Daily Technical Analysis by Kate Curtis from Trader's Way

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GBPUSD Channel Top (Dec 19, 2017)

GBPUSD continues to trend lower in its descending channel on the 1-hour time frame. Price just bounced off support recently and is finding a ceiling at the channel resistance around the 1.3400 handle once more.

Stochastic is on the move down to confirm that selling pressure is in play. The 100 SMA is also below the longer-term 200 SMA to signal that the path of least resistance is to the downside. This means that the selloff is more likely to continue than to reverse.

However, the gap between the moving averages has narrowed to indicate weaker selling momentum. If an upward crossover materializes, bullish momentum could return and lead to a break past the channel resistance.

The US dollar is enjoying strong support from optimism surrounding tax reform as lawmakers are scheduled to make their final vote likely today. If all goes well, US President Trump can be able to sign the bill into law by the end of the week to mark the first major legislative victory for the administration.

US equities are already trading at record highs in anticipation of a positive outcome. Several analysts have noted that this might merely lead to a short-term boost to growth rather than a long-term one, but the fact remains that it would likely keep business activity and consumer spending elevated early next year if the bill is approved.

Meanwhile, the pound has lost a bit of ground last week on a relatively cautious BOE statement. Policymakers voted unanimously to keep rates and asset purchases unchanged, although a number of top-tier reports turned out strong. Brexit remains a risk for businesses even as a deal has been made.

By Kate Curtis from Trader's Way

 

[katetrades]

EURAUD Neckline Retest (Dec 20, 2017)

EURAUD previously broke below the neckline of its head and shoulders pattern on the 1-hour time frame to signal a selloff. Price found support around the 1.5340 area and is now pulling back to the broken support near the 1.5500 handle.

Applying the Fib tool on the latest swing high and low shows that this area of interest is between the 38.2% and 50% retracement levels that might keep gains in check. However, the 100 SMA is still above the longer-term 200 SMA to show that the path of least resistance is to the upside.

Stochastic is moving up to show that buyers have the upper hand but the oscillator is dipping into overbought territory to suggest rally exhaustion. Turning lower could draw more selling pressure in and allow the 200 SMA to keep holding as dynamic resistance around the 38.2% Fib.

The euro got a boost from hawkish ECB remarks and news that Germany will be selling more bonds next year. This drove yields higher in the euro region, allowing the shared currency to benefit as well. Data was actually weaker than expected as the German Ifo business climate index fell from 117.6 to 117.2 versus expectations of it remaining unchanged.

Meanwhile, the Aussie is drawing support from the RBA's less dovish stance and the pickup in risk-taking. Even higher gold prices during risk-off days have been able to prop up the correlated AUD. There are no other reports lined up from Australia for the rest of the week, though, so risk sentiment could be the main driving factor.

German PPI and euro zone current account balance are up for release today and stronger than expected data could remind traders of the upgraded forecasts by the central bank. German GfK consumer climate data and French consumer spending numbers are due on Friday.

By Kate Curtis from Trader's Way

 

[katetrades]

USDCAD Range Resistance (Dec 21, 2017)

USDCAD once again bounced off the top of its range on the 4-hour time frame and could be due for a move back down to support at 1.2675. Stochastic is heading south to show that sellers are on top of their game, but the oscillator is also dipping into oversold territory to reflect exhaustion.

The 100 SMA is above the longer-term 200 SMA also, so the path of least resistance is still to the upside. This means that an upside break from the resistance around 1.2900 is still a possibility. The 100 SMA could also hold as near-term dynamic support while the 200 SMA lines up with the area of interest at the middle of the range.

An upside break could lead to a climb of around 225 pips or the same height as the chart formation. Similarly a downside break on a strong return of selling pressure could lead to a drop of the same height.

The US government is on its way to enact tax reform, which is seen to provide a strong boost to business activity and overall growth in the coming months. This also marks the first major legislative victory of the Trump administration, reinforcing confidence in US economic standing.

Canada has its CPI and retail sales reports lined up later today and strong data could keep traders hopeful about a BOC hike sometime next year. On the other hand, downbeat results could remind market watchers that the central bank is treating future policy action with more caution this time.

By Kate Curtis from Trader's Way

 

[katetrades]

EURJPY Resistance Retest (Dec 22, 2017)

EURJPY recently broke to the upside of its descending channel visible on its 4-hour time frame. Price rallied close to the 135.00 handle before making a pullback and using the Fib tool shows the nearby support levels.

