Daily Technical Analysis by Kate Curtis from Trader's Way

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EURUSD Potential Reversal Formation (Oct 17, 2017)

EURUSD is in the process of forming a head and shoulders pattern on its daily time frame as it completes the right shoulder. The neckline is located at 1.1700 and a break below this support could send price down by around 400 pips or the same height as the reversal formation.

However, the 100 SMA is safely above the longer-term 200 SMA so the path of least resistance is still to the upside. In addition, the gap is widening to signal that bullish pressure is getting stronger. Stochastic is also on the move up so EURUSD might follow suit while bulls remain in control.

Germany reported a stronger than expected increase in WPI of 0.6% versus 0.4% while the region's trade balance also beat expectations with a 21.6 billion EUR surplus versus the consensus at 20.3 billion EUR.

While euro zone economic data has been mostly stronger than expected, the focus has mostly been on political uncertainties, particularly in Spain. The government has given Catalonia eight days to declare independence but Puigdemont has called for talks instead. Meanwhile, the elections in Austria also reflected growing dissatisfaction with the status quo.

As for the US dollar, the currency drew some support on rumors that Trump is also considering John Taylor for the Fed Chairmanship position. He is perceived to be a more hawkish candidate compared to the other contenders in the list, and traders are also looking forward to Trump's meeting with Yellen later this week.

Data from the US also turned out better than expected as the Empire State manufacturing index rose from 24.4 to 30.2. Industrial production data is up for release today and a 0.3% rebound is eyed. Data on import prices and capacity utilization are also lined up.

By Kate Curtis from Trader's Way

 

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USDCAD Reversal Pattern (Oct 18, 2017)

USDCAD previously broke below its ascending channel formation then pulled up for a retest, creating a head and shoulders pattern visible on the 4-hour time frame. Price has yet to complete the right shoulder and test the neckline around the 1.2450 minor psychological level.

A break below this support could lead to a drop of around 150 pips or the same height as the chart pattern. Stochastic is turning lower to signal the presence of bearish momentum, but the 100 SMA is above the longer-term 200 SMA so the path of least resistance might still be to the upside.

Price is also moving close to testing the 100 SMA dynamic support that might keep losses in check. If so, USDCAD could bounce back up to the 1.2600 area and beyond.

The US dollar has gained some support from strong medium-tier reports and rumors that Trump is leaning towards appointing a more hawkish Fed head than previously expected. December rate hike expectations remain in play but market watchers seem to be turning their attention to the odds of more tightening moves next year.

As for the Canadian dollar, the slow progress in NAFTA renegotiations has actually been positive since this might delay scrapping any trade agreements. Mexico and Canada have rejected the latest batch of proposals from the Trump administration and another round of talks is scheduled for next month.

Up ahead, US building permits and housing starts figures are due, but the bigger movers might be speeches from FOMC members Dudley and Kaplan. Canada has its manufacturing sales figure due and analysts are expecting to see a smaller 0.1% dip this time.

By Kate Curtis from Trader's Way

 

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EURAUD Triangle Break and Retest (Oct 19, 2017)

EURAUD recently broke out of its symmetrical triangle formation on the daily time frame to indicate that bullish momentum is getting stronger. Price reached a high of 1.5246 before turning back down for a retest of the broken triangle resistance.

Applying the Fibonacci retracement tool on the latest swing low and high shows that the 61.8% level lines up with the broken triangle resistance that might hold as support. The 100 SMA is also close to these Fib levels, acting as an extra layer of defense, and is above the longer-term 200 SMA to signal that the climb is more likely to resume than to reverse.

The gap between the moving averages is getting wider to indicate strengthening bullish momentum. However, stochastic still has room to fall so there may still be some bearish pressure left for a larger correction.

Economic reports from China came in mostly in line with expectations, which appears to have been bullish for the Aussie. Industrial production and retail sales came in slightly better than expected, signaling stronger demand for Australian commodity products.

Meanwhile, the political uncertainties in Europe continue to weigh on the shared currency. Catalonia has said that it will declare independence if Spain takes away its autonomy, but it is not clear how this situation might play out. Meanwhile, the polls in Austria also signal a leaning towards the far-right political leadership.

There hasn't been much in the way of top-tier data from the euro zone yesterday and today so the shared currency could continue to be driven by market sentiment and political developments. As for Australia, its freshly released jobs report printed stronger than expected results of 19.8K in employment gains and a drop in the unemployment rate from 5.6% to 5.5%.

By Kate Curtis from Trader's Way

 

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GBPAUD Broken Triangle Pullback (Oct 20, 2017)

GBPAUD recently dropped below the descending triangle support at 1.6800, signaling that further losses are in the cards. Price bounced off the 1.6700 area and might be due for a correction to the broken support.

