Daily Technical Analysis by Kate Curtis from Trader's Way

[katetrades]

EURJPY Area of Interest (Sep 23, 2016)

EURJPY recently broke below support around the 114.00 major psychological level then dipped close to the 112.00 mark before pulling up. Applying the Fib tool on the latest swing high and low shows that this broken support and area of interest is between the 38.2% and 50% Fibonacci retracement levels, which might keep further gains in check.

The 100 SMA is above the 200 SMA on this 4-hour time frame, though, which means that the path of least resistance is still to the upside. The gap between the moving averages is narrowing so a downward crossover might be imminent, possibly signaling a buildup in bearish pressure. In addition, the 200 SMA lines up with the 50% Fib and area of interest, possibly acting as dynamic resistance.

Stochastic is on the move up to show that buyers are in control of price action for now. This suggests that the correction could carry on until reversal candlesticks form or the oscillator reaches the overbought zone to show bullish exhaustion.

Japanese banks were closed for the holiday yesterday so traders likely booked profits after the BOJ statement earlier in the week. The central bank announced some adjustments in its monetary policy goals, shifting towards targeting the yield curve and sharing plans for more aggressive stimulus. Earlier today, Japan reported a strong flash manufacturing PMI reading, which is up from 49.5 to 50.3 in September instead of falling to 49.3.

As for the euro, there were no major reports out of the region yesterday although the LTRO showed a drop from 399.3 billion EUR to just 45.3 billion EUR, reflecting a lower value in the long-term loans issued to banks. Euro zone flash PMI readings are due today and small declines in the manufacturing and services sectors of Germany and France are expected.

By Kate Curtis from Trader's Way

 

[katetrades]

AUDUSD Descending Channel (Sep 26, 2016)

AUDUSD is starting to trend lower, forming a descending channel pattern on its 4-hour time frame. Price is currently testing the resistance near the .7650 minor psychological level and could be due to resume its drop to the channel support at .7450.

Stochastic is turning lower and making its way out of the overbought zone to indicate that sellers are taking control of price action. Also, the 100 SMA is below the longer-term 200 SMA, confirming that the path of least resistance is to the downside.

However, the gap between the moving averages is narrowing so an upward crossover could be due. In that case, Aussie bulls could try to push price higher, especially if the moving averages also hold as near-term dynamic support.

The RBA minutes released last week indicated that the Australian central bank is no longer inclined to cut interest rates in the next few months, citing a relatively upbeat assessment of their economy. On the other hand, the FOMC disappointed dollar bulls by refraining to hike interest rates during their policy decision.

Still, the Fed noted that they'll be keeping close tabs on data to see if they can be able to tighten monetary policy by the end of the year. There's not much in the way of US reports this week, though, as traders will have to wait for the NFP report due the following week to gauge if employment continues to improve.

A number of FOMC policymakers are set to make testimonies this week, including George, Tarullo, Bullard, and Fischer. Fed Chairperson Yellen also has a couple of testimonies lined up and she could reiterate their hawkish bias, possibly allowing the dollar to regain ground.

By Kate Curtis from Trader's Way

 

[katetrades]

NZDUSD Channel Break Correction (Sep 27, 2016)

NZDUSD was previously trading inside an ascending channel formation before making a downside break and hitting a low of .7220. From there, price showed signs of a pullback and looks ready to make a retest of the broken channel support at the .7300 major psychological level.

Applying the Fib tool on the latest swing high and low shows that the 61.8% retracement level also coincides with the broken channel support, adding to its strength as potential resistance. If it holds as a ceiling, NZDUSD could resume its drop to the previous lows or much lower.

The 100 SMA just crossed below the longer-term 200 SMA to confirm that the path of least resistance is to the downside. In addition, the moving averages appear to be holding as dynamic inflection points at the moment. Stochastic is already on the move down from the overbought zone to show that sellers are taking control of price action.

