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The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.16942
Open: 1.17060
% chg. over the last day: +0.12
Day's range: 1.16965 – 1.17093
52 wk range: 1.0571 – 1.2557

The bullish sentiment is still prevailing on the EUR/USD currency pair. At the same time, the growth of quotes is quite restrained. Investors expect additional drivers. At the moment, the key support and resistance levels are 1.16800 and 1.17250, respectively. We recommend opening positions from these marks. The trading instrument has the potential for further growth.

The news feed on 2018.08.30:

Report on the labor market in Germany at 10:55 (GMT+3:00).

Indicators point to the power of buyers: the price has fixed above 50 MA and 200 MA.

The MACD histogram is located in the positive zone, but below the signal line, which gives a weak signal to buy EUR/USD.

Stochastic Oscillator is in the neutral zone, the %K line is above the %D line, which indicates the bearish sentiment.

Trading recommendations

Support levels: 1.16800, 1.16300, 1.15800
Resistance levels: 1.17250, 1.17600

If the price fixes above 1.17250, the EUR/USD currency pair is expected to grow. The movement is tending to 1.17600-1.17800.

Alternative option. If the price fixes below the support level of 1.16800, we recommend considering sales of EUR/USD. The movement is tending to 1.16300-1.16000.

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.28642
Open: 1.30244
% chg. over the last day: +1.23
Day's range: 1.30227 – 1.30433
52 wk range: 1.2361 – 1.4345

Yesterday, aggressive purchases were observed on the GBP/USD currency pair. The growth of quotes exceeded 150 points. The British pound is growing after the statements by the EU chief Brexit negotiator, Barnier. According to the official, the European Union is ready to offer Britain a "unique" deal after its exit from the union. At the moment, the key support and resistance levels are 1.30000 and 1.30450, respectively. The positions should be opened from these marks.

Today, the news feed on the UK economy is calm.

Indicators point to the power of buyers: the price is being traded above 50 MA and 200 MA.

The MACD histogram is in the positive zone, but below the signal line, which gives a weak signal to buy GBP/USD.

Stochastic Oscillator is located in the neutral zone, the %K line is crossing the %D line. There are no signals at the moment.

Trading recommendations

Support levels: 1.30000, 1.29600, 1.29100
Resistance levels: 1.30450, 1.30800

If the price fixes above 1.30450, further growth of the GBP/USD currency pair is expected. The target movement level is 1.30800-1.31000.

Alternative option. If the price fixes below the round level of 1.30000, we recommend considering sales of GBP/USD. The target movement level is 1.29600-1.29400.

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.29257
Open: 1.29077
% chg. over the last day: -0.20
Day's range: 1.29067 – 1.29202
52 wk range: 1.2059 – 1.3795

There is a variety of trends on the USD/CAD currency pair. Investors expect statistics on Canada GDP. At the moment, the key support and resistance levels are 1.29000 and 1.29300, respectively. The positions should be opened from these marks. We recommend monitoring current information regarding NAFTA negotiations.

The news feed on 2018.08.30:

Data on Canada GDP at 15:30 (GMT+3:00).

Indicators point to the power of sellers: the price has fixed below 50 MA and 200 MA.

The MACD histogram is in the negative zone, but above the signal line, which gives a weak signal to sell USD/CAD.

Stochastic Oscillator is located in the neutral zone, the %K line is below the %D line, which indicates the bearish sentiment.

Trading recommendations

Support levels: 1.29000, 1.28600
Resistance levels: 1.29300, 1.29600, 1.30000

If the price fixes below the round level of 1.29000, the USD/CAD quotes are expected to decline. The movement is tending to 1.28600-1.28400.

Alternative option. If the price fixes above the resistance level of 1.29300, it is necessary to consider purchases of USD/CAD. The movement is tending to 1.29600-1.29800.

The USD/JPY currency pair:

Technical indicators of the currency pair:

Prev Open: 111.190
Open: 111.691
% chg. over the last day: +0.45
Day's range: 111.581 – 111.687
52 wk range: 104.56 – 114.74

Yesterday, the bullish sentiment was observed on the USD/JPY currency pair. At the moment, quotes are moving in flat. Local support and resistance levels are 111.500 and 111.750, respectively. The positions should be opened from these marks. Investors expect additional drivers. The trading instrument has the potential for further growth.

The publication of important economic reports from Japan is not planned.

Indicators point to the power of buyers: the price has fixed above 50 MA and 200 MA.

