Daily Technical Analysis by Kate Curtis from Trader's Way

Commercial Content Analysts
746

Cable made a strong rally in yesterday’s London session, creating a retracement opportunity from its recent slide. Applying the Fib tool on the latest swing high and low shows that the 38.2% to 50% levels span an area of interest from 1.3050 to 1.3100, which previously held as support.

In addition, the 50% Fibonacci retracement level coincides with the moving averages, which could add to its strength as resistance. The 100 SMA is below the 200 SMA, confirming that the path of least resistance is still to the downside.*

Stochastic is already in the overbought area, hinting that buyers may be getting exhausted, but the oscillator hasn’t turned down from this area to indicate a return in selling pressure just yet. Also, the gap between the moving averages is narrowing so an upward crossover and longer-term rally may be possible.

UK CPI came in much better than expected, with the headline reading up from 0.5% to 0.6% instead of holding steady and the core CPI at 1.3% as expected. Underlying inflation data such as producer input prices, RPI and HPI all beat expectations, suggesting stronger price pressures in the coming months.

Meanwhile, talk of Fed rate hikes from a couple of US central bank officials boosted the dollar across the board during the US session but failed to stop Cable’s rally. According to Dudley and Lockhart, the US economy is on track towards reaching 2% inflation and that at least one rate hike might be possible before the end of the year.

Event risks for today include the UK jobs release and FOMC minutes. The July claimant count could show an increase of 5.2K in joblessness while the unemployment rate could stay unchanged at 4.9%. The average earnings index is slated to improve from 2.3% to 2.5%. As for the FOMC minutes, any talk of possible tightening from other committee members could still yield gains for the dollar.

By Kate Curtis from Trader’s Way

747

GBPAUD has been trending lower on its 4-hour chart, moving below a descending trend line connecting the latest highs of price action. Price is starting to pull up from its recent dive and applying the Fib tool on the swing high and low reveals that the 61.8% retracement level coincides with the trend line.

The moving averages are also close to this falling resistance level, adding to its strength when it comes to keeping gains in check. The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside.

Also, stochastic is starting to head south from the overbought area to indicate that selling pressure is building up. A bit of bearish divergence can be seen since stochastic made higher highs while price made lower highs. Sellers could take GBPAUD back to the swing lows around 1.6750.

Jobs data from the UK came in mixed, as the number of claimants fell by 8.6K instead of rising by 5.2K while the average earnings index fell short of the estimated rise to 2.5% and landed at 2.4% only. Prior to this, the CPI readings were mostly stronger than expected, with the headline figure up from 0.5% to 0.6%.

UK retail sales is still up for release today and strong consumer spending data could be reported since hiring was upbeat. Analysts are expecting to see a 0.1% rebound in retail sales after sliding by 0.9% in the previous month.

Before that, Australia is still set to print its employment change report and might show a 10.2K gain in hiring, stronger than the earlier 7.9K rise and enough to keep the jobless rate steady at 5.8%. Weaker than expected data could bring GBPAUD to the trend line while upbeat results could allow the 38.2% Fib to hold as resistance already.

By Kate Curtis from Trader’s Way

748

EURAUD has been declining on its 4-hour chart but a reversal pattern has formed, signaling a potential uptrend. Price has failed in its last two attempts to break below the 1.4500 major psychological support, creating a double bottom formation with the neckline around 1.4900.

The pair is on its way to test this resistance area and a break higher could confirm the longer-term uptrend, which might last by 400 pips or the same height as the chart formation. If this neckline keeps gains in check, though, EURAUD could head back to support at the 1.4500 mark.

The 100 SMA is still 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 in the cards. Stochastic is in the overbought zone but has yet to turn lower to indicate a return in selling pressure.

Economic data from Australia has been stronger than expected, as the July jobs report showed a 26.2K gain in hiring versus the projected 10.2K increase. Aside from that, the previous reading was upgraded from 7.9K to 10.8K while the jobless rate fell from 5.8% to 5.7%.

Euro zone data has been mixed, with the final CPI readings in line with expectations and ZEW economic sentiment indicators showing improvements. There are no major reports from both the euro zone and Australia today, which suggests that market sentiment could play a huge factor in price action.

