Sample Category Title

Price has decreased sharply and is almost to erase the yesterday's gains. It has failed to resume the upside movement and now is located under the 150% Fibonacci line (ascending dotted line). I've drawn a minor red descending pitchfork, a retest of the upper median line (uml) could signal another leg lower on the short term. Only a breakout above the upper median line (uml) will invalidate another drop.

The currency pair has extended the upside momentum and seems determined to climb much higher on the short term. The next upside target will be at the second warning line (wl1) of the minor ascending pitchfork. Only a failure to reach the mentioned line will signal an exhaustion and a potential drop.

USD/CHF - 0.9692

Most recent candlesticks pattern : N/A

Trend                                    : Near term up

Tenkan-Sen level                  : 0.9689

Kijun-Sen level                    : 0.9702

Ichimoku cloud top                 : 0.9698

Ichimoku cloud bottom              : 0.9669

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

The greenback retreated after rising to 0.9748 earlier this week and consolidation below this level would be seen and pullback towards the lower Kumo (now at 0.9654) cannot be ruled out, however, reckon previous minor resistance at 0.9630 would limit downside and price should stay well above indicated support at 0.9589, bring rebound later.

On the upside, whilst recovery to the Kijun-Sen (now at 0.9702) cannot be ruled out, reckon upside would be limited to 0.9720-25 and said resistance at 0.9748 should hold, bring retreat later. In the event dollar is able to penetrate said resistance at 0.9748, this would revive bullishness and extend recent rise from 0.9421 low to 0.9761-66 (50% Fibonacci retracement of 1.0100-0.9421 and previous resistance), then another previous resistance at 0.9773. As near term outlook is still mixed, would be prudent to stand aside for now.

GBP/USD - 1.3505

Most recent candlesticks pattern   : N/A

Trend                                 : Up

Tenkan-Sen level                 : 1.3541

Kijun-Sen level                    : 1.3542

Ichimoku cloud top              : 1.3555

Ichimoku cloud bottom        : 1.3525

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Although cable retreated after edging higher to 1.3596 and consolidation with mild downside bias is seen for weakness to 1.3470-75, below there is needed to revive near term bearishness and signal the rebound from 1.3452 has ended, bring further fall to this support. Looking ahead, only a drop below 1.3452 would add credence to our view that top has been formed at 1.3658 earlier this week, bring retracement of recent rise to 1.3400-05 (50% Fibonacci retracement of 1.3153-1.3658).

On the upside, above 1.3540 would bring test of 1.3570 but break there is needed to signal an intra-day low is formed, bring test of said resistance at 1.3596, break there would shift risk to the upside and suggest the retreat from 1.3658 has ended, bring further gain to 1.3620-25, then retest of 1.3658. As near term outlook is still mixed, would be prudent to stand aside for now.

EUR/USD - 1.1969

Most recent candlesticks pattern   : N/A

Trend                      : Sideways

Tenkan-Sen level              : 1.1982

Kijun-Sen level                  : 1.1958

Ichimoku cloud top             : 1.1948

Ichimoku cloud bottom      : 1.1925

Original strategy  :

Sold at 1.1970, Target: 1.1870, Stop: 1.2005

Position : - Short at 1.1970

Target :  - 1.1870

Stop : - 1.2005

New strategy  :

Hold short entered at 1.1970, Target: 1.1870, Stop: 1.2005

Position : - Short at 1.1970

Target :  - 1.1870

Stop : - 1.2005

As the single currency found good support at 1.1861 and has staged a strong rebound, suggesting consolidation above this level would be seen, however, as long as 1.2005 holds, mild downside bias remains for another decline, below 1.1915-20 would bring test of 1.1885-90 but break of latter level is needed to signal the rebound from 1.1861 has ended, bring another fall to this level, then retest of previous support at 1.1838 which is likely to hold on first testing.

In view of this, we are holding on to our short position entered at 1.1970. Above 1.2000 would dampen our bearishness and risk test of this week’s high at 1.2035 but only break there would shift risk back to upside and extend the rebound from 1.1838 to 1.2060-70 first.

USD/JPY - 111.94

Most recent candlesticks pattern   : N/A

Trend                      : Up

Tenkan-Sen level              : 112.01

Kijun-Sen level                  : 112.13

Ichimoku cloud top             : 112.17

Ichimoku cloud bottom      : 111.92

Original strategy  :

Bought at 111.70, Target: 112.70, Stop: 111.60

Position :  - Long at 111.70

Target :  - 112.70

Stop : - 111.60

New strategy  :

Hold long entered at 111.70, Target: 112.70, Stop: 111.60

Position :  - Long at 111.70

Target :  - 112.70

Stop : - 111.60

Although the greenback retreated after rising to 112.72 yesterday and consolidation below said resistance would be seen initially, reckon 111.65 would contained downside and bring another rise later towards said resistance but only 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 retreat later.

In view of this, we are holding on to our long position entered at 111.70. Below said support at 111.65 would 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.