The MACD histogram is in the positive zone, but below the signal line, which gives a weak signal to buy USD/JPY.

Stochastic Oscillator is located in the neutral zone, the %K line is below the %D line, which indicates a fall in the USD/JPY quotes.

Trading recommendations

Support levels: 111.500, 111.200, 110.850
Resistance levels: 111.750, 112.000

If the price fixes above the resistance level of 111.750, it is necessary to consider purchases of USD/JPY. The movement is tending to 112.000-112.300.

Alternative option. If the price fixes below 111.500, the USD/JPY currency pair is expected to decline. The movement is tending to 111.200-110.000.

EUR/USD

Current level - 1.1708

My outlook here is bullish, for a break through 1.1750, towards 1.1830 area.

USD/JPY

Current level - 111.63

The uptrend has been renewed with the recent break through 111.50 and the outlook is positive, for a rise towards 112.10, en route to 112.60.

GBP/USD

Current level - 1.3038

The break through 1.2930 peak confirms a finale of the consolidation pattern above 1.2800 and the bias is positive, for a violation of 1.3060, towards 1.3210.

The Australian dollar holds in red for the third straight day and pressures Wednesday’s low at 0.7275, where initial dip was strongly rejected.

Series of weaker than expected Australian data, released overnight, keep the Aussie under pressure, as bears look for negative signal on close below cracked pivotal support at 0.7285 (Fibo 61.8% of 0.7237/0.7362 upleg.

Conflicting daily studies (strong momentum vs south-heading slow stochastic and MA’s in bearish setup) may delay bears.

Upticks were so far capped at 0.7300 zone and should stay below falling 20SMA (0.7325) to maintain bearish bias for extension towards 0.7240 higher base.

Close above 20SMA would sideline bears and shift near-term focus higher.

Res: 0.7314, 0.7325, 0.7351, 0.7372
Sup: 0.7285, 0.7275, 0.7238, 0.7202

GBP surges as Brexit deal optimism spreads

The cable surged on Wednesday as it added 1.53% to $1.3029 after EU negotiator Michel Barnier said the EU would offer the UK a unique deal. The announcement made investors more than happy as it means that the UK would get at least a deal! However, we expect that there won’t be much room for negotiations as the EU will most likely impose its conditions, meaning that the UK will have to take it or leave it.

In our view, the market has been overly optimistic recently and the sharp appreciation of the pound will be short-lived as the EU will never allow the UK to cherry pick conditions. The UK government will have no choice but to comply with the EU’s demands and conditions. Over the last 24 hours, EUR/GBP fell 1.40% as it returned to £0.9878; however, the bias remains on the upside, as investors will soon realize that the pound is overbought and that nothing has changed so far.

Loonie at mercy of NAFTA deal

As Canada scrambles to reach closure on the North American Free Trade Agreement, CAN is wobbling. It gained (USD/CAD: -0.77% week-to-date), but now the trend is reversing. USD/CAD is bouncing off 1.2907 (29 August low) and expected to hit 1.3010.

NAFTA talks are in progress with a deadline set for Friday by the US: a very tight goal. Canadian Prime Minister Trudeau says closure is feasible – we’ll see. Canada is ready to make concessions on auto content. Other topics include Canadian protective tariffs on agricultural products such as dairy, poultry, eggs and wine, broadening of trilateral dispute settlement topics and US tariffs on aluminium and steel. Either the negotiation will have to be extended, or the deal will be settled hurriedly. The latter could lead to no deal in the end, which could cause massive investment outflow. The US-Mexico deal looks easier to achieve than the US-Canada one.

US stocks on a roll

The out-performance of American equities is more then just the result of Trump’s tax cut. There is a dynamism not seen in European companies. US companies have shrugged off risk and focused on the opportunities (solid domestic and global demand). Threat of a trade war has not slowed investment or strategic initiatives. US companies also enjoy a white-hot economy (GDP printing at 4.2% against 4.1% expectations) led by consumer optimism (highest since 2000) and business confidence that is materializing into solid earnings (75% of S&P 500 beat Q2 estimates)

In Europe, risks such as Italy’s budget, Brexit, Germany’s October elections and EU political fragmentation are paralyzing. Yet EU companies’ profit growth around 6% is not terrible. As the European Central Bank begins to lift rates, financial stocks will go higher, leading to a broader rally in European shares.

