EURUSD Day Trades – January 2

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EUR/USD Mid-Session Technical Analysis for January 2, 2020

The Euro is trading lower on Thursday although final purchasing managers indexes painted a slightly brighter than expected picture across much of Europe, with final French, German and Euro Zone readings a touch better than advance PMIs. However, they confirmed Euro Zone activity contracting for the 11 th straight month.

The Euro strengthened 1.8% to the dollar last month but the PMIs failed to lift it further even though bond yields extended their rise and inflation expectations rose to the highest since July.

At 12:40 GMT, the EUR/USD is trading 1.1194, down 0.0068 or -0.60%.

Daily Technical Analysis

The main trend is up according to the daily swing chart. A trade through 1.1313 will signal a resumption of the uptrend. The main trend will change to down on a move through 1.1067.

The minor trend is also up. A trade through 1.1159 will change the minor trend to down. This will shift momentum to the downside.

The EUR/USD appears to be headed into layers of retracement levels, where it could bounce around as traders try to establish support and resistance.

Based on the current price at 1.1194, the nearest resistance is 1.1209. On the downside, potential support comes in at 1.1185, 1.1146, 1.1095 and 1.1044.

The long-term level to watch is the Fibonacci level at 1.1185. Traders should also note that the chart starts to open up to the downside under 1.1146, 1.1095 and 1.1044.

Daily Technical Forecast

Based on the early price action and the current price at 1.1194, the direction of the EUR/USD the rest of the session on Thursday is likely to be determined by trader reaction to 1.1185.

Bullish Scenario

A sustained move over 1.1185 will signal the presence of buyers. This could trigger a labored rally with potential upside targets a Fib level at 1.1209, an uptrending Gann angle at 1.1221 and a downtrending Gann angle at 1.1241. The latter is a potential trigger point for an acceleration to the upside.

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Bearish Scenario

A sustained move under 1.1185 will indicate the presence of sellers. The first two potential downside targets are a minor bottom at 1.1159 and a 50% level at 1.1146.

Taking out 1.1146 could trigger a further break into an uptrending Gann angle at 1.1101, followed closely by a 50% level at 1.1095.

Daily F.X. Analysis, January 2 – Top Trade Setups In Forex – Trading Back to Normal!

The U.S. dollar weakened against its major pairs on Tuesday. The ICE Dollar Index dropped 0.2% on the day to 96.53. U.S. President Donald Trump announced he would approve the phase one trade deal with China at the White House on January 15. Meanwhile, China’s central bank announced that it would lower the required reserve ratio for commercial banks by 50 basis points from January 6, releasing 800 billion yuan of liquidity into the financial system.

Economic Events to Watch Today

Let’s took at these fundamentals.

EUR/USD – Daily Analysis

The EUR/USD currency pair hit the biggest-quarter high since the third quarter of 2020, possibly due to the optimism surrounding the United States and China trade deal. As of writing, the EUR/USD currency pair increased by 2.8% in the 4th quarter and currently trading at 1.1213.

The pair remains above critical Fibonacci level, i.e., 61.8% Fibonacci retracement of June-October declines, at 1.1210 now. Eventually, the currency pair has started 2020 with the bullish sentiment.

The continued optimism surrounding the US-China trade deal and signs of stability in the Eurozone economy support further gains in the EUR currency.

On the flip side, the latest report from the People’s Bank of China’s (PBOC) regarding stimulating growth is also supportive news for the EUR currency as China is Eurozone’s biggest trading partner.

People’s Bank of China (PBOC) announced 50 basis points into the Reserve Ratio Requirement (RRR) cut, which is scheduled to deliver on January 5. Besides this, commercial bankers will hold a reserve of 12.5% of their assets from now, while 10.5% for smaller institutions.

Daily Support and Resistance

  • S3 1.1196
  • S2 1.1205
  • S1 1.1209
  • Pivot Point 1.1213
  • R1 1.1218
  • R2 1.1222
  • R3 1.123

EUR/USD– Trading Tips

On the technical side, the long upper wick attached to Tuesday’s candle is a tell-tale sign of buyer exhaustion. Meanwhile, the 4-hour chart is reporting a bearish divergence of the relative strength index and the MACD histogram.

