Sample Category Title

USDJPY - The pair still faces downside pressure though closing higher the past week. On the downside, support comes in at the 114.00 level where a break if seen will aim at the 113.50 level. A cut through here will turn focus to the 113.00 level and possibly lower towards the 112.50 level. Its daily RSI is bearish and pointing lower suggesting further weakness. On the upside, resistance resides at the 114.50 level. Further out, we envisage a possible move towards the 115.00 level. Further out, resistance resides at the 115.50 level with a turn above here aiming at the 116.00 level. On the whole, USDJPY looks to weaken in the nearer term.

The USD/JPY trade narrative continues on the blog today.

After having bounced out of the daily support zone (in the chart on that last blog I've linked to above), we got the following short term retest for a nice long trade with tight risk:reward:

USD/JPY Hourly:

'Find your levels, trade your levels. It's always the same!'

(I had to include that last little quote which I had published in the previous post because once again it is proven so true!)

But now with the pair pushing into the first spot of swing high resistance, we have a decision to make:

USD/JPY Daily:

Do we continue trading the pair in the overall daily direction which I would still very much classify as bullish?

Or do we make a smaller, counter-trend play at the swing highs?

French Political Risk Simmers Again

Risk off sentiment has crept back to the fore as the markets are in a sulk as dealer attempt to decipher the Fed rate trajectory beyond March while shifting their focus to geopolitical concerns as the French election risk continues to simmer. Alain Juppe, seen as a possible replacement for the scandal hobbled conservative candidate Francois Fillon announced; he has no intention to run in the presidential race. Juppe was viewed as more conservative than Fillon and would appeal to a wider element of France’s conservatives and diminishes the odds of an ultra right wing Le Pen victory

Australian Dollar

Not lots of anticipation regarding today’s Reserve Bank of Australia meeting with the futures curve as flat as a pancake, indicating zero expectations on the rate front. With the RBA widely expected to leave rates unchanged in the face of mounting household debt, a change in guidance is equally unlikely. Steady as she goes should be the course directed from the RBA captain.The tail risk for the event is certainly a Hawkish one if any.

AS with most G10 currencies overnight, the Aussie spent most of Monday consolidating as the various market themes and drivers continue to unfold. While Fed and Fiscal continue to dominate the early headlines, ECB and EU risk are starting to pick up steam again. With the later weighing on equity markets, the Aussie simply does not trade well at the slightest hint of risk aversion.

Japanese Yen

With the markets all in on a March rate hike was not ample support to push the market through the critical 115.00, dealers quickly took profit, and the dollar has failed to pick up any real momentum since.And with equity markets looking a bit worse for wear after the recent French election headlines the key 115 seems too far of a reach at this time unless equities reverse significantly higher.

Euro

While election headline risk had abated somewhat, I’m convinced there remains considerable political risk over the coming months but for now with EU interest rate expectations rising, and 1.05 level holding very firm, the EURUSD is not the markets choice to express a long dollar bias. But on the flip side, it’s hard to get excited about the EURO despite the improving macro & inflation trends, at least until the ECB clearly signals a shift in policy. But given the overall balance of risk facing Europe, we should not expect that change to occur at Thursday’s ECB meeting

Factory orders rose 1.2 percent to start 2017. On balance, the hard data in the manufacturing sector continue to show improvement, although the pace has been slower than sentiment indicators alone would indicate.

Factory Sector Firming

Factory orders rose 1.2 percent in January, boosted by sizable jumps in the notoriously volatile aircraft components for both defense and nondefense.

Nondurable shipments rose 0.4 percent, led by growth in textile mills, apparel and petroleum and coal products. Input price pressures are building in the factory sector and have likely helped boost growth in this nominally reported indicator.

Core Orders Signal Stronger Business Investment

Core capital goods orders fell 0.1 percent, a smaller decline than indicated in the advanced report, but this improvement was largely offset by downward revisions to December's reading.

Through the monthly volatility, core capital goods orders are up 8.7 percent on a three-month average annualized basis. This is the fastest pace since 2014 and corroborates some of the rising sentiment seen in other indicators, such as ISM and NFIB.

