Sample Category Title

GBP/USD - 1.3505

Most recent candlesticks pattern   : N/A

Trend                                 : Up

Tenkan-Sen level                 : 1.3523

Kijun-Sen level                    : 1.3511

Ichimoku cloud top              : 1.3556

Ichimoku cloud bottom        : 1.3540

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Despite falling to 1.3450 late Friday, lack of follow through selling on break of previous support at 1.3452 and the subsequent rebound suggest further consolidation would take place and recovery to 1.3585-90 cannot be ruled out, however, still reckon upside would be limited to 1.3615-20 and price should falter below last week’s high at 1.3658, bring another retreat later.

On the downside, below 1.3475 would bring another fall towards 1.3450 support but a firm break below there is needed to retain bearishness and signal top has been formed at 1.3658, bring retracement of recent rise towards 1.3400-05 (50% Fibonacci retracement of 1.3153-1.3658). As near term outlook is still mixed, would be prudent to stand aside for now.

EUR/USD - 1.1879

Most recent candlesticks pattern   : N/A

Trend                      : Sideways

Tenkan-Sen level              : 1.1897

Kijun-Sen level                  : 1.1923

Ichimoku cloud top             : 1.1966

Ichimoku cloud bottom      : 1.1948

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

The single currency has fallen again after opening lower today, adding credence to our bearish view (our short position entered at 1.1970 met our target at 1.1870 with 100 points profit), although this anticipated decline suggests test of previous support at 1.1861 cannot be ruled out, a sustained breach below this support is needed to extend the fall from 1.2035 to previous support at 1.1838, then towards 1.1800 which is likely to hold on first testing.

In view of this, would not chase this fall here and would be prudent to stand aside for now. Above the Tenkan-Sen (now at 1.1897) would bring recovery to the Kijun-Sen (now at 1.1923) but reckon upside would be limited to 1.1940-50 and 1.1980-85 should hold. 

USD/JPY - 112.19

Most recent candlesticks pattern   : N/A

Trend                      : Up

Tenkan-Sen level              : 112.14

Kijun-Sen level                  : 112.19

Ichimoku cloud top             : 112.06

Ichimoku cloud bottom      : 111.92

Original strategy  :

Bought at 111.70, Target: 112.70, Stop: 111.90

Position :  - Long at 111.70

Target :  - 112.70

Stop : - 111.90

New strategy  :

Hold long entered at 111.70, Target: 112.70, Stop: 111.90

Position :  - Long at 111.70

Target :  - 112.70

Stop : - 111.90

Although the greenback retreated after meeting resistance at 112.52 and further consolidation below last week’s high at 112.72 would be seen, reckon downside would be limited to 111.90-95 and bring another rise, above 112.52 would bring retest of said resistance at 112.72, break there would confirm recent upmove has resumed and extend further gain to 112.90-00, then towards 113.25-30 (1.236 times projection of 107.32-111.04 measuring from 109.55), having said that, previous chart resistance at 113.58 would hold from here, bring correction later.

In view of this, we are holding on to our long position entered at 111.70. Only below indicated support at 111.65 would abort and risk weakness to 111.40-45 but break there is needed to signal a temporary top has been formed at 112.72, bring retracement of recent rise towards support at 111.11 first.

• European equities showed a mixed picture, but losses/gains remain small with Spain underperforming ahead of the Catalan referendum.
• The German right-wing nationalist Alternative for Germany suffered its first split after its stunning success in elections, as leader Petry said she would not sit with the party in the Bundestag. Horst Seehofer, the CSU leader has thrown the party's alliance with Merkel's CDU into doubt, questioning the formation of a joint parliamentary group.
• German FDP frontman Lindner showed his hawkish feathers regarding E(M)U. The FDP doesn't accept automatic transfers in the EMU. He asks for insolvency rules to strengthen liability of private investors and says a change of direction is needed on Greek policy.
• ECB Mersch didn't unveil any secrets by saying that the ECB will "prudently" adjust its tool box when warranted. Lithuanian ECB member Vasiliauskas was more outspoken when he said that he prefers to have a concrete date or complete term as to how long the central bank can be buying bonds.
• Speaking at a press conference in his official residence, Japanese PM Abe said he would dissolve parliament on September 28th and go to the public (snap elections). He said the security threat from North Korea could not be allowed to prevent a democratic election. He promised to raise the consumption tax from 8 to 10% in 2019.
• Brent crude oil jumped towards $58 a barrel on Monday – its highest level since January – and was on course to close at the highest level since 2015. Oil has been boosted by signs that the massive crude glut built-up since mid-2014 is slowly being drawn down, as producers cut supplies and robust demand eats into the surplus.
• Greece has taken another step towards ending nearly a decade of bailouts and outside economic surveillance, after the EU confirmed that Athens was no longer in breach of euro area budget rules.
• Sentiment among German business executives dipped in September for the second month in a row, nudging mildly further away from the record logged this summer, a closely-watched IFO survey showed.

