Daily Technical Analysis by Kate Curtis from Trader's Way

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USDCAD is gearing up to test the bottom of its descending triangle pattern once more, after finding resistance around the 1.2500 levels. Price is nearing the support at the 1.2400 major psychological mark and may be due for a bounce.

Stochastic is moving up from the oversold zone, indicating that buying pressure is building up. This could lead to another bounce off 1.2400 and a potential rally back up to 1.2500. However, if selling momentum stays in play, a downside break of support is possible. This could mark the start of a 400-pip drop, which is roughly the same height as the chart pattern.

Earlier in the week, the BOC decided to keep interest rates on hold at 0.75% as expected. Apart from signaling an improvement in its inflation outlook, the BOC also hinted that they might no longer to ease monetary policy further. After all, crude oil prices appear to have bottomed out and the Canadian economy is also being supported by the strong pickup in the US economy.

Later on, the US is set to print its NFP reading for February and possibly show another improvement in hiring. This could pose an event risk for this setup, as a strong jobs figure might push the Fed closer to hiking interest rates. This might even lead to an upside break from the triangle resistance around 1.2500 and a 400-pip climb for the pair.

The path of least resistance is to the upside, as the US economy is in a fundamentally stronger position compared to Canada. Hiring and spending have been subpar for the latter, as the impact of the oil price slump could still weigh on the country’s economic prospects. Meanwhile, the US economic recovery continues to gain positive momentum.

Going long at 1.2400 with a stop around 1.2300 and adding on a potential break past 1.2500 could be good entry points for a longer-term position on USDCAD.

By Kate Curtis from Trader’s Way

405

USDJPY could be gearing up for another strong breakout, as the pair is moving inside an ascending triangle pattern on its 1-hour chart. Price is currently testing the top of the formation, still deciding whether to make a move back to the bottom or to have an upside breakout.

Stochastic is moving down and favoring another move lower, perhaps until the triangle support above 119.50. However, event risks for today might be a catalyst for a strong breakout in either direction. An upside break could lead to around 300 pips in gains, which is the same height as the chart pattern. Similarly, a downside break could spark a 300-pip selloff.

The US NFP release could spark directional moves for USDJPY, as the jobs data could determine whether or not the Fed might move closer to hiking interest rates this year. The economy is expected to show a 241K increase in hiring, lower compared to the previous 257K gain, while the jobless rate could improve.

Stronger than expected data could confirm the strengthening momentum of the US economic recovery, which could lead market participants to expect that the Fed will alter its forward guidance to indicate that they are considering hiking interest rates soon. This could lead to a strong upside break past 120 and further gains until the previous year highs close to 122 and beyond.

On the other hand, weak US jobs data might lead to a downside break from support and sustained losses for the pair, depending on how far the actual figures miss the mark. If the reading is enough for market participants to start doubting that the Fed would be able to tighten within the next few months, the dollar might be forced to return most of its recent gains. Using a straddle on this chart setup could work as a day trade or catching the momentum later on might be better for a position trade.

By Kate Curtis from Trader’s Way

406

USDJPY broke above the ascending triangle resistance on its 1-hour chart and confirmed the bullish momentum for the pair. This occurred after the stronger than expected US NFP report was released, increasing speculations for a Fed rate hike sometime during the middle of the year.

The chart pattern is approximately 300 pips tall, which means that the resulting breakout could be of the same size. This could push USDJPY up to the 123.00 mark, well beyond the previous year highs.

Price could still pull back to the broken triangle resistance near the 120.50 minor psychological level before resuming its climb. A sharper correction could last until the triangle support at the 120.00 major psychological level while a break below this area could indicate a reversal.

Stochastic is pointing up, indicating that price is ready to head north sooner or later. Earlier today, Japan printed a couple of weaker than expected reports, namely its current account and final GDP. The current account surplus came in at 1.06 trillion JPY versus the projected 1.16 trillion JPY figure while the GDP was downgraded from 0.6% to 0.4%. There are no major reports due from the US economy today.

