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Daily Pivots: (S1) 1.2721; (P) 1.2755; (R1) 1.2797; More....

Intraday bias in USD/CAD remains neutral and near term outlook stays bullish as long as 1.2598 resistance turned support holds. On the upside, above 1.2819 minor resistance will turn bias back to the upside for 1.2916 high first. Break there will extend the rise from 1.2061 to 38.2% retracement of 1.4689 to 1.2061 at 1.3065. However, sustained break of 1.2598 will argue that rebound from 1.2061 has completed after hitting 55 week EMA (now at 1.2916). Near term outlook will be turned bearish in this case.

In the bigger picture, USD/CAD should have defended 50% retracement of 0.9406 (2011 low) to 1.4689 (2016 high) at 1.2048. And with 1.2048 intact, we'd favor the case that fall from 1.4689 is a correction. Rise from 1.2061 medium term bottom should now target 38.2% retracement of 1.4689 to 1.2061 at 1.3065. Firm break there will target 1.3793 key resistance next (61.8% retracement at 1.3685). We'll now hold on to this bullish view as long as 1.2450 support holds.

U.S. stocks logged their fourth drop in the past five trading days, falling to a three-week low with the S&P 500 closing 1.25% below its record high on Nov 7. The sell-off yesterday was driven by the energy and consumer non-cyclical sector which fell 1.1% and 1% respectively, while Telecoms and financials managed to end in green. Even steeper selloffs were experienced in 2017, when the S&P 500 marched towards a new high In March, June, and August. The index fell 3.3%, 1.9%, and 2.8% respectively and every selloff was seen as an opportunity to buy the dips. Does this one look similar?

Price action and volatility does not reflect a serious threat yet. Despite the 50% surge in CBOE’s volatility index (VIX,) it is still trading well below August and April highs. The last time stocks fell by more than 10% back in January 2016 the VIX traded above 30. Today we are still below 15. Implied volatility in currency markets is also low, despite the recent selloff in the US dollar, and when looking at economic data, there doesn’t seem to be any serious threat to global growth, yet, investors should be cautious.

Spreads between U.S. 10-year note yields and 2-year notes declined to a new decade low of 63 basis points yesterday. Similarly, the spread between U.S. 10-year and 5-year notes fell below 30 basis points for the first time since 2007. While part of the flattening yield curve may be explained by tighter monetary policy expectations, which are pushing the front end of the curve higher, it still doesn’t provide clarification as to why the back end is falling. The bond market has been providing different signals to equities for a couple of months now. High-yield bonds have fallen more than 1% so far in November, and they are on track pace for the worst performance since early 2016. If investors were not worried, they wouldn’t be demanding greater compensation to own junk debt.

Given that the selling pressure on junk bonds sent yields to an attractive level of nearly 6%, it remains to be seen whether investors are willing to jump in. If the selloff resumes for the next couple of days, it will provide a signal that the correction in equity markets will be steeper. So, whether to buy the dips or continue selling the rally, will likely depend on how treasuries and junk bonds perform in the short run.

Weekly

    •    Last Candlesticks pattern: Shooting star
    •    Time of formation: 31 Jul 2017
    •    Trend bias: Down

Daily

    •    Last Candlesticks pattern: Morning star
    •    Time of formation: 25 Aug 2017
    •    Trend bias: Near term up

GBP/USD – 1.3144

The British pound has remained confined within recent established range and further choppy trading is in store, although another corrective bounce to 1.3220-30 cannot be ruled out, outlook remains consolidative, reckon upside would be limited to 1.3285-90 and previous resistance at 1.3338 should hold from here, bring retreat later. Only a break of indicated previous resistance at 1.3338 would shift risk to the upside and signal another leg of rebound from 1.3027 is underway for gain to 1.3400, then test of previous resistance at 1.3455 which is likely to hold on first testing.

On the downside, whilst pullback to 1.3085-90 cannot be ruled out, reckon support at 1.3062 (this week’s low) would limit downside and indicated strong support area at 1.3027-39 should remain intact. In the event sterling is able to penetrate 1.3027-39 support area, this would shift risk back to downside and confirm the fall from 1.3658 top has resumed for further weakness to 1.3000, then towards 1.2940-50 later but minor support at 1.2852 would contain downside.