The pair is trading in consolidative mode on Thursday, mainly holding above top of thick daily cloud which was broken on Wednesday’s strong rally.

Close above daily cloud was bullish signal for continuation of recovery rally from 107.77 (21 Aug low).

Bullish daily techs maintain strong momentum and look for extension through barriers at 111.87 (Fibo 61.8% of 113.17/109.77 descend) and 112.15 (01 Aug high) to confirm bullish continuation.

Bulls might be delayed for consolidative / corrective action as slow stochastic is overbought.

Extended dips should be contained above 111.00 zone (55SMA / daily Kijun-sen) to keep bullish bias in play.

Res: 111.75, 111.87, 112.15, 112.37
Sup: 111.34, 111.05, 110.94, 110.64

Here are the latest developments in global markets:

FOREX: The dollar is flat against a basket of six major currencies on Thursday, after it closed lower for a fourth consecutive session yesterday. The biggest mover was the British pound, which soared higher following comments from the EU’s chief Brexit negotiator suggesting that Europe is willing to offer the UK a special deal. Meanwhile, the kiwi plunged overnight after New Zealand’s latest business confidence data disappointed, amplifying expectations for a more dovish stance by the RBNZ moving forward.

STOCKS: Wall Street continued to rally into uncharted territory on Wednesday, with both the S&P 500 (+0.57%) and the Nasdaq Composite (+0.99%) hitting fresh record highs for the fourth consecutive session. The gains were led primarily by the tech sector. Meanwhile, the Dow Jones underperformed (+0.23%) its peers. As for today, futures suggest the S&P, Dow, and Nasdaq 100 may be set for a slightly lower open. The positive sentiment failed to extend to Asia though, which was a sea of red on Thursday. Japan’s Nikkei 225 and the Topix were both little changed, while in Hong Kong, the Hang Seng shed 0.86%. Markets in China were in the red as well. Europe was a similar story, with futures tracking all the major indices pointing to a negative open today.

COMMODITIES: Oil prices traded higher on Thursday, following a larger-than-projected drawdown in the weekly EIA inventory data released yesterday. WTI is up by 0.34% at $69.78 per barrel, while Brent crude rose by 0.28% to trade near $77.40/barrel. A warning from the IEA chief yesterday that oil markets may tighten further soon amid continued supply outages in Venezuela, as well as the dollar’s recent dip, may have also aided the move higher. In precious metals, gold is down by 0.40% today, hovering marginally above the psychological $1,200 zone, with no clear catalyst behind its underperformance.

Major movers: Sterling soars as Barnier stokes Brexit optimism; kiwi drops

The British pound exploded higher on Wednesday, following some comments from the EU’s chief Brexit negotiator, Michel Barnier. He said the EU is “prepared to offer Britain a partnership such as has never been with any other country”, stoking expectations that a Brexit deal may indeed be fleshed out in the coming months – something that was looking increasingly doubtful prior to his remarks. While his comments were vague overall, providing very few specifics, his apparent willingness to reach common ground with the UK was likely seen as a sign the EU is softening up its stance, thereby helping to reduce the political risk premium on the pound. Sterling/dollar surged roughly 180 pips to break back above the 1.3000 handle, while euro/sterling plunged by more than 100 pips, falling below the psychological 0.9000 zone.

Elsewhere, the yen retreated across the board, as the broader risk-on environment in markets led investors to decrease their safe-haven exposure. Dollar/yen touched a four-week high, propelled higher by yet another record close in US stock markets, even despite the greenback being an underperformer itself.

On the trade front, talks between Canada and the US appear to be gathering momentum. Canadian foreign minister Freeland said yesterday she had more productive talks with US trade representative Lighthizer, while President Trump said he thinks the negotiations are on track to bear fruit before Friday’s deadline. The loonie will remain sensitive to updates, with any hints from either Freeland or Lighthizer that a “preliminary deal in principle” may be achievable as early as tomorrow having the capacity to extend the currency’s latest gains.

Turning to the antipodeans, kiwi/dollar plunged by nearly 1.0% on Thursday, following disappointing business confidence data out of New Zealand. Business morale as gauged by the ANZ index continued to plunge, touching its lowest point in a decade and amplifying concerns that the pessimism may become self-fulling – leading to a slowdown in hiring and investment. The RBNZ has already stated that a rate cut remains on the table, and these data are likely to amplify such expectations, potentially keeping the kiwi under pressure. Aussie/dollar is also down by 0.32% today, after Australia’s capex data for Q2 surprisingly showed a decline in investment.

