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As this week comes to a close, we are looking ahead at future setups that could be some of the best opportunities for the next several trading sessions. Here are some pairs for next week that we are looking at.

EUR/JPY

pairs for next week

Recent data has shown a slow down in the German manufacturing sector. With European economies still working on a recovery, the ECB is hesitant to raise rates, but plans on doing so this summer. However, Japan is experiencing the same thing, yet they are far off from raising rates.

EURJPY looks strong on the 1D and 4H timeframes after a strong uptrend for the past week. Price has support in the 141s as well as the rising trend line on the 4H. The 50 and 200 simple moving averages are also promising support levels for the pair should price move lower. The Edgefinder has even ranked it the highest buy rating at +5.

GBP/USD

pairs for next week

GBPUSD is another setup that looks promising to the short side. Both the US and UK are fearful of returning to a recession after stagflation. The only difference is that the USD is what investors see as a safe haven while the pound is more speculative. The US is also outpacing England in their attempts to raise rates and curb inflation.

On the 1D timeframe, this pair found a new low and is slowly working up from that level. There is a falling trend line that could serve as resistance as it is also paired with the 61.8% fib retracement zone. Just above that, is the 50 DMA of mild resistance, while the 1.26670s serves as a double top. These were the three short opportunities that look promising. The Edgefinder ranks this pair as the strongest sell rating at -7.

USD/CHF

pairs for next week

CHF is strong, but the USD is stronger. The SNB's recent decision to hike rates pushed this pair lower while risk-on sentiment added to the dollar sell off. This was an unexpected decision and was the first time the bank hiked in over a decade. The Edgefinder actually ranks this at a -3 sell rating.

The double top on the 1D timeframe suggests heavy resistance as price retraced hard underneath it. However, the pair may have found support on the 61.8% fib level. There is also some additional support below that around 0.94628. The fact that the pair did cross underneath the rising trend line is a bearish sign, so price may continue lower in the meantime.

Tomorrow and Thursday will likely be the most volatile days for the USD this week because of the testimony given by Jerome Powell. Here are some things to look out for as well as a couple trade setups that could lead to huge market swings either up or down.

Bullish Case For USD

In order for the USD to be more bullish, investors need to be more fearful of a recession as well as further tightening monetary policy. Because inflation is so high, analysts fear that it may take years before we come back to the Fed's original target of 2%. Powell may make remarks about this in the upcoming testimonies, and it would be very important to listen for this when we trade.

usd
https://www.forexfactory.com/calendar?week=jun12.2022#graph=123024

Powell will also address current policy towards the inflation cap where he will either stay the course or loosen up for expansionary reasons. If he says that the 75 basis points hikes are likely to continue, we may start to see another rise in USD. The original plan was to bring rates up by a quarter of a percent each time, however, this changed to half and then three-quarters of a percent in the most recent hike.

Bearish Case For USD

Should Powell state that in terms of the economy, the US is doing better than they thought, the price of the dollar might fall. Additionally, if Powell says that the economy is in trouble and the Fed wants to loosen policy, we also might see a fall in USD.

usd
US unemployment rate

The US unemployment rate is another thing to look out for as jobless claims come in on Thursday. Higher unemployment usually means bullishness for the dollar. However, now investors might be looking at higher unemployment/higher jobless claims as bearishness for the USD. This is because the worse the US economy is doing, the more likely it is for Powell to take a less hawkish stance toward the dollar and raise rates at a slower and lesser pace.

USD Trade Setups

USD/CHF

usd

This pair on the 1D timeframe has come down to support on a rising trend line. Price also hit the 50% fib level and has been showing considerable rejection from the lows in each of the last three trading sessions. If price bounces from here, we might see the pair go back up to the double top it established in the week before above 1.00000.

GBP/USD

usd

Pound-dollar is barely up today after a weak rally to the upside. A strong falling trend line sits right above price which may serve as a short opportunity on the 1D timeframe. Today's candle is already showing signs of rejection from the highs, so there might be selling pressure in the near future depending on how this candle closes. Should price retrace, it could come down to test the lows of 1.19520s.

EUR/USD

usd

EURUSD inches higher with the stock market today although momentum is not very strong at open. Price is nearing resistance around the 50 DMA with a 1.07600s resistance level right above that. Lagarde plans to hike twice this summer but the US has already hiked 3 times and plans to reach over 4% interest by the end of the year. This gives USD a bullish advantage over the euro.

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.

Why I Day Traded USDCHF

Price action for USD pairs was fascinating today as the DXY reflected bearish momentum that saw a low of nearly 102.15 intraday. This selloff was stopped at approximately 8:30 a.m. Eastern Time when eager buyers sent it soaring, eventually over the 103.3 level. Several factors were at play here, including important European Central Bank news and expectations for new US CPI data tomorrow. I took this opportunity to trade USDCHF this morning; it went well, and I entered and exited the trade in under an hour. Below I explore my process, and why I day traded USDCHF.

Fundamental Analysis

In many ways, the fundamentals favor CHF: Q1 GDP growth in Switzerland was positive unlike for the US, unemployment is 1.5% lower than in the US, and year-over-year inflation is gradually climbing. However, the Swiss National Bank currently has its key interest rate at -0.75%, compared to the Federal Reserve’s 1%, which involved a 50 basis point rate hike. On top of this, both CHF and USD are historically safe haven assets, and USD has encountered recent bearish data and increased chances at volatility due to upcoming US CPI data (perhaps indirectly through today’s ECB announcements as well). Thus, I decided I felt comfortable enough to go long on USDCHF as a day trade, but not confident enough to sit in it for too long.

