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Fundamental Picture

Last week, the Italian elections produced an inconclusive result, with no single political party garnering a majority in the Senate. Another election seems unlikely, but any future government will probably lack power and be short-lived. If the Democratic Party wins, for instance, we could see some popular reforms passed but it could also complicate the austerity programs set forth by the previous administration.

Due to this increasing political tension, risk aversion has returned to center stage. Market sentiment is now, once again, the primary determinant of market direction. We saw this clearly last week, as currencies rose and fell depending on how traders were feeling.

I don’t know how risk sentiment will play out this week, but rest assured, I’ll be extra careful with my trades. A single catalyst could reverse this bearish trend and destroy any long dollar trades I plan to take.

Anyhoo, here are the setups I’m looking at:

Potential Trades

USD/CHF: Bullish

USD/CHF 1-hour Chart

I normally do not look at USD/CHF, but the technical setup on it is just too good to ignore. As you can see, the pair is exhibiting a medium-term uptrend. USD/CHF, in addition to being above both the 200 and 100 SMAs, has been making “higher lows.” I’ll be watching this pair carefully for a potential long trade once price tests the SMAs and rising trend line.

GBP/USD: Bearish

GBP/USD 1-hour Chart

Is that a bearish flag I see on GBP/USD? It really looks like it is! If the pair manages to close strongly below 1.5000, I’ll probably get my chance to ride the downtrend. However, I’m also bracing myself for a potential upside break up to 1.5100 (around 50% Fibonacci retracement level). After all, GBP/USD has constantly been making new monthly lows and I’m thinking that perhaps we could see a pullback before the downtrend resumes.

How about you? Which pairs are you looking at?



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This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.