GBPJPY has been trending lower on its 1-hour time frame, moving below a descending trend line. Price bounced off the 124.75 area and is pulling up to test the trend line once more. Applying the Fib tool on the latest swing high and low shows that the 50% level coincides with the falling resistance.
A higher correction could last until the 61.8% Fib or the dynamic resistance at the 100 SMA. This is also close to a broken short-term support zone around the 130.00 major psychological level, which might keep gains in check moving forward.
The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside. The gap between the moving averages is widening so bearish pressure is getting stronger. However, stochastic is still on the move up to show that buyers are in control of price action for now until the oscillator reaches the overbought zone and turns lower.
UK economic data came in better than expected, with the headline CPI up from 0.6% to 1.0% and the core CPI up from 1.3% to 1.5%. This was higher than the consensus at 0.9% and 1.4% respectively, as price gains were buoyed by a weaker pound in September.
For today, UK jobs data is due, with the claimant count change expected to show a 3.4K increase in joblessness, higher than the earlier 2.4K rise. The average earnings index is expected to hold steady at 2.3% while the unemployment rate is projected to stay unchanged at 4.9% as well. UK retail sales data is due on Thursday.
As for the yen, only Japan’s all industries activity index is due, and it might show a 0.2% gain compared to the earlier 0.3% uptick. Earlier in the week, Japan’s industrial production was downgraded from 1.5% to 1.3% to show a weaker pace of growth.
By Kate Curtis from Trader’s Way
USDCAD is trending higher on its long-term and short-term charts, moving inside an ascending channel on its 1-hour time frame. Price dipped below the channel support but spiked right back up, indicating that buyers are putting up a fight.
The 100 SMA is still above the longer-term 200 SMA so the path of least resistance is to the upside. In that case, USDCAD could move back up to the channel resistance at the 1.3300 major psychological level or higher. However, the gap between the moving averages is narrowing so a downward crossover might take place.
If that happens, selling pressure could pick up and trigger a break of the support at the 1.3100 major psychological level. Stochastic is on the move up to show that buyers are in control of price action but the oscillator is nearing the overbought region to reflect buyer exhaustion.
The Bank of Canada kept interest rates on hold at 0.50% as expected but Governor Poloz admitted that policymakers have “actively discussed” the idea of additional stimulus. The central bank also lowered its 2016 GDP forecast from 1.3% to 1.1% on weaker export activity.
In crude oil news, the EIA report showed a surprise draw of 5.2 million barrels from stockpiles, easing fears of an oversupply and driving crude oil back up again. Later on in the week, Canada is set to print its retail sales and CPI figures, which might underscore the BOC’s dovish tone.
As for the dollar, US reports were mixed, as building permits beat expectations with a gain from 1.15M to 1.23M while housing starts fell from 1.15M to 1.05M instead of rising to 1.18M. US existing home sales are lined up, along with the Philly Fed index and the initial jobless claims.
By Kate Curtis from Trader’s Way
USDCAD bounced off the ascending channel support around the 1.3100 area recently and is on its way to test resistance at 1.3300-1.3350. If this area holds as a ceiling, price could head back down for another test of support.
The 100 SMA is above the longer-term 200 SMA on this time frame so the path of least resistance is to the upside. If so, price could make an attempt to break past the channel resistance and go for a sharper climb. However, stochastic is already indicating overbought conditions so sellers could take over once the oscillator heads south.
Economic data from the US has been mixed yesterday, with initial jobless claims missing expectations and the existing home sales report printing upbeat results. There are no major reports up for release from the US today.
The BOC refrained from cutting interest rates in their latest monetary policy statement but Governor Poloz hinted that officials actively discussed the idea of more stimulus. The central bank also downgraded growth and inflation forecasts for the year, citing a weaker outlook for export activity as well.
In contrast, Fed rate hike expectations for November or December are still in play, supporting the US dollar. With that, this counter trend setup could prove to be risky as an upside breakout seems possible, unless any other catalysts materialize. Canada has its retail sales and CPI figures lined up so strong readings could allow the Loonie to recover.
