Investors followed the statements of Turkish President Recep Tayyip Erdogan, in which he tried to reassure local markets. After significant declines in the price of the local currency, inflation rose after an accommodative monetary policy. 

Today’s recommendation on the USD/TRY

• Risk 0.50%.
• None of yesterday’s buy or sell transactions were activated

Best selling entry points

• Entering a short position with a pending order from levels of 18.33
• Set a stop-loss point to close the lowest support levels at 18.55.
• Move the stop loss to the entry area and continue to profit as the price moves by 50 pips.
• Close half of the contracts with a profit equal to 55 pips and leave the rest of the contracts until the strong resistance levels at 17.70.

Best buy entry points

• Entering a long position with a pending order from the 17.98 level
• The best points for setting stop-loss are closing the highest levels of 17.74.
• Move the stop loss to the entry area and continue to profit as the price moves by 50 pips.
• Close half of the contracts with a profit equal to 55 pips and leave the rest of the contracts until the support levels 18.31

USD/TRY Analysis

The Turkish lira’s trading has stabilized against the US dollar, after minor declines yesterday, when the pair recorded new levels of rise before resuming the decline and stability within a limited trading range.

Investors followed the statements of Turkish President Recep Tayyip Erdogan, in which he tried to reassure local markets. After significant declines in the price of the local currency, inflation rose after an accommodative monetary policy. The Turkish president said that his country will be embarrassed with minimal losses from the economic turmoil that the world is going through at the present time. He also stressed that Turkey is making its economic model away from easy money and based on production and job creation.

The Turkish president also set the beginning of next year as a date for the current economic decisions to be reflected on the lives of citizens in the country. He also concluded his speech by describing that the current century will become the century of Turkey, as he described it. Despite the enthusiastic statements of the Turkish president, the real situation shows strong control from the Turkish Central Bank to prevent the fall of the lira’s price, as the bank intervenes directly or indirectly to control it.

 On the technical front, unchanged, the US dollar pair settled against the Turkish lira at its highest levels during 2022. The the pair breached the 18.20 level, trading at the top of the narrow trading range shown on the chart.

The USD/TRY  is also trading above the moving averages 50, 100 and 200, respectively, on the four-hour time frame as well as on the 60-minute time frame, indicating the long-term bullish trend. The pair also traded the highest support levels, which are concentrated at 18.08 and 17.98, respectively. It is trading below the resistance levels at 18.20 and 18.33 as well, which are the highest levels of the pair recorded at the end of last year, respectively.

The chance of the lira rising against the dollar is still slim as the USD/TRY is heading in an overall bullish trend. As each decline of the pair represents a good buying opportunity, please adhere to the numbers in the recommendation with the need to maintain capital management.

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The difference between success and failure in Forex / CFD trading is very likely to depend mostly upon which assets you choose to trade each week and in which direction, and not on the exact methods you might use to determine trade entries and exits. 

So, when starting the week, it is a good idea to look at the big picture of what is developing in the market as a whole, and how such developments and affected by macro fundamentals, technical factors, and market sentiment. Read on to get my weekly analysis below.

Fundamental Analysis & Market Sentiment

I wrote in my previous piece on 14^th August that the best trades for the week were likely to be:

• Looking for short-term long trades in the S&P 500 Index during periods of short-term bullish momentum. However, we did not really see any bullish momentum here last week.

The news is currently dominated by the FOMC meeting minutes which were released last week, showing that the Fed remains determined to continue hiking rates until inflation is brought considerably lower, and that Fed members are worried about the economic impact of the ongoing rate hikes. Recent inflation data released in the US and Canada showed inflation slowing, but inflation in the UK was revealed last week to be still increasing, now standing there at an annualized rate of 10.3%. The shift is sentiment is towards risk-off, which has had the effect of knocking down stocks, commodities, and cryptocurrencies, and strongly boosting the US Dollar, mostly at the expense of the commodity currencies NZD, AUD, and CAD.

It is worth pointing out that although the US stock market had been rising in recent week, the US stock market has technically been in a bear market for some time, with the US yield curve being inverted for several weeks now. The US is also arguably in a recession, having seen two successive quarters of GDP contraction, although wages growth and the job market remain relatively buoyant.

