Daily Technical Analysis by Kate Curtis from Trader's Way

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GBPUSD Reversal Signal? (Jan 18, 2017)

GBPUSD made a strong bounce after PM May's Brexit speech in the latest London trading session, allowing price to recover off the 1.2000 lows and create a reversal formation. A double bottom can be seen on the 4-hour chart with the neckline at 1.2700.

Price still has a long way to go before clearing the neckline and confirming the potential uptrend but if it is able to do so, the pair could head north by as much as 700 pips or the same height as the chart pattern. If the resistance holds, the pair could make another attempt at breaking below the 1.2000 mark.

The 100 SMA is below the 200 SMA so the path of least resistance is to the downside. In addition, the gap between the moving averages is widening, which means that bearish pressure is getting stronger. Stochastic is indicating overbought conditions, which also support the idea of further losses for GBPUSD.

In her speech, UK Prime Minister May confirmed the possibility of a "hard Brexit" in which they could give up access to the single market in exchange for immigration controls and autonomy from the European Court of Justice. She did try to reassure market watchers that the government would pursue trade deals with other nations and stay in good terms with the EU. May also noted that Parliament will be allowed to vote on the Brexit deal before anything is made official.

As for the US, mixed Fed rhetoric and uncertainty ahead of Trump's inauguration dampened the dollar's gains. According to FOMC member Dudley, the Fed is in no rush to tighten since the economy isn't growing at a much faster pace than its sustainable long-term growth. He added that inflation isn't a problem and that dollar appreciation would keep a lid on price levels. The Empire State manufacturing index posted a sharper than expected drop from 9.0 to 6.5.

UK CPI readings came in better than expected and jobs figures are up for release today. Another stronger than expected read could allow the pound to extend its climb while weak results could force it to turn back down. FOMC member Kashkari has a speech lined up today, along with Fed head Yellen.

By Kate Curtis from Trader's Way

 

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GBPJPY Downtrend Retracement (Jan 19, 2017)

GBPJPY has been trending lower since breaking below the head and shoulders neckline recently. Price has reached a low of 136.40 before pulling up and showing signs of a correction. Applying the Fib tool on the latest swing high and low shows that the 50% level coincides with the descending trend line connecting the latest highs of price action.

The 100 SMA has crossed below the longer-term 200 SMA to indicate that the selloff is likely to carry on. The 100 SMA lines up with the 61.8% Fibonacci retracement level, which might be the line in the sand for this downtrend.

Stochastic is pointing up but is already in the overbought region, which means that buyers are already exhausted and may let sellers take over. Once the oscillator turns lower, selling pressure could increase and push GBPJPY back down to the previous lows or lower.

Earlier in the week, UK Prime Minister Theresa May outlined her Brexit plans in her latest testimony, explaining that the UK could forego access to the single European market in exchange for immigration controls. She assured that the government would seek trade deals with other nations to ensure that trade activity remains supported.

However, these uncertainties seem to have been outweighed by stronger than expected data from the UK. Headline and core CPI posted strong gains and outpaced estimates while the claimant count change showed a surprise 10.1K reduction in joblessness. UK retail sales are still up for release on Friday.

In Japan, there have been no major reports recently so the yen may be reacting to country-specific events. Keep in mind, though, that the BOJ statement is coming up soon and that the central bank just upgraded their GDP forecasts. Apart from that, Trump's upcoming inauguration could impact US bond yields and yen demand.

By Kate Curtis from Trader's Way

 

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USDJPY Downtrend Channel (Jan 20, 2017)

USDJPY continues to trend lower on its 1-hour time frame, moving inside a descending channel connecting the latest highs and lows. Price is currently bouncing off the channel resistance at the 115.50 minor psychological level and could be due for a selloff to the support at 112.00 or at least until the swing low at 112.50.

The 61.8% Fib was in line with the channel resistance, which explains why it's currently holding as a ceiling. Also, the 200 SMA lined up with the Fib levels, adding to their strength as resistance. The 100 SMA is safely below this longer-term moving average and is increasing the gap so the path of least resistance is to the downside and bearish pressure is picking up.

Stochastic is heading south to indicate that sellers are in control of price action. However, once the oscillator reaches the oversold region and turns higher, bears could book profits and allow buyers to take over.

US economic data has been mostly stronger than expected, as initial jobless claims, Philly Fed index, and housing starts surpassed estimates. However, dollar traders remain wary of event risks stemming from Trump's inauguration so there might be some profit-taking off long dollar positions before the end of the week.

There have been no major reports out of Japan recently but the currency seems to be taking advantage of the risk-off flows these days. Aside from that, bullish sentiment has been restored after the BOJ recently upgraded their GDP forecasts.

By Kate Curtis from Trader's Way

 

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EURUSD Long-Term Floor (Jan 23, 2017)

The 1.0400 handle seems to be holding as a long-term floor for EURUSD once more, as price bounced off this area and might now be headed back to the top of its range around 1.1500. This range has held since February last year and might continue to do so.