Crude oil price gains have been supporting the positively correlated Canadian dollar, as inventories data have shown surprise declines in stockpiles, further easing fears of an oversupply. Speculations about an oil output deal for the November OPEC meeting could continue to support the oil-related Loonie.
By Kate Curtis from Trader’s Way
EURJPY has been trending lower, moving inside a descending channel visible on its 1-hour time frame. Price is bouncing off the channel support and might be due for a test of resistance around the 113.50 minor psychological level.
Applying the Fib tool on the latest swing high and low shows that the 50% level coincides with the channel resistance and is also near the dynamic inflection point at the 100 SMA. This short-term moving average is below the longer-term moving average so the path of least resistance is to the downside.*
Stochastic is on its way up but seems to be crossing down, which suggests the presence of weakening bullish pressure. If sellers take over, price could resume its drop to the previous lows near the 112.00 handle or lower until the channel support.
Euro zone flash PMI readings are due today from the manufacturing and services sectors of France and Germany. Small improvements are eyed, with all indices expected to show a slightly faster pace of industry expansion. Weaker than expected results, however, could spur stronger losses for the shared currency.
The ECB refrained from making any monetary policy adjustments last week but this turned out to be a disappointment for bulls who were expecting some confirmation that QE tapering had been discussed. Instead, Draghi suggested that their bond purchase program could even go past the March 2017 end-date.
Earlier today, Japan reported a rise in its flash manufacturing PMI from 50.4 to 51.7, outpacing the consensus at 50.6. Later on in the week, CPI and spending data are lined up from Japan, with another batch of strong readings likely to keep the Japanese currency supported.
By Kate Curtis from Trader’s Way
EURGBP is still trending higher on its daily time frame, just slightly above the rising trend line connecting the recent lows of price action. Price is making a pullback to this support area, which lines up with the 38.2% to 50% Fibonacci retracement levels around .8800-.8900.
A bounce off this support zone could lead to a climb back to the previous highs at .9200 while a break lower could spark a larger correction. The 61.8% Fibonacci retracement level lines up with a broken resistance area, which might hold as support moving forward.
The 100 SMA is above the longer-term 200 SMA so the path of least resistance is still to the upside. However, stochastic is pointing down to show that sellers are in control for the time being and that further losses are possible until the oscillator reaches the oversold area.
Economic data from the euro zone was mostly stronger than expected yesterday. Only the French flash services PMI fell short of estimates as it fell from a downgraded 53.3 figure to 52.1 instead of improving to 54.1. The rest of the manufacturing and services PMIs from Germany, France, and the rest of the region showed stronger improvements.
Germany’s IFO business climate index is due today and a rise from 109.5 to 109.6 is eyed. Also on today’s schedule is a speech by ECB Governor Draghi who could reiterate that they’re not looking to taper asset purchases just yet.
As for the pound, the UK CBI industrial order expectations showed a fall from -5 to -17 versus the projected rise to -2, reflecting weakening demand. BOE Governor Carney has a testimony lined up today and any hints on monetary policy could bring volatility to EURGBP.
By Kate Curtis from Trader’s Way
EURAUD recently broke below the short-term triangle consolidation pattern. Price dipped to a low of 1.4125 before showing signs of pulling up and using the Fib tool on the breakout move shows that the 61.8% level is close to the broken triangle support.
The 100 SMA is below the longer-term 200 SMA, which confirms that the path of least resistance is to the downside. Also, the 100 SMA coincides with the broken symmetrical triangle support, adding to its strength as a potential ceiling.*
Stochastic is still pulling up, which means that sellers are exhausted and letting buyers take over at this point. A bit of bullish divergence can be seen as price made lower lows while stochastic had higher lows. Once the oscillator makes it to the overbought level, sellers could get back in the game and push for a drop to the previous lows.*
Earlier in the day, Australia printed a much stronger than expected quarterly CPI for Q3. Price levels were up 0.7%, stronger than the earlier 0.4% gain and the estimated 0.5% increase. The trimmed mean CPI came in line with estimates of a 0.4% gain, possibly enough to ensure that the RBA won’t need to cut interest rates in the near future.
