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GBP/USD is recovering after its recent massive sell-off. Monitor the test of resistance at 1.2988/95 (01/09/2017). Hourly support is given at 1.2774 (24/08/2017 high) while hourly resistance is given at 1.2979 (29/08/2017 high). Expected to show short-term bearish pressures.

The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support can be found at 1.1841 (07/10/2017 low). Long-term resistance is given around 1.35 and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

EURUSD is consolidating after massive bullish rally. Hourly resistance can be found at 1.2070 (29/08/2017 high) while hourly support lies at 1.1820 (31/08/2017 low). Stronger support is given at a distance at 1.1662 (17/08/2017 low). Expected to show renewed bullish pressures.

In the longer term, the momentum is now turning largely positive. We favour a continued bullish bias. Key resistance is holding at 1.2252 (25/12/2014 high) while strong support lies at 1.0341 (03/01/2017 low).

AUD better bid amid optimistic RBA

As widely anticipated the Reserve Bank of Australia left the cash rate target unchanged at record low 1.50%. As usual the statement was quite balanced as Philip Lowe wants definitely to avoid fuelling further Aussie appreciation. On the one hand, Governor Lowe acknowledged the improved economic conditions, more specifically the solid growth in employment across all states as well as the continued pick-up in non-mining investment and strong business conditions. On the other hand, the Governor reiterated that the appreciation Aussie over the recent months creates downside inflation risks, adding that “It is also weighing on the outlook for output and employment.”

Overall, in spite of the fact that the statement is mostly unchanged compared to the previous one, the Australian dollar edged slightly higher on Tuesday with AUD/USD spiking at $0.7985 during the Asian session and then stabilised at around 0.7960 in early European session.

It did change the outlook for the Aussie and we believe that a healthy downside correction would be more than welcomed. However, the AUD/USD’s strength is mostly due to a US dollar weakness rather than a strong Aussie, thanks to an uncertain USD outlook. Indeed, investors are largely clueless about the Federal Reserve next move on September 20th, while on the political side Trump keeps failing to persuade Congress to adopt his reforms. Therefore, we think the pair will trade sideways over the next couple of weeks. Also keep in mind that an excessive dovishness from Draghi on Thursday could ignite a broad dollar rally.

Not too early for BoC to hike

Given the solid pick up in the Canadian economy the likelihood that the Bank of Canada rises interest rates by 25bp Sept 6th policy meeting has increase significantly. Exemplified by the strong 2Q GDP report, which indicated at 4.5% growth rate, the economy has expanded past the BoC projections. Improvement in the labor markets and housing suggest that inflation will further build. The Canadian economy has been expanding at an accelerating pace, forcing committee members to overlook current subdued inflation reading and adjust monetary policy today. Rather then, get caught behind the curve.

Risk in CAD are now asymmetrical as a no change but upbeat communicators will support CAD downside (keeping rate hike by year-end intact). However, a hike will indicate the BoC commitment, raising the markets expectations for additional BoC tightening. BoC interest rate expectations and yields spreads favoring Canada has been a driver of CAD pricing rather than crude prices. A hike would bring in short-end yields and propel CAD higher against the USD.

Chinese Caixin Services PMI Printed Strong Number
No Change By The RBA
More Data To Watch

European futures are trading mildly higher as the dust settles from North Korea's Hydrogen bomb test. As we said yesterday, when it comes to the geopolitical tensions, investors are increasingly becoming immune to similar news. Yes, there is always a knee-jerk reaction to the newly developed situation, but the focus goes back to the major fundamentals and they become the driver for the economy.

Although for the time being, this may not be a bad strategy, it would be absolutely naïve to think that these geopolitical threats are not real. The situation can get out of hand quick and fast. How far can you push your luck - that is something which is concerning.

Chinese Caixin Services PMI Printed Strong Number

We also had another important set of economic data released overnight. The Chinese Caixin services PMI number. The number has improved massively by coming at 52.7. The forecast was for 51.5.

No Change By The RBA

No unexpected reaction from the Royal Bank of Australia in relation to their monetary policy. The bank held its interest rate as expected. It has been nearly thirteen consecutive months that we have not seen the bank moving any muscle. Both growth and inflation have picked up and the bank will have to take the emergency support off at some point. Nonetheless, the bank still thinks that the economy needs a low level of interest rate to boost the economic growth. The Aussie is still finding love among traders against the dollar however it has retraced from its highs of the day.

More Data To Watch

Sterling relatively had a much quieter day yesterday. The construction PMI number slipped further and touched the low of one year at 51.1. If the upcoming services PMI number (due later in the morning) also failed to impress, the effect could be much bigger.

