Euro under increasing pressure as it heads towards critical support levels.

All was quiet heading into the weekend until Mario Draghi reiterated that the ECB will do everything within its powers to ignite growth/inflation expectations, sending the Euro tumbling sharply lower and with more losses looking likely this week. Draghi was closely followed by  a Chinese rate cut from the PBOC, which did not help the Euro at all, but sent equities sharply higher as well as, briefly, the commodity bloc. This week will look to a heavy raft of EU and US data, beginning today with the German IFO, the US Markit Flash Services/Composite PMI’s and the Dallas Fed Mfg Survey. Japan holiday. NZ Inflation Expectations coming up.

EUR/USD: 1.2391

It was looking to be a quiet run into the weekend until Mario Draghi stood up to speak at the start of Friday’s European session and repeated that he would do everything he could to raise growth and inflation expectations as quickly as possible. The Euro went into a tailspin and was not not helped by the PBOC easing rates in China within an hour of Draghi speaking, and after having been to a session high of 1.2567 it fell quickly, without any sign of recovery through the US, to a low of 1.2374 and looks pretty sick into Monday trade having registered a bearish outside week..

The coming week is going to be active, with plenty of data, particularly from the US which gets the GDP, Consumer Confidence and Durable Goods as well as a swathe of manufacturing data. From the EU we get the German IFO today, and then tomorrow, the GDP. Later in the week sees German Unemployment and the EU/ German CPI and Consumer Confidence. The OPEC meeting is also due this week and may cause some gyrations in the dollar if they decide to cut production.

Any recovery in the Euro will now see sellers, nearby, at 1.2400  and then again at minor resistance at  1.2440, which in turn lies ahead of the 200 and 100 HMAs, which are about  to cross at around 1.2490.

The downside looks as though it is going to be far more interesting, especially if we break the 7 Nov low at 1.2357, as there really is not too much to hold the Euro until around 1.2225, which is where the 200 Month MA lies and should therefore be strong support at the first attempt. Below that is the rising trend support at the 1.2130, which is also the 50% pivot of the rally from the Euro Oct 2000 low to the July 2008 high and should also provide decent support. Below that we have the July 2012 low at 1.2041 and the June 2010 low 1.1876, which both come ahead of 1.1743, where the Euro was initially pegged to the dollar in January 1999.

The one thing to be aware of is the bullish divergence in the daily charts which could yet provoke a decent short squeeze, so don’t go in with all guns blazing if looking to go short. The market is getting increasingly weighted to the short side in the Euro (as seen in the latest CFTC figures: EUR net short 169K vs 164K previous week) so the chances of a squeeze higher remain in place but, even so, would still present a sell opportunity.

In the bigger picture, as I said last week, a case can be made for this being a huge head and shoulders, with the neckline (shown on the monthly chart below) coming in at around 1.2060. If that is the case, then below there, the eventual projection for the Euro is at 0.7900!! – You heard it here first!

As has been the case for months, rallies remain sell opportunities.

Economic data highlights will include:

M: German IFO, Markit Flash Services/Composite PMI, Dallas Fed Mfg Survey

T: German GDP, US Consumer Confidence, GDP, Core Personal Consumption/Expenditure, Case Schiller House Price Index, Richmond fed Mfg Index

W: US Durable Goods, Core Personal Consumption/Expenditure Price Index, Chicago PMI, New/Pending Home Sales

T: OPEC Meeting, German Unemployment, Spain GDP, EU Business Climate, Economic Sentiment Indicator, German/EU CPI, Consumer Confidence

F:.

Meta Trader – AxiTrader   EUR/USD:Daily

USD/JPY: 117.80

The dollar finally found a bit of a cap on Friday, falling to a session low of 117.35 after the Finance Minster Aso said that the speed of Yen weakening has been too fast. After that, we saw some choppy trade either side of 118.00 against the dollar as we headed into the weekend, with most of the action going on in the yen crosses.

