Daily Technical Analysis by Kate Curtis from Trader's Way

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GBPJPY Reversal Pattern (Jan 04, 2017)

GBPJPY has previously been on an uptrend but it looks like bulls are tired from the climb. A head and shoulders pattern can be seen forming on its 4-hour time frame, although the right shoulder is still being completed. Price seems to have found resistance at an area of interest around the 145.00 major psychological level and could be due to test the neckline at 142.50-143.00.

The 100 SMA is above the 200 SMA on this time frame, though, so the path of least resistance is still to the upside. However, the gap between the moving averages seems to be narrowing so a downward crossover could be due, possibly drawing sellers to the mix.

Stochastic is heading south so price could follow suit as sellers take control of price action while buyers are taking a break. Once the oscillator hits the oversold region, bulls could get back in the game and trigger a bounce off the neckline support. If that area breaks, price could fall by around 500 pips or the same height as the chart formation.

Economic data from Japan was slightly stronger than expected, as the final manufacturing PMI was upgraded from 51.9 to 52.4 instead of being unchanged as expected. Japanese banks are also set to reopen today so higher liquidity could come into play.

As for the UK, the manufacturing PMI also beat expectations by rising from 53.6 to 56.1, higher than the consensus at 53.3. This reflects a stronger pace of industry growth instead of the estimated slowdown.

Up ahead, UK construction PMI is due and a dip from 52.8 to 52.6 is expected. A stronger than expected read could result to a few gains for the pound but traders are likely paying closer attention to the services PMI due on Thursday. The FOMC minutes out today could also have an impact on yen pairs' movement.

By Kate Curtis from Trader's Way

 

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GBPUSD Short-Term Reversal (Jan 05, 2017)

GBPUSD has been selling off recently but a reversal pattern has formed on its 1-hour time frame. Price failed in its last two attempts to break below the 1.2200 major psychological level, creating a double bottom with a neckline around 1.2380.

The 100 SMA just crossed above the longer-term 200 SMA to signal that the path of least resistance is to the upside. This suggests that an upside breakout and rally might ensue, taking the pair up by around 200 pips or the same height as the chart formation.

However, stochastic is heading south from the overbought zone to suggest that sellers are taking control of price action. In that case, it's still possible for the neckline to keep gains in check and push for another test of the bottoms.

Economic data from the UK has been upbeat so far, with both manufacturing and construction PMI printing stronger than expected results. The services PMI is due today and analysts are expecting to see a fall from 55.2 to 54.8 to reflect a slower pace of industry expansion.

In the US, the FOMC meeting minutes revealed that policymakers were split in terms of pursuing a faster pace of rate hikes and gradually tightening monetary policy. Among the concerns on the table were Trump's fiscal policies, inflation trends, and the consistent improvements in the labor market.

Up ahead, the attention turns to the NFP report due on Friday, as traders will see a round of leading jobs indicators from the US today. The ADP non-farm employment change report is expected to post a 171K increase in hiring, down from the earlier 216K gain. Of particular interest will be the jobs component of the ISM non-manufacturing PMI as well.

By Kate Curtis from Trader's Way

 

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EURGBP Ascending Triangle (Jan 06, 2017)

EURGBP has formed higher lows on its 1-hour chart and is testing resistance at the .8575, creating an ascending triangle formation. Price is approaching the peak of the triangle so a breakout in either direction might be due soon, taking price by around 150-200 pips higher or lower, which is the same height as the chart pattern.

The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside. However, the moving averages still seem to be oscillating so range-bound action could stay in play.

Stochastic is turning higher to show that buyers are trying to regain control of price action. But if the oscillator reaches the overbought region and turns lower, sellers could take over and push for another test of support at .8450.

Economic data from the euro zone has been mostly stronger than expected this week, particularly when it comes to flash CPI readings for the region. Also, manufacturing and services PMI readings from its top economies have surpassed expectations and some were even revised higher.

UK reports have also come in better than consensus, which explains the current consolidation for the pair. Manufacturing, construction, and services PMI readings have printed surprise gains, reflecting the economy's resilience despite Brexit uncertainties.

German factory orders and retail sales data are lined up today and another batch of strong readings could mean more gains for the shared currency. There are no major reports lined up from the UK today so the pound might be sensitive to country-specific moves.

By Kate Curtis from Trader's Way

 

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USDCAD Channel Support (Jan 09, 2017)

USDCAD has been trending higher on its long-term time frames, moving inside an ascending channel that has held for the most part of 2016. Price is currently testing the channel support and could be due for a bounce as a spinning top candle has formed.

The next daily candle should serve as confirmation for this potential reversal, and the moving averages are hinting that the uptrend could carry on. The 100 SMA is above the longer-term 200 SMA and is in line with the channel support, adding to its strength as a floor.

