AUD/USD's decline from 0.8135 extended to as low as 0.7758 last week. Initial bias remains on the downside this week for 0.7500 key support. At this point, there is no clearly sign of larger trend reversal yet. Hence, we'd look for strong support from 0.7500 to contain downside and bring rebound. On the upside, above 0.7909 minor resistance will turn bias back to the upside for retesting 0.8135 high.

In the bigger picture, medium term rebound from 0.6826 is seen as a corrective move. It might still extend higher but we'd expect strong resistance from 38.2% retracement of 1.1079 to 0.6826 at 0.8451 to limit upside to bring long term down trend resumption. On the downside, break of 0.7500 support will now be an important signal that such corrective rebound is completed.

In the longer term picture, 0.6826 is seen as a long term bottom. Rise from there could either reverse the down trend from 1.1079, or just develop into a corrective pattern. At this point, we're favoring the latter. And, as long as 38.2% retracement of 1.1079 to 0.6826 at 0.8451 holds, we'd anticipate another decline through 0.6826 at a later stage. But strong support should be seen between 0.4773 (2001 low) and 0.6008 (2008 low).

USD/CAD rebounded to as high as 1.2687 last week but formed a temporary top then on loss of momentum. Initial bias is neutral this week first. Further rise is in favor as long as 1.2489 minor support holds. Above 1.2687 will extend the rise from 1.2246 to 1.2919 resistance next. However, below 1.2489 will turn bias back to the downside for 1.2246 again.

In the bigger picture, the rebound from 1.2246 is mixing up the medium term outlook. Nonetheless, USD/CAD is staying below falling 55 day EMA, hence, the bearish case is in favor. That is, fall from 1.4689 is not completed yet. Sustained break of 1.2061 key support will carry larger bearish implication and target 61.8% retracement of 0.9406 to 1.4689 at 1.1424. However, firm break of 1.2919 will revive the case of medium term reversal and turn outlook bullish.

In the longer term picture, 50% retracement of 0.9406 (2011 low) to 1.4689 (2015 high) at 1.2048 remains a key support level to watch. As long as this level holds, we'll treat fall from 1.4689 as a correction and expect another rally through this level. However, sustained break of 1.2048 will turn favors to the case that rise from 0.9056 (2007 low) is a three wave corrective move that's completed at 1.4689. And retest of 0.9056/9406 support zone could be seen in medium to long term.

GPB/JPY's sharp decline and break of 151.95 support last week indicates that a short term top is at least formed at 156.59. Initial bias stays on the downside this week for 146.96 support. Considering bearish divergence condition in daily MACD, firm break of 146.96 will be another sign of medium term trend reversal. On the upside, break of 154.03 resistance is needed to confirm completion of the fall. Otherwise, outlook will remain cautiously bearish even in case of recovery.

In the bigger picture, as long as 146.96 key support holds, medium term outlook remains bullish. Rise from 122.36 is in favor to extend to 61.8% retracement of 195.86 to 122.36 at 167.78. However, break of 146.96 support will indicate trend reversal after rejection by 55 month EMA. In that case, deeper fall would be seen to 38.2% retracement of 122.36 to 156.59 at 143.51 and then 61.8% retracement at 135.43.

In the longer term picture, down trend from 195.86 (2015 high) has already completed at 122.36. Focus is now on 55 month EMA (now at 154.75). Firm break there will suggest that rise from 122.36 is developing into a long term move that target 195.86 again. And, price actions from 116.83 (2011 low) is indeed a sideway pattern that could last more than a decade. However, rejection from the 55 month EMA will turn focus back to 122.36 low.

EUR/JPY's sharp decline last week confirmed short term topping at 137.49. Initial bias remains on the downside this week with focus on 132.04 cluster support first (23.6% retracement of 114.84 to 137.49 at 132.14). Decisive break there will indicate larger trend reversal on bearish divergence condition in daily MACD. In such case, outlook will be turned bearish for 38.2% retracement at 128.38 first. Nonetheless, rebound from 132.04 will retain near term bullishness Break of 134.79 minor resistance will bring retest of 137.49 high instead.

In the bigger picture, bearish divergence condition in week EMA indicates lost up medium term up trend momentum. But there is no clear sign of completion of up trend from 109.03 yet. Break of 137.49 will target 141.04/149.76 resistance zone. However, sustained break of 132.04 will be the early sign of long term reversal and should bring deeper fall back to retest 124.08 key support level.

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.

