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EURJPY staged a strong rally after bouncing off the key 130 level on Monday to reach a high of 132 today, a level not seen since January 2016. Upside momentum stalled as the market became overbought. This was indicated by the RSI reaching above 70.

Technical studies on the 4-hour chart are supportive of a bullish outlook. The Tenkan-sen and Kijun-sen lines are positively aligned while the market is above the Ichimoku cloud. MACD is in bullish territory above zero and is rising. RSI is also positive, although at overbought levels. This points to the risk of a move lower in the near term.

Upside pressure has weakened and EURJPY is now capped at the key 132 level which will prove challenging to breach. A sustained move above this resistance would see a resumption in the uptrend and will open the way towards 134.50.

Immediate risk is tilted to the downside with 131.16 being a support level ahead of the key 130 level. Below this, the September 6 low of 129.36 would be a target ahead of 128.32 and 127.55.

The broader trend higher in EURJPY remains intact and is well-supported by a bullish alignment of short and medium-term trend indicators but immediate risk is to the downside.

The pair eases on Wednesday after strong rally of nearly 2% in past two days peaked at 110.25. Near-term bulls are taking a breather.

Extended short squeeze is threatening larger bears for stronger recovery which requires firm break above lower top of 31 Aug at 110.66.

Strong bullish signal was generated on Tuesday’s close above 110.05 (Fibo 38.2% of larger 114.94/107.31 descend, with 110.00 zone now acting as initial support and so far holding easing from fresh two-week high at 110.25.

Correction may extend as overbought slow stochastic on daily chart sends negative signal. Extended pullback should find support at 109.38 (converged 10/20SMA’s) to keep near-term bulls intact for renewed attempts higher.

Conversely, sustained break below 109.38 would generate negative signal.

Res: 110.25, 110.66, 110.80, 111.14
Sup: 109.90, 109.62, 109.38, 109.00

Weak sterling drives inflation higher, wage growth stalls

The pound sterling rallied strongly yesterday, hitting a one-year high against the greenback, as investors anticipate the upside surprise in inflation would force the BoE to step in. GBP/USD rose more than 0.90% on Tuesday, the highest level since September 2016, following the release of higher-than-expected inflation levels for August. Indeed, the headline gauge printed at 2.9y/y versus 2.8% median forecast and 2.6% in the previous month. The core measure, which excludes the most volatile components, came in at 2.7%y/y versus 2.5% expected and 2.4% in July, suggesting that the tick up in fuel price is not the sole explanation.

Indeed, the sharp depreciation of the pound sterling over the last few months impacted the cost of imported goods to the upside. Clothing and footwear component rose 4.6% over the last 12 months, contributing to 0.26 points to the CPIH rate (compared to -0.07 a year ago), while the surge in restaurant and hotels prices contributed to 0.35 points (compared 0.23 a year ago).

This morning, the ILO unemployment rate fell to 4.3% July from 4.4% a month ago as employment change rose to 181,000 versus 150,000 median forecast and 125,000 in June. However, average weekly earnings stayed stable at 2.1%y/y versus 2.2% expected. The lack upside pressure in basic wage growth suggest that households’ stalling disposable income won’t accelerate the pick-up in inflation. In addition, the pound sterling has stabilised since the beginning of the year, if not recovered, and this would somehow eases the upside pressure in inflation stemming from the exchange rate.

Against this backdrop, the BoE will stay on hold tomorrow, especially the negative effect of Brexit have kicked in yet. Investors will therefore monitor the change in voting pattern. From our standpoint, we believe the BoE won’t take the risk to tighten its monetary policy while the Brexit negotiations have barely started and even more since the EU won’t make it easy for UK negotiators. The uncertainty is just too high and one wrong step from policy makers could be very costly for the UK economy.

Gold consolidates and Bitcoin takes a hit

Gold has largely increased since the start of the year going from $1150 to $1350. The sharpest increase was during the summer. The decline of the dollar was largely followed by an increase in the precious metal. Now that central banks needs to deliver within the short-term (balance sheet normalization for the Fed, reduction of the asset purchase program for the ECB), we believe that there are more upside for the yellow metal as we consider that global economic conditions are clearly not enough good to support a change in the monetary policy.

This year has been a great year for Bitcoin so far. Debates are strong regarding the question if Bitcoin will become a safe haven. Jamie Dimon, JP Morgan Chase CEO, has declared that “Bitcoin is a fraud”. Cryptocurrencies are a new asset class and the war between fiat money and cryptocurrencies will be on regulatory issues. Needless to say that the power of money is not a power central banks are willing to let decentralize. Bitcoin took a hit since this comment. Other would also say that China and its ICO ban are weighing on the most famous cryptocurrency. Further downsides are likely but Bitcoin still has a lot of potential. Only less than 0.01% of the global population has a bitcoin wallet. If this would reach 1%, the demand for Bitcoin would skyrocket, knowing that there are only 18 million coins available.

