In this Weekly FX Market Preview of May 7, 2018, is it “Sell in May and Go Away”?

The highest volume currency pair, EURUSD has hit a historical inflection point after the currency pair tumbled 4.8% from its peak. USDCHF is pushing toward parity and is hitting a major resistance price at 1.  BTCUSD is starting to mellow out in terms of volatility, which would be a good thing for it to be considered a stable currency that people would use rather than just merely hoard.

EURUSD is at a Major Inflection Point

EURUSD in the month of April failed to close above 1.24 at any given point in the month.  After three pushes upward to try to push the rate back over the top, it dropped precipitously over the past 16 days.  Weak economic data from the Eurozone may end up pushing back plans to raise the interest rate and the European Central Bank (ECB) is limited in terms of their options.  One specific cause for concern is a decline in German exports and manufacturing.

In the United States, the unemployment rate is 3.9%, but it is a gloomy rate due to the way the unemployment rate is actually calculated.

GDP figures in the United States were weaker than expected for Q1 2018, but many claim that it has to do with a winter that featured extreme cold and inclement conditions across the United States, but mainly concentrated on the Northern half of the contiguous 48 states.

EURUSD Weekly Chart

EURUSD Daily Chart

EURUSD 3 Hour Chart

What is noticeable is that on the Weekly Chart, EURUSD has entered a price zone that was rarely inhabited for a full decade.  For the first time since 2015, EURUSD is entering this price zone in a bearish fashion putting this price zone into the previously familiar role of a Support area.

It has been in this price zone for only nine weeks since the Week of January 5, 2015.  From April 17, 2006 to December 22, 2015, this price zone was only entered during three weeks.  The last time the rate came bearishly into this price zone, EURUSD would make a push toward parity.  The two times prior, the rate bounced out of the zone in a bullish fashion.

What makes this instance different is that the zone is being breached with far less downward momentum than the previous three times.  It is just comparatively getting started.  The prior breaches all were coming off double-digit percentage decreases from their peaks.

USDCHF is Reaching Parity Again

The thing to watch here is the fact that while 1 is the resistance price, the price had been above 1 in late 2016 and in 2017.  The peak in November 2017 briefly was above 1 and then slipped right back down.  This time around, the price has not yet reached 1 and it may not do so.  The Inverted Hammer appears to be a bearish sign for the currency pair.  From the trough to the close on Friday, May 4, 2018, there has been an 8.75% increase in strength for the U.S. Dollar against the Swiss Franc.

BTCUSD is Mellowing Out as Volatility Decreases

Average True Range is just one way to gauge the volatility of an instrument.  It is very obvious that the volatility of BTCUSD surged during the Holiday Season and the volatility continued during the drop-off in January and February.  The Doom and Gloom that surrounded Cryptocurrencies along with the hostility of governments helped result in this massive loss for HODLers.  However, there has been a comparably modest rise for BTCUSD with considerably less volatility given the price.

Using a 22 day period, when a candle has crossed the same price level as it is currently, the Average True Range has been the following:

  • January 17, 2018:  1813.7067
  • February 1, 2018:  1450.7749
  • February 15, 2018:  1117.2035
  • Febuary 26, 2018:  1012.1899
  • March 8, 2018:  850.1955
  • March 12, 2018:  884.1391
  • April 25, 2018:  498.1734
  • May 6, 2018:  486.7064

This is a major reduction in volatility and getting volatility to continue to fall would be in the best interest of ensuring the long-term viability of the cryptocurrency.