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USD/CAD is edging higher. Hourly support is located at 1.2062 (08/09/2017 low). Resistance is now given at a distance at 1.2239 (intraday high). Expected to show continued short-term bullish pressures.

In the longer term, the pair has broken longterm support that can be found at 1.2461 (16/03/2015 low). Strong resistance is given at 1.4690 (22/01/2016 high). The pair is likely to head further lower.

USD/CHF keeps on bouncing higher. Strong resistance is given at 0.9808 (30/05/2017 high). The technical structure shows that the the pair is likely to head further lower below 0.9421 (03/05/2017). Expected to show renewed bearish pressures.

In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.

USD/JPY is pushing higher above 112.00. Strong support is located at 111.12 (20/09/2017 low). Expected to show further bullish pressures. Yet, downside risks are now rising as markets may soon take some short-term profit.

We favor a long-term bearish bias. Support is now given at 99.02 (10/08/2013 low). A gradual rise towards the major resistance at 125.86 (05/06/2015 high) seems unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

GBP/USD is pushing higher after recent surge. Hourly resistance is given at 1.3657 (20/09/2017 high). Strong support is given at 1.2774 (24/08/2017 low). Expected to show continued bullish consolidation.

The long-term technical pattern is reversing. The Brexit vote had paved the way for further decline. Long-term support can be found at 1.1841 (07/10/2017 low). Long-term resistance given around 1.35 is at stake and indicates a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

EUR/USD lies in a bullish trend despite ongoing consolidation. Hourly resistance can be found at 1.2092 (08/09/2017 high) while hourly support lies at 1.1823 (31/08/2017 low). Stronger support is given at a distance at 1.1662 (17/08/2017 low). Expected to show continued bullish pressures.

In the longer term, the momentum is now turning largely positive. We favour a continued bullish bias. Key resistance is holding at 1.2252 (25/12/2014 high) while strong support lies at 1.0341 (03/01/2017 low).

The Aussie is in recovery mode after hitting fresh low of the month at 0.7907 in early hours of Friday's trading, in extension of Thursday's strong fall (the biggest one-day loss since 03 May). Fresh weakness of the greenback on renewed tensions over North Korea boosted the Aussie dollar for bounce from dangerous territory, as bearish extension on Friday approached strong support at 0.7890, provided by top of rising daily cloud.

Near-term studies hold bearish tone while are bearishly aligned following repeated strong upside rejection above 0.8100 and Thursday's break and close below main bull trendline at 0.8000 (the trendline is drawn from 0.7369, 02 June low). Current corrective rally would face strong barrier at 0.8000 (broken trendline/daily Tenkan-sen / 50% retracement of 0.8102/0.7907 downleg) which is expected to cap recovery ahead of fresh attempts lower.

Conversely, break and close above 0.8000 pivot would shift near-term focus higher again and signal higher low at 0.7907. Extension above 0.8028 (Fibo 61.8% of 0.8102/0.7907) is needed to confirm reversal.

Res: 0.7982, 0.8000, 0.8028, 0.8035
Sup: 0.7940, 0.7907, 0.7890, 0.7865

Chinese yuan to keep slipping on overdebtedness worries

Chinese equities ended lower for the second day in a row after Standard & Poor's stripped China of AA- rating. The Shanghai Composite fell as much as 0.90% over the last two days as investors dumped Chinese stocks in reaction to the rating agency to lower China's rating to A+ amid concerns over credit growth. Similarly, the tech-heavy Shenzhen Composite was off as much as 1.60% since Wednesday close but trimmed losses to 1.20% before the week-end.

Standard & Poor's justified its decision by saying that "The downgrade reflects our assessment that a prolonged period of strong credit growth has increased China's economic and financial risks." The need for China to deleverage its economy is no news; however the subject has kind of slip under the radar over the last few months as investors focused on the twists and turns of Trump and the Fed and ECB shifting towards further tightening. On Friday, in the wake of China downgrade, the rating agency cut Hong Kong's rating from AAA to AA+ saying that "We are lowering the rating on Hong Kong to reflect potential spillover risks to the SAR should deleveraging in China prove to be more disruptive than we currently expect".

Now that the Fed has finally triggered the process to reduce its balance sheet and that the ECB should at least reduce its quantitative easing program, investors will likely focus again on China and its massive debt problems. The yuan continued to lose ground against the USD with USD/CNY climbing to 6.60, up 2.45% from its multi-month low of 6.439. Further weakness of the yuan appears likely against the backdrop of potential further downgrade and mounting concerns about the level of indebtedness.

