Sample Category Title

Pivot (invalidation): 1196.50

Our preference Long positions above 1196.50 with targets at 1201.00 & 1204.00 in extension.

Alternative scenario Below 1196.50 look for further downside with 1194.00 & 1191.50 as targets.

Comment The RSI is below its neutrality area at 50% but reversing up.

The dollar extended advance against yen and hit new over two-month high on Tuesday. Extension of Monday’s strong rally, which neutralized risk of pullback after bulls were rejected at 112.87 last Friday, pressures psychological 113.00 barrier and focuses key short-term resistances at 113.17/22/30 (19 July high / weekly 200SMA / Fibo 61.8% of 118.66/104.63 fall).

Release of rather dovish minutes of BoJ’s July policy meeting keep yen at the back foot, with focus turning towards tomorrow’s Fed’s policy decision.

US central bank is widely expected to increase rates by 25 bp tomorrow, with another hike towards the end of the year, becoming more likely.

US economy is doing well and despite persisting fears of escalation of trade conflict with China, supports the idea of further increase of the interest rates.

Bullish techs on daily chart are supportive, however, overbought slow stochastic suggests that bulls may show hesitation at key resistance zone.

Consolidative / corrective action could be anticipated before final break higher, with extended dips expected to find support above rising 10SMA (112.24) and keep bullish bias.

Sustained break higher would signal continuation of larger uptrend from 104.63 (26 Mar low) and open next barrier at 113.74 (12 Dec 2017 high).

Alternatively, close below 10SMA would put bulls on hold and risk deeper pullback towards 111.73 (rising 20SMA).

Res: 113.00, 113.17, 113.22, 113.30
Sup: 112.74, 112.60, 112.24, 112.04

The EUR/USD currency pair continued higher within the bullish trend channel yesterday, but failed to break above the channel resistance (red). The price is now challenging again the support zone (green), which is a key decision zone for a bounce or break. A bounce could see the price move up to the Fibonacci targets, whereas, a bearish break below the support (green/blue) could see a larger correction take place.

The EUR/USD currency pair could have completed an ABC (orange) correction within wave 4 (green) if the price manages to stay above the 50-61.8% Fibonacci support zone. A break above the resistance trend line (orange) could spark a wave 5 (green) breakout, but a break below the 61.8% Fib makes this scenario less likely.

The EUR/USD currency pair seems to be moving up higher as part of a wave B (purple) within a larger ABC (purple) correction in wave B (red).

The U.S. Dollar has enjoyed a robust rally over the past seven months. An economy growing above potential rate, fiscal stimulus, low unemployment, above target inflation, diverging monetary policies, emerging market troubles and recent signs of rising wage growth were all factors that propelledthe U.S. currency higher. Yet, the bullish run stalled in mid-August with the Dollar's index retreating 2.8% from its 13-month high.

The pullback over the past five weeks suggests that most of the positive news hasalready been priced in, including the rate hike which is expected to take place tomorrow followed by another one in December. This led speculators to pare some of the bullish bets on the Dollar, especially that several central banks seem to follow the Fed's path in tightening policy.

According to CME's FedWatch, traders are expecting a 100% rate hike tomorrow and an 83% probability for another hike by year end, which is in line with the Fed's dot plots from June's meeting.

The Federal Reserve may not seem very worried about growing tensions with theglobal trade dispute. So far there are no clear indications that global trade tensions are weighing on the U.S. economy despite a couple of surveys showing that some businesses are considering reassessing their investment and hiring plans. As for the inflation threat, the latest 10% tariff on $200 billion worth of Chinese goods is expected to have a minimal impact on prices, especially given the decline in the Chinese Yuan. However, this assessment will change if a 25% tariff is imposed on all Chinese imports, howeverthe Fed won't jump to conclusions at this stage.

The most interesting part in this scenario is how the Federal Reserve sees the economy performing in 2019 and beyond. Ongoing support from the fiscal stimulus will gradually begin to fade and higher borrowing costs along with a stronger Dollar will likely begin impacting future corporate earnings. For 2019 it only takes one member to lower his or her interest rate projections to shift the median expectation to two rate hikes instead of three. Such a shift in the dot plot will be viewed as dovish and likely lead to further selling pressure on the Dollar.

BAC short-term Elliott wave view suggests that the rally to $31.49 low ended Minor wave X bounce. Down from there, the decline to $30.08 low ended Minor wave Y & also completed intermediate wave (2) pullback. The internals of Minor wave Y unfolded as double three structure where Minute wave ((w)) ended at $30.62 low as zigzag structure.