EUR/GBP - 0.8848

Original strategy  :

Sell at 0.8940, Target: 0.8800, Stop: 0.8980

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 0.8940, Target: 0.8800, Stop: 0.8980

Position : -

Target :  -

Stop : -

 
As the single currency has rebounded after finding support at 0.8783, retaining our view that recent decline is not ready to resume yet and further consolidation above recent low at 0.8774 would take place, hence another corrective bounce to resistance at 0.8899 cannot be ruled out, however, upside should be limited to 0.8940-50 and bring another decline, below said support at 0.8774 would confirm recent decline from 0.9307 top has resumed and extend weakness towards 0.8737-43 (61.8% Fibonacci retracement of 0.8384-0.9307 and previous support) but near term oversold condition should limit downside to 0.8719 support and reckon another previous chart support at 0.8652 would hold. 

In view of this, would not chase this fall here and we are looking to sell euro on further recovery as 0.8940-50 should limit upside and bring another decline later. Above previous support at 0.8982 would abort and signal a temporary low has been formed, bring retracement of recent decline to 0.9000 but price should falter below resistance at 0.9048 and bring another selloff next week.

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.

USD/CAD - 1.2350

Trend:  Down

 
Original strategy       :

Bought at 1.2285, Target: 1.2450, Stop: 1.2225

Position: - Long at 1.2285

Target:  - 1.2450

Stop: - 1.2225

 
New strategy             :

Hold long entered at 1.2285, Target: 1.2450, Stop: 1.2225

Position: - Long at 1.2285

Target:  - 1.2450

Stop:- 1.2225

Although the greenback retreated after meeting resistance at 1.2391, reckon downside would be limited to 1.2250-55 and bring another rebound, above 1.2345-50 would bring test of said resistance at 1.2391, break there would add credence to our view that a temporary low has been made at 1.2061 earlier this month, bring retracement of recent decline to resistance at 1.2425-30, then 1.2450, however, near term overbought condition should limit upside and reckon 1.2500 would hold from here, bring retreat later.

In view of this, we are holding on to our long position entered at 1.2285. Only below indicated support at 1.2197 would abort and signal top is formed instead, bring weakness to 1.2160-65, then towards support at 1.2121, break there would confirm the rebound from 1.2061 has ended and bring retest of this level later, We are keeping our count that wave v as well as wave (C) ended at 1.3794 and impulsive wave (i ii, i ii) is now unfolding with minor wave iii ended at 1.2414, followed by wave iv correction ended at 1.2778, wave v has reached our indicated downside target at 1.2100 and may extend to 1.2000.

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.

• European equities opened weak as Asian risk off sentiment carried over to EMU, but equities gradually went up, well into positive territory on the back of strong EMU PMI's. Later on, risk sentiment deteriorated again, helped by another Trump tweet, pushing equities back to yesterday's closing levels.
• Eurozone business activity accelerated to the strongest pace since May, putting upward pressure on prices, according to a survey that highlights the expectations that the European Central Bank will soon begin easing its bond buying programme. Composite PMI index rose to 56.7 in Sept., from 55.7 in August, the strongest gain in 6 years.
• Mario Draghi has made a fresh plea to eurozone governments to reform their labour markets and improve the prospects of young people, saying higher unemployment rates for younger workers had high costs for society. Mario Draghi was silent on policy-sensitive issues.
• San Francisco Fed Williams called rates still low in the US, could see another rate hike in December and expects gradual increases of rates in the next couple of years. However, everything depending how the economy fares. Williams, who did a lot of research on the natural rate, said 2.5% is the new normal for the long run or neutral rate.
• Uber's license to operate taxis in London was revoked, a surprise decision that will affect the 3.5 million people and 40,000 drivers who use the app in the city. If the decision stands, Uber appeals, it will have a considerable impact on the company's global business. London is one of Uber's most established markets.
• "The recent euro appreciation may have a more limited dampening effect on inflation than what would be implied by historical averages" based on recent research, ECB Vice President Constancio said .

Rates

German bonds underperform US Treasuries

US Treasuries eked out some gains in the Asian session, as risk-aversion linked to North-Korean nuclear test threats, dominated trading. They kept the gains, but moved sideways further out. The Bund opened higher, reflecting US Treasury gains, but soon slid lower as risk sentiment improved and EMU PMI business confidence largely exceeded expectations. It confirms the buoyancy of the euro area economy. The Bund bottomed even before noon and struggled higher to erase losses, maybe helped by declining equities. All in all, the bond moves are minor, but more than half of the post FOMC losses on Wednesday have now been recouped.