By Kate Curtis from Trader’s Way

749

EURUSD is on an uptrend on its 4-hour time frame, moving above an ascending trend line and getting ready to test support. The Fib tool applied on the latest swing high and low shows that the 61.8% retracement level lines up with the trend line and an area of interest at 1.1200.

The 100 SMA is above the 200 SMA so the path of least resistance could be to the upside. Also, this short-term SMA is near the rising trend line, adding to its strength as potential support.

However, stochastic is still on the move down, which suggests that sellers might still be in control of price action. Once the oscillator reaches the oversold region, buyers could reestablish their long positions.

Event risks for this week include the euro zone flash PMI releases from the region’s top economies tomorrow. Improvements could reassure traders that the region isn’t so worse off following the Brexit vote, reviving confidence that the ECB might be able to refrain from doling out additional stimulus.

As for the US dollar, durable goods orders data are due midweek ahead of the Jackson Hole Symposium. Expectations for Fed head Yellen’s speech could drive price action of dollar pairs, including EURUSD.

Last week, the FOMC minutes revealed that policymakers still generally preferred to be prudent in waiting for more data before adjusting policy. However, a number of Fed officials expressed their hawkish sentiments, keeping expectations live for a September or December hike.

By Kate Curtis from Trader’s Way

750

USDCAD was previously trading inside an ascending channel pattern before breaking lower to signal a reversal. Price hit a low of 1.2762 before pulling up and indicating that a retracement to the broken support area could be in order.

Applying the Fib tool on the latest swing high and low shows that the 61.8% level is closest to the broken channel support around the 1.3000-1.3050 area. This is also close to the moving averages, which have just shown a downward crossover to show that selling pressure is strengthening.*

Stochastic is already indicating overbought conditions and is starting to turn lower, which also confirms that sellers are taking control of price action. If any of the Fib levels keep gains in check, price could head back to the previous lows near 1.2750 or much lower as the downtrend resumes.

Crude oil prices have been weaker on Monday as traders probably booked profits off last week’s rallies. In addition, the September futures contracts are expiring and are set to be replaced by the October contracts which have opened lower.

Data from Canada was better than expected as it showed a 0.7% gain in wholesale sales versus the estimated 0.5% uptick. However, this was much weaker than the previous 1.9% gain. Also, traders were already able to see the retail sales figures for the same month and the results were much weaker than expected.

Only medium-tier reports are due from the US today as traders are paying more attention to Fed rhetoric ahead of the Jackson Hole Symposium. So far signals have been mixed since the FOMC minutes seemed cautious while a few speeches from Fed officials recently showed hawkishness. The US dollar could find direction once Fed Chairperson Yellen gives her speech.

US crude oil inventories are up for release on Wednesday and another draw in stockpiles could revive crude oil gains. Durable goods orders data are lined up for Thursday and the US preliminary GDP reading is due on Friday.

By Kate Curtis from Trader’s Way

751

EURGBP has been moving in an ascending channel visible on its longer-term time frames and is just testing the resistance. Price seems to be making a correction from the uptrend at this point and applying the Fib tool on the latest swing high and low shows that the 61.8% Fib lines up with the channel support at the .8500 major psychological level.

Price is also drawing support from the 100 SMA dynamic inflection point for now. This short-term moving average is above the longer-term 200 SMA so the path of least resistance is to the upside and the rally could resume later on. Also, the gap between the moving averages is widening, which means bullish momentum is strengthening.

Stochastic is already indicating oversold conditions, which means that sellers might need to take a break and let buyers take over. More buying pressure could be seen once this oscillator climbs back above the oversold area. In that case, EURGBP could climb back up to the previous highs around .8725.

Economic data from the euro zone was mostly weaker than expected yesterday. French flash manufacturing PMI fell from 48.6 to 48.5 but services PMI was up from 50.5 to 52.0. German flash manufacturing PMI fell from 53.8 to 53.6 while services PMI dropped from 54.4 to 53.3.*

As for the UK, the CBI industrial order expectations index dipped from -4 to -5, better than the projected fall to -9 but still indicative of a faster pace of contraction. BBA mortgage approvals data is due today and a decline from 40.1K to 38.5 is eyed.

