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We may be entering another volatile week of trading as testimonies from spokesmen of US and Australian central banks are set to happen. Fears of a global recession have investors moving into risk-off currencies and indices around the world fall into bear market territory. In light of the current market condition, here are some of the best trade setups we see going into this week (6/20/2022).

Highest Trending

USD/CAD

best trade setups

USDCAD is one of the best trending pairs to trade right now as price has moved mostly sideways with a gradual slant upward. As oil prices take a break from its recent surge, the Fed pushed interest rates higher by 75 bp causing growing demand for the dollar. Price has touched a previous high and retraced from the 1.30700s on the 1D timeframe, establishing a double top. However, there is clean support right below in the 1.29680s where price can retest and potentially head back up into the 1.3s again.

Biggest Movers

AUD/CHF

best trade setups

Aussie pairs are catching the most volatility today with the RBA governor testimony in focus. Aussie-Swiss fell towards its March highs, but the pair bounced before it could hit a support level around 0.66800s. This support is also coupled with 61.8% fib level on the 1D timeframe which could serve as strong support for the pair should price move lower.

AUD/JPY

best trade setups

AUDJPY is up 0.55% today on yen weakness. Price came down to test the 50 DMA before rejecting the lows and shooting back up. Higher lows and highs have been established which suggests the uptrend will probably continue. With that in mind, the pair could go back up to test the highs around 96.900s on the 1D timeframe. Additional support lies below around 86.087.

Strongest Edgefinder Readings

CHF/JPY

best trade setups

CHFJPY is one of the strongest 'buy' ratings on the Edgefinder today at +4. The Swiss Franc is stronger this week for last week's recent rate hike decision from -0.75% to -0.25% interest. BOJ plans to keep the same monetary policy even though other countries are working to tighten over the next several months. Price jumped again today and is above previous resistance in the 137.800s. There is also a supportive trend line that the pair could bounce off from should price move lower.

GBP/USD

best trade setups

GBP/USD is now a -8 strong sell rating on the Edgefinder after unemployment and inflation exceed that of the US. All metrics are red except for GDP growth while the majority of retail is long this pair. Institutional interest is strong on the USD as the number of long contracts increased by 10% last week while GBP long contracts fell by 4%. Fears of an economic recession in both the US and UK point towards heavy risk-off sentiment which gives the dollar a considerable advantage in this situation. The pair just retraced from the recent gains it made in the last week suggesting that price could come down to test the lows again around 1.19392.

After a volatile week of trading, we look to Monday as we attempt to forecast the week ahead. There could still be some rocky sessions ahead. So, here is some fundamental analysis on our trading biases towards the USD major pairs.

EUR/USD

Bias: Bearish

major pairs

The euro has given back some of its gains this morning as risk appetite fades once again. The rumored 75 basis point hike on the US dollar became expected and brought some hope to investors. On the other hand, the ECB is not expected to raise rates any time soon which has investors concerned for the euro. Risk-off still remains dominant in global markets, so the euro-dollar pair may continue to decline in the meantime.

GBP/USD

Bias: Bearish

major pairs

Inflation in both the US and UK have reached 40-year highs while their central government’s take increasingly hawkish stances on their currencies. However, the Band of England couldn’t mimic the same hike in rates as the Fed which could be considered bearish for the pair. Both countries are in similar economic conditions, so it looks like the USD will be preferred over the pound because the UK couldn't match the Fed’s 75 basis point hike.

AUD/USD

Bias: Bearish

major pairs

Aussie-dollar showed very similar price action behavior towards the FOMC decision and is now giving back most of its gains from the last two trading sessions. Fundamentals for this pair are the same for EURUSD and GBPUSD. The dollar looks stronger due to the more combative approach by the Fed than other countries. 

USD/CAD

Bias: Neutral, Bullish-leaning

major pairs

The dollar has been extremely bullish against the loonie as oil prices decline. The commodity-driven economy has been showing more growth than in the US as the Canadian central bank works towards tapering while continuing with their tight policy. With the current shortage in supply and high demand for oil, Canada might still be able to have a leg up on the dollar, so the pair may have some volatile oscillations.

USD/CHF

Bias: Bullish

major pairs

Dollar-swiss sank prior and during the SNB’s rate decision that brought interest from -.75% to -.25%, a 50 basis point increase. Yesterday’s drop could have been overblown as the USD still remains strong in many aspects. However, the Swiss Franc does look strong when matched against currencies like the yen, the euro, and buck which are lagging on their monetary tightening process.

