ThirdBrainFx Market Commentary - page 2

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EUR/USD Uptrend is Capped by Significant Resistance at 1.1435

On Monday, at GMT 2:00 p.m., the US National Association of Realtors released the existing home sales figure, which measures the changes in an annualized number of residential buildings, which were sold over the previous month. However, the existing home sales figure does not include newly constructed homes in order to provide an accurate picture of secondary market sales of homes.

Forex traders consider the existing home sales figure to be an important leading indicator of the overall economic health of the United States. This is primarily because sale of an existing home tend to create a wide ranging positive domino effect in the economy. Such as, often new mortgage is taken by the new owners of the house and home renovation projects create jobs.

In May, the existing home sales figure came out at 5.04 million and the forecast for June was set at an improved figure, at 5.27 million. However, the actual figure came out much better than what the market analysts were expecting, at 5.35 million.

Later in the week, on Tuesday, at GMT 7:30 a.m., the Markit will release the German flash manufacturing PMI, which measures the level of a diffusion index by surveying 500 purchasing managers from the Germany’s manufacturing industry.

The large number of survey respondents of the survey makes it one of the most important fundamental indicators of the German manufacturing sector. Since purchasing managers are asked to rate the relative level of business conditions such as employment, production, new orders, price levels, and inventory situation, Forex traders can often measure the overall economic health of Germany by closely studying the flash manufacturing PMI reading.

Last month, the German flash manufacturing PMI reading came out at 51.1 and the forecast for June is currently set a slightly improved reading, at 51.5.

EUR/USD Outlook

Although the EUR/USD has been on a steady downtrend since the end of June 2014, it has been showing signs of a change in the prevailing trend since March 2015. In fact, after reaching as low as 1.0462 on March 15, the EUR/USD price has moved up considerably and formed two uptrend lines in the process.

The EUR/USD upward movement has been limited by the strong resistance zone around 1.1435. Last week, the EUR/USD price was once again rejected around this resistance zone.

As the existing home sales in the United States increased significantly over the past month, it indicates a strong economic climate in the country. In contrast, the forecast for the German flash manufacturing PMI is set at an insignificant increase. Hence, the fundamental outlook for the EUR/USD this week would be bearish.

However, if the EUR/USD price penetrates above 1.1460 and closes above this level on the daily timeframe, it would certainly signal additional bullishness. In that case, it may move towards the 161.8% Fibonacci extension level over the next  few weeks.

TRADING ADVICE

Long Trade Setup:

Money Management Advice

Position Size Suggestion based on 2% of Equity using the Percentage Risk Model (PRM)

For Account Size: US$ 1,000, position size should be 0.15 lots (mini)

For Account Size: US$ 5,000, position size should be 0.75 lots (mini)

For Account Size: US$ 10,000, position size should be 1.5 lots (mini)

Orders

Pending Buy Stop Entry: 1.1470

Stop Loss: 1.1195

Take Profit: 1.1845

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GBP/AUD Appears Bullish Amid Expectation of Improving Current Balance

On Tuesday, at GMT 8:30 a.m., the UK’s Office for National Statistics will release the current account figure, which measures the difference of value between net import and export of goods, services, income flows, and unilateral transfers over the past quarter.

Although the trade balance figure represents the difference between import and export, the current account figure provides a clearer picture regarding the currency demands as it includes other data such as unilateral transfers. Hence, Forex traders consider the current account figure to be a more important indicator of the UK’s economy.

In the first quarter of 2015, the UK’s current account balance came out at -25.3 billion and the forecast for the second quarter of 2015 is currently set at a slightly improved figure, at -23.7 billion.

Later on Wednesday, at GMT 1:30 a.m., the Australian Bureau of Statistics will release the month-over-month building approvals figure, which measures the changes in the number of new building approvals issued over the past month.

As it requires a building approval in order to start construction of a new building, the building approvals figure acts as a leading indicator of future construction activity in the Australian economy. Hence, Forex traders pay close attention to the building approval figure.

On June 1, the Australian building approval figure decreased by 4.4%. However, over the last one month it seems to have rebounded and the forecast for the building approvals in June is currently set at an increase of 1.1%.

GBP/AUD Outlook

After breaking above the psychologically important resistance zone and a Big Round Number (BRN) around 2.000, the GBP/AUD continued its bullish trend over the last two weeks. Last Friday, the pair penetrated above the last up fractal and retraced to 61.8% Fibonacci level of the last downward swing towards the intermediate uptrend line.

Given that the UK’s current account balance is expected to improve over the second quarter of 2015, it would likely create additional bullish momentum in the foreign exchange market.

Hence, it would be recommended that Forex traders consider taking a long position at the market price as long as the GBP/AUD price remains below 2.0567.

TRADING ADVICE

Long Trade Setup:

Money Management Advice

Position Size Suggestion based on 2% of Equity using the Percentage Risk Model (PRM)

For Account Size: US$ 1,000, position size should be 0.26 lots (mini)

For Account Size: US$ 5,000, position size should be 1.3 lots (mini)

For Account Size: US$ 10,000, position size should be 2.6 lots (mini)

Orders

Pending Buy Stop Entry: 2.0567

Stop Loss: 2.0369

Take Profit: 2.0765

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Please note there have been an error in the money management advice in the last GBP/AUD trade recommendation for this week. The actual calculations would be the following:

[quote]Position Size Suggestion based on 2% of Equity using the Percentage Risk Model (PRM)

For Account Size: US$ 1,000, position size should be 0.13 lots (mini)

For Account Size: US$ 5,000, position size should be 0.65 lots (mini)

For Account Size: US$ 10,000, position size should be 1.3 lots (mini)

[/quote]

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NZD/USD Downtrend May Continue amid Forecast of a Declining Trade Balance

Today, at GMT 10:00 p.m., the New Zealand Institute of Economic Research (NZIER) will release its business confidence index, which measures the level of a diffusion index by surveying 2,500 businesses, including manufacturers, builders, wholesalers, retailers, and various other service providers in the country.

