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It was another risk-off Monday for investors as North Korea was said to have fired its sixth and most powerful weapon on Sunday, driving the demand for safe-haven assets higher while the US markets were closed for the Labour Day holiday. Gold gained the most, hitting a fresh 11-month high during the Asian trading hours.

Yesterday, the North Korean regime announced that it had successfully tested a hydrogen bomb as a response to the US-South-Korean military exercise conducted last week. Although there was no independent verification whether the nuclear weapon was a hydrogen bomb, experts said that the earthquake of a magnitude of 6.3 Richter following the explosion, was ten times stronger than the tremor identified in previous tests, suggesting that use of a hydrogen weapon was a possibility.

Following the news, Donald Trump threatened on Sunday to stop any trade relations with nations collaborating with the North Korean regime, while referring to South Korea, he argued that 'South Korea is finding, as I have told them, that their talk of appeasement with North Korea will not work, they only understand one thing!' Later on Monday, South Korea said that it was preparing further military drills with the US, while the UN National Security has scheduled a meeting today to discuss additional sanctions against North Korea. Moreover, Trump has requested to be kept informed on all available military options.

The dollar index which gauges the dollar’s strength against a basket of major currencies was trading lower by 0.20% at 92.62.

Dollar/yen weakened by 0.65% to 109.53 while dollar/swissie declined by 0.47% to 0.9601.

The pound edged down to $1.2953 despite the dollar’s weakness, as uncertainty around Brexit weighted on the currency.

The euro rose by 0.28% to $1.1891 ahead of the ECB policy meeting on Thursday, where central bankers are expected to keep interest rates unchanged. Regarding the reduction in asset purchases, the discussion is said to start only on Thursday but traders might have to wait until October for any announcements on the decision.

In other currencies, the aussie was in a downtrend after the Australian business data released earlier in the Asian session missed expectations. Business inventories dropped unexpectedly by 0.4% while analysts anticipated the figure to rise moderately by 0.4%. In the previous quarter business inventories posted a growth of 1.2%. Likewise, Australian gross company profits fell by 4.5%. This was compared to a 6% gross profit increase seen in the first quarter and a 4% decline forecasted.

The commodity-linked loonie gained some ground on Monday versus its US counterpart, as a number of key oil refineries in Texas, which were harmed by the costliest tropical storm Harvey (150-180 billion dollars), restarted their operations during the weekend. Moreover, the Bank of Canada (BOC) is scheduled to launch its next policy meeting Wednesday, where the markets expect the rates to remain steady. However, a rate hike is not completely out of the question, based on upbeat growth figures. Dollar/loonie was last trading at 1.2402.

Looking at commodities, oil prices were mixed, while gold which is considered a safe investment in times of risk aversion hit an eleven-month high as geopolitical tensions heightened between the US, North Korea, and Japan. WTI crude futures rose to $47.36 per barrel, while Brent fell to $52.40. The yellow precious metal topped at an eleven-month high of $1337.62 per ounce, up by 1.0%, amid heightened political tensions in the Korean peninsula.

The Aussie came under pressure in early European trading and returns near session low at 0.7944, posted after gap-lower opening on Monday. Weak Australian data overnight also helped near-term bears after recovery attempts in Asia were limited at 0.7970 zone. Rising geopolitical tensions also weigh, however, overall bullish structure remains intact for now as the price stays above converged daily Tenkan-sen/Kijun-sen lines (0.7930/25) which mark pivotal support and guard daily cloud top (0.7891). RBA's policy meeting on Tuesday is in focus with expectations for unchanged interest rates at 1.5% but investors will be looking for post-meeting rhetoric for signals.

Res: 0.7970, 0.7995, 0.8010, 0.8042
Sup: 0.7944, 0.7925, 0.7911, 0.7891

EUR/USD

Current level - 1.1882

The pattern above 1.1830 is corrective in nature and keeping in mind the recent 'pin bar'on the daily frame (29.08), there is a risk of breaking lower, through 1.1830, towards 1.1660 support. Intraday allow another leg upwards, to 1.1980 resistance zone.

USD/JPY

Current level - 109.53

The intraday outlook is negative, for a slide towards 109.00 static support. A violation of the latter will signal another test of 108.10 lows.

GBP/USD

Current level - 1.2954

The bias remains positive, for a rise towards 1.3050 zone. Minor intraday support lies at 1.2930 and crucial on the downside is 1.2900.

