Continued demand for yield underpins the Aud and Kiwi following Yellen’s economic outlook at Jackson Hole.
After all the hype, Jackson Hole produced little new and the currencies generally chopped around without going anywhere too far from previous levels. The US$ did manage to make minor new highs against the majors, before backing off into the weekend close, although I suspect that the firm dollar trend looks set to continue in coming weeks. This week may start with some consolidation, before tomorrow’s US Durable Goods and Consumer Confidence and then Thursdays US GDP provide some direction. A firm reading from each of these should help the dollar on its way, although one eye will remain on the political/military manoeuvres in the Ukraine, which would cause some jitters. Today’s focus will be on the German IFO and US New Home Sales, Provisional Services/Composite PMI and Dallas Fed Mfg Activity Index. The UK August Bank holiday should mean a quiet European session.
EUR/USD: 1.3200
EurUsd was choppy but rather directionless following the Jackson Hole speech from Janet Yellen on Friday, who, while noting the improving employment outlook in the US, said that she wants further evidence of the same before considering a rate hike. Then, from Mario Draghi, who without actually pulling the trigger on any changes to monetary policy in the EU, said that the ECB is ready to adjust their policy stance and to use unconventional methods of doing so, if necessary. Their words combined to produce some volatility, but the price action held well within the 1.32/1.33 range, with any further dollar gains thwarted by a market, short of Euro’s and looking to take profit ahead of the weekend, particularly in view of another escalation in the tensions in the Ukraine following the arrival of a Russian convoy from across the border.
Early in the coming week the market looks likely to focus on geo-politics once again, with Russia/Ukraine firmly in view. There is not a whole lot of economic data to drive the action this week, although the US Consumer Confidence and Durable Goods (Tues) and the US GDP (Thur) will provide some volatility and could combine to set the dollar on the next leg higher, if they meet expectations. Today will look to the German IFO and then later the US Housing data.
Technically the Euro made a new trend low, and perfectly reached the Fibo support at 1.3220 (61.8% of 1.2754/1.3993), from where we have so far seen a mild bounce to 1.3240 to finish the week. The trend low should lend some support, and given the oversold nature of the market it would not surprise me to see it hold for today.(It is a UK bank holiday so should be a quiet European session). The dailies do remain negative though and I suspect that the dollar trend to eventually continue, and on a break of 1.3200, there is not a lot of support to hold it from heading quickly towards 1.3104 (6 Sept ’13 low).
At risk of sounding like a broken record, 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. I noticed last week that Citibank are calling for an eventual run towards 1.2200 as a distant target.
Note that in Ichimoku terms, the Euro closed below the weekly cloud base(1.3300) and is now below the base of the monthly cloud (also 1.3300) and a close below here next Friday would add to the bearish view.
The topside is not going to be easily won over either, so it may be a session or two of consolidation as the charts unwind their oversold condition. Minor Fibo resistance now lies at 1.3265, above which the 100HMA/ minor descending trend /Fibo resistance (38.2% of 1.3410/1.3220) all lie at close to 1.3300 which will be difficult to conquer, especially given the Ichimoku levels mentioned above. If wrong, a further short squeeze would head towards the 200 HMA at 1.3330 and then possibly back towards the recent highs at 1.3410, although this looks doubtful.
Look for another day of trade within the 1.32/1.33 range, probably contained above 1.3220, but keep an eye on developments in the Ukraine, where any deterioration in conditions would see a run into bonds and possibly putting some pressure on the US$.
Economic data highlights will include:
M: German IFO, US New Home Sales, Provisional Services/Composite PMI, Dallas Fed Mfg Activity Index.
T: German CPI, US Durable Goods orders, Case Schiller Housing Index, Consumer Confidence
W: German Consumer Confidence
T: German Unemployment, US GDP, Pending Home sales
F: German Retail sales, EU CPI, Unemployment, US Personal Consumption/Expenditure/Income, Chicago PMI, Rts/Michigan Consumer Sentiment Index.
