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WTI oil trades in red on Wednesday and extends pullback from fresh five-month high at $52.41, posted the previous day.

Fundamentals remain supportive as US API report, released on Tuesday, showed draw in oil inventories by 0.76 million barrels (the first draw after three consecutive weekly crude stocks builds), as optimism about oil market rebalancing rises.

On the other side, technicals continue to warn about correction, as daily RSI is reversing from overbought territory and reversal pattern (Evening Doji Star) is forming on daily chart.

Dips face initial support at $51.41 (Tuesday's spike low), followed by daily Tenkan-sen ($50.80) and extended downticks expected to hold above $50.34 (Monday's low / Fibo 38.2% of $46.99/$52.41 upleg).

Focus is on today's release of EIA weekly crude stocks report which shows forecast for a build of crude inventories by 3.42 million barrels, compared to previous week's build of 4.59 million barrels.

Res: 52.41, 53.00, 53.21, 53.77
Sup: 51.66, 51.41, 51.13, 50.80

GBP/USD – 1.3425





 

Original strategy :

Sell at 1.3535, Target:1.3335, Stop: 1.3595

Position: -

Target:  -

Stop: - 




New strategy :

Sell at 1.3535, Target:1.3335, Stop: 1.3595

Position: -

Target:  -

Stop:- 



As cable has recovered after finding support at 1.3364, suggesting minor consolidation above this level would be seen and corrective bounce to 1.3460-65 and then 1.3500 cannot be ruled out, however, reckon 1.3535-40 would limit upside and bring another decline, below said support at 1.3364 would extend the erratic fall from 1.3658 (last week’s high) for retracement of recent rise to 1.3350 and later towards 1.3300-10 which is likely to hold from here.

In view of this, we are looking to turn short on recovery as 1.3540-50 should limit upside. Above resistance at 1.3571 would risk test of 1.3600 but break of latter level is needed to signal pullback from 13658 (last week’s post-Fed high) has ended, bring retest of this level later. break there would signal recent upmove has resumed for headway to 1.3700-10 first. 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 is unfolding and may extend further gain to 1.3650, then 1.3700, however, overbought condition should limit upside to 1.3770-75 and reckon 1.3800-10 would hold from here, bring retreat later.

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 continues to lose ground in the Wednesday session. Currently, EUR/USD is trading at 1.1754, down 0.33% on the day. On the release front, there are no major eurozone events on the schedule. In the US, Core Durable Goods Orders is expected to slow to 0.2%, and the estimate for Pending Home Sales is -0.5%. On Thursday, Germany releases Preliminary CPI, and the US will publish Final GDP and unemployment claims.

ECB President Mario Draghi was careful not to make headlines on Monday, in his testimony before the European Parliament Economic and Monetary Affairs Committee. Draghi acknowledged that there was uncertainty regarding the inflation outlook, adding that recent volatility in the exchange rate would require monitoring. Draghi remains committed to the ECB’s loose monetary policy, saying that “ample” accommodation is still needed in order to raise inflation levels. Some policymakers have come out in favor of tightening monetary policy, with the eurozone economy continuing to grow and unemployment falling. However, inflation remains well below the ECB target of just below 2 percent. Draghi told lawmakers that he is confident that the inflation target will be met, but that would require avoiding any hasty changes to current monetary policy and declared that the ECB would remain “patient and persistent”.

Janet Yellen weighed into the rate debate on Tuesday, and her hawkish comments have strengthened the US dollar. Yellen said she favored gradual rate increases, and voiced confidence that inflation levels would move higher. She added that if the Federal Reserve did not continue to raise rates, the red-hot labor market could become overheated, potentially causing a recession. Fed policymakers remain split on a December rate. On Monday, New York Fed President William Dudley made a strong case to raise rates. Dudley cited a soft US dollar and strong global growth as reasons why inflation would increase and also translate into stronger wage growth. Dudley said he expects inflation to reach the Fed’s target of 2 percent in the “medium term”, and predicted that the Fed would continue to gradually remove monetary accommodation. However, Chicago Fed President Charles Evans sent out a very different message, calling on the Fed to avoid another rate hike until wage and inflation levels moved higher. Evans said that inflation, which is running at around 1.4%, is too low, and wants to see “clear signs” that prices are moving higher before the Fed presses the rate trigger. For their part, the markets are more confident in a December move – the CME Group has pegged the odds of a December raise at 81%, while the odds were mired below 50% just a few weeks ago.

