Daily Technical Analysis by Kate Curtis from Trader's Way

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424

EURUSD has been selling off since the start of the month but it seems to be making a correction for the past few days. Price has popped up from the 1.0500 area to the 1.0700 levels, which is close to the 38.2% Fibonacci retracement on the 1-hour time frame.

In addition, the 38.2% Fib is in line with a former support level, which might now hold as resistance. Stochastic is showing a shallow bearish divergence and is already moving down from the overbought zone, suggesting that price could resume its downtrend from here.

If so, EURUSD could fall back to the previous lows around the 1.0500 handle or perhaps create new ones. On the other hand, a higher retracement might still last until the 50% Fibonacci retracement level close to the 1.0800 mark or until the 61.8% Fibonacci retracement level at 1.0850.

Demand for the US dollar has significantly weakened these days since the US just printed a bunch of weak figures. Starting from the dismal NFP reading for March until the weaker than expected retail sales readings, it seems that traders are now doubting that the Fed can afford to tighten monetary policy this year.

Meanwhile, ECB Governor Draghi has reiterated that there are a lot of green shoots in the euro zone right now. Although he said that an exit from their ongoing QE program isn’t likely at the moment, he also mentioned that their stimulus is starting to take effect.

With that, traders might keep paring their short EURUSD positions until the US economy does show more signs of progress. Shorting at 1.0700 with a wide stop past the 61.8% Fibonacci retracement level could offer enough leeway. Take note though that the short-term EMA is starting to cross above the long-term EMA, suggesting that the pair could be in for a few more gains.

By Kate Curtis from Trader’s Way

425

AUDCAD seems to be done with its downtrend as a reversal pattern can be seen on its 4-hour forex chart. The pair failed in its recent attempts to break below the 0.9500 major psychological support and could test the neckline of the double bottom formation around the .9700 major psychological resistance.

Stochastic is still pointing down for now though, which means that Aussie bears are in control of price action. If this carries on, AUDCAD might have a shot at breaking below the .9500 support zone and resuming its downtrend. After all, the short-term moving average is treading below the longer-term moving average, confirming that the downtrend is still valid.

On the other hand, a move towards .9700 and an upside break past the neckline at .9700 could mean more gains for the pair. To be specific, at least 200 pips in gains could be logged in, as the chart pattern is roughly of the same height.

Event risks for this reversal trade today include the Canadian CPI and retail sales releases. Inflation probably slowed down for Canada in March, with the headline reading slated to post a 0.5% gain and the core figure to show a 0.3% uptick. Meanwhile, headline retail sales could show a 0.5% rebound while core retail sales could print a 0.7% increase, which might be enough to keep the Loonie supported.

Of course weaker than expected data could lead to a strong bounce for this pair, especially since Australia just released stronger than expected jobs figures yesterday. There are no top-tier reports lined up from the Australian economy today.

Bear in mind that the BOC also specified that they are not looking to cut interest rates anytime soon, as Governor Poloz has been seeing a lot of improvements in the Canadian economy these days.

By Kate Curtis from Trader’s Way

426

USDJPY has been consolidating tightly recently, as the pair even formed a long-term triangle formation on the daily chart. The pair has created higher lows and found resistance at the 121.00 handle, forming an ascending triangle chart pattern.

The pair is testing the triangle support near the 118.50-119.00 region at the moment and may be due for a bounce. The shorter-term EMA is still moving above the longer-term EMA on the daily time frame, suggesting that the uptrend could continue. Price could test support at the 118.00 handle near the longer-term EMA, which has held as a dynamic inflection point in the past.

A break below this area could mean more losses for USDJPY, possibly until the next support at 116.00. On the other hand, sustained buying pressure could lead to a move back to the triangle resistance at 121.00 or perhaps a break higher.

Data from the US economy has been mostly disappointing last week, forcing the dollar to return most of its recent gains. There are no top-tier releases from the US and Japan this week but risk aversion might lead to renewed support for the dollar, as the Greek debt talks don’t appear to be reaching a resolution just yet.

In terms of fundamentals, the US economy is still on a much stronger footing compared to Japan. However, the yen is emerging as a more preferred safe-haven currency for now, although weakness in the Asian region could lead to a reversal.