Meta Trader – AxiTrader EurUsd: 4 hour
USD/JPY: 104.20
The dollar managed to trade up to a spike high of 104.18 on Friday following Janet Yellen’s words, but it was unable to maintain its gains in light of the increased tensions in the Ukraine ahead of the weekend, reminding traders of the need for a safe haven and pushed the dollar back to close in reasonably neutral territory at 103.95.
It has been a good week for the dollar though, and as long as Russian/Ukraine politics do not get in the way, I think there is plenty of room left yet in the move to the topside.
Friday’s price action briefly took out the 3 April high at 104.10, and thus in the short term 104.10/20 will now provide the initial resistance. Beyond there, the next target coming into view would be the 21 Jan high at 104.74, with not too much to be seen in between. Further out, as we said before, we could well be making a run towards the 200 month MA at 106.50.
On the downside, the initial support is now seen at Fridays spike low at 103.50 and the minor Fibo support at 103.40 (23.6% of 100.82/104.18). The 4 hour charts remain overbought and look as though they want to spend some time unwinding so some more choppy trade in the 103.50/104.20 area would not really surprise. If the dollar were to break 103.40 we would then take a run down towards 103.00 and perhaps 102.80 although I think this doubtful.
For today, look for the topside to be capped at Friday’s session highs while the short term charts continue to unwind, with a chance to see 103.50, which if seen would, I suspect, be a buying opportunity.
EURJPY: 137.62. The cross did as we expected last week as it continued to recover from the 8 Aug spike low to 135.72 and closed right on the 137.60 pivot having managed a weekly top at the 138.00 resistance.. The outlook remains mildly positive and if 138.00 can be regained, which won’t be easy (daily cloud base) we could be in for a run back towards 138.50 and possibly to 139.00(200 DMA).
The 4 hour charts though are pointing a bit lower and we may get a bit of a dip before the uptrend can resume. If so, 137.15/20 will provide minor support ahead of 137.00. A break of this would head back to 136.75/50, but which, given the positive look of the dailies would suggest a buy opportunity. I doubt that we see it below 137.00.
GBPJPY: 172.30.The cross recovered from the 170.42 lows in the latter half of last week and traded in volatile fashion between 171.60 and 172.60 following JY’s speech on Friday. While the short term charts look inconclusive, the dailies not appear to have some positive momentum behind them and we could yet see a run above 172.60, looking to test the descending trend resistance at 173.15. It could be a volatile process before we get there and waiting for the chance to buy dips at the minor rising trend support off the recent 170.42 low, at around 171.20, with a SL placed below there appears to be the plan
AUDJPY: 96.80. AudJpy has not looked back since basing a couple of weeks ago at 94.70 (200 DMA) and the dailies suggest that further gains are possible. Support is now seen at the previous top at around 96.50, a break of which would head back towards stronger bids at around 96.15. Look to buy dips with a SL placed just under 96.00, but looking for a run up to the June 2013 high at 97.36 and possibly on to 98.00 although that may take a while.
Economic data highlights will include:
M:
T:
W: Japan CPI, Unemployment, Industrial Production, Retail Trade
T: Nomura Mfg PMI, Housing Starts
F:
Meta Trader – AxiTrader Usd/Jpy: 4 Hour
GBP/USD: 1.6560
Cable is unable to pick itself up off the floor and traded a 1.6561/1.6598 range on Friday, closing on its lows and looking as though there is more downside to come.
Support lies nearby at the 4 April low at 1.6551, below which, the base of the descending channel is currently at 1.6530. Further losses would then hint at a deeper decline, potentially below 1.6500, for a run towards the 24 March low at 1.6462.
On the topside, the initial resistance is at the minor descending trend resistance at 1.6600. Above there would potentially see a squeeze up to 1.6670, where the 200 DMA lies. Above that sees a return to 1.6700 (1.6708:23.6% of 1.7191/1.6563) but looks unlikely at present.