Applying the Fibonacci retracement tool on the latest swing high and low shows that the 38.2% level coincides with the broken support, which might hold as resistance moving forward. The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside, which means that the selloff is likely to continue.

Stochastic is still pulling up from the oversold region to indicate a return in buying pressure or that the correction could carry on until the oscillator hits overbought levels and turns back down. Price could pull up to the higher Fibs as well, with the longer-term 200 SMA dynamic inflection point serving as the line in the sand for the downtrend.

The pound was weighed down by weaker than expected retail sales data, which indicated that consumer spending fell by 0.8% versus the projected 0.1% dip. Brexit updates also pushed the currency around as German Chancellor Merkel said that there wasn't enough progress made for talks to proceed to the next round of negotiations.

As for the Australian dollar, data from China came in mostly in line with expectations, with retail sales and industrial production reflecting gains. Australia's jobs figures also beat expectations, adding fuel to the Aussie's ascent.

Only the public sector net borrowing report is due from the UK today and there are no reports due from Australia or China. This means that Brexit updates, particularly those coming from the EU summit in Brussels, could continue to drive pound price action while overall market sentiment could drive AUD direction.

By Kate Curtis from Trader's Way

 

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USDJPY Descending Triangle Breakout (October 23 2017)

Yen bears came out in full force after the elections in Japan over the weekend, causing USD/JPY to break past the descending triangle resistance. This chart pattern is approximately a thousand pips tall so the resulting uptrend could last by the same amount.

However, the 100 SMA is below the longer-term 200 SMA so the path of least resistance might still be to the downside. These moving averages are still oscillating to indicate consolidation, so these have yet to catch up to the latest upside break. Stochastic has room to climb, which means that there is some buying pressure left in play.

Elections in Japan yielded strong support for Japanese PM Abe and his political party, giving him scope to implement another tax hike in 2019 and push for constitutional reform. This could also mean more support for the BOJ's ultra easy monetary policy, which is bearish for the yen.

Data from the US economy turned out better than expected on Friday as existing home sales rose from 5.35 million to 5.39 million instead of falling to 5.30 million. The federal budget balance also showed a surplus of 8.0 billion USD instead of the estimated 0.9 billion USD deficit and was a huge improvement over the earlier 107.7 billion USD shortfall.

Up ahead, the reaction to the Japanese elections could go on for a while as there are no major reports lined up from the Japanese economy. There are also no reports due from the US economy today so market sentiment and speculation over Trump's next Fed Chairperson pick could push this pair around.

By Kate Curtis from Trader's Way

 

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GBPAUD Descending Channel (Oct 24, 2017)

GBPAUD has been trending lower, moving inside a descending channel on its 4-hour chart. Price is currently testing the resistance at 1.6900, still deciding whether to make a bounce or a break.

A bounce could take it back down to the bottom of the channel at 1.6600 while an upside breakout could mark the start of a reversal. Stochastic is already indicating overbought conditions and looks ready to turn lower, which could mean that bearish pressure would return. A bearish divergence can also be seen as stochastic made higher highs while price had lower highs.

The 100 SMA is still above the longer-term 200 SMA so the path of least resistance is to the upside. However, the gap between the moving averages is narrowing and a downward crossover seems imminent, also suggesting a pickup in bearish momentum.

UK data turned out weaker than expected yesterday as the CBI industrial order expectations slipped from 7 to -2 instead of improving to 9. This signals weakening business conditions in the coming months as firms expect lower order volumes. Also, BOE member Cunliffe expressed doubts about a November interest rate hike, citing that the economy has slowed on the squeeze to real incomes and imported inflation from sterling weakness.

There are no reports due from Australia and the UK today, so market sentiment could be in charge of price action. Brexit updates would likely impact movements as well. On Wednesday, Australia has its quarterly CPI due and the headline figure could show a gain from 0.2% to 0.8%.

By Kate Curtis from Trader's Way

 

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GBPJPY Channel Support (Oct 25, 2017)

GBPJPY has been trending higher on its short-term time frames, moving inside an ascending channel on its 1-hour chart. Price just bounced off resistance and could be due to test support at the 149.00 major psychological level.

This potential floor lines up with the 61.8% retracement level and the 200 SMA dynamic inflection point. The 100 SMA is above the longer-term 200 SMA so the path of least resistance is the upside, which means that the rally is more likely to resume than to reverse.

Stochastic has already pulled up from the oversold region to signal a return in bullish momentum but is turning back down to indicate that sellers are putting up a fight. However, the 100 SMA is also holding as dynamic support so far and might be enough to push price back to the swing high or channel resistance.

Yen weakness has been in play since the Japanese elections over the weekend as the victory for PM Abe and his political party meant the likely implementation of another tax hike in 2019 and the continuation of the BOJ's easy monetary policy. However, dollar weakness as also been in play recently, buoying the yen higher in effect.

