In yesterday’s post we covered the outlook for the EUR/USD which we believe could have a significant correction to the downside if it does the euro correlated or proxy pairs will also correct. In this article we will look at 3 x euro correlated currencies against the USD – USD/SEK, USD/CZK and USD/NOK. Starting from the logic of the trades in terms of the fundamentals, technical and sentiment, we are going to use the 20-day Moving Average as a very effective technical tool for getting good risk to reward entries and managing stops the 20 day Moving Average.
The EUR correlated currencies very often move faster and are more volatile than EUR/USD so offer good risk to reward trading opportunities. We will also look at using the 20-day MA to help time trade entries and also manage stops.
In terms of EUR/USD we noted in our last post that US interest rate contracts are on the rise with the 10-year note trading at 1.7% this yield is better than euro zone bonds and if the yield continues to rise it will support the USD as investors buy bonds.
Bond yields will also support it against the euro correlated currencies. In addition, the market has bought the euro and the euro proxies on the view of a strong economic recovery happening in Q1. This is unlikely to happen in our view due to the extended lock downs in many countries also all leading economic indicators point to the US economy outperforming euro zone.
Finally, we have a large number of speculators short the USD which have pushed it to an oversold extreme. Oversold extremes can last a long time so how do we confirm a trend change? We like to use the 20-day MA with simple support and resistance – below a quick overview of the 20-day MA and then the technical outlook for the 3 currency pairs…
The 20 Day Moving Average An Under Used Trading Tool
On the charts below you will see at the 20 day MA (a green line) The moving average is effective tool in strong trends as when you have a strong up or down trend prices will tend to trade below it in a strong down trend and above it an uptrend.
On all the charts below the USD has traded below the 20 Day MA for several months with any rallies failing to close above it. If you are looking for a trend change then a break of the moving average and nearby support or resistance can be used to initiate counter trend trades.
USD/SEK DAILY CHART: The SEK was the top performing currency against the USD last year and we are now looking for the USD to mount a major rally to the upside. After falling below the 20 day MA in November we have seen a strong down trend. The USD has now found support and a break of the 20 day MA and nearby resistance is likely to trigger a major upside move to levels indicated.
USD/CZK DAILY CHART: The USD moved below the 20 Day MA in November and has traded below it ever since – we are now seeing the USD push up from support and we are trading below the 20 day MA – If we break above it and last week’s high we could see a move up to the 22.50 level.
USD/NOK DAILY CHART: The USD has fallen hard with only one move above the 20-day MA in the last 2 months and the move was rejected. We will now see if support holds and if we can breakout to the upside. If we do we expect a major move to the upside to the 9.200 level.
Research provided by LearnCurrencyTradingOnline.com
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