Daily Technical Analysis by Kate Curtis from Trader's Way

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EURAUD Range Support Bounce (Feb 01, 2017)

The bottom of the long-term range on EURAUD seems to be holding as a floor, with a small double bottom formation materializing. Price is testing the neckline at the 1.4300 major psychological level and a break past this resistance could send the pair up by 200 pips or the same height as the chart formation.

In that case, the pair could make it up to the range resistance at the 1.4500 major psychological mark. However, the 100 SMA is below the 200 SMA so the path of least resistance could still be to the downside. Also, the 200 SMA appears to be holding as dynamic resistance for the time being.

Stochastic is moving up but is already dipping into the overbought region, signaling that buying pressure is exhausted and that sellers could take over. If that happens, another test of the range support could be seen.

Economic data from China showed a small dip in manufacturing activity, as the official PMI for the industry fell from 51.4 to 51.3. The non-manufacturing component improved from 54.5 to 54.6. However, the Aussie seems to be moving in tandem with the Kiwi, which has recently been dragged down by its employment report miss.

In the euro zone, the flash CPI estimate turned out much stronger than expected. The headline reading climbed from 1.1% to 1.8%, outpacing the consensus at 1.5%, while the core reading was unchanged at 0.9% as expected. The region printed a higher than expected flash GDP reading of 0.5% versus the 0.4% consensus and the earlier 0.3% uptick.

For today, EU economic forecasts are lined up, along with final manufacturing readings from the region's top economies. Australia is set to print its building approvals and trade balance in the next Asian session.

By Kate Curtis from Trader's Way

 

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EURUSD Ascending Channel (Feb 02, 2017)

EURUSD continues to trend higher, moving inside an ascending channel on its 1-hour chart. Price just bounced off the resistance at 1.0800 and might be due for a test of support at 1.0700.

The 100 SMA Is below the 200 SMA so the path of least resistance is to the downside. However, the moving averages are oscillating tightly so this could simply be indicative of consolidation. An upward crossover could draw more bulls to the mix and possibly allow the moving averages to hold as dynamic support around the middle of the channel.

Stochastic is on the move up to suggest that buyers are in control of EURUSD price action for now. In that case, the pair could make it back up to the resistance from here until the oscillator indicates overbought conditions and turns lower.

Economic data from the US came in stronger than expected, as the ADP jobs report printed a much larger than expected increase in hiring for January while the ISM manufacturing PMI also beat expectations. These signal that the January NFP could beat expectations and keep the Fed on track towards hiking rates soon.

However, the latest FOMC statement didn't turn out as hawkish as many predicted. The Fed removed the phrase referring to transitory effects of energy prices on inflation and acknowledged that consumer and business sentiment have improved. Still, the FOMC maintained that conditions warrant gradual tightening and risks are roughly balanced.

Up ahead, ECB Governor Draghi has a speech coming up and this might trigger some volatility for the euro even though he might simply repeat his remarks from a testimony earlier in the week. US initial jobless claims and preliminary non-farm productivity and unit labor costs are due.

By Kate Curtis from Trader's Way

 

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GBPAUD Triangle Formation (Feb 03, 2017)

GBPAUD has formed lower highs and higher lows on its daily time frame, creating a symmetrical triangle formation on the long-term chart. Price just bounced off the triangle resistance and could be due for another test of support.

Stochastic is pointing down to confirm that sellers are taking control of price action. If bearish pressure is strong enough, traders could push for a break below support at 1.6300 and a corresponding 1,800-pip selloff, which is the same height as the triangle formation.

The 100 SMA is below the 200 SMA on this time frame so the path of least resistance is downwards. Also, the 100 SMA lines up with the triangle resistance, adding to its strength as a ceiling. The gap between the moving averages is widening so bearish pressure is getting stronger.

In their latest policy statement, the BOE refrained from making any changes to interest rates or bond purchases as expected. The central bank raised its GDP forecasts while keeping inflation estimates unchanged, signaling that they are in no rush to tighten monetary policy.

Meanwhile, the Aussie is being weighed down by weaker than expected Chinese Caixin manufacturing PMI, which dipped from 51.9 to 51.0 instead of 51.8. This forced the currency to return some of its gains after seeing stronger than expected trade balance and building approvals data in the previous day.

UK services PMI is up for release and a fall from 56.2 to 55.8 is expected. Stronger than expected data could still shore up the pound while downbeat results could push the UK currency lower.

By Kate Curtis from Trader's Way

 

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EURGBP Double Bottom (Feb 06, 2017)

EURGBP seems to be tired from its dive as the pair failed in its last two attempts to break below the .8500 level. Price has now completed a double bottom formation and is testing the neckline at .8650. A break above this resistance could send price up by 150 pips or the same height as the chart formation.

The 100 SMA just crossed above the longer-term 200 SMA to signal that the path of least resistance is to the upside. A pullback could last until the moving averages, which might hold as dynamic support around the .8550 minor psychological level.