Rates

Bonds little affected by German election surprises

The German election surprise didn't trigger safe haven flows on core bond markets and peripheral spreads barely widened. European equities traded stable while the decline of EUR/USD was technically irrelevant. ECB and Fed talk also failed to give distinct direction. At the time of writing, US yields are to 1 bp higher, while German yields drop between 0.7 bps (30-yr) and 2.5 bps (5-yr). On intra-EMU bond markets, 10-yr yield spreads versus Germany widen 2 bps (Spain/Italy) to 3/5 bps (Portugal/Greece).

German Bunds and (US Treasuries) opened little changed after the German election outcome which inject some uncertainty about the government formation and about the country's future policy versus E(M)U. Peripheral yield spreads, vulnerable for EMU negative news, hardly widened. The Bund rallied on a slightly weaker-than-expected German IFO business confidence, but peripheral spreads remained little changed. The CSU chairman questioned the formation of a joint parliamentary group with the CDU sister party. The FDP leader, a potential coalition party leader, was very critical towards the E(M)U and a front woman of the AfD refused to take her seat (see headlines). These comments show that Germany may become less politically stable and less willing to help EMU, even as these comments shall not represent future policy guidelines. However, interestingly, these comments again didn't impact core bonds or peripheral bonds. The Bund rally ran out of steam and turned south when US traders joined the fray. Gains largely evaporated. US Treasuries showed a similar, but less outspoken price profile. NY Fed Dudley, a dove, is firmly in the majority group inside the FOMC. He more or less repeated Yellen's reasoning why rates will continue to be gradually raised.

Currencies

EUR/USD declines modestly after German election

Last week, the dollar remained in the defensive even as the Fed reiterated its commitment to normalize policy. Today, the focus turned to the euro. The German election outcome might have some negative consequences for intra-EMU cooperation. EUR/USD was captured in a gradual intraday downtrend. EUR/USD dropped below 1.19. However, the first support at 1.1823 still stays out of reach. USD/JPY hovered in a tight range mostly slightly north of 112.

There were several stories to guide trading at the start of the new week in Asia. Japanese equities outperformed as markets look out for new pro-growth measures as PM Abe considered (later confirmed) snap elections for next month. USD/JPY returned well north of 112, but the rally was hampered as global sentiment turned cautiously risk-off. EUR/USD dropped temporary to the 1.19 area on the outcome of the German election at the start of trading, but Asian investors were looking for more guidance from Europe.

The reaction in Europe to the German election was modest and a bit diffuse across markets. European equities soon reversed initial losses. German government yields declined slightly and peripheral spreads widened a few basis points. EUR/USD started a gradual intraday downtrend. The German IFO business sentiment was weaker than expected. There was no immediate market reaction, but the euro slide continued. The decline accelerated as the pair dropped below the Asian lows in the 1.19 area. German FDP leader advocated more financial orthodoxy on intra-EMU transfers and regarding Greece (see headlines). Once again, there was no one-to-one link between comments and the intraday decline of the euro. However, the headlines suggest that the debate on the financing of Europe might become difficult. EUR/USD traded in the 1.1875 area at the start of the US trading session. Even so, the 1.1823 support again wasn't reached.

There were few eco data in the US. The impact of German elections on US markets was negligible. US markets in the first place focus whether the government can make progress on key policy issues including tax reduction. EUR/USD trades in the 1.0880 area. USD/JPY has returned to the 112.20 area. To conclude: euro softness and maybe a pinch of dollar strength.