German final GDP is due today and a small downgrade from 0.4% to 0.3% is expected. Later on in the week, the UK will also released a revised version of its Q2 GDP, although no changes from the initially reported 0.6% growth figure is expected.*

By Kate Curtis from Trader’s Way

752

AUDUSD has been trending lower on its 1-hour time frame, moving inside a descending channel formation. Price is trading around the middle, though, still deciding whether to test the resistance at .7625 or support at .7550.

The 100 SMA is below the 200 SMA so the path of least resistance is to the downside and the selloff is likely to carry on. In addition, the 200 SMA lines up with the top of the channel, adding to its strength as resistance. The gap between the moving averages seems to be widening as well so bearish pressure is strengthening.

Stochastic is heading south so AUDUSD could follow suit. However, once the oscillator reaches the oversold area and turns higher, buyers could try to prop the pair back up.

Economic data from Australia came in weaker than expected yesterday, as construction work done sank 3.7% in the second quarter of the year versus the estimated 1.9% slide. On top of that, gold prices have been weaker, weighing on the correlated Aussie as well.

As for the US dollar, data from the US economy has also been weaker than expected but this seems to be supporting the safe-haven currency. Apart from that, expectations of hawkish remarks from Fed head Yellen in her Jackson Hole testimony are also allowing the dollar to stay afloat.

In terms of economic data, the US preliminary GDP reading is up for release on Friday and a small downgrade from 1.2% to 1.1% is eyed. Also due then is the revised UoM consumer sentiment index, which could be upgraded from 90.4 to 90.6. US durable goods orders, flash services PMI, and initial jobless claims are lined up today.

By Kate Curtis from Trader’s Way

753

EURUSD has been trending higher on its 4-hour chart, moving inside an ascending channel pattern and currently testing resistance. If the ceiling holds, EURUSD could pull back to the channel support at the 1.1150 minor psychological level.

Applying the Fib tool on the latest swing high and low shows that the 61.8% retracement level lines up with the support and 200 SMA dynamic inflection point. The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside and the rally could continue.

The pair could also draw support from the 50% Fibonacci retracement level since this lines up with a broken resistance level. Also it is around the 100 SMA dynamic inflection point. Stochastic is already making its way up, which suggests that buyers are starting to regain control of price action.

The main event risk for this setup is Fed Chairperson Yellen’s testimony in the Jackson Hole Symposium later today. An upbeat assessment of the US economy and hawkish remarks could keep Fed rate hike expectations in play for September and December, allowing the US dollar to post strong gains.

On the other hand, a cautious outlook could force the dollar to retreat on lower rate hike odds. Many are expecting Yellen to keep things balanced and refrain from stoking additional volatility in the financial markets.

In terms of data, medium-tier US reports such as the durable goods orders and initial jobless claims came in better than expected yesterday. Germany’s Ifo business climate was weaker than expected at 106.2, down from the earlier 108.3 figure and worse than the estimated 108.5 reading. Germany’s GfK consumer climate index is due today.

By Kate Curtis from Trader’s Way

754

AUDUSD was moving inside an ascending channel on its 4-hour time frame before price made a break below support to indicate that the uptrend is over. A long red candle closed below the .7600 major psychological support, possibly putting price on track towards the next floor at .7500 then .7400.

The 100 SMA is still above the 200 SMA, though, so the path of least resistance is to the upside. However, AUDUSD already closed below the 200 SMA so a downward crossover may be seen soon, indicating that sellers are taking control of price action.

Stochastic is pointing down, also showing that bearish pressure is in play. This indicator is already nearing the oversold zone so a bit of profit-taking might happen, likely causing a pullback to the broken channel support at .7600 before resuming its slide.

Fed Chairperson Yellen’s testimony during the Jackson Hole Symposium was the main catalyst for the dollar rally, as she gave hawkish remarks and confirmed that a rate hike might still be in play before the end of this year. These upbeat remarks were echoed by Fed official Fischer, leading market watchers to price in a possible hike by December this year.

Event risks for this trade this week include the NFP report, as stronger than expected jobs figures could underscore the stronger chances of a Fed rate hike soon. On the other hand, weaker than expected results could bring doubts about tightening once more, forcing the dollar to return its recent gains. With that, the leading jobs indicators such as the ADP report and the ISM PMI readings could also spur strong moves for the dollar.

As for the Aussie, the retail sales report is due this week, along with PMI readings from China. Indications of a slowdown could put more weight on the Aussie, especially since traders are already turning their attention to weaker property figures from China.

