Daily Technical Analysis by Kate Curtis from Trader's Way

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GBPJPY Ascending Trend Line (Dec 02, 2016)

GBPJPY has been on a steady uptrend, moving above an ascending trend line connecting the latest lows of price action on its 1-hour chart. Price has surged past the 145.00 mark before showing signs of a pullback and applying the Fib tool on the latest swing low and high shows that the 61.8% level lines up with an area of interest or former resistance at 141.00.

The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside. In addition, the 200 SMA coincides with the rising trend line, adding to their strength as a floor. The 100 SMA coincides with the 61.8% Fib, although a shallow correction could already see a bounce off the higher Fib levels.

Stochastic is on the move down to show that sellers are in control of price action for now. However, the oscillator is already nearing the oversold level to suggest weakening bearish pressure and a potential return for buyers.

Economic data from the UK was weaker than expected yesterday, as the manufacturing PMI fell from 54.2 to 53.4 to reflect slower industry growth instead of rising to the projected 54.4 figure. UK construction PMI is due today and a drop from 52.6 to 52.3 is eyed.

Data from Japan was mixed, as the final manufacturing PMI saw an upgrade from 51.1 to 51.3 while capital spending sank 1.3% in Q3 versus the projected 0.4% dip. Yen weakness still seems to be a prevailing theme, as it has been for the past few weeks.

There are no major reports lined up from Japan for the rest of the day, although the US NFP release could have an impact on overall market sentiment and yen demand. Significantly strong results could draw more traders to the dollar on rate hike expectations and away from the lower-yielding yen.

By Kate Curtis from Trader's Way

 

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USDCAD Downtrend Pullback (Dec 05, 2016)

USDCAD is trending lower, moving inside a descending channel on its 1-hour time frame. Price just bounced off the channel support and is making its way up to the resistance at the 1.3400 major psychological level.

The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside. Also, the 200 SMA lines up with the 61.8% Fib and channel resistance, adding to its strength as a ceiling. The 100 SMA is closer to the 50% Fib, which might keep gains in check as well.

Stochastic is on the way up to show that buyers are still in control of price action for now, but the oscillator is already approaching the overbought zone so a return in selling pressure might be due, possibly leading to another test of channel support at the 1.3250 area.

Last week, the OPEC leaders agreed on their first output deal in nearly a decade, deciding to lower production levels in an effort to keep oil prices supported. This could lead to more gains for Canada's struggling energy sector, supporting spending and employment as well.

The BOC is set to make its monetary policy statement later this week and probably keep interest rates on hold for the time being. Jobs figures came in better than expected on Friday, as the economy added 10.7K positions instead of losing 16.5K workers. The unemployment rate also improved from 7.0% to 6.8%.

As for the US, the NFP reading was in line with expectations of a 177K gain while the unemployment rate fell from 4.9% to 4.6%. However, average hourly earnings slipped by 0.1% instead of posting the estimated 0.2% gain. Still, this might not be enough to dampen Fed rate hike expectations this month.

By Kate Curtis from Trader's Way

 

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EURUSD Short-Term Pullback (Dec 06, 2016)

EURUSD made such a strong rally in recent trading and might be due for a quick pullback ahead of top-tier events. Applying the Fib tool on the latest swing high and low on the 1-hour chart shows that the 50% level lines up with the broken near-term resistance at the 1.0650 minor psychological level.

The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside. However, stochastic is heading south from the overbought zone to show that bears might take control of price action from here.

The moving averages are close to the 61.8% Fib so they might hold as dynamic support as well. A break below the Fibs could lead to a drop to the swing low near 1.0500 while a bounce could spur a test of the swing high near 1.0800 or higher.

The shared currency shrugged off its losses after the Italian referendum as traders' fears were calmed by the idea that PM Renzi could delay his resignation until the budget is passed, easing a few fiscal concerns in the country. Also, reports that Greek's creditors could restructure debt upon evaluating the progress on economic and financial reforms in the country also supported the euro.

The dollar didn't have much of a reaction to mostly stronger than expected US economic data, as traders have already priced in the idea of a Fed rate hike. Bulls could book profits soon in anticipation of Fed remarks emphasizing that they won't be tightening again anytime soon.

The ECB statement is scheduled for later this week so this should add to EURUSD volatility. Traders are expecting the central bank to increase or more likely extend its QE program in order to help the economy achieve its inflation targets sooner.

By Kate Curtis from Trader's Way

 

[katetrades]

GBPUSD Uptrend Correction (Dec 07, 2016)

Cable has been trending higher recently, moving inside an uptrend channel visible on its 1-hour chart. Price just hit the top of the channel and is showing signs of a pullback to support at the 1.2500 major psychological support.

Applying the Fib tool on the latest swing low and high shows that the 61.8% retracement level is closest to the channel support and lines up with a former resistance area. This could be enough to keep losses in check and allow price to head back to the swing high or until the channel resistance at 1.2800.

