Daily Technical Analysis by Kate Curtis from Trader's Way

[katetrades]

GBPAUD Descending Triangle (May 23, 2017)

GBPAUD has formed lower highs and found support at the 1.7375 area, creating a descending triangle formation on its 1-hour time frame. This chart pattern is around 250 pips tall so a breakout in either direction could result in a rally or selloff of the same height.

Price is currently testing support and could be due for a downside break as the 100 SMA is below the longer-term 200 SMA. However, the gap between the moving averages has narrowed to indicate a potential upside crossover that might draw more buyers to the mix. In addition, stochastic is pulling up from the oversold zone to reflect a return in bullish momentum.

The British pound is currently being weighed down by reports of an explosion in Manchester Arena in the UK, leading to 19 fatalities and at least 50 injured. To top it off, political risk is back in the spotlight as the UK could walk out of Brexit talks if the EU slaps them with a bill. Negotiations and the snap election are set to happen next month.

Meanwhile, concerns about the Chinese and Australian economies are starting to fade as the focus appears to be shifting back to geopolitical risks. There have also been no major reports out of Australia and China so far this week. Either way, changes in market sentiment could also be a driving factor for this pair moving forward.

By Kate Curtis from Trader's Way

 

[katetrades]

NZDJPY Breakdown Pullback (May 24, 2017)

NZDJPY recently broke below a short-term rising trend line support and dipped close to the 76.00 mark. Price pulled up from there and looks ready to retest the broken support.

Applying the Fib tool on the latest swing high and low on the 1-hour chart shows that the 61.8% level lines up with the broken trend line, which might now hold as resistance. If so, NZDJPY could make its way back down to the swing low.

The 100 SMA is above the longer-term 200 SMA, though, so the path of least resistance is to the upside. However, stochastic has been indicating overbought conditions for quite some time and turning lower could draw more sellers to the game.

The Kiwi has been one of the more resilient currencies lately, holding up well against the yen and dollar even when risk aversion picks up. After all, economic data from New Zealand has been mostly upbeat in the past couple of weeks, underscoring the RBNZ's inclination to refrain from cutting rates in the near future.

However, the yen could draw more support if geopolitical uncertainties persist and risk aversion extends its stay in the financial markets. Apart from that, changes in dollar demand owing to Fed rate hike expectations could also push the yen around.

By Kate Curtis from Trader's Way

 

[katetrades]

EURAUD Ascending Channel (May 25, 2017)

EURAUD is still moving safely inside its short-term ascending channel and has recently pulled back to support again. Applying the Fib tool on the latest swing low and high shows that the channel bottom lines up with the 50% Fibonacci retracement level near the 1.4900 major psychological mark.

The 100 SMA is above the longer-term 200 SMA on the 1-hour chart so the path of least resistance is still to the upside. In addition, the 100 SMA is moving close to the Fibs and channel support, adding to its strength as a potential floor. Also the gap between the moving averages is widening to reflect stronger bullish pressure.

Stochastic seems to be climbing out of the oversold region to suggest a return in bullish pressure. If you're waiting for more confirmation, a break past the small descending triangle resistance around 1.4950 could be indicative of upside momentum.

Moody's recently downgraded China's outlook from "stable" to "negative" on forecasts of eroding financial strength and slowing growth. The credit rating agency noted that rising government debt levels won't be enough to keep overall economic performance supported, signaling even weaker demand for Australia's commodity exports down the line.

There are no reports due from Australia for the rest of the week so market sentiment could push AUD around. In the euro zone, PMI readings have been mostly stronger than expected while business and consumer sentiment figures from Germany have indicated improvements. French and German banks are closed for the holiday today.

By Kate Curtis from Trader's Way

 

[katetrades]

Short-term Reversal on GBPAUD (May 26, 2017)

GBPAUD failed in its last two attempts to break below support around 1.7275, creating a double bottom pattern with the neckline at 1.7415. Price has yet to break past the neckline before confirming this reversal formation but if that happens, the pair could head north by an additional 140 pips or the same height as the chart pattern.

