We expect a further improvement in risk sentiment, which should lead to an increase in the US dollar against competitors such as the euro, the yen and the franc. During the last week, US economic data have been strong. Labor market indicators and demand in the domestic market showed resilience. Nevertheless, the Fed in the near future will not go to higher interest rates, so the US currency will weaken against high-yielding currencies.
US currency all week was at the center of our attention. We opened 9 positions last week, 6 of them – on the currency pairs with the US dollar. EURUSD currency pair was the most popular – we bought 3 binary options on this pair, 2 Puts and 1 – Call. In total, we bought 4 binary option in favor of the US currency and 2 – against. We stuck mostly positive outlook for the US dollar prospects due to its oversold in many currency pairs.
Puts on EURUSD Are in Favor
We continue to have a negative view on the prospects, both tactically and structurally. Short-term improvement in risk sentiment will put pressure on the euro, given that it is a funding currency. In medium-term the euro should be one of the weakest currencies in the Big Ten in the background of waiting for more aggressive stimulus measures taken by the European Central Bank in March.
Euro enjoyed the same popularity as the US dollar. We bought 6 binary options on the euro, 3 of which were Calls. Thus, we can say that our forecast for the euro was neutral. On the one hand, comments of Mario Draghi made in January, still support the single European currency, on the other – the euro looks overbought in many currency pairs.
JPY Tactical Downward Trend
Asset markets are a key factor for the yen. Japanese stocks fall sharply and Japanese investors need to quickly eliminate the risks. The easiest way to do this is through the currency market, i.e. hedging foreign currency exposure. We look forward to the return of USDJPY exchange rate to 116.00 in the coming weeks.
Our Japanese yen trading has been very simple. For a week, we bought 2 Call binary options on USDJPY pair. This tactic is based on a large oversold status of USDJPY and fully justified itself. Buying Calls on USDJPY on local minimums, we have been able to realize the idea in a sideways trend in the currency pair.
Still in an Attempt to Buy Calls on USDCHF
The upward momentum in USDCHF pair persists and we still expect to achieve the target at 1.0300. Improved risk sentiment will continue to support the weakness of the Swiss franc as national investors are seeking for more attractive returns abroad. However, our forecast would change if concerns about the European banking sector to increase. In this case, the repatriation of funds to Switzerland will lead to a strengthening of the franc.
We did not trade binary options on currencies with the Swiss franc last week. The reaction of the Swiss National Bank on a possible further easing by the ECB remains unclear. We have decided to refrain from trading in conditions of great uncertainty.
Temporary Pause in CAD
Preliminary indications shown strength in the commodity sector and the Fed cautious stimulates timeout, but our medium-term negative view on the Canadian dollar prospects remains in force. Recent studies have shown the weak data on employment and investment intentions, which exacerbates the crisis economic situation.
Two Put binary options on EURCAD and USDCAD currency pairs – all that we bought during February 15-19 on the Canadian currency. The oil market stabilization plays into the hands of the Canadian dollar bulls, which prompted us to put on the loonie growth twice.
Carry Trade Pushes AUD Upward
Chinese authorities managed to return calm to the stock markets. The rate of the Chinese yuan against the US dollar has remained stable last week. In combination with injections of liquidity before the Lunar New Year, it led to a decrease in volatility and the re-made carry trade transactions attractive. Australia, as a country with high income assets should benefit from this.
We bought one binary option on the Australian dollar last week. EURAUD pair noted with a Call binary option. We decided to hedge the risks associated with the opening of two positions in favor of the Canadian dollar and opened the opposite position against the other commodity currency – Aussie.
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