WEEKLY FOREX TRADING TIPS – 2023.02.06

FOCUS ON: Markets Pivot on Back of US Job Numbers Report

• Dollar strength follows US Non-Farm Payrolls employment report
• US job numbers greatly exceed analyst expectations
• Further US interest rate rises could be on the way

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Trading Ideas

We created this Weekly Tips section to share possible trade entry and exit points based on our technical analysis. We also have other methods to validate our trades which we can’t publicly share that help to increase their success. All our trades include entry and at least one target price. Stop losses are applied at the reader’s discretion. Our strategies typically trade with a wide stop loss, and risk is further mitigated by trading in small sizes.

UTC: 09:58

US Dollar Basket Index (DXY)

A potentially game-changing US Non-Farm Payroll jobs number shook the markets on Friday and caused a surge in US dollar strength. That monthly jobs update came on the back of an in-line rate hike but increasingly ‘dovish’ guidance from the US Federal Reserve on Wednesday. With a much quieter week ahead in data releases, technical indicators can be expected to carry more weight in determining trade entry and exit points.

The absence of any heavyweight data releases in the coming week opens up the opportunity for a period of consolidation in asset markets. Strategies which trade retracement patterns of an underlying trend could be applied.

US Dollar Basket Chart – Daily Price Chart – Test of SMA

Source: IG

US Dollar Basket Chart – Daily Price Chart

Source: IG

Short positions

• Entry Level 1: 102.94 – Region of the 50 SMA on the Daily Price Chart.
• Price Target 1: 101.78 – Price support marked by a sideways trading pattern formed between 15th – 31st January 2023 and region of the 20 SMA on the Daily Price Chart.
• Price Target 2: 100.50 – Year-to-date price low recorded 1st February 2023.
• Stop Loss:  > 102.94 – Price hasn’t closed above the 20 SMA on the Daily Price Chart since Thursday 5th January 2023.

Long positions

• Entry Level 1: 101.78 – Region of the 20 SMA on the Daily Price Chart. The 2.32% price rise in DXY in the last few trading sessions was triggered by milestone data reports being released. The short-term underlying trend is upward, but patience might need to be applied in a quieter news week to enter into long positions during moments of weakness.
• Price Target 1: 102.94 – Region of the 50 SMA on the Daily Price Chart.
• Price Target 2: 105.37 – In extension, the year-to-date price high recorded on 6th January 2023.
• Stop Loss: < 100.50 – Year-to-date price low recorded on 1st February 2023 and close to parity price level.

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GBPUSD

Sterling’s recent weakness off the back of strong US employment data has formed a potential double-top price pattern. A break of the 1.18413 price level recorded on 6th January would confirm the double-top and point to further price weakness.

The RSI of 35.82 on the Daily Price Chart points to GBPUSD being close to being oversold in that timeframe and suggests any downward move might be gradual.

GBPUSD Chart – Daily Price Chart

Source: IG

GBPUSD Chart – Hourly Price Chart

Source: IG

Short positions

• Entry Level 1: 1.20561 – Entering into short positions at times when price clips the 20 SMA on the Hourly Price Chart. Price action of GBPUSD on that timeframe can only be described as bearish.
• Price Target 1: 1.2000 – Psychologically important price level which can be expected to offer price support.
• Price Target 2: 1.19461 – Region of the 100 SMA on the Daily Price Chart.
• Stop Loss:  > 1.22013 – Region of the 50 SMA on the Daily Price Chart and ‘round number’ price resistance at 1.22000 level.

Long positions

• Entry Level 1: 1.19461 – Region of the 100 SMA on the Daily Price Chart. Buying into weakness at a level above the price low of 1.18413 recorded on 6th January 2023.
• Price Target 1: 1.22156 – The 61.8% Fibonacci retracement price level formed by the price fall between 14th December 2022 and 6th January 2023.
• Price Target 2: 1.24360 – In extension, price high of 18th January 2023.
• Stop Loss: < 1.18413 – Price low recorded on 6th January 2023 and bottom point of double-top price pattern.

EURUSD

EURUSD recorded another week of outperformance against GBPUSD, the former losing 0.90% of value while cable dropped by 2.52%.