The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside. In addition, the 100 SMA lines up with the channel support, adding to its strength as a floor. Stochastic is on the move down to show that bears are in control of price action for now but the oscillator is already nearing the oversold zone.

UK services PMI came in stronger than expected earlier this week, keeping investors confident that the economy is staying afloat even with Brexit uncertainties. Manufacturing and industrial production numbers are due today and 0.2% gains are eyed, with stronger than expected data likely to lift Cable higher.

Only the JOLTS job openings report and consumer credit data are up for release from the US today while initial jobless claims are due on Thursday and preliminary UoM consumer sentiment index is scheduled for Friday.

There are no other top-tier reports set for release from the UK in the next few days so Brexit-related headlines and even euro zone political updates could influence pound price action for the rest of the week.

By Kate Curtis from Trader's Way

 

[katetrades]

GBPJPY Ascending Trend Line (Dec 08, 2016)

GBPJPY sold off recently but is still trading above an ascending trend line connecting the latest lows of price action on the 1-hour chart. Price is gearing up for a test of the support level, which lines up with the Fib levels. In particular, the 50% level is close to the 142.50 minor psychological support.

The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside. In addition, the 200 SMA lines up with the rising trend line support, adding to its strength as a potential floor.

Stochastic is pointing down to show that sellers are still in control of price action. Once the oscillator reaches the oversold area and turns higher, buyers could return and push price up to the swing high at 146.00 or higher.

UK Supreme Court hearings are still influencing sterling movements for the time being, as the government might no longer need to get the lawmakers' approval before proceeding with Article 50. Prior to this PM May conceded to publishing their Brexit strategy in order to get the go signal to proceed with their timeline for starting negotiations.

Economic data from the UK has been mostly stronger than expected, as industry PMIs have reported improvements and reflected resilience despite uncertainties. UK manufacturing and industrial production, however, have turned out weaker than expected.

There are no reports due from the UK today while Japan has just printed mixed data. Its current account surplus was larger than expected while the final GDP reading was downgraded from 0.6% to 0.3%. UK goods trade balance and construction output are up for release on Friday.

By Kate Curtis from Trader's Way

 

[katetrades]

EURAUD Range Setup (Dec 09, 2016)

EURAUD has been moving sideways recently and the latest set of market events have allowed the range to hold. Price just bounced off the resistance at 1.4475 and is now headed back towards support at the 1.4150 minor psychological level.

The 100 SMA is below the 200 SMA so the path of least resistance is to the downside. This means that EURAUD is likely to head all the way down to test the bottom of the range. If selling pressure is strong enough, a downside break could even be possible, taking the pair lower by more than 300 pips.

Stochastic is already indicating oversold conditions, though, which suggests that sellers are already exhausted from the drop. In that case, a bounce off the range support back to the resistance could also be possible, although the moving averages could hold as near-term resistance around 1.4300.

In their policy statement, the ECB announced an extension of their QE program until December next year. This was accompanied by a reduction in the size of their monthly bond purchases from 80 billion EUR to 60 billion EUR, but analysts predicted that the easing program could go beyond the new end-date as well.

ECB staff forecasts were revised to show upgrades in next year's growth and inflation forecasts but Governor Draghi pointed out that their targets are different from those estimates. This suggests that the central bank could continue taking action to boost growth and inflation much further.

Meanwhile, the Australian dollar sold off earlier in the week on a surprise GDP contraction for Q3. Australia's trade balance also missed forecasts but components indicated that both imports and exports advanced. Chinese inflation figures were mixed but both reflected improvements over their previous readings.

By Kate Curtis from Trader's Way

 

[katetrades]

NZDUSD Rising Channel (Dec 12, 2016)

NZDUSD is trending higher on its 1-hour time frame, moving inside a rising channel connecting the latest highs and lows of price action. Price is currently testing the channel support, which lines up with a former short-term resistance.

The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside, which suggests that the uptrend is more likely to continue rather than reverse. In addition, the 200 SMA lines up with the channel support at .7115, adding to its strength as a floor.

Price could head back up to the channel resistance at the .7250-.7300 levels from here. Stochastic is turning from the oversold region to indicate a return in buying pressure from here. However, a break below the channel support could still draw sellers to the mix and force a downtrend.

There's not much in terms of top-tier releases from New Zealand this week, although last week's events were mostly bullish for the Kiwi. RBNZ Governor Wheeler remarked that they're not likely to cut rates again anytime soon, adding that the Kiwi's appreciation isn't too much of a problem recently. The GDT auction also yielded yet another gain in dairy prices.

This week, the main event risk might be the FOMC statement. Although most traders already expect the Fed to hike interest rates, market watchers are more interested to find out what policymakers have in mind for next year. Any indication that they're likely to sit on their hands for a long time again could force the dollar to retreat.

