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Canadian Dollar, Crude Oil Prices Decline to Support. Yen May Gain

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Asia Pacific Market Open Talking Points

  • Canadian Dollar weakened as crude oil price fall fueled BoC rate cut bets
  • British Pound weakened on Brexit uncertainty, is Theresa May done for?
  • Risk of US-China trade war still an overhang for equities, Yen may gain

Trade all the major global economic data live as it populates in the economic calendar and follow the live coverage for key events listed in theDailyFX Webinars. We’d love to have you along.

Canadian Dollar Sinks with Crude Oil Despite Solid Retail Sales Data

The Canadian Dollar brushed aside solid local retail sales data, underperforming against most of its major counterparts on Wednesday. Excluding automotive, companies sold 1.7% more m/m in March versus 0.9% expected and from 0.7% in February. That was the highest since May 2018, but once you accounted for autos, those only rose 1.1% versus 1.2% anticipated. Bank of Canada rate cut bets actually increased by day-end.

Moreover, the Loonie was focused on what was going on with the decline in crude oil prices. It began with a downturn in sentiment during European hours as equities fell. The commodity brushed aside a drop in Russian oil output, which highlights its vulnerability to a decline in stocks due to its sentiment-linked vulnerability. The commodity did also accelerate its decline when US weekly oil inventories increased.

CAD/JPY Versus Crude Oil Prices and Canadian Bond Yields

Chart Created in TradignView

Canadian Dollar Technical Analysis

USD/CAD finds itself wedged between support at 1.3390 and resistance just under 1.3445. The pair struggled to breakout to the upside over the past three weeks when looking at its performance around the peaks in March. A break under support exposes what could be a rising channel of support from February lows.

USD/CAD Daily Chart

Canadian Dollar, Crude Oil Prices Decline to Support. Yen May Gain

Chart Created in TradingView

British Pound, Brexit, FOMC Minutes and the US Dollar

The British Pound continued to depreciate across the board in its prolonged decline since earlier this month over the future of Brexit. Over the past 24 hours, UK Prime Minister Theresa May came under increasingly more pressure to step down which risks throwing another curveball at EU-UK divorce negotiations. Meanwhile, the US Dollar traded sideways as the FOMC minutes stressed the importance of local data.

Thursday’s Asia Pacific Trading Session

S&P 500 futures are pointing narrowly lower heading into Thursday’s session following a disappointing day on Wall Street. Overnight, the US weighed blacklisting Chinese surveillance firms such as Megvii and Meiya Pico. If this risks escalating US-China trade wars after talks have reportedly been stalling, equities could be vulnerable with the anti-risk Japanese Yen in a potentially good spot to benefit from.

FX Trading Resources

— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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2019-05-22 23:00:00

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What if Mexico, Canada Join the US in the Trade War with China?

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Trade War Talking Points:

  • After the US lifted metal tariffs on Mexico and Canada, some market participants have suggested the USMCA could form a united front against China in the ongoing trade war
  • Amid the conflict, Mexico has enjoyed a surge in exports to the United States as manufacturers look for workarounds
  • Read why 7.00 is the Spot to Watch in USDCNH in the US-China Trade War

What if Mexico and Canada Join the United States in the Trade War with China?

Progress in the US-China trade war has ground to a halt according to officials from both sides, which has rattled investor sentiment. As each party searches for leverage, some market participants have suggested a united USMCA could band together in an effort to alter uncompetitive Chinese trade practices. While Mexico and Canada carry significantly less sway with the Asian nation than the US, their trade balances are anything but negligible.

Data Source: Bloomberg

Over the last 10 years, Canada and Mexico have accounted, on average, for 2.43% and 2.96% of China’s total exports. During this time, Canada has seen its share of Chinese exports shrink – from 2.6% in 2009 to 2.3% in 2018. On the other hand, Mexico has seen its trade with China climb from 2.43% in 2009 to 3.36% in 2018, as the economic ties between the two countries grow. Together, the three North American nations account for more than 25% of China’s total exports. Conversely, the reliance of USMCA members on Chinese demand is quite limited.

What if Mexico, Canada Join the US in the Trade War with China?

Data Source: Bloomberg

North American demand for Chinese goods has fluctuated over the last decade, reaching a low of 8.62% in 2011 and a high of 10.83% in 2015. More recently, demand has been trending lower and the total percentage of Chinese imports from USMCA nations slipped to 9.31% in 2018.