Last week, the RBNZ hinted that they're keeping the door open for additional rate cuts, citing concerns about inflation and weak demand from emerging economies. Governor Wheeler also emphasized that the Kiwi is trading at high levels, which is dampening export activity and overall growth.

Meanwhile, the FOMC also decided to keep rates on hold for the time being but hinted that they could still tighten in their next policy meetings. Three members voted to hike in September, reflecting a shift to a more hawkish committee. For now, policymakers have indicated that they'll be keeping close tabs on upcoming data to see if they can stay on track towards hiking rates soon.

There's not much in the way of top-tier reports from both economies this week, though, so these monetary policy biases could be the main driver of price action. Apart from that, overall market sentiment could also be influenced by the US presidential debates and the OPEC meetings, with risk-off moves favoring the safe-haven USD.

By Kate Curtis from Trader's Way

 

[katetrades]

EURUSD Descending Triangle (Sep 28, 2016)

EURUSD has formed lower highs and found support at the 1.1130 area, creating a descending triangle formation on its 4-hour chart. Price is currently testing the triangle resistance and might be due for a drop back towards support.

The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside, adding confirmation that the triangle resistance could keep gains in check. Stochastic is also on the move down, which suggests that sellers are in control of price action for now.

However, the oscillator is nearing the oversold zone so this bearish pressure could fade soon. In that case, price could make another bounce off support and go for a climb back to the resistance at 1.1250. Stronger bullish momentum could trigger a breakout, which could result in a rally of around 200 pips, which is the same height as the chart formation.

Economic data from the US came in mostly stronger than expected yesterday, with both the flash services PMI and CB consumer confidence index beating expectations and hinting at stronger business and consumer activity down the line. Data from the euro zone fell short of estimates, with German import prices down 0.2% versus the projected 0.1% dip, adding downside pressure on inflation.

For today, Germany will print its GfK consumer climate index and likely show no change from the previous 10.2 reading. The US is set to report durable goods orders data, with analysts expecting to see a 1.0 drop in the headline figure and a 0.5% decline in the core reading. Fed head Yellen and FOMC member Bullard also have testimonies lined up, as hawkish remarks could keep the dollar supported on rate hike hopes.

ECB head Draghi also has a testimony lined up but his speech earlier in the week didn't contain much surprises. Still, any remarks cautioning about the impact of the Brexit on the euro zone economy could keep a lid on the shared currency's gains.

By Kate Curtis from Trader's Way

 

[katetrades]

USDCAD Reversal Pattern (Sep 29, 2016)

USDCAD failed in its recent attempts to break past the 1.3250 minor psychological resistance and is moving closer to testing support at the 1.3000 mark. This could complete the formation of a double top pattern, with a break below the neckline likely sending the pair lower by at least 250 pips.

However, the 100 SMA just crossed above the 200 SMA to show that the path of least resistance is to the upside. This means that the 1.3000 level could still hold as support and push price to bounce back up to the 1.3250 resistance for the formation of another top or even an upside break. Stochastic is already indicating oversold conditions, which means that bearish momentum is exhausted, so buyers might take over.

The OPEC gathering in Algiers concluded with energy ministers saying that they've reached an agreement. However, this refers only to an outline for an output deal and not an actual production cap just yet. As it turns out, they have yet to agree on the size and scale of the program, and market watchers will have to wait until the next official OPEC meeting in November 30 to see if the deal will push through.

For now, crude oil bulls are pushing the commodity price up, which is supporting the positively-correlated Canadian currency as well. Stronger oil prices could mean strong revenues for Canada's energy sector, which comprises a huge chunk of its business and export activity.

As for the US dollar, traders still seem to be hopeful for a Fed rate hike in November or December. Data has been slightly better than expected in terms of durable goods orders for August but the July readings were downgraded. There's not much in the way of top-tier US data today so traders might hold out for next week's NFP release.