A breakout in either direction could last by 500 pips, which is the same height as the triangle formation. A move past 121.00 could lead to a rally until 126.00 while a break below 119.00 might lead to losses until 114.00. Of course this depends on how market catalysts play out for the next few days.

By Kate Curtis from Trader’s Way

427

USDCAD has been trading lower in the past few days, after breaking below support at the 1.2450 minor psychological level. Since then, the pair has tested support at the 1.2100 major psychological level and showed signs of retracing.

Using the Fibonacci retracement tool on the latest swing high and low on the 1-hour time frame indicates that the 61.8% level lines up with the broken support. This could serve as a resistance level during the market correction before price resumes its drop.

However, the longer-term EMA also lines up with the 38.2% Fibonacci retracement level, which might keep further gains in check if the correction is shallow. Once USDCAD resumes its drop, price could retest the previous lows near the 1.2100 handle or create new lows closer to 1.2000.

Stochastic is already indicating overbought conditions, which means that buyers are already tired and that sellers could jump in. For now, the oscillator is still climbing so buying pressure is still in play and a higher pullback is possible.

Data from the US economy came in mostly weaker than expected in the prior weeks, suggesting that the Fed isn’t likely to hike interest rates in June. Analysts say that the downturn in hiring and spending might be enough for Fed policymakers to sit on their hands even until September.

Meanwhile, data from Canada has surprised to the upside, leading BOC Governor Poloz to sound a bit more upbeat in his latest rate statement. He hinted that further rate cuts are no longer on the table as oil prices appear to have bottomed out and that a recovery is likely to take place around the second half of this year.

With that, the path of least resistance is to the downside for now, especially if US data continues to disappoint. There are no top-tier reports due from the US today while Canada has its wholesale sales data on tap.

By Kate Curtis from Trader’s Way

428

A double bottom reversal pattern can clearly be seen on Cable’s 4-hour forex chart, indicating that a long-term rally might take place. Price is currently testing the neckline of the pattern around the 1.5000 major psychological resistance.

An upside break from this level could mean a 400-pip climb for the pair, as this is the same height as the chart formation. This could take the pair up to the 1.5400 mark, which is near the next area of interest visible on the long-term chart.

On the other hand, if the neckline resistance holds, price could head back to the previous lows near the 1.4600 major psychological level. A bounce off this area could create a triple bottom chart pattern, which would still be a valid reversal signal.

Much could depend on the upcoming release of the BOE meeting minutes, which might indicate what policymakers have in mind for potential interest rate changes. Recall that the BOE had been less hawkish than usual as weak inflation and their currency’s appreciation are making it difficult for the economic recovery to take hold.

If this downbeat outlook is reiterated in their latest minutes, Cable could be in for another sharp selloff to the nearby support levels. On the other hand, if BOE Governor Carney reverts back to a hawkish stance, the pair could have a chance at breaking higher and confirming the potential reversal.

The path of least resistance is to the downside though, as the latest inflation and employment figures have fallen short of expectations. Data from the US hasn’t been impressive also, but the Fed is still widely expected to start hiking interest rates later on this year. Risk aversion is also in favor of the US dollar for the time being, as the ongoing debt talks in Greece and the upcoming UK elections pose market risks.

By Kate Curtis from Trader’s Way

429

EURNZD has been in a steady downtrend but the pair is starting to make a correction on its 4-hour forex chart. Price has bounced off support at the 1.3900 major psychological level and might pull up to the dynamic resistance around the longer-term exponential moving average.

For now, the short-term EMA is still treading below the long-term EMA, confirming that the downtrend is likely to stay intact. Stochastic is pulling up to the overbought zone, which means that buyers are about to lose steam and that sellers might take over soon. If that happens, EURNZD could resume its drop to the previous lows or perhaps create new lows.

The 1.4200 major psychological level could be a good resistance area, as this lines up with the moving average and an area of interest. This level has held as support in the past, prior to being broken earlier this month.

The path of least resistance is to the downside, even though an RBNZ official recently pointed out that they’re not looking to hike interest rates anytime soon. RBNZ Assistant Governor McDermott said that their inflation outlook is very weak and that several downside risks are still present.