View A Brief History of Trade Wars for background on economic conflicts like the US-China Trade War.

Therefore, the trade relationship between USMCA and China leaves the latter with few retaliatory options. The nation has already had to explore unconventional methods in its economic bout with the United States, so an engagement with a trading bloc that accounts for 26% of trade inflows but only 9% of outflows could weigh significantly on Chinese trade and the economy by extension. But what are the chances the North American nations band together?

Currently, the chances are low. The USMCA agreement will first have to be passed by US lawmakers – which is anything but certain. This assumes the removal of metal tariffs was the final barrier for agreement from Mexico and Canada. Beyond that, the United States will have to convince its partners to engage in economic conflict with the world’s second largest economy – a tall task. However, there is some precedent for cooperation.

Canada and Huawei

On December 1, Huawei CFO Meng Wanzhou was detained in Canada at the behest of the United States. The detention amounted to another front in the US-China trade war – and dragged Canada into the conflict. Since the detention in late 2018, tensions between Canada and China have been strained as two Canadian nationals faced arrest in China alongside a block on imports of canola seeds from two of Canada’s biggest exporters.

Early this May, President Trump and Canadian Prime Minister Justin Trudeau talked over the phone to discuss trade. The two reportedly discussed steel and aluminum tariffs, which have since been removed – paving the road to recovery between the two partners. With these developments, Canadian action against China now seems plausible, with multiple reasons for Canada to join forces with the US.

Mexico Has Everything to Gain

While Canada has an axe to grind, Mexico could look to make hay while the sun shines. As increased levies make Chinese exports less attractive to US consumers and less profitable for exporters, corporations will search for alternatives. Last week, Walmart announced it will begin analyzing options to shift its supply chain out of China to avoid price increases and others are likely to follow. While many companies will look to shift production elsewhere in Asia, some have chosen to move closer to home.

What if Mexico, Canada Join the US in the Trade War with China?

Data Source: United States Census Bureau

Already, companies have begun to open up shop in Mexico – with Hasbro and GoPro as two of the more notable examples. The shifting tides have had an immediate impact on recent trade data. Consequently, Mexico is now the United States’ top trading partner in goods according to US Census Bureau data. Further, US imports of Mexican goods rose 10% in 2018 – the most since 2011.

That said, the country’s best course of action may be to stay off the radar and hope the trend continues. In the year-to-date, USDMXN has slipped -3.3% and the Peso could etch greater gains should exports to the United States continue to climb.

While the likelihood that either Mexico or Canada directly engage in the trade war is minor, its impacts can be observed in shifting trade balances and fluctuating currency rates. But, with the Chinese economy hinged to exports, the addition of two import-heavy belligerents could prove an insurmountable obstacle for Xi Jinping and the People’s Bank of China – were it to occur.

–Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more: TSLA, Uber Stock Troubles Could Signal Shifting Tech Sentiment

DailyFX forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

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2019-05-22 21:15:00

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EU Elections Highlight EUR Crosses

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EURO CURRENCY VOLATILITY – TALKING POINTS

The EU will hold parliamentary elections starting this Thursday through Sunday. According to the Financial Times latest poll, the European People’s Party coupled with the Progressive Alliance of Socialists and Democrats look set to lose their combined majority. If polls are indicative of future results, EUR price weakness may persist if the rise of populism and Euroscepticism is confirmed.

EURUSD, EURGBP, EURJPY – IMPLIED VOLATILITY AND TRADING RANGES

Unsurprisingly, rising implied volatility measures derived from EURUSD, EURGBP, and EURJPY forex options pricing suggests Euro traders brace for volatility ahead of EU parliamentary election results.

EURUSD PRICE CHART: DAILY TIME FRAME (DECEMBER 27, 2018 TO MAY 22, 2019)

EURUSD Price Chart Trading Ranges Ahead of European Elections

EURUSD is estimated to trade between 1.1215 and 1.1099 with a 68 percent statistical probability over the next week according to 1-week implied volatility of 4.43 percent. The upper bound of the 1-standard deviation band surrounding spot prices aligns closely with technical resistance posed by the 23.6 percent Fibonacci retracement level from its year-to-date high and low in addition to the bearish downtrend line around the 1.12 handle.