Much volatility was seen in EUR/GBP last week but after all, it's bounded in range of 0.8686/8928. Initial bias remains neutral this week first. Also, near term outlook will remain mildly bearish as long as 0.8928 resistance holds. On the downside, firm break of 0.8686 will resume whole decline from 0.9305. As 61.8% retracement of 0.8312 to 0.9305 should then be taken out too. Deeper decline would be seen to retest 0.8303/8312 support zone. Nonetheless, on the upside, break of 0.8928 will indicate near term reversal and turn outlook bullish for 0.9304 resistance.

In the bigger picture, there are various ways to interpret price actions from 0.9304 high. But after all, firm break of 0.9304/5 is needed to confirm up trend resumption. Otherwise, range trading will continue with risk of deeper fall. And in that case, EUR/GBP could have a retest on 0.8303. But we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) 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 breached 1.5770 resistance last week but there was no follow through buying yet. Nonetheless, further rise is expected this week as long as 1.5633 minor support holds. Sustained trading above 1.5770 will confirm resumption of medium term rise from 1.3264. In that case, EUR/AUD should target 1.6587 key long term resistance. However, below 1.5633 minor support minor support will dampen this bullish case and turn bias to the downside.

In the bigger picture, medium term rise from 1.3624 is not completed yet. Break of 1.5770 will extend the rise to retest 1.6587 (2015 high). However, considering bearish divergence condition in daily MACD, sustained break of 1.4949 cluster support (38.2% retracement of 1.3624 to 1.5770 at 1.4950) will indicate medium term reversal. And there is prospect of retesting 1.3624 low in that bearish case.

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 1.3671 should indicate long term reversal and target 1.1602 long term bottom again.

EUR/CHF's corrective fall from 1.1832 extended lower last week. Initial bias remains on the downside this week for 1.1355 cluster support (38.2% retracement of 1.0629 to 1.1832 at 1.1372.) At this point, we'd expect strong support from there to contain downside and bring rebound. But break of 1.1639 resistance is needed to indicate short term bottoming. Otherwise, outlook will remain bearish in case of recovery.

In the bigger picture, a medium term top should be in place at 1.1832 on bearish divergence condition in daily MACD. But there is no indication of long term reversal yet. As long as 1.1198 resistance turned support holds, we'd still expect another rise through prior SNB imposed floor at 1.2000.

Japanese Yen ended as the strongest major currency last week as selloff in global stock markets intensified. Dollar followed closely as the second strongest. Sterling, however, ended as the weakest one despite hawkish BoE announcement which hinted at earlier and faster rate hikes. Euro followed as the second weakest while Aussie was the third weakest. DOW recorded two of the largest single day point drops over the week. And two days of more than 1000 pts decline was definitely historic. Judging from the technical pictures of DOW, FTSE and DAX, while the corrections are not finished, they would enter into "buy zone" of traditional medium term corrections on next fall. That is, we could see the selling recedes soon. However, we'd like to point out a big risk ahead, China stocks, that could make these global selloffs long term corrections.

Outlook of China stocks worst among all

Before going into American and European indices, we'd like to share the chart of the China Shanghai composite first. It tumbled -332 pts or -9.6% last week to 3283.74. More importantly, firstly, the choppy medium term rebound from 2638.30 (2016 low) should have completed. Secondly, structure of the rebound suggests that it's a corrective move. Thirdly, it was rejected cleanly by 3684.56 resistance as well as 38.2% retracement of 5178.19 (2015 high) to 2638.30) at 3608.53. These three observations argue that SSE is ready to resume the down trend from 5178.19.

For the near term, 3000 psychological level is the key. It's close to 3016.03 structural support. It also coincides with 61.8% retracement of 2638.30 to 3587.03 at 3000.71. It's also close to 55 month EMA (now at 2971.51). At the same time, it's a level that could prompt government interventions. However, if the index fails to defend this 3000 handle, we could indeed see a push through 2638.30 low later this year to 61.8% projection of 5178.19 to 2638.30 from 3587.03 at 2017.37. And in that case, it's highly likely for contagion to other parts of the world. This is seen by us as one of the the biggest risks to the global markets.

Oil could also be reversing medium term trend

Another one to look at is WTI crude oil, which lost -9.5% to 59.20 on worry of over production in the US. It has clearly topped out, at least in near term, at 66.66. More importantly, it was rejected by 61.8% retracement of 107.73 to 26.05 at 66.87, as well as 100% projection of 26.05 to 51.67 from 42.05 at 67.67. Such observations imply that whole rebound from 26.05 has completed. For the near term, deeper fall is now in favor to 55 week EMA at 53.73. Break there could accelerate the decline to 42.05 cluster support (61.8% retracement of 26.05 to 66.66 at 41.56) before crude oil could get realistically sustainable support. This is another big risk to the global markets.