However, the euro zone faces much worse prospects, even though the Greek debt talks could end up in a compromise between the government and its creditors. The prospect of a Grexit continues to weigh on the shared currency, along with the likelihood of debt contagion in the region.

Still, the euro could pop higher if the talks are settled amicably by the end of the week, potentially leading to a larger correction for EURNZD. The line in the sand is around the 1.4500 major psychological level, which is also an area of interest and is beyond the moving average resistance.

By Kate Curtis from Trader’s Way

430

AUDNZD formed a reversal pattern on its 4-hour chart, hinting that the long-term downtrend might soon turn. Price has already broken past the neckline around the 1.0200 major psychological resistance and seems poised for more gains. The chart formation is approximately 150 pips in height, which means that the resulting breakout could be of the same size.

This could take AUDNZD up to the 1.0350 minor psychological resistance, which lines up with an area of interest. However, stochastic is already indicating overbought conditions, which means that price might return its recent wins soon. A pullback to the broken neckline support might be possible also before the pair heads any higher.

The short-term EMA is making an attempt to cross above the longer-term EMA on the 4-hour chart, which is an early signal that an uptrend is taking hold. If the indicator moves back down though, this might be a sign that the recent upside break was a fakeout or part of a market correction.

The path of least resistance is to the upside, as an RBNZ official recently clarified that they’re not looking to hike interest rates anytime soon. He added that they might even lower borrowing costs if inflationary pressures continue to weaken in the coming months.

Meanwhile, RBA Governor Stevens also noted that they will keep monetary policy accommodative. He pointed out that it is very likely that the Aussie will fall, although market participants seem to have gotten tired of hearing these same remarks from the central bank head.

There are no event risks lined up from both Australia and New Zealand today, suggesting that the ongoing trends could carry on. Bear in mind though that Australia has released a couple of weaker than expected data points earlier this week and that China’s economic performance has been subpar, both of which might weigh on the Aussie’s rallies.

By Kate Curtis from Trader’s Way

431

NZDUSD is showing signs of a pullback on its short-term time frames, as price bounced off the .7550 minor psychological support and is retreating to the Fibonacci levels on the latest swing high and low. In particular, the 50% Fibonacci level is close to the broken support at the .7650 minor psychological level, which might hold as resistance.

Stochastic on the 1-hour chart is still moving up, indicating that price is about to head further north. In addition, the pair is testing the resistance at the longer-term exponential moving average, which is near the 38.2% Fibonacci retracement level. The short-term EMA has recently crossed below the long-term EMA, suggesting that the downtrend could carry on.

If so, NZDUSD could move back to its previous lows at .7550 or even create new ones. This could depend on the outcome of the top-tier events scheduled from both the U.S. and New Zealand this week.

Only the flash services PMI is due from the US today while New Zealand has an empty economic schedule. Price action could show more volatility tomorrow, with the US consumer confidence index due. Stronger than expected data could lend support for the dollar and allow the selloff to resume.

On Wednesday, New Zealand will release its trade balance and ANZ business confidence index, which might also provide volatility for NZDUSD. Improvements are expected and these might be enough reason for the pair to break past the Fibonacci resistance levels and test the next ceiling around the .7750 area.

However, the FOMC statement might have a bigger say in determining the longer-term direction of this pair, with a hawkish statement likely to renew dollar gains. On the other hand, a downbeat FOMC announcement could lead to a prolonged dollar selloff, which would mean a longer-term rally for NZDUSD.

By Kate Curtis from Trader’s Way

432

AUDUSD is once again testing the neckline of the complex double bottom pattern on its 4-hour time frame. A break past the resistance around the .7900 major psychological level could confirm the potential reversal, which might last by around 350 pips or the same height as the chart pattern.

Stochastic is already in the overbought area though, which means that buyers are starting to lose steam. If the resistance still holds, AUDUSD could head back to the previous lows around the .7550 minor psychological level. The short-term exponential moving average has just crossed above the long-term EMA, suggesting that a move higher might be likely.

This could depend on how the upcoming FOMC statement turns out, as dovish remarks from the Fed could lead to another round of dollar selling while upbeat comments could allow the Greenback to regain ground. Recall that data from the US economy has been weaker than expected recently, prompting market participants to doubt that the Fed can afford to hike interest rates this year.