By Kate Curtis from Trader's Way

 

[katetrades]

EURAUD Channel Break Correction (Sep 30, 2016)

EURAUD was previously trading inside an ascending channel on its 4-hour time frame before breaking lower and showing that a reversal is due. Price has found support near the 1.4600 mark and has pulled up from its dive to retest the broken channel bottom around the 1.4700 major psychological level.

Applying the Fib tool on the latest swing high and low shows that the 23.6% retracement level lines up with the broken support area and might be enough to keep further gains in check. A higher retracement could last until the 38.2% Fib which is near the moving averages.

The 100 SMA is still above the 200 SMA for now so the path of least resistance could be to the upside. However, the gap between the moving averages is narrowing so a downward crossover could be due. Also, stochastic is nearing the overbought zone and a turn lower could draw more euro bears to the mix.

News of hedge funds moving their derivatives holdings away from Deutsche Bank inspired risk aversion in recent trading sessions, triggering a flight to safety in financial assets. However, the euro managed to hold on to its gains against the Aussie, which is a higher-yielding and riskier currency.

Economic data from the euro zone came in mixed, as German and Spanish flash CPI readings beat expectations but the German unemployment change report showed a 1K rise in joblessness versus the projected 5K increase in hiring. There were no reports out of Australia yesterday but the commodity currency could still draw support from the lack of dovishness in the RBA minutes released earlier in the month.

For today, Australia will release its numbers on private sector credit and HIA new home sales. The Chinese Caixin manufacturing PMI is also due and a rise from 50.0 to 50.1 is eyed for September, likely shoring up demand for the Aussie, especially if the actual results beat expectations.

By Kate Curtis from Trader's Way

 

[katetrades]

NZDUSD Descending Triangle (Oct 03, 2016)

NZDUSD has formed lower highs and found support at the .7240 area, creating a descending triangle on its 4-hour time frame. Price seems to have bounced off the triangle resistance and is making a move towards support.

A breakout in either direction could lead to a rally or selloff of around 250 pips, which is the same height as the chart formation. The 100 SMA is above the longer-term 200 SMA for now, but a downward crossover seems imminent so sellers could take control of price action and trigger a break of support.

Stochastic is on middle ground but also appears to be turning lower, confirming that bearish pressure might return and push NZDUSD lower. So far, the moving averages also appear to have held as dynamic resistance as well.

Economic data from the US came in mixed last Friday, as Chicago PMI and the revised consumer sentiment index from the UoM beat expectations. The core PCE price index and personal income reading came in line with expectations while personal spending fell short.

The US ISM manufacturing PMI is due today and this could provide a preview of how Friday's much-anticipated NFP reading might turn out. Analysts are expecting to see a rise from 49.4 to 50.4 and are likely to pay close attention to the jobs component.

As for New Zealand, the GDT auction might be the main event this week, as gains in the dairy index have been slowing and might slump back to negative territory this week. Over the weekend, Chinese PMI readings came in line with expectations, keeping comdolls supported for now.

By Kate Curtis from Trader's Way

 

[katetrades]

GBPJPY Triangle Support (Oct 04, 2016)

GBPJPY has been selling off recently but is currently testing support at the descending triangle pattern visible on its 4-hour chart. Price seems to have found a floor at the 130.00 major psychological level and could be due for a move up to the resistance at the 134.50 minor psychological level.

However, the 100 SMA just crossed below the longer-term 200 SMA to indicate that the path of least resistance is to the downside. If so, a break below the descending triangle support could be seen, taking the pair lower by around a thousand pips or the same height as the chart formation.

Stochastic is on the move up to show that bullish momentum is in play. If the rally is weak, price could encounter resistance around the middle of the pattern or the dynamic inflection points around the moving averages.

Economic data from the UK was stronger than expected yesterday, with the manufacturing PMI up from 53.4 to 55.4 to show a stronger pace of industry expansion. This was higher than the consensus at 52.1. UK construction PMI data is due today and a dip from 49.2 to 49.1 is eyed while Wednesday's services PMI release could see a fall from 52.9 to 52.1.