Data has been strong for the euro as well, with the German Ifo business climate index beating expectations at 110.5 versus 109.6 and the earlier 109.5 figure. On Monday, flash manufacturing and services PMI readings from Germany and France have been mostly stronger than expected.
ECB head Draghi confirmed that stimulus will stay in place until the region hits its inflation targets, mentioning that their easing program has done a fine job of warding off deflation. Up ahead, Australia still has data on import prices and PPI due while the euro zone will have its flash CPI readings from its top economies on Friday.
By Kate Curtis from Trader’s Way
EURJPY could be in for a reversal from its selloff, as the pair formed an inverse head and shoulders pattern on its 1-hour time frame. Price already broke past the neckline at the 114.00 major psychological mark and might climb by around 150 pips, which is the same height as the chart formation.
The 100 SMA is still below the longer-term 200 SMA, though, so the path of least resistance is to the downside. An upward crossover, however, could draw more buyers to the mix and allow the climb to gain traction. Note that price is already trading above these moving averages, which might hold as dynamic support levels moving forward.
Stochastic is pointing down to show that sellers are in control of price action for now. Once the oscillator reaches the oversold region and turns higher, buying pressure could return.*
Sources have shared that the ECB is mulling some adjustments to their QE program, which is likely to extend past the March 2017 end-date. This could include lightening restrictions on the availability and size of purchases, making it easier to boost liquidity in the region.
Data from the euro zone hasn’t been so bad so far this week, as most of the manufacturing and services PMI from Germany and France came in better than expected. German IFO business climate was also better than expected but the GfK consumer climate index fell short of estimates.
There are no reports due from the euro zone and Japan today, as the top-tier reports are all lined up on Friday. From Japan, we’ve got consumer spending and CPI readings which could set the tone for the BOJ statement next week. Euro zone has its preliminary GDP and CPI reports from Germany, France, and Spain.*
By Kate Curtis from Trader’s Way
AUDUSD could be in for a quick reversal from its uptrend, as the pair formed a double top on its 1-hour time frame. Price failed in its last two attempts to break past the .7700 major psychological level and is currently testing the neckline support at .7600.
A break below this level could send the pair down by around 100 pips, which is roughly the same height as the chart formation. On the other hand, if support holds, another bounce towards the .7700 resistance could be seen. The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside.
Stochastic is pulling up, which means that buyers are taking control of price action. Near-term resistance is located around the middle of the formation and the dynamic inflection points or moving averages, which could draw sellers back in the game if the oscillator indicates overbought conditions then.
Australia printed a stronger than expected headline CPI for Q3, indicating a 0.7% increase in price levels versus the projected 0.5% uptick and the previous 0.4% gain. However, other inflation-related reports have missed expectations, which suggests that there’s still some downside pressure on price levels. PPI posted a bleak 0.3% gain, half as much as the estimated 0.6% increase, while import prices fell 1.0% versus the estimated 0.7% drop.
As for the US, medium-tier reports have mostly been coming in better than expected, reflecting enough momentum for the US economy. Flash manufacturing and services PMI have printed upbeat readings for October, which suggests that the economy is off to a good start for the quarter.*
US advanced GDP data is due today and a 2.5% growth figure is expected for Q3, much faster than the earlier 1.4% expansion. Stronger than expected results could further reinforce rate hike expectations and dollar demand while weak data could lead to a decline for the currency.
By Kate Curtis from Trader’s Way
EURJPY has been moving sideways on its 4-hour time frame and is making its way closer to the range resistance at the 116.00 major psychological level. If it holds as a ceiling, price could head back south to the range support at 112.50-113.00.
The 100 SMA is above the longer-term 200 SMA on this chart for now so the path of least resistance is to the upside. However, the gap between the moving averages is narrow so a downward crossover could be possible, indicating a return in selling pressure.
Stochastic is indicating overbought conditions and is turning lower, also indicating that buyers are exhausted and could let sellers take over sooner or later.