However, the 100 SMA is below the longer-term 200 SMA and seems to be holding as dynamic resistance, which indicates that the path of least resistance is to the downside. Also, stochastic is heading down to show that sellers are in control of price action at the moment.

The British pound was one of the weaker performers of the day as the UK second estimate GDP featured a downgrade from 0.3% to 0.2% instead of holding steady. This cast doubts on traders' outlook that the UK economy could stay resilient even with Brexit going on, adding to the current list of issues already dampening the currency's gains.

Meanwhile, the Australian dollar could be poised to benefit from a rebound in commodities after the OPEC decided to extend their output deal by another nine months. Although crude oil reacted by selling off on profit-taking, this decision could keep oversupply concerns in check and support other commodities as well.

By Kate Curtis from Trader's Way

 

[katetrades]

USDCAD Retracement Setup (May 29, 2017)

USDCAD has pulled back from its rally to the 1.3785 area to test the Fibonacci retracement levels visible on its daily chart. This lines up with a former resistance level at the 1.3400 area that might now hold as support.

The 100 SMA is still 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 61.8% Fib, which might be the line in the sand for the uptrend.

Stochastic is already indicating oversold conditions and is turning higher, suggesting that buyers could regain control of price action. RSI is pulling up as well so USDCAD might follow suit.

Economic data from the US came in mostly stronger than expected last week, with only the core durable goods orders figure falling short. This report printed a 0.4% drop versus the projected 0.4% uptick. However, traders appear to have focused on the upside surprise in preliminary Q1 GDP, which was upgraded from 0.7% to 1.2%, outpacing the estimated 0.9% growth figure.

Meanwhile, the Loonie has gained a lot of support from the OPEC decision to extend its output deal by nine months as expected. This could keep a lid on global supply and allow prices to stay afloat even as demand weakens, something that is positive for the Loonie.

By Kate Curtis from Trader's Way

 

[katetrades]

EURGBP Channel Resistance (May 30, 2017)

EURGBP has been trending lower on the daily time frame and is currently testing the resistance of its descending channel. If this keeps gains in check, price could head back down to support at the .8300 major psychological level.

The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside. However, the gap between the moving averages is pretty narrow so a crossover could happen anytime.

Stochastic is already indicating overbought conditions and appears ready to turn lower, possibly drawing sellers back to the game. On the other hand, sustained buying pressure could lead to a break past the channel resistance at .8700 and a reversal from the selloff.

In his latest testimony, ECB head Draghi acknowledged that economic risks have subsided but warned that headline inflation could remain subdued. He also mentioned that an extraordinary amount of monetary policy support is needed, leading to some euro weakness.

Meanwhile, the latest poll from ComRes indicated a 12-point lead for Theresa May's Conservative party at 46% versus the 34% of Labour. This is a wider gap compared to the YouGov results at a 5-point lead, assuring market watchers that the UK can avoid additional political uncertainty ahead of Brexit negotiations.

By Kate Curtis from Trader's Way

 

[katetrades]

GBPNZD Retracement Setup (May 31, 2017)

GBPNZD has sold off quite sharply recently but this dive could come to a halt as price nears an area of interest. Recall that the pair also broke past the neckline of a double bottom pattern, indicating that further gains are in the cards.

Applying the Fib tool on the latest swing low and high shows that the 61.8% retracement level lines up with the former resistance and neckline at the 1.7700 major psychological mark, which might now hold as support. If so, the pair could make its way back up to the swing high near 1.9000.

The 100 SMA is above the longer-term 200 SMA so the path of least resistance is still to the upside while stochastic is indicating oversold conditions. However, the gap between the moving averages is narrowing to indicate that a downward crossover and pickup in bearish pressure could come into play.

