Vantage FX Daily Market Update

[Vantage FX]

End of Quarter Indices Squaring:
Another quarter down and the run into Christmas is now in sight! While not the greatest result overall for stock indices, the day traders were thrown a bone overnight with some nice little rallies in both Europe and the US.

The rallies were more to do with end of quarter position squaring after a period of sustained selling than any fundamentals, although the month’s ADP employment report beating expectations did give the markets hope for Friday’s NFP number.

“USD ADP Non-Farm Employment Change (200K v 192K expected)”

The close in Frankfurt saw the DAX end over 2% higher.

DAX 4 Hourly:

Click on chart to see a larger view.

The DAX weekly trend line that we highlighted in last week’s Technical Analysis post, is holding strong and another reason to show some bullish optimism in indices if you’re looking for a turn.

Likewise across the Atlantic, the SP500 rallied solidly through yesterday’s trading session, closing above the 1900 psych level that if zoomed into the 15 minute chart, you can see was a level of interest for traders on the day.

SP500 4 Hourly:

Click on chart to see a larger view.

I’m leaving those Fib levels on the chart from the Black Monday drop until price makes a new high/low.

Just be aware that the end of quarter position squaring has distorted both markets that are still full of negative fundamental sentiment. It might not yet be time to stick out your hand and try to catch the falling knife but Indices trading on MT4 is another string you should definitely add to your bow.

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On the Calendar Thursday:
Just keep in mind that even though we see major manufacturing data released, China will actually be closed today through to next Thursday in celebration of their National Day.

“The National Day of the People’s Republic of China (Chinese: 国庆节; pinyin: Guóqìng jié) is a public holiday in the People’s Republic of China to celebrate their national day.”

“The PRC was founded on October 1, 1949 with a ceremony at Tiananmen Square. The Central People’s Government passed the Resolution on the National Day of the People’s Republic of China on December 2, 1949 and declared that October 1 is the National Day.”

CNY Bank Holiday
CNY Manufacturing PMI
CNY Caixin Final Manufacturing PMI

GBP Manufacturing PMI

USD Unemployment Claims
USD ISM Manufacturing PMI

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Chart of the Day:
Today’s chart of the day takes a look at last night’s drop in USD/CAD and a possible trend line re-activation.

“CAD GDP m/m (0.3% v 0.2% expected, with previous revised down to 0.4% from 0.5%)”

USD/CAD 4 Hourly:

Click on chart to see a larger view.

If you’re a reader of the Vantage FX News Centre blog, then you’d know that I’ve talked about these trend line re-activation setups in the past.

Once a trend line has been broken like this, a huge proportion of these breaks are not sustained. This means that price will actually tuck back into the original channel again and ‘re-activate’the trend line just like this. Don’t rush to clear your charts of long term trend lines just because they’ve been broken.

Do you see opportunity in trading commodity currencies such as the Canadian Dollar?

 

[Vantage FX]

Fundamental Expectations:
Another quarter down and following last week’s Fed remarks on October being in play, tonight’s NFP number takes on added significance.

The September jobs report number is expected to show that the US economy has managed to shrug off external concerns and a recent stock market price action roller-coaster, and continue to print numbers keeping the average moving in the right direction for the Fed to act on.

The Wall Street Journal has a brilliant little fundamental preview featuring the 5 things to watch in the September jobs report. I’ve featured the following chart showing an overview of the NFP numbers month to month with the average in question:

The September USD Non-Farm Employment Change number is expected to come in at 202K, an improvement on August’s 173K. The Unemployment Rate is also expected to hold steady at 5.1%.

With August’s print being the second weakest month of job creation for the calendar year, the above average is sure to attract some attention.

Trading Scenarios:
1. If Non-Farm Payrolls print greater than 200K + the Unemployment Rate stays steady as expected, the USD is expected to rally as the likelihood of a rate hike in 2015 will rise.

2. If Non-Farm Payrolls print less than 200K + the Unemployment Rate stays steady, or worse falls, the USD is expected to drop or more likely plateau as expectations on a 2015 Fed hike are already quite low.

With futures markets pricing in only a 16% chance that the Fed hikes in October and an equally dismal 43% that they move in December, anything that beats expectations is likely to have a greater impact on the USD than a miss.