Data from Japan was mostly stronger than expected on Friday, as inflation and consumer spending showed some improvements for October. On the other hand, euro zone data was mixed, with France reporting weaker than expected CPI and GDP. Spain and Germany printed stronger than expected CPI.
Earlier this week, Japan reported weaker than expected preliminary industrial production and retail sales data. The former showed a flat reading instead of the estimated 0.9% gain while the latter printed a 1.9% year-over-year decline versus the estimated 1.7% drop.
Euro zone flash CPI estimates are up for release today and strong data could be enough to assure market watchers that the ECB won’t adjust its easing program yet. Analysts are expecting to see a rise from 0.4% to 0.5% for the headline figure and no change in the core figure at 0.8%. German retail sales and Italian CPI figures are also due today.
By Kate Curtis from Trader’s Way
EURCAD has been trending higher on its 4-hour time frame and moving inside an ascending channel. Price has moved past the mid-channel area of interest and is making its way to the resistance around the 1.4900 major psychological level.
The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside, which means that the resistance could keep gains in check. If so, EURCAD could eventually make its way back towards support at 1.4500 or at least until the middle of the channel at 1.4700.
Stochastic is on the move up, which means that buyers still have enough energy to push higher. Once the oscillator reaches the overbought zone and turns lower, sellers could return and force the pair to give back its recent gains.
Economic data from the euro zone came in line with expectations yesterday, signaling that the ECB might not need to ramp up stimulus just yet. Headline CPI flash estimates came in at 0.5% as expected while the core CPI flash reading stood at 0.8%. The region’s GDP estimate came in at 0.3% as expected.
Canada’s inflation reports came in mixed, with the RMPI posting a surprise 0.1% decline versus the estimated 0.5% gain and the IPPI coming in line with the projected 0.4% uptick. However, crude oil price action turned out to be a bigger driver of Loonie movement, as record high OPEC output pushed the commodity down.
Doubts that the OPEC can implement an output deal by the November 30 meeting have been weighing on crude oil and the oil-related Canadian dollar, although inventory data has shown some reductions in stockpiles. Canada’s monthly GDP is due today and a 0.2% growth figure is eyed, slower than the earlier 0.5% expansion.
By Kate Curtis from Trader’s Way
AUDUSD is starting to trend lower on its 1-hour time frame, moving inside a descending channel and just bouncing off the resistance at .7650. Price seems to have its sights set back on the bottom of the channel at the .7550 minor psychological support.
The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside, which means that the selloff could carry on. However, the pair is encountering an area of interest around the middle of the channel and the dynamic inflection points at the moving averages.
Stochastic is pointing down to show that sellers are in control of price action, but the oscillator is already dipping into the oversold region to show that bearish momentum might be exhausted. If buyers take over at this point, AUDUSD could make another test of the channel resistance or perhaps break higher.
Earlier in the week, the RBA decided to keep interest rates unchanged as expected while giving some upbeat remarks on commodity prices and their jobs outlook. Prior to this, China printed stronger than expected PMI readings for both manufacturing and non-manufacturing sectors, hinting at stronger demand for Australia’s raw material commodities down the line.
In today’s Asian session, the Australian economy reported a sharp 8.7% tumble in building approvals, worse than the projected 2.8% drop and the earlier 1.8% slide. As for the US, the ISM manufacturing PMI came in line with expectations but election-related uncertainties are currently dampening the currency’s gains.
For today, the FOMC will have its monetary policy statement but they are expected to stop short of actually hiking interest rates. Later on in the week, the NFP report for October will be released and this could confirm whether or not the Fed will hike in December. Also, any headlines concerning the US elections could also drive dollar action, as odds favoring Trump could weigh on US assets.
By Kate Curtis from Trader’s Way
EURAUD recently broke below support around the 1.4600 major psychological level then dropped to a low of 1.4125. From there, price showed signs of a pullback and is currently testing the 61.8% Fibonacci retracement level.
The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside. Also the gap between the moving averages is widening, indicating stronger selling pressure. The 200 SMA lines up with the 61.8% Fib, adding to its strength as resistance, but a higher pullback could last until the 1.4600 area.