Today is the UK Summer Bank holiday, so expect another range bound session and with no major UK data due this week it will be international developments that dictate direction. Selling rallies remains the preferred play.
EURGBP: 0.7995. The cross had an inside week last week trading between 0.7970 and 0.8027 before closing in the middle of the range. It looks as though we may be in for more choppy trade, close to 0.8000, although in the absence of any UK data this week, any evidence of weakness in the German data, starting today with the IFO, would have the cross under some pressure as the central bank policies look to diverge over time. Overall, with the daily indicators now pointing mildly lower again, looking to sell rallies remains the theme, with a SL placed above the 14 August high of 0.8035, but looking to resell near the 100 DMA at around 0.8065 resistance. A break of minor rising trend support would suggest a resumption of the downtrend, initially targeting the recent low at 0.7873.
Economic data highlights will include:
M: Summer Bank holiday.
Meta Trader – AxiTrader GbpUsd: 4 Hour
USD/CHF: 0.9170
US$Chf pretty much made it to the 0.9160 target (100/200 WMA’s converging) on Friday, before retreating a little into the close to finish at 0.9138.
The 4 hour charts are showing some signs of minor bearish divergence and it may prove tricky to overcome the resistance today, but having said that, dips to seem to be buying opportunities. The points, on the downside, to watch are at 0.9115 and 0.9100. I don’t see the dollar below here today or probably even close, but if wrong further losses could take it back to the 200 HMA/daily Tenkan at 0.9085. A break of this would see a return to 0.9060 (daily Kijun) but currently looks unlikely.
Above 0.9160 would open up the chance for a run up towards 0.9200 and to the November 2013 high at 0.9249. This may take a while and I think the initial progress will be slow, but buying a dip back below 0.9100, should we see one, does appear to be the trade to watch.
Meta Trader – AxiTrader USD/CHF: Daily
AUD/USD: 0.9300
The Aud remains choppy, but remains not too far removed from 0.9300 following Janet Yellen’s outlook on the US economy, on Friday.
There is currently not too much change from a technical point of view, although the dailies do appear to be building some positive momentum, potentially heading for a more severe test of the resistance at around 0.9340 (100 DMA). Ahead of that, the descending trend resistance lies at 0.9325 and if the US$ does start to pick up further ground, then the Aud will find it difficult to make any real gains. However, a break of 0.9340 would allow for a run towards 0.9355 (daily cloud base/Kijun) and possibly back towards 0.9373(6 Aug high) and 0.9380 (61.8% of 0.9472/0.9236), where I think it would be approaching sell territory. If wrong, and the Aud is able to make further gains, then the way would open up for a run to 0.9400 and possibly to 0.9416 (76.4%).
With equity and bond markets showing no fear of any likelihood of the Fed acting any time soon to hike rates, the carry trade remains firmly in the market focus, so any dips in the Aud are likely to be well sought after.
Right now 0.9290/0.9300 looks to have it covered on the downside. A break below here would see a run back to 0.9275 and then to the 0.9260 pivot, below which, further losses would retest last week’s 0.9236 low although this is over the horizon early in the week. With little major Australian or Chinese data out this week, it will take a stronger US$ to push it back down here I suspect.
Further out, a sustained break of 0.9235/40, requiring a weekly close below here, would most likely see an acceleration towards 0.9200, below which, the next 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 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).
For now look for more consolidation with the chance of a squeeze higher, but looking for levels to sell the Aud, in line with the view of a continuation of the trend for a firmer US$, which would once again drag the Aud lower. As long as US 10 year yields remain at current levels though, at around 2.4%, the Aud should remain underpinned. I suspect yields need to regain 2.5% and then the 200 DMA at 2.65% before they really start to accelerate higher, and right now this looks somewhat unlikely.