Up from there, the bounce to $31.09 high ended Minute wave ((x)) bounce. Then finally, a decline to $30.08 low ended Minute wave ((y)) in 3 swings as Zigzag structure. Above from there, the stock is expected to resume the next leg higher in intermediate wave (3). However, a break above $31.91 August peak remains to be seen for final confirmation of next leg higher. Up from $30.08 low the initial rally higher to $31.37 high ended Minute wave ((i)) as impulse structure. Near-term focus remains towards $30.64-$30.30 100%-123.6% Fibonacci extension area of Minutte wave (a)-(b) to end the 3 wave correction in Minute wave ((ii)) against $30.08 low cycle. Afterwards, the stock is expected to resume the upside looking for more upside. We don’t like selling it.

BAC 1 Hour Elliott Wave Chart

Oil Markets

Oil prices have remained firm in Asia as a couple of additional narratives are forming

Besides Saudi Arabia and Russia ruling out any expeditious supply increases at the Algeria meeting and some spillover from Saudi comments last week that prompt Brent trading above $ 80 is not a huge concern.

And while sentiment is securely buttressed by Iran sanction, the question we have is not so much the case of whether OPEC and Non-OPEC are not offering up a concession to counter the expected supply drop from Iran sanctions. But even if they wanted to ramp up production, could they physically deliver near-term supplies to tame this raging Oil bull ??

If OPEC is physically unable to ramp up production, then Oil prices do indeed have much further to run as this will be viewed as an extremely bullish signal for near-term prices.

Brent continues to lead the charge and while WTI is by no means a hesitant follower, but current price action does suggest US crude is capturing less support from the OPEC weekend news and could be held up by the expected real drag associated with seasonal US refinery maintenance.

Currencies

Australian Dollar

The Australian dollar continues to sag on more pronounced selling of AUDNZD. Indeed, the RBA’s half glass full approach to monetary policy could be contrasted against a less dovish lean from the RBNZ after a stellar NZD GDP print last week. Also, copper prices have been trading lower today as hard commodities, in general, are trading softer given the uncertainty over US-China trade discussion, which is also weighing on Aussie sentiment.

Japanese Yen

Very active day on JPY with Tokyo back from a holiday. The Tokyo fix registered in at 112.95, but with only a minimum retracement from the intersession high of 112.98, the USDJPY looks poised to test 113.00 on the greenback nascent recovery ahead of the FOMC.

Euro

Despite a lot of discussion about German Bund yields extending up to .51 bps, the Euro has a traded offered most to the Asia session as a good case for a hawkish FOMC is developing after several Fed members have recently dialled up the rate hike banter but none more so significant that Lael Brainard.

Indian Rupee

Indian Rupee has fallen short of breaching the 73 level as the market awaits some response from the RBI on the intervention front. But with Oil prices looking set to test higher, it’s only a matter of time before 73 gives way. As whatever measure the RBI will take will be viewed as a day late and a dollar short

Daily Pivots: (S1) 147.18; (P) 147.74; (R1) 148.54; More...

GBP/JPY is staying in consolidation from 149.70 temporary top. Intraday bias remains neutral at this point. Further rise is still expected as long as 145.67 resistance turned support holds. Break of 149.70 will target 153.84/156.69 resistance zone. However, break of 145.67 will suggests that the rebound from 139.88 has completed and turn near term outlook bearish again.

In the bigger picture, current development suggests that GBP/JPY has successfully defended 139.29 cluster support (50% retracement of 122.36 to 156.59 at 139.47). And, the rally from 122.36 (2016 low) is still intact. Such medium to long term rise would extend through 156.96 high. This will now be the preferred case as long as 145.67 near term support holds. However, break of 145.67 will turn focus back to 139.29/47 key support zone.

Daily Pivots: (S1) 131.92; (P) 132.49; (R1) 133.09; More....

EUR/JPY's consolidation from 113.12 temporary top is in progress and intraday bias stays neutral. As long as 130.86 resistance turned support holds, further rally is expected. On the upside, above 133.12 will target 100% projection of 124.89 to 130.86 from 127.85 at 133.82 first. Break will target 137.49 high. However, firm break of 130.86 will dampen this bullish view and turn focus back to 127.85 support.

In the bigger picture, current development suggests that EUR/JPY has defended key support level of 124.08 key resistance turned support. And, the larger up trend from 109.03 (2016 low) is still in progress. Firm break of 137.49 will target 141.04/149.76 resistance zone next. This will now be the preferred case as long as 127.85 near term support holds.

Daily Pivots: (S1) 0.8933; (P) 0.8959; (R1) 0.8984; More...

A temporary top is in place at 0.8994 and intraday bias is turned neutral first. Corrective pull back from 0.9097 should have completed at 0.8847 and further rise is in favor. Above 0.8994 will target 0.9097 resistance first. Firm break there will resume the rise from 0.8620 towards 0.9305 high.