Global inflation, company layoffs, economic sanctions, geopolitical conflicts and so on have investors shuddering from the thought of investing. Volatility has picked up well beyond expectations as recession fears loom in the forefront of everyone's mind. With all these issues, it's hard to tackle markets when we have been so used to different monetary policy, risk-on sentiment and economic growth. As the FOMC meeting is just over the horizon, it is important to brush up on key concepts to help us prepare for market uncertainty. So, here are some ways to make money trading during turbulent market conditions.

Trade Risk-Off Pairs/Buy USD

What Does Risk-Off Mean?

Due to ever-changing market conditions, examples of risk-off pairs tend to change as well. Risk-off currencies basically are the ones that perform better in times of uncertainty, economic struggles, hawkish monetary policy or high inflation.

Here is a list of risk-off currencies that tend to do better in recessionary times:

Historically, these currencies have been considered 'safe haven' investments when the economy is suffering. USD has always been a safe haven because of the Federal Reserve and their decisions impact the global financial market. Ever hear of people making Swiss bank accounts to shield their money (or keep it hush-hush)? The Swiss Franc is considered risk-off because of it expendability with debt. As a constantly profitable and small economy in the financial sector, the Franc never really gets into deep waters like Germany, United States, Canada, Euro-Area, etc. which are much larger economies. Lastly, when US stock markets fall, the yen tends to appreciate, making JPY a historically profitable play in poor economic conditions.

What Pairs Will Move Up/Down During A Recession?

Here is a list of all the risk-off major pairs that would perform well/poor if a global recession were to happen now:

Bullish

  • USD/CHF
  • USD/JPY
  • XAU/USD

Bearish

  • GBP/USD
  • EUR/USD
  • AUD/USD
  • NZD/USD

You might have noticed that USD/CAD is not on the list. That is because the Canadian economy has been very strong as of recent. Their jobs data is better than the US and most other countries while the oil-dependent economy has benefitted from sanctions on Russia and supply-chain shortages. Overall, if the energy crisis on oil continues, the loonie will persist, but if oil prices fall, USD will overtake CAD.

Because of the Fed's impact on the world financial system, USD will continue to be strong especially if it's central bank continues to raise rates like it has been doing so far this year. Gold is also on the bullish list because of its extraordinary circumstance. Due to reasons mentioned in this article about gold, we think a recession would be a good opportunity to start building positions on gold for the long term.

Making Money Trading In A Recession

The process of trading in a recession can either be through the use of short term or long term plays. GBP/USD and EUR/USD tend to follow the US stock market (SPX500 or NAS100). If you have ever traded these indices, you would know how volatile they can be on a regular basis. This volatile behavior is mildly reflected on the pound and euro when it is up against the USD, but the correlation is generally the same as the SPX500. If one was to trade GBP/USD or EUR/USD, quick short plays might be the best option. Ranging plays would also work, but there might be heavy ups and downs along the way.

All forex pairs enter into long-term swings either to the upside or downside. But, some pairs like to take exuberant amounts of time in a single direction before changing course. These pairs are AUD/USD, NZD/USD, USD/CHF & USD/JPY.

Similar to the pairs just mentioned above, gold is another example of an asset that takes a long time to move, allowing for investors to build large positions over time. Commodities like gold also tend to perform their best during economic declines.

FOMC economic projections, a statement from Powell, and the interest rate decision is happening tomorrow. The forecast has already been out for a while, however, there are some speculations as to whether the Fed is going to get more aggressive or not. Here is what we think and what to consider, as well as what might happen if the rumors are true.

The Rumor

FOMC
USD Federal Funds Rate Previous and Expectations

The US central bank is set to raise interest rates multiple times this year, and they have already done so for the past several months. So far, we've seen two hikes since <0.25%; one took funds to 50 bp and the second took it to 100 bp (1%).

With inflation as out of control as it is, economists speculate that the Fed will try their best to step in front of it but will need to take a more offensive approach. Rumors of a 75 bp hike were floating around, but it is not to say for certain that this will happen. However, here are some reasons as to why we could such a boost tomorrow.

Economic Slowdown

To reiterate some points from yesterday's article on gold and why it could be a better pick than the dollar, the US economy is experiencing a slow in GDP growth as businesses and consumers alike are cutting back on their spending. Workplaces have been conducting a concerningly higher number of layoffs in the month of May and June.