The path of least resistance is to the upside since the Federal Reserve is moving closer to hiking interest rates while the Bank of Japan might need to implement further easing. Data from the Japanese economy, particularly that of inflation and spending, have consistently come in weaker than expected for the past months. On the other hand, data from the US have shown that the economic recovery is gaining traction.

US retail sales data are up for release later on this week while Japan will print its tertiary industry activity index. These could pose event risks for the trade, with weak data from the US combined with strong data from Japan likely to spur a potential reversal.

By Kate Curtis from Trader’s Way

407

GBPJPY showed increased downside momentum recently, as price broke below a major support zone and dipped close to the 181.00 mark. The pair seems to be in the middle of a retracement right now, as price pulled up to the broken support at the 184.00 major psychological level.

The resistance seems to be holding so far, as price is having a difficult time breaking past the 61.8% Fibonacci retracement level. At the same time, stochastic is moving down from the overbought zone, indicating a buildup in selling pressure.

If the drop resumes, price could head back to the former lows around the 181.50 minor psychological level or perhaps create new ones below 181.00. Risk aversion seems to have settled in the financial markets, which makes the path of least resistance to the downside for this pair.

On the other hand, a break past the 184.00 handle could lead to a test of the next resistance at the 185.00 major psychological mark. A move past this area could mean that a reversal is underway and that buyers are taking control.

Previous data from the UK suggests that the economy could see a bit more weakness moving forward, as the services PMI showed a drop in February. This means that the sector could contribute a smaller amount to overall economic growth this quarter.

However, BOE officials remain upbeat that the drop in inflation would encourage consumers to spend more, eventually spurring stronger economic growth. Economic data has yet to confirm that this phenomenon is taking place, although hiring trends have been positive so far.

As for Japan, data has been mostly weaker than expected, leading traders to speculate that the Japanese central bank might ease monetary policy once more. Spending and inflation reports have continued to disappoint, as the economy hasn’t recovered from the April sales tax hike yet.

By Kate Curtis from Trader’s Way

408

NZDJPY has been in a downtrend on its 1-hour forex chart, as a descending trend line can be drawn to connect the recent highs. The pair just dipped to the 88.00 major psychological support level and is making a pullback to the trend line.

Stochastic is pointing up, indicating that buying pressure is present right now. This could lead to a correction until the Fibonacci retracement levels marked on the latest swing high and low. In particular, the 38.2% Fib level is close to the 88.50 minor psychological mark, which might hold as resistance.

The path of least resistance is to the upside though, at least in terms of fundamentals. New Zealand is faring better compared to the Japanese economy, with the RBNZ set to clarify its monetary policy bias in the next Asian trading session. Data from Japan, particularly that of inflation and spending, have been mostly weaker than expected.

Take note though that recent news surrounding a contamination threat for Fonterra, New Zealand’s largest company, has led the company to halt trading of its shares yesterday. This event could also lead to a drop in milk prices, which might derail the ongoing recovery in the dairy industry.

Risk aversion could also keep the Kiwi’s gains at bay, as emerging economies haven’t been performing so well, forcing some central banks to ease monetary policy. In addition, speculations of Fed tightening in June could also weigh on risk-taking, as this could lead to capital flows towards the US economy.

Shorting at the 88.50 minor psychological level and aiming for new lows might work for a short-term trade, for as long as the current market environment persists. A pickup in risk appetite, however, might lead to an upside break past the falling trend line and the 89.00 major psychological level. This could spark a longer-term reversal for NZDJPY.

By Kate Curtis from Trader’s Way

409

EURCHF could be in for a break below its descending triangle pattern, as the ongoing quantitative easing program of the European Central Bank has been weighing on the shared currency. At the moment, the pair is still finding support at the 1.0650 minor psychological level but might be due for a break lower.

In that case, EURCHF could tumble by around 150 pips at least, which is the same height as the chart pattern. However, threats of SNB intervention in the currency market to keep the franc weak might limit its gains.

The path of least resistance is still to the downside in terms of fundamentals, as the ECB’s easing program is set to carry on for the next 18 months. This could lead to significant downside for the euro, especially if economic conditions continue to worsen in the region.