Recommendation: Stand aside for this week.  




On the weekly chart, sterling continued trading inside familiar range in part due to cross-trading, hence further consolidation within 1.3062-1.3338 would take place and although recovery to 1.3230 cannot be ruled out, reckon said upper range would put a lid on cable and bring retreat later. A break above 1.3338 would suggest the retreat from 1.3658 has ended instead, bring a stronger rebound to 1.3400-05 and possibly towards 1.3490-00 but price should falter well below said resistance at 1.3658. In the event sterling breaks above 1.3571 resistance, this would bring a retest of this last month’s high at 1.3658, break there would extend recent erratic rise from 1.1986 low to 1.3750-60 and 1.3800 but overbought condition should prevent sharp move beyond 1.3860 (61.8% Fibonacci retracement of 1.5018-1.1986).

On the downside, expect pullback to be limited to 1.3075-85 and bring another rebound. Only a drop below indicated support area at 1.3027-39 would revive near term bearishness and signal a temporary top has been formed at 1.3658 earlier, bring retracement of recent rise to 1.3000, then towards support at 1.2909 but anticipated near term oversold condition should prevent sharp fall below previous chart support at 1.2774 and price should stay well above another previous chart support at 1.2589, bring rebound later.

EURUSD

The EURUSD attempted to push higher yesterday, slipped above the trend line resistance as you can see on my H1 chart below, topped at 1.1860 but whipsawed to the downside and closed lower at 1.1790 and hit 1.1768 earlier today in Asian session which could create a false breakout scenario. On daily chart, price printed a bearish pin bar suggests a potential bearish condition. The bias is bearish in nearest term testing 1.1725 – 1.1670 support area. Immediate resistance is seen around 1.1815. A clear break above that area could lead price to neutral zone in nearest term retesting 1.1860 but as long as stay below 1.1900 the “head and shoulders” bearish reversal scenario on daily chart should remain valid.

GBPUSD

The GBPUSD was indecisive yesterday. The bias remains neutral in nearest term. Immediate resistance is seen around 1.3230. A clear break and daily close above that area would expose 1.3330 key resistance which need to be clearly broken to the upside to resume the major bullish trend. Immediate support is seen around 1.3130. A clear break below that area could trigger further bearish pressure testing 1.3085 but as long as stay above 1.3000 I remain bullish and any downside pullback should be seen as a good opportunity to buy.

USDJPY

The USDJPY had a significant bearish momentum yesterday, broke below 113.20 support area. The bias is bearish in nearest term testing 112.00 – 111.65 as a part of the bearish pin bar scenario as you can see on my daily chart below. Immediate resistance is seen around 113.20. A clear break above that area could lead price to neutral zone in nearest term testing 113.50 or higher but key resistance remains at 114.50 which remains a good place to sell with a tight stop loss. Overall I remain neutral.

USDCHF

The USDCHF was indecisive yesterday. Price attempted to push lower bottomed at 0.9846 but closed higher at 0.9883. The bias is neutral in nearest term. Immediate support is seen around 0.9835. A clear break below that area could trigger further bearish pressure testing the daily EMA 200 located around 0.9800. Immediate resistance is seen around 0.9940. A clear break and daily close above that area would keep the major bullish trend alive and kicking retesting 1.0037 key resistance.

• BoE Rate Hike Questioned as UK Data Disappoints;
• Retail Sales Set For First Annual Decline Since Early 2013;
• USD Rebounds Ahead of Another Batch of Economic Reports.
• European equity markets are expected to bounce back at the open on Thursday following a similar move in Asia overnight as traders eye more data from the UK and the US.

While the most important event impacting the pound over the last couple of days has arguably been taking place in parliament where MPs have been voting on hundreds of proposed changes to the Brexit bill, there has also been a lot of UK economic numbers being released and retail sales data for October will complete the hatrick this morning.