Central bankers gave a number of interesting comments that were however largely ignored. San Francisco Fed Williams is on board of the majority group inside the FOMC. He sees a rate hike this year as likely and calls current rates still low. He also expects gradual rate increases in the next years, but, most important, sees 2.5% as the new normal (meaning the long run or neutral rate). ECB Constancio said that the strong euro might have less impact on (lower) inflation than historical experience would suggest. This could be called hawkish coming from the dovish ECB vice chairman, as it lessen fears that QE tapering would push inflation lower via a stronger euro. Mario Draghi didn't touch sensitive issues in his speech and later today, we hear the views of Fed governors George (hawk) and Kaplan (rather dove).

At the time of writing, US yields decline between 0.7 bps (2-yr) and 2.7 bps (10-yr), while German yields are little changed (between flat and +0.5 bps). On intra-EMU bond markets, 10-yr yield spreads versus Germany are unchanged.

Currencies

Data support euro. Dollar continues to struggle

Dollar sentiment remained fragile as (geopolitical) uncertainty and a cautious risk-off mood deprived the dollar of highly needed interest rate support. At the same time, the euro was supported by very strong EMU PMI's. At the end of the day, the moves are modest. Still, the conclusion survives that the dollar fails to profited from the Fed's commitment to continue policy normalisation. This especially applies to EUR/USD. The pair trades in the 1.1975 area. USD/JPY hovers near the 112 big figure.

Overnight, risk sentiment soured in Asia. Press reports said that North Korea might retaliate on Trump's speech and trade measures, by testing a hydrogen bomb in the pacific. The renewed geopolitical tensions caused a modest risk-off repositioning. Asian equity indices declined, bonds gain and the yen outperformed. USD/JPY declined from the mid 112 area to trade in the high 111 area at the start of European trading. The dollar also declined slightly further against the euro. EUR/USD rebounded north of 1.1950.

European equity markets opened with modest losses, but the risk-off sentiment from Asia evaporated almost immediately. The EMU September PMI's were rock-solid with the composite PMI in France and Germany reaching a new cycle top. European yields rose slightly. A the same time, US yields maintained a tentative downward bias. EUR/USD rebounded to the psychological barrier of 1.20, but a sustained break didn't occur. The dollar even regained some ground towards the end of the European morning session. EUR/USD dropped back to the 1.1960/75 area. USD/JPY tried to regain the 112 big figure. ECB's Constancio said that the appreciation of the euro may have a more limited dampening impact on inflation than what would be implied by historical averages, but the euro hardly reacted.

Early in the US, president Trump reacted sharply to the overnight 'threats' from North Korea. There was no immediate market reaction, but risk sentiment gradually deteriorated as US trading developed. For now, the negative impact on the dollar remains modest. EUR/USD trades in the 1.1970 area. USD/JPY hovers around 112.

Sterling under pressure at the start of May's speech

During the morning session, sterling was at the mercy of the broader swings in the euro and the dollar as UK markets awaited UK PM May's Brexit speech in Florence this afternoon. EUR/GBP drifted higher as the euro was well bid after the strong PMI's. The pair filled offers just below 0.8850. Cable lost a few ticks on overall USD softness. However, at start op PM May's Brexit speech, intraday changes were limited. CBI trends orders were softer than expected but ignored. PM May's Brexit speech is still ongoing at the moment of writing. She only brought some general considerations on the relationship between the EU and the UK. For now we didn't see much concession from May. Sterling is losing ground as the speech proceeds, but this can still change when May addresses more concrete issues on the Brexit process. EUR/GBP trades currently in the 0.8860 area. Cable trades in the 1.3515 area.

The all-items consumer price index for August ticked up to 1.4% on a year-on-year basis in August (July:1.2% y/y). On a month-on-month, seasonally adjusted basis, prices rose 0.1%, the first increase since this past May.  

Goods prices rose 0.4% y/y, largely driven by an uptick in energy and food prices. The average price of services rose 2.2% y/y.

Two of the Bank of Canada's measures of underlying inflation rose in August. Both CPI-trim and CPI-common rose by a tenth of a percentage point to 1.4% and 1.5% respectively, while CPI-median held at 1.7% on a year-on-year basis.

Key Implications

Today's inflation data remains broadly consistent with our outlook for consumer price growth in the third quarter. The uptick in goods prices is likely to be more pronounced in September due to the spike in gasoline prices in the aftermath of hurricane Harvey, and there may be some upward pressure on fresh foods and vegetables later this year related to the damage that hurricane Irma has wrought upon Florida's agricultural industry. However, the strong advance in the Canadian dollar should begin to exert downward pressure on goods prices in the months ahead.

An uptick in underlying inflation is somewhat encouraging and suggests that inflation may have stabilized in the last couple of months. Overall, this report will do little to change how the Bank of Canada is seeing the Canadian economy as evolving in the medium term. Underlying inflation pressures have risen a touch, consistent with the need to remove some monetary accommodation and may justify the two 25 basis point interest rate increases in the span of six weeks. Although the loonie is expected to exert a drag on goods prices in the months ahead, the Bank of Canada should continue to see through these tempoary factors as yet another quarter of robust economic activity is likely in 17Q3, eliminating even more slack and suggesting the need for tighter monetary policy.