Sample Category Title

USD/JPY - 109.30

New strategy  :

Stand aside

Position :  -

Target :  -

Stop : -

Despite falling initially to 108.84 earlier today, the subsequent rebound suggests decline is not ready to resume yet and further consolidation is in store, hence risk of another bounce to 109.55-60 is seen, however, reckon resistance at 109.83 (yesterday’s high) would hold and bring retreat later. Only a break of 109.83 would signal low has been formed at 108.60 earlier, bring further gain to 110.00 and later towards previous resistance at 110.37.

On the downside, below 109.00 would bring test of 108.84 but only break of said support at 108.60 would revive bearishness and confirm recent decline has resumed for further weakness to 108.30 (1.618 times projection of 110.95-109.67 measuring from 110.37), then towards 108.00. As near term outlook is still mixed, would be prudent to stand aside in the meantime.

Oil prices edged higher on Wednesday, after the weekly US EIA inventory data showed yet another drawdown, signaling that the oil market continues to rebalance in a gradual manner. In addition, a tropical storm in the Gulf of Mexico, which is expected to strengthen into a hurricane tomorrow, probably boosted oil prices further as it threatens to disrupt production in the US. Considering that a large portion of US oil production is refined near the Gulf, if this storm does intensify, then we could see further gains in oil prices. That said though, even in case prices spike higher as a result of this weather phenomenon, we would expect any such supply-induced gains to remain relatively short-lived. Unless there is some notable damage to US oil-refining infrastructure, weather factors are unlikely to disrupt supply for long.

WTI traded higher on Wednesday after it found support at 47.50 (S1). Nevertheless, the advance was stopped by the 48.55 (R1) level and then the price retreated somewhat. Given that oil is still trading above the upper bound of the downside channel that contained the price action from the beginning of February until the 25th of July, we still see the possibility for another leg up. A break above 48.55 (R1) could confirm the case and may initially aim for our next resistance of 49.30 (R2).

Having said that though, we have to repeat that we don't expect any possible near-term gains to lead into a major healthy uptrend. We still believe that the range between 51.50 (R3) and 55.00 is the area where US shale producers may be attracted to increase production, something that may put a lid on any possible future gains.

USDCHF: With the pair continuing to hold on to its downside pressure despite its consolidation threats, more decline is envisaged. On the downside, support lies at the 0.9600 level. A turn below here will open the door for more weakness towards the 0.9550 level and then the 0.9500 level. Its daily RSI is bearish and pointing lower suggesting further weakness. On the upside, resistance resides at the 0.9650 level where a break will clear the way for more strength to occur towards the 0.9700 level. Further out, resistance comes in at the 0.9750 level. All in all, USDCHF faces further downside pressure short term.

Daily Pivots: (S1) 1.2527; (P) 1.2562; (R1) 1.2585; More....

USD/CAD's fall from 1.2777 resumed after brief recovery. Intraday bias is back on the downside for retesting 1.2412 low. Break there will resume the larger decline and target next long term fibonacci level at 1.2048. On the upside, above 1.2690 will extend the correction from 1.2412 with another rise. But we'd expect upside to be limited by 38.2% retracement of 1.3793 to 1.2412 at 1.2940 to bring fall resumption eventually.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. Such corrective fall is still expected to extend to 50% retracement of 0.9406 to 1.4869 at 1.2048. At this point, we'd look for strong support from there to contain downside and bring rebound. Nonetheless, on the upside, sustained break of 1.2968, 38.2% retracement of 1.3793 to 1.2412 at 1.2940 will be the first sign of completion of the correction and will turn focus back to 1.3793 key resistance.

Daily Pivots: (S1) 1.1756; (P) 1.1789 (R1) 1.1840; More...

Intraday bias in EUR/USD remains neutral as consolidation from 1.1908 is still in progress. In case of another fall, downside should be contained by 38.2% retracement of 1.1119 to 1.1908 at 1.1606 to bring up trend resumption. Break of 1.1846 minor resistance will argue that larger rise from 1.0339 is resuming for 1.2042 long term support turned resistance next.

In the bigger picture, an important bottom was formed at 1.0339 on bullish convergence condition in weekly MACD. Sustained trading above 55 month EMA (now at 1.1768) will pave the way to key fibonacci level at 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. While rise from 1.0339 is strong, there is no confirmation that it's developing into a long term up trend yet. Hence, we'll be cautious on strong resistance from 1.2516 to limit upside. But for now, medium term outlook will remain bullish as long as 1.1295 support holds, in case of pull back.

Daily Pivots: (S1) 1.2774; (P) 1.2803; (R1) 1.2828; More...

