Sample Category Title

USD/JPY - 111.80

Original strategy  :

Sold at 112.25, Target: 111.25, Stop: 112.25

Position :  - Short at 112.25

Target :  - 111.25

Stop : - 112.25

New strategy  :

Hold short entered at 112.25, Target: 111.25, Stop: 112.25

Position :  - Short at 112.25

Target :  - 111.25

Stop : - 112.25

As dollar has remained under pressure after breaking below last week’s low at 111.99, adding credence to our bearishness and signaling the fall from 113.44 top is still in progress, hence downside bias remains for this move to extend weakness to 111.70 (100% projection of 113.44-112.32 measuring from 112.83), below there would bring subsequent decline to 111.47 support but oversold condition would limit downside and reckon 111.11 support would remain intact.

In view of this, we are holding on to our short position entered at 112.25. Only above resistance at 112.59 would abort and signal low is formed instead, risk a stronger rebound to indicated resistance level at 112.83. 

The Euro found itself vulnerable to losses on Monday morning, thanks to heightened political drama in Spain.

Jitters over the Catalan developments were felt across the board, after Prime Minister Mariano Rajoy gave Carles Puigdemont until 08:00 GMT to clarify Catalonia's independence status. Puigdemont simply ignored Madrid's ultimatum, submitting a letter that failed to provide a clear indication on his response to the independence declaration last week. The Spanish government has given Catalan leaders until Thursday to officially declare independence, or back down.

Should Puigdemont officially declare independence, he may prompt Madrid to invoke Article 155 of the Spanish Constitution. Such a development is likely to intensify the political drama in Spain, and spark concerns over political instability in Europe that may ultimately punish the Euro.

Taking a look at the technical outlook, the EURUSD remains in a wide range on the daily charts, with 1.1850 acting as a level of interest. A decisive breakout above 1.1850 may encourage a further incline towards 1.1920. In an alternative scenario, weakness below 1.1850 may open a path back towards 1.1730.

Commodity spotlight – Gold

Gold extended gains during Monday's trading session, with prices venturing towards $1305 despite the Dollar stabilizing.

The yellow metal received a boost last Friday, after soft inflation figures from the United States in September clouded prospects of higher US interest rates in 2018. With political risk in Spain, and geopolitical tensions concerning Iran and North Korea still supporting some flight to safety, the yellow metal could find support in the short term. From a technical standpoint, Gold has broken above the $1300 psychological level, which may encourage a further incline towards $1315 and $1320, respectively. If prices fail to stay above $1300, this should encourage a decline back towards $1280.

GBP/USD: The pair continues to see price hesitation below its key resistance at 1.3337 level. However, while that resistance remains unbroken, we could see the pair weaken. Support lies at the 1.3250 level where a break will turn attention to the 1.3200 level. Further down, support lies at the 1.3100 level. Below here will set the stage for more weakness towards the 1.3050 level. Conversely, resistance stands at the 1.3250 levels with a turn above here allowing more strength to build up towards the 1.3300 level. Further out, resistance resides at the 1.3350 level followed by the 1.3400 level. On the whole, GBPUSD continues to face further upside pressure but with caution.

Friday's weak US CPI was a powerful reminder that central bankers have been wrong about inflation for a decade, and not just in the US. The pound was the top performer last week while the Canadian dollar lagged. CFTC positioning showed more specs selling the yen. A big week for GBP traders lies ahead. Friday's GBP Premium trade is already in the green.

On Friday, US September CPI rose 2.2% y/y compared to 2.3% expected, stripping out food and energy left prices up 1.7% compared to the 1.8% consensus. It was one of many inflation misses this year, expecially compounded by real average weekly earnings rising a paltry 0.6% compared to 1.0% expected.

IMF leaders were glowing last week about upbeat potential for global growth and central bankers everywhere believe it's only a matter of time until prices rise. If they don't, it will mean a complete re-think of how central banks operate.

The case against inflation is what many emerging markets are experiencing now. inflation is low virtually everywhere. Few emerging markets are generating runaway inflation.

China's economy continues to grow at a nearly 7% pace annually, but inflation is just 1.8% and has been below 3% for four years. Rare pockets of inflation like Russia have been due to currency shocks and have flattened shortly afterwards.

Looking ahead, the Party Congress in China is the main event in the week ahead, starting Wednesday. In an early hint of what people will be talking about, PBOC Gov Zhou warned that Chinese companies have taken on too much debt.