By Kate Curtis from Trader’s Way

755

AUDUSD recently broke below the bottom of a longer-term ascending channel visible on its daily and 4-hour chart. On the shorter-term time frames, it can be seen that the pair is moving inside a descending channel formation and is bouncing off support.

The pair could be ready to test the channel resistance around the .7600 to .7650 area, which lines up with the Fib levels. Also, the 100 SMA lines up with the 50% Fib while the 200 SMA lines up with the 61.8% Fib, which is closer to the channel resistance.*

The shorter-term MA is below the longer-term MA so the path of least resistance is to the downside and the selloff could resume at some point. Stochastic is already moving south so price could follow suit as sellers stay on top of price action. If any of the Fibs hold as resistance, AUDUSD could resume its drop to the previous lows at .7522 or lower.

In her Jackson Hole Symposium testimony, Fed Chairperson Yellen confirmed that the case for another rate hike has been stronger in the recent months. This has led to a strong dollar rally last week before profit-taking spurred a bounce earlier this week.

For now, traders are looking for more fundamental confirmation and the recent batch of core PCE price index, and personal spending and income data have merely met expectations. Dollar bulls will be watching the leading jobs indicators due this week to have more clues on how the top-tier US NFP report for release on Friday might turn out.*

As for Australia, building permits data came in stronger than expected earlier today but the bigger movers could be the Australian retail sales and Chinese PMI readings due on Thursday. Signs of a property slowdown in China could weigh on trade activity and iron ore prices, which are correlated to the Aussie.

[I]By Kate Curtis from Trader’s Way[/I]

756

USDCAD is still moving inside an ascending channel on its daily and 4-hour time frame, but price is nearing the top of the formation so a selloff might be due. This resistance is located around the 1.3250 to 1.3300 psychological levels, which might keep gains in check.

The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside. However, price has already broken above the 200 SMA, signaling a surge in upside momentum and a potential upward crossover for the moving averages.

Stochastic is already indicating overbought conditions, which means that buyers are exhausted and might let sellers take over soon. In that case, USDCAD could head back to the channel support at the 1.2850 to 1.2900 psychological support levels.

Economic data from Canada came in mixed, as the current account deficit widened on weaker export activity. This led market watchers to price in weaker GDP data for today. A monthly growth figure of 0.4% is eyed. Meanwhile, leading inflation indicators came in mixed, with the RMPI posting a sharper than expected decline and the IPPI showing a small uptick.

As for the US, the CB consumer confidence index beat expectations with a rise from 96.7 to 101.1 in August, hinting at stronger consumer spending down the line. The ADP non-farm employment change, Chicago PMI, and pending home sales are lined up for today.

The ADP report could show a 174K increase in hiring for August, slower than the earlier 179K gain, but a higher than expected read could mean an upside NFP surprise and stronger dollar gains. The Chicago PMI is expected to dip from 55.8 to 54.1 while pending home sales could show a 0.7% gain.

By Kate Curtis from Trader’s Way

757

GBPUSD might be tired from its climb as price seems to be forming a head and shoulders pattern on its 1-hour time frame. The pair has yet to complete the right shoulder if the short-term Fib levels keep gains in check.

In particular, price could find resistance at the 1.3200 major psychological level, which has served as an area of interest in the past. For now, price is already hitting resistance around the 38.2% Fibonacci retracement level that lines up with the 200 SMA dynamic inflection point.

The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside. Also, stochastic is nearing the overbought zone, which means that sellers could take control of price action soon. If so, GBPUSD could head back to the lows at 1.3050, which is the neckline of the head and shoulders pattern.

Data from the US came in mixed yesterday but traders still seem hopeful that Fed rate hike expectations could stay in play. The ADP report printed a 177K increase in hiring for August, higher than the projected 174K figure. The July figure was upgraded to show a 194K increase from the initially reported 179K gain. Meanwhile, the Chicago PMI showed a sharper than expected drop to 51.5 to show a slowdown in industry growth.

Event risks for today include the UK manufacturing PMI release. Analysts are expecting to see a rise from 48.2 to 49.1 to indicate a slower pace of industry contraction. Stronger than expected data could assure traders that the UK economy is able to stay afloat even after the Brexit vote.

