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USD/CHF dropped sharply to as low as 0.9807 last week and the development suggests that consolidation from 1.0056 is extending with fall from 1.0067 as the third leg. With a temporary low in place at 0.9807, initial bias is neutral this week first. On the downside, below 0.9807 will target 100% projection of 1.0067 to 0.9866 from 0.9981 at 0.9780 and possibly below. But, we'd expect strong support from 38.2% retracement of 0.9186 to 1.0056 at 0.9724 to bring rebound. On the upside, above 0.9889 will turn bias to the upside for 0.9981 resistance first. Break will bring retest of 1.0067 high.

In the bigger picture, current development suggests that the consolidation pattern from 1.0056 is extending. As long as 38.2% retracement of 0.9186 to 1.0056 at 0.9724 holds, we'd expect rise from 0.9186 to resume at a later stage to retest 1.0342 key resistance (2016 high). However, sustained break of 0.9724 fibonacci level will bring deeper fall, as another declining leg in the long term range pattern.

In the long term picture, price actions from 0.7065 (2011 low) are not clearly impulsive yet. Thus, we'll treat it as developing into a corrective pattern, at least, until a firm break of 1.0342 resistance.

AUD/USD dipped to as low as 0.7237 last week but quickly rebounded ahead of 0.7201 low. Initial bias remains neutral this week first and more consolidative trading could be seen. In case of stronger rise, we'd expect upside to be limited by 0.7452 resistance to bring larger down trend resumption eventually. On the downside, below 0.7237 will target a test on 0.7201 low first.

In the bigger picture, rebound from 0.6826 (2016 low) is seen as a corrective move that should be completed at 0.8135. Fall from there would extend to have a test on 0.6826. There is prospect of resuming long term down trend from 1.1079 (2011 high). But we'll look at downside momentum to assess at a later stage. On the upside, break of 0.7452 resistance, however, will indicate medium term bottoming, on bullish convergence condition in daily MACD. In that case, a correction should be seen first, with stronger rebound would be seen to 38.2% retracement of 0.8135 to 0.7201 at 0.7558. The down trend from 0.8135 will resume after the correction completes.

In the longer term picture, rebound from 0.682 (2016 low) should have completed at 0.8135 already. Failure to reach 38.2% retracement of 1.1079 (2011 high) to 0.6826 at 0.8451 carries bearish implications. This is also supported by the corrective structure from 0.6826 to 0.8135, as well as the rejection by 55 month EMA. The down trend from 1.1079 is in favor to extend. On break of 0.6826, next target will be 61.8% projection of 1.1079 to 0.6826 from 0.8135 at 0.5507.

Some volatility was seen in USD/CAD last week but there was no decisive movement. Initial bias is neutral this week first. As long as medium term channel support holds (now at 1.2986), we'd expect further rise ahead in the pair. On the upside, above 1.3173 will indicate completion of correction from 1.3385. In such case, intraday bias will be turned back tot he upside for 1.3289 resistance first. However, sustained trading below the channel, and break of 1.2961 support, will carry larger bearish implication and turn outlook bearish.

In the bigger picture, as long as channel support (now at 1.2982) holds, we're holding to the bullish view. That is, fall from 1.4689 (2015 high) has completed at 1.2061, ahead of 50% retracement of 0.9406 (2011 low) to 1.4689 (2015 high) at 1.2048. Further rally should be seen for 61.8% retracement of 1.4689 to 1.2061 at 1.3685 and above. However, sustained break of the channel support will argue that rise from 1.2061 has completed. Further decline should be seen to 38.2% retracement of 1.2061 to 1.3385 at 1.2879 first. Sustained break will pave the way to 61.8% retracement at 1.2567 and below.

In the longer term picture, corrective fall from 1.4689 (2015 high) should have completed with three waves down to 1.2061, just ahead of 50% retracement of 0.9406 (2011 low) to 1.4689 (2015 high) at 1.2048. The development keeps long term up trend from 0.9406 and that from 0.9056 (2007 low) intact. It's early to tell, but there is now prospect of extending the long term up trend to 61.8% projection of 0.9406 to 1.4689 from 1.2061 at 1.5326 in medium to long term.

GBP/JPY's rebound last week suggests short term bottoming at 139.88. Initial bias stays mildly on the upside this week rebound to 55 day EMA (now at 144.85). On the downside, however, below 141.32 minor support will indicate completion of the rebound. And larger down trend will likely resume for 139.29/47 key support zone instead.

