Easing Russia tensions spur improved risk sentiment rally after Obama inspired sell-off.

Aud, Kiwi both holding above important support but dependent on positive risk sentiment, otherwise larger falls may lie ahead.

Friday saw some decent volatility on all fronts, care of the ebb and flow in geo-political tensions and “risk off/risk on” scenarios, and in the absence of too much economic data this week it looks as though politics will continue to dominate trade. There is nothing worthwhile today and then, tomorrow’s focus will be on the ZEW economic survey from Germany/EU. Later in the week the highlights will be Wednesday’s German CPI and the US Retail Sales  while Thursday sees the EU CPI/GDP. Elsewhere, the UK gets the BOE Quarterly report/Unemployment numbers on Wednesday. Australia sees Business Confidence and Consumer Confidence (Tues/Wed) while NZ gets the Business PMI, Retail Sales, Thursday.

EUR/USD: 1.3408

Having headed down to a session low of 1.3342 in early Asian trade on Friday, the US$ came under some pressure of its own once Obama announced that he had approved air strikes in Iraq if needed. Upside progress for the Euro was initially slow given the ongoing tensions in Russia, which initially capped the advance, but as these appeared to ease somewhat later in the day, the Euro shorts began to feel the heat when the squeeze spiked up to 1.3433, before settling back to finish the week at 1.3408.

It feels as though there may be more pain to come for the shorts, although it may be a quiet  start to the week, with Monday having no data due for release, followed by Tuesday, where we will have only the EU/German ZEW to trade on (nothing from the US). It will therefore most likely be geo-political events that largely drive trade so keep stops tight on either side.

Technically, the 4 hour charts suggest that if 1.3420/33(200 WMA/Friday top) can be successfully overcome, then we could be in for a run up towards 1.3470 (38.2% of 1.3699/1.3332) and possibly 1.3485 (23.6% of 1.3993/1.3332/ daily Kijun / trend resistance). Beyond there would see stops triggered and could force an acceleration higher, with 1.3500, which previously acted as strong support and should now provide good resistance. A break of this would then test 1.3525 (38.2% of 1.3993/1.3332), beyond which could head up to the base of the previous wedge formation (blue line), currently at around 1.3575,  although this looks unlikely to be visited, at least early in the week.

On the downside, minor support lies at 1.3380/90 (100/200 HMA) and then at 1.3360. I don’t really see it back below here over the coming session, but if wrong, look for a run back to 1.3345 (100 WMA) and then to last week’s 1.3332 low. Under there, 1.3294 (7 Nov ’13 low) would attract with more distant targets seen at 1.3228 (61.8% of 1.2754/1.3993) and then eventually at 1.3104 (6 Sept ’13 low).

In the bigger picture, as before, while the dollar uptrend remains intact, the eventual target for the Euro appears to be the 9 July low 2013 at 1.2754, albeit that it looks somewhat distant for the time being while the Euro looks to remain underpinned by short covering needs.

For today, use 1.3385/1.3430 as a guide, but watch out for political jaw-boning which may alter the “risk on/off” situation.

Economic data highlights will include:

M:

T: EU /German ZEW Economic Survey

W: German/France/Spain CPI, EU Industrial Production, US Retail Sales, Business Inventories

T: German/ France Q2 GDP, ECB Monthly Report, EU CPI, GDP, US Jobless Claims

F: EU Assumption Day Holiday, US PPI, Industrial Production, capacity Utilisation, NY Empire State Mfg Index, Rts/Michigan Consumer Confidence Index

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EUR/USD: Daily

EURUSD; 4 Hour

USD/JPY: 102.00

US$Jpy was pretty much tied to the equity markets on Friday as risk sentiment ebbed and flowed, initially seeing a sharp drop to 101.50 in the first half of the session, before recovering, in choppy fashion, later in the day when tensions in Russia/Ukraine appeared to ease a little ahead of the weekend.

The short term charts now point a little higher and we could see a more concerted test of the 100 DMA, nearby at 102.06, and then of the 200 DMA/daily Kijun at 102.25 although beyond here may be a bit tricky given that the dailies point lower still. The activity is likely to come via the crosses, but if the dollar is to make further headway, then the further points to watch are at 102.45 and 102.93, which comes ahead of the 30 July high at 103.08.

If risk sentiment sours once again, the yen will again see increased demand and will see the dollar head lower once more. Support sits close by, where the daily cloud lies, albeit that it is very thin right now, with the top/bottom parameters being at 101.85/95. Below there could see another fall to Friday’s 101.50 low, a break of which would see a return to the strong support just above 101.00, where semi official bids were previously rumoured to lie. I doubt we are going to pay a visit  down here for now but if wrong, further very strong support lies at the horizontal blue support line (chart) at around 100.80.

For the time being, buying dips towards 101.85, looking for a run up to 102.40 appears to be the plan, although I would be keeping stops tight given the tenuous situation in the Ukraine, which could push to dollar lower once again.

Keep an eye on US yields too. They remain very heavy, with the 10 years currently at 2.42%, and while they continue to drive lower, the dollar is going to find it hard to make any real upside progress. Technically, it looks as though the 10 years could move towards 2.31% and possibly 2.21%, which would not do the dollar any good at all.