It appears, however, that the confirmation that Article 50 would be invoked by the British government by the first quarter of next year has resulted to a fresh wave of uncertainty for the British economy. Prime Minister Theresa May has mentioned that the UK could leave the single market and pursue trade ties with other nations instead.

As for the Japanese yen, data has also been mostly weaker than expected, with the Tankan figures released over the weekend reflecting declines in both manufacturing and non-manufacturing sectors. Japan's consumer confidence index is due today and a drop from 42.0 to 41.8 is eyed.

By Kate Curtis from Trader's Way

 

[katetrades]

USDJPY Triangle Breakout (Oct 05, 2016)

USDJPY seems to be establishing bullish momentum as price started to break above the descending triangle resistance visible on its 4-hour chart. The chart pattern is approximately 700 pips tall so the resulting breakout could be of the same size.

The 100 SMA is still below the longer-term 200 SMA on this time frame, suggesting that the path of least resistance could be to the downside. This could lead to a quick pullback to the broken triangle resistance at 101.50 before price resumes its climb. This broken resistance lines up with the dynamic support around the moving averages also.

Stochastic is on the move down from the overbought zone, also signaling that bears are set to take control of price action from here. If the triangle resistance holds as a floor, USDJPY could carry on with its climb up to 108.00. On the other hand, a sharp selloff below the 100.00 mark could send the pair lower by 700 pips instead.

Earlier in the week, economic data from the US has been stronger than expected. The ISM manufacturing PMI was up from 49.4 to 51.5, reflecting a return to industry growth and outpacing the consensus at 50.4. The jobs component was still below 50.0 but it showed a slower pace of contraction, supporting positive expectations for the NFP release later in the week.

For today, the US ADP non-farm employment change report is due and a weaker gain of 166K compared to the earlier 177K reading is eyed. Also lined up today is the ISM non-manufacturing PMI, which might show a climb from 51.4 to 53.1. Traders are likely to pay close attention to the jobs component once more, with a strong read yielding more gains for the dollar.

As for the Japanese yen, there have been no major reports recently but it appears as though bulls are unwinding their positions. Stronger expectations of a Fed rate hike for the year could draw more funds away from the lower-yielding currency and onto the dollar instead.

By Kate Curtis from Trader's Way

 

[katetrades]

GBPAUD Countertrend Setup (Oct 06, 2016)

GBPAUD has been selling off but is currently finding support at the bottom of its descending channel on the 4-hour time frame. The 1.6700 handle seems to be keeping losses in check and if it continues to do so, price could bounce back to the top of the channel at 1.7400 or at least until the middle at 1.7100.

The 100 SMA is below the 200 SMA to indicate that the path of least resistance is to the downside. Also, the gap between the moving averages is widening, which means that bearish momentum is getting stronger.

However, stochastic is on the move up to show that buyers are taking control of price action. In that case, price could make a quick pullback from its dive as sellers book profits. Any large pullback could encounter resistance around the dynamic inflection points at these moving averages.

Economic data from the UK has actually been stronger than expected, with the latest services PMI release showing a drop from 52.9 to 52.6 instead of 52.1. Manufacturing and construction PMI have posted stronger than expected gains, signaling that the economy could stay afloat even with the looming Brexit.

However, it seems as though the idea of leaving the single EU market is taking a huge toll on the pound since investors believe that this could severely dampen demand and business activity. Over the weekend, UK PM May confirmed that they would trigger Article 50 by the first quarter of next year, causing a sharp selloff for the currency since then.

Meanwhile, the RBA refrained from cutting rates in their statement this week, leading many to predict that they would sit on their hands for the rest of the year. Australian retail sales and trade balance have both come in better than expected, confirming that there's no need for additional easing.

By Kate Curtis from Trader's Way