As for the US, initial jobless claims and the ISM manufacturing PMI are up for release. A drop from 52.6 to 52.0 is expected for the PMI but traders are likely to pay closer attention to the jobs component to see if it would hint at a stronger NFP reading or not. Analysts are expecting to see a 186K increase in the NFP report for August, lower than the earlier 255K gain.

By Kate Curtis from Trader’s Way

758

USDCAD has been on a strong rally but seems to be encountering resistance near the 1.3150 minor psychological level, opening the opportunity for a pullback. Applying the Fib tool on the latest swing low and high on the 1-hour time frame shows that the 61.8% Fib lines up with a former resistance level ner the 1.2950 minor psychological level.

Meanwhile, the 50% Fib coincides with the 200 SMA dynamic support and the 23.6% Fib lines up with the 100 SMA, all serving as potential correction levels. The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside. If any of the Fib levels keep losses in check, USDCAD could resume its climb to the previous highs or beyond.

Stochastic still seems to be heading lower but is already near the oversold region, which suggests that selling pressure could fade soon and allow buyers to take over. However, if sellers keep pushing price lower, USDCAD could make its way to the next support around 1.2800.

Economic data from the US came in weaker than expected yesterday, as the ISM manufacturing PMI tumbled from 52.6 to 49.4, reflecting industry contraction. Analysts had been expecting to see a drop to 52.0. The employment component featured a sharper contraction, leading some to predict that the NFP figure will miss expectations.

An increase of 180K in hiring is expected for August, lower than the earlier 255K gain, although revisions to previous data can still be made. Keep in mind that the ADP report printed a stronger than expected 177K gain for the same month while the previous reading was upgraded to 194K.

As for Canada, its current account balance turned out much weaker than expected due to slower export activity. The trade balance is due today and a deficit of 3.2 billion CAD is eyed, smaller than the earlier 3.6 billion CAD deficit. Quarterly labor productivity data is also due from Canada and a 0.2% uptick is eyed.

By Kate Curtis from Trader’s Way

759

GBPJPY could be due for a long-term reversal, as price formed a double bottom pattern on its 4-hour chart. The pair failed in its last two attempts to break below the 129.00 area and is on its way to test the neckline at the 141.00 mark. A break above this neckline could confirm the potential reversal and take price up by 1200 pips or the same height as the chart formation.

The 100 SMA is below the 200 SMA on this time frame for now, which suggests that the path of least resistance is still to the downside. However, the gap between the moving averages is narrowing so an upward crossover might take place and confirm that bullish pressure might be seen.

Stochastic is indicating overbought conditions and is turning lower, also suggesting that sellers are in control of price action for now. A quick pullback from the recent climb could still be seen before buying momentum strengthens.

The event risks lined up for this week could determine whether GBPJPY can break past the neckline resistance and carry on with its climb. The BOE Inflation Report hearings are scheduled midweek, possibly setting the tone for the UK central bank’s next monetary policy steps.

For today, the UK services PMI is up for release and a strong read could continue to reassure traders that the UK economy has stayed afloat even after the Brexit vote. Prime Minister Theresa May has reiterated that the Brexit could pose huge risks but so far it seems that the economy is holding up well. Analysts are expecting to see a rise from 47.4 to 49.1 for the services PMI, and it’s worth noting that the manufacturing and construction industry reports released last week turned out better than expected.

As for Japan, the dovish policy bias of BOJ Governor Kuroda in his Jackson Hole testimony the other week still keeps weighing on the yen. Data has been mostly weaker than expected also, confirming that the BOJ might pursue more aggressive stimulus efforts.

By Kate Curtis from Trader’s Way

760

EURAUD seems to be trading inside a range these days, finding support at the 1.4500 major psychological mark and resistance at 1.4850. Price bounced off the top of the range and seems to have its sights set on the bottom once more.*

The 100 SMA is above the 200 SMA on the 4-hour time frame, indicating that the path of least resistance is to the upside. Also, the gap between the moving averages is widening so bullish pressure could build up.*

Meanwhile, stochastic is already indicating oversold conditions, which suggests that sellers are already exhausted. Once the oscillator moves out of the oversold region, buyers could regain control of price action, but the pair might have to test the range support first.