CFTC Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

• EUR +91K vs +91K prior
• GBP +15K vs +20K prior
• JPY -101K vs -85K prior
• CHF –4.3K vs -3.2K prior
• CAD +76K vs +75K prior
• AUD +69K vs 72K prior
• NZD +6K vs +8K prior

The pound longs who hung in there after the beating over the past few weeks were rewarded with a big bounce last week. Overall the moves aren't large but if US 10-year yields can break above 2.40%, then expect an extreme short. A big week for GBP traders lies ahead. Further analysis on UK data and events follows after this IMT.

Daily Pivots: (S1) 1.1789; (P) 1.1832 (R1) 1.1860; More...

EUR/USD breaches 1.1787 minor support briefly but there is no follow through selling yet. Intraday bias stays neutral first. At this point, we're slightly favoring the case that pull back from 1.2091 has completed at 1.1669, ahead of 1.1661 support. Above 1.1879 will turn bias back to the upside for retesting 1.2091 high. However, break of 1.1780 will dampen this view. Intraday bias will be turned back to the downside through 1.1669 low. Correction from 1.2091 would then extend to 38.2% retracement of 1.0569 to 1.2091 at 1.1510 and completes there.

In the bigger picture, rise from medium term bottom at 1.0339 is not finished yet. It's expected to continue after pull back from 1.2091 completes. And, next target will be 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. However, it should be noted that there is no confirmation of trend reversal yet. That is, such rebound from 1.0399 could be a correction. And the long term fall from 1.6039 (2008 high) could resume. Hence, we'd be cautious on strong resistance from 1.2516 to limit upside.

Daily Pivots: (S1) 1.3239; (P) 1.3288; (R1) 1.3331; More....

GBP/USD is losing some upside moment. But at this point, intraday bias stays mildly on the upside. Rebound from 1.3026 would target 1.3651 resistance. Break there will resume medium term rise from 1.1946 and target 1.3835 key resistance next. On the downside, below 1.3120 minor support will resume the fall from 1.3651 through 1.3026 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.

Daily Pivots: (S1) 0.9707; (P) 0.9739; (R1) 0.9774; More....

USD/CHF is still staying in range of 0.9704/9835 and intraday bias remains neutral first. As noted before, considering bearish divergence condition in 4 hour MACD, 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, break of 0.9835 will extend the rebound to 61.8% retracement of 1.0342 to 0.9420 at 0.9990.

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) 111.57; (P) 111.94; (R1) 112.19; More...

Intraday bias in USD/JPY stays on the downside at this point, as 112.57 minor resistance remains intact. 113.43 is seen as a short term top. Decline from there should target 55 day EMA (now at 111.37) first. As whole rebound from 107.31 is likely completed, sustained trading below 55 day EMA will target 107.31 low and below. In that case, we'd expect strong support from 61.8% retracement of 98.97 to 118.65 at 106.48 to contain downside and bring rebound. On the upside, above 112.57 minor resistance will turn intraday bias neutral first. But risk will stays on the downside as long as 113.43 resistance holds.

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.

Dollar is trading mixed in spite of up beat US economic data and hawkish Fedspeaks. Empire state manufacturing index jumped to 30.2 in October, up from 24.4 and beat expectation of 20.7. That's also the highest level in three years. Boston Fed President Eric Rosengren sounded rather hawkish in an interview. He mentioned that Fed will need to hike interest rate December, and then three to four times "over the course of next year". He pointed out that unemployment rate, current at 4.2%, could drop below 4% when the economy is overheating. And in that case, Fed "might have to overshoot" interest rate to a level higher than expected in a healthy economy.

Over the weekend, Fed Chair Janet Yellen sounded quite upbeat on the economy. Yellen noted that "economic activity in the United States has been growing moderately so far this year, and the labor market has continued to strengthen."  Impact of the hurricanes were "quite noticeable in the short term". But she emphasized that "history suggests that the longer-term effects will be modest and that aggregate economic activity will recover quickly."

Euro softer on some political risks

Euro is trading generally softer, except against Aussie and Canadian. Catalan leader Carles Puigdemont didn't clarify his position regarding independence as requested by Spanish Prime Minister Mariano Rajoy. Instead, Puigdemont requested two months of communications over the status. Puigdemont emphasized that "the suspension on our side of the results that come out of the vote on 1 Oct, shows our firm commitment to find a solution, and avoid confrontation." However, Spain's Deputy Prime Minister Soraya Sáenz de Santamaría criticized that Puigdemont haven't made his position clear. And he offered Puigdemont an ultimatum to give a formal confirmation on independence or not by Thursday morning.