Friday also saw the PM, Abe, formally dissolve Japan’s Lower House in preparation for the snap election on Dec 14 as well as finally confirming the delay to the next sales tax hike. Today is a public holiday so liquidity may be a bit thinner than normal, and with the shorter term indicators looking neutral it may be another reasonably rangebound session. Tomorrow may liven up a little with the release of the BOJ Minutes.

The dailies are looking pretty tired on the topside after the “one-way street” rally and with the daily momentum indicators looking to be rolling over, some sort of correction to the recent Yen weakness would not really surprise. If we break Friday’s 117.35 low, then we could well head back towards 116.70 (200 HMA/ Daily Tenkan) although such a move would be healthy for the longer term uptrend, and we could even head back to 115.75 (23.6% of 105.19/118.98) without doing too much damage.

On the topside, look for sellers to emerge once more at 118.00/15, beyond which would then head back to minor resistances at 118.35, and then to last week’s high, at 118.98. Beyond 119.00 would then head on towards 120.00, which again will see heavy option related sellers  although, in the longer term, the target of 124.13 (June 2007 high) remains valid but will take time.

Economic data highlights will include:

M: Public Holiday

T: BOJ Minutes

W:

T:

F: Japan CPI, Unemployment, Industrial Production, Retail Trade, Housing Starts, Construction Orders.

Meta Trader – AxiTrader   USD/JPY: 4 Hour

GBP/USD: 1.5659

Cable was largely forgotten on Friday, closing a little lower against the dollar, but making good gains against the Euro in the cross, which fell from 0.8002 to finish at 0.7915.

Little has changed from a technical point of view and in the short term we may be in for some more sideways action although eventually I expect the downtrend to continue.

Back below Friday’s 1.5625 low would see another run towards 1.5590/00, which if seen should be pretty solid support, but if Cable does come under further pressure, look for a run, below 1.5590 towards 1.5550 and then to 1.5500 beneath which, there is not too much support to be seen below there until we approach 1.5400.

On the topside, minor resistance at around 1.5680 may cap it today, ahead of the 200 HMA at 1.5705. A break of this, which looks unlikely, would then head on towards the Fibo level at 1.5730 (23.6% of 1.6182/1.5593) and the minor double top at 1.5736. A break of this area would then drive on towards minor resistance at around 1.5780 above which would head  to 1.5800 and  the next Fibo resistance at 1.5813 (38.2% 1.6182/1.5589).

Economic data highlights will include:

M:

T:

W: UK GDP

T:

F.

Meta Trader – AxiTrader   GBP/USD: Daily

USD/CHF: 0.9694

 US$Chf soared higher and made it up to the resistance at 0.9700 on Friday, where it closed the day just below the 0.9708 high.

Further gains now look possible and the targets to watch are at the  7 Nov 0.9741 peak, above which would head towards 0.9789 (29 May 2013 high) and 0.9838 (22 May 2013 high).

Bids will now arrive at 0.9650 and then at 0.9600. Under here, 0.9550 is where minor rising trend support lies, but appears set to remain unbothered for the time being.

The short term indicators point higher and trading from the long side is the preferred strategy. Note that a monthly close at the end of next week above 0.9680 would see the dollar break above the monthly cloud and would signal quite a bullish outlook.

As we said last week, we need to keep an eye on next week’s Swiss Gold referendum. A yes vote, forcing the SNB to increase their Gold holdings, would require the sale of foreign reserves and the need to sell Euros in order to purchase Swiss Francs to buy the Gold. This comes at the same time as the SNB have reiterated their intention to do whatever it takes to protect the 1.2000 Eur Chf floor.

Economic data highlights will include:

M:

T:

W:

T: GDP

F:.

Meta Trader – AxiTrader   USD/CHF:Daily

 

AUD/USD: 0.8666

The Aud rallied sharply from 0.8625 to 0.8722 on the news of the Chinese rate cut, although the move higher was rather short lived and the Aud then came under pressure from selling through the AudYen cross, to finish the week back at 0.8665.