There are plenty of event risks for the Australian dollar this week, among which is the RBA interest rate statement. No actual policy changes are expected as the central bank might keep rates unchanged at 1.50% but traders are likely to pay close attention to the tone of the statement.

Data from Australia has been mostly weaker than expected, particularly on the business and consumer spending fronts. However, the RBA has been less inclined to cut interest rates since they already did so back in August and are wary of possible repercussions on the housing market.

Later on in the week, Australia will release its quarterly GDP and trade balance. A weaker growth figure of 0.4% is eyed, compared to the earlier quarter’s 1.1% expansion. Meanwhile, the trade deficit is expected to narrow to 2.65 billion AUD probably on stronger export activity. China’s trade balance is also up for release.

As for the euro, the ECB statement is lined up for Thursday but no actual policy changes are expected. Still, any dovish remarks could keep the door open for additional stimulus, especially if Draghi highlights the downbeat flash CPI figures.

By Kate Curtis from Trader’s Way

761

GBPUSD has been trending higher on its 1-hour chart, moving inside an ascending channel and testing the resistance. If the ceiling holds for now, price could pull back to the channel support before resuming its climb.

Applying the Fib tool on the latest swing low and high shows that the 50% to 61.8% levels are in line with the channel support around 1.3200-1.3250. The 100 SMA just crossed above the 200 SMA to confirm that the uptrend is likely to carry on. Also, these moving averages are edging close to the channel support, possibly adding to its strength as a floor later on.

Stochastic is indicating overbought conditions for now, which suggests that buyers are exhausted from the climb. This could allow profit-taking to happen and a quick correction to take place. However, a break below the channel support could be a signal that the uptrend is over.

Earlier this week, the UK printed a stronger than expected services PMI, rounding up the upbeat industry PMIs from the previous week. These confirm that the UK economy is holding up well even with looming uncertainties from the Brexit.*

On the other hand, data from the US economy has been far from impressive, as the ISM non-manufacturing PMI saw a sharper than expected drop from 55.5 to 51.4 versus the estimated dip to 55.4. Apart from that, the Fed’s labor market conditions index saw a -0.7 reading compared to the earlier 1.3 figure.*

UK manufacturing production numbers are lined up for today and another batch of upbeat results could keep the pound afloat. Also lined up today is the BOE Inflation Report hearings, which might contain some reassuring remarks from policymakers. As for the US, FOMC member George is set to give a testimony and the JOLTS job openings report is up for release.

By Kate Curtis from Trader’s Way

762

EURAUD failed to break past its double bottom neckline the other week but it still seems to be forming another reversal pattern on the 4-hour time frame. Price is still in the middle of completing its right shoulder on the inverse head and shoulders pattern, as a bounce off this 1.4650 minor psychological support could send the pair back up to the neckline around 1.4900.

A break past the neckline resistance could take EURAUD up by around 500 pips, which is roughly the same size as the chart formation. However, a break below the 1.4600 mark could send the pair to the bottom of the range around the 1.4400 major psychological level.

The 100 SMA is above the longer-term 200 SMA on this time frame so the path of least resistance is to the upside. The gap between the moving averages is widening, reflecting strengthening bullish pressure. Also, stochastic is on the move up to confirm that buyers are in control of price action.

The main event risk for today is the ECB interest rate decision, as aggressive easing measures could send the euro lower across the board. Traders are expecting anything from changing the QE parameters to additional asset purchases or lower deposit rates. However, less dovish moves could prove to be a disappointment and allow a strong bounce for the shared currency.

Earlier today, Australia reported a smaller than expected trade deficit for July but the Aussie was barely able to benefit since China’s trade balance for August printed weaker than expected results. Still, the Aussie could stay afloat since the RBA refrained from cutting interest rates in their policy statement this month.

Medium-tier reports are lined up from the euro zone for Friday while the rest of the top-tier releases from Australia are due next week. China also has its industrial production and retail sales figures lined up in the coming week.

By Kate Curtis from Trader’s Way

763

GBPAUD recently broke above a descending trend line on its 4-hour time frame, indicating that price was in for a reversal from the downtrend. However, the pair found resistance at the 1.7700 major psychological mark and has started to make a pullback.