Better be safe than sorry
Bitcoin has been a key market for risk-off trading during the recent volatility spikes

When markets are hard to predict, the smart money is always keen to play it safe. That’s exactly what “hedge your risk” was coined for. The current bull market traces its beginning back to the financial crisis and we are yet to see the much anticipated pullback. But when the foundations of the market start to shake, expect the smart money to be the first to cover their basis. In other words, better be safe than sorry. And that is where Bitcoin comes into play.

Despite its volatility, Bitcoin has been a key market for risk-off trading during the recent volatility spikes on the back of geopolitical tension. The threat exchanges between North Korea and the US increased the interest in Bitcoin that saw its price reaching dizzy highs above $5000, despite the fact that it is still an unregulated market. Should central banks move towards regulation, get prepared for reduced volatility and higher demand.

The recent missile test of North Korea was the last straw that resulted in increased sanctions from the UN, with the aim to control the country’s imports and exports and ultimately their ability to get their hands on hard currency. Whether these measures are enough to put an end to Kim Jong-un’s nuclear aspirations remains to be seen.

What is for sure though is that the country is loading on Bitcoin and digital currencies as a response with South Korea’s cryptocurrency hub their main target. Should North Korea’s interest in cryptocurrencies continue, get prepared for fresh price highs.

With 358% YTD increase in value, it would be no surprise to see the Bitcoin reaching $5,500 by the end of 2017.

Hedging the risk in the Bitcoin market online has become a popular option as brokers are starting to offer Bitcoin CFDs with 25:1 leverage. For those who hold Bitcoins, hedging the risk online could simply mean going short. In that way you could be protected from potential downsides, as your short CFD positions may offset the loss in value.

Bitcoin Broke the 4000 Mark, Bargain Hunters Stepped In
Sterling May Face Disappointment Due To Tepid Wage Growth
Yellow Metal Finding Some Strength

The European markets are trading lower as traders are sceptical about the Trump tax reforms. Steven Mnuchin, the Treasury Secretary assured the markets yesterday that it is still highly likely that some parts of the tax reforms may take place this year and they could be backdated to 01 January 2017. However, that momentum did not last for long because Disney World confronts a sad reality that nothing is that easy.

Bitcoin Broke the 4000 Mark, Bargain Hunters Stepped In

China's plan to shut down the domestic Bitcoin exchanges has taken a lot of wind out of Bitcoin. The PBOC has prepared a draft which would ban the Chinese platforms from offering Bitcoin trading- a serious blow for Bitcoin. Remember, the Asia region has massively influenced the demand for the Bitcoin. The fading geopolitical tensions are also impacting the Bitcoin price. As a result of all the negative news, traders have taken some profit off the table and the cryptocurrency broke the $4000 mark for the first time since it touched the €5000 level. The CEO of JP Morgan, Jamie Dimon has said that he will not hesitate to fire his traders if they touch Bitcoin. Perhaps, a more premature view. The digital currency is here to stay and under a more regulated environment, its volatility would ease off. Moreover, this is not the first time that Jamie Dimon has spoken against the currency, the last time he had a similar go on the currency was in November 2015. Since then, the currency has been having a remarkable run. Most importantly, given that the CEO does not think that shorting this trade would yield a more favourable outcome, shows that the cryptocurrency has a lot more room to run. The currency serves the best alternative for people/nations who do not have many options on the table for themselves.

Sterling May Face Disappointment Due To Tepid Wage Growth

If you want to see a currency which is having one of the best runs this week, then look no further. The British pound has seen tremendous strength this week and yesterday’s strong CPI reading provided further tailwind for the currency. Today we have the jobs data and the picture is going to be very familiar; the jobs creation number is likely to improve but the pay rise would be very modest. The GDP growth so far isn’t great and it is not going to get any better, therefore, the prospects for any lift for the wage growth are very limited. Under that circumstance, we do not anticipate that the Bank of England has a strong case to increase the interest rate because that would only turn off the oxygen supply for the consumers. Traders are going to keep a close eye on the upcoming labour market data over the next months as that would provide a clearer idea about how the economy is faring with the Brexit challenges.