Ahead of the ECB meeting, traders are going to keep their attention on the services data today. We will see the services PMI from Spain, Italy, France and Germany. The services PMI number has been sturdy throughout this year. However, in today's upcoming number, we are expecting a little weakness across the board.

Over in the US, investors will be returning from their long bank holiday weekend. Speeches are slated from a number of Federal Reserve committee members. More noise equals more volatility for the dollar.

GBP/USD – 1.2932

 
Although sterling found support at 1.2852 last week and has risen again to as high as 1.2996, the subsequent retreat suggests a week of consolidation would take place and risk of initial weakness to 1.2900 cannot be ruled out, however, reckon said support at 1.2852 would hold and bring another rise later, above 1.2996-00 level would signal the corrective rise from 1.2774 (exactly 38.2% Fibonacci retracement of 1.1986-1.3269) is still in progress for retracement of the decline from 1.3269 top, then gain to 1.3020-25 (50% Fibonacci retracement of 1.3269-1.2774) and possibly towards 1.3080 (61.8% Fibonacci retracement) is likely, having said that, price should falter below 1.3165, bring another decline in late Q3. 

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 possibly ended at 1.7192, below support at 1.4232 would add credence to this count, then further fall to 1.4000 level would follow but reckon downside would be limited to 1.3655 support and price should stay above previous support at 1.3500.

On the downside, whilst initial pullback to 1.2900 cannot be ruled out, reckon 1.2852 support would hold and bring another rebound. A daily close below 1.2852 would suggest the rebound from 1.2774 has ended, bring weakness to 1.2810-20 but break of said support at 1.2774 is needed to confirm the decline from 1.3269 top has resumed for retracement of early upmove to 1.2700 and later towards 1.2620-30 (50% Fibonacci retracement), however, price should stay well above previous chart support at 1.2589, bring rebound later.

Recommendation: Stand aside for this week.

Longer term - Cable's rise from 1.0520 (Feb 1985) to 2.0100 (September 1992) is seen as [A], the decline to 1.3682 is labeled as (B) and (C) wave rally has ended at 2.1162 (9 Nov, 2007) which is also the top of larger degree wave B with circle. The selloff from there is a 5-waver with wave (A) ended at 1.3500 (23 Jan 2009), wave (B) itself is labeled as A: 1.6733, triangle wave B: 1.4813 and wave C as well as top of wave (B) ended at 1.7192 (2014), hence the selloff from there is an impulsive wave (C) with wave I : 1.4566, wave II 1.5930, an extended wave III is unfolding and already exceeded our downside target at 1.3500 and 1.3000, hence weakness to 1.2500 and possibly 1.2000 cannot be ruled out, however, price should stay well above psychological level at 1.0000.

GBP/CHF – 1.2410

  







Although sterling found support at 1.2221 last week and rebounded, as renewed selling interest did emerge at 1.2505 and price has retreated, retaining our bearishness (we recommended in our previous update to sell at 1.2500 and a short position was entered) for the fall from 1.3069 top to resume after consolidation, below 1.2300 would bring retest of 1.2221 but break there is needed to confirm and extend weakness to 1.2102. Looking ahead, a drop below 1.2102 would signal early correction from 1.1475 (2016 low) has ended at 1.3069, bring further fall to psychological support at 1.2000 which is likely to hold on first testing.



To recap the larger degree count, the selloff from 2.4965 (July 2007) is the beginning of wave V with circle and is labeled as 1: 2.3760, 2: 2.4425, wave 3 extension ended at 1.1470, followed by wave 4 at 1.5547, the quick rebound from 0.9106 suggests wave 5 as well as entire circle wave V could have ended there, hence consolidation with mild upside bias is seen for major correction to take place, bring initial test of 1.5547 (previous 4th of a lesser degree).



On the upside, expect recovery to be limited and as long as said resistance at 1.2505 holds, bearishness remains for another decline to aforesaid downside targets. A break of 1.2505 would defer and risk a stronger rebound to 1.2580-85, break there would risk further gain towards resistance at 1.2646 but still reckon upside would be limited to 1.2700-10 and price should falter well below said resistance at 1.2854, bring another selloff later.  


Recommendation: Hold short entered at 1.2500 for 1.2275 with stop above 1.2510.


On the Monthly chart, the longer-term count is that major downtrend is under way with circle wave I at 2.8645 (Sep 1.978), then wave II with circle at 4.6175 (Feb 1981), the wave III with circle ended at 1.7425 (Nov 1995) and followed by wave IV with circle at 2.4965 (July 2007 with a short wave C) and wave V with circle has possibly ended at 0.9106. A monthly close above 1.5547 would add credence to this view, bring major correction to 1.7000, then towards psychological level at 2.0000.