To recap there were a few other important economic data releases last week apart from the FOMC meeting minutes. The results were as follows:

1. UK CPI data – an annualized rate of inflation of 10.3% was reported compared to the rate of 9.8% which had been expected.
2. Canadian CPI data – a month-on-month increase of only 0.1% was reported, which had been expected.
3. Reserve Bank of New Zealand Official Cash Rate, Rate Statement, and Monetary Policy Statement – the RBNZ hiked its rate of interest by 0.50% to 3.00%, the highest rate of any major currency, and signaled a more hawkish tightening path over the coming months.
4. Australian Monetary Policy Meeting Minutes – the RBA signaled an intent to take further tightening steps but did not define the path clearly.
5. US Retail Sales data – the core data came in more strongly than had been expected, showing a month on month increase of 0.4% when a decrease by 0.1% had been widely forecast.
6. Australian Unemployment data – there was a net loss of approximately 40k new jobs when a gain had been expected, but the headline unemployment rate fell to 3.4%.

The Forex market saw a strong rise by the US Dollar last week. The rise was broad but especially strong against the commodity currencies, especially the New Zealand Dollar.

Rates of coronavirus infection globally dropped last week for the fifth consecutive week. The most significant growths in new confirmed coronavirus cases overall right now are happening in South Korea, Moldova, the Marshall Islands, and Tonga.

 

The Week Ahead: 22^nd August – 26^th August 2022

The coming week in the markets is likely to show a lower level of volatility compared to last week, although there will be a release of preliminary GDP data for the US that could move the market despite the low level of important data releases due. Releases due are, in order of likely importance:

1. US Preliminary GDP data
2. US Core PCI Price Index data
3. US, UK, German, and French Flash PMI data
4. Jackson Hole Symposium (central bankers)

Technical Analysis

U.S. Dollar Index

The weekly price chart below shows the U.S. Dollar Index printed a long, strongly bullish candlestick which closed right on its high, in line with the long-term trend, which is bullish. The weekly closing price is a 20-year high, and the week’s strong rise came after the price rejected the support level below just under 105.00. These are all very strong bullish signs.

It will probably be a good idea to look for long trades in the US Dollar over the coming week. This is a very powerful, long-term bullish trend in the most important currency in the Forex market, and it remains likely to continue as long as sentiment remains driven by the fear of ongoing interest rate hikes negatively impacting risky assets, with the US Dollar acting as a primary safe haven.

GBP/USD

Last week saw the GBP/USD currency pair print a large, bearish engulfing candlestick. The British Pound was not one of the biggest losers against the strong US Dollar over the week, but this pair is technically interesting as it printed the lowest weekly close seen since the coronavirus panic in March 2020.

The price briefly traded below $1.1800 on Friday before closing a little higher than that.

The British Pound is beset by fundamental woes, including new increased inflation figures above 10%, and a Bank of England forecast of a coming recession which will last for five quarters and see GDP shrink by 2.2%.

The strength of the US Dollar and the technical breakdown we see here, plus fundamental headwinds against the Pound, see a short trend trade opportunity in this currency pair. However, it is important to use relatively tight stop losses for the British Pound, as using ATR 1 has over the years produced much better results than the more typical ATR 3.

NZD/USD

The New Zealand Dollar was the biggest loser of all major currencies last week, despite the RBNZ’s rate hike by 0.50% to 3.00%, the highest rate of any major currency. However, there was no technical breakdown below recent support.

It is notable that the price closed right on the low of the week, which is a bearish sign.

There may be further bearish momentum in the NZD/USD currency pair over the coming week, with all the commodity currencies weak and the NZD weakest of all showing this can be an interesting currency on the short side.

Natural Gas

Although we are seeing a bearish market with most commodities and risky assets shrinking against safe havens such as the US Dollar, we have seen Natural Gas gain strongly over the past week to make new multi-year highs.

Volatility is very high and price movement can be extremely choppy.

Long natural gas can be an attractive trend trade as we are seeing a breakout in the price chart. However, anyone trading natural gas should be very, very mindful of the extremely high level of volatility we have seen here over recent months, and trade very small position sizes which respect the volatility.

As commodities in general and energies are quite weak, I do not have very strong faith in a long trade here, which is another reason to keep the position size very small if you are trading natural gas over the coming week.

 

Bottom Line

I see the best opportunities in the financial markets this week as likely to be:

1. Short of the GBP/USD currency pair, and
2. Long of Natural Gas.

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EUR/USD

The Euro has been pummeled during the week, as it looks like we are going to put a serious threat on the parity level. If we break down below the parity level, then the market is likely to go much lower, perhaps down to the 0.98 level. A short-term rally is possible, but I think the 1.03 level will offer a significant amount of resistance. Any rally at this point in time that shows signs of exhaustion will be an opportunity to start shorting and picking up “cheap US dollars.”

