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The Sterling touched the new high against the Greenback after the PMI for the UK manufacturing sector was released. The GBP/USD jumped 0.24% or 32 base points to 1.3318, though the British Pound was unable to sustain gains and fell further after the US economic data.

Markit/CIPS report showed that the Britain’s Manufacturing PMI climbed to 56.3 points in the month of October, as the volumes of new orders and production entered the final quarter of 2017 on a strong footing. Moreover, better-than-anticipated data cemented projections for the Bank of England to raise its key interest rates tomorrow. The Sterling gained additional support this week after the progress on Brexit talks was made, but the bearish sentiment was confirmed in the pair for now.

EUR/GBP         –  0.8763

The single currency has remained under pressure after breaking support at 0.8856 (now resistance) and price just broke below previous support at 0.8746, signaling the fall from 0.9307 top is still in progress, hence consolidation with downside bias remains for this fall to bring retracement of early upmove to 0.8690-95 (61.8% Fibonacci retracement of 0.8312-0.9307) and possibly towards previous support at 0.8652, however, near term oversold condition would limit downside to 0.8590-00 and price should stay above previous resistance at 0.8531.

Our latest preferred count is that the wave V of a 5-wave series from 0.5682 ended at 0.9805 earlier and major from there has possibly ended at 0.8067 as A-B-C-X-A-B-C. We are keeping our view that the entire correction from 0.9805 has possibly ended at 0.7756 and as labeled as the attached daily chart and impulsive move from 0.9084 has ended at 0.6938 as a 5-waver which marked as the (C) wave, recent impulsive rise is labeled as (I) (II), (i) (ii) series, indicated upside target at 0.9084 had been met, the retreat from 0.9576 suggest wave iii ended there and next upside target for wave v of (III) should head towards 0.9700 but price should falter well below parity .

On the upside, although recovery to 0.8820 is likely, reckon previous support at 0.8856  (now resistance) would limit upside and bring another decline later. Above 0.8885-90 would defer and suggest low is formed instead, bring a stronger rebound to 0.8945-55 but only break of resistance at 0.8975-80 would add credence to this view, bring another bounce towards resistance at 0.9033 which is likely to hold from here.

Recommendation: Stand aside for this week

Euro's long term uptrend started in Feb 1981 at 0.5039 and is unfolding as a (A)-(B)-(C) move with (A): 0.8433 (Feb 1993), (B): 0.5682 (May 2000) and impulsive wave (C) should have ended at 0.9805 with wave III ended at 0.7254 (May 2003), triangle wave IV at 0.6536 (23 Jan 2007) and wave V as well as wave (C) has ended at 0.9805.

We are keeping an alternate count that only wave III ended at 0.9805 and the correction from there is the wave IV and has possibly ended at 0.6936, however, it is necessary to see a daily close above resistance at 0.9576 in order to change this to be the preferred count.

USD/CAD – 1.2876

The greenback has maintained a firm undertone after recent rally above previous resistance at 1.2778, adding credence to our bullish view that low has been formed at 1.2061 and mild upside bias remains for this rise to bring retracement of early decline, hence further gain to 1.2925-30 (50% Fibonacci retracement of 1.3794-1.2061), then towards psychological resistance at 1.3000 would be seen, however, reckon upside would be limited to 1.3090-00 and price should falter below 1.3130-35 (61.8% Fibonacci retracement), bring retreat later. 

We are keeping our view that the wave b from 1.0657 (a leg top) has possibly ended at 0.9633 with (a): 0.9800, wave (b): 1.0447 and wave c at 0.9633, the subsequent rise from there is now treated as wave c exceeded indicated upside target at 1.3770-80 and 1.4000 and wave (3) has possibly ended at 1.4690 and wave (4) correction has commenced for retracement back towards 1.2000.