There are no major event risks lined up from the Australian economy this week, although recent reports from Australia and its major trade partner China suggest that further downside could be seen. Apart from that, RBA Governor Stevens also mentioned that they will be keeping monetary policy accommodative, sparking speculations that another rate cut might be seen next month.

Risk appetite could also have a significant impact on this pair in the coming days, as the Greek debt talks continue to drag on and weigh on higher-yielding currencies. A deal within the week could reduce fears of debt contagion in the euro zone and the global economy, reviving support for riskier currencies like the Australian dollar.

By Kate Curtis from Trader’s Way

433

NZDUSD might be ready for another short-term selloff, as the pair is testing the rising wedge resistance on its 4-hour time frame. At the same time, stochastic is indicating overbought conditions, which means that sellers might take control of price action soon.

If that happens, NZDUSD could head back to the wedge support around the .7600 to .7650 area. Increased selling momentum might even lead to a downside break and an additional 500 pips in losses, which is roughly the same height as the chart pattern.

This could depend on the major market catalysts lined up from both the US and New Zealand today. Bear in mind that the FOMC will make its rate statement during the upcoming US session while the RBNZ will announce its rate decision in the next Asian trading session.

Data from the US economy has been mostly disappointing lately but the Fed is expected to reassure market watchers that the recovery is still on track. If Yellen confirms that they are still considering tightening monetary policy with an interest rate hike this year, the dollar could regain ground and drag NZDUSD down. On the other hand, a downbeat assessment and outlook could mean more losses for the dollar.

Meanwhile, the RBNZ might shift to a more dovish stance, especially since the central bank’s Assistant Governor already hinted that they are not looking to hike interest rates anytime soon. He even added that they might cut rates if the inflation outlook remains subdued.

With that, the path of least resistance is to the downside for now, as the .7700 major psychological level is expected to hold as resistance for NZDUSD. Nonetheless, any surprise announcements in the rate decisions might still spark an upside break and a potential 500-pip rally for the pair.

By Kate Curtis from Trader’s Way

434

CADJPY has been steadily climbing on its 1-hour forex chart, reflecting a short-term uptrend for the pair. Price has been treading above the long-term exponential moving average on the same time frame while the short-term EMA is also moving higher, confirming that the rally is likely to carry on.

For now, stochastic is pointing down, which means that price could retreat from its recent climb. The pair could test the long-term EMA support, which coincides with a rising trend line connecting the recent lows.

A bounce could take place around the 98.50 minor psychological level, which lines up with the trend line, long-term EMA and the 50% Fibonacci retracement level on the latest swing low and high. Once stochastic reaches the oversold area and turns higher, price could head back north as well.

The path of least resistance is to the upside, as the Canadian economy has seen significant improvements in the past months. This has been enough for the BOC to say that they are no longer looking to cut interest rates anytime soon, as their surprise rate cut earlier this year is already taking effect.

Meanwhile, Japan continues to post weak data, particularly in the consumer spending sector. Retail sales have shown a sharper than expected annualized decline for March, as the economy still hasn’t recovered from last year’s sales tax hike. Although BOJ Governor Kuroda said that they are discussing the technical details for an exit strategy, it seems that market watchers are not buying his upbeat outlook.

Should risk aversion continue to play a role in price action though, CADJPY could still make a break below the confluence of support levels. If so, the pair could be in for a longer-term drop, possibly until the area of interest at 97.00. But if a bounce takes place, CADJPY could head back to its previous highs near 99.50 and perhaps make new ones.

By Kate Curtis from Trader’s Way

435

GBPUSD is forming an uptrend on its 1-hour forex chart, as the recent lows can be connected by an ascending trend line. In addition, the long-term exponential moving average has been holding as a dynamic support area and another test seems to be taking place.

A bounce off support around the 1.5300 to 1.5350 area could lead to another climb to the previous highs at 1.5500 or perhaps the creation of new highs. Stochastic is moving up anyway, confirming that pound bulls are in control of the game.

However, a break below the moving average and the trend line support could indicate that the uptrend is over and that a reversal is bound to take place. This could take GBPUSD back down to the next area of interest around 1.4900 to 1.5000. A move below this key support region could lead to a drop to the 1.4600 lows.