In particular, the 38.2% Fib is closest to the broken channel resistance that might now hold as support around 134.00. A bounce off this level could take EURJPY back up to the swing high and beyond.

The 100 SMA is above the longer-term 200 SMA to signal that the path of least resistance is to the upside. This means that the rally is more likely to continue than to reverse. However, stochastic is just turning down from overbought levels to show a pickup in selling pressure.

The BOJ kept interest rates on hold as expected in their latest policy statement. Traders seemed disappointed that Governor Kuroda didn't follow through on its previous remarks on "reversal rate" or the point at which aggressive stimulus might be doing more harm than good.

Meanwhile, the euro got an earlier boost on reports that Germany will be issuing more bonds next year. This drove prices down and yields up across the euro zone, allowing the shared currency to benefit.

German GfK consumer climate and French consumer spending figures are due next, and strong results could reinforce hawkish ECB expectations. There are no major reports due from Japan but the yen appears to be getting weighed down by bond yields and the dollar's rallies.

By Kate Curtis from Trader's Way

 

[katetrades]

GBPUSD Symmetrical Triangle (Dec 27, 2017)

GBPUSD has formed lower highs and higher lows recently, creating a symmetrical triangle pattern on its 1-hour time frame. Price is approaching the peak of the formation so a breakout could take place soon. The chart pattern spans around 200 pips so the resulting breakout could be of the same height.

The moving averages are oscillating to reflect consolidation but the 100 SMA is currently below the longer-term 200 SMA to show that the path of least resistance is to the downside. Stochastic is also on the move down from the overbought region to signal a pickup in selling pressure.

The US government just signed the tax reform package, which is expected to be positive for business investment, consumer spending, and overall growth. Meanwhile, the EU also signed off on Brexit directives that would include a transition period until the end of 2020.

With that, both currencies are able to stay strong on a more positive outlook for the year ahead. The lack of other market releases for the week could also keep the consolidation in play.

Only the CB consumer confidence index and the pending home sales report are due from the US today, and both are expected to show strong gains. For one, the US housing sector has been on a good run for the past month while optimism could pick up in reaction to tax reform.

By Kate Curtis from Trader's Way

 

[katetrades]

USDCAD Triple Top Break (Dec 28, 2017)

USDCAD was previously trading inside a rectangle pattern, which turned out to be a triple top reversal formation when price broke to the downside. The chart pattern is approximately 250 pips tall, so the resulting selloff could be of the same height.

Stochastic is already indicating oversold conditions, though, which means that sellers need to take a break and let buyers take over. If so, a pullback to the broken support around 1.2650 minor psychological level could be seen before the downtrend resumes.

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 has narrowed, so a downward crossover might be possible soon.

US data turned out mixed this week, as pending home sales posted a higher than expected 0.2% gain while the CB consumer confidence reading fell short of estimates. The index slipped from 128.6 to 122.1 versus the estimated 128.2 figure to reflect weaker optimism.

Meanwhile, the Loonie drew a boost from a crude oil rally following news that a pipeline in Libya has been shut down. This could lead to lower output from the OPEC member nation, which has already seen plenty of dips owing to the conflict in the area.

US crude oil inventories data are up for release next and a draw of 3.9 million barrels is eyed. This would be less than the earlier draw of 6.5 million barrels but a reduction nonetheless.

By Kate Curtis from Trader's Way

 

[katetrades]

AUDNZD Channel Resistance (Dec 29, 2017)

AUDNZD has been trending lower, moving inside a descending channel on its 4-hour time frame. Price is currently testing the resistance and could be due for a drop to support.

The 100 SMA is below the longer-term 200 SMA, confirming that the path of least resistance is to the downside. In addition, the longer-term 200 SMA coincides with the channel resistance to keep gains in check.

Stochastic is on its way down to show that selling pressure is present. This could be enough to take AUDNZD back to the channel support at the 1.8000 major psychological level.

Earlier today, Australia released a stronger than expected private sector credit figure of 0.5% versus the estimated 0.4% increase. There are no other reports due from Australia today, so market sentiment could stay in play.

As for New Zealand, there were no major reports out this week but the currency has been reeling from generally weaker dairy prices in the latest auctions. Still, the Kiwi was able to draw a boost from the announcement of the new RBNZ head.

Looking ahead, the potential rate differential between the two nations can come into play as traders adjust their policy biases. The RBA has shifted to a less dovish stance in their latest decision while the RBNZ has more or less maintained its neutral bias.

