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It's a Mad, Mad, Mad, Mad, World

The markets are unsettled this morning with traders dwelling on the questionable North Korea headline about testing a long-range missile soon. With Columbus day and the anniversary of the founding of the North Korean communist party in sight, the market is back on headline watch, However, dealers will probably need some actionable convincing that geopolitical risk is on the rise again.

Turkey

Turkish -US relations took a turn for the worse over the weekend. The US is reportedly suspending non-immigrant visa services at its diplomatic facilities in Turkey following the arrest of a consulate employee, prompting Turkey to halt visa services in the U.S.

This latest escalation adds more fuel to the fire after tension was nearing a boil the over US support for Syrian Kurdish militants in the war against ISIS, who Turkey views as a terrorist group.

USDTRY is off 3.0 % in early trade exacerbated by weak liquidity conditions at the open and what was available as it was priced at unwarranted premiums. All too typical on Interbank electronic FX platforms these days. However, as Tokyo comes into the fray TRYJPY liquidity is returning to normal and turn over is very high.

New Zealand

NZ election is back on investors radar screens when special votes were counted on Saturday. At the crux of the issue: opposition party wants to remould the RBNZ to include more independent private sector business types in policy decision process. Whichever way you want to read into that, it does imply a level of uncertainty regarding the future course of monetary policy, but as we all know what business person is every in favour of paying higher interest rates on loans. So by extension, I view the other side of the flow even more dovish than the New Acting Governor Spencer who is a carbon copy of Wheeler and cut from the same cloth.

The UK and Continent

May's calamitous Conservative party conference speech continues to weigh like a nightmare on the Pound. While the frenzied calls for her resignation have tempered, political risks and the lack of Brexit headway are most significant negatives underlying GBP. UK politics is a mess and unlikely to get any cleaner.

EU political risk continues to simmer over the Catalan independence debate. The market may be underpriced large on this risk event so EURUSD should remain on offer until cooler heads prevail

US Dollar

US CPI is the focal point of this week early. After August CPI surprise, the worm may be turning as markets look for convincing from this weeks headline.

EUR/USD gyrated lower to 1.1669 with weak downside momentum last week. As a temporary was formed, initial bias is neutral this week first. Deeper decline is expected as long as 1.1832 resistance holds. Below 1.1669 will extend the fall from 1.2091 to 38.2% retracement of 1.0569 to 1.2091 at 1.1510. As such decline is viewed as a correction to rise from 1.5069, we'd expect strong support from 1.1510 to bring rebound. Meanwhile, break of 1.1832 resistance will argue that the correction is already completed and turn bias back to the upside for retesting 1.2091 high.

In the bigger picture, rise from medium term bottom at 1.0339 is not finished yet. It's expected to continue after pull back from 1.2091 completes. And, next target will be 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.

In the long term picture, 1.0339 is now seen as an important bottom as the down trend from 1.6039 (2008 high) could have completed. It's still early to decide whether price action form 1.0339 is developing into a corrective or impulsive move. But in either case, further rally would be seen to 38.2% retracement of 1.6039 to 1.0339 at 1.2516

USD/JPY edged higher to 113.43 last week but failed to sustain above medium term falling channel resistance. Initial bias is neutral. this week first. On the upside, break of 113.43 and sustained trading above the channel resistance will argue that correction from 118.65 is already completed with three waves down to 107.31. Break of 114.49 will confirm this bullish case and target a test on 118.65 next. On the downside, considering bearish divergence condition in 4 hour MACD, break of 112.31 will suggest rejection from the channel resistance and turn bias back to the downside.

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.

In the long term picture, the rise from 75.56 (2011 low) long term bottom to 125.85 top is viewed as an impulsive move, no change in this view. Price actions from 125.85 are seen as a corrective move which could still extend. In case of deeper fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77. Up trend from 75.56 is expected to resume at a later stage for above 135.20/147.68 resistance zone.

GBP/USD dropped sharply to as low as 1.3026 last week as decline from 1.3651 accelerated. Initial bias remains on the downside this week for 1.2773 key support first. The strong downside momentum is raising the chance of medium term reversal. Decisive break there will affirm this bearish case and bring deeper fall to retest 1.1946 low. Meanwhile, break of 1.3221 minor resistance will at least indicate near term bottoming and turn bias back to the upside for rebound.

In the bigger picture, while the medium term rebound from 1.1946 was strong, GBP/USD hit strong resistance from the falling trend line. Outlook is turned a bit mixed and we'll turn neutral first. On the downside, decisive break of 1.2773 key support will argue that rebound from 1.1946 has completed. The corrective structure of rise from 1.1946 to 1.3651 will in turn suggest that long term down trend is now completed. Break of 1.1946 low should then be seen. On the upside, break of 1.3835 support turned resistance will revive the case of trend reversal and target 38.2% retracement of 2.1161 (2007 high) to 1.1946 (2016 low) at 1.5466 .

In the longer term picture, long the outlook is turned a bit mixed as GBP/USD failed to break through falling tend line resistance. We'll turn neutral first and assess the outlook again and price actions unfold.

USD/CHF jumped to as high as 0.9835 last week as rebound from 0.9420 extended. Upside momentum is still a bit unconvincing. But considering the sustained trading above medium term channel resistance, and break of 0.9777 resistance, we're favoring the whole down trend form 1.0342 has completed after defending 0.9443 key support again. Further rise is now expected this week as long as 0.9708 support holds. Next target is 61.8% retracement of 1.0342 to 0.9420 at 0.9990. However, break of 0.9708 will mix up this bullish outlook and turn bias back to the downside for 0.9587 support instead.