USD/CHF - 1.0099

Most recent candlesticks pattern : N/A

Trend                                    : Sideways

Tenkan-Sen level                  : 1.0089

Kijun-Sen level                    : 1.0104

Ichimoku cloud top                 : 1.0118

Ichimoku cloud bottom              : 1.0106

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

As the greenback ran into resistance at 1.0135 and has retreated again after faltering below resistance at 1.0146, suggesting consolidation below this level would be seen and weakness to 1.0060-65 (61.8% Fibonacci retracement of 1.0009-1.0146 and previous support), however, as broad outlook remains consolidative, reckon downside would be limited to 1.0035-40 and price should stay well above support at 1.0009, bring rebound later.

On the upside, expect recovery to be limited to 1.0120 and price should falter well below resistance at 1.0146, bring retreat later. Only above said resistance at 1.0146 would extend recent erratic rise from 0.9661 to 1.0170-80 but reckon 1.0200 would hold from here. 

GBP/USD - 1.2258

Most recent candlesticks pattern   : N/A

Trend                                 : Near term down

Tenkan-Sen level                 : 1.2271

Kijun-Sen level                    : 1.2267

Ichimoku cloud top              : 1.2294

Ichimoku cloud bottom        : 1.2251

Original strategy :

Buy at 1.2220, Target: 1.2340, Stop: 1.2185

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.2220, Target: 1.2340, Stop: 1.2185

Position : -

Target :  -

Stop : -

Although cable dropped to as low as 1.2214 late last week, the subsequent rebound suggests consolidation above this level would be seen with mild upside bias for recovery to 1.2315-20 (38.2% Fibonacci retracement of 1.2479-1.2214), above there would extend gain to 1.2347 (50% Fibonacci retracement and previous support), however, reckon upside would be limited to 1.2375-80 (61.8% Fibonacci retracement of 1.2479-1.2214) and bring another decline later. 

In view of this, we are looking to turn long on dips but one should take profit on such a rebound. Below said support at 1.2214 would extend recent decline from 1.2706 top to 1.2200, then towards 1.2170-75 but reckon 1.2150 would hold from here, risk from there is seen for another rebound. 

EUR/USD - 1.0596

Most recent candlesticks pattern   : N/A

Trend                      : Sideways

Tenkan-Sen level              : 1.0609

Kijun-Sen level                  : 1.0592

Ichimoku cloud top             : 1.0538

Ichimoku cloud bottom      : 1.0535

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Despite intra-day brief rise to 1.0640, lack of follow through buying on break of previous resistance at 1.0631 and the subsequent retreat suggest consolidation would be seen and pullback to 1.0570-75 cannot be ruled out, break there would prolong consolidation and risk weakness to 1.0540-45, however, support at 1.0493 should remain intact. Only a drop below this support would revive bearishness and signal recent decline from 1.0829 has resumed for further selloff to 1.0470 and then towards previous support at 1.0454.

On the upside, above said resistance at 1.0640 would extend the erratic rise from 1.0493 low to 1.0660-65 (50% Fibonacci retracement of 1.0829-1.0493) and possibly towards resistance at 1.0680, however, loss of upward momentum should limit upside and price should falter well below 1.0700-05 (61.8% Fibonacci retracement), bring retreat later. As near term outlook is mixed, would not chase this rise here and would be prudent to stand aside in the meantime.

USD/JPY - 113.77

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 113.72

Kijun-Sen level                  : 114.16

Ichimoku cloud top             : 114.23

Ichimoku cloud bottom      : 114.03

Original strategy  :

Sell at 114.35, Target: 113.35, Stop: 114.70

Position :  -

Target :  -

Stop : -

New strategy  :

Sell at 114.35, Target: 113.35, Stop: 114.70

Position :  -

Target :  -

Stop : -

Although the greenback rose briefly to 114.75, the subsequent sharp retreat suggests top is possibly formed there on Friday, hence consolidation with mild downside bias is seen for retracement of last week’s rise to 111.69, hence weakness to 113.47 support is likely, below there would bring further fall to 113.20-25 (50% Fibonacci retracement of 111.69-114.75), however, downside would be limited to 113.00 and 112.84-86 (previous resistance and 61.8% Fibonacci retracement), bring rebound later.