Stochastic is heading south to suggest that there's a bit of selling pressure left but the oscillator is dipping into the oversold area to show that bearish momentum is exhausted. Once it crosses higher, bulls could get back in the game and allow the next candle to close past the previous candle high around 1.3270.

US NFP data came in below expectations last Friday, with the economy adding only 156K positions versus the projected 175K increase. On a less downbeat note, the previous reading was upgraded to show a 205K gain in hiring for November while average hourly earnings rose by 0.4% versus the 0.3% consensus. The unemployment rate rose to 4.7% as expected on higher labor force participation.

Canada printed a stronger than expected increase in hiring of 53.7K instead of the estimated 5.1K decline while its jobless rate rose to 6.9% as expected. The country's trade balance beat expectations with a surplus of 0.5B CAD versus the estimated deficit of 1.6B CAD.

Only the labor market conditions index is lined up from the US economy today and an improvement could remind traders that the Fed is looking to hike rates thrice this year. Meanwhile, Canada has the BOC Business Outlook Survey due. The Loonie could take its cue from oil price movements as well.

By Kate Curtis from Trader's Way

 

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EURAUD Resistance Turned Support (Jan 10, 2017)

EURAUD recently broke past resistance at the 1.4400 major psychological level and zoomed up to the 1.4700 area. Price has since pulled back and is currently testing the broken resistance at the 50% Fibonacci retracement level.

The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside. Price seems to be finding support at the 200 SMA dynamic inflection point as well. Also, a small double bottom formation can be seen with the neckline at 1.4450.

Stochastic is heading up from the oversold region to hint at a return in buying pressure. A break past 1.4450 could be enough to confirm the potential climb, likely taking price back up to the 1.4700 area and beyond. On the other hand, a break below the moving averages and lowest Fib at 1.4350 could lead to a drop back to the swing low at 1.4100.

Economic data from Australia turned out weaker than expected earlier today, with retail sales up by 0.2% versus the estimated 0.4% gain and the earlier 0.5% increase. Chinese CPI missed expectations and printed a 2.1% increase compared to the 2.2% consensus and the earlier 2.3% figure. PPI beat expectations at 5.5% versus 4.6%.

Data from the euro zone has been mostly better than expected so far, with yesterday's German trade balance and Sentix investor confidence figure coming in the green. Prior to this, euro zone flash headline and core CPI have also surpassed expectations. French industrial production data is due today.

There are no other major reports lined up from both Australia and the euro zone for the latter half of the week, although Italy is still set to release its industrial production data. Headlines from China highlighting how monetary authorities are trying to rein in offshore investments could dampen confidence in the world's second largest economy and demand for Australia's commodities.

By Kate Curtis from Trader's Way

 

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GBPJPY Breakdown Pullback (Jan 11, 2017)

GBPJPY recently broke below a head and shoulders reversal formation, signaling that a long-term downtrend is in the cards. Price seems to be pulling up from its slide, though, and applying the Fib tool on the latest swing high and low shows that the 50% retracement level coincides with the broken neckline.

A descending trend line can be drawn to connect the latest highs of price action on the 1-hour time frame. The 100 SMA has crossed below the longer-term 200 SMA to suggest that the path of least resistance is to the downside, with the short-term moving average lining up with the 50% Fib as dynamic resistance.

Stochastic is still on the move up for now so buyers might be in control of price action and allow the pullback to materialize. Once the oscillator hits the overbought region and turns lower, sellers could get back in the game and push for a drop to the swing low at 140.00 or lower.

UK economic data has been mostly stronger than expected so far this week and last week. However, traders are paying closer attention to Brexit related headlines lately, especially since PM May mentioned that they might forego access to the single market in exchange for closing the UK's borders.

As for the yen, the Japanese currency is taking advantage of the slide in dollar demand that followed after the release of downbeat December NFP data. The weaker than expected jobs report led traders to doubt that the FOMC can be able to hike rates thrice this year, especially since the incoming Trump administration could come up with a lot of fiscal policy changes.

The BOJ has also upgraded its GDP outlook, convincing traders that they're not likely to ramp up their stimulus efforts anytime soon. Data from Japan has been mixed, though, and the next BOJ decision is set to take place by the end of the month.

By Kate Curtis from Trader's Way

 

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EURJPY Range Breakdown (Jan 12, 2017)

EURJPY had been trading between support at the 121.70 area and resistance at 123.75. Price seems to be breaking below support at the moment and could be gearing up for a longer-term selloff. Note that the range is approximately 200 pips in height so the resulting selloff could be of the same size.

The 100 SMA is still above the longer-term 200 SMA so the path of least resistance could be to the upside. However, the gap between the moving averages seems to be narrowing so a downward crossover may be imminent. If that happens, bearish pressure could pick up and spur stronger downside momentum.

Stochastic is heading up from the oversold region to suggest a return in buying pressure. This could still allow EURJPY to bounce back to the top of the range or just make a quick pullback to the broken range support.