This price level has recently served as a major area of confluence and could be retested if the European People’s Party and Progressive Alliance of Socialists and Democrats can retain majority in Parliament. On the contrary, the loss of seats could push EURUSD to target 2019 lows near the 1.11 handle.

EURGBP PRICE CHART: DAILY TIME FRAME (DECEMBER 27, 2018 TO MAY 22, 2019)

Euro Currency Volatility: EU Elections Highlight EUR Crosses

EURGBP has been on a 16-day tear of consecutive gains in response to the latest Brexit developments causing turmoil in the UK and Pound Sterling. Judging by EURGBP 1-week implied volatility of 6.14 percent, spot prices are anticipated to trade within a 127 pip range between 0.8873 and 0.8747 over the next week with a 68 percent statistical probability. Although, the recent ascent in spot EURGBP could be at risk of reversing lower if the Europe of Freedom and Direct Democracy Party – also known as the Brexit party – gains traction as it would give a blow to EU proponents.

EURJPY PRICE CHART: DAILY TIME FRAME (DECEMBER 27, 2018 TO MAY 22, 2019)

Euro Currency Volatility: EU Elections Highlight EUR Crosses

Spot EURJPY has been under pressure since mid-April along with several other ‘risky’ currencies relative to the Japanese Yen as ongoing US China Trade War tension sparked a move to safe-haven currencies. This trend could continue and send EURJPY toward the 122.00 handle where the upward-sloping trendline extended from the January 2ndJPY flash-crash bottom to the intraday low on May 15th could be tested along with the 61.8 percent Fib.

That being said, EURJPY 1-week implied volatility of 5.89 percent used to calculate the currency pair’s 1-standard deviation yields a trading range at 122.22-123.92 with a 68 percent statistical probability. Loss of majority power between the European People’s Party and Progressive Alliance of Socialists and Democrats could shudder Euro bulls and push EURJPY back on its more recent downtrend. The risk of further downside in spot EURJPY is also posed by the threat of looming global risk trends and deteriorating market sentiment.

– Written by Rich Dvorak, Junior Analyst for DailyFX

– Follow @RichDvorakFX on Twitter

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2019-05-22 20:50:00

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Investors Turn Defensive as Trade War Risk Bites

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S&P 500, US CHINA TRADE WAR, RISK APPETITE – TALKING POINTS

  • Stock market sentiment sours as trade war uncertainty bites
  • S&P 500 sector performance attribution could hint at further weakness despite stocks recovering from month-to-date lows
  • Equity traders may find solace in more liquid and ‘non-directional’ forex markets if tensions escalate further
  • Find out major differences between Trading Stocks and Forex

The S&P 500 has edged nearly 3 percent lower since President Trump tweeted earlier this month his intent to increase tariffs on China. Although the stock market has recovered slightly from the lows of its recent rout, market sentiment appears damaged still as suggested by relative sector performance.

S&P 500 RETURNS BY SECTOR – MAY 03 CLOSE TO MAY 22 INTRADAY (CHART 1)

According to SPDR ETF returns of the major S&P 500 sectors since the May 3rd close – the Friday preceding Trump’s trade war tweets on Sunday, May 5th – the technology sector (XLK) has significantly lagged the broader market. This is a stark contrast to year-to-date equity returns considering the sector has advanced roughly 20 percent which compares to the S&P 500’s overall 14 percent gain so far in 2019.

Seeing that tech stocks comprise the largest sector of the S&P 500 by far, further weakness in technology companies like Apple (AAPL), Microsoft (MSFT) and Google’s parent Alphabet (GOOG) threatens to exacerbate broader market weakness. This is due to the fact that performance of these ‘mega-cap’ tech darlings contributes significantly to the overall return of the market-cap weighted S&P 500 index.

S&P 500 RETURNS BY SECTOR – MAY 03 CLOSE TO MAY 22 INTRADAY (CHART 2)

S&P 500: Investors Turn Defensive as Trade War Risk Bites

With tech now widely underperforming the S&P 500, the “shifting winds” could indicate a change in investor sentiment as traders begin to favor defensive sectors like utilities (XLU), consumer staples (XLP) and healthcare (XLV). This is because companies in these non-cyclical sectors generally possess characteristics like stable cash flows and cheap valuations which tend to outperform during periods of elevated market uncertainty which leads to investor pessimism and risk-aversion.

