Sample Category Title

EUR/GBP - 0.8979

Original strategy  :

Sold at 0.8975, Target: 0.8855, Stop: 0.9015

Position : - Short at 0.8975

Target :  - 0.8855

Stop : - 0.9015

New strategy  :

Hold short entered at 0.8975, Target: 0.8855, Stop: 0.9015

Position : - Short at 0.8975

Target :  - 0.8855

Stop : - 0.9015
 

Although the single currency has rebounded again today and marginal gain from here cannot be ruled out, if our view that top has been formed at 0.9033 last week is correct, upside would be limited and bring another decline later, below 0.8925 would suggest an intra-day top is formed, bring test of 0.8899 but break there is needed to signal the rebound from 0.8856 has ended, bring another test of indicated support at 0.8850-56. Once this level is penetrated, this would add credence to this view and signal the rise from 0.8746 low has ended, bring further fall to 0.8800-10 later. 

In view of this, we are holding on to our short position entered at 0.8975. Above 0.9000 would defer and risk a stronger rebound to 0.9015-20 but still reckon price would falter well below said resistance at 0.9033, bring another selloff.

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.

USD/CAD - 1.2481

Trend:  Down

 
Original strategy       :

Exit long entered at 1.2515,

Position: - Long at 1.2515

Target:  -

Stop: -

 
New strategy             :

Stand aside

Position: -

Target:  -

Stop:-

As the greenback retreated after meeting resistance at 1.2591, retaining our view that further consolidation below indicated previous resistance at 1.2599 would be seen and test of 1.2433 support cannot be ruled out, however, break there is needed to signal top has been formed at 1.2599, bring further fall to 1.2400 and later towards 1.2350-55 but indicated previous support at 1.2313 would hold from here.

On the upside, above 1.2530-35 would bring another bounce towards 1.2591-99 but only break there would revive bullishness and signal the rise from 1.2061 low (wave iii trough) has resumed for further gain towards previous resistance at 1.2663, however, upside should be limited to 1.2700 and price should falter well below another previous resistance at 1.2778. We are keeping our count that wave v as well as wave (C) ended at 1.3794 and impulsive wave (i ii, i ii) is now unfolding with minor wave iii ended at 1.2414, followed by wave iv correction ended at 1.2778, wave v has reached our indicated downside target at 1.2100 and may extend to 1.2000.

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.

• European equities lose up to 1%, copying a sudden slide in the Hang Seng Index at the end of Asian trading. Comments by PBOC governor Zhou on a "Minsky moment" are to blame. US stock markets opened losses between 0.3% and 0.6%, with the Nasdaq underperforming.
• The Spanish government has promised to begin the process of taking direct control over Catalonia after the region's president Carles Puigdemont declined to renounce claims to independence.
• China will fend off risks from excessive optimism that could lead to a "Minsky Moment", central bank governor Zhou Xiaochuan said, adding that corporate debt levels are relatively high and household debt is rising too quickly. A Minsky Moment is a sudden collapse of asset prices after a long period of growth, sparked by debt or FX pressures.
• UK retail sales fell more than forecast in September, leaving growth in the third quarter at its weakest in four years. Sales dropped 0.8% from August, far more than the 0.1% estimated. Over the third quarter, annual growth slowed to 1.5%, the worst performance since October 2013, according to the ONS.
• The number of Americans filing for unemployment benefits fell to its lowest level in more than 44 years last week (222k), pointing to a rebound in job growth after a hurricane-related decline in employment in September. The Philly Fed business outlook unexpectedly rose from 23.8 to 27.9.
• New Zealand First party backed Labour to form a government after 12 days of talks following inconclusive elections. The new PM will be Jacinda Ardern, who became Labour leader in July. NZ First argues the kiwi is overvalued and wants to change the RBNZ's inflation mandate to a system in which it can directly control the currency. NZD/USD crashed from 0.7150 towards 0.70.
• President Donald Trump's drive to overhaul the US tax code headed for a pivotal moment, with Senate Republicans poised to approve a budget measure that would help them pass tax legislation without Democratic support.
• Austria's likely next chancellor assured EU leaders of his support for the EU, allaying concerns that his country would become a dissonant voice in the bloc with the far right expected to enter its government.