In the bigger picture, current development suggests that USD/CHF has defended 0.9443 (2016 low) key support level again. Rise from 0.9420 could develop into a medium term move and target a test on 1.0342 high. This represents the upper end of a long term range that started back in 2015. On the downside, break of 0.9587 support is now needed to indicate completion of the rise from 0.9420. Otherwise, further rally will remain in favor in medium term.

AUD/USD dropped sharply to as low as 0.7797 last week. Firm break of 0.7807 support, with bearish divergence condition in daily MACD, argues that rise from 0.7382 is possibly completed. Initial bias remains on the downside for medium term fibonacci level at 0.7628 first. Decisive break there will target 0.7328 key cluster support. On the upside, break of 0.7874 minor resistance is need to indicate completion of the decline. Otherwise, outlook will now be cautiously bearish.

In the bigger picture, rise from 0.6826 medium term bottom is seen as corrective pattern. Current development suggests that it might be completed with three waves up to 0.8124 already. Break of 38.2% retracement of 0.6826 to 0.8124 at 0.7628 will firm this bearish case. And, decisive break of 0.7328 key cluster support (61.8% retracement at 0.7322) will confirm and bring retest of 0.6826 low. In case rise from 0.6826 resumes and extends, strong resistance should be seen at 38.2% retracement of 1.1079 to 0.6826 at 0.8451 to limit upside.

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.

USD/CAD's rebound from 1.2061 extended 1.2598 last week even though upside momentum isn't convincing. As long as 1.2448 minor support holds, further rally is expected this week to 1.2777 resistance first. Decisive break there will target key medium term fibonacci level at target 38.2% retracement of 1.4689 to 1.2061 at 1.3065. On the downside, break of 1.2448 will indicate short term topping and turn bias back to the downside.

In the bigger picture, USD/CAD should have defended 50% retracement of 0.9406 (2011 low) to 1.4869 (2016 high) at 1.2048. And with 1.2048 intact, we'd favor the case that fall from 1.4689 is a correction. Break of 1.2777 will further affirm this bullish case. That is, larger up trend from 0.9406 is not completed. And in that case, USD/CAD should target 1.3793 resistance next. However, on the other hand, firm break of 1.2048 will indicate that fall from 1.4689 is at least a medium term down trend and should target 61.8% retracement at 1.1424 and below.

In the longer term picture, the long term outlook is turned a bit mixed. As noted above, 50% retracement of 0.9406 to 1.4869 at 1.2048 is a key level to determine whether up trend from 0.9056 (2007) has already completed.

EUR/AUD continued to stay in range of 1.4791/5173 last week and outlook is unchanged. Initial bias remains neutral this week first. On the upside, break of 1.5173/5226 resistance zone will finally resume larger rise from 1.3624. In that case, EUR/AUD will target 1.5644 resistance first. On the downside, break of 1.4791 support will turn bias to the downside and extend the fall from 1.5173 to retest 1.4421 support.

In the bigger picture, we're holding on to the view that corrective decline from 1.6587 medium term top has completed at 1.3624. Rise from 1.3624 is expected to extend to retest 1.6587. The corrective structure of the price actions from 1.5226 is affirming this view. Above 1.5226 will target a test on 1.6587 key resistance. However, break of 1.4421 support will dampen our view and would drag EUR/AUD lower to retest key support zone around 1.3624.

In the longer term picture, the rise from 1.1602 long term bottom 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 confirm trend reversal and target 1.1602 long term bottom again.

EUR/GBP rebounded to as high as 0.8991 last week. The development suggests that fall from 0.9305 has completed at 0.8745 already. Initial bias remains on the upside this week for 61.8% retracement of 0.9305 to 0.8745 at 0.9091. Break there will target a retest on 0.9305 high. On the downside, below 0.8880 minor support will turn bias to the downside for retesting 0.8745 instead.

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 another fall. And in that case, EUR/GBP could have a retest on 0.9303 low. 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, firstly, price action from 0.9799 (2008 high) is seen as a long term corrective pattern and should have completed at 0.6935 (2015 low). Secondly, rise from 0.6935 is likely resuming up trend from 0.5680 (2000 low). Thirdly, this is supported by the impulsive structure of the rise from 0.6935 to 0.9304. Hence, after the correction 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/JPY remained bounded in range of 131.69/134.39 last week and outlook is unchanged. Initial bias remains neutral this week first. Near term outlook remains bullish as long as 131.69 holds. Sustained break of 134.20 fibonacci level will extend larger up trend to 141.04 resistance next. However, break of 131.69 will be an early sign of medium term reversal and will target 127.55 key support level instead.

In the bigger picture, medium term rise from 109.03 (2016 low) is seen as at the same degree as the down trend from 149.76 (2014 high) to 109.03 (2016 low). 61.8% retracement of 149.76 to 109.03 at 134.20 is already met. Sustained break there will pave the way to key long term resistance zone at 141.04/149.76. However, break of 127.55 support will argue that the medium term trend has reversal and will turn outlook bearish for deeper fall.

In the long term picture, at this point, there is no clear indication that rise from 109.03 is resuming that from 94.11. Hence, we'd be cautious on topping below 149.76 to extend range trading. Nonetheless, firm break of 149.76 will indicates strong underlying buying. In such case, EUR/JPY will target 100% projection of 94.11 to 149.76 from 109.03 at 164.68.