Stochastic is indicating overbought conditions and is starting to turn lower, reflecting a return in bearish momentum. If any of the resistance levels hold, EURAUD could make its way back to the previous lows or lower.
Australia printed a stronger than expected trade balance, as the deficit narrowed from a positively revised 1.82 billion AUD shortfall to 1.23 billion AUD. This was caused by a 2% gain in exports, indicating stronger external demand, and a 1% drop in imports.
Prior to this China printed upbeat PMI readings from the manufacturing and non-manufacturing sectors. The official manufacturing PMI rose from 50.4 to 51.2 while the Caixin version showed a rise from 50.1 to 51.2. The official non-manufacturing PMI climbed from 53.7 to 54.0 while the Caixin version rose from 52.0 to 52.4.
The RBA also gave a relatively optimistic statement this week, citing improvements in commodity prices and trade activity while giving an upbeat outlook for the jobs market. More details are due on Friday, along with Australia’s retail sales report. Data from the euro zone has been mostly upbeat as well, but the region faces uncertainties from the Brexit and its troubled banking sector.
By Kate Curtis from Trader’s Way
GBPUSD is showing signs of a pullback from its selloff, possibly gearing up for a much-needed correction to the broken support around 1.2850-1.2900. Applying the Fib tool on the latest swing high and low on the daily time frame shows that this area lines up with the 61.8% Fibonacci retracement level.
The area of interest is also near the 100 SMA dynamic resistance, which might be enough to keep gains in check. The 100 SMA is below the longer-term 200 SMA, confirming that the path of least resistance is to the downside and that the selloff is likely to resume at some point.
Stochastic is still on the move up but is nearing the overbought levels, which suggests that buying pressure could be exhausted soon. Once the oscillator turns down from this region, sellers could take over and push price back to the swing low.
The British High Court ruled that the UK government would need to get the approval of parliament first before invoking Article 50. This could mean significant delays in starting the negotiation process with the EU, although this could provide lawmakers more time to iron out the details before splitting with the region. Keep in mind, though, that the government plans to appeal this decision to the supreme court next month.
Meanwhile, the BOE kept interest rates and bond purchases unchanged as expected. The statement also seemed less dovish than usual as policymakers were pleased by the recent progress in inflation, signaling that they might not need to ease again soon.
As for the US dollar, election-related uncertainties are still weighing heavily on stock markets and the currency. Data was mostly weaker than expected, with the ISM non-manufacturing PMI posting a sharper than expected drop led by a fall in its jobs index. Initial jobless claims, unit labor costs, and non-farm productivity also missed expectations.
By Kate Curtis from Trader’s Way
USDCAD has been trending higher and moving inside an ascending channel on its 4-hour time frame. Price is currently testing the resistance and seems to be indicating that a test of support is in order.
Stochastic is indicating overbought conditions and is turning lower, which means that buyers are exhausted and allowing sellers to take over. In that case, the resistance at the 1.3400-1.3450 could keep further gains in check, possibly leading to a drop to the channel support at the 1.3100-1.3150 area.
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 narrowing so an upward crossover might be due, possibly drawing more buyers to the mix. If buyers are eager to jump in, the mid-channel area of interest at the 1.3250 level could hold as support.
Economic data from the US came in slightly weaker than expected on Friday, as the NFP report printed a 161K gain versus the estimated 174K increase. The unemployment rate fell from 5.0% to 4.9% as expected while average hourly earnings rose 0.4% versus the 0.3% forecast.
As for Canada, jobs data came in above consensus, as the economy added 43.9K positions in October versus the estimated 10K drop. The Ivey PMI also beat expectations with a rise from 58.4 to 59.7, reflecting stronger industry growth. However, the trade balance showed a weaker than expected 4.1 billion CAD deficit versus the projected 1.7 billion CAD shortfall and the previous 2 billion CAD deficit.*
Only medium-tier reports are due from the US today and none are due from Canada. The upcoming US elections could carry more weight in terms of dictating dollar price action, as higher odds of a Clinton victory could be positive for the dollar. Over the weekend, FBI director Comey announced that the agency found no evidence of wrongdoing in their investigation on Clinton’s private email server.