Based on central bank biases, the path of least resistance could be to the upside, as the BOE has sounded more optimistic compared to the Fed. Minutes of the latest BOE meeting showed that the UK central bank is confident that the economy can achieve its inflation target soon and that they could afford to hike rates at some point. Meanwhile, the Fed has sounded a bit cautious in their latest statement, downgrading their outlook for growth and employment.

Event risks for this trend setup today include the release of the UK and US manufacturing PMI readings. For the UK, an increase from 54.4 to 54.6 is expected while the US could also show a climb from 51.5 to 52.1. Both economies have been printing a few disappointing reports from time to time though, and a downside surprise could be seen for either one.

By Kate Curtis from Trader’s Way

436

AUDUSD previously broke past the resistance at the .7850 minor psychological level and climbed close to the .8100 major psychological level. From there, the pair retreated to the Fibonacci retracement levels drawn on the latest swing high and low of the 4-hour chart and is finding support at the 50% level.

This lines up with the broken resistance area, which might now hold as support. Stochastic is indicating oversold conditions anyway, which means that buyers are about to jump in soon and push AUDUSD back up. If that happens, the pair might move back to its previous highs and possibly create new ones.

In addition, AUDUSD is kept afloat by the long-term exponential moving average on the same time frame. For now, the short-term EMA is treading higher than the long-term EMA, confirming that the rally is likely to resume. However, a downward crossover of the EMA could be an early signal that a selloff is about to take place.

Event risks from Australia this week could dictate the direction of AUDUSD for the next few days. The RBA is set to make its interest rate decision and possibly announce a 0.25% rate cut, as RBA Governor Stevens previously hinted that they might ease policy further.

Data on trade, consumer spending, and employment are also lined up from Australia for the rest of the week. Weak figures could remind traders that the Australian economy needs further stimulus and could face weaker prospects down the line due to the ongoing slowdown in China.

As for the US dollar, the non-farm payrolls report is up for release at the end of the week and another disappointing figure for April might cast more doubts on the Fed’s ability to hike interest rates sometime this year. A strong reading, on the other hand, could renew dollar demand and push AUDUSD to the previous lows near the .7600 handle.

By Kate Curtis from Trader’s Way

437

On its daily time frame, GBPJPY has formed lower highs and found support at the 176.00 major psychological level. A descending triangle chart pattern appears to be forming, as the pair is currently testing the top of the formation. If this area holds as resistance, the pair could head back to the triangle support once more.

Stochastic is moving down from the overbought region, confirming that sellers are taking control. However, the short-term exponential moving average seems to be crossing above the long-term EMA, suggesting that further gains are still possible. In that case, GBPJPY could be able to break past the triangle resistance at the 182.00 major psychological level.

An upside break could lead to as much as a thousand pips in gains for the pair, as this is approximately the same height as the triangle chart formation. Similarly, a downside break from support could spark a 1,000-pip selloff.

The path of least resistance is to the downside, as data from the UK economy has been mostly disappointing. Just last week, the manufacturing PMI reading fell short of expectations, contrary to the BOE’s assessment that the economy is on its way to recovery.

On the other hand, the latest set of inflation reports from Japan indicated some improvements. The national core CPI climbed from 2.0% to 2.2%, supporting the BOJ’s claims that price levels are ready to resume their climb and possibly reach their target CPI of 2% by next year. This also underscores Governor Kuroda’s statement saying that policymakers are discussing the technical details of an exit strategy, with one member already voting to taper their monthly bond purchases.

Event risks for this setup this week include the UK services and construction PMI, along with the upcoming elections. A coalition government is expected and this might spark more pound weakness in the longer-run.

By Kate Curtis from Trader’s Way

438

USDJPY is testing the top of the range forming on its 4-hour time frame, indicating that a move lower is likely. Price is having difficulty breaking past the resistance around the 120.50 minor psychological level and may be due for a test of support around the 118.50 mark.

Stochastic is moving down, indicating that sellers are in control of price action for now. However, the oscillator is nearing the oversold area, which could indicate that bearish pressure is fading and that buyers could take over. In that case, a break above the range resistance might take place.