Day ahead: US core PCE, German inflation and Canadian GDP on the agenda; Brexit and trade also in focus

Thursday’s calendar is rather packed and includes the Federal Reserve’s preferred inflation gauge, German CPI readings and Canadian GDP. Beyond data releases, other developments, for example on the trade front and Brexit, are of importance and may act as major market-movers.

At 0830 GMT, the UK will be on the receiving end of data on consumer credit, as well as on mortgage lending & approvals, all for the month of July. However, Brexit developments in the aftermath of Barnier’s comments will undoubtedly be the primary driver of sterling pairs during today’s trading.

Numerous surveys gauging business sentiment in the eurozone during August are due out at 0900 GMT. All of them are expected to show a slight deterioration in morale relative to July. Meanwhile, final consumer confidence figures are anticipated to confirm eurozone consumer sentiment falling to its lowest since May 2017; the relevant index is forecast to stand at -1.9. For comparison, the US Conference Board’s consumer confidence index for August released earlier in the week jumped to a near two-decade high.

Of more importance for the euro are likely to be preliminary August inflation figures out of Germany at 1200 GMT. Month-on-month, CPI is expected to grow by 0.1%, below July’s 0.3% but leaving the year-on-year pace of growth unchanged at 2.0%. The Harmonised Index of Consumer Prices (HICP), that uses a common methodology across EU countries, will also be monitored. It bears mention that these figures come one day ahead of the eurozone’s preliminary prints on August inflation and traders may thus use today’s German numbers to speculate on tomorrow’s euro-wide release, positioning themselves accordingly. It is also of note that unemployment data for August are also due out of Germany earlier in the day (0755 GMT).

Out of the US, the core PCE price index against which the Fed’s 2% inflation target is compared to, as well as data on personal income and consumption, all for the month of July, are slated for release at 1230 GMT. The core PCE price index is expected to expand by 0.2% on a monthly basis, above June’s 0.1%. This would put the year-on-year rate of growth at 2.0%, coinciding with the US central bank’s target and above the previously reported month’s 1.9%. In the meantime, personal income is forecast to ease to 0.3% m/m from June’s 0.4%, while consumption is predicted to remain unchanged at 0.4%. Overall positive data will probably boost the odds for a second quarter percentage point interest rate hike by the Fed in 2018; Fed fund futures currently put the probability for such an outcome at 68%. Lastly, weekly jobless claims data are also due at the same time.

Canadian monthly and quarterly GDP figures will be hitting the markets at 1230 GMT as well. Economic activity is anticipated to have expanded by 0.1% m/m in June, below May’s respective print of 0.5%. However, the economy is projected to have accelerated in Q2, growing by 3.0% on an annualized basis. This compares to Q1’s 1.3% and bodes well with the Bank of Canada’s view earlier in the year that the slowdown during the first quarter was temporary in nature.

At the moment, Canadian OIS show market participants having fully priced in another 25bps rate increase by the Bank of Canada in 2018, while they see the odds for a second such increase at roughly one-in-five. A data beat is likely to push that probability further up and consequently support the loonie; the opposite holds true as well. Also important for the rate trajectory and the currency’s direction are trade developments, which will also be closely watched. In this respect, will Canada swiftly join the US and Mexico with their trade plans or will it enter into long discussions that may even result in a no-deal outcome?

Elsewhere, President Donald Trump accused China of undermining US efforts to exert pressure on North Korea to proceed with denuclearization. The trade confrontation therefore seems to be moving into other directions. Will another chapter in the “US vs China” saga be written soon?

In emerging markets, the ongoing slide in the Turkish lira and the Argentine peso will be monitored; the fall in these currencies has the potential for spillover effects in other emerging economies.

The head of the Bundesbank, Jens Weidmann, whose name often comes to the fore as a possible successor to ECB chief Mario Draghi when his term expires in late 2019, will be speaking at 1730 GMT.

Technical Analysis: USDJPY bullish bias eases after pair touches 4-week high; bearish signal by stochastics in very short-term

USDJPY has eased a bit though it continues to trade not far below Wednesday’s four-week high of 111.82. The Tenkan- and Kijun-sen lines remain positively aligned – a bullish short-term signal – though the flattening Kijun-sen is a sign of weakening positive momentum. Moreover, the stochastics are giving a bearish signal in the very short-term as the %K line has moved below the slow %D one while both lines were above 80.