Rates

Risk aversion with US outperformance

Global core bonds gained ground today in a risk-off environment. US Treasuries surprisingly outperformed German Bunds. A sudden drop of Hong Kong shares at the end of Asian trading initiated a disappointing European stock market opening and triggered first safe haven flows. Equity investors took a scare from comments of PBOC governor Zhou who warned for a Minsky moment (see headlines) in Chinese assets. Developments in Spain caused a second bout of risk aversion, even if it was short-lived (Bund completely retraced the move). Catalan President Puigdemont refused to renounce his claim on independence, forcing Madrid to proceed with activating article 155 which would strip Catalunya from its autonomy. Spanish parliament is expected to vote on the issue on Monday. The Spanish asset underperformance was rapidly undone, in line with previous days. Investors clearly think that the Spanish-Catalan stand-off won't spiral out of control. US eco data printed very strong with historically low jobless claims and a strong Philly Fed Business outlook, but couldn't change the tide on the US Treasury market.

At the time of writing, US yields decline by 2.4 bps (2-yr) to 3.8 bps (10-yr). Changes on the German yield curve are limited between -0.6 bps (2-yr) and -0.1 bp (30-yr). On intra-EMU bond markets, 10-yr yield spread changes versus Germany are close to unchanged with Greece underperforming (+5 bps) and Portugal outperforming (-5 bps).

The French treasury tapped two on the run OAT's (€1.8B 0% May2021 & €2.57B 0% Mar2023) and an off the run OAT (€2.63B 1.75% Nov2024) for a combined €7bn, the maximum amount on offer. Demand was good with a 2.07 auction bid cover. The Spanish debt agency sold three on the run bonds (€1.81B 0.05% Jan2021, €1.02B 1.45% Oct2027 & €0.74B 2.9% Oct2046) and one off the run Obligacion (€0.97B 4.65% Jul2025). The combined amount raised, €4.53B, was in the middle of the €4-5B target range with a 1.52 auction bid cover. Given today's escalation in the Spanish constitutional crisis, the result could have been much worse.

Currencies

Euro outperforms despite Spain triggering art 155

All eyes were on Spain today. EUR/USD spiked lower as the Spanish government stated the process of suspending the regional powers of the Catalan government. However, the euro decline was almost immediately reversed. EUR/USD even moved in positive territory. A tentative global risk-off sentiment caused US Treasuries to outperform German bunds; reducing the interest rate differential in favour of the euro. EUR/USD trades in the 1.1835 area. USD/JPY dropped to the mid 112 area.

Overnight, the Chinese Q3 GDP was in line with expectations. The composition was OK. Even so, Chinese data were insufficient to enhance the Asian risk rally. Most regional indices showed modest losses. Japan outperformed on overall yen weakness. At the end of the session, shares in Hong Kong even fell off a cliff, closing the day with a loss of 1.92%. USD/JPY tried to regain the 113 barrier overnight, but the risk-off correction pushed the pair back below the big figure. EUR/USD was little affected by the Asian equity swings. The pair hovered in the low 1.18 area.

European equities opened little changed, but volatility from Asia and uncertainty ahead of the Catalan deadline triggered caution among European (equity) investors. Catalan president Puidgemont refused to withdraw the Catalan independence claim. As a result, Spanish PM Rajoy started the procedure to suspend the power for the regional authority, invoking article 155 of the Spanish constitution. EUR/USD spiked to the 1.1770 area on the announcement of the start of this procedure. However, the euro decline was very short-lived. EUR/USD soon returned to the 1.18 area and even moved in positive territory. The euro already showed resilience to the Spanish political uncertainty of late. Other factors were also at play. Global risk sentiment , but Spain wasn't the only factor to blame. US equity futures nosedived (fall-out from Hong Kong?). Remarkably, despite the Spanish uncertainty, interest rate differentials moved in favour of the euro rather than the dollar as US Treasuries outperformed German bonds. EUR/USD stayed well above the 1.18 barrier. In the same move, USD/JPY dropped to mid-112 area.