USDX Daily:

Click on chart to see a larger view.

Stay safe out there.

———

On the Calendar Friday:
CNY Bank Holiday
AUD Retail Sales m/m
EUR ECB President Draghi Speaks

GBP Construction PMI

USD Average Hourly Earnings m/m
USD Non-Farm Employment Change
USD Unemployment Rate

———-

Chart of the Day:
Across into the realm of Commodities Trading for today’s chart of the day.

Oil Daily:

Click on chart to see a larger view.

After speaking about oil last week, one week later and price is still capped by the descending trend line. We were looking for the market to find some sellers as price approached trend line resistance and then to find an opportunity to short as it fell through the marked zone.

The setup has now reached its now or never moment. Trade the reaction or let it go with sideways chop expected if the trend line isn’t able to break or hold with a momentum type move from here.

Do you see opportunity in trading the above NFP Friday Scenarios?

 

[Vantage FX]

NFP Misses:
Back on deck and refreshed after the NSW (Australian) Labour Day public holiday Monday. Summer has arrived early in Sydney, with the weekend an absolute scorcher! It was definitely good to refresh the batteries and take a break away from the charts for the couple of days. Have to keep that mind sharp for when you need it the most!

First quickly moving through Friday’s BIG NFP miss:

“USD Average Hourly Earnings m/m (0.0% v 0.2% expected)”

“USD Non-Farm Employment Change (142K v 201K expected)”

“USD Unemployment Rate (5.1% v 5.1% expected)”

An ugly set of numbers no matter which way you look at them and probably the last nail into the coffin of a 2015 rate hike. As the futures market all but prices out a hike this year, that September liftoff expectation we were speaking about not that long ago is all but a distant memory now!

USDX 15 Minute:

Click on chart to see a larger view.

The headlines numbers obviously smashed the US Dollar through the USDX basket, but by Tuesday Asian session, price has all but rebounded to where it was pre-release!

As we spoke about in Friday’s NFP Scenarios, the bigger risk was always for a miss to the upside than the down and the relatively muted, directional reaction to the downside in the USDX and across the majors is testament to just how much was already priced in.

If you took a hit on any shorts playing for the beat of expectations, you can’t feel bad because you put yourself into a position to cash in with minimal risk. That’s just trading.

RBA Tuesday:
During the Asian session, today is all about the Reserve Bank of Australia who have their monthly monetary monetary policy meeting in Sydney. The RBA is widely expected to leave interest rates unchanged at 2% both at this meeting and then into at least the early parts of 2016.

The RBA have managed to keep their powder dry through the recent months of stock market turmoil and Chinese demand woes, helped by the lower Aussie Dollar providing the loosening fiscal impacts required. With last night’s big NFP miss taking a 2015 hike off the table in the US, this could leave the door open for at least a change in guidance from the RBA.

Bloomberg is reporting that there is only a 27% chance of a 0.25% cut priced into the market as we head into Tuesday, but there are a number of economists calling for a cut sooner rather than later on local labour market concerns, now that the Fed backstop has been taken away. Here’s Josh Williamson from Citi:

“If they wait until February, it will be too late and they’d need to cut again immediately after the first one. So we’re hoping, and expect them to go in November.”

AUD/USD Weekly:

Click on chart to see a larger view.

I know it’s sometimes frustrating for day traders to see weekly charts featured in these sorts of posts, but with price right inside a confluence zone of weekly support, any levels posted from a lower time frame point of view would be doing you a disservice.

Again the bigger risk is anything less than dovish coming from Stevens and the RBA. Something that I just can’t see happening after what we’ve seen heading into this week.

———

On the Calendar Tuesday:
CNY Bank Holiday
AUD Trade Balance
AUD Cash Rate
AUD RBA Rate Statement

CAD Trade Balance
USD Trade Balance
EUR ECB President Draghi Speaks

———-

Chart of the Day:
Heading into this afternoon’s RBA interest rate decision, we take a look at AUD/NZD in today’s chart of the day.

AUD/NZD Daily:

Click on chart to see a larger view.

While although still in shorter term range, AUD/NZD is stepping up between major support/resistance levels nicely. A great example of how tight your stops can be placed if you get conformation of a bounce off a major support/resistance level.