The data has become all the more important by the Bank of England’s decision to raise interest rates despite the economy slowing and facing significant headwinds over the coming years, a decision that has been criticised by many. As yet this week, the inflation and jobs data we’ve seen haven’t been particularly supportive of the decision, instead indicating the central bank may have been a little premature with the CPI numbers alone being below what the BOE anticipated.

Retail sales have been on a very clear downtrend since last year’s Brexit vote and today’s numbers are not expected to suggest this trend is changing. This creates further challenges for an economy that is extremely reliant on the consumer but at the same time is entirely unsurprising given the squeeze on real incomes as a result of the Brexit vote and the impact this typically has. A 0.6% year on year decline is expected which would be the first annual drop in spending in four and a half years, at which point the country was flirting with recession.

We’ll get plenty more economic data from the US again today, which follows Wednesday’s surprisingly upbeat inflation and retail sales figures, both of which supported the case for another rate hike in December. While this has rarely been in doubt and at this point is more than 90% priced in, there has long been concerns that the data is not improving as the Fed had hoped putting future rate increases at risk.

However, the recent bounce in spending and inflation – albeit not the Fed’s preferred measure – has helped and supported a stumbling dollar in the process. The greenback had been on a slippery slope the last week or so, potentially driven by the growing number of issues with the two tax reform bills now making their way through the House and the Senate, and yesterday’s data offered some decent reprieve.

With jobless claims, the Philly Fed manufacturing survey, industrial production and capacity utilisation data all being released today, the dollar will once again be in focus and another positive session may boost sentiment towards the otherwise stumbling greenback.

USD/CHF - 0.9903

Most recent candlesticks pattern : N/A

Trend                                    : Near term down

Tenkan-Sen level                  : 0.9894

Kijun-Sen level                    : 0.9879

Ichimoku cloud top                 : 0.9935

Ichimoku cloud bottom              : 0.9909

Original strategy :

Sell at 0.9920, Target: 0.9820, Stop: 0.9955

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 0.9935, Target: 0.9835, Stop: 0.9970

Position : -

Target :  -

Stop : -

As the greenback has rebounded after falling to 0.9846 yesterday, suggesting minor consolidation above this level would be seen and corrective bounce to previous support at 0.9922 (now resistance) cannot be ruled out, however, reckon the upper Kumo (now at 0.9935) would limit upside and bring another decline later, below said support at 0.9846 would signal the erratic decline from 1.0038 top is still in progress for at least a retracement of early upmove to previous resistance at 0.9837, break below there would encourage for subsequent decline towards 0.9795-00 which is likely to hold on first testing.

In view of this, we are looking to sell dollar on further subsequent recovery as 0.9922 (previous support) should limit upside. Above 0.9940-45 would defer and risk test of 0.9970-75 but price should alter below resistance at 0.9987, bring another decline later. 

Market movers today

In the euro area, the final October HICP inflation figures are due to be released, likely confirming that headline inflation fell back to 1.4%. Focus will be on what items caused the unexpected fall in service price inflation, bringing core inflation down to 0.9%. Judging from the country figures released already, we expect the drop to be due mainly to volatile items such as package tours and hence not point towards the start of any sustained downward trend in service price inflation.

In the US, industrial production data for October is due for release. We believe that the current development in industrial product ion broadly reflects the strength of the economy and henceestimate industrial production increased 0.25% in October.

In the UK, we will get retail sales excluding fuels for October. Retail sales growth has slowed due to negative real wage growth and is one of the reasons GDP growth has slowed this year. That said, UK retail sales is not the best indicator of actual consumption growth .

Selected market news

Who dares t o 'buy on dips' in the equity market? The sell-off in the US equity market continued yesterday even though both US CPI and US retail sales were stronger than expected and support the view that the US economy is not about to entera slowdown as 'predicted' by the flat tening of the US yield curve. This supported market expectations of a hike in December and the odds of a December rate hike by the Federal Reserve rose to 97%.

However, looking at t he Asian market s then 'buying on dips' in the equity market has perhaps begun already. Nikkei is 1.4% this morning after a significant slide this morning. In our view, there is simply 'too much money chasing t oo few asset s' for a prolonged decline in the equity market .

