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Today I’ll go through the Forex Market Wrap. We’ll go through some key changes this week, and what we’ve seen from the markets.
It’s all been US Dollar strength. The US Dollar has had a really good week. The weakest currency was probably the NZ Dollar. It has really felt the pain against a few currencies this week.
Retail trading sentiment
I’m going to start off with some retail trading sentiment and this is provided by the guys over at Daily FX. They produce a table which shows where retail markets are positioned, and it shows you the longs, shorts, and the open interest of that market.
It’s important to note where the retail sees the market going. Typically, they are usually wrong in the short-term. That’s what we typically look for if we look at some potential trading opportunities.
Now, looking at the market, there’s been some huge changes this week. Notably, the huge changes that I’ve noticed is the GBP/USD and EUR/GBP, in particular.
EUR/GBP has changed dramatically and we’ve seen some huge changes into the open positions.
The long positions have increased and the shorts have decreased. That tells me that the retail market is very heavily bullish on EUR/GBP right now. That means the price will more likely keep decreasing further.
So, EUR/GBP is going to be one to look at next week for potential trading positions.
Let’s also take a look at the GB Pound. Although 55% of retail is long, we’ve had some huge decreases in those long positions and huge increases in short positions.
Retail sentiment has shown a significant change in the percentages of long and shorts for two markets:
EUR/GBP has seen the retail market enter heavy long positions, which they typically do at the lows of a downtrend. Retail traders are often wrong, so we should look to do the opposite of this and expect the downtrend to continue.
GBP/USD has also seen some interesting changes with the market, adding further short positions as the downtrend continues. However, the market is at an interesting support point where we could see the trend flip.
We saw a change in trend in GBP/USD. The market started to make lower lows and lower highs. So, we’d be looking for the market to continue to the downside.
Now, we have to be careful of that retail sentiment. They’re starting to increase their short positions because they’re looking at the trend moving downwards. Will this trend continue or will it reverse?
Now, what’s interesting is when we go up to the weekly timeframe, the price has come into a key zone where the market has previously found some resistance and impulsed from this area.
This is a good area to look for long positions, especially down on a candlestick because you have to look at where these impulses are coming from.
Right now, we’ve retested this zone. But, just because we’re starting to see a bit of upside, doesn’t mean that it’s going to continue to astraight line.
GBP/USD has seen a rally from this zone previously and could see buyers step back in, considering that the retail market is adding heavy short positions. A higher low could occur here and the trend could shift.
However, we may see a short-term pullback and the market to break higher. So, we have to be careful with the GB Pound at the moment.
Although, we started to see that weakness creep in and it will still show on the strength and weakness. We have to be aware of what the retail markets are doing and we don’t want to be trading the way they are trading.
The EUR had a pretty bad time this week as well. It stayed a bit stronger against a couple of currencies. However, it has dropped quite noticeably against the US Dollar.
Again, that US Dollar strength is really taking hold. The likelihood is that the US Dollar strength may continue slightly.
We are going to take a look at some seasonal charts next week. We are approaching a potential period of weakness for the US Dollar, which would be interesting to take a look at.
US Dollar Index
The USD Index seasonal chart shows us that the month of April typically sees a decline in USD. Combining this with the retail sentiment, we could see some interesting developments over the coming weeks.
We’re approaching the end of March, going into April. April is usually a pretty bad month for the US Dollar. So, we’re starting to see the market shape up in a way that there’s a lot of US Dollar buying at the moment. We’re seeing this downtrend continue. How long will this last?
We could start to see a little bit of US Dollar weakness come back into the markets, which could take retail traders by surprise.
It’s interesting to see that we’re coming back into these major swing areas from where prices started to bounce from.
I think we may see another week of downside to these markets. However, we could see some huge reversals coming in pretty soon.
We’ll keep an eye on this. The weekly charts will play a big part in our Market Outlook.
Kiwi is looking weaker at the moment. I think there’s still more downside to those risk currencies like NZD/USD and AUD/USD.
However, we may see upside to EUR and GB Pound. So, we’ll keep an eye on this next week. I’ll show you in the Forex Market Outlook where we should be best positioning ourselves.
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