Forex Picks From DailyFX Analysts Favors Short Euros And Long Pounds

With considerable event risk in waiting in the wings, volatility and technicals are suspect for the euro and pound crosses. Nonetheless, our Analysts are gauging event risk and overlaying it on strong technicals and broader fundamental backdrop for strong positions. See where they are looking below:

Chief Strategist - Antonio Sousa

My picks: Short EUR/USD
Expertise: Fundamentals, Volatility and Sentiment
Average Time Frame of Trades: 1 day - 3 months

The U.S. dollar has been very strong over the past month and I expect this trend to continue going forward. To some extent, the U.S. dollar has been helped a significant shift of interest rate expectations in favor of rate hikes by the Fed. In fact, we expect the Fed to increase rates by 144 bps in the next 18 months. In addition, the U.S. runs a current account deficit of nearly 6% of the GDP and the recent sell off in commodities, particularly in oil, should alleviate some downward pressure in the U.S. economy. On the other hand, ECB’s Jean Claude Trichet has no bias going into the next meeting and he believes recent economic data points toward a weakening of real GDP growth. Looking ahead, I expect the EUR/USD to trade below 1.45 in 3 months and 1.40 in 6 months.

Currency Strategist - John Kicklighter

My picks: Long GBPCHF
Expertise: Combining Money Management with Fundamental and Technical Analysis
Average Time Frame of Trades: 3 days - 1 week

There is considerable event risk from both the European and UK economic dockets - presenting trading opportunities but also considerable risk. In looking across the euro and pound pairs, I have two immediate filters: a strong technical bias and interest rate expectations that match in direction (and optimally intensity). Thereby a good candidate is GBPCHF which is near the top of a range that has developed between 2.0800/25 and 2.0110/020. On the short-term a rising trendline has been guiding price action since the July 17th low (now at 2.0620) and has since made a number of tests. The 20-day SMA isn't too shabby either.

However, caution is a top concern for me - especially given the event risk inherent in the BoE's Quarterly Inflation report due tomorrow. For my position, an exploratory long (half size) near the rising support level would represent a good entry and a good technical level to place a relatively tight stop and reasonable first target. On the other hand, I would not enter a full position until GBPCHF confirmed a break to the upside by marking a daily bar close above 2.0820. Should this happen, the current yield differential and outlook for further shifts to interest rates would favor a sustained advance when the technical boundary has been surpassed. At the same time, these carry considerations could work against the pair if risk aversion rises across the market.

Currency Analyst - David Rodriguez

My picks: EUR/GBP Short Stop Trade
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks

I've been calling for a EURGBP range trade for the past couple of weeks, but it has subsequently become clear that momentum may be enough to take the EURGBP beyond multi-month lows. Catching a falling knife has never been my trading style, and I'd really prefer to sell a break of clear support. With that said, I'll place stop sell orders below 0.7812, and stop levels will be determined by the previous spike-high in the EURGBP at time of execution. I may cover part of the position on a bounce at previous lows of 0.7765, but full profit targets will be set subsequent Fibonacci support at 0.7674.

Currency Analyst - Ilya Spivak

My picks: Short GBPUSD below 1.9060
Expertise: Macro Fundamentals, Classic Technical Analysis
Average Time Frame of Trades: 1 week - 6 months

The pound declined 3.12% last week and is now positioned at 1.9060, a level market by a long-term supporting trend line in place since March 2002. Looking ahead, there are two possible scenarios: GBPUSD could either issue an outright break of current support or begin with a pull-up to offer a better short entry point. In either case, the dominant bias as decidedly bearish. An upward correction would likely meet resistance near 1.9320, a multi-year support/resistance level. An Inverted Hammer at support lends credence to the retracement scenario. The eventual support break opens the door for extended selling to test the 1.80 level.

Currency Analyst - John Rivera

My picks: Short GBP/JPY
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 4-8 Days

Despite the higher than expected inflation data today I continue to be bearish the Pound. Although the GBPJPY has seen a significant decline over the last week, it still has room to trade much lower. I am looking for it to fall to 207.08 the 38.2% Fibo level of the 192.48 - 215.94 rally. Although we could see some support at current levels by the lower bollinger band, any move higher could provide a better entry point for the next wave lower. Tomorrow's quarterly inflation report will provide event risk, but with input producer prices falling, the BoE's longer term outlook for prices may be revised lower which would open the door for a rate cut.

DailyFX

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