Additional evidence of waning investor sentiment is provided by the AAII Sentiment Survey which shows that the Net Sentiment Index has dropped from 39.63 on May 2nd to 30.88 as of May 16th. Also, fading demand for comparably riskier high-beta stocks with unstable profitability like Tesla (TSLA) or new IPO listings like Lyft (LYFT) and Uber (UBER) could similarly signal shifting stock market sentiment to a less optimistic view. Moreover, the recent lack of risk appetite by investors is hinted at by the sharp drop in Treasury yields which has bolstered gold prices.

US China trade war tension risks further escalation as negative rhetoric endures following the breakdown in negotiations between the two countries earlier this month. Aside from tariffs, Chinese technology companies like Huawei are being targeted by the United States. If China decides to retaliate, supply chains and revenue sources of American tech companies could be in jeopardy.

Sell in May and Go Away Stock Market Anomaly: Should You Sell Stocks?

This possibility threatens a bearish knee-jerk reaction from US investors and has potential to snowball into a sharp selloff. That being said, the erosion of confidence in equities may continue even if the overall index holds should technology and other speculative sectors continue to flag.

Worth mentioning amid these concerns is the potential benefit equity traders may find from currency market liquidity and other advantages forex trading can offer such as its 24-hour session and natural ‘non-directional’ nature. The continuous forex market helps to significantly reduce the instances of large gaps that are frequent and sometimes extreme in equities as seen in the recent series of S&P 500 gaps to the downside in response to US China trade war headlines.

Another underappreciated aspect of FX relative to equities is the fact that there is always a ‘long leg’ and ‘short leg’ to any currency pair. For most participants in active stock trading, the predominant approach is to only pursue various long-only strategies which does not align well with return probabilities or volatility.

– Written by Rich Dvorak, Junior Analyst for DailyFX

– Follow @RichDvorakFX on Twitter

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2019-05-22 17:30:00

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Crude Oil Price Drop Helping USDCAD Hold Range Support

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Crude Oil Price Talking Points:

  • Crude Oil prices have pulled back after the weekly energy inventory reports, which showed supplies growing faster than expected amid rising tensions between the US and Iran.
  • Pullback in oil prices is helping USDCAD hold support and maintain its sideways range dating back to April 23.
  • Recent changes in trader positioning suggest that a range break can’t be ruled out for USDCAD in the near-term.

Looking for longer-term forecasts on Oil prices? Check out the DailyFX Trading Guides.

Crude oil prices have taken a sharp turn lower midweek after the US Department of Energy inventory figures for the week ended May 17 showed a larger than expected build in supplies. According to the DOE weekly report, crude oil inventories jumped by 4740K barrels versus an expected decline of -1283K. Similarly, gasoline inventories, on the eve of the summer holiday driving season in the US, rose by 3716K barrels versus an expected decline of -850K.

The surprising rise in energy inventories comes as geopolitical tensions between the US and Iran have ratcheted higher in recent weeks. Just last week reports emerged that Iran-linked military forces attacked US-based Saudi Arabian oil tankers in the Strait of Hormuz – a chokepoint for the energy industry, as 20% of global oil production passes through the waters between the Gulf of Oman and the Persian Gulf.

Now that crude oil prices have pulled back to a fresh weekly low at 61.05, it’s worth taking a step back and examining longer-term charts, as there are potential implications for oil-sensitive currencies like the Canadian Dollar.

Crude Oil Technical Analysis: Weekly Price Chart (April 2018 to May 2019) (Chart 1)

Traders watching long-term crude oil price charts will take notice of a bearish piercing candle forming on the weekly timeframe; should we see a close below 60.63 on Friday, then we would have a bearish outside engulfing bar in place. Regardless of either a bearish piercing candle or a bearish outside engulfing bar, momentum is starting to shift to the downside.

Crude Oil Technical Analysis: Daily Price Chart (April 2018 to May 2019) (Chart 2)

Crude Oil Price Drop Helping USDCAD Hold Range Support

The daily crude oil price chart better highlights the bearish momentum emerging in crude oil prices. With today’s price action, crude oil is now below its daily 8-, 13-, and 21-EMA envelope. Similarly, daily MACD has turned lower below its signal line into bearish territory, while Slow Stochastics have turned lower as well (albeit still above its median line). A return to the May 2019 low at 60.02 should not be ruled out over the coming sessions.