The path of least resistance is to the downside for now, as traders continue to price in downbeat expectations for the US NFP report. After all, the previous reading was weaker than expected and was enough to reduce expectations for a Fed rate hike in June.

Early labor indicators also suggest the possibility of a downside surprise, as the ISM manufacturing came in below expectations and showed a lower labor market component. Upcoming data such as the ADP non-farm employment change report could provide more clues on the NFP.

As for Japan, traders are still off on a holiday, which explains the low liquidity and range-bound price action of yen pairs. Data from the economy has shown a few improvements, as the national core CPI ticked up from 2.0% to 2.2% and supported the BOJ’s claim that price levels are recovering.

For now, the short-term EMA is moving above the long-term EMA on the 4-hour chart, suggesting the possibility of an upside move. A break above the range resistance could lead to a 200-pip rally, which is around the same height as the range. Similarly, a break below the range support at 118.50 could lead to a 200-pip selloff for USDJPY.

By Kate Curtis from Trader’s Way

439

Resistance at the top of the USDJPY range on the 4-hour time frame kept gains in check, pushing the pair back to the middle of the range. Price could be headed back to the bottom of the range around the 118.50 minor psychological level.

Stochastic is already indicating oversold conditions but hasn’t crossed higher yet, indicating that there could be enough selling pressure left to push the pair to the bottom of the range. For now, the long-term EMA is holding as support around the middle of the range. If this keeps losses at bay, USDJPY might bounce back to the top of the range at 120.50 once more.

Weaker than expected data from the US is weighing on the pair recently, as the ADP non-farm employment change figure indicated a 169K gain in hiring versus expectations of a 199K increase. The previous month’s figure was downgraded to show a smaller gain in hiring, suggesting that the upcoming US NFP release might also be in for dismal results.

If so, the US dollar could be in for more losses and possibly lead USDJPY to break below range support. In that case, the pair could chalk up an additional 200 pips in losses, as this is the same size as the rectangle chart pattern. Similarly, a strong reading could trigger an upside break from the resistance and around 200 pips in gains for USDJPY.

There have been no major reports out of Japan recently since traders have been off on a holiday. Liquidity has been low during most Asian trading sessions this week, keeping USDJPY inside its range. Prior to this, Japan printed a few improvements in its inflation and spending reports, prompting traders to think that the BOJ won’t need to increase its stimulus efforts.

By Kate Curtis from Trader’s Way

440

EURUSD could be ready to make another bounce, as the pair is creating an ascending trend line on its 1-hour forex chart. Price just jumped to the 1.1400 handle recently before retreating towards support around the 1.1250 minor psychological level.

This area lines up with a broken resistance level, which might now act as support. Stochastic is already indicating oversold conditions, suggesting that euro sellers are tired and that buyers could take over. If that happens, the pair could move back up to its previous highs at 1.1400 or create new ones.

The main event risk for this trend setup is the US non-farm payrolls release during the New York trading session. After printing dismal results in the previous month, a recovery in the jobs sector is expected this time. The FOMC did say that the recent slump was just transitory and traders are keen to see if the data would confirm this.

Analysts are expecting to see a 228K increase in hiring, stronger than the previous 126K gain, while the jobless rate is expected to improve from 5.5% to 5.4%. If that happens, traders could revive rate hike expectations for the Fed this year and allow the dollar to recover from its previous drop.

On the other hand, a weak reading could spark more dollar losses, as this would suggest that the Fed might stay put for the rest of the year. Fed Chairperson Yellen mentioned that they would consider tightening monetary policy only if they are reasonably confident about hiring improvements and the pickup in inflation.

A downside break below 1.1250-1.1200 area could confirm that further losses are in the cards, possibly until the next area of interest near 1.1000. For now, the short-term moving average is treading above the long-term moving average, indicating that the uptrend is intact. A downward crossover could be an early signal for a reversal.

By Kate Curtis from Trader’s Way

441

AUDUSD has been creating lower highs and making higher lows, forming a symmetrical triangle forex chart pattern on its 1-hour time frame. At the moment, the pair is testing the triangle support near the .7900 major psychological level and may be due for a breakdown.