Economic data from the euro zone has been mostly stronger than expected in the past few days, particularly when it comes to inflation estimates. However, risk aversion is weighing on the shared currency as Brexit headlines are dampening the outlook for the region.

As for the yen, the Japanese currency is taking advantage of the weakness in the dollar, spurred by downbeat December NFP data and the sharp selloff during Trump's press conference. Japan's leading indicators showed some signs of improvement and investors are mindful of the BOJ's upgraded GDP forecasts.

French final CPI and euro zone industrial production numbers are up for release today and upbeat results could allow the shared currency to recover. ECB minutes are also due. On the other hand, downbeat data and more risk-off factors could allow the breakdown to materialize.

By Kate Curtis from Trader's Way

 

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EURAUD Range Support (Jan 13, 2017)

EURAUD continues to trade sideways, moving between support at the 1.4150 minor psychological level and resistance at the 1.4500 mark. Price is currently testing the bottom of the range and could be due for a bounce back to the top soon.

The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside. Also, stochastic is indicating oversold conditions, which means that sellers are exhausted and might let buyers take over. However, if selling pressure persists, price could break below the rectangle and go for at least 350 pips in losses, which is the same height as the chart formation.

Commodity currencies have been on strong footing in the past few days, supported by improved sentiment for China. This could shore up demand for commodities, as well as their prices, which is positive for the Australian dollar.

In contrast, European currencies are being weighed down by Brexit concerns, as the idea of a "hard Brexit" or having the UK give up access to the single market could also have negative repercussions on the euro zone. Prime Minister Theresa May has a speech lined up today so this should clear up some of the issues on investors' minds.

Earlier today, though, China reported a smaller than expected trade surplus for January. The reading came in at 275B CNY versus the estimated 345B CNY figure and the earlier 298B surplus. Components of the report indicated a sharper than expected fall in exports, suggesting a slowdown in production and demand for raw materials.

By Kate Curtis from Trader's Way

 

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EURUSD Ascending Channel (Jan 16, 2017)

EURUSD continues to tread higher, moving inside an ascending channel visible on its 1-hour time frame. Price is just testing the resistance and could be due for a pullback to support before heading further north.

The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside. These moving averages are in line with the mid-channel area of interest, also acting as a potential floor in the event of a pullback.

Stochastic is on the move down to suggest that sellers are trying to take control of price action. This could allow EURUSD to retreat until the 1.0550 minor psychological level or at least until 1.0600 before making another test of the resistance around 1.0700.

Economic data from the euro zone came in better than expected last Friday, as the German WPI printed a 1.2% gain versus the projected 0.3% uptick. This was also stronger than the earlier 0.1% gain, indicating upside pressure on overall inflation.

Meanwhile, US data was mixed as core retail sales and PPI fell short of estimates while the headline figures surpassed expectations. Headline retail sales rose by 0.6% versus the estimated 0.5% gain while headline PPI was up 0.3% versus the projected 0.1% uptick. Preliminary UoM consumer sentiment dipped from 98.2 to 98.1 instead of improving to 98.6.

Euro zone trade balance is due today but traders might hold out for the ECB statement later on this week or UK PM May's Brexit speech. Any indication that a "hard Brexit" might be underway could also dampen demand for the shared currency. US banks are closed for Martin Luther King Day today.

By Kate Curtis from Trader's Way

 

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EURJPY Daily Selloff (Jan 17, 2017)

EURJPY has been trending lower on its daily time frame, moving inside a descending channel formation and currently testing the resistance. Applying the Fib tool on the latest swing high and low also shows that the channel resistance lines up with the 61.8% Fibonacci retracement level.

The channel resistance seems to be keeping gains in check for now and might send the pair back down to the channel support at 105.00 or to the previous lows at 109.00. However, the 100 SMA is closing in on the 200 SMA and is attempting to make an upward crossover, possibly drawing more buyers to the mix.

Stochastic is on the move down to indicate that sellers are in control of price action, but the oscillator is approaching the oversold zone so bears might need to take a break and let buyers take over. If so, an upside channel breakout and downtrend reversal could be possible.

The main event risk for the day is UK Prime Minister Theresa May's speech in which she is expected to detail the government's Brexit negotiation plan. In her previous testimonies, she mentioned that they are willing to give up access to the single market in exchange for autonomy when it comes to immigration and European Court of Justice rulings, something that could weigh heavily on UK trade and investment.

Still, May is expected to reassure the public that they will seek trade arrangements with other nations in order to keep the economy afloat. If her words manage to keep confidence supported, EURJPY might be able to push for more gains. On the other hand, fears about a slowdown in the entire region could mean more losses for the pair.

Euro zone data has been mostly stronger than expected lately while Japan's figures have been mixed. Its tertiary industry index came in line with expectations of a 0.2% uptick while its preliminary machine tool orders indicated a 4.4% rebound over the earlier 5.6% decline.

By Kate Curtis from Trader's Way