Forex traders consider the NZIER business confidence index to be an important leading indicator of the New Zealand’s economy as businesses are the first to react to the changing economic conditions and a change in their collective perspective regarding the economy can signal future economic activity in the country.

During the last reporting period, in April, the NZIER business confidence index reading came out at 23 and any figure above 23 would indicate a bullish New Zealand dollar over the next few months.

Later on Tuesday, at GMT 12:30 p.m., the US Bureau of Economic Analysis will release the national trade balance figure, which measures the changes in the difference in value between net import and export of goods and services over the past month.

Since the export demand from New Zealand is directly correlated with the demand for the New Zealand Dollar, an improving trend balance signals bullish NZD in the global foreign exchange market. Therefore, Forex market participants consider the trade balance to be a leading fundamental indicator of the New Zealand Dollar’s strengths.

Last month, in June, the New Zealand trade balance figure came out at -40.9 billion, and the forecast for July is currently set at a slightly lower figure, at -42.8 billion.

NZD/USD Outlook

Since forming a Double Bar High Lower Close (DBHLC) pattern on April 29, the NZD/USD has been on a steady downtrend. As the uptrend line was broken, the pair climbed do from around 0.7500 to as low as around 0.6600 over the last two months.

As the New Zealand’s trade balance figure is expected to go further down this month, the fundamental outlook for the NZD/USD price would be bearish over the next few days.  Hence, it would be recommended that Forex traders consider placing a short order once the NZD/USD price penetrates below last week’s low, at 0.6645.

TRADING ADVICE

Short Trade Setup:

Money Management Advice

Position Size Suggestion based on 2% of Equity using the Percentage Risk Model (PRM)

For Account Size: US$ 1,000, position size should be 0.2 lots (mini)

For Account Size: US$ 5,000, position size should be 1.0 lots (mini)

For Account Size: US$ 10,000, position size should be 2.0 lots (mini)

Orders

Pending Sell Stop Entry: 0.66400

Stop Loss: 0.67400

Take Profit: 0.6505

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AUD/CHF Forms DBHLC Patterns and Appears Bearish

Tomorrow, at GMT 1:30 a.m., the National Australia Bank Limited (NAB) will release their business confidence index, better known as the NAB Index. It measures the level of a diffusion index, which is created by surveying 350 Australian businesses that asks the respondents to rate the relative level of the current Australian business conditions.

 

Forex traders and market analysts consider the NAB business confidence index to be an important leading indicator of the Australian economy. This is primarily because the businesses tend to react to changing market conditions very quickly. Since the NAB surveys businesses, their index reading reflects any optimism or pessimism of a range of businesses in Australia.

For the last two months, in May and June, the NAB business confidence index reading came out at 3 and 7, respectively. Although there is no market forecast for July at the momentum, if the trend continues, it would likely to come around or above 7.

Later in the morning, at GMT 7:15, the Swiss Federal Statistical Office will release the monthly producer price index (PPI), which measures the changes in the price of products and raw material to produce finished goods by Swiss manufacturers over the previous month.

The PPI acts as a measure of future consumer inflation in the country because manufacturers pay more to buy raw material, that extra cost is passed to the consumers in the end. Hence, Forex traders consider the Swiss PPI to be a leading indicator of consumer inflation in the country.

Last month, the Swiss PPI declined by 0.8% and the forecast for July is currently set at a modest increase of 0.2%.

AUD/CHF Outlook

Since the massive price decline amid the removal of EUR/CHF peg on January 15, the AUD/CHF has remained mostly bearish over the last two quarters and formed a downtrend line in the process. 

Since the end of May, the bearish momentum has declined and the AUD/CHF price mostly remained within a tight range between the 0.7100 and 0.7290 levels.

However, on July 3, the price finally closed below the 0.7100 level and the retracement towards this level was rejected by forming a bearish pin bar on July 6. Also, the AUD/CHF price has failed to penetrate above the 0.7100 level since July 3. This is evidence of a strong resistance forming around the 0.7100 level in the last two weeks.

Last week, on Friday, the AUD/CHF price had a bearish bar, where the high of the bar was near to the high of the Thursday bar. Which effectively makes it a Double Bar High Lower Close (DBHLC) pattern.

Since last week’s low aligns perfectly with the 161.8% Fibonacci extension level of the last range, a penetration below this level would trigger additional bearish momentum in the market. Furthermore, the forecast for a rebounding Swiss PPI is indicating a more bearish fundamental outlook for the AUD/CHF as well.

In that scenario, it would be recommended that Forex traders consider taking a short position with the AUD/CHF with a profit target around the 261.8% Fibonacci extension level.

TRADING ADVICE

Short Trade Setup:

Money Management Advice

Position Size Suggestion based on 2% of Equity using the Percentage Risk Model (PRM)

For Account Size: US$ 1,000, position size should be 0.12 lots (mini)

For Account Size: US$ 5,000, position size should be 0.6 lots (mini)

For Account Size: US$ 10,000, position size should be 1.2 lots (mini)

 

Orders

Pending Sell Stop Entry: 0.6945

Stop Loss: 0.7110

Take Profit: 0.6760