There are no major market catalysts lined up from both the euro zone and Switzerland today though, indicating that the consolidation could still carry on. A bounce off the support level could lead up to a move until the 1.0700 major psychological resistance at the top of the triangle.

Stochastic is almost in the oversold area anyway, hinting that selling pressure is already exhausted. If euro bulls step up their game, an upside break from the triangle resistance might even be possible and spark around 150 pips in gains as well.

Take note though that USDCHF is moving close to its highs prior to the SNB decision to scrap the franc peg. This suggests that profit-taking could take place and lead to a franc rally in the near term. If the US retail sales comes in below expectations, USDCHF could be in for a drop and drag down other franc pairs in the process.

Using a straddle setup might work for this pair, as it usually consolidates before making a strong move.

By Kate Curtis from Trader’s Way

410

AUDUSD has recently made a strong drop below a key support level near the .7750 minor psychological mark. After that, price reached the .7750 minor psychological handle before making a retracement.

Price is waiting at the 38.2% Fibonacci retracement level at the moment and may be due for a move lower, as this could hold as resistance and allow the selloff to carry on. However, a higher retracement to the next Fibonacci level is possible since this lines up with the broken .7750 support.

If any of the Fibonacci retracement levels hold as resistance, AUDUSD could resume its drop to the previous lows of .7550 or maybe create new lows around the .7400 levels. The US dollar has been strongly support these days, as prospects of a Fed interest rate hike in June have been increasing.

The latest US jobs report showed stronger than expected hiring gains and that the US economy has already reached full employment with its 5.5% jobless rate. Meanwhile, Australia’s jobs report came in line with expectations, although underlying data still reflect weakness.

The path of least resistance is to the downside, even though the US recently printed weaker than expected retail sales data. The cold weather has restricted spending in most parts of the US, leading to lower mall sales and restaurant purchases. Despite that, fundamentals in the US remain stronger compared to Australia.

However, if upcoming economic events suggest that the Fed isn’t likely to hike interest rates soon, the dollar could return some of its recent gains. This could push AUDUSD higher to the next resistance area at the .7850 to .7900 psychological levels or higher.

Stochastic is already indicating overbought conditions, which means that profit-taking could take place soon and that price could be in for a quick reversal. Event risks for this setup include the release of US PPI figures and consumer sentiment reports.

By Kate Curtis from Trader’s Way

411

EURAUD broke below the neckline support of its head and shoulders pattern on the daily time frame, indicating that the pair is in for longer-term declines. Price is now 200 pips below the neckline at the 1.4000 major psychological level and could be in for a thousand more pips in losses, as the chart pattern is roughly 1200 pips in height.

Before price heads any lower though, the pair could still pull back to the broken neckline support for a retest. Stochastic is already indicating oversold conditions, which means that euro sellers are exhausted and that buyers might take over. A higher pullback might last until the next area of interest at the 1.4200 major psychological level.

The shorter-term moving average is trading below the longer-term moving average, confirming that the path of least resistance is to the downside. These indicators might also hold as dynamic inflection points if price makes any forex corrections.

There are no major reports lined up from both the euro zone and Australia this week, although it’s pretty clear that the former is fundamentally weaker than the latter. Last week, Australia printed a stronger than expected jobs report, lowering the odds of another interest rate cut from the RBA.

Sentiment in the euro zone has been somewhat improving though, as ECB Governor Draghi seemed more optimistic about the ongoing developments in the region. However, with the central bank’s quantitative easing program already underway and set to carry on for the next 18 months, further euro weakness could be in the cards.

Commodity price action and risk sentiment could also play a role in determining where this pair could be headed for the week, as the FOMC interest rate statement could have a significant impact on financial markets towards the middle of the trading week.

By Kate Curtis from Trader’s Way

412

EURUSD has been treading lower across all time frames but it seems that a short-term reversal might take place. On its 1-hour chart, the pair has formed a double bottom pattern, indicating that the downtrend could turn.

The pair has to break past the neckline of the chart pattern around the 1.0600 major psychological level before confirming the potential uptrend. Stochastic is suggesting that this is possible since the oscillator is already in the oversold area and might be ready to turn higher.