EURUSD

The EURUSD had a significant bearish momentum yesterday broke below 1.1823 key support as you can see on my daily chart below. The bias is bearish in nearest term. Overall I remain bullish but price is now in a bearish correction phase testing 1.1700 – 1.1600 support area. Immediate resistance is seen around 1.1860. A clear break above that area could lead price to neutral zone in nearest term testing 1.1935 resistance area which need to be clearly broken to the upside to potentially end the current bearish correction phase.

GBPUSD

The GBPUSD was indecisive yesterday. The bias is neutral in nearest term probably with a little bearish bias testing 1.3400 – 1.3330 support area which is a good place to buy with a tight stop loss as a clear break below 1.3330 would take price to a bearish correction zone. Immediate resistance is seen around 1.3515. A clear break above that area could trigger further bullish pressure testing 1.3570 area or higher. Overall I remain bullish.

USDJPY

The USDJPY had a bullish momentum yesterday topped at 112.47 and hit 112.54 earlier today in Asian session. The bias is bullish in nearest term testing 113.00/50 region. Immediate support is seen around 111.65. A clear break below that area could lead price to neutral zone in nearest term but as long as stay above 111.00 my H1 chart bias remains bullish as a part of the bullish phase after bounced-off 107.50 as you can see on my H4 chart below. Overall I remain neutral.

USDCHF

The USDCHF attempted to push higher yesterday topped at 0.9726 but closed a little bit lower at 0.9686. The bias is neutral in nearest term. Immediate resistance is seen around 0.9765 – 0.9807 area which remains a key resistance and good place to sell with a tight stop loss. Immediate support is seen around 0.9650. A clear break and daily close below that area could trigger further bearish pressure testing 0.9570 – 0.9525 area. Overall I remain neutral.

GBP/JPY - 151.55

Original strategy:

Sell at 151.80, Target: 149.80, Stop: 152.40

Position: -
Target: -
Stop: -

New strategy :

Sell at 152.20, Target: 150.20, Stop: 152.80

Position: -
Target:  -
Stop:-

Although sterling has continued edging higher after recovering from 149.75, if our view that a temporary top form at 152.85 is correct, upside should be limited to 151.80-90 and 152.20-25 should hold, bring another decline, below said support at 149.75 would add credence to this view, bring retracement of recent rise to 148.90-00, however, only a drop below there would retain bearishness and bring retracement of recent rise to 148.50 and then 148.00 later.

In view of this, we are looking to sell sterling on recovery as 152.25-30 should limit upside. Above 152.50 would risk retest of said last week’s high at 152.85 but break there is needed to signal recent upmove has once again resumed and extend headway to 153.00-10 and possibly towards 153.50-60, however, 154.00 should hold, risk from there has increased for a retreat to take place later. 

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.


EUR/JPY - 132.69

Original strategy:

Sell at 132.90, Target: 131.30, Stop: 133.50

Position: -
Target: -
Stop: -

New strategy :

Sell at 133.25, Target: 131.75, Stop: 133.85

Position: -
Target:  -
Stop:-

As the single currency has recovered after marginal fall to 131.75, suggesting consolidation above this level would be seen and corrective bounce to 133.00 can not be ruled out, however, if our view that top has been formed at 134.41 is correct, upside would be limited to 133.25-35 and bring another decline later, below said support at 131.75 would extend the fall from 134.41 to 131.50, then 131.00-05, break there would bring retracement of recent upmove towards support at 130.62 which is likely to hold from here. 

In view of this, we are looking to sell euro on further subsequent recovery as 133.25-35 should limit upside. Above previous support at 133.43 would abort and suggest at least first leg of decline from 134.41 has ended, bring a stronger rebound to 133.90-00 but still reckon said resistance at 134.41 would remain intact, bring further consolidation.  

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 – 0.7854

Original strategy:

Sell at 0.8040, Target: 0.7840, Stop: 0.8100

Position: -
Target:  -
Stop:-

New strategy :

Sell at 0.7940, Target: 0.7740, Stop: 0.8000

Position: -
Target:  -
Stop:-

As aussie has fallen again after brief recovery and broke below previous support at 0.7861, suggesting the decline from 0.8125 top is still in progress and bearishness remains for this fall to bring retracement of recent upmove towards previous support at 0.7808, however, near term oversold condition should limit downside to 0.7740-50 and reckon 0.7700 would hold, bring rebound later. 

In view of this, we are looking to sell aussie again on recovery but at a lower level as 0.7940-50 should limit upside and bring another decline. Above resistance at 0.7986 would defer and suggest a temporary low is formed instead, bring a stronger rebound to 0.8000 but price should falter below 0.8040-50, bring another decline later.

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.

