4th of July
Today’s trading day will be a quiet due to the US markets being closed. On days like this the reduced liquidity and lack of traders willing participate translates to low market volatility. Europe has taken today as an opportunity to strengthen its diplomatic relations through upcoming key meetings with China and Iran. Iranian President Hassan Rouhani will attend a summit in Switzerland later today concerning a new nuclear deal. France and Germany have already expressed their willingness to cooperate, despite warnings from the United States. The European Union could be hit by secondary US sanctions if they continue their trade relations with Iran. China also sent high-ranking officials to Berlin and Brussels to discuss common measures that could be taken against aggressive US trade policy. In return for their cooperation, China could stand to gain entire sectors devoted to doing business with European companies. The scenario of China and the EU having a joint platform (even if only on a few issues) could spell bad news for the United States.
Trouble in the East
Asian markets seem nervous in the wake of yesterday’s sudden and unexpected price turn. Today’s Chinese trading session started off with a cautious sideways movement before taking a plunge. Both the Shanghai Composite and the Hong Kong index fell by over 1%. Australia and Japan were also hit to a lesser extent by a 0.3-0.4% loss. In their case the main cause for concern is not the size of the decline itself, but rather the potential downwards trend it could indicate.
GBPUSD
The 1 hour candlestick chart for the cable shows a cup and handle pattern. In technical terms this pattern typically indicates an upcoming breakout. In most cases it’s caused by a powerful resistance line forcing a price correction without the necessary momentum to retrace the previous low. The result is price turning around and making another attempt at the resistance line. The resistance line in question is 1.3210, found at the upper edges of the cup. Meanwhile connecting the lower low and the higher low allows us to draw a trendline for future reference.
If this is indeed a cup and handle pattern, then logic dictates the pound will start to strengthen against the dollar in the near future. Price has already made an attempt to break the 1.3210 line earlier today, however, it did not have sufficient momentum to follow through and quickly moved back below it. This phenomenon could also mean the pattern’s expected breakout could be delayed and price may target the green trendline instead. For now, as long as GBPUSD stays above the green line, buy positions seem to hold more promise. Should price break the aforementioned resistance line, then subsequent resistances can be found at 1.3228 and every 30 pips thereafter.
EURJPY
The continual strengthening of the Japanese yen and US dollar have been the two defining currency trends of the past few months. The yen has been gaining in value against the euro in the form of repeated price spikes since February, peaking at 124.66. The distance between this year’s lowest and highest points is 10%, which is considered significant in the currency market.
The purple trendline indicating the general direction of the market shows a distinct downwards trend. Price has hit the line a total of four times confirming its persistence. Price is currently hovering around the 38.2% Fibonacci retracement level at 128.70. In the past this price level served as a powerful line of both support and resistance. The trendline in conjunction with the retracement level narrows down the potential range of movement for price, signaling the possibility of a major breakout. The trendlines strength makes a downwards movement to the 50% retracement level perhaps the more likely option. This level is located at 126.14, which could mean a movement of up to 200 pips.
Sincerely,
Laszlo | Market Analyst
Disclaimer:
Leveraged trading is high risk and may not be suitable for everyone as your losses may exceed your investment. We advise you to consider whether trading is appropriate for you in light of your experience, objectives, financial resources, risk tolerance and other relevant circumstances. Ensure you fully understand all of the risks involved and seek independent advice if necessary. Please refer to our more detailed risk warning here. We recommend that you seek independent financial advice and ensure you fully understand the risks involved before trading. Trading through an online platform carries additional risks.