EUR/GBP nears recent lows

Sterling trading was mostly driven by global markets reaction to the German election results. The euro opened substantially lower compared to Friday's close and remained under pressure in early European dealings. EUR/GBP declined to the 0.8785 area. The rise of sterling temporary also propelled cable. However, finally the dollar outperformed the euro and sterling. The German election outcome at some point might also complicate the Brexit negotiations as it hasn't become easier for Merkel to make concessions. EUR/GBP still trades near the intraday lows in the 0.8785 area. Cable trades off the intraday top in the 1.3510 area. The formal negotiations between the UK and the EU restart later today.

Daily Pivots: (S1) 111.57; (P) 112.06; (R1) 112.47; More...

Intraday bias in USD/JPY remains neutral for the moment. Further rise is in favor with 111.07 support intact. Sustained break of medium term channel resistance (now at 113.03) will argue that whole correction from 118.65 has completed. In that case, further rise should be seen to 114.49 resistance for confirmation. However, break of 111.07 minor support will raise the risk of rejection from channel resistance and turn bias back to the downside for 55 day EMA (now at 110.64) and below.

In the bigger picture, rise from 98.97 (2016 low) is seen as the second leg of the corrective pattern from 125.85 (2015 high). It's unclear whether this this second leg has completed at 118.65 or not. But medium term outlook will be mildly bearish as long as 114.49 resistance holds. And, there is prospect of breaking 98.97 ahead. Meanwhile, break of 114.49 will bring retest of 125.85 high. But even in that case, we don't expect a break there on first attempt.

Daily Pivots: (S1) 0.9670; (P) 0.9689; (R1) 0.9711; More....

Intraday bias in USD/CHF remains neutral for the moment. On the upside decisive break of 0.9772 resistance will suggest that whole down trend form 1.0342 has completed. In that case, near term outlook will be turned bullish for 0.9860/1.0099 resistance zone. Nonetheless, with 0.9772 resistance intact, outlook remains bearish. Below 0.9587 minor support will turn bias back to the downside for retesting 0.9420 low.

In the bigger picture, current development suggests that 0.9443 key support (2016 low) could be taken out firmly as down trend form 1.0342 extends. There are various interpretation of the price actions. But in any case, medium term outlook will stay bearish as long as 0.9772 resistance holds. Current down trend could extend to 38.2% retracement of 0.7065 (2011 low) to 1.0342 (2016 high) at 0.9090. However, break of 0.9772 will indicate that USD/CHF has successfully defended 0.9443 again and turn outlook bullish for 1.0099 resistance.

Daily Pivots: (S1) 1.3425; (P) 1.3510; (R1) 1.3572; More....

No change in GBP/USD's outlook, intraday bias remains neutral for consolidation below 1.3651. In case of deeper fall, downside should be contained by 38.2% retracement of 1.2773 to 1.3651 at 1.3316 and bring rise resumption. Above 1.3651 will turn bias back to the upside for 1.3835 support turned resistance next. Break there will target 55 month EMA (now at 1.4405).

In the bigger picture, current development argues that the long term trend in GBP/USD has reversed. That is, a key bottom was formed back in 1.1946 on bullish convergence condition in monthly MACD. Current rise from 1.1946 will target 38.2% retracement of 2.1161 (2007 high) to 1.1946 (2016 low) at 1.5466 next. In any case, medium term outlook will now stay bullish as long as 1.2773 support holds.

Daily Pivots: (S1) 1.1919; (P) 1.1961 (R1) 1.1990; More...

At this point, EUR/USD is still holding above 1.1822/37, in range below 1.2091. Intraday bias remains neutral for the moment. With 1.1822 support intact, near term outlook remains bullish for further rally. Break of 1.2091 will extend larger rise from 1.0339 and target next key fibonacci level at 1.2516. But considering bearish divergence condition in 4 hour MACD, break of 1.1822 will confirm short term reversal. In the case, intraday bias will be turned back to the downside through 1.1661 support. EUR/USD should then correct whole rise from 1.0569 and target 38.2% retracement of 1.0569 to 1.2091 at 1.1510.

In the bigger picture, rise from medium term bottom at 1.0339 is still in progress for 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. However, it should be noted that there is no confirmation of trend reversal yet. That is, such rebound from 1.0399 could be a correction. And the long term fall from 1.6039 (2008 high) could resume. Hence, we'd be cautious on strong resistance from 1.2516 to limit upside. But after all, break of 1.1661 is needed to indicate medium term topping. Otherwise, outlook will remain bullish in case of pull back.

