserve Bank of Australia monetary policy meeting minutes
- Unemployment claims in the United States
- US consumer sentiment revised
- UK retail sales
TECHNICAL ANALYSIS
US Dollar Index
The US dollar index printed a large weekly bearish engulfing candle last week, although it closed somewhat below its low. The weekly close was down from the price 3 and 6 months ago, once again presenting a long-term bearish trend. However, bears should be more cautiously cautious.
On the other hand, bears are supported by lower-than-expected US inflation and more dovish signals from the Fed that rate cuts are coming sooner rather than later.
USD/JPY
The USD/JPY currency pair once again made a strong downward move last week, with the Japanese yen being the strongest among all major currencies during the week. This is the fifth consecutive weekly decline, and last week's move was the strongest of these. The price is now in a 3 month downtrend and is very close to a 6 month downtrend as well, suggesting that trend traders may be starting to think about getting involved here on the short side.
The yen is very strong right now as the Bank of Japan begins to signal that it will be able and willing to abandon its ultra-loose monetary policy during 2024, assuming wages rise as expected. However, these expectations were tempered by further comments from the Japanese monetary establishment. The Bank of Japan's press conference on Monday will be closely watched for any comments regarding when inflationary pressures might be deemed to have risen sufficiently to finally abandon the years-long ultra-convivial monetary policy at the Bank of Japan.
The Yen has many directions and volatility, so it will be interesting for traders next week, especially day traders.
EUR/USD
The EUR/USD currency pair It printed a weakly bullish candlestick over the course of the week, but gave back much of its gains early in the week. The Euro is not yet showing much relative strength, despite renewed weakness in the US Dollar.
What really stands out on the daily price chart is the double top which now appears to have printed very important resistance at $ 1.1008. This is very confluent with the huge round number at $ 1.1000 and is likely defended by large options, so it is definitely a level worth watching.
It may not happen this week, but if we see a strongly bullish daily close above $ 1.1008 that appears to have decisively broken this resistance level, a Long entry could make sense.
Points to NASDAQ 100
The NASDAQ 100 index printed the seventh consecutive bullish candle, rising strongly to reach the highest weekly close in the last 2 years and reaching a new medium-term high. We have a strong bull market for US stocks, and the NASDAQ 100 Index has historically been a great investment during bull markets.
US stocks gained strongly last week as lower-than-expected US inflation data and the Fed's dovish stance led the market to expect rate cuts to begin in March 2024.
Cocoa Futures
Cocoa futures have been in a strong uptrend for over a year, although last week saw a weak bearish retracement. The price chart below applies linear regression analysis to the last 64 weeks and graphically shows what a great opportunity this has been on the Long side.
The weekly candle was bullish again. It was an inside bar.
Now that we have seen a pullback, it may be the best time to enter a new Long trade, despite the price action being above the upper band of the linear regression channel. This strong trend shows no sign of stopping the ever-growing global demand for superfood cocoa.
In recent years, trading long commodities when new 6-month highs are broken has been a very profitable strategy.
Credit by DailyForex.com
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