Upbeat US data later today will likely boost the pair. Resistance to rises may occur around yesterday’s peak of 111.82, including the 112 round figure; a previous top lies not far above at 112.14. Further above, the pair’s highest since the start of the year of 113.16 would increasingly come into scope.

On the downside and in case of disappointing US data, immediate support could come around the current levels of the Tenkan- and Kijun-sen lines at 111.47 and 111.38 correspondingly. Further below the zone around the current levels of the 50- and 100-period MAs at 110.92 and 110.89 respectively – including the 111 handle – would be eyed.

Rising tensions between the US and China can also affect the pair.

The US dollar slightly weakened against the basket of major currencies during yesterday's trading. The US dollar index (#DX) closed in the negative zone (-0.19%). The demand for risky assets has grown significantly amid the optimistic news. The United States and Mexico reached an agreement on the North American Free Trade Area (NAFTA). Investors expect Canada to join the new trade agreement. The British pound is growing after the statements by the EU chief Brexit negotiator, Barnier. According to the official, the European Union is ready to offer Britain a "unique" deal after its exit from the union. Today, we expect important economic statistics from Germany and Canada.

In general, demand for the US currency is still high. Yesterday, the US dollar was supported by positive data on the US GDP. Thus, in the second quarter, the GDP index counted to 4.2% and was better than the forecasted value of 4.0%. However, the US pending home sales index fell to -0.7% in July instead of 0.3%.

The "black gold" prices are rising after the release of data on crude oil inventories in the US. At the moment, futures for the WTI crude oil are testing a mark of $69.70 per barrel.

Market Indicators

Yesterday, the bullish sentiment was observed in the US stock market: #SPY (+0.54%), #DIA (+0.26%), #QQQ (+1.15%).

At the moment, the 10-year US government bonds yield is at the level of 2.88%-2.89%.

The news feed on 2018.08.30:

Report on the labor market in Germany at 10:55 (GMT+3:00);

Data on Canada GDP at 15:30 (GMT+3:00).

Cable is consolidating above psychological 1.30 barrier on Thursday, following previous day's 1.1% rally, the biggest one-day gains, after the EU offered Britain post-Brexit partnership.

The pound advanced on easing concerns about hard Brexit, signaling continuation of recovery rally from 1.2661 (15 Aug low).

Wednesday's break and close above 1.30 barrier (also Fibo 61.8% of 1.3213/1.2661 bear-leg) was bullish signal, with bulls eyeing barrier at 1.3057 (55SMA) and capable of travelling to 1.3142 (base of descending and thinning daily cloud) on strong bullish sentiment.

Very strong bullish momentum supports the action, but slow stochastic enters overbought territory, warning that corrective action could be anticipated in the near-term. Broken 1.30 barrier acts as immediate support, with extended dips expected to find footstep at 1.2940 zone (broken 30SMA/previous recovery high of 22 Aug).

Res: 1.3043, 1.3057, 1.3083, 1.3142
Sup: 1.3000, 1.2940, 1.2882, 1.2845

The Euro maintains positive tone and probes through daily cloud top on Thursday, in extension of larger recovery rally.

Fresh strength emerged after Wednesday’s corrective dip was contained by daily cloud base, keeping bullish bias intact.

The single currency benefited from weaker dollar on fading safe-haven demand as global trade tension eases on promising NAFTA negotiations.

Fresh bullish momentum on hourly chart supports the advance after overnight action was contained by top of thick hourly cloud.

Daily studies are in full bullish setup and supportive for final push towards key barriers at 1.1750 zone (Fibo 38.2% of 1.2476/1.1300 / July’s lower platform / falling 100SMA).

However, bulls may show hesitation at 1.1750 resistances as slow stochastic is overbought, but holding for now in sideways mode and lacking firmer signal.

Base of thinning daily cloud remains solid support which should contain dips and guard next strong supports marked by 55SMA (1.1616) and weekly cloud base (1.1562).

Res: 1.1718, 1.1733, 1.1750, 1.1780
Sup: 1.1685, 1.1656, 1.1616, 1.1568

Pivot (invalidation): 0.7315

Our preference Short positions below 0.7315 with targets at 0.7275 & 0.7255 in extension.

Alternative scenario Above 0.7315 look for further upside with 0.7330 & 0.7350 as targets.

Comment The RSI calls for a drop.