GBP/USD lost some downside momentum again but still, further decline is expected with 1.2915 resistance. Current fall from 1.3267 should be targeting to 1.2588 key near term support. As noted before, we're favoring the case that correction from 1.1946 is completed at 1.3267. Decisive break of 1.2588 will confirm our view and target a test on 1.1946 low. Though, break of 1.2915 will indicate short term bottoming and bring stronger rebound.

In the bigger picture, overall, price actions from 1.1946 medium term low are seen as a corrective pattern. While further rise cannot be ruled out, larger outlook remains bearish as long as 1.3444 key resistance holds. Down trend from 1.7190 (2014 high) is expected to resume later after the correction completes. And break of 1.2588 will indicate that such down trend is resuming.

Daily Pivots: (S1) 0.9632; (P) 0.9664; (R1) 0.9688; More....

No change in USD/CHF's outlook as it's bounded in range of 0.9582/9772. Intraday bias remains neutral at this moment. On the upside, decisive break of 0.9772 resistance will revive the bullish case of reversal. That is, whole decline from 1.0342 has completed at 0.9437 after defending 0.9443 support. USD/CHF should then target channel resistance (now at 0.9849) next. Meanwhile, the pair is bounded inside medium term falling channel and limited below 38.2% retracement of 1.0342 to 0.9437 at 0.9783 for the moment. Break of 0.9582 will turn bias back to the downside for 0.9437. This could also extend the fall from 1.0342 through 0.9437/43 key support level.

In the bigger picture, we're slightly favoring the case that USD/CHF has successfully defended 0.9443 key support level. And long term range trading in 0.9443/1.0342 is extending with another rise. At this point, there is no sign of an up trend yet. Hence, while further rise is expected in USD/CHF, we'll start to be cautious on loss of momentum above 61.8% retracement of 1.0342 to 0.9437 at 0.9996. However, firm break of 0.9443 will carry larger bearish implication and would target next key support at 0.9072.

Daily Pivots: (S1) 108.69; (P) 109.26; (R1) 109.59; More...

USD/JPY continues to engage in consolidative trading above 108.59 temporary low. Intraday bias remains neutral for the moment. Near term outlook stays bearish with 110.94 resistance intact and deeper decline is expected. Break of 108.59 will target a test on 108.12 low. Whole corrective decline from 118.65 is possibly resuming and break of 108.12 will target 61.8% retracement of 98.97 to 118.65 at 106.48. Nonetheless, firm break of 110.94 will indicate short term bottoming and turn bias back to the upside.

In the bigger picture, the corrective structure of the fall from 118.65 suggests that rise from 98.97 is not completed yet. Break of 118.65 will target a test on 125.85 high. At this point, it's uncertain whether rise from 98.97 is resuming the long term up trend from 75.56, or it's a leg in the consolidation from 125.85. Hence, we'll be cautious on topping as it approaches 125.85. If fall from 118.65 extends lower, downside should be contained by 61.8% retracement of 98.97 to 118.65 at 106.48 and bring rebound.

The markets are lacking a clear direction for the moment as traders await the highly anticipated Jackson Hole symposium of global central bankers. Sterling is the notably weaker one this week but there is no follow through selling seen today. The pound is trying to recovery against Dollar, Euro as well as Yen. EUR/USD is still staying in range below 1.1908 as recent consolidation extends. Some strength is seen in Canadian Dollar today as USD/CAD dips through 1.2525 temporary low. That could be thanks to WTI oil's recovery back above 48. Gold is also hovering in tight range below 1300.

Draghi not expected to deliver anything special

The Jackson hole symposium, titled "Fostering a Dynamic Global Economy," is hosted by the Kansas City Federal Reserve Bank. It kicks off later day and runs through Saturday. Main focus in on European Central Bank President Mario Draghi and Federal Reserve chair Janet Yellen. Both will deliver a speech on Friday. There were already talks that Draghi will not deliver a policy shift in the occasion. And it's understandable as he already indicated that ECB will discuss the composition of stimulus in September. Some analysts noted that Draghi's silence on monetary policy would clear up the risks of a dovish message. And in that case, Euro could finally gather the momentum to complete the near term consolidation from 1.1908 against Dollar.

Yellen won't neither

At the same time, Fed chair Janet Yellen is also unlikely to deliver anything new regarding Fed's policies. Fed has already indicated in the July FOMC minutes that "participants generally agreed that, in light of their current assessment of economic conditions and the outlook, it was appropriate to signal that implementation of the program likely would begin relatively soon, absent significant adverse developments in the economy or in financial markets". Fed is generally expected to announce the program to unwind its balance sheet in September. And we argue that Fed will still do it in spite of the uncertainties on raising the debt limit by Congress (more in US Debts Approach Limit. How Will It Affect Fed's Policy?) And for the moment, it's too early for Yellen to indicate whether Fed will hike again in December.