By Kate Curtis from Trader's Way

 

[TradersWay]

EURAUD Channel Pullback

EURAUD has been trending lower on its 4-hour time frame since breaking below the neckline of a head and shoulders pattern. Price has bounced off support and is now nearing a test of the resistance around the 1.5400 levels.

Applying the Fib tool on the latest swing high and low shows that the 61.8% level lines up with the channel resistance and could be enough to keep gains in check. In that case, the pair could fall back to the channel support at 1.5250 or the swing low closer to 1.5300.

The 100 SMA has crossed below the longer-term 200 SMA to indicate that the path of least resistance is to the downside. This suggests that the selloff is more likely to resume than to reverse. Also, stochastic has reached the overbought area to signal weakening bullish momentum.

European banks are set to reopen today and markets will resume trading, which would mean a return in volatility for the shared currency. Medium-tier reports namely Spanish and Italian manufacturing PMI, as well as the final manufacturing PMI readings from Germany and France, are up for release today.

As for the Aussie, there are still no major reports lined up for today but China has its Caixin manufacturing PMI due. Analysts expect a dip from 50.8 to 50.7 to reflect a slightly slower pace of expansion, but a stronger than expected read could keep the Australian currency propped up.

Later in the week, euro zone economies will be printing their final services PMI figures while China has its Caixin non-manufacturing PMI due. Australia's trade balance is lined up for Friday, along with the euro zone flash CPI readings.

By Kate Curtis from Trader's Way

 

[katetrades]

USDJPY Triangle Forming (Jan 03, 2018)

USDJPY has formed lower highs and found support at the 112.00 area, creating what might be a descending triangle pattern. Price is currently testing support and might be due for a bounce back to resistance if it holds.

Stochastic is pointing up to show that buyers are in control of price action, likely allowing the floor to keep losses in check. However, the 100 SMA has recently crossed below the longer-term 200 SMA to signal that the path of least resistance is to the downside.

The dollar was off to a weak start for the year even with a strong showing from equities. Doubts about the Fed tightening pace and another round of jitters from North Korea have prevented bulls from charging.

Meanwhile, the yen seems to be pricing in a potential shift in BOJ policy bias. Late last year, Governor Kuroda spoke of a 'reversal rate' or the point in which aggressive stimulus could do more damage than good. Although the latest BOJ decision did not contain much hawkish hints, traders continue to stay on the lookout for potential changes.

Japanese banks are still closed for the holiday today, so there are no major reports lined up from Japan. The US has its ISM manufacturing PMI lined up and analysts are expecting to see a dip from 58.2 to 58.1 to reflect a slower pace of expansion. Of particular interest would be the jobs component as this would serve as a clue for the NFP turnout.

Also due today are the FOMC meeting minutes for December, which might contain more insight on how the central bank could adjust policy in the year ahead. Note that economic projections were revised then and it would be interesting to see the divide between hawks and doves among policymakers.

By Kate Curtis from Trader's Way

 

[katetrades]

GBPUSD Ascending Trend Line (Jan 04, 2018)

GBPUSD is trending higher on its 4-hour chart and looks prime for a pullback to the ascending trend line. Applying the Fib tool on the latest swing low and high shows that this lines up with the 61.8% retracement level around the 1.3450 minor psychological mark.

The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside. In addition, these moving averages are close to the trend line support, adding to its strength as a floor.

Stochastic is on the move down to indicate that sellers have the upper hand for now, which suggests that the correction could go on for a while. Once the oscillator hits oversold conditions and turns back up, buyers could return.

UK economic data has actually been downbeat so far this week, with both the manufacturing and construction PMIs falling short of consensus. The former fell from 58.2 to 56.3 while the latter slipped from 53.1 to 52.2. The services PMI is due next and an improvement from 53.8 to 54.1 is eyed.

Meanwhile, the dollar has managed to shake off its downbeat start for the year when the FOMC minutes confirmed that gradual rate hikes are in the cards. As in previous meetings, policymakers expressed concerns about inflation, but several cited that the strength in the jobs market could buoy price levels higher.

The NFP report could also be an event risk for the dollar as a weaker than expected read could once again undermine Fed rate hike hopes. The jobs component of the ISM manufacturing PMI showed a decline for December and traders are waiting on today's ADP employment change data next. Analysts are expecting to see a climb from 190K to 191K.

By Kate Curtis from Trader's Way