Forex Trading Analysis 24 September 2016

Forex Trading Update 24 September 2016

Ok, market closed and let's review the closing conditions first!
USD/CAD rally again after i take my profit. It might seems like i was overly worried when you just take a look at the chart like this.

After the initial bad data released, the pair topped at 1.3141 for a moment and i already closed my position at 1.3135. After that, USD/CAD retraced down to around 1.312 and that is very normal. I expected that would happen as well since traders might take profit after almost 100 pips surge after the news. But some catalyst happen to USD/CAD pair that makes it to rally further.

To tell you the truth, i expect that result as well but i did not know when that news will be released. Plus, with a volatile USD/CAD right after the data, it might not wise to hold a position due to a retracement risk (not a reversal). Drama between oil producers has started since beginning of 2016 and it will keep going on. So, after this news released, USD/CAD shoots up again to 1.3165 level.

You might see that the market is expecting a decision to be concluded and oil rallied from $44 level to $46.3 level though the result is different from what they are expecting and it goes back to 44.86 level.

"Hey Sylvin, what do you expect for next move in oil?"
Personally i'm not trading oil but i'm analyzing them as well so.. they might breakdown again to 43.7 level or lower back after such a dissapointment. It's quite normal for oil to down to that level again since traders are betting on a decisive action and oil rallied as the result. And then it will goes back to that level since market cools down after seeing the result.

"What is the relation from OIL to USD/CAD?" "Why Oil's downside has such an impact to USD/CAD?"
It is mainly effecting Canada actually since their main commodity is oil. If oil goes up then Canada will getting stronger and USD/CAD will goes down. If oil goes down then Canada get weaker and USD/CAD shoots up. Moreover, you might even see such a combination with bad data and lower oil yesterday. That is why the rally might continue a little bit.

Ok, after discussing USD/CAD then i'd like to discuss precious metal next. First of all, traders need to always know that anything might just happen in Friday. Some trader might enter and most traders will do profit taking. It's not weird at all to see things like this.

XAU/USD or Gold still moving around the level i make an entry so it's not really a problem. But most actions is being taken on XAG/USD or Silver.

So, lemme do a small calculation in here.
When market opened at 21 September, Gold bottomed at 1309 level and Silver bottomed at 19 level.

Gold rally = (1343 - 1309)/1309 = 2,59%
Silver rally = (20.05 - 19)/19 = 5,52%
So this is the reason Silver goes down quite a bit after the Friday's closing. The rally was quite too much already i guess.
Now let's try to check Gold / Silver cross..
Before rally = 1309/19 = 68.89
After rally = 1343/20.05 = 66.98

Brief explanation is, the market that has rallied to far will naturally correct themselves a little bit. But personally i expect Gold/Silver cross will be around 50 level from 3-5 years from now. So holding a long term Silver might be better but it will be better if you can hold both of them.

"Do you change your outlook on precious metal later?"
Well, not really. Short term volatility might come when FED raise their interest rate but it might not impact the market too much actually... i quess Gold might goes down to 1290-1300 level and Silver around 17-18 level but that's all short term volatility only. After that, like in 2016 precious metal will shoots up again due to lower growth caused by that rate hike (if they did increase it. it might be one and done).

Try to check this for now...

So, what happen after they did raise interest rate? Don't look at all the green numbers alone and try to compare it with the data last year. You will find that growth keeps slowing down and that is not weird at all. After all, theoritically as long you raise your interest rate by 0,25% then that means you will lower your own growth by 0,25%.

So, FED might make GDP around 0% if they raise IR by 1% and when that happen, they will be in recession. Can FED raise rate further? Yeah they can with a recession risk surely. What about their GDP forecast? They keep revising them down from around 2.4% level and down to 2% level and now 1.8%. I'm astonished they have no shame at all by doing this. The funny thing is, market turns a blind eye and accept everything Yellen said. While what i heard from her speech is "Our economy is improving so all data slows down and got worser."

Right now i'm still wondering how long market might get fooled by her actually...
If you did not know the position of how much market is pricing in USD's rate hike then take a look at this picture.

At 23 September 2016, market pricing in 48,3% of a rate hike in December 2016 by 25bps and 5,9% by 50bps (crazy).
Ok, time to conclude everything i guess...
Despite the downside movement in Silver on Friday, i am still bullish on precious metal very much...
I expect them to shoots up in 2017 and further more, Gold might go to 1400 level and Silver to 22.5 level at 2017 or even more. If some trader here got scared and wish to close position faster, you may do so. But precious metal tend to go higher with the uncertainity and surely US's president election is full with uncertainities, not to mention October is known for the month with crashes. Who knows what might happen? That is why i'm still parking my money at precious metal.

For now, let's discuss about 26 September's trading outlook!

As for why i highlighted SNB Chairman Jordan Speaks and ECB President Draghi Speaks, they might just suddenly say something important that might impact the market. As usual, as long the speech is hawkish then the currency will be bullish and if it's dovish then the currency will be bearish.

The example for a bearish speech will be a further rate cut needed for SNB or ECB and if they state that they will not need further rate cut and economy is improving then the currency might become neutral to bullish (not completely bullish unless they will normalize back the IR or stop QE)

New Home Sales tend to bring short term volatility and i rarely use it to trade. Unless the data shows a shocking change, it might not be sustainable. Actually German Ifo Business Climate might be more important on Monday but right now Euro is not the focus of the market.

Q : Sylvin, i want you to cover other pairs as well such as GBP/USD or AUD/USD.
A : No problem, try to contact me and i will cover it for you. I am only covering the pairs i'm trading for now but if there is some request then i'll do it. (Surely when i'm free but right now i'm quite free though)

Q : Sylvin, your analysis's depth is too shallow... please make it deeper.
A : I'm making it to be understood with most trader that try to read it. If you can help me arrange the words so everyone can understand then i will increase the depth of the analysis.