Stocahstic is moving down, confirming that sellers are stronger than buyers for now. Increased bearish pressure could lead to a downside break of support and possibly 300 pips in losses for the pair, which is roughly the same height as the triangle pattern. On the other hand, a bounce off the triangle support might lead to another test of the resistance around the .7950 minor psychological level.

The path of least resistance is to the downside, as traders are renewing their long dollar biases after the release of the US NFP report last Friday. The actual reading came in line with expectations of a 223K gain while the jobless rate improved from 5.5% to 5.4% - its lowest level since May 2008.

Meanwhile, the Australian economy recently printed a bleak jobs report, showing a surprise 2.9K drop in hiring versus the estimated 4.5K gain. This brought the country’s jobless rate up from 6.1% to 6.2%, reminding traders that the RBA just cut interest rates and might need to do so again.

While the Fed might not be able to hike interest rates next month, they are likely to retain their rate hike bias for this year. Underlying labor indicators such as the participation rate and the underemployment rate have shown sustained improvements, which suggests that the economy is back on track to recovery.

In addition, the recent interest rate cut from China over the weekend confirms that a sharper slowdown is eyed for the world’s second largest economy and Australia’s number one trade partner. This could weigh on risk appetite and drag the higher-yielding commodity currencies lower.

By Kate Curtis from Trader’s Way

442

GBPUSD may be done with its long-term selloff, as the pair formed a reversal pattern on its daily time frame. An inverse head and shoulders can be seen and price is already testing the neckline around the 1.5500 major psychological resistance.

A break above this level could confirm that a reversal is underway, as this would also mark a climb past the longer-term 200 simple moving average on the daily chart. For now though, the short-term 100 SMA is treading below the long-term SMA, indicating that the downtrend is still intact.

Stochastic is pointing up, which means that pound bulls are in control of price action and are willing to push for more gains. If the reversal pattern is confirmed, the pair could be in for roughly 900 pips in gains, as this is the same height as the chart pattern. On the other hand, if the resistance at the neckline holds, GBPUSD could move back to the area of interest at 1.5000 or to the previous lows around 1.4600.

The main event risk for this reversal setup is the BOE Inflation Report tomorrow, during which policymakers could clarify if there are any changes in their economic assessment and outlook. Governor Carney is set to explain why the annual CPI is still below target and how long it might take before inflation regains ground. Optimistic remarks could allow the pound to extend its gains while downbeat comments could spark a selloff.

Also lined up tomorrow is the UK claimant count change, which might show a 20.1K drop in joblessness and an improvement in the unemployment rate from 5.6% to 5.5%. Stronger than expected data could also boost the pound across the charts, as this might indicate that the UK economy is back to its impressive streak of strong hiring gains. On the other hand, bleak jobs data could lead to a pound selloff, as it might undermine any upbeat remarks from the BOE.

By Kate Curtis from Trader’s Way

443

EURUSD could be in for a potential reversal from its recent uptrend, as price is creating a head and shoulders pattern on its 1-hour time frame. The pair is still forming the right shoulder and is still a few pips away from testing the neckline support at the 1.1100 major psychological level.

A break below 1.1100 might confirm the potential downtrend, which might last by around 300 pips or the same height as the chart pattern. This could take the pair down to the 1.0800 mark, which also lines up with an area of interest. Stochastic is still moving up from the oversold area for now though, indicating that buyers are in control of price action.

The moving averages are crossing back and forth, confirming the sideways movement and the hesitation to carry on with the previous uptrend. A downward crossover of the short-term EMA on the long-term EMA might confirm that further losses are in the cards.

Event risks for this trade setup include today’s GDP releases from the euro zone. As ECB Governor Draghi mentioned, a sustained recovery is taking hold in the region but the growth figures might not support this just yet. In addition, the risks facing the Greek debt payments might also weigh on the shared currency.

As for the US dollar, the recent NFP release was enough to restore a bit of confidence in the ongoing economic recovery. The reading came in line with expectations and brought the jobless rate down from 5.5% to 5.4% but the previous reports saw downgrades.

The release of the US retail sales data in the New York trading session could also be a big mover for this pair, as strong data could lead to more gains for the dollar while weak readings could push EURUSD back up. The headline figure is slated to show a 0.3% uptick while the core reading could show a 0.4% gain.

By Kate Curtis from Trader’s Way