Price has now come back to test one of these support/resistance levels that has been an area of interest in the past and gives a nice area to manage your risk around.

Do you see opportunity trading AUD/NZD into today's RBA decision?

 

[Vantage FX]

RBA Unmoved:
Yesterday’s Reserve Bank meeting, while largely uneventful in terms of systematic changes in policy or direction, did have quite the effect on price with the Aussie Dollar putting in a solid 100 pip gain for the day.

The RBA held off the slight temptation that it surely had to cut rates again, leaving the cash rate on hold at 2.00% and not giving the markets much fat to chew on in terms of guidance either.

“Monetary Policy needs to be accommodative.”

“Sees inflation consistent with target in the next 1 to 2 years.”

“Australian Dollar is adjusting to significant declines in commodity prices.”

“Economic and financial conditions to inform policy stance.”

Pretty stock standard lines as you can see, showing that when trading around news, the most important factor that you have to consider is ‘in which direction is the bigger risk?’ In this case, with an on hold decision all but priced in above 80% heading into the release, it was most definitely to the upside if Stevens didn’t release the doves.

This scenario saw AUD/USD rally as the heavily priced in, overly dovish tone never eventuated. Combine this sort of thinking with the technicals below and it all just adds to your conviction when entering trades.

AUD/USD Daily:

Click on chart to see a larger view.

In yesterday’s RBA Preview, we spoke about the weekly zone that AUD/USD was currently sitting in as the key and the Aussie ripped higher to re-test the underside of the major weekly trend line just about to the pip.

Did you manage to catch any of the move?

US Trade Balance Blows:
The other major piece of news overnight was the trade balance blow-out in the US from $41.8 billion to $48.3 billion. US exports took the biggest hit from the economic uncertainty engulfing the world economy, while surprisingly it was imports from China that surged.

This only illustrates the US economy is vulnerable to a strong Dollar with already weak global demand lessened again by their lack of purchasing power. This will surely have an impact on Q3 GDP forecasts and a flow on effect of another reason to delay hiking interest rates by the Fed.

Take a look at any a chart of any of the majors and you can see the effect this is having on the Dollar already. The tide is starting to change!

———

On the Calendar Wednesday:
The big event on the calendar is the tentative release of the Bank of Japan Monetary Policy Statement and subsequent Press Conference.

The BoJ is expected to hold off on expanding its stimulus program amid a stuttering domestic and world economic scene.

USD/JPY 4 Hourly:

Click on chart to see a larger view.

We’ve been following this USD/JPY trend line or range top resistance, depending on how you look at it, for a while now. Today could be the catalyst for price to finally give us some direction to trade the pair!

Keep an eye on the @VantageFX Twitter account for full coverage out of the BoJ and as always, don’t be shy to give us your opinion on the setup.

CNY Bank Holiday
JPY Monetary Policy Statement
JPY BOJ Press Conference

GBP Manufacturing Production m/m

CAD Building Permits m/m

———-

Chart of the Day:
The major daily bearish trend line on oil has given us plenty to talk about recently, with price again testing the level overnight before breaking out to the upside.

Oil Daily:

Click on chart to see a larger view.

US Crude Oil Traded at its highest price in over 3 months after reports of tighter supply for 2016 and of course a broad weakening in the USD.

With price largely range-bound for a couple of months now, if price can manage to make new highs and kick away then this could be a nice trade for the breakout traders.

Do you see opportunity in commodities trading on MT4? Trade oil with Vantage FX!

 

[Vantage FX]

BoJ Unchanged while the Buck Splutters:
Ah the cherry blossom filled Japanese countryside. So peaceful… Now lets ruin it with some currency talk shall we!

Yesterday saw the Bank of Japan leave monetary policy unchanged, giving a slight boost to the Japanese Yen in the process. With no change to their famed quantitative easing program largely expected, the USD/JPY sellers looking for a miss were left out in the cold.

Giving some traders a reason to look for a miss in expectations and play for a USD/JPY pop, was a belief that recent weakness in Japanese data would push the central bank to prolong its QE program further.

“There is absolutely no change to our stance that we will steadily implement quantitative and qualitative easing to achieve the 2% inflation target at the earliest possible time.”