The interest rate hike posted by the ECB on Thursday 2nd February 2023 was in line with analyst expectations. The continued ‘hawkish’ guidance from the central bank also provides further support for the euro. The break of the supporting trendline on the Daily Price Chart points to a chance of EURUSD continuing its downward move, even if it is at a slower rate than in the GBPUSD market.

EURUSD Chart – Daily Price Chart – Trendline Break

Source: IG

EURUSD Chart – Hourly Price Chart

Source: IG

Short positions

• Entry Level 1: 1.07928 – Region of the 20 SMA on the Hourly Price Chart
• Price Target 1: 1.07681 – Price low of Wednesday 18th January. Marks the bottom trendline of the sideways trading channel seen in the second half of January.
• Price Target 2: 1.07285 – Region of the 50 SMA on the Daily Price Chart.
• Stop Loss:  > 1.10330 – Price high of 1st February which marks failed test of the psychologically important 1.10 resistance level.

Long positions

• Entry Level 1: 1.07285 – Region of the 50 SMA on the Daily Price Chart. Price hasn’t closed below this metric since 4th November 2022.
• Price Target 1: 1.07681 – Price low of Wednesday 18th January.
• Price Target 2: 1.09423 – In extension, marks the 50% Fibonacci retracement of the downward price move from January 2021 to September 2022.
• Stop Loss: <1.05210 – Swing-low (closing) price level recorded on 5th January 2023.

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Indices

S&P 500

FAANG stocks posted disappointing earnings at the end of last week, but investors managed to shrug off the bad news, with the NASDAQ 100 index posting a weekly gain of 3.57% and the S&P 500 index rising in value by 1.86%.

Potential catalysts for the rally include the increasingly dovish guidance offered by the US Fed during its press conferences on Wednesday. In contrast, the buoyant NFP jobs report on Friday points to any optimism that rate rises could be paused needs to be reined in.

S&P 500 Chart – Daily Price Chart – Focus on Short-term Trendline

Source: IG

S&P 500 – Hourly Price Chart

Source: IG

Short positions

• Entry Level 1: 4,050 – 4,080 – Selling short into a break of the supporting trendline dating from 19th January 2023.
• Price Target 1: 3,947 – Region of the 50 SMA on the Daily Price Chart.
• Price Target 2: 3,885 – In extension, price level recorded on 19th January 2023 and which forms a swing-low price pattern.
• Stop Loss:  > 4,133 – Closing price of Friday 3rd February 2023.

Long positions

• Entry Level 1: 4,050 – 4,080 – Momentum in the S&P 500 index remains upward, and price action remains bullish until the supporting trendline is broken. Buying into weakness when price touches that line offers a chance to go long in the same direction as the underlying trend.
• Price Target 1: 4,195 – Intraday price high of 2nd February 2023.
• Stop Loss: < 4,035 – Region of the 20 SMA on the Daily Price Chart.

Crypto – Bitcoin & Ethereum

Following a solid start to the year, the two big cryptos continue to catch their breath. Bitcoin’s -2.88% weekly return was beaten by Ethereum’s modest week-on-week gain of 0.80%. The SMAs on the Daily Price Charts have caught up with price and could signal further strength.

Bitcoin Price Chart – Daily Price Chart – Consolidation at 20 SMA

Source: IG

Bitcoin Long positions

• Entry Level 1: 22,836 – Buying into any short-term price weakness which tests the 20 SMA on the Daily Price Chart.
• Price Target 1: 23,956 – Price high of 29th January 2023 and region of the psychologically important, 24,000 ‘round number’ price level.
• Price Target 2: 25,204 – Price high of 2022, recorded on 15th August.
• Stop Losses:  < 20,000 – ‘Round number’ support level.

Ethereum

Ethereum Chart – Daily Price Chart – 20 SMA

Source: IG

Ethereum Long positions

• Entry Level 1: 1,609 – Buying into weakness which takes price into the region of the 20 SMA on the Daily Price Chart.
• Price Target 1: 2,000 – Psychologically important ‘round number’ resistance price level. Also, the region of the price high of 13th August 2022.
• Stop Losses:  < 1,462 – Closing price of Friday 13th January. Could be tested by a gap-fill price move.

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