Yellow Metal Finding Some Strength

The bargain hunters have stepped back in to support the yellow metal price. The metal touched the highs of 1357 due to two major affairs; the weakening prospect of the Fed increasing the interest rate this year and finally the escalation in the geopolitics. When it comes to geopolitics, they have faded largely, however, Donald Trump, the president of the US, has notched up things by demanding tougher sanctions on North Korea. The dollar weakness is also helping the metal today, but the gains are very minuscule.

Sterling fell below 1.3300 handle after UK jobs data. Positive signal from surprise fall in jobless claims (-2.8K in August vs 0.6K rise forecast and downward revised July figure from -4.2K to -2.9K) and Unemployment falling to 4.3% (the lowest since 1975) was offset by weak figures in Average Earnings (2.1% in July vs 2.3% forecast) which shows that pay growth is still subdued.

Jobs data sours overall positive view of the UK economy which was greatly boosted by upbeat inflation numbers on Tuesday.

Cable pulled back to the session low at 1.3274, but so far stays above initial support at 1.3268. Overall picture remains bullish and favor dip-buying for fresh upside action, with weaker than expected overall UK jobs sector outlook after today’s data, to likely speed up corrective action signaled by overbought daily studies.

We see a higher base at 1.3158 (also near Fibo 38.2% of 1.2905/1.3328 upleg) as ideal support to contain extended dips before larger bulls resume.

Res: 1.3300, 1.3328, 1.3385, 1.3400
Sup: 1.3268, 1.3224, 1.3200, 1.3158

Cable stays firm in early Wednesday's trading and probes above round-figure 1.3300 barrier. The pair extends Tuesday's strong rally of nearly 1%, sparked by better than expected UK inflation numbers to fresh 2017 highs. Wednesday's close above previous high at 1.3268 was bullish signal for extension towards Fibo projections at 1.3385 and 1.3457, en-route to key barrier at 1.3473 (weekly cloud top/50% retracement 1.5016/1.1930 (Jun/Oct 2016 bear-leg). UK jobs data are in focus today. Average earnings are expected to rise in July, according to the forecast at 2.3% vs 2.1% increase in June, which is seen as positive signal, however, jobless claims are expected to rise by 0.6K in July after falling by 4.2K in June. Unemployment rate is expected to stay unchanged at 4.4%v in July. Better than expected jobs data from UK would further boost pound while weaker figures would slow recent bulls for correction which is also signaled by overbought conditions on daily chart. However, overall bullish structure favors further upside, with corrective dips seen as fresh buying opportunities. Former top at 1.3268 marks immediate support ahead of higher base at 1.3158 (Tue/Mon lows) which is expected to contain stronger dips.

Res: 1.3314, 1.3385, 1.3400, 1.3457
Sup: 1.3268, 1.3224, 1.3200, 1.3158

The Euro stands higher on Wednesday and remains underpinned by 10SMA which contained pullback from 1.2092 but struggles under psychological 1.2000 barrier.

The price penetrated in descending thick hourly cloud (spanned between 1.1976 and 1.2020) with break above the cloud needed to signal stronger upside. Acceleration above 1.2028 (Friday’s high / Fibo 61.8% of 1.2092/1.1925 pullback) would confirm reversal and higher low at 1.1925.

Overall picture remains bullish but mixed signals from studies on lower timeframes suggest that the pair may stay in extended consolidation while 1.2000/20 pivots cap.

Initial range lies between 1.1960 and 1.2000.

Res: 1.2000, 1.2020, 1.2070, 1.2092
Sup: 1.1976, 1.1960, 1.1925, 1.1877

EUR/USD

Current level - 1.1977

The rebound above 1.1924 is quite pale and there is still a risk of another downswing, towards 1.1830 major support area. 

USD/JPY

Current level - 110.12

The upmove is still underway, for a test of 110.60 high. Initial intraday support lies at 109.60.

GBP/USD

Current level - 1.3303

The uptrend is intact after the violation of 1.3260 peak and next hurdle lies at 1.3340, followed by 1.3440 area. Key support is projected at 1.3220.

In line with expectations, a resistance created by the 55- and 100-hour SMAs prevented the further advance of the Euro against the Greenback. At the moment, this barrier is also strengthened by the weekly PP. For this reason, the pair is expected to fail to break to the top. However, a sharp decline should not happen as well, as the southern side remains reliably protected by the 200-hour SMA, which is moving along the lower support line of a long-term ascending channel. In other words, the rate is expected to stay for some time in this ascending triangle. On the other hand, an effect from release of data on the US PMI at 12:30 GMT might give a necessary impulse to bypass the above resistance a stay for some above the 1.9999 mark.