In the bigger picture, EUR/GBP is staying in long term range pattern from 0.9304 (2016 high). At this point, there is no clear sign of range break out yet. And more corrective trading would continue. On the upside, in case of another rise, we'd stay cautious on strong resistance from 0.9304/5 to limit upside in case of further rally. Meanwhile, if there is another medium term decline, strong support will likely be seen from 0.8303 to contain downside.

Rates: ECB President Draghi lifts EU rates

The German 10-yr yield closed above 0.5% and at the highest level since May yesterday after hawkish inflation comments by ECB president Draghi. US yields remain upwardly oriented as well in the run-up to tomorrow's FOMC meeting. Today's eco calendar contains second tier US data, ECB speeches and US supply. Core bonds probably won't escape the selling pressure.

Currencies: EUR/USD fails to maintain gains from hawkish Draghi comments

Yesterday, EUR/USD again neared the topside of the MT consolidation pattern. However, a real test of 1.1850 didn't occur. Today, FX traders probably will keep a wait-and-see approach ahead of tomorrow's Fed policy decision. USD/JPY (and EUR/JPY) outperform on rising EMU and US yields.

The Sunrise Headlines

• US equity markets closed yesterday's trading session with losses. Only technology shares (NASDAQ -+0.08%) remained in green. Asian exchanges opened mixed with China underperforming and Japan beating the bunch.
• Chinese Vice Commerce Minister Wang Shouwen said it is difficult to proceed with trade talks with the US when Washington is “putting a knife to China's neck”. He added it depends on the will of the US to restart trade talks.
• Argentina President Mauricio Macri said he is confident in passing the IMF-backed “zero deficit” budget in congress. The country is also negotiating additional funds with the IMF (+$3-5bn) to raise its current $50bn credit line.
• A spokesman for the UK's main opposition Labour Party has expressed that his party is likely to vote against any deal Prime Minister Theresa May will possibly close with the EU. He said it is unlikely that any deal will meet his party's tests.
• President Trump signed a revised free-trade pact with South Korea yesterday. The US is also holding trade talks with EU and Japanese trade officials in the coming days at the sidelines of the UN meeting this week in New York.
• Iranian President Hassan Rouhani warned US President Trump that hostile policies in regard to Iran's oil export is “very dangerous”. Rouhani, also in Washington this week (UN summit), said to be willing to meet Trump.
• Today's eco calendar contains US housings data, Richmond Fed manufacturing index and consumer confidence. In Europe, ECB's chief economist Praet and Coeuré speak. Italy and the US tap the bond market

Currencies: EUR/USD Fails To Maintain Gains From Hawkish Draghi Comments

EUR/USD hardly profits from hawkish Draghi.

Yesterday, there was initially no unequivocal story to guide FX trading. Risk sentiment turned more cautious, but the usual risk-off reaction in FX didn't occur. The euro even succedeed a two-stage intraday rally. A first upleg occurred after a stronger than expected German Ifo confidence. In the afternoon, the euro was propelled by hawkish inflation comments from ECB's Draghi. EUR/USD tried to regain the 1.18 big figure, but the move again couldn't be sustained. US yields also maintained an upward bias, partially neutralizing the hawkish message from ECB's Draghi. EUR/USD closed the day at 1.1748, little changed from Friday. USD/JPY continued to profit from higher core yields closing at 112.80. Overnight, Asian equities are trading mixed with Japan outperforming (weaker yen) and China underperforming. The USD shows cautious signs of a rebound, but at 94.35 for the trade-weighted dollar (DXY) and with EUR/USD at 1.1745, recent USD-lows are still within reach. USD/JPY remains the outperformer, nearling the 113 level. Today, there are few eco data in Europe. After the hawkish comments from ECB's Draghi, markets will keep a close eye at speeches from ECB's Praet and Coeure. In the US house price data and consumer conrfidence (conference board) will be published. August consumer confidence reached a multi-year peak. So, even a small setback shouldn't worry markets too much. Unless for unexpected developments in the trade story, markets will probably hold a wait-and-see approach going into the Fed decision. Of late, the dollar mostly traded slightly in the defensive against the euro. At the same time EUR/USD wasn't able to break the topside of the 1.13/1.1850 MT consolidation pattern. Today, more technical trading might be on the cards. Tomorrow, we assume that it is too early for the Fed to already predict a real downturn in current eco cycle. So, US reates might stay above the neutral rate for some time. Such a scenario might give the USD some downside protection.

Yesterday, sterling entered calmer waters even as plenty of Brexit noise persisted. Hawkish Draghi comments blocked an intraday decline of EUR/GBP. Today, there are no eco data in the UK. BoE's Vlieghe gives a speech. Brexit headlines will probably remain the main driver for sterling trading. Brexit uncertainty probably won't diminish anytime soon. In this context, we expect sterling to stay in the defensive. EUR/GBP might return north of 0.90.

EUR/USD: upside test, but no break of 1.1850 range top (yet?)