The latest poll from YouGov suggests a narrowing lead for PM May's Conservative Party and indicated that it would fall 16 seats short of securing the majority. This could mean more political uncertainty down the line and a weaker bargaining stance for the UK government in Brexit talks.

Meanwhile, the RBNZ just released its Financial Stability Report and mentioned that risks are fading. The central bank reiterated that the country's financial system remains sound but that risks stem from higher funding costs. The RBNZ also noted that house price pressures are slowing but are still elevated relative to income and rent.

By Kate Curtis from Trader's Way

 

[katetrades]

NZDJPY Range Setup (Jun 01, 2017)

NZDJPY has been moving sideways, bouncing off support around the 78.00 major psychological level and resistance at 78.85. Price just got rejected on its test of the resistance and could be setting its sights back on support.

The 100 SMA is above the longer-term 200 SMA so the path of least resistance is still to the upside. In addition, the 100 SMA appears to be keeping losses in check at the moment since it lines up with the mid-range area of interest.

Stochastic is on the move down to show that sellers are still in control of price action. However, the oscillator is nearing the oversold area to show that buyers might be ready to get back in the game soon.

The latest RBNZ Financial Stability Report reflected lower risks in the housing sector as price pressures are reportedly abating. The report also acknowledged improving global financial conditions. New Zealand is due to release its quarterly overseas trade index next and a 4.0% increase is eyed.

As for the yen, Japan is set to release its capital spending figure and might show a 3.9% increase, slightly higher than the previous 3.8% figure. The final manufacturing PMI is also lined up and no changes to the initial 52.0 figure is expected.

By Kate Curtis from Trader's Way

 

[katetrades]

GBPJPY Channel Resistance (Jun 02, 2017)

GBPJPY has been trending lower on its 1-hour chart, moving inside a descending channel formation. Price is currently testing the resistance and could be due for a move back to support around 140.50.

The 100 SMA is below the longer-term 200 SMA on this time frame, indicating that the path of least resistance is to the downside. In addition, the 200 SMA coincides with the channel resistance, adding to its strength as a ceiling.

Stochastic is already hovering around the overbought zone to indicate that buyers are tired from the rally and that sellers might take over. On the other hand, if bulls stay in control, a break past the resistance at 143.50 could mark the start of an uptrend.

Economic data from the UK showed a bit of a slowdown, with the manufacturing PMI down from 57.3 to 56.7, just slightly above the consensus at 56.5. Nationwide HPI showed a 0.2% drop in price levels versus the projected 0.2% uptick.

In Japan, reports have printed stronger than expected results. Capital spending is up 4.5% versus 3.9% in the first quarter while the final manufacturing PMI was upgraded from 52 to 53.1 to reflect a stronger pace of industry expansion.

Japan's consumer confidence index is due next and an improvement from 43.2 to 43.6 is expected. In the UK, the construction PMI is due and a drop from 53.1 to 52.7 is eyed.

By Kate Curtis from Trader's Way

 

[katetrades]

EURCAD Rising Wedge (Jun 05, 2017)

EURCAD has formed higher lows and higher highs, consolidating in a rising wedge formation on its 4-hour chart. Price seems to have bounced off the resistance at the 1.5250 minor psychological level and could be due for a test of support.

The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside. This could either mean that an upside breakout is due or that the wedge support would keep losses in check. Note that stochastic is indicating overbought conditions and is turning lower to indicate a return in bearish pressure.

Economic data from the euro zone has been mostly stronger than expected last week but Draghi has stayed cautious in his recent speeches. This suggests that this week's ECB statement might not contain any major shifts in bias, especially since the flash CPI readings turned out weaker than expected.

Meanwhile the Loonie has still been under selling pressure as oil failed to stage a strong rebound even after the OPEC decided to extend their output deal by nine months. Traders could continue to pay attention to inventories data from the API and EIA to see if the reductions in supply could continue.

By Kate Curtis from Trader's Way