Medium-tier risks include New Zealand's manufacturing sales report for Q3, China's industrial production and retail sales figures, US retail sales data, and US CPI readings. Weak US reports could reinforce the view that Fed tightening won't happen again anytime soon, which could be bearish for the dollar.

By Kate Curtis from Trader's Way

 

[katetrades]

USDJPY Long-Term Area of Interest (Dec 13, 2016)

USDJPY appears to be stalling from its recent rallies as price is approaching a long-term area of interest visible on the daily and weekly charts. Price previously broke below support at the 116.00 major psychological level, which might hold as resistance from here.

The 100 SMA is below the longer-term 200 SMA on this time frame so the path of least resistance is to the downside. However, the moving averages appear to be turning higher to indicate a potential upward crossover and a continuation of the climb.

Price is currently testing the 61.8% Fibonacci retracement level near the 115.00 handle and might be ready to turn lower and revisit the swing low at 99.00 from here. Stochastic is indicating overbought conditions and is starting to turn lower to suggest a pickup in bearish pressure.

Economic data from Japan has been slightly lower than expectations this week, with the tertiary industry activity index up by 0.2% versus the projected 0.3% gain while preliminary machine tool orders sank by 5.6%. The Tankan manufacturing and non-manufacturing readings are still up for release later on in the week, providing clues on whether or not the BOJ might need to make policy adjustments for the next week.

As for the dollar, the FOMC statement is the main event risk for the week. An interest rate hike of 0.25% is expected as the US economy is approaching full employment and has shown consistent improvements in growth and inflation. However, policymakers might caution that this would be their last tightening move in a long while and highlight the uncertainties stemming from the new US presidency.

US retail sales and PPI readings are also up for release ahead of the FOMC statement, but the dot plot projection of rate changes could steal the show for the day. Any indication that rate hikes are still possible within the next six months could keep the dollar supported.

By Kate Curtis from Trader's Way

 

[katetrades]

AUDUSD Rising Wedge (Dec 14, 2016)

AUDUSD is slowly trending higher, moving inside a rising wedge pattern visible on its 1-hour and 4-hour charts. Price is testing the resistance and could be due for a move back to support at the .7475 level.

The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside. The 200 SMA lines up with the wedge support, adding to its strength as a floor. However, if a breakdown occurs, a longer-term downtrend could be in the cards.

Stochastic is heading south to show that sellers are in control of price action for now. However, the oscillator is already dipping into the oversold region to show that bearish pressure is about to fade and that buyers could regain control.

The main event risk for the day is the FOMC statement, as the Fed is expected to hike interest rates by 0.25% while making adjustments to their dot plot forecasts and economic projections. Fed Chairperson Yellen might give a few cautious remarks to prevent any excessive risk rallies or profit-taking among bonds and equities.

Earlier in the day, Australia reported a 3.9% slump in Westpac consumer sentiment for December, following the earlier 1.1% drop. New motor vehicle sales were down 0.6% compared to the previous 2.4% slide, indicating that financial confidence is still shaky.

US retail sales and PPI figures are also up for release in today's US session. Headline consumer spending could be up 0.3% while core retail sales could show a 0.4% gain, both weaker than their previous readings. Meanwhile, headline PPI is slated to show a 0.1% uptick while core PPI could print a 0.2% gain.

By Kate Curtis from Trader's Way

 

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AUDUSD Breakdown and Correction (Dec 15, 2016)

AUDUSD broke down from its wedge formation after the FOMC statement but signs of a correction are materializing. Applying the Fib tool on the breakdown move shows that the 50% level lines up with the broken wedge support at the .7450 minor psychological level.

The 100 SMA is still above the longer-term 200 SMA so the path of least resistance might still be to the upside. These moving averages are close to the 61.8% Fibonacci retracement level, which could be the line in the sand for any retracement.

Stochastic is moving up from the oversold zone to suggest a return in buying pressure. This could keep the correction going or draw more buyers to the mix so that the longer-term uptrend resumes. If sellers return, AUDUSD could head back to its previous lows at .7380 or lower.

The FOMC hiked interest rates by 0.25% as expected to a range of 0.50-0.75% and signaled room for three interest rate hikes next year. This reflects a more hawkish stance compared to their September forecast of two interest rate hikes in 2017. Also, Fed officials upgraded their growth and jobs forecasts for next year while maintaining inflation estimates.

According to Fed head Yellen, the US economy is growing at a moderate pace and further improvements are expected in the labor market. Market-based measures of inflation are also higher since the start of the year. She mentioned that the incoming Trump administration's fiscal plans have been incorporated in their economic forecasts but that they can't speculate how these policy changes might affect their outlook and bias.

As for Australia, economic reports have been mixed. Hiring rose by 39.1K versus the projected 17.6K figure but the unemployment rate rose from 5.6% to 5.7% in the same month. MI inflation expectations improved from 3.2% to 3.4% but Westpac consumer sentiment reflected a sharp 3.9% slide for December.

By Kate Curtis from Trader's Way