Weekly Review and Outlook
Equities Followed Oil Higher but Momentum Doubtful, Dollar Strengthening
Global equities staged a rebound last week as led by rise in oil price. Both DJIA and S&P 500 took out 55 days EMA even though momentum was unconvincing. Meanwhile, WTI crude oil tried to rise through 55 days but failed so far. Receding risk aversion pushed commodity currencies higher, in particular Canadian dollar. Meanwhile, dollar was indeed the second strongest major currency and the development in dollar index suggests more near term strength. Meanwhile, European majors were the weakest major currencies. In particular, Sterling was weighed down heavily by Brexit worries. A number of economic data from US will be watched this week, including NFP and ISMs. But the developments in crude oil and stocks would remain the main driver in the financial markets.
WTI crude oil's rebound took global stocks higher last week but the development doesn't warrant a trend reversal yet. WTI lost some momentum after breaching 55 days EMA briefly. Also, it's held below 38.2% retracement of 50.92 to 26.19 at 35.64. Price actions from 26.19 could eventually turned out to be a sideway consolidation pattern only. We'll stay skeptical on the strength in stocks and commodity currencies as long as WTI stays below 35.64 fibonacci level.
DJIA's break of 16593.51 resistance was taken as a sign of near term reversal. However, momentum was unconvincing so far. In particular, renewed weakness in oil would drag down stocks again. Break of 16165.86 minor support will turn focus back to 15370.33/15450.56 key support zone. Nonetheless, sustained trading above 55 days EMA will bring retest of 18351.36 high instead.
The strong break of 55 days EMA in dollar index argues that the corrective pattern from 100.51 has completed with three waves down to 95.23. Further rise is mildly in favor back to 100.51/99.82 high. And near term outlook will stay cautiously bullish as long as 97.09 minor support holds.
In the currency markets, there are a few technical developments to note. Firstly, EUR/USD's break of 1.1059 support indicates near term reversal and we'd likely see deeper fall to 1.0809 support and likely further to 1.0461/0517 support zone. GBP/USD is still in progress for 2007 low of 1.3503. These two development affirmed strength in dollar index.
Secondly, developments in commodity currencies are mixed. The rebound from 0.6826 in AUD/USD looks corrective and is held well below 0.7384 resistance and thus, maintain the bearish outlook. However, 1.3456 key support in USD/CAD looks vulnerable and break would indicates medium term reversal. And considering the above mentioned outlook in oil and stocks, we'll keep a wait-and-see before deciding the outlook on commodity currencies in general.
Yen crosses recovered following stocks last week. But outlook in yen crosses stay bearish for the momentum as near term resistance levels holds. Those level include 115.96 in USD/JPY, 126.16 in EUR/JPY and 163.96 in GBP/JPY. So, further strength in yen is still in favor.
Regarding trading strategy, we sold GBP/JPY on break of 159.79 support last week. The cross reached as low as 154.70 but recovered. At this point, we're still bearish in Sterling due to Brexit worries. But the due to uncertain outlook in stock markets, we'll exist the short trade with a small profit first. On the other hand, we'll try to sell AUD/USD On break of 0.7068 minor support in case risk aversion returns.
AUD/USD Weekly Outlook
AUD/USD's choppy rise from 0.6826 extended higher last week but outlook is unchanged. Such rebound is still viewed as a corrective move. In case of further rally, we'd stay cautious on strong resistance below 0.7384 to limit upside to complete the rebound. On the downside, below 0.7068 minor support will turn bias back to the downside for retesting 0.6826 low.
In the bigger picture, the down trend from 1.1079, 2011 high, is still in progress. Further fall would be seen towards 0.6008 key support level. At this point, we'd stay cautious on strong support above 0.6008 to bring medium term bottoming. However, downside acceleration could raise the chance of break of 0.6008. We'll pay attention to the development closely. In any case, break of 0.7384 resistance is need to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish.
In the longer term picture, at this point, we're not anticipating a break of 0.6008, 2008 low. AUD/USD is oversold in monthly chart and a medium term rebound is due. Strong support is expected above 0.6008 to bring medium term bottoming.
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