Forex weekly trading ideas: EUR/USD, USD/CHF, GBP/JPY

Markets have been on a roller coaster ride. Here are our latest forex trading ideas.

Following fears of the failure of Silicon Valley Bank (SVB), the sixteenth-largest bank in the United States, which would have been the worst bank failure since 2008, the markets have been on a roller coaster ride over the past few hours, with risky assets rebounding after the Friday's sell-off aided by an exceptional liquidity intervention by US authorities.

On Sunday night, the Federal Reserve and the US Treasury intervened to prevent the liquidity crisis and fears of a contagion effect from wreaking havoc on the economic system.

Depositors of SVB are now insured by the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve has opened a new facility to provide liquidity to troubled banks, allowing depositor repayments to be made without incurring losses on depreciated assets.

These interventions prevented the wave of risk aversion and flight to quality from dominating global markets.

However, it remains unclear whether this will be sufficient to meaningfully reverse the bearish trend of the past week, as the narrative of inflation risk and rising interest rates is still prevalent among the world's major central banks.

Investors are currently focused on the Fed's rate hike at its March 22 meeting: 25bp, 50bp, or no increase at all?
In the past few hours, probabilities have shifted abruptly to 95% (25bp), but Tuesday's CPI report remains an important data point to track. Fed Chair Jerome Powell sounded quite hawkish in his testimony before Congress last week. Non-farm payrolls (NFPs) came in higher than anticipated (311,000 vs. 200,000) in February, but the unemployment rate unexpectedly increased to 3.6% and wage growth slowed, alleviating some concerns that a still-tight job market could force the Fed to increase interest rates more aggressively.

EUR/USD Forecast: 1.05 to be retested after head-and-shoulders top?

The euro (EUR/USD) opened higher on Monday, surpassing 1.07, as the US dollar (USD) sold off in response to a decline in Fed rate hike expectations and US Treasury yields.

The US CPI report on Tuesday and the ECB policy meeting on Thursday will be major economic events influencing the pair this week. 

On the weekly chart, we recognize the formation of a head-and-shoulders top with neckline support between 1.05 and 1.0520 (January 6th and March 8th lows). If EUR/USD fails to break above 1.075 (the high of the left shoulder in December), the trade setup calls for a retracement to 1.04 (psychological) and a subsequent extension lower to 1.018 (the 23.8% Fibonacci retracement level of the low-to-high range of 2022).

This idea could be confirmed if Tuesday's US CPI print is stronger than anticipated, reviving expectations for a Fed 50bp hike in May.

Short EUR/USD: TP1 1.04; TP2 1.018; SL 1.077 (risk-reward ratio 3.37).

USD/CHF Forecast: Rally in Gold to Strengthen the Franc?

In a global environment characterized by rising credit risks, lower profit margins, and declining bond yields, gold is once again a highly attractive safe-haven asset, as well as the Swiss franc. 

Historically, the Swiss franc CHF has exhibited a positive correlation with the precious metal, making it one of the currencies best positioned to profit from a potential gold rally.

In September 2008, the bankruptcy of Lehman Brothers paved the way for a remarkable rally in the price of gold, which rose from $678 per ounce in October 2008 to $1,920 per ounce in September 2011.

Given the likelihood of a more expensive gold, further CHF gains could be possible in the upcoming weeks. 

The USD/CHF pair has consistently shown a close and inverse relationship with gold prices. This trend is already in place, and a rise in the price of gold to $1,950/oz would be consistent with the USD/CHF trading at 0.90 or lower.

Short USD/CHF: TP 0.9005; SL 0.9296 (risk-reward ratio 2.5).

GBP/JPY Forecast: Descending channel in place

This week, GBP/JPY could be an interesting pair to look at to distance yourself from the macro volatility of USD and and to capitalize on the bearish trend that appears to take shape.

Fundamentally, the Japanese yen could be well positioned to benefit from the rising global slowdown risk and domestic BoJ policy shift, whereas the British pound could see sellers return if global risk aversion increases.

Since mid-October, when the BoJ altered its yield target, the pair has been trading within a declining channel pattern. 
The failure to break decisively above 166 at the end of February has effectively diminished bulls' hopes.

The mid-February low at 160, which also corresponds to the 200-day moving average, is the next immediate support level for the GBP/JPY pair. Daily RSI trended lower recently, and break below the 50 mark, reinforcing the short-term bearish view. 

If sellers prevail there, we see potential for a retest of the 2023 lows in the region between 156.8 and 155.4. If that support region fails to hold, the lower-bound of the declining channel could be the next profit target. This strategy would be invalidated by the descending channel's bullish breakout.

Short GBP/JPY: TP 151.64; SL 165.35 (risk-reward ratio 2.18).

Key macro data and events to monitor this week and potential FX impacts

Two major economic events are expected to have a significant impact on the FX market this week.

Tuesday, March 14: US CPI report
The overall CPI index is expected to decline to 6% year-on-year in February, down from 6.4% y/y in January, and the core index to 5.5%, down from 5.6%.
Any stronger-than-expected data would be seen as bullish for the USD since markets will likely dial back expectations of a more hawkish Fed. 
A lower-than-expected print would cement the 25bps hike, or perhaps even open the door of a no hike at all, thus fueling a dollar's negative momentum and boosting high-beta currencies like the NZD, GBP and AUD.

Thursday, March 16: ECB policy meeting 
The ECB will probably decide to raise rates by 50 basis points at its March meeting, which would bring the policy rate to 3.5% and the deposit facility rate to 3%.
After recent statistics that showed the core inflation rate in the Eurozone reached a new record high last month, President Lagarde will probably sound hawkish in her remarks.
Hawkish voices at the ECB will likely support the euro versus high-beta FX like NZD, AUD, and CAD, but not against safe-haven USD and CHF as risk-off sentiment dominates. 

*These are written to provide insights about the market but do not constitute investment advice.

In the realm of forex trading, this week's focus centers on potential trading ideas for the EUR/USD, USD/CHF, and GBP/JPY currency pairs. If you're curious about how these trading opportunities fit into the broader framework of forex trading, explore our comprehensive guide on Forex: How Does It Work? to gain a deeper understanding of the mechanisms and principles that underpin the forex market. 

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