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June 19, 2020

USD Trade Ideas For Next Week

Frank Cabibi

This week has been a great one for our analysts's shorts on USD pairs. Trades took a little longer than expected as most of us were stuck in drawdown before we started seeing profits in GBP/USD and EUR/USD. We also looked at US30 and formed a short bias and some of us took some big gains on our trades. Overall, it was a good week, but what's going to happen next?

Trade Talks

One thing that comes to mind as a huge market driver is US-China trade news. After President Trump threatened to cut ties with China this afternoon, it killed all the gains that futures made this morning. As soon as that happened, we saw a pop in USD/CAD prices while EUR/USD and GBP/USD tanked some more.

As I'm writing this, the SPX500 and US30 are dropping which is usually followed by buying pressure on the US dollar. If you follow the US stock market, you can tell that all USD pairs are correlated. With that in mind, watching the US-China trade talks are going to be very important is gauging where currency trades will go next.

The problem with trade talks is that one day they can be good, and one day they can be not so good. For example, last year, Trump and Xi Jinping were on and off in their talks. Sometimes, negotiations turned into arguments and trade threats were made, and the market paid for it. This "bad break-up phase" caused so much volatility in the market last year that the slightest news sharply moved prices up or down.

Pandemic Cases

Just recently, Florida saw a huge spike in coronavirus cases as fears began to reappear. Because we all know about this issue, I'll keep this segment brief, but keep up to date on virus fears and cases. One thing that harshly drives price movement is fear; if fears return to anywhere close to what they were like in March, it's going to drive prices down again.

Trader Sentiment

Another thing to look at when trying to trade USD pairs is sentiment. A lot of trades this Friday have been net short positions on the SPX500, and the number of shorts have been increasing on the trade news. Uncertainty is truly a factor in USD pairs because the market has been so indecisive in either direction.

https://www.dailyfx.com/sp-500

What also helped cause this volatility today was that $1.8 trillion of options trades and futures trades expired today. This is called a quadruple witching on a CNBC article. They also mentioned that this was the "third biggest non-December expiration on record". Volatility is expected throughout the rest of the trading day which will take a toll on certain currency pairs. There will not be anything like this next week, so the only three key things to look out for are trade talks, sentiment and corona virus fears.

Trade Ideas For Next Week

Long Idea: Right now, the SPX500 is pretty much sitting on support in the $3,090s range. With only 2 hours left before the market closes, we're watching to see where the last 2 candles will end up. This level has been a pretty clean line of support that the price is likely to respect. However, any long trade will probably be a short term play, like intraday.

Short Idea: Looking at the hourly on EU. Prices are getting buried at the bottom of the falling wedge, showing some short interest there. If more bad news comes out on the US market, you can expect the pair to follow some more.

Short Idea: For the fourth day in a row, the US30 has failed to break above the 200 Day Moving Average. And it looks like today's candle may end in the red, but a lot can happen in the last thirty minutes of trading. If prices close with the candle showing selling pressure, there will definitely be some short interest there.

Remember to be careful with your trades in this uncertain time with lots of volatility. Don't over-leverage your positions, and be prepared to adjust entries with small lot sizes in every trade. Risk management is key especially now that the market and USD pairs are looking pretty volatile.


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Disclaimer:

Please note that this email is my personal opinion only. I am not a licensed financial advisor, and any information shared or discussed is not to be construed as investment advice. Trading and investing involves a degree of risk, and is not suitable to all investors. Please consult with your financial advisor before making any sort of investment decisions.

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