Sample Category Title

GBP/USD – 1.3220





Original strategy :

Sold at 1.3175, stopped at 1.3235

Position: - Short at 1.3175

Target:  -

Stop: - 1.3235




New strategy :

Stand aside

Position: -

Target:  -

Stop:- 



Although sterling staged a stronger-than-expected rebound to 1.3279, as cable met resistance there and has retreated again, suggesting further consolidation within recent established range would take place and weakness to 1.3170-75 cannot be ruled out, however, as outlook remains consolidative, reckon downside would be limited to support at 1.3110 and price should stay above last week’s low at 1.3088, bring another rebound later.

As near term outlook is mixed, would be prudent to stand aside for now. Above 1.3240-50 would bring test of said resistance at 1.3279, however, still reckon upside would be limited to 1.3338 resistance and bring further choppy trading. Our preferred count is that (pls see the attached chart) the wave IV is unfolding as a complex double three (ABC-X-ABC) correction with 2nd wave B ended at 1.2774, hence 2nd wave C could have ended at 1.3658.

Our preferred count on the daily chart is that cable's rebound from 1.3500 (wave (A) trough) is unfolding as a wave (B) with A ended at 1.7043, followed by triangle wave B and wave C as well as wave (B) has ended at 1.7192, the subsequent selloff is the larger degree wave (C) which is still unfolding with minor wave (III) of larger degree wave 3 ended at 1.1986, hence wave (IV) correction is in progress which could either be a triangle wave (IV) of a complex formation but upside should be limited to 1.3500 and price should falter well below 1.4000, bring another decline in wave (V) of 3 for weakness to 1.1500, then 1.1200. 


The euro is almost unchanged in the Thursday session, after gains on Wednesday. Currently, EUR/USD is trading at 1.1811, down 0.02% on the day. On the release front, German GfK Consumer Climate edged lower to 10.7, close to the forecast of 10.8 points. The ECB will release its rate statement, and is expected to taper its asset purchase program. There are two key indicators in the US – unemployment claims and Pending Home Sales. On Friday, the US releases Advance GDP and the UoM Consumer Sentiment.

All eyes are on the ECB, which holds a policy meeting on Thursday. The Bank is expected to maintain interest rates at a flat 0.00%, but could significantly trim the ECB’s asset purchase program (QE). Currently, the ECB is purchasing EUR 60 billion/mth, and there is a strong likelihood that this amount will drop to EUR 30 billion/mth. The stronger eurozone economy is the catalyst behind a taper, but with inflation persistently at low levels, the ECB is expected to announce to extend the program well into 2018 or even later. Eurozone members remain divided as to whether the ECB should signal that it plans to wind up QE. Germany and the Netherlands are in favor of a quick exit, but other members want the scheme to remain open-ended, so that the ECB can continue with extensions, if needed. ECB policymakers will need to perform a balancing act between these views as it shifts its monetary policy.

The temperature is quickly rising in Spain, as the crisis over Catalan independence is at a fever pitch. On Friday, the Spanish Senate is expected to authorize the central government to invoke Article 155 of Spain’s constitution and apply direct rule over Catalonia. This would allow Madrid to dismiss the Catalan government and take control of the regional police and radio and television stations. This drastic clause has never been invoked, and it remains unclear what steps the central government will take under Article 155. How will the Catalan parliament respond? On Thursday, the Catalan vice-president warned that if Madrid imposed direct rule, the Catalan government would have no choice but to declare independence. So far, the crisis has not affected the euro, and Caixabank, the third largest bank in the country, does not expect the Catalonia issue to affect Spain’s GDP, which the bank projects will expand 2.7 percent in 2018.