The US jobless claims and the Philly Fed business outlook were both very strong. Claims even dropped to the lowest level since 1973. However, the reports didn't help the dollar. The key question for global trading was whether or not US stocks would join a broader risk-off correction. US equities opened with modest losses of 0.3% to 0.6%. EUR/USD stabilizes in the 1.1835 area. USD/JPY is changing hands in the 112.55 area. Dollar sentiment remains fragile. Despite Spain, the US currency looks at least as vulnerable to global uncertainty than the euro.

Poor UK retail sales cause additional sterling selling

UK retail sales fell 0.8% M/M in September, reversing a rise of 0.9% the previous month. The September decline brings third quarter growth to 1.5% Y/Y, the slowest level since Q2 2013. The ONS said that the rising cost of goods eroded Britton's spending power. Today's retail sales suggest that there is little room for the BoE to raise its policy rate beyond a sole rate hike in November. The prospect of little additional interest rate support triggered further sterling selling. EUR/GBP spiked to the 0.8990 area and remained close to that level for the remainder of the session. Cable set a minor low for this week (1.3135 area), but further losses were blocked as the dollar came also under pressure. At the EU summit in Brussels, UK PM May will ask the other EU leaders to proceed talks on the future relationship between the EU and the UK. The EU might give some encouraging words, but it is unlikely that they will make big unilateral concessions. In this context, sterling might remain the defensive.

Daily Pivots: (S1) 112.35; (P) 112.70; (R1) 113.27; More...

Intraday bias in USD/JPY is turned neutral again as it failed to break through 113.43 resistance and retreats sharply today. On the upside, break of 113.43 will resume the rise from 107.31 and target 114.49 resistance. More importantly current development revives the case that correction from 118.65 has completed at 107.31. Decisive break of 114.49 will pave the way to retest 118.65 high. However, break of 111.64 will mixed up the outlook again and turn bias back to the downside for deeper fall.

In the bigger picture, rise from 98.97 (2016 low) is seen as the second leg of the corrective pattern from 125.85 (2015 high). It's unclear whether this second leg has completed at 118.65 or not. But medium term outlook will be mildly bearish as long as 114.49 resistance holds. And, there is prospect of breaking 98.97 ahead. Meanwhile, break of 114.49 will bring retest of 125.85 high. But even in that case, we don't expect a break there on first attempt.

Daily Pivots: (S1) 0.9781; (P) 0.9808; (R1) 0.9843; More....

Focus on USD/CHF is back on 0.9704 support after today's sharp fall. Decisive break of 0.9704 will argue that rebound from 0.9420 has completed. This will also mixed up the near term outlook and turn bias back to the downside for 0.9587 support. On the upside, firm break of 0.9835 resistance will confirm resumption of rebound from 0.9420. In that case, USD/CHF should target 61.8% retracement of 1.0342 to 0.9420 at 0.9990 next.

In the bigger picture, current development suggests that USD/CHF has defended 0.9443 (2016 low) key support level again. Rise from 0.9420 could develop into a medium term move and target a test on 1.0342 high. This represents the upper end of a long term range that started back in 2015. On the downside, break of 0.9587 support is now needed to indicate completion of the rise from 0.9420. Otherwise, further rally will remain in favor in medium term.

Daily Pivots: (S1) 1.3158; (P) 1.3183; (R1) 1.3227; More....