Kuroda did sort of ignore the fact that exports and commodity prices are both falling and actually pushing the Japanese economy further away from the bank’s 2% inflation target for next year. There is definitely more action to come in this pair but for now the market is happy to buy what was said and focus on USD weakness and the technicals.

USD/JPY Daily:

Click on chart to see a larger view.

Compare this chart with the one in yesterday’s BoJ Preview and you can see the nice reaction off the trend line resistance level that we’ve been keeping an eye on over the last few weeks.

With the BoJ statement largely in line with expectations, most of this move is USD weakness related, with technical resistance providing the catalyst for the selling. Following the path of least resistance here seems the safer play for now.

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On the Calendar Thursday:
GBP MPC Official Bank Rate Votes
GBP Monetary Policy Summary
GBP Official Bank Rate

USD Unemployment Claims
GBP BOE Gov Carney Speaks
USD FOMC Meeting Minutes

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Chart of the Day:
Coming off the back of yesterday’s Bank of Japan monetary policy statement and into tonight’s Bank of England bank rate decision, we really had nowhere else to look for today’s chart of the day than ‘Geppy’ – GBP/JPY.

GBP/JPY Weekly:

Click on chart to see a larger view.

I’ve included the weekly chart here for longer term context around the trend lines that are now in play.

Remember our trend line subjectivity discussion? Well here we are again, with 2 variants of the weekly trend line depending on how you look at it. I’ve included both, with the solid line being the 1 that is currently in play.

GBP/JPY Daily:

Click on chart to see a larger view.

Zooming into the daily, I’ve highlighted a possible level of interest that price is approaching. Here we have a confluence of both re-tested trend line resistance as well as a horizontal zone that has seen plenty of reaction in the past.

This is the type of zone that is often good for a short term bounce off of, but rarely do they hold when faced with a momentum move into them like we are seeing here with the Pound strength.

If you like this setup, just make sure you are banking your pips and not standing on the tracks waiting to get hit by the train that you’re stepping in front of.

Do you see opportunity trading the Japanese Yen?

 

[Vantage FX]

Bank of England:
The British Pound was the big story overnight, experiencing a wild 100 pip V shaped swing as Cable first fell on the Bank of England decision and then gained it all back as the FOMC minutes came into play.

GBP/USD 5 Minute:

Click on chart to see a larger view.

The Bank of England held UK interest rates at a record low level of 0.5%, with the bank’s Monetary Policy Committee voting 1-0-8 (increase-decrease-hold) in favour of keeping rates unchanged for another month.

Along with the now standard risk of turmoil in emerging markets, the BoE focused its attention on cost pressures in the UK labour market not rising at the rate required for inflation to return to the bank’s 2% target. This means that UK inflation levels would likely stay below 1% until the spring of 2016 which is longer than expected, and therefore pushed down the Pound as rate hike bets were redrawn.

Rate hikes are still on the cards for early next year but the Fed pushing things back has muddied the waters slightly, with some now predicting that the BoE move will be delayed too.

GBP/USD Daily:

Click on chart to see a larger view.

FOMC Minutes:
The September meeting FOMC minutes were also released overnight, showing that the committee was unsettled by signs of a global economic slowdown but still upbeat on the domestic economic outlook, stating that they thought things hadn’t “materially altered” the outlook for the economy.

“Nevertheless, in part because of the risks to the outlook for economic activity and inflation, the committee decided that it was prudent to wait for additional information.”

Just be aware that for markets, this is all old news. A lot has changed even in the short time since the FOMC meeting, most notably the September NFP Miss which showed far fewer jobs were created during the month than had been anticipated.

My favourite narrative around all this liftoff chatter is how the Fed likes to talk about keeping credibility. They most recently have stated that a premature rate rise would negatively affect their credibility but in reality they’ve put themselves in a lose/lose situation. Contradicting Fed speakers who chop and change dovish to hawkish from week to week and not following through on the stated plan at the first sign of a speed bump is what hurts credibility.

Greece MKII.

———

On the Calendar Friday:
AUD Home Loans m/m

CAD Employment Change
CAD Unemployment Rate

———-

Chart of the Day:
We’ve looked at the EUR/GBP Channel in a technical analysis post a few weeks ago and we re-visit the pair in today’s chart of the day.

EUR/GBP Daily:

Click on chart to see a larger view.