GBP/USD

The British pound has broken down significantly during the week, as we continue to see the US dollar act like a wrecking ball against almost everything. Any rally at this point in time will continue to see a lot of selling pressure, so I think that much like the Euro, I think you are likely to see people willing to pick up “cheap US dollars” on any rally. It’s obvious that people are starting to worry about the central bankers next week spoke in the market as they will continue to talk about massive amounts of interest rate hikes. On the downside, the market could go all the way down to the 1.15 level.

USD/CAD

The US dollar has rallied a bit during the course of the week, to test the 1.30 level. The 200 Week EMA sits just below, just as the 50 Week EMA is starting to turn toward it. At this point, it’s likely that we will continue to see little bits and pieces of support, but this is a market that continues to see a lot of noisy behavior, as we are trying to grind higher based upon the overall uptrend as defined by the channel that we have been in.

USD/JPY

The US dollar has rallied rather significantly during the trading week, to break above the 1.37 level at one point. However, we have seen a lot of noise since then, and have pulled back. Nonetheless, we are still very bullish, so I think at this point in time we are going to look at a market that continues to be more or less a “buy on the dip” attitude, with the ¥132 level underneath offering significant support. Ultimately, this is a market that I think will continue to be very noisy, with the bond markets having a major influence.

 

If we were to break down below the bottom of the candlestick for the day, that could be a very negative sign, perhaps sending this market much lower.

The AUD/USD pair has fallen rather hard during the early hours on Wednesday, as the Royal Bank of New Zealand decided to raise interest rates by another 50 basis points. This move was in sympathy for the Kiwi dollar, slamming the Aussie down into the 50-Day EMA.

Later in the day, we had the FOMC Meeting Minutes, which traders interpreted as showing signs of potential dovishness. Because of this, we did get a little bit of a lift, but it is probably worth noting that we are still very much in a consolidation area that will probably cause major problems. With that in mind, I think this is a market that remains choppy, and therefore probably one that you need to focus on short-term charts. That 0.70 level above is the beginning of relatively significant resistance, which could extend all the way to the 200 Day EMA, which is currently at the 0.7150 level. Keep in mind that the Australian dollar is highly levered to the Chinese economy.

Will AUD Return to a Bullish Trend?

• If we were to break down below the bottom of the candlestick for the day, that could be a very negative sign, perhaps sending this market much lower.
• It is likely that we would see the Aussie drop back down to the 0.67 level, an area that has been important previously.
• Not only did we bounce from there recently, but it’s also longer-term support and resistance area, and therefore it does make a certain amount of sense that we would struggle in that region.

If we do break down below the 0.67 level, it opens up a move down to the 0.65 level, and then possibly even lower than that. It should be noted that this level has been important going back several years, so it should not be a surprise that we had bounced from there. Furthermore, if we were to break down below that level, it would be a severe breach of support, so it could open a big flush lower. On the upside, if we were to take out the 200 Day EMA going forward, that would obviously be bullish, and would technically make the Australian dollar back in a bullish trend again. I don’t see that happening, but it’s something that you need to be aware of.

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I will be paying attention to the 10 year yield, as it has been a good indicator as to where we can go next and not only gold, but other markets as well.

• Gold markets fell almost immediately in the futures market on Monday as we continue to hear a lot of noise around the US dollar and the interest rate complex.
• Keep in mind that higher interest rates will work against the value of gold, and it should probably be noted that gold has had a nice rally for a while.
• Because of this, I think it is probably only a matter of time before we see a significant turnaround, and perhaps an attempt to clear out a lot of the “weak hands.”

Technical Analysis

It’s worth noting that we are sitting at the 50-day EMA, which is an area that a lot of people will pay attention to from a technical analysis standpoint, but quite frankly also can be sliced through quite easily. If we were to break down below the bottom of the candle for the trading session on Monday, then it’s possible that we would drop down to the $1750 level. I think at this point we are more likely than not going to see volatility over everything else, so I do think that it makes sense that we drop a bit.

Pay attention to the US dollar, because it does have a negative correlation to the gold market, which has been relatively strong as of late. If we were to turn around and take out the $1815 level in the spot market, I think that kicks off a lot of short-term short covering and allows the market to go reaching the 200–day EMA. The 200-day EMA is currently at the $1845 level, so it makes for a quick easy $30.