By Kate Curtis from Trader’s Way
USDJPY is trending higher, moving inside an ascending channel on its 4-hour time frame. Price just bounced off the resistance late last week and is pulling back towards support at the 102.00 major psychological level.
The pair closed at the 50% Fibonacci retracement level on Friday then gapped higher over the weekend to move closer to the resistance at 105.00-105.50. The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside, which suggests that a break higher could be possible.
Until price closes past the swing high, though, the correction could still be in play and USDJPY could fill the gap until it tests the 61.8% Fib closer to the bottom of the channel. Stochastic is already indicating overbought conditions so buyers are already feeling tired and could allow sellers to take it from here.
The US elections will likely be the biggest movers of price action for the week, as the conclusion of the FBI probe on Clinton’s private email server over the weekend allowed risk appetite to return and the dollar to start the week stronger. Still, traders might book positions before the results start coming in, possibly leading to some dollar weakness.
Based on previous market movements, a Clinton victory could be positive for US markets and the dollar while a Trump victory could spur a flight to safety, which would favor the Japanese yen. Either way, volatility is likely to spike once the voting centers start sending in results so wide stops are warranted.
There are no major reports lined up from Japan for the day, leaving traders focused purely on the US elections. After this, the attention will turn to the next FOMC meeting in December, as US data hasn’t been all that impressive and post-election risks could still keep central bank officials in a cautious mood.
By Kate Curtis from Trader’s Way
The top of the range on EURJPY still held as a ceiling as risk aversion returned to the markets. Price is now making its way towards support at the 112.75 area and might even be poised for a break lower.
The moving averages are still oscillating, which suggests that the consolidation could carry on. Price is heading below these dynamic inflection points, an early indication that selling pressure is taking hold.
Stochastic turning down from the overbought zone to show a pickup in bearish momentum. There’s still plenty of room for the oscillator to head south so sellers may be in control for some time. If price breaks below support, EURJPY could be in for a 300-pip drop, which is roughly the same height as the range.
The US election results are taking its toll on market sentiment, sending global futures down and spurring a flight to the safe-haven Japanese yen. So far, the growing lead by Republican nominee Donald Trump is sparking a lot of fear and uncertainty since his brash rhetoric could have repercussions on financial markets.
Data from the euro zone was also mostly weaker than expected, with German industrial production down 1.8% versus the projected 0.6% drop and both German and French trade balance printing worse than expected readings.
Data from Japan has been mixed, but it looks like the lower-yielding currency is taking its cue from risk sentiment above anything else. A Clinton victory could still yield a return in risk-taking, possibly allowing EURJPY to head back to the top of its range while a Trump win could lead to significant declines.
By Kate Curtis from Trader’s Way
NZDUSD has sold off recently but appears to be approaching a rising trend line that’s just forming on its 1-hour time frame. A bounce off this support area could lead to a test of the previous highs at the .7400 major *psychological level or the creation of new ones.
The 100 SMA just crossed above the longer-term 200 SMA to show that buyers are taking control of price action. Stochastic is indicating oversold conditions to suggest that sellers are starting to get exhausted, possibly giving way to bulls later on.
In addition, the moving averages are close to the rising trend line and 61.8% Fib, which could be the line in the sand for any pullback. This also coincides with a former resistance area, which might now hold as support.
The RBNZ just cut interest rates by 0.25% to 1.75% as expected. RBNZ Governor Wheeler highlighted both improvements and weaknesses in the global and domestic economy, concluding that a lower exchange rate is needed for growth to be sustained enough to bring inflation to the middle of its target range.
Meanwhile, the US dollar is still recovering from the post-election selloff and has been lifted by the pickup in US equities. For now, it looks like investors are giving new US president Trump the benefit of the doubt and are pricing in potential upside for companies on his sweeping tax reform plan.
Apart from that, it’s worth noting that both White House and Congress are under Republican control, which suggests smoother passage of laws without much gridlock. There’s not much in the way of top-tier data from the US for the rest of the week so the focus could stay on the government’s economic agenda.