In the bigger picture, at this point decline from 156.59 is still seen as a corrective move. But the downside acceleration makes this view shaky. Focus will be on 139.29 cluster support (50% retracement of 122.36 to 156.59 at 139.47). Strong rebound from there will re-affirm the bullish case that rise from 122.36 is still to extend through 156.59 high. However, sustained break of 139.29/47 should confirm medium term reversal. GBP/JPY would then target a retest on 122.26 (2016 low).

In the longer term picture, the failure to sustain above 55 month EMA (now at 152.88) is mixing up the outlook. Nonetheless, as long as 139.29 holds, rise from 122.36 is in favor to extend to 50% retracement of 195.86 (2015high) to 122.36 (2016 low) at 159.11, and possibly further to 61.8% retracement at 167.78 before completion. However, firm break of 139.29 will turn focus back to 116.83/122.36 support zone instead.

EUR/JPY surged to as high as 129.31 last week and the development indicates completion of fall from 131.97 at 124.89, ahead of 124.61 low. Initial bias remains on the upside this week for resistance zone between 131.97 and 61.8% retracement of 137.49 to 124.61 at 132.56. On the downside, break of 127.88 minor support is needed to indicate short term topping. Otherwise, further rally will remain in favor even in case of retreat.

In the bigger picture, EUR/JPY once again rebounded ahead of 124.08 key resistance turned support. It's also held above long term trend line from 109.03 (2016 low). The development argues that such rise from 109.03 might now be over yet. Decisive break of 61.8% retracement of 137.49 to 124.61 at 132.56 will pave the way to retest 137.49 high. But, firm break of 124.08 will argue that whole rise from 109.03 (2016 low) has completed at 137.49. Deeper decline would be seen to 61.8% retracement of 109.03 to 137.49 at 119.90 next.

In the long term picture, at this point, EUR/JPY is staying in long term sideway pattern, established since 2000. Rise from 109.03 is seen as a leg inside the pattern. As long as 124.08 support holds, further rally is in favor in medium to long term through 149.76 high. However, break of 124.08 could extend the fall through 109.03 low instead.

EUR/GBP surged to as high as 0.9051 last week and the solid break of 0.9030 resistance confirms resumption of while rise from 0.8620. Initial bias stays on the upside this week for further rally. Sustained trading above 61.8% retracement of 0.9305 to 0.8620 at 0.9043 will pave the way to retest 0.9305 key resistance. On the downside, below 0.9001 minor support will turn bias neutral and bring consolidations. But near term outlook will stay bullish as long as 0.8895 support holds.

In the bigger picture, EUR/GBP is staying in long term range pattern from 0.9304 (2016 high). The corrective structure of the fall from 0.9305 to 0.8620 is raising the chance that rise from 0.8312 to 0.9305 is an impulsive move. But we're not too confident on it yet. In any case, 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.

In the long term picture, we're holding on to the view that rise from 0.6935 (2015 low) is resuming the up trend from 0.5680 (2000 low). Hence, after the consolidation from 0.9304 completes, we'd expect another medium term up trend through 0.9799 to 100% projection of 0.5680 to 0.9799 from 0.6935 at 1.1054.

EUR/AUD surges to as high as 1.1594 last week and the break of 1.5886/8 resistance indicate resumption of whole rise from 1.5271. A temporary top is in place at 1.5945 and thus, initial bias is neutral this week for consolidation. Downside of retreat should be contained by 4 hour 55 EMA (now at 1.5751) to bring rise resumption. Above 1.5945 will target 61.8% projection of 1.5271 to 1.5886 from 1.5601 at 1.5981 first. Break will target 100% projection at 1.6216, which is close to 1.6189 high.

In the bigger picture, EUR/AUD drew strong support from 55 week EMA and rebounded. And the development argues that medium term rally from 1.3624 (2017 low) is still in progress. Firm break of 1.6189 will target a test on 1.6587 (2015 high). On the downside, break of 1.5601 support will now be the first sign of medium term reversal, and will bring a test on 1.5271 key support for confirmation.

In the longer term picture, the rise from 1.1602 long term bottom (2012 low) isn't over yet. We'll keep monitoring the development but there is prospect of extending the rise to 61.8% retracement of 2.1127 to 1.1602 at 1.7488 and above. However, sustained trading below 1.3624 key support should indicate long term reversal and target 1.1602 long term bottom again.

EUR/CHF's rebound from 1.1242 short term bottom extended higher last week after brief consolidation. Initial bias is on the upside this week for 1.1489 support turned resistance first. Decisive break there will add to the case of trend reversal ahead of key support zone between 1.1154/98. Further rise should then be seen to 1.1713 resistance. On the downside, below 1.1329 minor support, will turn bias to the downside for retesting 1.1242 low.