EUR/CHF reaches its highest level since January 2015

The EURCHF pair has reached its highest level since the floor was abandoned in January 2015. The pair has even reached 1.1620 CHF for one euro coin. The bullish move is mostly due because of the anticipation of the asset purchase program being reduced by the ECB in October. Bullish pressures are set to continue for the pair until then.

Major central banks (except the BoJ) are slowing moving towards further tightening and in particular balance sheet reduction. The demand for the euro currency is getting higher. However we remain suspicious about the euro strength within the medium–term.

For the time being, markets are buying the Eurozone decline in the unemployment rate, the fading threat of deflation, 1.5% y/y, and the continued growth. Anyway, we believe that all of this are on very fragile balance. European countries are sitting on massive debt and the current growth has only been obtained by massive injection of fresh cash. Any wise euro investors should be looking towards the Greek debt problem to be convinced that this won't end well. Anyway the single currency is likely to appreciate against the Swiss franc within the medium-term.

On Sunday, German citizens will head to the polls to elect their new Chancellor. Unlike the bloc's recent elections, this battle appears to be more traditional in nature, as the two main parties hold very similar views on key issues. According to almost every opinion poll, another victory by incumbent Chancellor Merkel is perceived as certain. As such, we believe the market reaction on the actual vote may be relatively limited, with risks tilted towards a small relief bounce in the euro and European stocks in case Merkel wins as expected.

However, Merkel will probably need to strike a coalition with other parties, as she is unlikely to gain enough popularity to govern alone. We believe that any major market reaction in the aforementioned asset classes may result from who Merkel chooses to align herself with, something that will become clearer towards the end of October. The political alliance she forms could determine whether much-needed EU reforms will materialize, such as the creation of a position for an EU Finance Minister, a shared euro-budget, and further banking sector integration. The most market-friendly outcome may be a continuation of the current 'Grand coalition' with the SPD, Germany's second largest party, considering its pro-EU stance.

EUR/USD edged north on Thursday after it hit support at the medium-term uptrend line taken from the low of the 17th of April. At the time of writing, the rate is testing the 1.1965 (R1) level, where an upside break may open the way for another test near our next resistance of 1.2025 (R2). Our momentum studies support the case for the pair to continue trading higher for a while. The RSI rebounded and emerged back above its 50 line, while the MACD, although negative, has bottomed and just poked its nose above its trigger line. It could turn positive soon.

New Zealand election: A neck and neck battle?

On Saturday, New Zealand will hold its own General election. Most opinion polls suggest a very tight race between the incumbent National Party and the Labor Party. Judging from how the Kiwi has reacted to opinion polls so far, a victory by the Nationals would probably prove beneficial for the currency, whereas a potential Labor win could weigh on NZD. This may be the case due to the different stances these two parties hold on trade policy. The Nationals represent the status quo, and advocate continued free trade. However, Labor has stated they are open to renegotiating trade deals such as the Trans-Pacific Partnership (TPP). Considering how heavily reliant New Zealand is on international trade, such a renegotiation could hurt exporting firms and thereby, slow the economy.

NZD/USD continued trading lower yesterday, falling below the support (now turned into resistance) of 0.7340 (R1). Currently the rate is testing the 0.7280 (S1) support, where a dip may pave the way for our next obstacle of 0.7245 (S2). Nevertheless, a lot of the pair's forthcoming direction will depend on the outcome of New Zealand's General Election. If the Nationals win, the pair could rebound, break above 0.7340 (R1) and perhaps challenge once again the important territory of 0.7400 (R2). On the other hand, a Labor victory could hurt the Kiwi, and probably push the rate down towards the 0.7190 (S3) support area.

Switching to the daily chart, we see that on Wednesday, NZD/USD was rejected strongly from above the 0.7400 (R2) key obstacle and subsequently it retreated back within the longer-term wide sideways range between that barrier and the support of 0.6880. As such we will hold a neutral stance with regards to the broader outlook, unless a Nationals' victory encourages the bulls to overcome the 0.7400 (R2) critical obstacle.

Today's highlights:

During the European day, we get the preliminary manufacturing and services PMIs for September from several European nations and the Eurozone as a whole. The forecast is for most of these indices to tick down or to remain unchanged, which could weigh on the euro a little. In Canada, the headline CPI rate for August is expected to have risen, while no forecast is available for the core. We see the case for an uptick in the core rate as well, as the manufacturing PMI showed another sharp rise in selling prices. This could bring CAD under buying interest.