EURJPY: 136.80. The Yen crosses were much more active than I thought they would be last week, with Eur/Jpy breaking down below the strong support at 136.20 and heading to a low of 135.70 on Friday, breaking 136.00 for the first time since Nov 2013, before a strong bounce as risk sentiment improved late in the session. The 4 hour charts point towards further gains towards trend resistance at around 137.60, a break of which would see further advances towards 138.80. I think that in the near term at least, buying dips is probably the plan and I am doubtful of seeing the cross back below 135.70 for a while – unless things get serious in the Ukraine, in which case all bets are off. But in the meantime, buying dips with a SL placed under 135.70 seems to be the plan. A break of that would suggest a decline towards 135.00 and lower towards 134.00. Not for a while I suspect.

GBPJPY: 171.10. The bounce in GbpJpy was much less impressive than that in EurJpy and the cross looks to be in some trouble. A break of 170.80 would suggest a run towards the 200 DMA at 170.20 although the 4 hour charts are somewhat oversold and we could see an interim bounce towards 172.00 and possibly back to the 200 DMA resistance at 172.25, which if seen looks to be a sell opportunity with a SL placed above 172.50.

AUDJPY: 94.65. The cross took a dive early on Friday, falling to a 2 month low at 93.92, where the 200 DMA propped it up and enabled a bounce to finish just about tat the session high. The daily charts look inconclusive and overall I think trade is set to remain choppy and dependent on geo- political risk events, but in the lack of any statements or provocations, the 4 hour charts look as though the cross could head a bit higher and back towards 95.00 in the coming couple of sessions. Buying dips, with a SL placed below Fridays low seems to be the strategy.

Economic data highlights will include:

M: BOJ Monthly Economic Survey, Consumer Confidence

T: Industrial Production, Capacity Utilization

W: GDP, BOJ Minutes

T: Foreign Bond/Stock Investment

F:

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USD/JPY: Daily

GBP/USD: 1.6770

Cable fell to an 8 week low at 1.6766 on Friday, as the dollar benefited from some safe haven flows after Obama authorized the air-strikes in Iraq and it was later kept under pressure by the weaker than expected UK trade figures.

For the coming week, Wednesday will be the key day, with the BOE Quarterly report due, along with comments from Mark Carney, as well as the UK Unemployment data. UK Q2 GDP is on Friday

The trend for Cable remains lower, with the dailies suggesting that we can expect more of the same in coming days. Having now made a clean break below the 100 DMA at 1.6860, the way looks open to the next port of call at the previous lows at 1.6737 (11 June) and then at 1.6692 (29 May), below which would see a deeper decline to the 200 DMA at 1.6650.

The 4 hour charts are showing some bullish divergence down here though, and we are sitting right on the support at the weekly Kijun which may continue to prop it up, so we do need to allow for a squeeze back towards 1.6800, above which the 100 HMA (1.6840) and then the 200 HMA (1.6860) will act as barriers.

Selling rallies still appears to be the plan but I would wait and see if we can get to 1.6800 before pulling the trigger, with a SL placed above 1.6860.

 Economic data highlights will include:

M:

T:

W: UK Unemployment, BOE Quarterly report, BOE Mark Carney Speech

T:

F: UK Q2 GDP

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GBP/USD: Daily

USD/CHF: 0.9050

US$Chf gave up some ground on Friday, and after failing just ahead of 0.9100 (high;0.9097) it retraced down to a low of 0.9032 before settling at 0.9050, which is the base of the weekly cloud and will ensure that further gains are not going to be easily attained in the near term. The short term charts suggest we could have a bit more downside ahead of us, and back below Fridays low would see a run towards 0.9000/10 which had proved rather sticky on the way up. Further bids should be seen at 0.8985/90 although I am not sure that we see it down here today. If wrong, below there would test rising tredn support, currently at 0.8965 and then the 200 DMA at 0.8945.

On the topside, I am doubtful that we head back above 0.9075 today, but if wrong and if/when we regain 0.9100 and last week’s 0.9114 high, then we could then head on towards 0.9130 (23.2% of 0.9838/0.8698), beyond which would see a run up towards the 100/200 WMA’s, which both currently lie at around 0.9160. This should be strong resistance but a break of which would suggest a run up towards 0.9190 (20 Nov ’13 high) and then to 0.9249 (7 Nov 13 high).

For today use 0.9020/0.9070 as a guide.

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USD/CHF: Daily

AUD/USD: 0.9275

The Aud, having broken down through the important 0.9260 support on Friday,  headed to a low of 0.9239 as risk aversion set in following Obama’s comments about Iraq. Then, having stabalised at around 0.9250 for much of the session, it squeezed a little higher and closed the week at 0.9275, enabling the 0.9260 support to remain intact on a daily/weekly closing basis.

The weekend release of the China CPI came in right on expectations (2.3% YY) and should have no impact on the Aud today.