The pace of the QE purchase program could be reduced to 30 billion euro a month
Investors would be parsing the ECB tone and language closely
Patient is no longer sick and doesn’t require the assistance

QE Length Could be extended

We do expect the QE process to be extended into 2018 for another nine months from its current expiry date (December). The pace of the QE purchase program could be reduced to 30 billion euro a month which would be nearly half of the current size. This means that the ECB would add another 270 billion to their balance sheet over the next period. The market is very much expecting this, anything which is above or below this number could trigger a surprise for the markets. Therefore, we do think that the ECB will reiterate that it is still fully committed to its program to strike a balance and the bank would confirm that it can change the pace and the path of the tapering for the QE as the markets conditions would require them

The Language and Tone

Investors would be parsing the ECB tone and language closely. The duration of extending the current QE program will very much dictate the market’s interest rate hike expectations. The shorter the duration, the more anchored the expectations would be for the upcoming interest rate hike. We do expect the interest rates to remain at their current level for an extended period of time. Mario Draghi, the president of the European Central Bank, would have a difficult task to convenience the market that these expectations are not going to change anytime soon

The phrase which would make the statement hawkish and dovish is “beyond if necessary”. The ECB uses this phrase when it talks about its asset purchase program and if the bank removes this phrase and extends the current program by only limited period, it would be perceived as a hawkish stance which could push the Euro higher

Locking the Door

The ECB launched its unpopular program to improve the health of the dying patient, the patient is no longer sick and doesn’t require the assistance. The unemployment rate in the Eurozone has fallen from its peak of 11.3 percent to 9.1 percent and the growth in the region is outpacing the biggest economy in the world- the US. Liquidity and credit situations even in the feeblest part of the Eurozone have improved remarkably, and the ECB has defeated the vicious cycle of falling prices i.e deflation.

Excuses For Draghi

The president of the ECB hasn’t achieved his inflation goal and the needle on that parameter isn’t moving at a pace which the president would like to have. The ongoing situation between Madrid and Catalonia has fuelled uncertainty in the market and the domino effect can never be underestimated, On top of that, the five star movement over in Italy, has gained a meaningful popularity amid Italians and with elections due next year, we do not think that the president of the European central bank is going to be overly hawkish.

The US earnings are pretty much dictating the market action on Wall Street
The chief focus for investors is the ECB meeting
Sterling rally fizzles out
The precious metal is off from its two weeks

Investors are taking a cautious approach and taking clues from Wall Street. The US earnings are pretty much dictating the market action on Wall Street and the US equity market was dragged in the red due to the underwhelming earnings results. At the same time, the US tax situation isn’t becoming clear in fact there is more ambiguity on that due to the ongoing spat between president Trump and Republicans.

The chief focus for investors is going to remain towards the most important event of the day, the European Central Bank’s meeting. Tapering is very much given in today’s meeting, the primary interest amid investors would be how long the European central would be extending its current quantitative easing program. The extension of the current program would not only tell us the pace at which the bank would be reducing the QE program but most importantly it would also provide us an important clue about the ECB’s intention to start the process of normalising the interest rate. This is the key element that would drive the volatility in the Euro. Remember the governing council of the ECB has more doves than hawks, so a hawkish tone would easily be able to push the currency towards the level of 1.20 against the dollar.

Speaking of Sterling, the currency did find its mojo among investors on the back of more supporting economic data but the rally is fizzling out. The third quarter preliminary GDP q/q reading was much better than the forecast and this economic reading was primarily behind the current momentum. Investor’s expectations are literally cemented that the Bank of England would increase the interest rate hike on the back of the improving economic data. Shorter dated UK government bonds have seen their yields surging to the highest level not seen since Brexit. This shows that investors are highly reactive to economic data and the governor of the Bank of England has already made clear that as long as the economic data does not disappoints, a rate hike would be on the table. The UK’s economy has shown more resilience than the expectation in the Brexit storm and this is despite the fact that we have seen the inflation data exerting more weight on consumers.

The precious metal is off from its two weeks low thanks to the uncertainty around the ECB meeting. The dollar index has also lost some of its momentum because we do not have any clear picture who will be leading the Fed when Janet Yellen’s term expire. Given the Trump’s fiscal agenda, it really is difficult to see a scenario under which the Chairperson of the Fed would have more hawkish stance.