IG Client Sentiment Index: Crude Oil Price Forecast (May 22, 2019) (Chart 3)

Crude Oil Price Drop Helping USDCAD Hold Range Support

Crude oil: Retail trader data shows 49.9% of traders are net-long with the ratio of traders short to long at 1.0 to 1. The number of traders net-long is 6.2% higher than yesterday and 8.1% lower from last week, while the number of traders net-short is 11.8% lower than yesterday and 4.3% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests crude oil prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed crude oil trading bias.

USDCAD Technical Analysis: Daily Price Chart (April 2018 to May 2019) (Chart 4)

Crude Oil Price Drop Helping USDCAD Hold Range Support

With crude oil prices turning lower, the oil-sensitive Canadian Dollar has come back under pressure, perhaps a sign that the goodwill around the USMCA progress has started to wane. Since the close on April 23, USDCAD prices have closed every session between 1.3377 and 1.3521, and with the daily bullish hammer forming today, the range appears ready to hold its ground. Concurrently, the USDCAD price rebound today has found support at the uptrend from the February, March, and April swing lows.

Should USDCAD move above 1.3521, we would again be looking at topside break of the month-long range, while a drop below 1.3377 would constitute a downside break of the consolidation as well as the uptrend from February, March, and April 2019 swing lows.

IG Client Sentiment Index: USDCAD Price Forecast (May 22, 2019) (Chart 5)

Crude Oil Price Drop Helping USDCAD Hold Range Support

USDCAD: Retail trader data shows 45.5% of traders are net-long with the ratio of traders short to long at 1.2 to 1. The number of traders net-long is 5.7% higher than yesterday and 47.8% higher from last week, while the number of traders net-short is 3.6% lower than yesterday and 33.3% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USDCAD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current USDCAD price trend may soon reverse lower despite the fact traders remain net-short.

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail at cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

View our long-term forecasts with the DailyFX Trading Guides

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2019-05-22 16:45:00

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XAU Breakdown Stalls at Technical Support

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In this series we scale-back and look at the broader technical picture to gain a bit more perspective on where we are in trend. Gold is virtually unchanged for the week thus far, with price now testing a major technical support zone we’ve been tracking for months. These are the updated targets and invalidation levels that matter on the XAU/USD weekly price chart. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.

New to Gold Trading? Get started with this Free How to Trade Gold -Beginners Guide

Gold Weekly Price Chart (XAU/USD)

Notes: In my last Gold Price Outlook we warned to be, “on the lookout for downside exhaustion here near-term,” as price was attempting to confirm a weekly close below confluence support at 1275/76– a region defined by the yearly opening-range low and the 38.2% retracement of the 2018 advance. Nearly three-weeks later and price has failed to mark a weekly close below- note that the August trendline also converges on this zone over the next two weeks and we’re looking for a resolution.

Gold posted an outside-weekly reversal off fresh monthly highs last week with the sell-off taking gold prices back into this key zone. A weekly close below is still needed to fuel another leg lower targeting more significant support / broader bullish invalidation at 1253/58. Monthly open resistance stands at 1283 backed by the May range high at 1303– a close above would be needed to validate the turn targeting the 2019 high-week close at 1327.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Bottom line: The immediate focus is on the weekly close in relation to the 1275/76 zone. From a trading standpoint, a good spot to reduce short-exposure / lower protective stops. A weekly close below would leave the focus on 1253/58– look for a bigger reaction there IF reached. I’ll publish an updated Gold Price Outlook once we get further clarity in near-term price action. Review our latest Gold 2Q forecasts for a longer-term look at the technical picture for XAU/USD prices.

Even the most seasoned traders need a reminder every now and then- Avoid these Mistakes in your trading

Gold Trader Sentiment

Gold Trader Sentiment - XAU/USD Positioning - Price Chart

  • A summary of IG Client Sentiment shows traders are net-long Gold – the ratio stands at +4.32 (81.2% of traders are long) – bearish reading
  • The percentage of traders net-long is now its highest since November 25th
  • Long positions are 0.2% lower than yesterday and 11.6% higher from last week
  • Short positions are 8.8% lower than yesterday and 29.8% lower from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall. Traders are further net-long than yesterday & last week, and the combination of current positioning and recent changes gives us a stronger Gold-bearish contrarian trading bias from a sentiment standpoint.

See how shifts in Gold retail positioning are impacting trend- Learn more about sentiment!