In view of this, we are looking to sell dollar on recovery for such move as 114.40-50 should limit upside, bring another decline. Only above said resistance at 114.75 would abort and signal the rise from 111.69 has resumed and extend gain to 114.96 (previous resistance) but price should falter well below resistance at 115.38.

What will they do? What should they do? Chair Yellen's assessment that the Fed has met its goals and therefore should act, i.e., move in March to raise the funds rate. We now expect three rate increases this year.

Staying with the Dot Plot Projection

We expect the Fed to tighten 25 basis points at the March 15 FOMC meeting. The combination of incoming data that show underlying resilience in the U.S. economy and commentary by Fed officials indicating that rate hikes are likely sooner rather than later have led to a quick shift in market expectations. To follow-on the FOMC's projections in the dot plot (top graph), we expect additional hikes in June and later this year.

The FOMC, by taking on a preemptive policy action in March, avoids the complication that a surprise French election result might upend a June rate hike. A March rate hike would also make it easier for the FOMC to raise rates three times, particularly given that Yellen's term ends in February and the president would likely appoint a successor in December.

Meeting Its Goals: A Question on Inflation and a Fog

Inflation, as measured by the PCE deflator, middle graph, is moving in the right direction, although it is not quite at the FOMC's two percent target. Meanwhile, in our view, the FOMC's full employment target has been more or less met. One of the three FOMC policy pillars is that policy should look forward. We expect the FOMC to work on this pillar as an improving economy pushes inflation toward the Fed's 2 percent goal.

While the short-run path of policy is visible, the longer path remains in a fog. The claim is that the neutral fed funds rate over the long-term is one percent, and with a two percent inflation target, the longer-term target is said to be three percent. This indicates that the FOMC's path remains consistent with the dot plot that yields a three percent fed funds rate at year-end 2019. But such a low real funds rate indicates something about productivity and real economic growth that may not be consistent with the goals of the current administration.

Twos, Tens and the Balance Sheet

Market reaction to Chair Yellen's commentary last week was muted, suggesting that a rate hike has been largely discounted. The two-year Treasury yield has risen 10 bps over the past week (bottom chart). The 10-year Treasury yield has moved similarly. We give the Fed's messaging "credit" for most of the move in the 10-year Treasury yield, with rising equities probably accounting for a few basis points.

Beyond the short-run normalization of monetary policy, it remains to be seen whether the Fed has accomplished the overall goal of truly stabilizing the financial system. In our opinion, another test will occur when the Fed begins to shrink its balance sheet. The move may be particularly challenging for mortgage-backed securities (MBS). However, this speed bump should be quite a way down the road. We look for the Fed to continue to reinvest its MBS at least through 2017, and probably well into 2018.

EUR/GBP - 0.8640

 
Recent wave: Major double three (A)-(B)-(C)-(X)-(A)-(B)-(C) is unfolding and 2nd (A) has possibly ended at 0.6936.

Trend: Near term down

Original strategy  :

Buy at 0.8550, Target: 0.8650, Stop: 0.8510

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.8550, Target: 0.8650, Stop: 0.8510

Position : -

Target :  -

Stop : -

 
Although the single currency rose briefly to 0.8670, lack of follow through buying and current retreat suggest consolidation would be seen and pullback to 0.8600 cannot be ruled out, however, reckon downside would be limited to 0.8570-75 and support at 0.8547 should hold, bring another rise later, above said resistance at 0.8670 would extend the rise from 0.8403 low towards 0.8700-10 but reckon upside would be limited and price should falter well below 0.8740-50, risk from there is seen for a retreat to take place later.

In view of this, would not chase this rise here and we are looking to buy euro on pullback as 0.8550 should limit downside. Below support at 0.8509 would abort and signal top is formed instead, risk weakness to 0.8460-65 break there would add credence to this view and further fall to 0.8435-40 would follow.

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.