Notes/Observations

European Indices rise; Bunds drop below 161 on risk on flows

Markets awaiting President Trump outline to parts of his tax overhaul plan at 15:20 ET in Indiana

France consumer confidence unexpectedly falls, while Italian business confidence hits fresh post-crisis high and Sweden's Economic Confidence highest since early 2011

Overnight

Asia:

China PBOC sets yuan reference rate at 6.6192 v 6.6076 prior (2nd consecutive weaker setting, weakest since Aug 29th)

New Zealand Q3 Employment Confidence index rises to 9 year high

Thailand leaves benchmark Interest rates unchanged at 1.5%

Nikkei trades lower after almost half the stock in the index trade ex-div

Europe:

French Consumer confidence unexpectedly falls while Italian consumer confidence handily beats estimates

Reportedly German Economic Institutes forecasts for 2017 raised to 1.9% from 1.5% prior; 2018 growth 2.0% v 1.8% prior

Siemens and Alstom confirm merger of rail unit

Bund futures drop below 161 on risk on flows with yields breaking 0.47%, following falls in Treasuries and JGBs overnight

(IQ) President of Iraqi Kurdistan Barzani: 'yes' vote won in Kurdistan independence referendum; will hold serious discussions with Iraqi govt and our neighbors

Americas

Trump tax framework said to cap corporate tax rate at 20% (from 35%), have a 35% individual tax rate that has option to go higher

(US) Fed Chair Yellen: it would be imprudent to leave rates on hold until inflation reaches 2%; there are considerable odds inflation won't stabilize at 2% for next few years - comments in Cleveland

without further modest increases in the federal funds rate over time, there is a risk that the labor market could eventually become overheated, potentially creating an inflationary problem down the road

Oil

Russian Energy minister looks to extend OPEC oil output cut beyond March if it makes sense

Economic data

(FR) FRANCE SEPT CONSUMER CONFIDENCE: 101 V 103E

(EU) EURO ZONE AUG M3 MONEY SUPPLY Y/Y: 5.0% V 4.6%E

(IT) ITALY SEPT CONSUMER CONFIDENCE: 115.5 V 110.6E; MANUFACTURING CONFIDENCE: 110.4 V 108.2E

(SE) SWEDEN SEPT CONSUMER CONFIDENCE: 101.8 V 102.0E; MANUFACTURING CONFIDENCE: 124.6 V 115.0E

(IT) Italy July Industrial Orders M/M: 0.2% v 4.3% prior; Y/Y: 10.1% v 13.7% prior

Fixed Income Issuance:

(IT) Italy Debt Agency (Tesoro) sells €6B vs. €6B indicated in 6-month Bills; Avg Yield: -0.382% v -0.356% prior; Bid-to-cover: 2.07x v 1.72x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 +0.7% at 3,555, FTSE +0.1% at 7,293, DAX +0.5% at 12,673, CAC-40 +0.2% at 5,278, IBEX-35 +1.2% at 10,307, FTSE MIB +0.7% at 22.593, SMI +0.1% at 9.118, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes: European stocks opened higher and continued momentum; clarification on rate projections from Fed Chair Yellen lead to across-the-board support to equities; energy stocks supported by oil rally; Alstom and Siemens to merge rail units; attention turning to expected unveiling of President Trump's tax plan; upcoming earnings in the US session include ReneSola and Jabil

Equities

Consumer discretionary: AST Groupe ASP.FR +3.2% (results), Axfood AXFO.SE -5.3% (analyst action), Hella HLE.DE -1.4% (results), OVS OVS.IT -3.1% (stake placement), Trigano TRI.FR +0.5% (results)

Consumer staples: ICA Gruppen ICA.SE -4.0% (analyst action)

Energy: Fortum FUM1V.FI +0.9% (Not looking at full takeover of Uniper), Uniper UN01.DE -0.5% (Fortum CEO comments)

Financials: Hannover Re HNR1.DE +0.8%(analyst action), Plus500 PLUS.UK +4.5% (trading update)

Industrials: Bouygues EN.FR (on Alstom) +2.3%, Carillion CLLN.UK (press speculation of takeover) +17.2%, Gaz Transport et Technigaz GTT.FR +1.1% (technical difficulties with plant), NeoPost NEO.FR +6.5% (results)

Healthcare: Galapagos GLPG.BE +1.1% (study results), Guerbet GBT.FR +7.3% (results), Kiadis KDS.NL +6.3% (marketing update), TxCell TXCL.FR +10.3% (study presentation)

Technology: GFT Technologies GFT.DE -3.1% (analyst action)

Telecom: Mediaset MS.IT +0.8% (results)

Speakers

(EU) ECB’s Nouy (SSM chief): good chance banking sector will shrink

(IT) Italy Fin Min Padoan: It is a critical time for Europe at the moment; Sees much better outlook for Italian Economy- TV interview

(RU) Russia Energy Minister Novak: Will look at extending OPEC oil output beyond March if it makes sense

Currencies

GBP/USD fell for a fourth day as the latest round of Brexit talks between the EU and the U.K. continued this week and the dollar strengthened ahead of President Trump's tax plan speech

Emerging market currencies fell across the board to the dollar as the Greenback benefited from Fed Yellen's speech

Fixed Income

Bund futures trade at 160.90 down 88 ticks under pressure following declines in both Treasuries and JGBs. Continued downside targets 160.55 while upside resistance stands initially at 162.07, followed by 163.27.