Stochastic is turning lower to suggest that sellers are taking control of price action. Stronger bearish pressure could take EURGBP back down to the bottoms at .8500 for another test of support or perhaps a breakdown.

Economic data from the euro zone came in mostly in line with expectations last week when it came to PMI readings but the headline flash CPI estimate turned out stronger than expected. Meanwhile, PMI readings from the UK fell short, signaling that the economy may be starting to feel Brexit jitters.

German factory orders and euro zone retail PMI figures are due today. The former is expected to show a 0.6% rebound from the earlier 2.5% slide while the latter could improve from 50.4. There are no major reports due from the UK today.

Several medium-tier reports such as French industrial production and German trade balance are lined up from the euro zone for the rest of the week. UK manufacturing and industrial production numbers are scheduled for release on Friday and weak readings could spur more losses for the pound.

By Kate Curtis from Trader's Way

 

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GBPJPY Head and Shoulders Breakdown (Feb 07, 2017)

GBPJPY indicated its intention to head further south by breaking below the head and shoulders neckline at 141.00. The chart pattern is approximately 300 pips tall so the resulting selloff could be of the same size.

The 100 SMA has crossed below the longer-term 200 SMA to confirm that the path of least resistance is to the downside. The gap between the moving averages is getting wider, which means that bearish pressure is getting stronger.

Stochastic is on the move up, though, suggesting that buyers could regain control of price action while bears book profits. If so, a pullback to the broken neckline support could offer a better opportunity to catch the drop.

Risk aversion has been favoring the Japanese yen this week as traders shy away from the US dollar, which is bogged down by domestic uncertainties. Data from Japan has shown improvements in consumer spending and sentiment, underscoring the BOJ's upgraded growth forecasts.

In the UK, data is starting to turn a corner and suggest that the economy is starting to feel the Brexit jitters. Last week's PMI releases were mostly weaker than expected while today's BRC retail sales monitor showed a 0.6% decline.

UK Halifax HPI is due next and a meager 0.2% uptick in price levels is eyed, much slower than the earlier 1.7% gain. Manufacturing and industrial production numbers are due on Friday and downbeat reports could put more downside pressure on Guppy.

By Kate Curtis from Trader's Way

 

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USDCAD Falling Wedge (Feb 08, 2017)

USDCAD has formed lower highs and lower lows recently, creating a falling wedge chart pattern visible on the 4-hour chart. Price is currently testing the wedge resistance and may be due for a move back to support. If a breakout happens, the pair could move by around 500 pips, which is the same height as the chart formation.

The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside. In addition, the gap between the moving averages is getting wider, which means that bearish pressure is strengthening. The 200 SMA is close to the wedge resistance, adding an extra layer of defense in case price pops higher.

Stochastic is already in the overbought zone, which means that buyers might want to book profits off their recent positions. Once the oscillator turns lower, USDCAD could follow suit as sellers regain control.

Economic data from Canada was mostly weaker than expected in the latest US session, as the trade surplus narrowed while building permits showed a steeper 6.6% fall compared to the estimated 3.5% drop. The Ivey PMI also posted sharper fall from 60.8 to 57.2 versus the estimated 58.3 figure.

In the US, data came in mostly in line with expectations. The trade deficit narrowed as both imports and exports picked up while the JOLTS job openings figure was mostly unchanged in December. An index for economic optimism improved, signaling stronger consumer confidence for the next six months.

In crude oil news, the US EIA lowered demand forecasts for next year while upping production estimates, possibly yielding another wave lower in prices. For this year, they kept demand forecasts unchanged while trimming production estimates.

By Kate Curtis from Trader's Way

 

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EURJPY Channel Pullback (Feb 09, 2017)

EURJPY is trending lower after recently breaking below its consolidation pattern with support at 121.00-121.50. Price is now moving inside a descending channel and testing support, possibly setting the stage for a pullback to the resistance.

Applying the Fib tool on the latest swing high and low shows that the 61.8% level lines up with the resistance and area of interest. If this area keeps gains in check, the pair could resume its drop to the swing low at 119.50 or much lower.

The 100 SMA is below the longer-term 200 SMA so the downtrend is likely to carry on. In addition, the moving averages are close to the channel resistance and Fibs, adding another layer of defense. Stochastic is on the move up to show that buyers are in control of price action while sellers are taking a break.

Economic data from Japan has been mixed, although the latest batch of reports printed stronger than expected results. Core machinery orders increased by 6.7% versus the projected 3.2% rise while M2 money stock also beat expectations. Prior to this, leading indicators advanced from 102.8% to 105.2% but average cash earnings fell short with a 0.1% uptick versus the projected 0.2% rise.

Euro zone data has also been mixed but ECB Governor Draghi has emphasized that they're open to increasing the size and duration of their QE program if necessary. He downplayed inflationary pressures once again, citing the pickup in energy prices as a one-off boost.