Inventory data is maintaining the selling pressure on Crude. The US crude inventories number jumped higher and surprised investors and this particular element is influencing the price.

GBP/JPY - 149.40

Original strategy:

Bought at 149.50, Target: 151.50, Stop: 148.90

Position: - Long at 149.50
Target: - 151.50
Stop: - 148.90

New strategy :

Hold long entered at 149.50, Target: 151.50, Stop: 149.70

Position: - Long at 149.50
Target:  - 151.50
Stop:- 149.70

Sterling only rose to 151.40 (just missed our upside target at 151.50) before treating again, suggesting consolidation below said resistance would be seen, however, as long as 149.75-80 holds, bullishness remains for another rise, break of resistance area at 1.5140-60 would add credence to our view that correction from 152.85 has ended, bring further rise to 152.00 and later towards said recent high.

In view of this, we are holding on to our long position entered at 149.50. Below 149.75-80 would suggest top is possibly formed but only break of 149.10-15 would add credence to this view and suggest the rebound from 146.95 has ended instead, risk weakness to 148.55-60 but indicated support at 147.80 should hold from here. 

Our preferred count is that larger degree wave V with circle is unfolding from 251.12 with wave (I) 219.34, (II): 241.38 and wave (III) is subdivided into 1: 192.60, 2: 215.89 (23 Jul 2008) and wave 3 ended at 118.87 earlier in 2009. The correction from there to 162.60 is wave 4 which itself is a double three and is labeled as first a-b-c ended at 151.53, followed by wave x at 139.03, 2nd a ended at 162.60, 2nd b at 146.75 and 2nd c leg of wave 4 ended at 163.00. Therefore, the decline from 163.00 to 116.85 is now treated as wave 5 which also marked the end of larger degree wave (III), hence wave (IV) major correction has commenced for retracement of the wave (III) from 241.38 and upside target at 183.95-00 (50% Fibonacci retracement of the wave (II) from 241.38) had been met, a drop below 160.00 would suggest wave (IV) has ended at 195.85, bring decline in wave (V) for initial weakness to 130 (already met) and 120.


WTI oil price stands at the back foot on Thursday but holding above $52.00 handle for now, after falling on Wednesday on unexpected build of US crude stocks.

EIA report on Wednesday showed crude inventories rose for the first time in five weeks. Build of 0.85 million barrels last week disappointed expectations for a draw of 2.5 million barrels, send oil prices lower.

Fresh easing is still seen as consolidation ahead of final push towards key barrier at $52.84 as overall structure remains bullish and influenced by recent comments from Saudi Arabia’s oil minister about extending output reduction plan in order to end global oversupply.

Near-term price action remains supported by rising 10SMA ($51.96) and bull-trendline off $49.12 trough ($51.67) which maintain bullish bias.

Break here would sideline bulls for deeper correction which is indicated by overbought slow stochastic on daily chart.

Break lower would open next pivotal support at $51.26/20 (Fibo 38.2% of $49.12/$$52.59 / 20SMA).

Res: 52.59, 52.84, 53.73, 54.27
Sup: 51.96, 51.67, 51.20, 50.86

• Traders Cautious Ahead of ECB (Not) Tapering Announcement;
• EUR Upside Possibly Hanging on Defined End Date For QE;
• With Investors a Little Rattled, Another 72 S&P 500 Companies Prepare to Report.
• Traders Cautious Ahead of ECB (Not) Tapering Announcement

It's been a relatively calm start to trading on Thursday and the US is poised to open in a similar manner, as traders await an announcement from the ECB on its asset purchases.

As is often the case, we appear to be witnessing the calm before the storm in the markets, with the ECB announcement likely to create significant volatility as traders weigh up just how dovish or hawkish the central bank is in light of recent data.