DOW to enter into medium term "buy zone"

Back to equities, DOW once hit as low as 23360.29 (-2160.67 pts down from prior week's close of 25520.96) before paring some losses to close at 24190.90. It still ended the week down -1330.06 pts, or -5.2%. There is no sign of near term bottoming yet. But if it's only correcting the up trend from 15450.56, downside potential is relatively limited. There will be strong support firstly from 55 week EMA (now at 22564.40) and 38.2% retracement of 15450.56 to 26616.71 at 22351.24. So DOW would enter into a medium term "buy zone" on the next fall.

However, if the fall from 26616.71 is a correction of a larger scale, accompanied by deeper crash in China and oil, the story will be difference. And in that case, DOW would head to 38.2% retracement of 6469.96 to 26616.71 at 18920.64, before making a bottom. That is close the the level when US President Donald Trump got elected.

So does FTSE...

Picture in FTSE is similar If it's just correcting the up trend from 5499.50, it's now very close to channel support (now at 7030), as well as 38% retracement of 5499.50 to 7792.56 at 6916.61. Strong support should be seen from there, at least on first attempt, to bring sustainable rebound.

... and DAX

For DAX, it's also close to 11868.86 cluster support (38.2% retracement of 9214.09 to 13596.89 at 11922.66). If fall from 13596.89 is just correcting the up trend from 9214.09, there should be strong support from 11868.86, at least on first attempt, to contain downside and bring sustainable rebound.

DXY: Wait for break of 91.01 to assess chance of trend reversal

Yen and Dollar are the two strongest major currencies in February so far. Has the greenback bottomed? For the near term, the close above 90 handle is a sign of bottoming. It looks like the corrective decline from 103.82 is trying to end earlier than we expected. And, it's drawing support from 50% retracement of 72.69 to 103.82 at 88.25. But without other apparent sign, we'd prefer to, at least, see a firm break of 91.01 support turned resistance before considering a trend reversal. As long as 91.01 holds, the index could still head lower to 84.75 (61.8% retracement of 72.69 to 103.82 at 84.58) before reversing. Nonetheless, firm break of 91.01 will bring 95.15 resistance into focus.

Position trading strategy

We've sold GBP/CHF on break of 1.3105 last week. The short trade once looked very shaky on post hawkish BoE rebound. But it was limited at 1.3239, below our stop at 1.3300, and headed lower again. Worries on no-deal for Brexit transition is cited by many as the reason for Sterling's decline on Friday. We partly agree to it as the chance for BoE to pull ahead the next rate hike to May hinges on completing a Brexit transition deal. Nonetheless, the lack of follow through buying in Sterling after BoE was also a big hint on underlying indecisiveness.

Anyway, we maintain our view that a short term top was at least formed at 1.3491 on bearish divergence condition in daily MACD. 3491 is very close to 100% projection of 1.1638 to 1.2912 from 1.2219 at 1.3493. And, considering the price actions from 1.1638 (2016 low), the rise from there could be a corrective move completed with three waves at 1.3961. That is, first wave ended at 1.2912, second as a triangle ended at 1.2219, third at 1.3491. Fall from there should extend to 38.2% retracement of 1.1638 to 1.3491 at 1.2783 as the first target. But we're actually looking at 61.8% retracement at 1.2346 and below. We'll hold short in GBP/CHF, with stop lowered to 1.3240.

EUR/JPY Weekly Outlook

EUR/JPY's sharp decline last week confirmed short term topping at 137.49. Initial bias remains on the downside this week with focus on 132.04 cluster support first (23.6% retracement of 114.84 to 137.49 at 132.14). Decisive break there will indicate larger trend reversal on bearish divergence condition in daily MACD. In such case, outlook will be turned bearish for 38.2% retracement at 128.38 first. Nonetheless, rebound from 132.04 will retain near term bullishness Break of 134.79 minor resistance will bring retest of 137.49 high instead.

In the bigger picture, bearish divergence condition in week EMA indicates lost up medium term up trend momentum. But there is no clear sign of completion of up trend from 109.03 yet. Break of 137.49 will target 141.04/149.76 resistance zone. However, sustained break of 132.04 will be the early sign of long term reversal and should bring deeper fall back to retest 124.08 key support level.

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.

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