Previous Weekly Technical Charts

Learn how to Trade with Confidence in our Free Trading Guide

— Written by Michael Boutros, Technical Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

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2019-05-22 16:30:00

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Top 5 Types of Doji Candlesticks

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Types of Doji: The Patterns All Traders Should Know

A Doji candlestick signals market indecision and the potential for a change in direction. Doji candlesticks are popular and widely used in trading as they are one of the easier candles to identify and their wicks provide excellent guidelines regarding where a trader can place their stop.

In this article we explain how Doji patterns are formed and how to identify five of the most powerful and commonly traded types of Doji:

  1. Standard Doji
  2. Long legged Doji
  3. Dragonfly Doji
  4. Gravestone Doji
  5. 4-Price Doji

How are Doji candlestick patterns formed?

Dojis are formed when the price of a currency pair opens and closes at virtually the same level within the timeframe of the chart on which the Doji occurs. Even though prices may have moved between the open and the close of the candle; the fact that the open and the close takes place at almost the same price is what indicates that the market has not been able to decide which way to take the pair (to the upside or the downside).

Keep in mind that the higher probability trades will be those that are taken in the direction of the longer-term trends. When a Doji occurs at the bottom of a retracement in an uptrend, or the top of a retracement in a downtrend, the higher probability way to trade the Doji is in the direction of the trend. In case of an uptrend, the stop would go below the lower wick of the Doji and in a downtrend the stop would go above the upper wick.

doji formation

Top 5 Types of Doji Candlestick Patterns

1. Standard Doji pattern

A Standard Doji is a single candlestick that does not signify much on its own. To understand what this candlestick means, traders observe the prior price action building up to the Doji.

standard doji

Trades based on Doji candlestick patterns need to be taken into context. For example, a Standard Doji within an uptrend may prove to form part of a continuation of the existing uptrend. However, the chart below depicts a reversal of an uptrend which shows the importance of confirmation post the occurrence of the Doji.

EUR/USD standard doji

2. Long-legged Doji

The Long-Legged Doji simply has a greater extension of the vertical lines above and below the horizontal line. This indicates that, during the timeframe of the candle price action dramatically moved up and down but closed at virtually the same level that it opened. This shows the indecision between the buyers and the sellers.

long-legged doji

At the point where the Long-Legged Doji occurs (see chart below), it is evident that the price has retraced a bit after a fairly strong move to the downside. If the Doji represents the top of the retracement (which we do not know at the time of its forming) a trader could then interpret the indecision and potential change of direction. Subsequently looking to short the pair at the open of the next candle after the Doji. The stop loss would be placed at the top of the upper wick on the Long-Legged Doji.

EUR/USD long-legged doji

3. Dragonfly Doji

The Dragonfly Doji can appear at either the top of an uptrend or the bottom of a downtrend and signals the potential for a change in direction. There is no line above the horizontal bar which creates a ‘T’ shape and signifies that prices did not move above the opening price. A very extended lower wick on this Doji at the bottom of a bearish move is a very bullish signal.

dragonfly dojiEUR/USD dragonfly doji

4. Gravestone Doji

The Gravestone Doji is the opposite of the Dragonfly Doji. It appears when price action opens and closes at the lower end of the trading range. After the candle open, buyers were able to push the price up but by the close they were not able to sustain the bullish momentum. At the top of a move to the upside, this is a bearish signal.

gravestone dojiAUD/JPY gravestone doji

5. 4 Price Doji:

The 4 Price Doji is simply a horizontal line with no vertical line above or below the horizontal. This Doji pattern signifies the ultimate in indecision since the high, low, open and close (all four prices represented) by the candle are the same. The 4 Price Doji is a unique pattern signifying once again indecision or an extremely quiet market.

4 price dojiEUR/USD 4 price doji

Learn more about trading with candlesticks

  • Reading a candlestick chart is an important foundation to have before analyzing more complex techniques such as Doji candlesticks.
  • When reading candlestick charts, be mindful of:

1. The time frames of trading

2. Classic price patterns

3. Price action

2019-05-22 08:18:00

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0

Boris as UK Prime Minister Might be Good for Sterling

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GBP price, Boris Johnson and Brexit:

  • Former UK Foreign Secretary Boris Johnson is in pole position to take over from Theresa May as the next British Prime Minister.
  • However, traders looking to sell Sterling on the grounds that the risk of a no-deal Brexit would then rise need to be aware that his commitment to leaving on WTO rules could change.