GBP/USD– Daily Analysis

The GBP/USD currency pair flashing red and dropped to 1.3210, mainly due to the fears of hard Brexit and thin trading conditions. As of writing, the currency pair is currently trading at 1.3221 and consolidates in the range between the 1.3202 – 1.3266. The Cable recently turned into bearish mode from the two-weeks high.

The market’s risk sentiment has recovered due to increasing optimism surrounding the US-China trade deal. However, the greenback recovers at the start of 2020. As a result, the U.S. ten-year treasury yields and stocks are moderately positive.

Whereas the holidays in Japan and New Zealand will keep the market’s sentiment light, all traders will keep their eyes on the trade/Brexit. December’s manufacturing PMI data from the U.S. and the U.K. will also be the key to watch.

If no significant change comes from the UK/US data, a downbeat figure against 47.4 prior and 47.6 expected will likely increase the chances of further rate cuts from the Bank of England (BOE).

Daily Support and Resistance

  • S3 1.3217
  • S2 1.3235
  • S1 1.3244
  • Pivot Point 1.3253
  • R1 1.3262
  • R2 1.3271
  • R3 1.3289

GBP/USD– Trading Tip

On the technical side, the 61.8% Fibonacci retracement of its December 12-23 fall, to around 1.3285, restricts the pair’s immediate upside, which in turn increases the chances of a pullback to 50% and 38.2% Fibonacci retracement levels of 1.3210 and 1.3135 respectively.

The GBP/USD has broken the support mark of 1.3060, and currently, this level is expected to serve as a resistance for the GBP/USD. On the downside, the GBP/USD can exhibit further selling until the next target level of 1.2940.

USD/JPY – Daily Analysis

The USD/JPY currency pair stuck between the range of 108.60 – 108.75 and took some gain due to risk-on sentiment in the wake of the Chinese central bank’s rate cut. Moreover, the optimism surrounding the United States and China trade deal relations also play their role.

The tensions of the Middle East and holidays in Asia’s major parts continue to limit the market’s reaction because traders are cautious ahead of the key data from China.

It is worth to mention that China’s People’s Bank of China (PBOC) gave an announcement regarding 50 basis points into the Reserve Ratio Requirement (RRR) cut, which is scheduled to deliver on January 5. As well as, major banks will hold a reserve of 12.5% of their assets from now, while 10.5% for smaller institutions.

Moreover, the announcement came from the PBOC that financial institutions should stop doing the 1-year lending rate as its reference rate while start with the Loan Prime Rate as the base rate beginning January 1.

At the Sino-US front, the United States President Donald Trump’s tweeted about the confirmation of phase-one singing in a ceremony on January 15. Meanwhile, the Republican leader also said that he would later go to China to discuss the phase-2 of the deal. Eventually, the White House Advisor, Peter Navarro, also said that more positive deals with China are coming this 2020.

On the other hand, the market holidays in Japan and New Zealand limit the latest news reaction because the trader waits for the China Caixin Manufacturing PMI data for December. Apart from this, there is another reason behind the lack of smiling welcome to 2020 is the political war between the United States and the Middle East after the Pentagon’s defensive strikes into Iraq and Syria.

At the data front, the data becomes even more critical due to the latest official figures confirms the continued manufacturing recovery. Forecasts suggest 51.7 values against 51.8. Looking forward, the traders will closely follow the U.S. Markit Manufacturing PMI for fresh direction.

Daily Support and Resistance

  • S3 108.48
  • S2 108.61
  • S1 108.69
  • Pivot Point 108.74
  • R1 108.81
  • R2 108.86
  • R3 108.99

USD/JPY – Trading Tips

The USD/JPY was facing triple bottom support near 108.400 level, which has pushed the USD/JPY higher towards a 23.6% retracement level of 108.700. Above this, the pair has the potential to go for 38.2% Fibo levels, which marks 108.900 resistance.

Below the 108.900 level, we can expect a slight bearish reversal in the USD/JPY currency pairs until 108.600.

Analyzing EUR/USD Volatility for Day Trading Purposes

Cory Mitchell, CMT

The 10-week average for daily movement (high minus low) in the EURUSD is 43 pips. That’s the average daily range for the most heavily traded currency pair in the world.