If price breaks past 1.0600 and the moving averages, the pair could be in for around 200 pips in gains, which is the same height as the chart pattern. However, if the neckline and moving averages continue to hold as resistance, EUR/USD could move back to its former lows near 1.0450 or create new ones.

The main event risk for this setup is the upcoming FOMC statement, which could show if the US central bank is moving closer to a rate hike or not. The removal of the phrase “can be patient” in beginning to normalize policy could mean that they are likely to tighten after a couple of meetings.

On the other hand, if the Fed retains its cautious bias for now, market participants might start doubting that a rate hike could take place within the year. This could lead to a massive unwinding of dollar longs, which could lead to a longer-term reversal for EUR/USD.

The path of least resistance is still to the downside though, as the shorter-term moving average is moving below the longer-term moving average on EUR/USD’s 1-hour chart. An upward crossover could be an early signal that a reversal is underway, but there appear to be no catalysts supporting euro gains other than potential profit-taking.

By Kate Curtis from Trader’s Way

413

EURJPY might be done with its recent downtrend, as a short-term reversal pattern formed on its 1-hour time frame. A double bottom can be seen, with price currently testing the neckline of the formation.

Moving averages have also narrowed, indicating that a potential crossover might take place. If so, this could confirm that an uptrend is likely to take place. Stochastic is moving up, reflecting the presence of buying pressure at the moment.

The neckline of the chart pattern is located at the 129.00 major psychological level. If price does break out, it could head higher by as much as 200 pips, which is roughly the same height as the formation. On the other hand, if the neckline holds as resistance, price could form another bottom near the 127.00 major psychological support.

The path of least resistance is to the downside, as the ECB is currently implementing its quantitative easing program, which is set to carry on for the next 18 months. On the other hand, the BOJ has just refrained from announcing additional easing efforts in this week’s policy statement.

The BOJ has remained confident that inflation and spending would pick up, due mostly to the wage hike talks already happening. This could leave consumers with more cash to spend and allow companies to boost their product prices, eliminating the need for further stimulus from the central bank.

Apart from that, the prospect of Fed tightening could keep risk aversion in play. This could favor the lower-yielding Japanese yen and push EURJPY to its previous lows. However, if the Fed maintains that it doesn’t plan on tightening anytime soon, the yen might give back some of its recent gains when risk appetite returns.

By Kate Curtis from Trader’s Way

414

GBPUSD made a strong bounce during the FOMC statement, as dollar bulls were disappointed to find out that the Fed lowered their growth and inflation forecasts. Although the statement no longer contained the “patient” wording in discussing policy normalization, most market participants pushed back their rate hike expectations from June to September.

With that, GBPUSD bounced off its recent lows near the 1.4650 minor psychological level and bounced above 1.5000. It rallied close to the 1.5200 area before retreating and it now seems to be finding resistance at the 38.2% Fibonacci retracement level. If this continues to keep gains in check, price could head back to the previous lows.

However, a pickup in buying pressure might lead to another move past the spike and possibly a breakout above the 61.8% Fibonacci retracement level. This would indicate that a reversal is underway and that GBPUSD might test the next resistance at 1.5500.

Stochastic is moving up, reflecting a buildup in buying pressure, which might be strong enough to push for more price gains. Take note though that the 38.2% Fibonacci level lines up with a broken support zone, which means that plenty of traders are watching that level.

In the UK, data was less upbeat than usual, as the jobs figures simply came in line with expectations. The jobless rate remained unchanged at 5.7% while the BOE minutes weren’t as hawkish as it used to be.

With that, the path of least resistance is to the downside, especially since the shorter-term moving average is trading below the longer-term moving average. In addition, the moving averages are treading farther apart, indicating a strengthening trend.

The 100 EMA might hold as resistance, as it seems to have held as a dynamic inflection point in the past. This is close to the 50% and 32.8% Fibonacci retracement levels, both of which could continue to hold as a ceiling for any rallies.

By Kate Curtis from Trader’s Way

415

NZDUSD seems to be starting an uptrend on its short-term time frames, as the pair is creating an ascending trend channel on its 1-hour chart. The short-term moving average has just crossed above the long-term moving average, suggesting that an uptrend is underway.