On a break down below the $1750 level, it’s possible that gold goes looking to the $1720 level. The interest rates in the US continue to be a major driver of where you go, with the inverse correlation being so strong. The $1720 level is massive support, and if we were to give that up, things could get rather ugly in short order. In that scenario, we could see a massive flush lower as the US dollar would continue to punish almost everything else in the financial markets. With that in mind, I will be paying attention to the 10 year yield, as it has been a good indicator as to where we can go next and not only gold, but other markets as well.

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I will be looking for short-term rallies that I can fade because it should offer a bit of value to the downside.

• The West Texas Intermediate Crude Oil market fell rather hard during the early hours on Monday, crashing into the previous support level of around $87.
• The $87 level has been important, so it’s not a huge surprise that we have bounced from there.
• Ultimately, the market has continued to defend this area, but it is more likely than not going to be an area that will eventually get broken.

Volatility and Downside Ahead

If we do break down below that area, then it’s likely that this market could get hammered, perhaps opening up a move to the $85 level, then followed by the $80 level, an area that obviously has a significant amount of psychology attached to it, and has quite a bit of historical importance as well. That being said, the market continues to see a lot of volatility, and typically volatility means that the market will eventually fall.

When you look around the world, there is a severe concern when it comes to global growth, as it seems to be disappearing. Any lack of growth is almost always shown up as negativity in the oil market, as demand should drop overall. I think that’s what is being priced in right now, so it is most certainly going to continue to be negative. That being said, we have seen a little bit of a bounce, and the volatility of oil will more likely than not continue to be a major factor.

It looks as if the $94 level above should continue to be resistance, and breaking above that would be a pretty strong sign. I don’t necessarily see that happening anytime soon, but it’s something to keep in the back of your mind. As things stand right now, it looks like we are grinding back and forth in order to try and find some type of consolidation pattern, but it most certainly seems to be favoring the downside in general. Because of this, I will be looking for short-term rallies that I can fade because it should offer a bit of value to the downside. The US dollar continues to be a very strong currency anyway, so I think it only makes sense that the oil markets will struggle to keep up against that type of massive momentum in the currency market.

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I think the best way to attack this market is to fade rallies, as we continue to see a lot of selling pressure overall.

• The West Texas Intermediate Crude Oil market fell a bit on Friday as the 200-day EMA has offered a bit of trouble. 
• This is a market that has a lot to digest, due to the fact that the economy is all over the place, as we are starting to factor in the possibility of a slowing situation when it comes to demand.

Sliding Down the Channel

The market will continue to pay attention to the descending channel that we are in, and therefore it’s likely that we will see the market respect that going forward. The market breaking down below the low of the Friday session could open up the possibility of a move down to the $87 level, and it should probably be noted that there is a certain amount of psychology involved in the $90 level as well.

On the other hand, if we turn around and crack above the 200-day EMA, then it’s possible that we could see the market try to make a move towards the 50-day EMA, which would essentially put the market looking at the $103 region. Ultimately, I think this market continues to see a lot of noisy and choppy behavior, but I think the best way to attack this market is to fade rallies, as we continue to see a lot of selling pressure overall.

While we could see a little bit of a rally at this point, the reality is that demand is going to suffer due to the slowing economy around the world. That works against the demand equation, and that probably is the story going forward. Because of this, I have no interest in buying, at least not in the short term, but will keep an eye on growth going forward from a global standpoint. Furthermore, we also need to keep an eye on the US dollar, because it can have a negative correlation to this market as well. Ultimately, I do think that this is a market that is going to be noisy at best, so volatility typically breeds negativity over the longer term. The market breaking down below the lows that we made just a few sessions ago could open up the floodgates to reach down to the $80 level rather quickly. Because of this, I think you need to be very cautious.

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This is a market that I am still bearish on, but I need to see a bit of a bounce before putting money to work.

• The West Texas Intermediate Crude Oil market pulled back initially on Wednesday to test the lows yet again.
• That being said, we have turned around to show signs of life, perhaps due to the idea of more risk-taking out there as the CPI numbers came out cooler than anticipated.
• The idea is that the Federal Reserve will not have to slow down the economy as much as one side, and that could lead to more demand for crude oil.