However, the 100 SMA is below the longer-term 200 SMA on the daily chart, signaling that the long-term path of least resistance is to the downside. In that case, a range breakdown is still possible and this could potentially send EURUSD lower by the same height as the rectangle formation of over a thousand pips.

Stochastic is still pointing up on the daily chart to show that buyers are in control of price action. However, the oscillator is already dipping into the overbought zone so profit-taking could happen and allow sellers to regain control.

US President Donald Trump's inauguration speech seems to have kept a lid on dollar gains as investors continue to be nervous about his fiscal policy plans and a potential trade war. After all, Trump's remarks could have repercussions on its trade ties with China, Mexico, Canada, and other big economies.

For the euro zone, the region's consumer confidence index is due today and no change in the -5 reading is eyed. ECB Governor Draghi has a speech lined up but he is expected to simply repeat his remarks during their monetary policy statement's presser, reiterating that the pickup in inflation was just mostly energy-based.

There are no major reports due from the US economy today as traders also brace themselves for the advanced GDP release later on in the week. Another potential catalyst for this pair is the UK High Court ruling, which could have an impact on how Brexit negotiations play out, both for the UK and the euro zone.

By Kate Curtis from Trader's Way

 

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USDJPY Countertrend Play (Jan 24, 2017)

USDJPY is trending lower on its 1-hour time frame, moving inside a descending channel and approaching support at the 111.50-111.75 area. A bounce off this area could take price back up to the channel resistance around the 114.00 major psychological level.

The 100 SMA is below the 200 SMA for now so the path of least resistance is to the downside, but the short-term moving average appears to be getting ready for an upward crossover so a bounce could be likely. If buying pressure is strong enough, traders could even push for a break past the channel resistance.

Meanwhile, stochastic is in the oversold area, also suggesting that a bounce from the selloff is due. A break above the channel resistance could take USDJPY up to the next area of interest at 115.50.

The dollar has been in a lot of selling pressure before Trump officially took office, as investors have been speculating about a lot of uncertainty during his administration. His "America First" theme seems to have backfired on the dollar as a potential trade war would also have dire consequences on US economic growth.

On the other hand, the Japanese yen has been the beneficiary of risk-off moves, especially during the Asian session. Trump's Treasury Secretary pick Mnuchin shared his plans to investigate China's currency manipulation tactics while Trump signed an executive order quitting the TPP during his first day in the White House.

Medium-tier data from Japan came in stronger than expected today, as the flash manufacturing PMI climbed from an upgraded 52.4 figure to 52.8 instead of dipping to 52.3. Prior to this, the all industries activity index posted a 0.3% uptick. US flash manufacturing PMI, existing home sales, and Richmond manufacturing index are due next.

By Kate Curtis from Trader's Way

 

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EURGBP Triangle Breakout Pullback (Jan 25, 2017)

EURGBP recently broke to the upside from an ascending triangle formation and zoomed up to a high of .8850. From there, price showed signs of a correction to the broken triangle resistance at the .8520 area.

Applying the Fib tool on the latest swing low and high shows that the 61.8% Fib is close to the broken resistance, which might now hold as support. If so, EURGBP could make its way back up to the highs and beyond.

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 broken triangle resistance and might keep losses in check. Stochastic is indicating oversold conditions so buyers could take over soon.

Euro zone reports turned out mixed, as German flash manufacturing PMI and French flash services PMI came in better than expected but the German flash services PMI missed expectations. German Ifo business climate is due today and a rise from 111.0 to 111.3 is expected.

In the UK, the High Court ruling seems to have boosted the pound as requiring parliamentary approval before invoking Article 50 and starting the negotiation process sparked hopes that the actual Brexit could be postponed. UK public sector net borrowing fell from 10.8 billion GBP to 6.4 billion GBP, reflecting improving finances.

Moving forward, Brexit headlines could continue to push this pair around as these have been crucial in setting the outlook for the UK economy. Still, Prime Minister May has been reassuring in terms of making the best of Brexit and securing the best possible deal for the nation.

By Kate Curtis from Trader's Way

 

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EURUSD Rising Wedge (Jan 26, 2017)

EURUSD has been trending higher but slowly consolidating inside a rising wedge formation visible on the 1-hour and 4-hour charts. This signals that a breakout in either direction could take place soon as price is approaching the peak of its formation. The wedge is approximately 400 pips tall so the resulting breakout could be of the same size, possibly taking EURUSD either to the 1.0350 lows or to highs at 1.1150.

The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside. Stochastic seems to be on the move up but is nearing the overbought zone so buyers might be getting exhausted and ready to let sellers take control of price action.

Economic data form the euro zone has been weaker than expected recently, as the German Ifo business climate index printed a surprise drop from 111.0 to 109.8 versus the projected rise to 111.3. As it turns out, German manufacturers are less optimistic about current and future business conditions in the country, possibly due to Brexit concerns.