Stochastic is still pointing up, which means that there’s enough upside momentum for the pair. Price appears to have found support at the middle of the ascending channel and the moving averages and might be headed back towards the top near the .7550 minor psychological level.

On the other hand, if stochastic turns down from the overbought region and indicates a pickup in selling pressure, the pair might head back towards the bottom of the channel at the .7350 minor psychological support.

A downside break from the bottom of the channel might indicate that the short-term rally is already over and that price could resume its longer-term selloff. On the other hand, an upside break past channel resistance could mean extended gains for NZDUSD.

The path of least resistance is to the downside for now, as the FOMC recently dropped its “patient” wording and indicated that they are moving closer to hiking interest rates this year. Meanwhile, data from New Zealand wasn’t so impressive, as the latest GDT dairy auction indicated an 8.8% fall in dairy prices.

Risk aversion could continue to keep gains in check, especially as traders start pricing in the prospect of Fed tightening in June or September. However, more cautious remarks from Fed officials this week and the next could still keep the dollar weak, as traders could push back rate hike expectations further.

On its longer-term charts, NZDUSD has formed a double bottom pattern, indicating that a reversal from the recent downtrend might take place. Price has yet to break past the neckline resistance before confirming the potential long-term gains.

By Kate Curtis from Trader’s Way

416

GBPUSD could be in for a reversal, as a double bottom pattern formed on its 1-hour forex chart. This could be a sign that the recent downtrend is already over as soon as price breaks past the neckline of the formation around the 1.5000 major psychological resistance.

Stochastic seems to be indicating that pound bulls are still gathering strength for an upside breakout, as the indicator is nearing the oversold area. A break above the 1.5000 mark could lead to a move up to the previous spike at the 1.5200 area or higher to 1.5300.

On the other hand, if the 1.5000 major psychological resistance continues to hold as strong support, GBPUSD could make its way back down to the previous lows at 1.4700. A break below this support area could mean more losses for the pair while another bounce could mark the start of range-bound price action.

There are no top-tier catalysts that might trigger a strong breakout or a sustained trend in either direction this week, as the major events from both the US and the UK have already played out last week. The FOMC revealed that they’re considering policy tightening but are in no rush to hike rates in June while the BOE minutes reflected a bit of caution among policymakers.

With that, the path of least resistance is still to the downside, although profit-taking towards the end of the month and quarter might lead to more upside. Bear in mind that price also broke above the exponential moving averages on its 1-hour time frame, supporting the idea that further gains are likely. In addition, the short-term EMA just crossed above the longer-term EMA, suggesting that an uptrend may be taking hold for now.

By Kate Curtis from Trader’s Way

417

NZDUSD has recently formed a double bottom pattern on its 4-hour time frame and seems to be confirming the potential reversal, as price has already broken above the neckline of the chart pattern at the .7600 major psychological resistance. At the same time, the shorter-term exponential moving average has crossed above the longer-term EMA, indicating that an uptrend may take place.

Stochastic is already indicating overbought conditions on the 4-hour chart though, which means that buyers are exhausted and that a pullback might take place before price heads any hither. Price could still retreat to the broken neckline resistance at the .7600 level or slightly lower to the .7500 area of interest.

If a deeper selloff occurs, it could be indicative of a fakeout, which might still allow NZDUSD to head back to its former lows around the .7200 major psychological support. In that case, a triple bottom formation might be created and this is still a valid reversal signal.

If the breakout and reversal confirmation is a valid one, NZDUSD could head higher by around 400 pips, which is the same height as the double bottom chart pattern. This could take price back up to the .8000 major psychological resistance, which is an area of interest visible on the longer-term charts.

The path of least resistance is to the upside for now, as risk appetite is present in the financial markets after the FOMC indicated that they might hike interest rates much later than initially anticipated. This longer period of low rates could allow more consumers and businesses to take advantage of cheaper credit and ramp up their spending.

Take note that the RBNZ has also indicated that they’re not looking to ease monetary policy anytime soon, which also suggests a hawkish bias for the central bank and potentially further gains for the Kiwi.