The problem the US and most of the world is facing are consequences from quantitative easing stemming from the pandemic in 2020. Inflation has hit a 40 year record and there doesn't seem to be any sign of stopping. Thus, if the Fed really wanted to advance in this assailment on lowering CPI, three quarters of a percent might be justified.

A Double-Edged Sword

What makes this circumstance so complicated is that the Fed doesn't want to abandon their 'soft landing' strategy where the market can ease into the waters while slowly adjusting to new monetary policy. If this shift happens too fast, the economy might enter into a recession- businesses will have to cut back on their employees and spending. However, if they don't act quick enough, inflation will force companies and consumers to cut back expenditures as well.

FOMC
The relation between funds rate, unemployment and personal expenditures

Holistically, policy needs to hit a sweet spot, but it's tough to find that middle ground. Considering what is going on right now in the market (jobs in May and June have cut several thousand workers at an alarmingly higher rate than the past 6 months), the Fed is running out of time and options. It's probable that the bank will go for this inflation curb ASAP and have to deal with the negative outcomes that follow in the short term.

Setups For FOMC

USD/JPY

UJ pushes higher today as investors anticipate the open market committee's decision tomorrow. Price climbs higher towards the 135.200s on rocky behavior in recent days. A supportive trend line lies below with a support level right beneath that.

EUR/USD

EU returned the gains it made in the last couple days off a bounce from mild support on the 4H. Price looks like it might be able to continue a move lower to the 1.03700s support zone. Momentum is so hard to the downside that the pair might complete this move to support before seeing any kind of bounce.

AUD/USD

AU is similar to EU as it looks to complete that move to the downside on to support in the 0.68500s. Heavy resistance has kept the pair from being able to shift momentum as it is currently in a steep decline from the June highs near the 0.73000s. Price will likely test that bottom before seeing any kind of move to the upside with potential. It might even break to lower lows.

The Bank of Canada (BOC) decided to hike rates again by another 50 basis points regardless of slowing economic concerns. The loonie is stronger today as a result of this. This is what could likely happen to loonie pairs after this news.

Economic Projections

BOC
https://tradingeconomics.com/canada/forecast

Analysts predict a Canada's GDP to dip further going into Q3 while annual growth rate sinks. Unemployment is expected to remain where it's at for most quarters up until 2023. The 2023 inflation cap target looks to be in sight if the BOC can keep their aggressive stance towards interest rates. However, their economy will probably take a hit in the meantime as policy makers attempt to get inflation under control.

CAD Pair Setups

BOC

CAD/JPY hits a previous top on the 1D timeframe to make a second test on resistance. After the BOC's recent decision, the pair could break above this level and head to the 104.000s. Price would just need to close above this level in the 102.700s to solidify that move higher. Support lies below in the low 100.000s and the 50 DMA underneath.

USD/CAD

BOC

USD/CAD sways back and forth as the demand for either currency keeps investors indecisive on direction. The pair is currently on support, and came back up from the lows of today suggesting a move higher. However, the day needs to close above this level to suggest a bullish move; plus resistance lies in the way at the 200 and 50 DMAs.

AUD/CAD

BOC

This pair looks like the most promising setup out of the CAD pairs. Good rejection from the highs on AC suggest that price will dip to the double bottom on the 1D. Especially after this rate hike, investors will probably seek the loonie over the buck for the time being.

The FOMC meeting is scheduled for 2:00 pm EST today as the USD is stronger on the day. The stock market remains uncertain as volatility picks up hours before the meeting. We are going to hear sentiment towards monetary policy and thoughts on rate hikes going forward after the latest 50 bp hike.

What To Listen For

It is important to listen to what they discuss regarding interest rates and what it would take for them to loosen their grip on such tight policy. If the Fed mentions a concern for the slowing of the economy, then they might take measures to let up on the aggressive hikes.

Additionally, the Fed's aggressive 50 bp hike on May 4 might have been enough for them to decide on a less aggressive stance. A problem we are facing now is the economy and jobs data. The US has missed several weeks of expectations in unemployment claims. Claims have climbed up to 218,000 from 184K a month ago.

Listening to economic projections is going to be another important thing to do. Judging by the past several weeks, projections may be weak in the short term. At least, this is what I'm expecting them to say. A major concern lies within a possible recession due to a slowing jobs market and higher costs causing less spending. Regardless, there might not be

USD Setups During FOMC

USD/JPY

FOMC

USDJPY came down to the 50 DMA for potential support and is beginning a bounce as investors eye the upcoming FOMC news. Support lies right below around 125.025. If policy continues its aggressive stance towards interest rates, we may find more upside for the pair.

