Top 5 Most Predictable Currency Pairs for Q3 2017
The second quarter of the year saw a lot of changes to the markets, both in terms of monetary policy as well as politics. The U.S. Federal Reserve hiked interest rates by 25 basis points at the meeting in June. The central bank also signaled one more rate hike for the remainder of the year.
The Fed is also now expected to begin unwinding its balance sheet, which is expected to happen at a rate of $10 billion per month. On the political side of things, the UK’s general elections were held in June. The calculated move by the UK Prime Minister Theresa May saw the Conservatives party not quite getting a majority that was needed (and hoped for) in the parliament. Despite being the largest party, the Tories have had to enter into alliance with other smaller parties.
This potentially makes the alliance fragile as the UK and EU have begun the Brexit talks. The final week of June was of course quite volatile with most of the central bankers suddenly turning hawkish. This included ECB’s Mario Draghi, BoC’s Poloz and the Bank of England Governor, Mark Carney.
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Gold prices are likely to remain within the range of 1300 and 1215. In the last quarter’s report we expected gold prices to slip towards the 1160 – 1143 support level. However, with the minor support at 1215 holding, prices remained rather flat. Gold prices will no doubt be influenced by the central bank policies and of course inflation as well.
Technically, the upside is likely to prevail, but in the event of a breakdown below 1215, we can expect to see further downside to 1160 – 1143 support level. Watch for the resistance at 1309 – 1323 which will be key for the gold prices as it would signal a bullish continuation. There is also the potential inverse head and shoulders pattern that is forming in gold on the monthly chart. This puts the upside target in gold to nearly $1500, but it is likely that this could occur over the next two quarters if not more. Therefore, it is recommended to potentially look to buy gold at levels near 1200 – 1160.
#2. WTI Crude Oil
Crude oil prices have been steadily posting a decline for the past four months after price briefly tested the $50 handle. Notice the potential inverse head and shoulders pattern that is forming here in the process. The neckline resistance is slightly inclined, suggesting that the right shoulder is currently forming a dip.
Support is seen at the 41.60 region, which would be ideal to purchase oil contracts. In the event that price rallies, we could see a possible breakout from the inclined neckline resistance level. This will put the upside towards $75 a barrel target.
NZDUSD dipped to an 11-month low in May, falling to 0.6816. Price action however posted a strong recovery thereafter pushing to the upside. The monthly candlestick for May formed a bullish candlestick pattern as a result. For July, the bullish momentum continued to the upside.
Resistance is seen at 0.7311 where price action is currently testing this level. A breakout above this resistance is required for NZDUSD to extend the gains further to the upside. However, considering that this level previously served as support and is now turning as resistance, the level is quite strong. Therefore, there is a potential for a short term pullback in the NZDUSD currency pair.
With the RBNZ currently keeping monetary policy on hold, there are expectations that the NZD could be jawboned if the exchange rate continues to appreciate strongly. Therefore it is ideal to sell NZDUSD at the current resistance level with the potential for a short term decline in prices.
EURUSD dipped to the 1.0609 – 1.0554 level of support as mentioned in the previous quarter. Price action quickly pushed higher thereafter. EURUSD also broke past the upper resistance levels at 1.0977 – 1.0920. This was followed by a breakout to the upside at 1.1297 as well. EURUSD is seen trading comfortably above the $1.1300 handle. However, most of the gains have come from market expectations and hawkish signals from central bank officials.
In the near term watch for resistance failure at the price zone of 1.1242 – 1.1300. A reversal here will signal a decline towards 1.0977 where support will need to be established. The pullback to this support will offer a good level for EURUSD buyers to take long positions in the market as a result.
EURJPY broke out from the range of 118.45 – 110.79 and after a brief decline, price action continued to push higher. Currently, EURJPY is seen testing the resistance level at 128.93 – 126.77. A breakout above this resistance level will see EURJPY extend the gains to the upside.
In the near term watch for EURJPY to post a decline to the support level at 123.91. This pullback will establish support following the previous resistance level and will potentially prepare EURJPY for further upside in prices.
Therefore, it would be ideal to take long positions near the support level at 123.91 as we expect to see EURJPY continue to push higher. However, this warrants caution as EURJPY could pose the risk of posting a steeper decline to re-test the lower support at 118.45.
Hopefully you found this list to be useful. If we have enough comments, we will continue with this list every quarter. 2017 will be awesome for all of us and we wish you a wonderful year ahead with us.