Major pairs moving counter-trend from mixed U.S. trade deficit and PMI releases

Here’s a recap of earlier events. The U.S. trade deficit came out to $43.8 billion. Meanwhile, the ISM Non-Manufacturing PMI showed a surprising jump to 60.3. These two events brought in a whipsaw action across USD pairs. Now that we have settled down before the Tokyo London volatility kicks in, let’s take a look at the chart setups for a few key pairs.

GBPUSD currently remains in a range, which it entered since the end of July. Are there any tradable opportunities? I currently have three key levels marked down for this pair with the intentions of trading off of these zones.

GBPUSD 2-Hour
GBPUSD 2-Hour

As of the moment, I anticipate an upwards breakout or at least a priced in bullish move. This is not extracted from the levels I’ve drawn, but from the Reuters’ prediction of tomorrow’s BOE meeting. As of right now, the anticipation is on the BOE rate hike decision as inflation sits at 0% after two strong years of growth. Last month, Mark Carney stated a possible rate hike closer to the end of the year and we may start to see the effects of this.

If you do plan on trade off of the rate hike decision, you would have better luck shorting EURGBP or buying GBPJPY. It would not be a good idea to trade the Pound against the U.S. Dollar especially when the U.S. rate hike is anticipated for September as well. By trading with a bearish pair, it offers a better payoff on the rate hike decision.

Speaking of EURGBP, we are currently looking at a counter-trend move as it plays off of a previous demand area. Given the BOE’s anticipated rate hike decision, we would most definitely be looking into short opportunities for this pair. This comes especially as the outlook for Greece does not look good. The German government doubts a third Greek deal can be reached by August 20. This could spell further trouble for the Euro.

EURGBP 1-Hour
EURGBP 1-Hour

The bottom zone has been tested and is currently holding up. I have three levels in place to trade off them in preparation for the 7:00 am bank rate announcement. In fact, tomorrow morning will be a wild day for the Great Britain Pound with the Manufacturing Production, Inflation Report, Official Rate, MPC Vote & Statement, and Carney speech all coming out tomorrow.

Finally, let’s take a look at the EURJPY pair. I have the chart objects color coded as I ponder whether or not these zone tests will hold up.

EURJPY 1-Hour
EURJPY 1-Hour

The two gray rectangular zones mark multiple test levels that continue to change from support to resistance and so on. The yellow zone does not have an extension at the moment simply because it does not appear to be retested after the breakout. As of the moment, I am not relying on this zone and do not expect it to hold up. Finally, I have a potential demand zone at the very bottom.

Stretching over to the 6-hour time frame, it does not look like there is a clear trend. We are in a nice range so it definitely is possible to enter trades as price bounces off these support and resistance zones. Given the longer upper tail, I am just waiting for the complete end of the current bar before making my decision to enter a short trade.

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