The 4 hour charts now show some short term bullish divergence, suggesting that we could see a further recovery towards 0.9300 (0.9292; 23.6% of 0.9505/0.9239), above which would head back to the descending trend resistance and 38.2% Fibo level at 0.9325. Beyond here could bring about an acceleration back towards last week’s spike top at 0.9375, although it looks to be stretch too far for now.

The dailies remain mildly negative and if we do see a decent squeeze it may be worth selling into for a return to the downside, where 0.9240/60 area will again provide strong support. A break below here would most likely see some acceleration towards 0.9200, below which, the first target would be the 200 DMA/38.2% Fibo support of the rally from 0.8660/0.9505 at 0.9175. A break of this could see a much deeper move towards minor support at around 0.9135 and then to 0.9100 and maybe to 0.9050 (50% pivot of 0.8660/0.9505) although this seems unlikely to occur for a while, and if 0.9260 holds it may not happen at all.

In the short term buying dips, looking for a run back to 0.9300/20 seems to be the strategy, and it maybe that we have some consolidation between 0.9250/0.9320 to contend with. We need a daily close below 0.9250/60 before we can become too enthusiastic about the potential for further downside price action although this looks a little unlikely in the next couple of days.

EURAUD: 1.4460. The cross is a bit higher this week but largely left on the sidelines while the action takes place elsewhere. The momentum does appear set to head higher though and if 1.4500 can be overcome we could then see a run up towards 1.4600 (100 DMA: 1.4620). Buying dips towards 1.4380/1.4400 with a SL placed sub 1.4320 appears to be the plan.

GBPAUD:1.8080. As with the previous week’s outlook, the cross continues to gyrate roughly between 1.8000/1.8200, and more of the same appears to be the case for the coming few days. Eventually I think a reasonable move lies ahead, albeit that it looks too early right now, but in the weeks ahead we could be in for a run back towards the April lows of around 1.7730.  I’m not sure what would make this happen, either a Sterling collapse or a big Aud rally, neither of which looks all that likely. Too confusing, but worth keeping an eye on..

Economic data highlights will include:

M: China Money Supply

T: NAB Business Conditions/Confidence

W: WBC Consumer Confidence, Wage Price Index, China Retail sales, Industrial production, Urban Investment

T: Consumer Inflation Expectation

F:

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AUD/USD: Daily

AUDUSD; 4 Hour.

NZDUSD: 0.8455

The Kiwi remains under pressure, although it has managed to bounce rather unconvincingly off the Friday 0.8430 low, to finish the week at 0.8455.

The dailies point lower, but we really need a daily close below the 12 month long rising trend support, currently at 0.8435 before we can build confidence in a continuation of the move. The NZ Business PMI and Retail Sales are on Thursday, and if below expectations could be the catalyst to provide the momentum to head lower. That being the case, the points to watch, below last Wednesday’s brief low at 0.8423, would see a run towards the Fibo support at 0.8408 (38.2% of 0.7718/0.8835) and to the 4 June low at 0.8401. I don’t think we are heading down here yet, but if/when 0.8400 gives way, a deeper correction would most likely head rather quickly to 0.8275/0.8300, with little support to be seen in between there and 0.8400.

On the topside, 0.8485 will be strong resistance, this being the descending trend line from above 0.8800, but if broken, would trigger stops which could see a return to 0.8500 and possibly to 0.8530, and which if seen would be a decent sell opportunity I suspect.

As long as we stay under 0.8485, I suspect the Kiwi will remain heavy but keep stops tight as a break above here could see a bit of a squeeze. 

Economic data highlights will include:

M:

T: REINZ House Price Index

W:

T: NZ Business PMI, Retail Sales

F:

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NZD/USD: Daily

EURGBP: 0.7995

EURGBP:  The cross was whippy but ultimately did as we expected and headed higher last week, actually finishing at the weeks high on Friday, just below the important 0.8000 mark. Momentum is positive and if we get back above 0.8000 there could be quite a squeeze towards 0.8070 and possibly 0.8090 (100 DMA) and even possibly to 0.8120. Buying minor dips towards 0.7980 with a tight SL under 0.7960 now looks an attractive plan. Below there would mean more choppy trade in the 0.7900/0.800 region.

Meta Trader – AxiTraderEURGBP: Daily

USD/DXY: 81.40

 The DXY gave up some ground on Friday, finishing at 81.40, having earlier in the week reached a high of 81.71 and while the weekly charts remain positive in looking for further dollar gains, the dailies appear to want to take a bit of a breather and I am doubtful of seeing 81.71 taken out in the next few days. More likely, it could be that we see a drift back towards 81.10/00, which should provide an opportunity to once again buy the dollar/index. Below 81.00 would be a bit of a concern and suggest deeper losses towards the rising trend support at 80.85, and a break of this would see the dollar longs (and the Euro shorts) squeezed further, with the chance of a run back to the 200 DMA at around 80.40.

The weeklies remain positive though and if/when 81.70 can be overcome, then look for a run up towards the 50% pivot of the move from 84.76 / 78.89 at 81.82. Beyond there could well see an acceleration towards the 61.8% Fibo level at 82.51, albeit that it appears to be some way off right now.

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USD/DXY: Daily

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