There's been months of speculation about how the ECB will taper its asset purchase program – although the bank itself prefers to refrain from such language in fear of a repeat of the 2013 taper tantrum when the US was conducting a similar exercise. It's this fear that prompted Draghi late last year to claim the initial €20 billion reduction is absolutely not tapering as bond purchases could increase again if need be.

EUR Upside Possibly Hanging on Defined End Date For QE

How the central bank goes about this will be important though and likely trigger a response in the markets. The euro has rallied strongly in recent months on the expectation that the central bank will announce a plan that aims to end its QE program probably late next year. Should the ECB adopt a more gradual approach, we could see some sharp declines in the single currency.

With markets having already priced in the most likely outcome – a 50% cut to €30 billion per month for nine months - or a variation of it, it may take something significant and unexpected to trigger more upside in the euro. For example, investors are anticipating the usual cautious approach from the ECB which likely involves laying out no plans beyond the next expiration along with the standard warning that purchases could rise or fall, depending on how the economy performs. Should the ECB surprise us and name a potential end date that has been agreed – all being well – then this may lift the euro in the near-term.

With Investors a Little Rattled, Another 72 S&P 500 Companies Prepare to Report

While the ECB will likely hog the limelight today, US earnings season will continue to be an important driver for markets. Weaker than expected earnings were largely blamed for yesterday's hiccup in an otherwise flawless stock market rally and another 72 S&P 500 companies are preparing to report on the third quarter today, including Intel and Microsoft, although we'll have to wait until after the market close for these results. Pending home sales and US jobless claims make up the only two other economic events today, although I imagine focus will primarily be on the ECB and earnings.

EUR/JPY - 134.23

Original strategy:

Bought at 133.20, Target: 135.20, Stop: 133.10

Position: - Long at 133.20
Target: - 135.20
Stop: - 133.10

New strategy :

Hold long entered at 133.20, Target: 135.20, Stop: 133.50

Position: - Long at 133.20
Target:  - 135.20
Stop:- 133.50

As the single currency found renewed buying interest at 133.10 and has surged again, retaining our bullishness for rent upmove to resume and upside bias remains for further gain to 135.00-10, however, near term overbought condition should limit upside to 135.50-60 and reckon 136.00-10 would hold from here, bring retreat later.

In view of this, we are holding on to our long position entered at 133.20. Only below said support at 133.10 would defer an risk correction to 132.70-75, then test of indicated support at 132.47, break there would signal top is formed instead, risk correction to 132.00 first but strong support at 131.66 should remain intact.

Our latest preferred count is that wave (ii) is ABC-X-ABC which ended at 123.33 and wave (iii) is unfolding with wave iii ended at 100.77, followed by wave iv at 111.57 and wave v as well as the wave (iii) has ended at 97.04, followed by wave (iv) at 111.43 and wave (v) has ended at 94.12 which is also the end of the larger degree v, this also implied the major wave (C) has also ended there, hence major correction has commenced from there with (A) leg unfolding in its lower degree wave c which has possibly ended at 145.69. Under this count, A-B-C wave (B) has commenced with A leg ended at 136.23, wave B at 143.79 and wave C has possibly ended at 149.79.

Our larger degree count is that the decline from 139.26 is wave (C) and is sub-divided into a diagonal triangle i-ii-iii-iv-v with wave i - 105.44, wave ii- 123.33, wave iii - 97.03, wave iv - 111.43, followed by the final wave v as well as the end of wave (C) at 94.12, this also mark the bottom of larger degree wave B. Under this count, major rise in wave C has commenced as an impulsive wave with minor wave III ended at 145.69, wave V is still in progress for further gain to 150.00. Having said that, this so-called wave V could well be the first leg of larger degree 5-waver wave C and this wave C should bring at least a retest of wave A top at 169.97 (July 2008).