As with the Kiwi, the immediate picture for the commodity based currencies currently looks a bit cloudy, although the shorter term charts do hint that we could see another test of the higher ground in the coming sessions. There is not much data out to drive the Aud this week so it will be offshore events that will dictate the direction and if the US$ maintains its run higher then the Aud is going to find it hard to make too much headway on the topside. Keep an eye on the Iron Ore price, which is now under $70 pt.

If we can head higher, Monday will see minor sellers once more at 0.8685 (200 HMA) and again at 0.8700, ahead of Friday’s top at 0.8720. I don’t really see us getting up here today, but further strength would then lead the Aud towards 0.8740 and possibly to last week’s high at 0.8795.

The downside support will initially be here at 0.8660 (100 HMA) below which would head towards Friday’s low at 0.8604. Below there will find bids once more in the 0.8590/00 area, a break of which would revisit 0.8565 although this looks a little unlikely in the short term.

Further out as we said previously, the major support is seen at the 7 Nov low at 0.8540 and this will provide very strong support, being both the 50% pivot of the move from 0.6006/1.1082 and also the base of the monthly cloud. A break of this level though, and a November close below it, would have very bearish implications, for a test of the major channel base at around 0.8474 and then the May 2010 lows at 0.8066.

Economic data highlights will include:

M:

T: China CB Leading Economic Index

W: Australian Construction Work Done

T: New Home sales, Private Capital Expenditure

F: private Sector Credit.

Meta Trader – AxiTrader   AUD/USD:Daily

NZD/USD: 0.7878

Having fallen to a session low in early Europe on Friday, the Kiwi rallied strongly to a high of 0.7945 on the news that China had cut rates, but then began to sag again almost immediately on the back of some Yen strength through the crosses which weighed on Nzd/Jpy, and the Kiwi made its way back to where the 100/200 HMA’s are converging at 0.7885 for a fairly inconclusive finish to the week.

It looks to me as though the choppy trade will continue, probably until the RBNZ inflation outlook, due tomorrow, but if the overall US dollar strength persists against the majors, then I would think that the downside will eventually come firmly back into view.

Below Friday’s low of 0.7847, the next target would be Thursday’s base at 0.7806. Once we get back below 0.7800, look for a run towards bids at 0.7780 (61.8% of 0.7660/0.7974) and eventually a run to 0.7700.  A break below 0.7700 (50% of 0.6560/0.8838) would see a retest of the trend low at 0.7660. Under this, there are minor support at 0.7625 and at 0.7600, but not an awful lot to prop it up ahead of 0.7530 (100 Month MA) and then 0.7435 (61.8% of 0.6560/0.8838).

On the topside, 0.7900 becomes the first hurdle, ahead of the spike up to 0.7945. Above there would see another run towards last week’s double top at 0.7975, although I don’t see it going close.

If wrong, above this would head to 0.7990 (22 Oct high) ahead of 0.8000 and 0.8010 (21 Oct) which will see strong sellers and would offer a great sell opportunity.

Economic data highlights will include:

M:

T: RBNZ Inflation Expectations

W:

T: NZ Trade Balance

F: ANZ Business Confidence.

Meta Trader – AxiTrader   NZD/USD:Daily

AUD/JPY: 102.00

AUDJPY: AudJpy performed well last week and finished just below its recent  trend highs of 102.83, where we now have a double top with the 22 April 2013 high. The weeklies look as though they are winding up for further gains down the track and if the tops at 102.85 are taken out, could take the cross on towards  the 11 April 2013 high at 105.42. That is a long way off and the shorter term bearish divergence hints at a correction, where we could see a run back towards 101.75 (100 HMA) and possibly to the 200 HMA at 101.30. Below here would accelerate towards 100.80 and to the first Fib resistance of the current rally at 100.20 (23.6% of 96.76/102.83). Buying dips still seems to be the plan.