As you can see, the setup from weeks ago is still basically in tact. We are still at the top of the daily range and the path of least resistance still looks to the downside.

Pound strength in the fallout after the most recent BoE guidance should dictate the trade from here.

Do you see opportunity trading the British Pound?

 

[Vantage FX]

The Calm Before the Storm:
A whole string of bank holidays to start the week with Japan off (again!) in observance of Health-Sports Day, while the US and Canada are also off for Columbus Day and Thanksgiving respectively. The most notable to Forex markets is of course the US holiday, but just remember that today sees US bond markets closed while stock markets remain open. Forex markets will likely see reduced liquidity to start the week with the possibility of erratic price action on the back of it.

The International Monetary Fund’s annual meeting kicked off over the weekend in Lima, Peru with a backdrop of rising concern over global economic health. The major headline to come out of the weekend was from the deputy governor of the People’s Bank of China, Yi Gang who noted that a persistent weakening of the Chinese Yuan would be inconsistent with the fundamentals of the Chinese economy. He went on to reinstate that China is committed to making the planned nature of the currency more market based.

While stating that they will look to continue unwinding their firm grip around management of the Yuan, Yi Gang also did his best to talk up the fundamental base in China as good news that will prevent the Renminbi from depreciating too much.

Speaking at the CFA Society Milwaukee, the weekend headlines also included the following from Chicago Federal Reserve Bank President Charles Evans:

“We think that just delaying the fed funds rate liftoff currently until about the middle of 2016 and then a gradual path would be consistent with us getting inflation back up to 2% within a reasonable period of time.”

“I would like it to move up more quickly than that, but at the moment we are thinking that that’s what appropriate policy would be.”

Normally you would assume that the Chinese are giving lip service and you can bank on guidance from the US Federal Reserve. As I said on Friday however, the Fed is suffering from a crisis of credibility and in this case I’d be more inclined to take the most steed from the Chinese comments out of Peru!

Enjoy your relatively slow start to the week, it’s just the calm before the storm.

———

On the Calendar Monday:
Amazing!

“Japanese banks will be closed in observance of Health-Sports Day”

JPY Bank Holiday
CAD Bank Holiday
USD Bank Holiday

USD FOMC Member Lockhart Speaks

———-

Chart of the Day:
EUR/JPY is a Forex cross that I haven’t had on my watch list for a while now, but it’s time to bring it back for a look.

EUR/JPY Daily:

Click on chart to see a larger view.

The daily chart has coiled into a triangle, with the most recent touch of trend line resistance coinciding with a horizontal SR zone that has been tested all over the place in the past.

These are the sorts of setups that you have to be careful fading because zooming into the hourly chart, you can see that buyers had huge momentum behind them to end the week. Now price has come into a higher time frame sell zone, I’ll be keeping an eye on the lower time frame charts for signs of momentum failing into any sort of short term confluence of resistance, but not going to pull the trigger at first sight.

Do you see opportunity trading the Forex crosses such as EUR/JPY?

 

[Vantage FX]

Lego City:
With the US holiday behind us, the true trading week starts today with the major fundamental news hitting the wires being a report citing that OPEC has continued to boost Crude Oil production despite its issues.

The price of Oil came under pressure overnight, sold hard throughout the session after secondary sources cited in OPEC’s monthly report stated huge supply increases despite the forecast slowdown in demand, most notably from the Chinese market.

“OPEC trimmed its estimate of 2016 world oil demand growth by 40,000 bpd to 1.25 million bpd, citing slower growth in China.”

With freshly highlighted concerns over the supply/demand balance of Crude combined with the technical picture, moves like this happen.

OIL Daily:

Click on chart to see a larger view.

If you’re bearish Oil, you can’t go wrong with the price action on the daily chart. Price trying to break the major down trend but failing at the first level of short term resistance. Price has also failed to breach its 200 day moving average but I’ll leave you to draw those up on your charts if that’s your thing.

The level marked on the chart above shows price poking its head through resistance and clearing any stops and the weak longs with it, before being smacked back down.

Look for the reactivation of the trend line as resistance and then a possible new leg lower.

———

On the Calendar Tuesday:
AUD RBA Deputy Gov Lowe Speaks
AUD NAB Business Confidence
CNY Trade Balance

GBP CPI y/y
EUR German ZEW Economic Sentiment

———-

Chart of the Day:
With Vantage FX changing from Futures based Indices trading to the more streamlined Cash Indices Trading markets, we today take a look at the continuing narrative developing in the German DAX.