We have two speakers on the agenda: ECB President Mario Draghi and UK Prime Minister Theresa May. With regards to Draghi, focus may be on any hints as to whether the ECB is headed for a 'dovish tapering'. As for PM May, she will be speaking about the future EU-UK relationship and quite possibly, the Brexit divorce bill. If she offers an amount that is seen as adequate, we may see speculation that the pace of Brexit negotiations may accelerate, something that could support the pound a bit.

EUR/USD

Support: 1.1830 (S1), 1.1775 (S2), 1.1660 (S3)

Resistance: 1.1965 (R1), 1.2025 (R2), 1.2100 (R3)

NZD/USD

Support: 0.7280 (S1), 0.7245 (S2), 0.7190 (S3)

Resistance: 0.7340 (R1), 0.7400 (R2), 0.7455 (R3)

EUR/JPY - 134.29

Original strategy:

Buy at 132.40, Target: 134.40, Stop: 131.80

Position: -
Target: -
Stop: -

New strategy :

Buy at 132.40, Target: 134.40, Stop: 131.80

Position: -
Target:  -
Stop:-

As the single currency has maintained a firm undertone after recent rally, adding credence to our view that recent upmove is still in progress and bullishness remains for further gain to 134.50-60, then towards 135.00-10, however, near term overbought condition should limit upside and reckon 135.55-60 would hold from here, price should falter below 136.00-10, risk from there is seen for a retreat to take place later. 

In view of this, we are looking to reinstate long on pullback as 132.30-40 should limit downside and bring another rise. Below support at 132.27 would defer and risk test of previous resistance at 132.01 (should turn into support) but only break there would signal a temporary top is formed, bring correction to 131.40-50 first. 

Our latest preferred count is that wave (ii) is ABC-X-ABC which ended at 123.33 and wave (iii) is unfolding with wave iii ended at 100.77, followed by wave iv at 111.57 and wave v as well as the wave (iii) has ended at 97.04, followed by wave (iv) at 111.43 and wave (v) has ended at 94.12 which is also the end of the larger degree v, this also implied the major wave (C) has also ended there, hence major correction has commenced from there with (A) leg unfolding in its lower degree wave c which has possibly ended at 145.69. Under this count, A-B-C wave (B) has commenced with A leg ended at 136.23, wave B at 143.79 and wave C has possibly ended at 149.79.

Our larger degree count is that the decline from 139.26 is wave (C) and is sub-divided into a diagonal triangle i-ii-iii-iv-v with wave i - 105.44, wave ii- 123.33, wave iii - 97.03, wave iv - 111.43, followed by the final wave v as well as the end of wave (C) at 94.12, this also mark the bottom of larger degree wave B. Under this count, major rise in wave C has commenced as an impulsive wave with minor wave III ended at 145.69, wave V is still in progress for further gain to 150.00. Having said that, this so-called wave V could well be the first leg of larger degree 5-waver wave C and this wave C should bring at least a retest of wave A top at 169.97 (July 2008).

AUD/USD – 0.7964

Original strategy:

Sell at 0.8040, Target: 0.7840, Stop: 0.8100

Position: -
Target:  -
Stop:-

New strategy :

Sell at 0.8040, Target: 0.7840, Stop: 0.8100

Position: -
Target:  -
Stop:-

As aussie has rebounded after finding support at 0.7908 earlier today, suggesting consolidation above this level would be seen and corrective bounce to 0.8000 cannot be ruled out, however, reckon upside would be limited to 0.8040-50 and bring another decline later, below said support at 0.7908 would extend weakness to support at 0.8967-71, having said that, break there is needed to confirm temporary top has been formed at 0.8125 earlier this month, bring retracement of recent rise to 0.7800 first.

In view of this, we are looking to sell aussie again on recovery as 0.8040-50 should limit upside. Above said resistance at 0.8103 would abort and risk retest of 0.8125 but break of latter level is needed to confirm upmove has resumed and extend gain to 0.8150-60, then towards 0.8200 later. 

On the 4-hour chart, recent upmove from 0.7329 is unfolding as an impulsive rise with wave 3 as well as smaller degree wave (iii) extending, only minor wave v of (iii) has ended at 0.8125, hence bullishness remains for this move to extend headway to 0.8200, then towards 0.8300, however, reckon upside would be limited to 0.8400 and the final wave 5 should falter below 0.8500, bring correction probably next week.