Intraday bias in GBP/USD remains neutral at this point. On the downside, break of 1.3120 will indicate that recovery from 1.3026 is completed at 1.3337. And fall from 1.3651 is resuming for 1.2773 support. That will revive that case that medium term rise from 1.1946 has completed at 1.3651. Meanwhile, above 1.3337 will bring retest of 1.3651 high instead.

In the bigger picture, while the medium term rebound from 1.1946 was strong, GBP/USD hit strong resistance from the long term falling trend line. Outlook is turned a bit mixed and we'll turn neutral first. On the downside, decisive break of 1.2773 key support will argue that rebound from 1.1946 has completed. The corrective structure of rise from 1.1946 to 1.3651 will in turn suggest that long term down trend is now completed. Break of 1.1946 low should then be seen. On the upside, break of 1.3835 support turned resistance will revive the case of trend reversal and target 38.2% retracement of 2.1161 (2007 high) to 1.1946 (2016 low) at 1.5466.

The Canadian dollar is unchanged in the Thursday session, after posting gains on Wednesday. In European trade, USD/CAD is trading at 1.2469, up 0.03% on the day. On the release front, US unemployment claims are expected to dip to 240 thousand, while the Philly Fed Manufacturing Index is forecast to slow to 21.9 points. There are no Canadian indicators on the schedule. On Friday, Canada will release key consumer spending and inflation data. CPI is expected to accelerate to 0.3%. The markets are predicting that retail sales will also improve to 0.3%. The US will release Existing Home Sales and Fed Chair Janet Yellen speaks at an event in Washington.

With the Canadian economy performing well, could another rate hike be in the cards? The Bank of Canada surprised with a rate hike in September, but policymakers are concerned over tensions about NAFTA. Talks between Canada, the US and Mexico over re-negotiating NAFTA have floundered, raising the possibility that Donald Trump will scrap the agreement. The BoC would prefer not to raise rates until the NAFTA negotiations are settled. However, the Federal Reserve is widely expected to raise rates in December and the BoC will be under pressure to follow suit and protect the Canadian dollar.

There was good news out of the Canadian manufacturing sector on Wednesday. Manufacturing Sales jumped 1.6% in August, ending a streak of two declines. The excellent reading was the highest gain this year, and points to a manufacturing sector which has benefited from strong global demand for Canadian products.

Federal Reserve Chair Janet Yellen is due to retire in February, and the markets are keeping close tabs on who will replace her at the helm of the powerful central bank. President Trump is leaning towards nominating economist John Taylor, who is considered more hawkish on policy than Yellen. Under Taylor, interest rates would likely move substantially higher than the current 1.25%, and a rate hike early in 2018 could strengthen the US dollar against gold. Other candidates for the Fed Chair include current Fed Governor Jerome Powell and former Fed official Kevin Warsh.

The Euro advanced on Thursday as US dollar stood at the back foot and rallied to 1.1840, pressuring barriers at 1.1840/44 (converged 55/30 SMA's).

Recovery rally sidelines downside risk of testing daily cloud base at 1.1702 after bear-leg from last week's high at 1.1879 was repeatedly rejected at 1.1730.

Close above 55/30SMA's will generate bullish signal for further recovery towards 12 Oct high at 1.1879, break of which would trigger stronger bullish acceleration towards daily cloud top at 1.1924.

Setup of daily studies is mixed, with 14d Momentum breaking in the positive territory and supporting further advance.

Heated situation in Catalonia is still seen as key factor for the single currency.

Spain's central government said it would suspend Catalonia's autonomy and impose direct rule after Catalan leader ignored the deadline to drop secession campaign and threatened government in Madrid with a formal declaration of independence.

Spanish PM said he would hold a special meeting of the cabinet on Saturday that could trigger the unprecedented move in revoking Catalan independence.