On the daily chart, our latest preferred count remains that the A of (B) rally from 0.9059 low (7 Nov 2007) unfolded into an impulsive wave with i: 0.9059-1.0380, ii ended at 0.9819, iii at 1.3019 followed by triangle wave iv at 1.2026 , then wave v formed a top at 1.3066 and also ended the wave A. The wave B is unfolding as an double three a-b-c-x-a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c at 1.0784, followed by wave x at 1.1725, another set of a-b-c unfolded with 2nd a at 0.9931, 2nd b at 1.0674. the 2nd c has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3900 had been met and gain to 1.4700 would follow.

On the downside, whilst initial pullback to 1.2800 cannot be ruled out, reckon downside would be limited to 1.2700-10 and bring another rise later. Only a drop below previous resistance at 1.2599 (tentatively wave i top) would suggest top is possibly formed, bring weakness to 1.2550, then towards 1.2500 but still reckon support at 1,2433 would remain intact, bring another rally later.

Recommendation: Buy at 1.2700 for 1.2920 with stop below 1.2600.

Longer term - The selloff from 1.6194 (21 Jan 2002) to 0.9059 (07 Nov 2007) is viewed as (A) wave which is a 5-waver as labeled on the monthly chart as below, the subsequently rally is labeled as (B) with impulsive A leg of (B) ended at 1.3066, wave B of (B) is unfolding which has either ended at 0.9407 or would extend one more fall but downside should be limited to 0.9200 and 0.9000 should hold.

EUR/USD

Current level - 1.1653

Yesterday's attempts at 1.1600 support failed and the intraday bias is positive, for a brief rise to 1.1720 hurdle. The latter should set the beginning of a slide towards 1.1480 area.

USD/JPY

Current level - 113.89

The consolidation pattern below 114.50 is still underway, with a risk of another slide towards 113.00 area, before breaking towards 115.50. Key resistance lies at 114.50.

GBP/USD

Current level - 1.3281

Yesterday's rise peaked below 1.3340 resistance, but the pullback is not impulsive in nature, so while trading remains above 1.3220 support, there is a risk of another attempt at the mentioned hurdle. On the senior frames the zone around 1.3340 should provoke a renewal of the bearish bias, for 1.3020, en route to 1.2760.

USDJPY has been trading in a broad range during the past 7 months, roughly between 108.00 and 114.00. In the shorter time frame, the pair has turned neutral after a bullish run took it to the top of the longer-term range.

Strong resistance at the October 27 high of 114.45 needs to be broken in order to indicate the start of a new bullish phase and target the next major highs at 115.52. and then 118.60.

A drop below Tuesday's low of 112.95 would turn the focus to the 200-day moving average at 111.72. Breaking below this would bring further weakness and open the way to the bottom of the range at 108.00.

USDJPY is expected to remain neutral in the 112.95-114.45 range in the short-term but price signals are leaning towards bullish, suggesting that risk is tilted to the upside. Technical indicators such as RSI and MACD are in their respective bullish territories, although lacking momentum. The Ichimoku cloud analysis is also bullish. The market is above the cloud, while the Tenkan-sen and Kijun-sen lines are positively aligned.

There was some profit-taking on the US dollar following reports that President Trump has decided to nominate Fed Governor Jerome Powell for the post of new Fed Chair. The kiwi and the aussie were doing well following upbeat trade and housing data out of Australia, while all eyes later today will be on the Bank of England interest rate decision and the reaction of sterling.

Powell was seen as an on-balance dovish choice, but Trump's choice is understandable given that he might be hesitant to upset markets by introducing fresh uncertainty with an inexperienced appointee. Governor Powell has sided with current chair Janet Yellen throughout most his tenure on monetary policy and he is seen as a steady hand. Reappointing Yellen might have been a good option given her successful track record, but such a decision would have left Trump open to criticism that he was not ‘shaking things up' as he had promised to do during his campaign. Both Yellen and Powell are perceived as slightly on the dovish side of the scale, but not excessively, therefore for the Powell Fed, it looks to be pretty much business-as-usual after Yellen steps down in February 2018. Powell is also expected to be approved by the Senate without too many problems.

The policy statement by the Fed during late Wednesday trading did little to boost the dollar as it was in line with expectations. The Fed seemed to set the stage for a December rate hike as it cited “solid” growth of economic activity and continued “strength” in the labor market. There will be an update on the labor market in tomorrow's release of the October employment report. Euro/dollar rose to around 1.1660 before easing to 1.1635, while dollar/yen once again rose above the 114 mark to 114.08.