Applying the Fib tool on the latest swing low and high shows that the 61.8% level lines up with the broken trend line resistance, which might now hold as support. Price is already bouncing off the 38.2% Fib, though, as this area coincides with the moving averages.*

The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside, likely taking GBPAUD back up to the swing high at 1.7700 or beyond. If so, price could complete an inverse head and shoulders pattern, adding confirmation that an uptrend is in order. Stochastic is on the move up after forming a bit of bullish divergence, also suggesting that buyers are taking control.

The RBA refrained from cutting interest rates in their policy statement earlier this week while BOE Governor Carney shared a somewhat dovish view during the Inflation Report hearings. Still, data from both Australia and the UK have printed stronger than expected results so far.

Australia reported a smaller than expected trade deficit for July, followed by strong import and export components in China’s August trade figures. This suggests that appetite for Australia’s raw material commodity products could stay afloat in the coming months, lessening the need for the RBA to cut rates.

In the UK, the PMI readings have all beat expectations, reflecting strong business performance even with the Brexit. Still, the UK has a bit more uncertainty in play compared to Australia so fundamentals might favor further GBPAUD weakness.

By Kate Curtis from Trader’s Way

764

EURGBP recently broke below its ascending channel support visible on the 4-hour time frame then dipped to a low of .8335. From there, price showed signs of a pullback and applying the Fib tool on the latest swing high and low shows that the 38.2% retracement level lines up with the broken channel support.

A higher pullback could last until the 50% Fib area, which is close to the dynamic inflection points at the moving averages. The 100 SMA is just crossing below the longer-term 200 SMA so the path of least resistance is to the downside and the selloff could resume sooner or later.

Stochastic is also on the move down, which confirms that bearish pressure is getting stronger. This could take EURGBP back down to the previous lows or much lower to the .8300 major psychological level.

There are plenty of top-tier U.K. reports lined up for this week which could bring a lot of volatility for this pair. UK CPI readings are due Tuesday while jobs figures are lined up for Wednesday. On Thursday, the UK retail sales report is due ahead of the BOE monetary policy statement.

Dovish remarks are expected from other BOE policymakers especially since Governor Carney sounded less upbeat than usual in his Inflation Report hearings last week. The UK central bank head highlighted the potential risks from the Brexit and added that he would welcome additional stimulus if necessary.

There are no major reports due from the euro zone, although the shared currency could continue to enjoy its relief rally after the ECB refrained from adding stimulus in last week’s policy decision. The central bank also upgraded its growth forecast for the year while keeping its inflation estimate unchanged.

UK CPI readings are expected to show more gains while the jobs report could show a slight increase in claimants. UK retail sales are expected to fall by 0.4% after rising by 1.4% in the previous month. ECB head Draghi has a speech scheduled tomorrow ahead of the release of the ZEW economic sentiment figures from Germany and the region.

By Kate Curtis from Trader’s Way

765

GBPJPY has formed higher lows and lower highs on its 4-hour chart, creating a symmetrical triangle pattern. The pair is just coming off a test of the resistance and might be aiming for the bottom of the triangle around 132.50.

However, the 100 SMA just crossed above the longer-term 200 SMA to signal that the path of least resistance is to the upside. In that case, an upside break of the triangle resistance at the 137.50-138.00 levels could be possible, likely taking GBPJPY up by 1500 pips or the same height as the chart formation.

Stochastic is on the move down, though, so sellers could still have some momentum left to trigger a test of the triangle support. Still, the moving averages around the middle of the triangle at 134.00 could hold as dynamic inflection points.

There are plenty of event risks from the UK economy this week, including the CPI numbers due today. Another uptick in price levels is eyed, with the headline figure slated to rise from 0.6% to 0.7% and the core reading expected to climb from 1.3% to 1.4%.

Tomorrow has the jobs data lined up but a pickup in joblessness is eyed, along with a drop in the average earnings index from 2.4% to 2.1% to show lower wages and downside inflation pressures. Thursday has the UK retail sales report due but the main mover could be the BOE decision.

No actual policy changes are expected for now since the UK central bank just eased last month. However, some policymakers might still vote for additional stimulus, depending on how this week’s set of data turns out. Dovish remarks or a split in the MPC bias could mean pound weakness. As for the yen, the BOJ decision is set to take place on September 20 and easing expectations could also keep a lid on the currency’s gains.

By Kate Curtis from Trader’s Way