Over the last 10 years, the daily average range has spent most of its time above 60 pips, and has even spent considerable time above 100 pips.

Near the start of 2020, the EURUSD dropped below that 60 pip level and has mostly stayed there. For many traders, this has made day trading the EURUSD more difficult (compared to the past) because there is less movement to capture. It is harder to jump into and out of trades with a profit when accounting for the spread and commissions.

This has been somewhat offset by some brokers offering lower spreads, such as 0.1 pips. The spread with one of my brokers is typically 0.1 pips, which makes it easier to capture even small moves. Trading with a larger spread means putting yourself at a significant disadvantage.

I wanted to discuss volatility and day trading because it can have a big effect on how we trade and our profitability. Also, new traders probably don’t know that this pair has historically traded very differently, and possibly traders that have been around for at least a few years may be struggling with the steady decline in volatility.

So let’s look at how EURUSD volatility is now, and how we can use those statistics to aid our trading.

EURUSD Volatility by Day of the Week and Hour of Day

First, let’s look at volatility by hour of the day. This chart is in GMT time. Adjust to your own time zone accordingly.

The hours with the most movement are from 0700 to 1600. This corresponds with the London market. There is an uptick in activity when the New York session kicks at 1300.

If you are after movement, trading should be done between 0700 and 1600.

The day of the week sometimes matters, but recently not so much. During some periods certain days of the week tend to be much quieter than others. Therefore, it is worthwhile to check the stats periodically.

Here is the data over the past five weeks. Mondays and Wednesdays have had less movement than the other days, and Fridays have had the most.

The 10-week average still has Friday as the movement leader, but the other days show similar volatility.

Factoring Volatility Into Trading

If things are working for you, don’t change anything. Don’t fix it if it isn’t broken.

If you have been struggling with your EURUSD day trading, make sure you are using a low spread broker. This on its own can make a big difference.

Next, consider the range already in place when you start trading. If you are trading the US session and the price has already trended higher by 60 pips, and you are buying expecting it to go another 10 or 15 pips, you’re fighting against the averages. Remember, on Monday to Thursday—over the last several weeks—the price has only moved on average 40 pips.

While certain days will certainly exceed the average in terms of movement, some days will be less. If you are trading every day (or almost every day) keep your expectations within the averages. Focus on trends that are in play inside the averages. Don’t take trades expecting the price to make a big move outside the averages. For further reading on this, see the Daily Range Day Trading Strategy.

Mark the high and the low, so far in the day, on the chart. Typically this distance is going to be 60 pips or less (in current conditions). If the high and low are already 60 pips or more apart, targets placed outside that range have less chance of being hit. Of course, each trade has its own odds of success, but overall it is important to keep the context of volatility in mind.

I also like to set the y-axis of my charting platform to whatever the daily range is, plus a small buffer. So right now, the y-axis should cover an approximate 50 pip area. This creates a visual baseline each day. If the pair has only moved 10 pips during the day, the y-axis will typically only show 10 pips, making it look like there is lots of movement and nice trends. But this is a visual illusion. If you keep your scale at 50 pips you will be able to instantly see if this is a typical day or if volatility is lower or higher than normal.

If volatility is higher on a particular day, I will expand the y-axis to include all the day’s price action. But I don’t shrink the y-axis below 50 pips. I do this so I don’t even bother trading if the daily trading range is small. Small trading ranges don’t suit my trending day trading style. If the price action only takes up a tiny portion of the 50-pip screen, and the price action looks all tiny and squished, I instantly know the day is not worth day trading (for me) unless the daily range starts to expand.

Day Trading the EURUSD

If you have gotten used to trading in this ultra-low EURUSD volatility, know that historically the pair has been more volatile. Start preparing now for if more volatility returns.

If you have struggled in the low volatility environment, there are still profits there. But that may mean not trading some days. Get a low spread broker, stay within the daily movement averages, and always start the day with your y-axis at a certain height to provide a visual baseline of whether there is decent movement or not.

By Cory Mitchell, CMT. Join me on Twitter @corymitc.

Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.

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