USD/CAD

FOMC

USDCAD is coming off resistance from a falling trend line on the 1D timeframe. Overall trend is still upward, but looks like price is rejecting off today's highs. Increased volatility today could make technicals irrelevant for a little while. Additional support could be below around the 50 and 200 DMA.

GBP/USD

FOMC

GU looks increasingly bullish as today's candle pushes higher today. We might see some higher highs on the day, but it is still likely that the USD will regain strength after the FOMC statements. A tighter policy seems more likely now, so more downside looks to be what's in store for this pair.

Over the past couple days, the USD has retraced considerably from the highs as the dollar index is lower by another 1% today. A couple of things have signaled that dollar strength has peaked, but USD bears should not be too quick to switch sides just yet. There are still warning signs ahead for the risk-on traders.

Jobs Data

Recent jobs data in the US suggests that the Fed may want to slow their aggressive moves for tighter monetary policy to let the economy improve. Recent unemployment claims missed the mark by 18,000 as analysts were already expecting a higher number of claims than last week.

https://www.forexfactory.com/calendar#graph=122980

The chart above shows actual and forecasted claims from 2021 and 2022. The past six weeks have reported a higher actual number than what was in the forecast. This could eventually lead to a push towards a more dovish stance by the Fed which will lead to less aggressive rate hikes over time. However, it's never a good idea to assume that such a change is going to happen even if signs are present.

Risk-Off Warning Ahead

The cost of goods and services has seen the highest increase in the past 40 years as businesses struggle to catch up to higher wages. Too many signals like the lack of Fed intervention, high inflation, war in Ukraine, higher bond yields, tighter monetary policy; they are all adding to extreme levels of volatility. The problem now is when things will begin to subside and sentiment towards expansion will continue.

It's too early to tell. I wouldn't be punching the gas on bullishness and risk-on just yet. Although we've seen a considerable retracement from the USD highs, there is still a lot in the way. If anything, it looks like another opportunity to get back into long positions on the USD. Here are a few pairs that could have potential in the dollar's favor.

USD Pairs To Watch

GBP/USD

GBPUSD flew up 1.30% on the day as price still hangs around the resistance level on the 1D timeframe. Recent price action may suggest a higher move, but that may only be a setup for more bearish moves to come. More resistance lies in the way around the 1.26400s and the 50 DMA right above that, but price needs to break and close above the current level for this to seem likely.

USD/JPY

USDJPY struggles to move higher as the pair forms lower lows on the 1D. However, clean support lies just below at around the 125.100s which is also paired with the 50 DMA. For investors still long USD, this could be a decent opportunity to enter another long position on the dollar. The extremely harsh move to the upside from March suggests that price could be set to continue on this move but is only retracing for long setups.

AUD/USD

AUD/USD is breaking above resistance and shows a strong move to the upside similar to GBPUSD. However, price is now about to face clean resistance around 0.70859. It looks like a move higher will likely happen, although it's important to watch for the same kind of volatile move back to the lows. A failed break at this current resistance level may be a sign for more downside.

The dollar index (DXY) is up another 0.24% today as price touched new highs around $104.20. USD is largely stronger today, and some key factors suggest that the dollar could be strong for the entire week. So, here are some reasons why you should buy USD now that we are at the start of a new week of risk-off sentiment.

Fed's More Hawkish Than We Thought

A statement by Fed chairman, Jerome Powell has caused more uncertainty in the market. He mentioned that a 50 basis point or higher rate hike would be "on the table"- a substantial rise from the original and doubling the <25 bp expectations. That statement ended up coming to fruition last week during the Fed rate decision. This sent the stock market spiraling downward while the USD got stronger. For a brief moment, stocks and risk-on pairs started to look bullish, but that rally did not last long at all.

Inflation has become way more serious than we initially thought as well. The US is now sitting at a whopping 8.5% inflation rate, a multi-decade high. It is hard to tell when the dollar will shift back to bearishness, but for this week at least, it looks like USD will be strong.

Bond Yields

US 10-year treasuries hit above 3.1% today and are hovering around 3.07% at the time of writing this. Yields are stating to look way more attractive than they were at the end of 2021 and the start of this year. In volatile market swings, investors are probably more interested in preserving their capital and keeping it somewhere safe like in the USD right now.

USD Trade Setups

USD/CAD

buy usd now

USDCAD just broke above a significant top on the 1D timeframe suggesting that the pair has broken out of its sideways trading. If the pair can close above this level, it would solidify this move and investors should be more inclined to long. On the other hand, price could also retrace after making this higher high and come back to support around 1.29154.