In the bigger picture, for now, the price actions from 1.2004 medium term top is seen as a correction only. Downside should be contained by 1.1198 (2016 high), 61.8% retracement of 1.0629 to 1.2004 at 1.1154 to complete it and bring rebound. This cluster level is in proximity to long term channel support (now at 1.1189) too. A break of 1.2 key resistance is still expected in the medium term long term. However, sustained break of the mentioned support zone will mark reversal of the long term trend.

Yen ended the week broadly lower, as the worst performing one, on return of risk appetite. That came with S&P 500 and NASDAQ closing at record highs. Dollar ended as the second weakest one as it's firstly talked down by Trump. Secondly, markets took Fed Chair Jerome Powell's speech at Jackson Hole rather negatively. Australian Dollar suffered much volatility on domestic political turmoil. While the Aussie rebounded towards the end of the week as marketed welcomed the new Prime Minister Scott Morrison, it's indeed the third weakest one in the week overall. On the other hand, Euro ended as the strongest one, primarily because Turkish Lira crisis faded and due to weakest of the others. Dollar, Yen and Sterling all have their own troubles. Swiss Franc was the second strongest.

Markets seen Powell's message as dovish, Dollar pressured

Talking about Powell, we still believe that his speech in Jackson wasn't dovish at all. It should be noted first that comments from Fed officials were mixed during the week. On the dovish side, self proclaimed inflation hawk St. Louis Fed President James Bullard said he said no need for Fed to be pre-emptive. And without much inflation, he'd stand pat here "if it was just me". Also, he warned that Fed should not do anything that knowingly invert the yield curve. The part of yield curve echoed comments of Atlanta Fed President Raphael Bostic.

On the other hand, Cleveland Fed President Loretta Mester upgraded her growth forecast and supported gradual path of monetary accommodation removal. But for now, it's hard to judge whether the fed funds rate needs to go above neutral rate. But her neutral rate, at 3%, is higher than her fellows. Dallas Fed President Robert Kaplan said his neutral rate is around 2.50-2.75%. And, Fed should "gradually" raise Fed funds rate until this neutral level. And then, he would be "inclined to step back and assess the outlook for the economy and look at a range of other factors", including the yield curve. That is, Kaplan preferred to raise interest rate first, before looking at the yield curve.

Back to Powell, he noted that "while inflation has recently moved up near 2 percent, we have seen no clear sign of an acceleration above 2 percent, and there does not seem to be an elevated risk of overheating." It seemed that the markets took that as dovish. And with that setting, Powell was perceived in delivering a message that he'd prefer to pause after hitting neutral rate. That's likely the part that triggered the selloff in the greenback. But we'd like to emphasize one thing. Powell is known to be a composed, balanced centrist. We doubt if any one would expect him to say something drastic, like Chicago Fed Charles Evans said interest rate may need to overshoot the neutral rate. Also, there are three or four 25bps hike before Fed hits the neutral rate. And for now, taking a cautious view on the picture a year away is that "central" point among Fed policymakers, based on recent comments. So, Powell has presented Fed's overall view rather appropriately.

On the other hand, our take is that Powell was clear that he will not bow down to Trump's political pressure, nor is he too worried about the yield curve. After presenting all the theories and case studies, he concluded the speech saying that no acceleration in inflation above 2% is "good news". And such good news "results in part from the ongoing normalization process". And he added that " if the strong growth in income and jobs continues, further gradual increases in the target range for the federal funds rate will likely be appropriate."

That means, the Fed is doing a great job with monetary policy normalization. The US economy is at this very good state partly because of the work of the Fed. And if job growth, income growth continue, Fed will continue with the rate hikes. It doesn't matter if the the POTUS is "thrilled" or not. Also, he didn't even mention yield curve  as a condition like Bullard and Bostic. The overall message to us is rather hawkish.

Dollar index topped out in medium term, now in correction

But anyway, the markets are always right. Based on the technical development, Dollar should have topped and entered in to a medium term correction, with risk of deeper pull back. Last week's sharp decline suggests that Dollar index has formed a medium term top 96.68, on bearish divergence condition in daily MACD. That came ahead of 61.8% retracement of 103.82 to 88.25 at 97.87. Deeper decline is now expected to 38.2% retracement of 88.25 to 96.98 at 93.64. Considering that this fibonacci level is close to 55 week EMA (now at 93.70). We'd expect strong support around there to bring rebound, at least on first attempt. Meanwhile, break of 96.98 is needed to confirm up trend resumption. Or, consolidation should extend for a while with downside risks, even in case of rebound. And, Sustained break of 93.64 will bring deeper correction to 61.8% retracement at 91.58.