Furthermore, the 'bull' flattening of the US yield curve continued as 10Y US Treasury yields yesterday declined despite higher CPI and stronger retail sales. However, the US tax reform seems to be running into problems in the Senate, as several republican senators have reservations on the tax reform.

In the currency market , the USD bounced back against the euro and the short move above 118 was reversed as the market is being confirmed in the rate hike from the Federal Reserve. It has stayed below 118 in Asian trading this morning.

In Europe, German Chancellor Merkel is trying to form a coalition government but is facing tough discussions with the potential coalition partners – FDP and the Greens. She has made a self-imposed deadline this weekend and thus we are looking at an interesting few days in German politics as she tries to form a government .

GBP/USD - 1.3158

Most recent candlesticks pattern   : N/A

Trend                                 : Near term down

Tenkan-Sen level                 : 1.3168

Kijun-Sen level                    : 1.3174

Ichimoku cloud top              : 1.3140

Ichimoku cloud bottom        : 1.3125

Original strategy :

Buy at 1.3100, Target: 1.3210, Stop: 1.3065

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.3100, Target: 1.3210, Stop: 1.3065

Position : -

Target :  -

Stop : -

As the British pound retreated after rising to 1.3214 yesterday, retaining our view that further consolidation would take place, however, reckon downside would be limited to 1.3100 and 1.3075-80 should hold, bring another bounce to 1.3210-15, then towards resistance at 1.3230 would be seen, having said that, as broad outlook remains consolidative, reckon upside would be limited to 1.3250 and price should falter below 1.3275-80.

In view of this, we are looking to buy cable on dips as 1.3100-05 should limit downside. Below 1.3075 would risk test of said support at 1.3062 but break there is needed to suggest a downside break of recent broad range has taken place, bring retest of strong support area at 1.3027-39, only break there would confirm and extend recent decline to psychological support at 1.3000 first.

EUR/USD - 1.1794

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 1.1786

Kijun-Sen level                  : 1.1815

Ichimoku cloud top             : 1.1765

Ichimoku cloud bottom      : 1.1721

Original strategy  :

Buy at 1.1745, Target: 1.1845, Stop: 1.1710

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.1745, Target: 1.1845, Stop: 1.1710

Position : -

Target :  -

Stop : -

As the single currency retreated after rising to 1.1861 yesterday, retaining our view that consolidation below this level would be seen, however, reckon 1.1745-50 (50% Fibonacci retracement of 1.1637-1.1861) would limit downside and bring another rise later, above 1.1830-35 would bring a retest of said resistance at 1.1861, break there would extend recent rise from 1.1554 low to previous resistance at 1.1880, then 1.1900-10.

In view of this, would not chase this rise here and we are looking to buy euro on subsequent pullback as 1.1745-50 should limit downside. Below the lower Kumo (now at 1.1721) would defer and signal a temporary top is formed instead, bring weakness to previous resistance at 1.1678 (now support) but only break there would provide confirmation.

USD/JPY - 113.09

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 112.94

Kijun-Sen level                  : 112.86

Ichimoku cloud top             : 113.47

Ichimoku cloud bottom      : 113.37

Original strategy  :

Bought at 112.60, Target: 113.60, Stop: 112.25

Position :  - Long at 112.60

Target :  - 113.60

Stop : - 112.25

New strategy  :

Hold long entered at 112.60, Target: 113.60, Stop: 112.60

Position :  - Long at 112.60

Target :  - 113.60

Stop : - 112.60

Although the greenback extended recent decline to as low as 112.48, the subsequent rebound has retained our near term bullishness and consolidation with mild upside bias is seen for recovery to 113.40, then 113.60, however, as top has been formed at 114.74 earlier this month, reckon upside would be limited and price should falter well below resistance at 113.91, bring another decline later.

In view of this, we are holding on to our long position entered at 112.60. Below said support at 112.48 would risk weakness to 112.26-30 (100% projection of 114.74-113.09 measuring from 113.91 and previous support) but loss of momentum should prevent sharp fall below 112.00-05.