AUD/USD

AUDUSD fell to a key support level again on the 1D timeframe. This is a triple bottom for the year, but it looks like the pair will probably break under due to the amount of tests and failed rallies over time. if this level gets broken, we could likely see a test around 0.66751 where there is another level of clean support which is 4.5% below current price.

EUR/USD

Price is pretty unstable around this level on the 1D as we see long wicks from hard swings in both directions. Although this could be a minor rebound from the lows, price could fall right after testing resistance around 1.07673 if it does not break new lows before then. This long term downtrend will probably continue until we see a substantial fundamental shift in sentiment.

After breaching the $100 level, DXY is still remaining strong today. Price action on major USD pairs has been considerably volatile since the Asian session last night and futures market this morning. Here are some USD pairs to watch this week as the world remains in uncertainty around geopolitical events and hawkish stances around monetary policy.

USD/CHF

usd pairs to watch

This pair continues to move higher as higher highs and lows are made the 1D timeframe. A couple levels of support could help keep price running higher should price touch down to the 0.93720s. Although the dollar looks overbought right now, it doesn't look like the momentum is ceasing. This strong move to the upside could continue throughout the week.

COT: Institutions are increasing both their long and short positions on the USD. However, the number of short contracts on the Franc have jumped from the previous week while the number of long contracts are shrinking.

EUR/USD

usd pairs to watch

EURUSD largely moves close to the performance of the US and UK equities markets. When stocks are bullish, so is EU and vice versa. Now, stocks have been down for the most part in regard to the rising interest rate, record inflation, higher bond yields, etc. investors are less attracted to the riskier Euro investment and flock to the safe haven currency.

Price looks like it might retrace from the lows and make a move upward. If so, the pair might go to the 1.09200s to test resistance. This could be a good short entry on the pair. If price fails to move higher, we can expect lower moves towards the 1.07330s.

COT suggests that price could move up this week due to the spike in long contracts from last Friday's report. However, price has yet to reflect that move.

AUD/USD

usd pairs to watch

This pair comes in a mixed bag as both gold and USD's performance have been mostly bullish in the past month. The conflict in eastern Europe is raising demand for the gold bullion while the inflation fears around the world is helping the USD.

On the 1D timeframe, price has come down to clean support on a rising trend line and the 50 DMA which could serve as a great long entry. However, a potential stronger USD throughout the week could cause a break in this level and take price to the 0.72860s.

Big money has upped their stakes in long contracts on both the precious metal and on the Aussie. So, we may in fact see another run to a higher high.

From risk-on to risk-off, it seems like market behavior is changing day to day. Investors struggle to pick a directional bias for major pairs, equities and commodities due to uncertainty in global inflation, economic crisis and a war in eastern Europe. Having said that, here are 3 pairs worth taking a look at this week that are set to make big moves in the next several days.

3 Pairs To Watch

GBP/CHF (Long Bias)

GBPCHF settled at a triple bottom on the 1D timeframe. If price holds up at this level, it is likely that we'll see the pair up at the 1.22770s where there is clear resistance. Unless conditions become worse in Ukraine, the pair could see some strong bullishness after hitting support. The pound closely trails the behavior of the stock market and will bounce if the market does.

AUD/CAD (Long Bias)

3 pairs

Watching this pair is like watching the battle of commodities; hard swings on both sides make the losses and wins that much bigger. On this timeframe, the pair hit a golden cross and is now testing a significant resistant trend line. Institutional interest is high for both currencies although Aussie saw a huge rise in long contracts. Tomorrow, AUD's cash rate is expected to remain the same at 0.10% while CAD's jobs numbers are expected to be significantly less than last month's.

When weighing these two factors as which one is more or less dovish than the other, it can be hard. This week may be in the buck's favor as investors expect a lower change in employment which won't be reported until Friday. Retail is mostly short on this pair, although it keeps making higher highs. So, AUDCAD looks bullish from a directional and institutional standpoint this week.

USD/JPY (Long Bias)

The thing about this pair is that regardless of global conditions, the dollar prevails over the yen. Due to monetary policy and sentiment, USD is inherently stronger. And after last week's small retracement, the uptrend continues. There isn't a lot of technical patterns to look at other than the strong uptrend in the past month. USDJPY has over 1.5% of room to move back up to the highs (125.110) and a 1% move down to support (121.310), so it's still considerably better to stay long on this pair until the direction changes.

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