Euro dips notably today in reaction to the results of Germany elections. And, the common currency is trading as the second weakest one so far, just next to New Zealand Dollar. While Angela Merkel won her fourth term as Chancellor, there are big questions and what the coalition government would be. First runner up Social Democrats are very clearly and determined to be a "strong opposition" and the "grand coalition" is ruled out. Meanwhile, the prospect of the Jamaica coalition of CDU, business friendly FDP and Greens is seen by many as having intrinsic instability. The rise of antit-EU AfD might prompt some worries over EU reforms. But AfD has already in disarray as its chair Frauke Petry walked out at a press conference and declared she won't sit with the party in the Bundestag, showing huge internal dissent.

But after all, technically, EUR/USD is holding above 1.1822/37 support zone. EUR/GBP is trying to defend last week's low at 0.8773, without giving in. EUR/JPY is well above 131.69 near term support. There is no coalition and a reversal in Euro yet.

More in Merkel Wins Fourth Term But Biggest Challenge Ahead

Ifo Fuest: Significance of AfD's 13% should not be exaggerated".

Ifo president Clemens Fuest noted that the grand coalition between CDU and SDP, which represents "stability and predictability" is rejected. And this has "advantages and disadvantages". The so called Jamaica coalition between CDU, FDP and Greens has the potential to "make  progress in areas of economic policy but also to avoid making certain mistakes. Though, there is a risk that "finding consensus will prove difficult" and that means instability in the government. He also talked down the significance of right wing AfD's entry into Bundestag. While AfD won 13%, it could only result in the parliament having "more of a nationalist tone". And the "significance should not be exaggerated".

Separately, German Ifo business climate dropped to 115.2 in September, down from 115.7, below expectation of 116.0. Expectation gauge dropped to 107.4, down from 107.8, below expectation of 108.0. Current assessment gauge also dropped to 123.6, down from 124.7, below expectation of 124.7. Ifo noted in the statement that overall, Germany's economy nevertheless goes into the new legislative period with a strong tailwind." But, the readings suggest that German economic growth is going to accelerate beyond Q1's 0.7% and Q2's 0.6.

ECB Draghi: We're more becoming confident on inflation path

ECB President Mario Draghi said today that policy makers are "becoming more confident that inflation will eventually head to levels in line with our inflation aim". But he maintained that "a very substantial degree of monetary accommodation is still needed for the upward inflation path to materialise." Draghi will testify before a European Parliament committee today and talk about monetary policies and Eurozone economy.

BoE FPC: Brexit agreement must protect GBP 20T of derivative contracts

Bank of England said in a Financial Policy Committee that an agreement is needed as part of the Brexit process to protect the "long term" validity of the GBP 20T of existing derivative contracts. And BoE warned that "impairment to the servicing of these contracts could disrupt market functioning and make it more expensive for firms and households to insure against risks." Meanwhile, "the FPC and Prudential Regulation Committee encourage firms to use any internationally agreed transitional arrangements as they adjust to the new regime, provided the arrangements are broadly similar to those currently being considered."

The fourth round of Brexit negotiation between UK and EU starts in Brussels today. That's a few days after UK Prime Minister Theresa May called for a two year "implementation period" on Brexit, and during the time, it's almost like all status quo. UK will continue to have access to the single-market and pay into EU budgets. UK would even accept new EU regulations through to 2021. Such a proposal attracts criticism from May's own MPs. The criticism mainly center around payment to EU an European Court of Justice jurisdiction.

Japan PMI announces snap election

In Japan, Primes Minister Shinzo Abe finally announced an early election today. Abe mentioned the problems of aging population and tension with North Korea as the biggest problems. And he pledged that "the respond to the problems as leader of the nation, that's my mission as prime minister". He needed fresh mandate to handle the "national crisis". Abe also announced a JPY 2T stimulus package on education and social spending, for preparing Japan for the future. Abe hasn't set a date for the election yet. But the Japanese media suggest it will be on October 22.

Also from Japan, PMI manufacturing rose to 52.6 in September, up from 52.2, but missed expectation of 53.4. Nonetheless, that's the 13 straight month of expansionary reading, and the highest level since May. IHS Markit principal economist Annabel Fiddes noted that "firms signalled stronger expansions in both output and new orders amid reports of firmer demand both at home and abroad" And, "the strong end to Q3 bodes well for production in the coming months, with business confidence also perking up slightly since August."