EURAUD: 1.4215. The Aud has held well to make good gains on all the crosses, with the Euro being no exception, where the cross has fallen to trade and close below the lows (just) seen in July. The 4 hourlies look negative and the dailies seem to be picking up increasing downside momentum as well, so a test of 1.4200 and lower would not now surprise with the next meaningful target to be seen at the November 2013 low at 1.4050. The topside will see sellers now at 1.4300 and then at 1.4390 which currently looks unlikely to be visited. Selling rallies is the preferred option looking for a run towards 1.4000.
GBPAUD: 1.7780. We have more or less arrived at our “long term†target of 1.7730 two weeks after we identified it when the cross was at 1.8075. Given the strong downward momentum, it now looks possible that we could reach and take this level out and head towards 1.7615 (61.8% of 1.6644/1.9185) and beyond there towards 1.7500. The 4 hour charts are showing some minor bullish divergence and therefore a squeeze could take the cross back towards 1.7860 (100 HMA) and maybe up to 1.7910, but which if seen should be a sell opportunity I suspect.
Economic data highlights will include:
M:
T: China leading Index
W: Construction Work Indicator
T: New Home sales, Private Capex
F:
Meta Trader – AxiTrader AUD/USD: Daily
NZDUSD: 0.8365
The Kiwi chopped around on Friday, but closed the session pretty much unchanged, at 0.8400. It is quite a heavy data week coming up for the Kiwi, so we could be in for some decent volatility in the days ahead and while the 4 hour charts continue to unwind their oversold condition and the dailies begin to show signs of life, if the data is reasonable we could yet see a bit more of a squeeze to the topside.
The first points to watch are close by at 0.8410 (100HMA/38.2% of 0.8514/0.8347), above which would see a run towards the descending trend resistance at 0.8430 and the 200 HMA at 0.8440. Above there would hint at a return to 0.8500 and the recent 0.8514 top, although at this stage I don’t see it.
On the downside, the initial support is now at 0.8365 (minor), and then at the trend low at 0.8347. Under here would hint at the chance of a deeper decline that would most likely head towards the next meaningful support levels at 0.8300 and then at 0.8275 but until the short term charts have recovered I doubt that this is on the cards.
I don’t think we should expect too much today, but buying dips towards 0.8380, looking for a squeeze back towards 0.8450 may be a plan over the week, with a SL placed under 0.8345.
Economic data highlights will include:
M:
T: NZ Trade Balance
W: NZ Food Price Index
T: ANZ Business Confidence
F: Building Permits
Meta Trader – AxiTrader NZD/USD: Daily
AUDNZD: 1.1080
AUDNZD: 1.1080. The cross is trading right at the top of the mildly ascending channel on the daily charts, and from a technical perspective at least, looks like a good sell at 1.1100/10, with a tight stop placed above the 61.8% Fibo resistance at 1.1060. The weeklies though are beginning to pick up some positive momentum and eventually I suspect the cross heads back towards 1.1500, albeit that this is a long way off. Support is currently seen at around 1.1050 (minor) and then at 1.1000 although the channel base lies along way off at 1.0650.
Meta Trader – AxiTrader AUDNZD: Daily
USD/DXY: 82.30
The DXY continued to make good gains last week, and having overcome the various resistance below 82.00 it has powered higher, to close the week just below very important Fibo resistance at 82.51 (61.8% of 84.75/78.88). This is not going to be easily overcome, and given that the Euro also bottomed out on Friday at its own important Fibo support, I think looks likely to hold for the coming session and possibly longer. However the positive momentum is strong and I think dips should be relatively shallow for the DXY, with minor support seen now right here at 82.30 (9 Sept 2013 top), and then at 82.00. I doubt we are heading back below here for a while, but if wrong further support would arrive at 81.85 and then at 81.70.
Both the dailies and the weeklies point to further gains for the dollar eventually though, and once 82.50 is successfully overcome, we would target the 5 Sept 2013 top at 82.67, but above which there is little to stop it heading to 82.98 (18 July 13 high), and then beyond 83.00, to 83.37 (76.45 of 84.75/78.88).
Buying dips remains the plan.
www.tradingview.com USD/DXY: Daily
www.tradingview.com DXY: Weekly
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