By Kate Curtis from Trader’s Way

418

AUDUSD has been in a steady downtrend since December last year and has been trading below a descending trend line connecting its recent highs on the 4-hour chart. Price seems to have broken above the trend line recently though, indicating that a reversal is in the works.

In addition, AUDUSD has also broken above the moving averages, with the shorter-term EMA crossing above the longer-term EMA on the same time frame. This also confirms that the downtrend is about to turn and that an uptrend is taking hold.

Stochastic is already indicating overbought conditions and is moving lower, suggesting that a quick pullback to the broken trend line might be in order before the uptrend resumes. Price could find support around the .7700 major psychological level before moving higher, possibly until the .8000 major psychological resistance and beyond.

The end of the month and quarter could usher in profit-taking moves across the markets, which means that traders are bound to exit their short AUDUSD trades for the period and possibly trigger more gains for the pair. Risk appetite has been present in the financial markets anyway, and this could keep the higher-yielding Australian dollar supported.

Event risks for this trade today include the US durable goods orders report and speeches by FOMC officials. Just recently, the Fed indicated that they are moving closer to policy tightening but they might hike rates later than initially expected. This has caused a dollar selloff, as traders pushed back their rate hike forecasts.

Meanwhile, the RBA has pointed out that they almost cut interest rates in their previous monetary policy meeting, which suggests a high likelihood of another rate cut in their next statements. This could keep AUDUSD gains in check, especially if economic data supports a dovish bias.

By Kate Curtis from Trader’s Way

419

EURNZD’s recent downtrend might soon be over, as the pair formed a reversal pattern on its 4-hour chart. The pair has yet to break above the resistance levels around the neckline of the double bottom and the longer-term exponential moving average before confirming the uptrend.

Stochastic is already indicating overbought conditions, which suggest that buyers are already exhausted. This could mean another quick selloff, possibly until the short-term EMA, which might hold as a dynamic support area.

On the other hand, a strong break past the neckline around the 1.4600 major psychological level could bring in more buying pressure and lead to a 300-pip climb, which is the same height as the chart pattern. But if the resistance levels hold, price could make another move lower to the previous lows at 1.4300.

The path of least resistance is still to the downside, although profit-taking at the end of the month and quarter might lead to price rallies until the next couple of weeks. With that, EURNZD could be in for a much larger correction from its longer-term selloff.

Earlier in the week, the euro zone printed decent PMI readings from France and Germany. Yesterday, the German Ifo business climate came in better than expected and confirmed Draghi’s claims that a sustained recovery is taking hold in the region. No other event risks are lined up from the region today.

There are also no event risks from New Zealand today, although risk sentiment seems to be playing a major role in determining price action for the commodity currency. Data has been weak recently, as the trade balance fell short of expectations for February while the previous month’s reading has been downgraded.

With that, there’s also a strong potential for an upside break past the double bottom neckline and a likely rally up to the 1.4900-1.5000 levels if that takes place.

By Kate Curtis from Trader’s Way

420

EURGBP has been trading in a short-term uptrend for most of the month, as an ascending trend line can be drawn to connect its recent lows. Price has formed a bullish divergence, with stochastic making lower lows and the pair making higher lows right on the trend line support.

In addition, the ascending trend line lines up with the 100 EMA, which has acted as a dynamic support zone in the past. The shorter-term EMA is still treading above the longer-term moving average, confirming that the uptrend is likely to stay intact. Stochastic is also moving up from the oversold area, indicating that a pickup in buying pressure is taking place.

If the rally resumes, EURGBP could move back up to the previous highs around the .7400 major psychological level or create new highs closer to the .7500 handle. On the other hand, a break below the ascending trend line might be a sign that a reversal might take place.

The path of least resistance is to the upside though, as the euro zone has been seeing improvements in data so far. While the PMI reports painted a mixed picture, consumer and business sentiment in Germany turned out better than expected and could be indicative of increased activity moving forward.