EUR/USD

A really disappointing US Nonfarm Payroll report was not enough to keep the common currency afloat last Friday, resulting in the EUR/USD pair closing the week in the red around 1.1860. The greenback initially plunged across the board with the release, and if fact, remained pressured against most of its major rivals afterwards. What hit the EUR was new jawboning from ECB through news agencies reporting that the Central Bank will probably delay tapering QE beyond September, according to "people familiar with the matter," amid latest EUR's strength. US data showed that the world's largest economy added 156,000 new jobs in August, well below the 180K expected, the unemployment rate uptick to 4.4% from 4.3%, while more relevant, wages' growth remained steady at 2.5% YoY, not building the inflationary pressures the Fed needs to pull the trigger again.

On Sunday, North Korea said it has successfully tested a hydrogen bomb for its intercontinental ballistic missile, causing a 6.3-magnitude tremor in the country's northeast. South Korea and Japan asked for the strongest possible response and for the UN to include new sanctions to "completely isolate" the country, whilst US President Trump twitted that such response "will not work," as they only "understand one thing," referring to a military response. Risk aversion will likely lead the weekly opening, favoring the Swiss Franc and Gold the most this Monday, which by reflection will likely help the common currency to advance. In the meantime, the ECB will have its monetary policy meeting this week, with speculative interest focused on whether the ECB will confirm their fall discussion on tapering, or the delay suggested by the latest rumors.

From a technical point of view, the decline has barely affected the dominant bullish trend, as the price managed to bounce earlier on the week from its 20 DMA, the immediate support at 1.1860. Technical indicators in the daily chart have retreated within positive territory, whilst the price is far above a long-term ascendant trend line, around 1.1700/20 for this Monday. A daily close below this last should signal an interim top has been reached. Shorter term, and according to the 4 hours chart, the risk turned to the downside, with the price extending below a bearish 20 SMA, and the RSI indicator heading south around 41, as the Momentum hovers within negative territory. Below 1.1860, the pair has its next strong support in the 1.1780/90 region, a probable bearish target in the case the pair is unable to regain the 1.1900 level.

Support levels: 1.1860 1.1820 1.1785

Resistance levels: 1.1920 1.1965 1.2000

USD/JPY

The USD/JPY pair ended the week in the green at 110.24, as despite US soft employment and sentiment data released on Friday, the pair managed to recover ahead of the close. Worst-than-expected US jobs report sent the pair down to 109.55 intraday, but quickly recovered on the back of advancing Treasury yields. The yield on the 10-year Treasury note settled at 2.16% from a previous 2.12%, while the yield on the 30-year Treasury bond was also higher at 2.77% from previous 2.72%. Helping the pair to bounce, was the US official manufacturing PMI, up to 58.8 in August from July reading of 56.3, indicating growth in the manufacturing sector for the twelfth consecutive month and partially offsetting the NFP report. Escalating geopolitical tensions during the weekend, as North Korea performed a major nuclear test, should affect the JPY at the weekly opening, although given that Japan is within the conflict area, speculative interest may prefer gold or the CHF as safe-havens rather than the yen. The weekly gain was quite limited and not a game changer for the dominant bearish trend, as the pair topped for the week at 110.66, a couple of pips above the 38.2% retracement of its latest daily decline between 114.49 and 108.26. In the daily chart, the 100 and 200 DMAs maintain their bearish slopes above the current level, while technical indicators are stuck within neutral territory, directionless. Shorter term, and according to the 4 hours chart, the price is around its 200 SMA, having bounced sharply after testing the 100 SMA, while the Momentum indicator heads lower around its mid-line and the RSI consolidates around 58, limiting the downward potential.