In Germany, Social Democrats defeated Chancellor Angela Merkel's Christian Democrats in an election in the northern state of Lower Saxony on Sunday. That is seen as a blow to Merkel as she's in preparation for coalition talks this week. The task is known to be difficult as her coalition partner of Afd and Greens are standing on different side of the spectrum. While Merkel acknowledged it, she tried to sound optimistic and said that "unusual combinations can of course bring the opportunity to find some solutions to things that had seemed unsolvable until now."

Released from Eurozone, trade surplus widened to EUR 21.6b in August. German WPI rose 0.6% mom in September.

Sterling firm as May meets Juncker

Sterling continues to trade as the strongest one for the week. Markets are keenly await inflation, employment and retail sales data. UK Prime Minster Theresa May will have a dinner with EU leaders in Brussels today, trying to rescue the Brexit negotiations. That include EU Commission President Jean-Claude Juncker and chief Brexit negotiator Michel Barnier. It came days after EU officials said the talks were deadlocked, as conclusion to the fifth round. It's believed that May would try to persuade the EU counter parts to start the talks on post-Brexit trade agreements. But so far, nothing is know about what May could offer in return. And it's clear that the EU side sees there isn't "sufficient progress" to move on, with key issues like the divorce bill unresolved.

Released from UK, Rightmove house prices rose 1.1%% mom in October.

Oil surged on Iran concerns, But CAD lags

Oil price surged today as geopolitical tensions have heightened concerns over Middle East exports. The Iraqi government has sent forces to the northeastern Kurdish region, trying to take control of the oil fields there. It is estimated that the conflict would cut the exports in the area by -75% to 0.15M bpd. Meanwhile, US President Donald Trump refused to certify the Iran has been complying with the nuclear deal. His plan to impose new sanctions against Iran is doomed to affect oil output there.

However, French President Emmanuel Macron has criticized Trump's threat to of tearing up the Iranian deal, while the EU has indicated that the US has no right to terminate the deal. China has also expressed the hope of keeping the deal in place. If the US were the only country that imposes new sanctions against Iran, the actual impacts on the oil market would be limited. Indeed, the major destinations of Iran's oil are European countries, China and India.

Canadian dollar, however, shows no reaction to oil price and trades broadly lower. Released from Canada, international securities transactions dropped to CAD 9.85b in August.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 111.57; (P) 111.94; (R1) 112.19; More...

Intraday bias in USD/JPY stays on the downside at this point, as 112.57 minor resistance remains intact. 113.43 is seen as a short term top. Decline from there should target 55 day EMA (now at 111.37) first. As whole rebound from 107.31 is likely completed, sustained trading below 55 day EMA will target 107.31 low and below. In that case, we'd expect strong support from 61.8% retracement of 98.97 to 118.65 at 106.48 to contain downside and bring rebound. On the upside, above 112.57 minor resistance will turn intraday bias neutral first. But risk will stays on the downside as long as 113.43 resistance holds.

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.

Economic Indicators Update

The DAX has posted small gains in the Monday session. Currently, the index is at 13,013.50, up 0.17% on the day. On the release front, eurozone data was positive. German Wholesale Price Index gained 0.6%, above the forecast of 0.4%. The eurozone trade surplus jumped to EUR 21.6 billion, above the estimate of EUR 20.3 billion. On Tuesday, Germany releases ZEW Economic Sentiment and the eurozone will publish Final CPI.

Last week, ECB President Mario Draghi appeared to pour cold water on hopes that the ECB would raise interest rates in the near future. Draghi stated that he plans to maintain ultra-low rates "well past" the end of its bond-buying program in December. The ECB has been under pressure to tighten monetary policy, primarily from Germany, where the central bank has called for tighter policy, given the stronger eurozone economy. The ECB is expected to taper its monthly bond purchases of 60 billion euros at the October policy meeting, but Draghi has sent out a clear message that rate hikes will have to wait until 2018. With inflation levels will below the ECB target of around 2 percent, Draghi has been reluctant to raise interest rates until inflation shows clear signs of moving upwards.

The crisis in Catalonia continues this week, with no resolution in sight. Last week, the Spanish government set a Monday deadline for Catalan President Carles Puigdemont to expressly state whether he had declared independence, and if so, Puigemont was given three more days to retract his proclamation. However, the Catalan President shirked away from a clear answer and let the first deadline pass, calling for more dialogue with Madrid. Prime Minister Mariano Rajoy has threatened to suspend the Catalan parliament and impose direct rule from Madrid, which could trigger a violent response. The crisis has led 500 companies to start leaving Catalonia, and the Standard and Poor's rating agency has said that the region could face a recession if the crisis continues.