The Aussie holds bid tone at the beginning of European session after jumping to session high at 0.7985 on mixed Australian data.

Australian current account deficit widened to 9.6 billion A$ in the second quarter, while net export contribution rose by 0.3% in Q2 vs forecast of -0.1% and -0.7% in Q1.

RBA rate decision was the top release in Asian session. Australian central bank kept interest rates unchanged at 1.5%, as expected but following statement was generally unchanged, despite expectations for some tightening signals and signs of improving economic outlook.

However, RBA repeated concerns that higher AUD continues to weigh on economic growth and inflation.

The AUD was sold off after the RBA, additionally pressured by sales of AUDJPY cross, but dips were contained by rising 10SMA at 0.7940 and subsequent bounce kept near-term bullish bias intact.

Near-term action is looking for renewed attack at key 0.8000 resistance zone, where upside attempts failed twice until now, with sustained break here needed to generate bullish signal for eventual attempt towards 0.8065 (27 July high, the highest since early May 2015).

Near-term action is supported by thick hourly cloud (spanned between 0.7958 and 0.7932) and only break lower would risk further weakness and test of key near-term supports at 0.7914 (20SMA) and 0.7896 (daily cloud top).

Res: 0.7995, 0.8010, 0.8042, 0.8065
Sup: 0.7940, 0.7932, 0.7914, 0.7896

The pair fell to fresh one week low at 109.19 in Asia, on strong bearish acceleration after recovery attempts stalled at 109.83.

Monday's gap remains unfilled and weighs on near-term action, with strong safe-haven demand over renewed geopolitical tensions, keeping yen supported.

Overnight's weakness was contained by solid support at 109.19 (Fibo 61.8% of 108.26/110.66 upleg), with sustained break here needed to spark further downside and signal an end of corrective phase from 108.26.

Bearishly aligned daily studies are supportive, however, limited upside attempts cannot be ruled out, as last Tuesday's long-tailed bullish candle that was formed after strong downside rejection, is still underpinning, along with daily cloud which twists tomorrow.

Only firm break above 110.00 pivot and filling Monday's gap would sideline persisting downside threats for stronger recovery.

Res: 109.83, 110.00, 110.30, 110.44
Sup: 109.19, 108.83, 108.60, 108.26

Cable stands at the back foot in early Tuesday, following Monday's close in red and repeated upside rejection under strong barriers at 1.2977/81, provided by daily cloud top/descending 30SMA. Fresh weakness is pressuring pivotal support at 1.2905 (daily cloud base/20SMA, also near Fibo 38.2% of 1.2773/1.2995 upleg), break of which would generate bearish signal for further weakness towards 1.2958/52 (Fibo 61.8%/31 Aug spike low). UK Services PMI is the key release for the pound today (forecast for Aug is 53.5 vs 53.8 in July) and weaker than expected number could further pressure sterling.

Res: 1.2939, 1.2965, 1.2981, 1.3000
Sup: 1.2905, 1.2884, 1.2852, 1.2825

The Euro traded in tight range in Asia on Tuesday with rising 10SMA holding the downside for now but limited upside action on sales of EURJPY cross.

The pair is holding between sideways-moving daily Kijun-sen (1.1866) and north-turning daily Tenkan-sen (1.1921) which mark key points and break of either side would generate stronger direction signal.

Bullish daily studies remain supportive however, the outcome of ECB policy meeting on Thursday is expected to be the key driver. In addition, markets are eyeing developments over North Korea crisis, which could also affect markets strongly in case the situation deteriorates.

Markets are expecting the ECB to keep rates unchanged but focusing on comments from ECB President Mario Draghi about signs of starting reduction of central bank's QE programme, which could boost the single currency.

Otherwise, if Draghi disappoints, which is seen as very possible scenario, as current conditions of the bloc's economy are not satisfactory, the Euro may come under increased pressure.

Bearish extension below next strong support at 1.1829 (20SMA) would generate bearish signal and risk retest of key near-term support at 1.1662 (17 Aug trough).

Series of Services PMI data from Eurozone countries today could also influence the performance of the Euro.

Data released until now (Spain and Italy) were below expectations, with focus on German and EU releases, which could deflate the Euro on weaker than expected releases.

Res: 1.1911, 1.1922, 1.1979, 1.2000
Sup: 1.1868, 1.1829, 1.1814, 1.1773