Support levels: 109.80 109.35 108.80

Resistance levels: 110.60 110.95 111.30

GBP/USD

The GBP/USD pair recovered up to 1.2995 on Friday and on the back of poor US employment data, ending the day, and the week marginally higher at 1.2950. A scarce UK macroeconomic calendar kept the pair within a limited range these last few days, alongside with headlines indicating another round of tough Brexit negotiations. During the week, EU chief negotiator, Michael Barnier, said that "no progress" was made on substantial issues, while EU Junker stated that none of the UK's Brexit position papers were satisfactory. The base of the conflict is that the EU wants to settle the Brexit bill before moving any further, while the UK refuses to talk money and wants to agree on future trade first. UK Brexit minister, David Davis was on the wires over the weekend, insisting that there was no legal obligation that force the UK to pay for EU projects after leaving the bloc, also calling Barnier "silly," as according to Davis, progress was actually made. Anyway, uncertainty over the matter prevented the pair from regaining the 1.3000 level, and will likely remain as a market motor in the days to come, alongside with risk sentiment. From a technical point of view the pair presents a neutral-to-bullish stance in the daily chart, as the price settled above its 20 SMA, whilst technical indicators head nowhere within positive territory. The pair, however, settled below the 38.2% retracement of its latest daily decline around 1.2965, a level that proved strong since mid August. In the 4 hours chart, the technical outlook is quite alike, with the price above horizontals 20 SMA and 200 EMA, both within a well-limited range, and technical indicators heading nowhere within positive territory. The 50% retracement of the mentioned decline stands around 1.3030, a probable bullish target in the case of a Pound's rally.

Support levels: 1.2910 1.2875 1.2830

Resistance levels: 1.2965 1.2995 1.3030

GOLD

Gold prices posted strong gains this past week, with spot closing at $1,325.91 a troy ounce, its highest settlement since September last year. There were multiple factors behind gold's advance, being turmoil around the US government, a persistent weak dollar, and escalating geopolitical tension in Asia among the most relevant, as all contribute to the case of a slower pace of tightening coming from the US Federal Reserve. Gold traded as high as 1,328.82 before retreating modestly, anyway poised to extend its advance, as weekend developments in North Korea will likely fueled demand for the safe-haven metal. Technically, the daily chart shows that the price remains far above a bullish 20 DMA that continues advancing above the larger ones, whilst technical indicators have partially lost upward strength within overbought territory, far however, from suggesting a slide. In the 4 hours chart, technical indicators keep heading north, with the RSI indicator nearing overbought readings, as the price remains above bullish moving averages, all of which supports additional gains on a break above the mentioned yearly high.

Support levels: 1,323.65 1,313.40 1,304.95

Resistance levels: 1,328.85 1,337.35 1,344.10

WTI CRUDE OIL

West Texas Intermediate crude oil futures edged sharply higher on Friday, ending the day around $47.30 a barrel, down anyway for a fifth consecutive week. News that the US stockpiles declined by more than expected, according to the EIA, only supported the commodity partially, as the Hurricane Harvey has affected US's refining capacity, and will probably result in less demand for crude in the next few weeks. The EIA data belong to the week ending August 25th, right before the Hurricane hit the US Coast Gulf. News on Friday indicated that the number of active US rigs drilling for oil remained unchanged at 759 last week, according to Baker Hughes that anyway reported that could not verify South Texas rigs amid the impact of Harvey. Daily basis, WTI ended a few cents above a horizontal 100 DMA, while technical indicators aim modestly higher within neutral territory, which is not enough to confirm additional gains ahead. Shorter term, and according to the 4 hours chart, the price remained below its 100 and 200 SMAs, with the shortest heading south below the largest and acting as immediate resistance at 47.50, while technical indicators aim north well above their mid-lines, supporting additional gains on a break above the mentioned resistance.

Support levels: 46.60 45.90 45.40

Resistance levels: 47.50 48.15 48.85

DJIA

Wall Street closed with gains on Friday, with the DJIA adding 39 points, to end at 21,987.56, while the S&P added 5 points, to close at 2,476.55. The Nasdaq composite settled at an all-time high of 6,435.33 after adding 6 points or 0.10%. US jobs data, which showed that sluggish wage growth persisted in August, backed the rally in local equities as the report could result in US Federal Reserve slowing its tightening pace. Within the Dow, General Electric was the best performer, adding 2.40%, followed by Chevron which added 1.06%. United Technologies was the worst performer, ending the day 1.50% lower, while Microsoft followed, ending down 1.11%. The daily chart for the DJIA shows that the index settled well above a still marginally bearish 20 DMA, while technical indicators turned flat, the Momentum around its mid-line and the RSI now at 58, as the index retreated from its daily high, unable to hold above the 22,000 threshold. In the 4 hours chart, the Momentum indicator keeps retreating within positive territory, the RSI consolidates around 64, while the index remains above all of its moving averages, keeping the downside limited as long as the index holds above the 21,960 region, where buying interest defended the downside for most of the last two-days.