However, demand for the dollar has also been weak even as US equities have been advancing. Reports that Trump's team has a list of 50 infrastructure projects that could rein in a lot of investment and employment have boosted stock indices to record highs but the US currency has failed to follow suit.

Today has initial jobless claims, goods trade balance, flash services PMI, and new home sales due from the US. The euro zone is set to print the Spanish unemployment rate, German GfK consumer climate index, and Italian retail sales.

By Kate Curtis from Trader's Way

 

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GBPUSD Long-Term Uptrend Signal (Jan 27, 2017)

GBPUSD seems to be tired from its dive, as the pair formed a reversal pattern on its longer-term charts. Price failed in its last two attempts to break below the 1.1975 area, creating a double bottom formation with the neckline at 1.2750. A break past that level could take price up by around 800 pips.

However, the 100 SMA is below the longer-term 200 SMA on the daily chart so the path of least resistance is to the downside. Also, the 100 SMA seems to be holding as dynamic resistance for now. If it continues to keep gains in check, another move towards the 1.1975-1.2000 handle could be in the cards.

Stochastic is also indicating overbought conditions so buyers might need to take a break or book profits and let sellers take over. A bit of bearish divergence can also be seen as price made lower highs while stochastic had higher highs.

UK preliminary GDP came in better than expected for Q4 2016, as the economy expanded by 0.6% versus the projected 0.5% growth figure. To top it off, the earlier reading was upgraded to show 0.6% growth. BBA mortgage approvals also ticked higher, indicating a robust housing market even with Brexit risks.

As for the US, data came in mixed with new home sales falling short of expectations and initial jobless claims signaling a higher rise in unemployment. Still, the flash manufacturing PMI beat expectations by rising from 53.9 to 55.1.

Up ahead, the US will print its advanced GDP reading and might show slower growth of 2.1% for Q4. A weaker than expected result could mean more losses for the dollar, which is already being weighed down by rising risk appetite.

By Kate Curtis from Trader's Way

 

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USDJPY Short-Term Range (Jan 30, 2017)

USDJPY has been trading sideways recently, bouncing off support at the 112.65 level and resistance at 115.30. Price recently made a test of resistance and seems to be heading back to the bottom of its range again.

The 100 SMA is below the 200 SMA for now so the path of least resistance is to the downside. However, the gap between the two is narrowing so an upward crossover might be due, signaling that the path of least resistance is to the upside. In that case, the pair could attempt to break higher and climb by an additional 250-300 pips.

Stochastic is heading south so sellers are in control at this point, but the oscillator is already dipping into the oversold region. Once it starts heading back up, buyers could regain control and push price further north.

The main event risks for this setup this week are the BOJ decision, the FOMC statement, and the US NFP release. No actual policy changes are expected from the Japanese central bank this week, although they've made some changes in their bond-buying program in targeting the yield curve late last week.

Meanwhile, no policy changes are expected from the Fed as well but policymakers could drop some hints on whether or not they can be able to hike interest rates again in March. Trump's fiscal policy plans are likely to be at the front and center of discussions as market watchers would like to find out how the new administration's first few days in office have influenced the Fed's bias.

As for the NFP, another strong jobs figure could reinforce the view that a March rate hike is possible. Analysts are expecting to see 170K in hiring gains, higher than the earlier 156K increase. A weak result, on the other hand, could be bearish for the dollar.

By Kate Curtis from Trader's Way

 

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GBPJPY Trend Line Pullback (Jan 31, 2017)

GBPJPY recently broke past a descending trend line visible on its 4-hour time frame and is showing signs of a pullback. Applying the Fib tool on the latest swing high and low shows that the 50% retracement level lines up with the broken resistance, which might now hold as support.

The 100 SMA is still below the 200 SMA so the path of least resistance is to the downside. However, the 100 SMA is close to the 38.2% Fib and might function as dynamic support. Stochastic is indicating oversold conditions, which means that sellers need to take a break and might let buyers take over.

If so, GBPJPY could resume its climb to the swing high at 144.75 or higher. On the other hand, a break below the lowest Fib at 139.75 could put the pair back on the downtrend.

The BOJ refrained from making any policy changes in their statement today but this comes after a round of bond-buying adjustments last week. Recall that they skipped the schedule to buy short-term maturities while increasing their long-term bond purchases in their attempt to target the yield curve.

Up ahead, the BOE Super Thursday is lined up and this could mean a lot of volatility for pound pairs. Although no actual policy changes are expected from the central bank, the focus will be on Brexit-related discussions and potential adjustments. Traders might also get a glimpse of how policymakers are reacting to Trump's decisions so far.

Earlier today, Japan reported stronger than expected household spending and preliminary industrial production data, shoring up demand for the yen and underscoring the BOJ's upgraded growth forecasts in their previous statement. The yen is also drawing support from the selloff in US assets as traders seem to be pricing in additional uncertainty.

By Kate Curtis from Trader's Way