AUD/USD – 0.7703

Original strategy:

Sold at 0.7875, met target at 0.7700

Position: - Short at 0.7875
Target:  - 0.7700
Stop:-

New strategy :

Stand aside

Position: -
Target:  -
Stop:-

Yesterday’s selloff together with the breach of previous support at 0.7733 confirms recent decline from 0.8125 top has resumed and our short position entered at 0.7875 met downside target at 0.7700 (with 175 points profit), although this anticipated decline adds credence to our bearish view and further weakness to 0.7650 is likely, near term loss of downward momentum should prevent sharp fall below 0.7600 and reckon 0.7550 would hold from here, bring rebound later. 

As we have taken profit on our short position entered at 0.7875, would not chase this fall here and would be prudent to stand aside for now. Above 0.7750 would bring recovery to 0.7770 but only break of latter level would suggest a temporary low is possibly formed instead, risk further gain to 0.7800 and then towards 0.7835, break of latter level would confirm.

On the 4-hour chart, recent upmove from 0.7329 is unfolding as an impulsive rise with wave 3 as well as smaller degree wave (iii) extending, only minor wave v of (iii) has ended at 0.8125, hence bullishness remains for this move to extend headway to 0.8200, then towards 0.8300, however, reckon upside would be limited to 0.8400 and the final wave 5 should falter below 0.8500, bring correction later.

ECB meeting: a subtle balance between hawkish and dovish

Today, the main event is obviously the ECB meeting with announcement of the interest rate decision at GMT 11:45 followed by a press conference at GMT 12:30. The question is not whether the European Central Bank will keep interest rates unchanged, nor whether Mario Draghi will announce a reduction of the asset purchase program, but rather the size and timing of the latter. The market is expecting the ECB to trim its monthly purchase by €20bn down to €40bn, while the program should be extended by at least six months (June 2018) if not nine months (September 2018).

Mario Draghi will have the difficult task to announce a hawkish move without triggering a sell-off in the bond market together with a rally of the single currency. Therefore Mario Draghi will give investors what they want: a reduction of the QE; however he will also reiterate his call for cautiousness and remind market participants that the ECB could potentially increase again its support to the economy should the situation require. Such a balanced move would allow the ECB to prevent adverse movements in financial market while moving forward with the QE reduction.

After extending gains yesterday, EUR/USD is trading sideways on Thursday morning at around 1.1825. EUR/CHF printed a new multi-year high yesterday at 1.1705. We think the ECB is not quite happy of the recent sharp appreciation of the euro. Therefore, we anticipate that Draghi will emphasized the subdued inflation pressures together with the risk of a excessively strong EUR to the outlook.

In the short-term, the increase in the price EUR/USD call options compared to put options suggests that the market is positioned for further EUR/USD strength. However, in the longer term, this is a different story as puts are more expensive than calls (6m 25 delta risk reversal is equal to -0.175%), suggesting that investors are rather bearish on the medium-term outlook for EUR/USD.

USD still bullish

US 10-year yield rose to 2.43 the highest levels since March. A series of factor that provided a confusing outlook for the US look to have converged supporting demand for US assets. Economic data such as ISM and Durable goods have surprised significantly to the upside. While the divergence between real and survey data remains a question corporate American continue to produce hard revenue. In the current earning season 70% of S&P 500 companies that have reported beat profit expectations. In politics, tax reform seem to be mostly on track (rift on funding for tax reform based on repealing SALT deduction is the current issue) and in a Fox News interview, President Trump said he was considering reappointing Janet Yellen as Fed Chair. Finally, in the same interview discussing NAFTA, despite an initial threat to “terminate the deal”, there is a general feeling that comment was an negotiating tactic. Spillover into CAD and MXN was limited. Even minor correction in the Asia market failed to dent the USD strength against JPY and EM currencies. However, a more dovish fed and failure of tax reform to reach the floor will likely hurt the USD bullish trend. We remain cautious on digging to deep into USD long ahead of today critical ECB meeting.