Meanwhile, the UK has printed a stronger than expected retail sales reading but the pound failed to rally on the news. This suggests that traders are starting to doubt the BOE’s upbeat bias and are pricing in more weakness for the economy. Many have also been disappointed that the actual consumer spending reading wasn’t as impressive, given the consecutive increases in hiring seen in the UK.

There are no event risks lined up from the euro zone today but the UK has a couple of potentially market-moving speeches from BOE officials and MPC members today.

By Kate Curtis from Trader’s Way

421

EURNZD recently broke below the 1.4300 major psychological support level and dipped to the 1.4100 area before pulling up. Price is now nearing the 38.2% Fibonacci retracement level on the latest swing high and low on the 4-hour chart.

If this resistance level holds, the pair could fall back to the previous lows at 1.4100 or perhaps make new ones below the 1.4000 major psychological support. Stochastic is still moving up though, which means that buyers are still in control and that a higher pullback is likely.

In this case, the 1.4300 handle could be retested and might hold as resistance on the retracement move. A rally past this point might indicate a reversal and a potential climb to the next resistance at the 1.4550 minor psychological level.

There are no major catalysts due from the euro zone today while New Zealand has its NZIER business confidence index lined up for the upcoming Asian trading session. The path of least resistance is still to the downside as the euro zone is economically weaker compared to New Zealand.

By Kate Curtis from Trader’s Way

422

GBPAUD has recently broken below support at the 1.9350 minor psychological level and is making a correction from the selloff. Price bounced off the 1.9000 major psychological support and is pulling up to the retracement levels on the 1-hour chart.

Resistance at the 50% Fibonacci retracement level seems to have held and price could resume its drop back to the previous lows near the 1.9000 mark. After all, this area lines up with the broken support. Stochastic is moving down but is almost in the oversold area, which means that a quick bounce could take place.

In addition, the shorter-term moving average is starting to cross back above the longer-term moving average, hinting that a rally is possible. If so, GBPAUD could make a higher correction to the 61.8% Fibonacci retracement level. A break above this area could mean that a reversal is underway and that the pair could head up to the next resistance at 1.9600.

Event risks for this trade setup include the U.K. CPI release, which might indicate another drop in price levels. In that case, the pair could resume its downtrend as it would confirm that the BOE is a long way from tightening monetary policy. On the other hand, stronger than expected inflation readings could suggest that a recovery is taking hold and provide support for the pound.

Other catalysts for this trade this week include data from China, particularly its GDP and industrial production figures. Weak readings are expected, which might lead to a selloff for the Australian dollar, but an upside surprise could yield strong gains.

Also lined up this week is the Australian jobs report, which might indicate another slump in hiring. Underlying labor components haven’t been so promising and traders seem to have priced in weaker than expected employment figures.

By Kate Curtis from Trader’s Way

423

USDJPY has been slowly trending higher on its 1-hour time frame, as the pair is creating an ascending channel on the chart. Price is currently testing support at the bottom of the channel near the 119.50 minor psychological level and may be headed back to the top at the 121.00 major psychological mark or until the mid-channel area of interest from 120.00 to 120.50.

Stochastic is already indicating overbought conditions though, which means that buying pressure is fading. If so, the pair could resume its drop and retest support at the channel bottom. The shorter-term EMA has just crossed below the longer-term EMA, suggesting that a selloff is likely to take place.

If selling momentum is strong enough, a downside channel break might take place and the pair could be in for more declines. This could lead to a test of the next support around the 118.50 region or much lower until the 117.00 level.

The path of least resistance is to the downside since the US just printed a dismal retail sales report for March. Headline retail sales showed a mere 0.9% gain versus the projected 1.1% growth while core retail sales indicated a 0.4% uptick instead of the estimated 0.7% increase.

Prior to this, the US economy showed a weaker than expected NFP reading, suggesting that the previous streak of jobs growth might not be sustained. This could delay the Fed’s tightening time frame from June to September this year, which could lead to a bit of near-term dollar weakness.

Risk aversion is still in support of both currencies though, but it seems that the yen is in a better spot for now. Data from Japan hasn’t been too disappointing, although there’s no denying that inflation is still considerably weak in the nation and that further easing could be warranted.

By Kate Curtis from Trader’s Way