As for the pound, the only piece of data released so far was the CBI industrial order expectations index which fell from 7 to -2 instead of improving to 9. Brexit concerns are also lurking and any negative updates could weigh heavily on the currency.

Up ahead, the UK preliminary GDP is due and analysts are expecting to see another 0.3% growth figure. Stronger than expected data could assure traders that the economy is staying resilient ahead of Brexit but a downside surprise could undermine confidence. As for Japan, the next set of data isn't due until Friday and this comprises the national and Tokyo core CPI readings.

By Kate Curtis from Trader's Way

 

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GBPAUD Triangle Resistance (Oct 26, 2017)

GBPAUD has been on a strong climb recently and may have enough momentum to break past its symmetrical triangle resistance around 1.7200. The chart pattern spans 1.5900 to 1.7700 so the resulting uptrend could be of the same size.

The moving averages are still oscillating to reflect consolidation action on the daily time frame but the 100 SMA is starting to cross below the longer-term 200 SMA to signal that the path of least resistance is to the downside. This means that the resistance is more likely to hold than to break.

If so, GBPAUD could head back to the triangle support currently at 1.6500-1.6600. Stochastic is heading north but is already in the overbought zone, so profit taking could force the rally to pause.

UK economic data turned out better than expected, though, as the economy grew by 0.4% in Q3 according to the preliminary GDP release. This is higher than the estimated 0.3% expansion and the earlier 0.3% growth figure.

Meanwhile, the Aussie was previously weighed down by weaker than expected quarterly CPI. Headline inflation rose 0.6% versus 0.8% while the trimmed mean CPI was up 0.4% versus 0.5%. This could keep a lid on RBA tightening expectations while rising inflation in the UK increases the pressure on the BOE to act.

Earlier today, Australia reported a 1.6% slump in import prices for Q3, further weighing on inflation prospects. Only the CBI realized sales index is lined up from the UK but a drop from 42 to 14 is eyed, which might be pound bearish.

By Kate Curtis from Trader's Way

 

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EURUSD Head and Shoulders Breakdown (Oct 27, 2017)

EURUSD broke below the neckline of its long-term head and shoulders pattern, confirming that a downtrend is underway. The chart pattern is approximately 400-500 pips tall so the resulting selloff could last by the same amount.

The 100 SMA is still sufficiently above the longer-term 200 SMA on the daily time frame, so the path of least resistance is to the upside. However, price is breaking below the dynamic inflection point to signal a pickup in bearish pressure.

Stochastic was on its way up but turned back down to indicate a return in selling momentum. The oscillator is closing in on the oversold region, though, so a bounce on profit-taking might happen.

The ECB announced its plans to maintain its 60 billion EUR monthly asset purchase program until the end of the year then tapering it down to 30 billion EUR per month from January to September 2018 or beyond if necessary. Bulls seemed unimpressed by this announcement as many expected an earlier or larger reduction.

During the presser, Draghi admitted that the decision was not unanimous and that inflation has not been encouraging. Still he expressed optimism about growth and employment, but euro traders appeared to brush these positive remarks aside.

Meanwhile, the Greenback has gotten a boost from news that the House passed a budget resolution to allow the tax bill to clear Senate without achieving a supermajority. This means that Republican support could be enough to carry the bill through, even as Democrats strongly oppose the proposals.

US advance GDP data for Q3 is due next and hopes are running high after the durable goods orders report suggested a stronger contribution from the business sector for the period. Analysts are expecting to see a 2.6% growth figure, slower than the earlier 3.1% expansion. News on Trump's Fed Chair pick could also lead to big moves for the dollar.

By Kate Curtis from Trader's Way

 

[katetrades]

EURAUD Channel Support (Nov 6, 2017)

EURAUD is trending higher and is moving inside an ascending channel on its 4-hour time frame. Price has just bounced off support and looks ready for a test of resistance at 1.5400-1.5450.

The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside. This means that the rally is more likely to continue than to reverse. In addition, the moving averages are close to the channel support, adding to its strength as a floor.

Stochastic is on the move up to reflect the presence of bullish momentum. However, the oscillator is nearing overbought levels to signal exhaustion among buyers. In that case, another dip to support at 1.5150 is still possible.

The main event risk for the Australian dollar is the RBA interest rate decision, during which the central bank could keep rates on hold at 1.50%. The RBA is one of the less hawkish central banks around, but any shift in their tone could still lead to big moves for the pair.

As for the euro, the shared currency had a bearish reaction to the ECB announcement earlier on, but the fact remains that the central bank will begin tapering its asset purchases by next year. German factory orders data is due next and a 1.0% decline is eyed.

There are no other major events lined up for both economies for the rest of the week, so there's a chance that the current trend could carry on, barring any major changes in monetary policy bias. Overall risk sentiment could also drive price action, with risk-off moves favoring the euro over the Aussie.

By Kate Curtis from Trader's Way