By Kate Curtis from Trader’s Way
GBPJPY has staged a strong rally recently but is currently hitting the ceiling at the top of its descending channel pattern visible on the 4-hour chart. If this area keeps gains in check, price could head back towards support at the 122.00 area or at the mid-channel area of interest at 127.00.
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 narrowing so an upward crossover might be due, possibly leading bullish pressure to pick up.
Stochastic is indicating overbought conditions, which suggests that buyers are exhausted for now. Selling momentum could return if the oscillator turns down from the overbought zone soon.
Sterling has been one of the stronger performers recently, as the pickup in risk appetite has allowed pound pairs to bounce off their lows. This has also forced the safe-haven Japanese currency to return its recent gains, with traders deciding to stay optimistic about global economic prospects.
Economic data from Japan has been in line with expectations today, as the tertiary industry activity index showed a 0.1% drop for September after staying flat in the previous month. There are no other reports due from Japan today so risk sentiment and profit-taking might push yen pairs around.
There are no reports due from the UK today as well. Several banks are closed for holidays so liquidity is thin, which could present opportunities for more volatile price action.
By Kate Curtis from Trader’s Way
NZDUSD has been trading inside an ascending channel pattern on its daily time frame and is currently testing support at the .7100 major psychological level. A bounce off this channel bottom could lead to a move back to the top or until the recent highs at .7400.
On the other hand, a break lower could mark the start of a long-term downtrend for NZD/USD. Price is forming a head and shoulders pattern, which is a classic reversal signal, but it has yet to break below the neckline around .7000-.7050 to confirm the selloff.
Stochastic is heading south so sellers are in control of price action, but the oscillator is nearing the oversold area to show that bearish momentum could be exhausted soon. The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside unless a downward crossover takes place.
Over the weekend, a strong earthquake hit Christchurch once more, leading many to speculate that the RBNZ might need to add stimulus again in order to keep the economy afloat. The central bank just cut interest rates by 0.25% in last week’s rate statement and reiterated that a lower exchange rate is needed.
Meanwhile, the US dollar has been gaining ground after the elections as traders are pricing in the potential impact of Trump’s leadership on businesses. In his campaign, the president-elect promised lower corporate taxes, healthcare overhaul, and banking deregulation, which could be positive for equities in the long run.
Up ahead, US retail sales, PPI, and CPI figures are all lined up for the week, including a speech by Fed head Yellen later on. Market watchers are now turning their attention to the December FOMC decision and rate hike expectations could keep the dollar supported. New Zealand has its GDT auction, quarterly retail sales and PPI due.
By Kate Curtis from Trader’s Way
USDJPY has completed its correction to the broken long-term trend line extending all the way back to 1998 so the reversal could resume from here. This coincides with the 50% Fibonacci retracement level on the swing low and high on the monthly chart, which seems to have held as strong support.
The 100 SMA is below the longer-term 200 SMA on this time frame, though, so the path of least resistance might still be to the downside. For now, the 200 SMA is holding as dynamic support.
Stochastic is indicating oversold conditions and is slowly turning higher. This could draw bulls back in the game, giving USDJPY more upside momentum until the next ceiling around the 110.00 level. A move past that area could eventually take USDJPY up to the swing high at 125.00.
Renewed optimism in the US economy after the elections has allowed the Greenback to regain ground against its forex peers. It seems as though investors are looking past the uncertainty and focusing on how lower corporate taxes and higher infrastructure spending could shore up profitability for US companies and overall economic growth.
Apart from that, traders are also turning their attention back to the projected 0.25% rate hike from the FOMC this December. There are several US reports on deck, namely retail sales, CPI, and PPI, so the outcomes could still influence rate hike expectations. Fed Chairperson Yellen also has a testimony lined up for Thursday, and this is expected to be a big mover for dollar pairs.
There are no major reports lined up from the Japanese economy, leaving the yen to return its previous risk-off gains. Besides, data from Japan hasn’t been too impressive so the BOJ isn’t expected to reduce its stimulus efforts anytime soon.
By Kate Curtis from Trader’s Way