Support levels: 21,960 21,910 21,863

Resistance levels: 22,038 22,086 22,137

FTSE100

The FTSE 100 advanced 0.11% or 7 points on Friday to close at 7,438.50, backed by a rally in mining-related equities. Weaker-than-expected US data also help the benchmark to remain afloat, as Pound gains were well-limited, in spite of dollar's weakness. Within the Footsie, Ashtead Group was the best performer, adding 2.53%, followed closely by Antofagasta and Glencore, both adding over 2.0%. Micro Focus International was the worst performer, down 7.74%, after the company reported that it merge with HPE could trigger penalties under 2016 US tax inversion regulations. The daily chart for the index shows that it settled above its 20 and 100 DMAs, both converging flat around 7,400, but also that technical indicators head higher within positive territory, favoring an upward extension for this Monday. In the shorter term, and according to the 4 hours chart, the index settled well above all of its moving averages, also converging within a tight range in the 7,400 region, while technical indicators eased modestly from overbought levels, rather reflecting the latest consolidation than suggesting an upcoming downward move.

Support levels: 7,400 7,348 7,313

Resistance levels: 7,444 7,480 7,523

DAX

Major European indexes closed higher on Friday, with the German DAX adding 87 points to end at 12,142.64, up for third consecutive day. A weaker EUR, on news suggesting the ECB will delay discussing tapering until next December underpinned local equities. Automotive and mining stocks led the way higher in the region, and within the DAX, Deutsche Lufthansa was the best performer, up 3.23%, followed by Infineon Technologies that added 2.14%. ProSiebenSat.1 Media led decliners, closing the day 1.65% lower, followed by Linde that shed 0.65%. From a technical point of view, the daily chart shows that it settled a few points above a bearish 20 DMA, but also that technical indicators were unable to settle above their mid-lines, limiting the upward potential. In the 4 hours chart, the index advanced above a bearish 20 SMA and closed around a horizontal 100 SMA, while technical indicators turned modestly lower, holding anyway near overbought levels. The weekly high for the index was set at 12,191 with gains beyond it required to favor a new leg higher for this Monday.

Support levels: 12,132 12,093 12,045

Resistance levels: 12,191 12,241 12,286

Rising tension between the North Korea and US led to safe haven vs risk flows into many currency pairs this weekend and the EUR/USD has formed a retail gap (blue rectangle) to the upside. Risk on is usually reflected on AUD, CAD, NZD and JPY pairs while the USD was defensive in the past. At this point the pair is capped below D H3/WH3 suggesting either a retrace or continuation. If the pair retraces to 1.1840-56 (88.6, trend line, L3, ATR pivot, retail gap) the gap will be closed and it could spike upside. 1h momentum or 4h close above 1.1900 is needed for a continuation towards 1.1930, 1.1967 and retest of 1.2000. Adding to a possible bullish bias is lower than expected NFP with Average Hourly earnings data that were released on Friday.

The Euro is holding within narrow range on Monday, limited by daily Tenkan-sen (1.1905) at the upside and Kijun-sen (1.1866) which holds the downside. The pair remains heavy following Friday's close in red after the dollar fell on downbeat jobs data but regained strength after better than expected US Manufacturing data which improved the tone. Friday's bearish candle with long upper shadow weighs on near-term action which would extend weakness on violation of Tenkan-sen support towards 1.1822 pivot (20SMA/4-hr cloud base) as rising 4-hr cloud underpins today's action so far. Overall structure is bullish, with current pullback seen as correction before renewed attempt above 1.2000 barrier. ECB policy meeting on Thursday is the key event for Euro as traders expect to hear more from Mario Draghi about ECB's QE program tapering. The pair may stay in a choppy trading until then, waiting for clearer signals from the ECB. Extended dips should be contained by 20SMA to keep bulls intact, while break lower will be seen as bearish signal for deeper correction.