Res: 1.1844; 1.1851; 1.1879; 1.1924
Sup: 1.1800; 1.1767; 1.1730; 1.1702

EURUSD: With the pair seen following through on the back of its Wednesday gains on Thursday, more strength is expected in the days ahead. Resistance comes in at 1.1850 level with a cut through here opening the door for more upside towards the 1.1900 level. Further up, resistance lies at the 1.1950 level where a break will expose the 1.2000 level. Its daily RSI is bullish and pointing higher suggesting more strength. Conversely, support lies at the 1.1750 level where a violation will aim at the 1.1700 level. A break of here will aim at the 1.1650 level. Below here will open the door for more weakness towards the 1.1600. All in all, EURUSD continues to face recovery threats with eyes on 1.1879 zone.

Sterling found itself under immediate selling pressure on Thursday morning, after British retail sales tumbled in September.

U.K retail sales slumped -0.8% in September, dragging the annualized figure lower to 1.2%, as rising inflation and subdued wage growth sapped consumers' spending power. With wage growth still struggling to keep up with inflation and squeezing incomes, concerns are likely to mount further, over the longevity of Britain's consumer-driven economic growth.

It has been another painful trading week for Sterling;sentiment was driven by an unpalatable cocktail of soft economic fundamentals, dovish comments from some BoE officials and Brexit uncertainty. With inflation jumping to a five and a half year high in September, wage growth remaining subdued and retail sales disappointing - is this really the right environment to raise interest rates?

There is a growing suspicion that the central bank will implement a dovish rate hike in November to contain inflation. With the current economic landscape looking bleak and Brexit uncertainty still weighing on sentiment, the rate hike that markets are heavily anticipating next month, may be a "once-off".

From a technical standpoint, the GBPUSD is coming under increasing pressure on the daily charts. A breakdown below 1.3150 should encourage a further decline lower towards 1.3050.

Spain to trigger Article 155 on Saturday

The Euro was surprisingly resilient during Thursday's trading session, despite reports of Spain proceeding with suspending Catalonia's political autonomy on Saturday.

Catalan leader, Carles Puigdemont, was given until 09:00 BSTtoday to declare his intention to pursue independence, following the referendum on 1 October. With his response in the form of a letter to Spanish Prime Minister Mariano Rajoy, threating to declare independence if no talks were offered, the Spanish government responded by arranging a special Cabinet meeting on Saturday, where they intend to enact Article 155.

I believe the Euro still remains vulnerable to heavy losses, as the political drama in Spain will sparkconcern over political instability in Europe. With uncertainty potentially mounting after Spain's government triggersArticle 155 this weekend, the Euro remains exposed to downside risks. Investors should keep in mind that although the Catalan drama is limited to Spain, it could still spark fears over the rise of other separatist movements in Europe. Such a situation is likely to threaten the stability of the European Union.

Taking a look at the technical picture, the EURUSD has rebounded back towards 1.1850. A failure for prices to break and secure a daily close above this level, may open a path back towards 1.1730. In an alternative scenario, a breakout above 1.1850 could open a path towards 1.1920.

Commodity spotlight – WTI Oil

The sharp decline witnessed on WTI Crude today, may suggest that bulls are displaying early signs of exhaustion.

Although there are heightened geopolitical tensions between the United States andIran over the Joint Comprehensive Plan of Action (JCPOA) and ongoing conflicts in Iraq, optimism over global demand for oil increasing in 2017, have supported oil markets - the question is, for how long? Investors should keep in mind that OPEC's production rose 32.7 million in September, which was the second highest level this year. The increase in production, despite the cartel's optimism and efforts to limit output, may call into question the effectiveness of the production cuts.

Much attention should be directed to how OPEC deals with rising production from Nigeria and Libya. With increased output from these two suppliers potentially disrupting the efforts made by the rest of the group to tackle the oversupply woes, OPEC may request that they also cut production.

From a technical standpoint, WTI Crude is at risk of depreciating further, if bears can conquer $51. A breakdown below this level may encourage a further decline back towards the $50 level.