Boris, Brexit and the British Pound

Former British Foreign Secretary Boris Johnson has become the clear favorite to replace Theresa May as UK Prime Minister if, as expected, she resigns in the coming days. For many traders, that would be a strong signal to sell the British Pound as he is widely seen as a hard-line Brexiteer who would take the UK out of the EU without a deal.

Leaving without an agreement, and reverting to World Trade Organization (WTO) rules, is seen widely as negative for Sterling. However, Johnson – known countrywide simply as Boris – has changed his mind on Brexit before and might not be as committed to no-deal as he is sometimes seen.

As the Conservative-leaning magazine The Spectator asked: “Would he govern as a reckless populist, delighting the Tory membership by driving Britain out of the EU without a deal? Or would he carry out a Nixon to China reverse-ferret, pivoting to a softer Brexit position by way of a second referendum or even revoking Article 50 and starting again?

Indeed, Johnson himself has written: We who are part of this narrow majority [in favour of Brexit] must do everything we can to reassure the Remainers. We must reach out, we must heal, we must build bridges – because it is clear that some have feelings of dismay, and of loss, and confusion.”

What Johnson might mean for GBP

His commitment to a no-deal Brexit is therefore not as strong as sometimes portrayed and another “reverse-ferret” – British newspaper slang for reversing your position – cannot be ruled out, meaning there is no guarantee that if he becomes Prime Minister the Pound would extend its recent sharp decline.

GBPUSD Price Chart, Daily Timeframe (December 27, 2018 – May 22, 2019)

Chart by IG (You can click on it for a larger image)

For sure, there are plenty of reasons why GBP could weaken further, as I pointed out here. However, my recent Twitter poll on which possible successor to May would be best for Sterling put Johnson in second position, just behind the Opposition Labour Party’s Jeremy Corbyn. To reiterate, selling GBP on a possible Johnson premiership is risky.

Who could become UK Prime Minister?

Turning to the other runners and riders, the chart below shows that Johnson is not just ahead of the field but increased his lead sharply in May.

Odds on next UK prime minister.

Source: Michael McDonough, Bloomberg, on Twitter

According to the Oddscheker website at the time of writing, many betting companies are now quoting Johnson at 2/1 to take over from May. Here are the approximate odds on her other likely Conservative successors:

  • Dominic Raab, 5/1, is a former Brexit Secretary, now no longer in Government, and a Brexiteer. Verdict: negative for GBP.
  • Michael Gove, 10/1, is Environment Secretary and a long-time supporter of a hard Brexit. Verdict: negative for GBP.
  • Jeremy Hunt, 10/1, is Foreign Secretary and campaigned to remain in the EU before changing his mind. Verdict: mildly positive for GBP.
  • Penny Mordaunt, 20/1, is Defense Secretary and campaigned to leave the EU. Verdict: negative for GBP.
  • Matthew Hancock, 20/1, is Health Secretary and a potential centrist candidate. Verdict: neutral for GBP.
  • Sajid Javid, 20/1, is Home Secretary and voted reluctantly to remain in the EU. Verdict: mildly positive for GBP.

Further down the field, two other potential candidates have launched campaign groups: former Work and Pensions Secretary Esther McVey has unveiled a hardline Brexit group Blue Collar Conservatism (GBP negative) while her successor Amber Rudd has launched a centrist Remain group called One Nation (GBP positive).

More to read:

British Pound: What every trader needs to know

Using News and Events to Trade Forex

Resources to help you trade the forex markets:

Whether you are a new or an experienced trader, at DailyFX we have many resources to help you:

— Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

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2019-05-22 15:15:00

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GBPUSD Hammered on Brexit Blacklash

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British Pound (GBP) Hammered Lower

  • GBPUSD hitting fresh Five-month Low.
  • UK PM May could be ousted soon if rumors are true.

Q2 2019 GBP and USD Forecasts andTop Trading Opportunities

*** Market Alert – Full Story to Follow ***

GBPUSD Slumps to a 2019 Low

Politics can be a cruel place and Theresa May’s time as UK Prime Minister is said to be up, if the constant barrage of tweets, reports and rumors are to be believed. It is being said that senior ministers are gathering to ouster the Prime Minister, while the 1922 Conservative Committee meet later today when the daggers may appear.