Res: 1.1905, 1.1946, 1.1979, 1.2000
Sup: 1.1866, 1.1822, 1.1807, 1.1740

GBP/USD – 1.2939





Original strategy :

Buy at 1.2900, Target:1.3050, Stop: 1.2840

Position: -

Target:  -

Stop: - 




New strategy :

Buy at 1.2880, Target:1.3080, Stop: 1.2820

Position: -

Target:  -

Stop:- 



As cable has retreated after Friday’s brief rise to 1.2996, suggesting minor consolidation would be seen and pullback to 1.2900-05 cannot be ruled out, however, reckon downside would be limited to 1.2880 and as long as support at 1.2852 holds, prospect of another rise remains, above 1.2996-00 would add credence to our view that low has been formed at 1.2774 and extend the corrective rise from there for retracement of recent decline from 1.3269 to resistance at 1.3032, then towards 1.3090-00 later.

In view of this, would be prudent to buy sterling on dips. Below said support at 1.2852 would defer and risk weakness towards 1.2800-10, however, only break of latter level would suggest the rebound from 1.2774 has ended instead, risk retest of this level, break there would extend the selloff from 1.3269 top to 1.2750, then towards 1.2700-10 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. 


GBP/JPY - 141.70

Original strategy:

Bought at 141.60, Target: 143.60, Stop: 141.00

Position: - 141.60
Target: - 143.60
Stop: - 141.00

New strategy :

Exit long entered at 141.60,

Position: - Long at 141.60
Target:  -
Stop:-

Although the British pound resumed recent rise to 143.00 on Friday, lack of follow through buying on break of previous resistance at 142.90 and the subsequent retreat dampened our bullishness and downside risk is seen for pullback to 141.55-60, break there would suggest top is possibly formed, then weakness to 141.00 would follow but reckon support at 140.45 would limit downside and price should stay well above support at 140.05.

In view of this, would be prudent to exit long entered at 141.60 and stand aside for now. Above 142.15-20 would bring rebound to 142.50-60 but only break of said Friday’s high at 143.00 would revive bullishness and extend the rise from 139.35 to 143.20 and then 143.50-60, however, upside should be limited to 144.00-10.

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.


The Japanese yen was among the top gainers in Asia on Monday as geopolitical tensions raised again after North Korea made another nuclear test over the weekend, prompting investors into safer assets.

The USDJPY pair opened with gap lower of some 80 pips on Monday, with subsequent recovery attempt being capped under 110.00 barrier and fresh weakness after the latest news, saying that North Korea is preparing for another missile test, sent the price below 109.46 pivot (daily Tenkan-sen).

Daily studies are entering full bearish setup which would, along with negative fundamentals, pressure the pair further.

Extension below 109.18 (Fibo 61.8% of 108.26/110.68 upleg) will generate another bearish signal for renewed attack at 108.83 (weekly cloud base) which was dented in several probes lower but so far without close below.

Near-term outlook remains negative and may see further easing, with sustained break below weekly cloud base, to open way towards key supports at 108.26 (29 Aug spike low)/108.11 (17 Apr low).

Broken Kijun-sen offers resistance art 109.65, with extended upticks expected to stay capped under psychological 110.00 barrier, reinforced by falling 30SMA.

Res: 109.65, 110.00, 110.44, 110.66
Sup: 109.38, 109.18, 108.83, 108.60

EURUSD has stalled its uptrend and is likely shifting into a neutral phase. The pair maintains the bullish medium-term market structure and remains in an ascending channel. After reaching a multi-year high of 1.2069 on August 29, upside momentum faded and prices fell back to close below the key 1.2000 level last Friday.

Momentum indicators (RSI and MACD) are moving sideways and highlight the shift into a neutral phase, while remaining in bullish territory.

It remains to be seen whether EURUSD has made a short-term top at 1.2069. While the pair is likely in the early stages of a consolidation phase, the immediate risk is for a move lower towards 1.1772 (August 25 low). This is the bottom of the expected consolidation range, with resistance at the range-top at 1.1983.

A break below 1.1661 support and August17 low increases the odds for a deeper fall to 1.1471, bringing the market near the 50% Fibonacci retracement level of the 1.0820 to 1.2069 uptrend. From here, a bearish outlook becomes stronger.

Alternatively, a daily close above immediate resistance at 1.1900 would shift the focus back to the upside for a re-test of the 1.2069 high. A sustained move higher would see a resumption of the uptrend to strengthen the bullish outlook with scope to rise to the 1.2200 area.

In the short-term EURUSD is leaning to bearish due to increased risk to the downside. The overall technical picture on the daily chart is bullish. This is confirmed by the bullish crossover of the 50-day with the 200-day moving average on May 23. Both moving averages are pointing upwards.