German trade balance is due today and a larger surplus of 23.2 billion EUR is expected. In Japan, preliminary machine tool orders is up for release and another upside surprise could mean more yen gains. Note that the BOJ has upgraded its growth forecasts so no additional easing measures are expected in the near term.

By Kate Curtis from Trader's Way

 

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USDJPY Channel Breakout? (Feb 10, 2017)

USDJPY has been trending lower on its 1-hour time frame, moving inside a descending channel since the start of the year. Price is now testing the channel resistance and might be due for a drop back to support at 111.00.

The 100 SMA is below the longer-term 200 SMA on this time frame so the path of least resistance is to the downside. However, the gap between the moving averages is narrowing so an upward crossover might be due, possibly drawing more buyers to the mix.

In that case, USDJPY could break past the channel resistance at the 113.70 area and start a reversal. However, stochastic is indicating overbought conditions and might turn lower, allowing the downtrend to resume.

The US dollar has rallied across the board when US President Trump shared that he is about to announce something "phenomenal" on taxes in the next two or three weeks. This could cover more details on his tax reform plan, which is expected to cut corporate taxes to 15-20% and lessen the tax burden on middle-class Americans.

US equity indices closed at record highs on upbeat expectations, including potential reforms in the aviation industry. Trump recently had a meeting with CEOs of US carriers who hinted that they are ready to bring more job opportunities back to the US. Trump is also meeting with Japanese Prime Minister Abe today and traders are speculating that currency manipulation might be discussed.

With that, yen bulls closed their recent positions as traders also reestablished their dollar longs. Japanese data has been upbeat and the BOJ has issued a brighter economic outlook but market sentiment and politics could play a greater role in price action from here.

By Kate Curtis from Trader's Way

 

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NZDUSD Broken Trend Line (Feb 13, 2017)

NZDUSD recently broke past a descending trend line visible on its 4-hour and daily time frames, signaling that an uptrend is due. Price zoomed past the .7300 mark before showing signs of a correction, and applying the Fib tool on the latest swing high and low shows that the 50% level lines up with the broken trend line and the .7100 major psychological support.

The 100 SMA is still above the 200 SMA so the path of least resistance is to the upside for now. However, the gap between the moving averages is narrowing so a downward crossover might be imminent. In that case, more sellers could get in the game and increase downside pressure.

Stochastic is heading south, which means that sellers are in control of NZDUSD price action for now. The oscillator is dipping into the oversold region and might turn higher soon, drawing buyers back to the mix and causing a bounce off the area of interest.

The RBNZ was slightly more dovish than expected in their latest interest rate statement, as they pushed back their projected date for achieving 2% inflation by a couple of quarters. This signals that the central bank could still be open to additional rate cuts in order to shore up price levels if needed.

In contrast, geopolitical tensions seem to have subsided as the Trump administration had a productive meeting with Japanese Prime Minister Abe. US equities are also climbing to new highs on Trump's tax reform plans, which he plans on announcing sometime in the next two to three weeks.

Recall that Trump has talked about lowering the corporate tax rate and deregulating the financial sector, both of which are likely to mean strong gains for corporate America and the overall US economy. More details on these plans could remind traders that the Fed is looking to tighten monetary policy in order to keep growth under control so March rate hike hopes could continue propping the dollar up.

By Kate Curtis from Trader's Way

 

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GBPJPY Symmetrical Triangle (Feb 14, 2017)

GBPJPY has formed lower highs and higher lows, creating a symmetrical triangle pattern visible on its 4-hour time frame. Price is getting ready to test the resistance around the 142.50 minor psychological level and could be due for a bounce or a break.

The 100 SMA seems to be crossing above the longer-term 200 SMA to suggest a potential upside break. If so, the pair could climb by an additional 900 pips, which is roughly the same height as the chart formation. Similarly, a downside break below support at 140.00 could send price lower by 900 pips.

Stochastic is indicating overbought conditions and turning lower could draw more sellers to the mix, allowing the triangle resistance to keep gains in check and push GBPJPY back to the bottom of the chart pattern.

UK CPI is up for release today and analysts are expecting a gain from 1.6% to 1.9% in the headline figure and a rise in the core figure from 1.6% to 1.7%. Stronger than expected data could reinforce BOE official Forbes' views that a rate hike should be considered to prevent inflation from rising out of control.

Later on in the week, the UK will print its jobs figures, likely showing a 1.1K rise in claimants for January and no change in the average earnings index at 2.8%. UK retail sales is expected to show a rebound from the 1.9% drop recorded in December.

As for the yen, market sentiment has been pushing the lower-yielding currency around, although it has been sensitive to currency-specific data. Over the weekend, Japan printed a weaker than expected preliminary GDP reading of 0.2% for Q4 versus expectations at 0.3%.

By Kate Curtis from Trader's Way