DAX30 Daily:

Click on chart to see a larger view.

With our last Technical Analysis post taking a look at DAX sitting on major trend line support following the Volkswagen debacle, price has now bounced up again to re-test the underside of the broken short term channel/flag.

If you look at the hourly chart, you could argue that this is the 6th touch of the trend line. With the vertical move up to the level and major trend line support holding, I am now watching for price to reactivate the line as support again and continue its move higher.

Do you see opportunity trading the German DAX?

 

[Vantage FX]

Today’s NZD/JPY chart follow’s on from yesterday’s look at EUR/JPY, with both pairs poised precariously at resistance.

Using the Correlation Matrix in the Vantage FX MT4 SmartTrader Tools Package to take a look at how the pairs move in relation to one another, you can see that the two bring up a high correlation reading.

Correlation:

Click on chart to see a larger view.

Both charts side by side look fairly similar, with price sitting at a confluence of trend line resistance as well as a horizontal support/resistance zone.

NZD/JPY Daily:

Click on chart to see a larger view.

Zooming into the NZD/JPY chart on its own, you can see that price is still sitting right on resistance while EUR/JPY got the beginnings of a potential rejection yesterday.

If you took yesterday’s EUR/JPY short and have some floating profit, the opportunity to now take a correlated NZD/JPY short could be there.

Do you see opportunity trading Forex correlations?

 

[Vantage FX]

Aussie:
After a solid NINE sessions of gains, the Aussie Dollar’s rally has come to an end with a thud. The rally was the currency’s third longest since it was floated in 1983.

“AUD NAB Business Confidence (5 v 1 previously)”

“CNY Trade Balance (60.3B v 46.9B expected)”

Taking a look back at yesterday’s data, we saw an inability for the Aussie to rally on increased Business confidence in the morning, before Chinese imports slid for the 11th straight month and the Aussie rolled over.

AUD/USD 30 Minute:

Click on chart to see a larger view.

With Westpac today increasing its home loan rates by 0.2%, Shane Oliver, Chief Economist at AMP Capital Tweeted the following in regards to another rate cut now being further priced into the Aussie.

From a big picture technical point of view, just keep in mind that price has tucked in back above the major weekly trend line which could again be a hard nut to crack.

AUD/USD Weekly:

Click on chart to see a larger view.

Kiwi:
As for the Aussie’s brother across the ditch, RBNZ Governor Graeme Wheeler delivered a speech in Auckland today which outlined the fact that further interest rate cuts are also on the cards.

“Some further easing in the OCR seems likely but this will continue to depend on the emerging flow of economic data.”

With the next RBNZ meeting on October 29, 9 of 14 economists surveyed by Bloomberg are now forecasting that they will cut rates again with the main drivers cited being slower than expected economic growth and an inability for inflation to lift into the 1% to 3% target band.

NZD/USD Hourly:

Click on chart to see a larger view.

On the hourly chart you can see that the Kiwi rally has also faltered after his comments, with traders playing for a rate cut come the end of the month, but price is holding it’s trend line for now.

“The RBNZ remains conscious of the impact that low interest rates can have on housing demand and its potential to feed into higher price inflation.”

Just keep in mind this old chestnut in both Sydney and Auckland but for now it looks as though that’s just a small price to pay on the road to recovery.

NZD/USD Daily:

Click on chart to see a larger view.

———

On the Calendar Wednesday:
NZD RBNZ Gov Wheeler Speaks
AUD Westpac Consumer Sentiment
CNY CPI y/y
CNY PPI y/y

GBP Average Earnings Index 3m/y
GBP Claimant Count Change

USD Core Retail Sales m/m
USD PPI m/m
USD Retail Sales m/m

———-

Chart of the Day:
The AUD/NZD level that we highlighted last week has been chopped through a bit and is looking like its going to break.

AUD/NZD Daily:

Click on chart to see a larger view.

With fresh talk of an Aussie rate cut hammering the currency and NZD/USD sitting at short term trend line resistance, we could get a nice pop to the downside off this level.

Do you see opportunity trading the Aussie and Kiwi?