Technical Analysis

I felt that there were enough technical indications here to warrant a brief long position. On the 1-hour timeframe, the price moved rapidly outside the Keltner Channel walls, and met significant support in two places: the 0.972 zone and the trendline pictured. I interpreted this bearish candlestick as a hasty reaction to meeting resistance around 0.98 (a reaction that could be short lived in light of potential for USD volatility). Thus, I entered at the 0.973 level, and took profit just above the 0.978 level, since I was not confident it could break through 0.98 resistance.

Sentiment Analysis

Sentiment analysis also made me feel comfortable entering the position. According to A1 Trading’s EdgeFinder, recent COT data reveals 76% of institutional traders going long on USD, whereas just over 10% are going long on CHF. In contrast, less than 1/3 of retail traders are long on this pair. These are all incredibly bullish signs for USDCHF, making me feel confident in my purchase, especially as Switzerland grapples with neighboring eurozone issues and with today’s arguably banal ECB decision. However, given my aforementioned uncertainties about the pair’s fundamentals and mutual safe haven status, I still planned on an early exit.

Key Takeaways

USD is stronger today as economists expect hotter inflation than last month's report. The dollar index is up 15 cents at the time of writing this. Here is what we think will happen before CPI news this Friday, followed by a couple USD pair setups.

What To Expect

USD
https://www.forexfactory.com/calendar?week=jun5.2022

With what we have now, it looks like the dollar will remain strong. Last week, the US reported better-than-expected NFP numbers which more than likely supports the Fed's already-aggressive stance of keeping higher interest rates. To fuel this policy even more, inflation is still a major concern in the US, and Friday's CPI data is expected to more than double last month's rise. Investors are expecting the Fed will stay the course due to these issues.

A considerable number of open contracts were bought last week according to COT, but the number of long and short positions nearly matched each other. Still, the overall amount of long positions quadruples the total shorts on these contracts, so institutions are clearly long.

USD Trade Setups

USD/CHF

USD

The pair just crossed over the 50% level with some bullish upside while testing a double top in the 0.964s. The pair has some room to run if it can break above the current resistance level on the 4H timeframe. The 0.976s looks like a realistic level to test before things may turn the other way.

EUR/USD

USD

EU caught some resistance on the 1D after price rose to a falling trend line and a previous bottom. The lower highs and bearish pressure on the most recent candle suggests more weakness in the euro than originally anticipated. Price may try to come down to the 1.03s to test another bottom for support.

USD/JPY

USD

UJ flies above significant resistance on the 1D timeframe after breaking out of a flag pattern several days ago. A close above this level looks promising for the pair and would be increasingly bullish for those long USD. The 131s could also be serving as a new support zone should price retrace.

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.

Over the past couple weeks, New Zealand's kiwi has not been performing to the expectations investors expected. Analysts expected another 25 bp rate hike on Tuesday, but they were surprised by a 50 bp hike that took the interest rate up to 1.50%. So, why isn't NZD taking off right now? Here are some factors for and against buying kiwi.

Reasons For Buying Kiwi

Like the above statements, the Regional Bank of New Zealand decided to push past expectations of the original 25 basis point hike this month. This caused a drastic rise in kiwi's demand followed by a stark sell off in the moments after. A quicker rush to tighten monetary policy could be a good sign for bullish kiwi investors as the currency is outpacing other major countries.

New Zealand is also looking at a potential shift into recovery mode regarding the GDP growth rate. The second half of 2021 actually reported a decline of -0.20% after a significant rise of nearly 18% in the first half of that year. In 2022 so far, their GDP saw a positive rise in the growth rate.

buying kiwi
https://tradingeconomics.com/new-zealand/gdp-growth-annual

If NZ can continue this kind of performance on top of the higher interest rates, it would be hard to find a reason not to consider going long on the kiwi.

Reasons Against Buying Kiwi

Considering the factors above, there is a chance that investors may be worried that the more aggressive monetary stance will start to place hindrances on the economy. Investors want to see economic growth, an increase in spending, etc. However, with much higher interest rates than expected in a shorter amount of time, this could lead to a slow in growth as people stop spending as much and begin saving more.

The Kiwi is also not gaining much institutional interest overall. COT data shows us that big money reduced their long positions while increasing their stakes in contract shorts. Overall open interest was not impressive either, so it seems like institutions are not here to cause any major shifts in direction and we may have to rely on short term retail transactions. Having said that, it looks like retail is mixed.

Kiwi Setups

NZD/CHF

Retail is majority long on this pair as it has been on an uptrend since February. Price has bounced off support on the 1D timeframe, and now it faces resistance around a falling trend line. An important thing to look for here is a break and close above that trend line which would indicate further highs.

NZD/USD

This pair looks like it doesn't have much bullish potential to finishing out this week. Price action on today's candle suggests a further move to the downside as support lies around 0.67114. The overall trend since February is up, however. So, we could see a continuation of this move in the coming months. For the rest of this week, at least, I see the pair moving down to that level of support before finding a bottom.

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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