Fitch warns of rating review with negative implications

Raising of debt ceiling will be a key focus in the US in September. Credit ratings agency Fitch warned that failure to raise the debt ceiling would prompt a review on US AAA sovereign rating "with potentially negative implications". Fitch warned that "brinkmanship over the debt limit could ultimately have rating consequences, as failure to raise it would jeopardize the Treasury's ability to meet debt service and other obligations." It noted that "republican fiscal conservatives are likely to make support for lifting the debt limit conditional on measures to aggressively reduce the budget deficit. A 'clean' debt limit increase, unattached to other policy measures, appears possible, although it may require support from Democrats." And, "in Fitch's view, the economic impact of stopping other spending to prioritize debt repayment, and potential damage to investor confidence in the full faith and credit of the U.S., which enables its 'AAA' rating to tolerate such high public debt, would be negative for U.S. sovereign creditworthiness."

Trump blames Paul Ryan and Mitch McConnell

US President Donald Trump tweeted that "I requested that Mitch M & Paul R tie the Debt Ceiling legislation into the popular V.A. Bill (which just passed) for easy approval. They didn't do it so now we have a big deal with Dems holding them up (as usual) on Debt Ceiling approval. Could have been so easy-now a mess!" But it's generally perceived by the analysts that risks of government shutdown and debt payment defaults surged after Trumps' threat that "if we have to close down our government, we're building that wall" of US-Mexico border. He has requested USD 1.6b for building the US-Mexico border wall but that is widely rejected by Democrats. And, even though the House has passed a spending package with the wall funding, Trump doesn't have enough support to pass in the Senate by September 30. And he could in the end veto the spending bill if wall funding is not included. At the same time, some Republicans are working on a bipartisan bill with Democrats on raising debt ceiling. But the Democrats are clear on their rejection of attaching any condition to the debt bill.

ECB Hansson not concerned with Euro strength

Separately, ECB governing council member Ardo Hansson talked down the concern of strength in Euro as ECB might taper the asset purchase program. He noted that "it's not surprising that markets might react and say, on balance, we're more upbeat about Europe than we were a while ago, which will cause the currency to be a bit stronger." Hansson said he doesn't have a view on what the packaged will be after the current EUR 60b per month asset purchase program ends by the end of the year. Regarding stimulus exit Hansson emphasized to split the "degree of accommodation" and "how you deliver it". And ECB may still want to maintain an "easing bias" but deliver it in "somewhat difference combination."

On the data front.

US initial jobless claims rose 2k to 234k in the week ended August 19, below expectation of 236k. Continuing claims were unchanged at 1.95m in the week ended August 12. UK Q2 GDP growth was unrevised at 0.3% qoq. UK index of services rose 0.5% 3mo3m in June, BBA mortgage approvals rose to 41.6k in July, CBI realized sales dropped to -10 in August. New Zealand trade surplus narrowed to NZD 85b in July but was better than expectation of NZD -200m deficit.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 108.69; (P) 109.26; (R1) 109.59; More...

USD/JPY continues to engage in consolidative trading above 108.59 temporary low. Intraday bias remains neutral for the moment. Near term outlook stays bearish with 110.94 resistance intact and deeper decline is expected. Break of 108.59 will target a test on 108.12 low. Whole corrective decline from 118.65 is possibly resuming and break of 108.12 will target 61.8% retracement of 98.97 to 118.65 at 106.48. Nonetheless, firm break of 110.94 will indicate short term bottoming and turn bias back to the upside.

In the bigger picture, the corrective structure of the fall from 118.65 suggests that rise from 98.97 is not completed yet. Break of 118.65 will target a test on 125.85 high. At this point, it's uncertain whether rise from 98.97 is resuming the long term up trend from 75.56, or it's a leg in the consolidation from 125.85. Hence, we'll be cautious on topping as it approaches 125.85. If fall from 118.65 extends lower, downside should be contained by 61.8% retracement of 98.97 to 118.65 at 106.48 and bring rebound.

Economic Indicators Update

The GBP/USD broke below 1.2020, the weekly L3 level, thus turning the support into a resistance. After a short breakout that I showed on live trading webinar yesterday, the pair started to retrace towards the POC zone 1.2830-50 (Order block, ATR high, trend line, D H5, EMA89). The price could reject there towards the 1.2880 and 1.2770. Only a break below 1.2768 could spur additional weakness in the pair towards 1.2740 zone. The market is calm at this point but the increased volatility is expected during the 2017 Economic Symposium, "Fostering a Dynamic Global Economy", which will take place Aug. 24-26, 2017 at Jackson Hole, WY.

Renewed bulls strength in the pair should manifest on a 4h candle close above 1.2855. That could be a sign for a further correction towards 1.2925.