Rough Road Ahead

I’d be remiss if I did not push back on this idea, because quite frankly inflation is over three times what the Federal Reserve is comfortable with. In other words, although the CPI number was cooler than anticipated, the reality is that it is still far too high for the Federal Reserve to pivot. In other words, they are going to engineer a recession, although it doesn’t necessarily seem that they are going to have to try very hard as various indicators showed just how out of sync this economy is in the United States. As long as that’s going to be the case, then oil has a rough road ahead.

The 200-day EMA sits just above the $95 level, and I think that could offer quite a bit of resistance. I would be very interested in shorting this market on a negative candlestick, but we don’t have that set up yet, and I think at this point you need to look at this through the prism of a downtrend that has been in a nice channel for a while. We are simply in the middle of that channel, and I think at this point in time it’s very likely that we will continue to see sellers above. We don’t necessarily have that right now, but I think after a little bit of a bounce, it’s very likely that they will return, especially near the $95 level.

If we break down below the bottom of the candlestick for the trading session on Wednesday, that could open up quite a bit of selling pressure, sending the market down to the $85 level, possibly even the $80 level. Ultimately, this is a market that I am still bearish on, but I need to see a bit of a bounce before putting money to work.

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We are going to continue to see a lot of bullish pressure on the US dollar, which it works against the value of Bitcoin.

• The BTC/USD currency pair did very little as far as upward mobility is concerned over the course of the last several days.
• While Friday did look a bit more bullish than the previous sessions, the reality is that the market has a lot of work to do before it becomes remotely positive.
• Because of this, I still feel that we have plenty of time to get long of this market assuming that we even want to be.

Volatility Likely Amid Aimslessness

The Bitcoin market is hovering around the $23,000 level, which is an area of some interest, but at the end of the day, we are essentially going back and forth and trying to find some type of directionality. The market gave up most of the gain for the day anyway, so it looks to me as if the market is going to continue to see a lot of volatility more than anything else, and even if we were in the process of trying to build up a bit of an accumulation phase, the market has a lot to do convince everybody to get long.

As jobs numbers came out hotter than anticipated Friday, interest rates in the United States spiked. This suggests that we are going to continue to see a lot of bullish pressure on the US dollar, which it works against the value of Bitcoin. Ultimately, the 50-day EMA underneath should offer a significant amount of support. The $20,000 level underneath there is an area that I think a lot of people will pay close attention to, as it is a large, round, psychologically significant figure, and could lead to even more selling pressure to the downside. If we were to break it down below there, it opens up the possibility of Bitcoin going down to the $12,000 level. The $12,000 level would be an area that a lot of people will be paying close attention to.

On the other hand, if we can break above the $25,000 level, it’s possible that we could go to the $28,000 level above. Between the $28,000 level in the $32,000 level, I expect to see a lot of resistance and therefore think it’s going to be very difficult to get above any time soon. If we were to do that, it would change the overall trend.

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If we are truly going into some type of major recession, oil will continue to get hammered. 

• The West Texas Intermediate Crude Oil market got a little bit of a bounce on Friday as the job number in America came out with over half a million jobs for the month of July.
• The market is speculating that there will be more demand for crude oil than they had thought 24 hours earlier due to the fact that more people are working.
• Whether or not that’s true is a completely different question, but at this point, it looks like the market is willing to buy that story for the moment.

Still in a Downtrend

You should also keep in mind that perhaps short-sellers took profit heading into the weekend, so that is something worth paying attention to as well. The fact that we are still below the $90 level will weigh upon the idea of bullish narratives, so that is also worth watching. Ultimately, this is a market that has been in a downtrend for a while, so it does make a certain amount of sense that we would continue to go lower.

When you look at this chart, is easy to see that the sellers continue to come back into this market, so I think that this short-term rally will probably get sold into. If we break down below the bottom of the candlestick for the session on Friday, it’s likely that we go lower, perhaps reaching the $80 level underneath. The $80 level is an area that will attract a lot of attention, but quite frankly I just don’t see how that means anything other than a short-term bounce.

If we are truly going into some type of major recession, oil will continue to get hammered. When you look at this chart, you can see that we have been in a bit of a downtrending channel, and it appears that we are going to continue that same overall behavior. Ultimately, I have no interest in buying oil anytime soon, due to the fact that it seems as if all commodities are continuing to sell off, and of course, oil is right in the front when it comes to recessionary concerns. Ultimately, it’s worth noting that we are below the 200ay-d EMA, so it does make quite a bit of sense that we would see further negativity.

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