Gold bottomed at 1160.36, in medium term corrective rally to 1238.62.

Such development is reflected in Gold too. The break of 1204.58 resistance suggests medium term bottoming at 1160.36. That came after breaching 61.8% retracement of 1046.54 to 1375.15 at 1172.06 briefly. Stronger rebound would be seen back to 38.2% retracement of 1365.24 to 1160.36 at 1238.62 first. Strong resistance should be seen there to limit upside, at least on first attempt. But there is prospect of hitting 55 week EMA (now at 1272.62) before completing the corrective rise.

S&P 500 and NASDAQ made record highs, but momentum unconvincing

A question to ask out of the week is whether stock rallies in the US and it's impact on Yen would continue. Both S&P 500 and NASDAQ defied our expectations of reversal and made new record high last week. But we'd like to point out that upside momentum in both indices is very unconvincing. Bearish divergence is very clear in daily MACD of NASDAQ. Daily MACD in S&P 500 also doesn't display the kind of momentum that accompanies record runs. For now, we won't call a top in the two indices yet. But we'll be alerted if they break last week's lows at 7787.90 and 2850.62 respectively.

Position trading - Sell buy EUR/AUD on retreat, hold GBP/CHF short

We'd like to point out again that Australian Dollar ended the week as the third weakest after Yen and Dollar. The weakness in the Aussie started before the Liberal's party's leadership challenged and was amplified by it. It did rebound as dust settle with a new market friend PMI in Scott Morrison. But Aussie couldn't reverse all the losses on Thursday and Friday, not even against the weak Dollar. Adding to that, Westpac is now expecting RBA to be on hold through 2018, 2019 and even 2020. Hence, we'd like to look at Aussie short opportunity this week.

EUR/AUD is the chosen one for, firstly, the above mentioned pull back in dollar index should be translated to strengthen in Euro. Secondly, EUR/AUD's break of 1.5886/8 resistance last week indicates resumption of rise from June's low at 1.5271. Since a temporary top is seen at 1.5945, we'll buy EUR/AUD on a dip to 1.5800, slightly below 38.2% retracement of 1.5601 to 1.5945 at 1.5814. Stop will be put at 1.5720, slightly below 61.8% retracement at 1.5732 and below 4 hour 55 EMA (now at 1.5751). We're expecting EUR/AUD to rise to 100% projection of 1.5271 to 1.5886 from 1.5601 at 1.6216. Risk/reward is at around 1:5.

Following last week's report, we're holding on to GBP/CHF (sold at 1.2971). No change in our view that the fall from 1.3854 is in progress for cluster level at 100% projection of 1.3854 to 1.3049 from 1.3265 at 1.2460 and 61.8% retracement of 1.1638 to 1.3854 at 1.2485. We'll hold short in GBP/CHF, with stop at 1.2820. On break of 1.2589 low, we'll lower the stop to 1.2725, which is slightly above 1.2722 minor resistance. Also, we'll close the position at 1.2500, which is slightly above mentioned 1.2460/85 cluster support level.

EUR/USD Weekly Outlook

EUR/USD rebounded to as high as 1.1639 last week. The break of medium term channel resistance, with bullish convergence condition in daily MACD, suggests medium term bottoming at 1.1300. Initial bias is on the upside this week for 38.2% retracement of 1.2555 to 1.1300 at 1.1779. We'd expect upside to be limited there, at least on initial attempt, to bring near term reversal. On the downside, below 1.1529 minor support will turn bias back to the downside for retesting 1.1300 low. But after all, consolidation from 1.1300 will extend for a while before completion.

In the bigger picture, a medium term bottom should be in place at 1.1300 and some consolidations would be seen. But still, note that EUR/USD was rejected by 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. That carries some long term bearish implications. Thus, we'd expect fall from 1.2555 high to resume after consolidation completes. Below 1.1300 should send EUR/USD through 61.8% retracement of 1.0339 to 1.2555 at 1.1186. And, in that case, EUR/USD would head to retest 1.0339 (2017 low).

In the long term picture, the rejection from 38.2% retracement of 1.6039 to 1.0339 at 1.2516 argues that long term down trend from 1.6039 (2008 high) might not be over yet. EUR/USD is also held below decade long trend line resistance. Sustained trading below 55 week EMA adds bearishness to the case. Firm break of 61.8% retracement of 1.0339 to 1.2555 at 1.1186 should at least bring a retest on 1.0339 low.

Monday, Aug 27, 2018

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Tuesday, Aug 28, 2018

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Wednesday, Aug 29 2018

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Thursday, Aug 30, 2018

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Friday, Aug 31, 2018

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