Meta Trader – AxiTrader   AUDJPY: Weekly

EUR/JPY: 145.90

EURJPY: The cross has reversed sharply from its 149.13 trend high, seeing the biggest daily reversal in 12 months on Friday,  and has come back to sit at 145.80 (200 HMA) just above minor Fibo support at 145.60, which ties in nicely with the Dec 2013 high (145.68) and should provide a degree of support early in the coming week. However, with the momentum indicators suggesting further downside potential  towards 144.70 (12 Nov high), 144.20 (6 Nov high) and eventually to 143.30 (38.2% of 134.13/149.13) I am not sure that we are yet done with this correction.

Rallies towards 146.50 and then 147.00 (100 HMA) will see sellers, and for the time being would appear to be a decent opportunity to get short. Above 147.50 would suggest that I am wrong in looking for a deeper decline so keep stops on shorts in place above here.

Meta Trader – AxiTrader   EURJPY: 4 Hour

EURAUD: 1.4276

EURAUD:  EurAud had a wild ride last week,  and after rallying sharply from 1.43 00 to a high of 1.4630,- where it ran into trouble with the 200 DMA-, it fell like a stone on Friday to finish just above the weeks lows of 1.4245. It looks though this range could continue to cover the cross in the short term, and buying dips near the range low may not be a bad thing, with a SL (and possible reverse – to go short) placed below 1.4200. A break of this would head towards 1.4140 and possibly to 1.4000. The topside currently looks confined to 1.4370 (200 HMA), but a break of which, would take us back above 1.4400 and back into the higher end of the range, and potentially for another look at 1.4600.Meta Trader – 
AxiTrader   EURAUD: Daily

EUR/GBP: 0.7915

EURGBP: The cross traded very nicely last week in squeezing up to a high of 0.8038, before running into problems just ahead of the 200 DMA at 0.8050, (allowing us to get short above 0.8000 – without getting stopped out!) and then collapsing to finish the week at 0.7915. Having closed back at the 100 DMA (May 2012 low),  we may be in for some consolidation now, but further downside potential seems to exist for a move back towards minor support at 0.7870 and then on to the recent low at 0.7801. Below 0.7800 would target the recent trend low at 0.7766 and, beyond that, then the major target at 0.7753, and given the diverging outlook of the UK/EU economies this seems to be the obvious way to trade it. We could yet get further squeezes to the topside although I would be surprised to see us back at 0.8000 any time soon but if wrong, then look for a run back towards last week’s high, where I would again sell it with a SL once again placed above 0.8050.

Meta Trader – AxiTrader   EURGBP: Daly

DXY: 88.28

The DXY had a week, mostly, of consolidation although it did make a new multi year high on Friday at 88.38 and closed just below there, but above the previous high at 88.26. With the dollar trend looking to be back on course after Mario Draghi’s dovish outlook on the EU, and the Yen weakness seemingly firmly entrenched, the next points to watch will be at the 7 June 2010 high at 88.70 – from where the dollar collapsed, eventually to 80.08 by August 2010, – so some caution is warranted should we approach this level in the coming week. If/when we get above 88.70 then we are headed all the way back up to 89.62, the high seen in March 2009, and then to 90.00, and beyond, towards the November 2005 high at 92.63. Don’t get too excited any time soon about a move of this magnitude, although eventually I think we are going there, and an awful lot higher, over the next couple of years.

Support is now seen at the base of the consolidation area at around 87.15, below which would hint at a run back towards 87.00 and then to the 3 Oct high at 86.74. Under here further support would be seen at 86.54 (daily Kijun) and then at the first decent Fibo support which is not seen until 85.70 (23.6% of 72.68/88.26).  It does not look as though anywhere close to this is going to be seen in the next few days, although raising stops on long dollar positions would be advisable as the weekly indicators are becoming overstretched on the topside while at the same time the dailies are beginning to show a degree of bearish divergence, so we could get a correction at any time, particularly in the Yen related crosses. If so, look for potential areas to buy the dollar in anticipation of an eventual continuation of the longer term dollar uptrend.

www.tradingview.com   DXY: Daily

DXY:weekly