Some of the Current Tweets

  • Cab source tells me some in cabinet furious with May. Told what was agreed in room was not what she set out. Unhappy about promises on 2nd ref. Mundell into see PM (h/t @PaulBrandITV). My source reckons rule change coming, party about to move. “We’ve reached the tipping point’
  • Cabinet Minister – “things moving fast. If we don’t act 1922 will make their move later this evening”. Also told Mundel will raise issue of her future.
  • David Mundell is going to see the PM later this afternoon – several other Cabinet sources saying now they can’t see the PM lasting beyond Monday – others believe she will
  • More significant are plans for a group of Brexit-backing Cabinet ministers to see the PM this afternoon. One cabinet source says: “If you don’t do it today, she’s safe for two weeks.”
  • I am told the reason @DavidMundellDCT is furious with the PM and has asked to see her is that her apparent openness to a another Brexit referendum is seen by him as a betrayal, because it would open the door to and legitimise another referendum on Scottish independence – Robert Peston

GBPUSD is believing the current round of rumors – for now – and has fallen to its lowest level since January 2 this year.

GBPUSD Daily Price Chart (December 2018 – May 22, 2019)

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

What is your view on GBPUSD – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.comor via Twitter @nickcawley1.

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2019-05-22 14:15:00

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0

Bullish Sentiment Grows After Breaking 123.10

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EUR/JPY Price Outlook

  • EUR looking ahead to important data releases tomorrow, including Q1 German GDP.
  • EUR/JPY A break above 123.07 likely to test 124.20.

Download the Q2 EUR and JPY forecasts and find out what is likely move the price through mid-year!

Learn more about EUR and JPY data releases for this week from the DailyFX Economic Calendar

Just getting started? See our Beginners’ Guide for FX traders

EUR/JPY CORRECTION AFTER A DOWNTREND

On May 6 a bearish momentum was confirmed on EUR/JPY with a downside breakaway gap. On May 13 the price opened with another gap to the downside showing more weakness and pointing lower towards 122.08, its lowest price in more than 4 months. EUR/JPY pulled back in the same day and closed with a long legged Doji pattern, reflecting hesitation from the sellers and indicating a potential change of direction.

Read More: Trading above and below 123.05- levels to watch

EUR/JPY closed with 3 Doji patterns in the following trading days, emphasizing a weakness in this bearish momentum and paving the way for the price to correct higher. Yesterday, the price rallied and printed 123.75, breaking above the May 10 high at 123.61 and ending the downtrend momentum.

EUR/JPY DAILY PRICE CHART (NOV 2018 – MAY 22, 2019)

A closer look at the EUR/JPY daily chart shows the price breaking above the downtrend line originated from April 17 high at 126.81 and closing above 123.10 moving to the higher trading range (123.10 -124.20). This bullish development could entice the pair to rally towards the high end of mentioned range. However, a series of daily and weekly resistances at 123.64, 123.88 and 124.09 must be cleared first. Any close above 124.20 would likely move the pair to a higher trading range and pave the way to a rally towards 124.90, contingent on clearing the weekly resistance at 124.54.

Today the pair probed lower and found support at the low end of the trading range mentioned above. EUR/JPY may edge lower if the price closes below the zone 123.10 -123.05 hinting at a move towards 122.50. Supports levels at 122.92 (daily support at the downtrend line mentioned above) and 122.61 need to be kept in focus.

Having trouble with your trading strategy? Here’s the #1 mistake that traders make

EUR/JPY 2 HOURS PRICE CHART (MAY 22, 2019)

EUR/JPY Price 2H Chart 22-05-19

Looking into EUR/JPY 2-hour chart, we notice the price printed a high today of 123.51. Any break above this threshold could start a bullish sentiment towards yesterday’s high located at 123.75. However, the daily resistance mentioned above at 123.63 needs to be watched.

EUR/JPY could rally towards 123.75 and fall after to form a double top pattern where the neck line resides at 123.06. If the pair breaks and remains below the neck line this suggests EUR/JPY would likely point lower towards 122.40. Support levels at 122.92, 122.78 and the zone (the low of May 21 at 122.67 – Daily support at 122.62). The end of the trading range at 122.50 is also worth monitoring.

The above scenario may still be valid even if the price does not form a second top. In this case a break below 123.05 would start a bearish momentum hinting towards 122.50. Support levels and zones mentioned above need to be monitored closely.

Written By: Mahmoud Alkudsi

Please feel free to contact me on Twitter: @Malkudsi

2019-05-22 13:00:00

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