Gilt futures trade at 123.77 down 33 ticks as the 5-year Gilt touched the highest level since the Jun 2016 Brexit vote. Continued downside eyeing 123.26. Upside targets 124.90 then 125.24.

Wednesday’s liquidity report showed Tuesday’s excess liquidity rose to €1.725T from €1.723T and use of the marginal lending facility dropped to €49M from €114M.

Corporate issuance saw $6.7B come to market via 6 issuers headlined by Goldman Sachs $2.5B senior unsecured global notes and Clorox $0.4B senior unsecured note offering

Looking Ahead

05:00 (IS) Iceland Sept CPI M/M: No est v 0.2% prior; Y/Y: No est v 1.7% prior

05:00 (IT) Italy July Industrial Orders M/M: No est v 4.3% prior; Y/Y: No est v 13.7% prior

06:00 (UK) Sept CBI Retailing Reported Sales: No est v 10 prior

07:00 (CZ) Czech Central Bank (CNB) Interest Rate Decision: Expected to leave Repurchase Rate unchanged at 0.25%

07:00 (US) MBA Mortgage Applications w/e Sept 22nd: No est v % prior

07:30 (CL) Chile Central Bank's Traders Survey

08:00 (BR) Brazil Aug PPI Manufacturing M/M: No est v -1.0% prior; Y/Y: No est v 0.8% prior

08:05 (UK) Baltic Dry Bulk Index

08:30 (US) Aug Preliminary Durable Goods Orders: +1.5%e v -6.8% prior; Durables Ex Transportation: 0.3%e v 0.6% prior

09:00 (MX) Mexico Aug Trade Balance: No est v -$1.5B prior

09:30 (BR) Brazil Aug Total Outstanding Loans (BRL): No est v 3.062T prior; M/M: No est v -0.6% prior

10:00 (US) Aug Pending Home Sales M/M: No est v -0.8% prior; Y/Y: No est v -0.5% prior

10:30 (US) Weekly DOE Crude Oil Inventories

15:00 (AR) Argentina Q2 Current Account: No est v -$6.9B prior

15:00 (AR) Argentina July Economic Activity Index (Monthly GDP) M/M: No est v 0.3% prior; Y/Y: No est v 4.0% prior

16:00 (NZ) New Zealand Central Bank (RBNZ) Interest Rate Decision: Expected to leave Cash Rate (OCR) unchanged at 1.75%

Crude oil is edging higher above the $50 level. Key support is given at 45.40 (17/08/2017 high). Strong resistance found at 50.43 (31/07/2017) has been broken. Expected to show another leg higher.

In the long-term, crude oil has recovered after its sharp decline last year. However, we consider that further weakness are very likely. Strong support lies at 35.24 (05/04/2016) while resistance can now be found at 55.24 (03/01/2017 high).

USD/CHF - 0.9739

Most recent candlesticks pattern : N/A

Trend                                    : Near term up

Tenkan-Sen level                  : 0.9731

Kijun-Sen level                    : 0.9723

Ichimoku cloud top                 : 0.9694

Ichimoku cloud bottom              : 0.9687

Original strategy :

Bought at 0.9685, Target: 0.9785, Stop: 0.9650

Position : - Long at 0.9685

Target :  - 0.9785

Stop : - 0.9650

New strategy  :

Hold long entered at 0.9685, Target: 0.9785, Stop: 0.9695

Position : - Long at 0.9685

Target :  - 0.9785

Stop : - 0.9695

As the greenback did find renewed buying interest at 0.9681 (we recommended to buy at 0.9685 and a long position was entered) and has rallied in line with our bullish expectation, retaining our upside bias for recent upmove from 0.9421 low to to extend gain to 0.9766 resistance, however, break of another previous resistance at 0.9773 is needed to bring further rise towards 0.9800-10 which is likely to hold from here due to near term overbought condition.

In view of this, we are holding on to our long position entered at 0.9685. Only below said support at 0.9681 would abort and signal top is formed instead, bring correction of recent rise towards support at 0.9642 which is likely to hold on first testing.