In today's best performing currencies, the aussie reached an 8-day high versus the greenback following positive Australian housing and trade data. Exports grew by 3% in September and the Trade Balance was at 1.74 billion Australian dollars instead of 1.2 billion expected by analysts. Building approvals for the same month grew by 1.5% month-on-month rather than contracting by 1% as economists were forecasting. The aussie reached as high as 0.7725 against the dollar.

The main event of Thursday will be the Bank of England rate-setting meeting, where the Bank is expected to raise rates to 0.5% from their current 0.25% level. Perhaps the outcome of today's meeting is much less important than the signals that the committee and Mark Carney himself will give in the press conference that will follow the release of the quarterly inflation report. The voting count as well as the minutes and Carney's guidance will determine whether this is seen as a ‘one-and-done' type of rate hike (more likely scenario according to the markets) or whether the Bank of England is considering more hikes in coming months. It is said that uncertainty around Brexit could prevent the Bank from hiking further, but doing nothing in the short-term in the face of inflation possibly topping 3% was also inappropriate. So Carney will probably have to perform a balancing act today. The pound fell below the 1.33 level to 1.3261 against the dollar.

Looking ahead, Eurozone final manufacturing PMIs for October and UK construction PMI will be the highlights of the European session. Weekly jobless claims out of the US as well as labor costs and productivity will also be monitored, while speeches by the Fed's Powell and Dudley could also prove interesting – especially with the appointment of Powell expected to be confirmed by Trump at some point today.

USDJPY (113.92): The USDJPY was seen closing on a bullish note for the second consecutive day. Price action was pushed back to the resistance level of 114.00 price level. The longer term consolidation remains in play, and we expect to see a potential correction in the near term. However, watch for a breakout above the 114.00 level which could indicate further gains in the currency pair. To the downside, price action is supported near the short-term price level of 112.80. On the 4-hour chart, we expect to see a potential inverse head and shoulders continuation pattern taking shape. Near-term declines could be limited to 113.51. A successful reversal at this level could indicate a move to the upside, above 114.25.

EURGBP (0.8777): The EURGBP fell to a 5-month low yesterday, but price action managed to recover by the end of the day. The decline below 0.8750 signals a retest of the familiar support level and indicates a short-term bounce to the upside. On the 4-hour chart, EURGBP will need to rise above 0.8778 in order for theprice to test the next resistance level at 0.8857 - 0.8867 level. We expect the currency pair to maintain this short-term range in the near term. Further gains can be expected only on a breakout to the upside above this resistance level. To the downside, in the event of a bearish close below the support level of 0.8750, the currency pair could resume the bearish trend.

EURUSD (1.1653): Price action in the EURUSD was rather muted following last Thursday's sharp declines. With the euro clearing the support level at 1.1700 - 1.1672, we now expect the declines to continues. The daily chart shows the validation of the head and shoulders pattern as we expect EURUSD to decline towards the minimum target level of 1.1440. The muted price action currently is also showing signs of a temporary consolidation following which we can expect to see strong declines being resumed. There is a short-term potential for the EURUSD to briefly retest the 1.1672 - 1.1674 level where resistance could be established. However, watch the bearish flag pattern that indicates potential downside.

The US dollar continued to trade firm against its peers amid a busy Wednesday. Data showed that the US ISM manufacturing PMI declined to 58.7 in October which was slightly below estimates. The ADP private payrolls firm showed that the US economy added 235k jobs in the private sector. The numbers for September were revised down to 110k.

The FOMC meeting yesterday was a non-event as the central bank maintained the short term interest rates steady. The Fed signaled that it would continue hike rates gradually.

Looking ahead investors turn to the UK as the Bank of England holds its monetary policy meeting. The central bank is expected to hike interest rates by 25 basis points although it is most likely to retain a dovish bias. The BoE Governor Carney is also scheduled to speak later after the release of the monetary policy statement.