New Zealand General Election: Economics Clouded By Politics

While the final result would be formally announced on October 7 (due to the complex arithmetic of the mixed-member proportion system), the available information confirmed that the centre-right National Party remains the biggest party but would again be shy of being a majority government. Worse still, it would also be challenging for Nationals to form a minority government with consent of smaller parities. While many believe that the most likely result would be a Nationals + NZ First coalition, it is not yet a done deal as it is still possible for NZ First form a coalition government with centre-left Labors and left-wing Greens. With plenty of uncertainties remains and the populist NZ First likely be a kingmaker in this term. More in New Zealand General Election: Economics Clouded By Politics.

New York Fed Dudley: Fed to continue accommodation removal

In US, New York Fed President William Dudley said today that he expects inflation to rise and stabiles around 2% over the medium term. That's thanks to "firmer import price trend and the fading of effects from a number of temporary, idiosyncratic factors". And therefore, "in response, the Federal Reserve will likely continue to remove monetary policy accommodation gradually." His comments are inline with what he said earlier in the month, and Fed's own projection of another rate hike by the end of the year.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1919; (P) 1.1961 (R1) 1.1990; More...

At this point, EUR/USD is still holding above 1.1822/37, in range below 1.2091. Intraday bias remains neutral for the moment. With 1.1822 support intact, near term outlook remains bullish for further rally. Break of 1.2091 will extend larger rise from 1.0339 and target next key fibonacci level at 1.2516. But considering bearish divergence condition in 4 hour MACD, break of 1.1822 will confirm short term reversal. In the case, intraday bias will be turned back to the downside through 1.1661 support. EUR/USD should then correct whole rise from 1.0569 and target 38.2% retracement of 1.0569 to 1.2091 at 1.1510.

In the bigger picture, rise from medium term bottom at 1.0339 is still in progress for 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. However, it should be noted that there is no confirmation of trend reversal yet. That is, such rebound from 1.0399 could be a correction. And the long term fall from 1.6039 (2008 high) could resume. Hence, we'd be cautious on strong resistance from 1.2516 to limit upside. But after all, break of 1.1661 is needed to indicate medium term topping. Otherwise, outlook will remain bullish in case of pull back.

Economic Indicators Update

The CAC index has posted losses in the Monday session. Currently, the index is at 5,264.00, down 0.34% on the day. On the release front, it's a quiet start to the week, with no eurozone or French indicators on the schedule. ECB President Mario Draghi testifies before the European Parliament Economic and Monetary Affairs Committee.

European stock markets lost ground in the aftermath of the German election on Sunday, and the CAC has started the week with slight losses. Angela Merkel's CDU won 33% of the vote in the German election, which means that Merkel will have to enter arduous negotiations with other parties in order to form a coalition government. The center-left SFD, which won 20% of the vote, has already said it will not join the CDU, so Merkel has her work cut out for her. The far-right AFD ran on a far-right, anti-immigrant platform, and the party's surge in support has sent shock waves in Germany and across Europe. The AFD cannot be considered as a coalition partner, which leaves the Greens and the pro-business FDP party as the most likely configuration. However, the FDP has insisted on the powerful finance portfolio and will likely try to reduce German transfer payments to the European Union. If the pro-business FDP does join the coalition, this could ice Macron's plans to strengthen European integration. Christian Lindner, the leader of the FDP, called for Greece to return to the drachma, underscoring the party's opposition to Germany continuing to prop up weaker members of the eurozone.

Emmanuel Macron ran an election campaign which promised to overhaul the French economy, and the government announced a labor reform that will make it easier for employers to hire and dismiss workers. Unsurprisingly, France's largest unions have pledged to fight the move tooth-and-nail, and tens of thousands demonstrated in Paris on Saturday. The government has promised further reforms to the country's generous benefits system, specifically unemployment benefits and pensions. Previous governments have tried to streamline the economy in the past, but mass strikes and demonstrations by unions have managed to stave off major reforms. Will Macron succeed where his predecessors have failed? The new government appears determined to move full speed ahead, and the markets will be watching closely to see who prevails in this round, the unions or the government.