Sample Category Title

EUR/JPY - 130.75

Original strategy:

Bought at 129.70, Target: 131.70, Stop: 129.10

Position: - Long at 129.70
Target: - 131.70
Stop: - 129.10

New strategy :

Hold long entered at 129.70, Target: 131.70, Stop: 130.00

Position: - Long at 129.70
Target:  - 131.70
Stop:- 130.00

Although the single currency retreated after rising to 130.97 yesterday, as euro found renewed buying interest at 129.66 and has rebounded in line with our bullish expectation (we recommended to buy at 129.70 and a long position was entered), adding credence to our bullish view that the rise from 127.56 low is still in progress, hence further gain to recent high at 131.40 would be seen, once this level is penetrated, this would extend early upmove to 131.90-00 but near term overbought condition should prevent sharp move beyond 132.50-60.

In view of this, we are holding on to our long position entered at 129.70. Below 130.00 would risk test of said support at 129.66 but only break there would signal top is formed instead, risk correction to 129.10-15, break there would confirm and correction to 128.75-80 would follow but still reckon 128.30-35 support would remain intact and bring another rise later this week. 

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).

Overnight, North Korea fired a missile that violated Japanese airspace and fell approximately 1180km east of Japan’s Hokkaido Island. According to media reports, this act may have been intended to show that an attack on the US territory of Guam is possible. North Korea has conducted several missile tests lately, but a rocket has not flown over Japan since 2009. This marks a clear escalation of the latest geopolitical tensions in the region, and likely comes as a response to the military drill that the US and South Korea have been conducting recently.

The market response was a classic risk-off reaction, with investors immediately turning to safe haven assets. Gold, JPY, and CHF all rallied on the news, while riskier assets such as the AUD and Japanese stocks tumbled. We believe that this negative sentiment may spill over into European and US equity markets, the indices of which could open with negative gaps today.

Moving forward, we expect market action to be very much headline-driven. A lot may depend on how the US, Japan and South Korea respond to this aggression. Japanese PM Abe already stated that 'We must immediately hold an emergency meeting at the United Nations, and further strengthen pressure against North Korea'. Such a diplomatic response would likely be the 'soft' approach, and may thus carry little market impact. On the other hand, if we see an escalation in rhetoric, such as more 'fire and fury' comments or some form of action from the NATO countries, this risk-off sentiment could linger and we may see the overnight price action continue.

USD/JPY traded lower overnight following the news. The pair dipped briefly below 108.70 (S1), but quickly rebounded to trade fractionally above it. The rate is back within the range between 108.70 (S1) and 111.00 and thus, the short-term outlook remains flat in our view. If the situation escalates further, we expect the bears to drive the battle back below 108.70 (S1), a move that could turn the bias to the downside this time, and initially aim for the 108.00 (S2) support.

Switching to the daily chart, we see that the pair is trading within a broader range between 108.70 (S1) and 114.40. This keeps the medium-term outlook flat as well, but a clear dip below 108.70 (S1) could be the first sign for larger downside extensions, perhaps towards the long-term upside support line, taken from the low of the 24th of June 2016.

Gold surged yesterday, breaking above the key psychological barrier of 1300 (S2). Subsequently, the metal gapped further up after North Korea fired a missile over Japan, to hit resistance at 1325 (R1) before retreating somewhat. The 1300 (S2) zone acted as the upper bound of the wide range the metal has been trading within since the 31st of January, between that hurdle and the 1200 territory. As such, its clearing make us confident that the outlook may have turned somewhat positive. We would expect a move above 1325 (R1) to set the stage for extensions toward our next resistance of 1340 (R2). Having said that, given that the latest rally appears overextended, we would stay careful of a possible retreat before the bulls decide to take charge again. A dip below 1313 (S1) may confirm the case and is possible to open the way for a test near the 1300 (S2) zone as a support this time.

The economic calendar is light today:

We only get second-tier economic indicators: The UK nationwide house price index for August, Canada’s PPI for July, the US S&P/Case-Shiller house price index for June, and the nation’s Conference Board consumer confidence index for August are all due out. We have only one speaker on the agenda: Chicago Fed President Charles Evans. He is a voting FOMC member this year, and usually maintains a cautious stance on policy matters. Speaking in early August, Evans said that inflation would have to accelerate for him to support an interest-rate hike at the end of the year. Given that the latest US CPI prints were disappointing, we doubt he will deviate much from his latest dovish remarks.

USD/JPY

Support: 108.70 (S1), 108.00 (S2), 107.40 (S3)

Resistance: 109.00 (R1), 109.40 (R2), 109.75 (R3)

Gold

Support: 1313 (S1), 1300 (S2), 1292 (S3)

Resistance: 1325 (R1), 1340 (R2), 1352 (R3)

AUD/USD – 0.7954

Original strategy :

Bought at 0.7895, Target: 0.8050, Stop: 0.7865

Position: - Long at 0.7895
Target:  - 0.8050
Stop: - 0.7865

New strategy :

Hold long entered at 0.7895, Target: 0.8050, Stop: 0.7900

Position: - Long at 0.7895
Target:  - 0.8050
Stop:- 0.7900

Although the pair retreated yesterday from 0.7973, as aussie found renewed buying interest at 0.7905 and has rebounded, retaining our near term bullishness and consolidation with upside bias remains for another rebound, above said resistance at 0.7973 would add credence to our view that low has possibly been formed at 0.7808 earlier this month, bring a stronger rebound to 0.8000, however, break there is needed to signal the pullback from 0.8066 top (wave iii peak) has ended at 0.7808 (wave iv) and bring eventual retest of this level.

In view of this, we are holding on to our long position entered at 0.7895. Below said support at 0.7905 would risk test of indicated previous support at 0.7865-67, break there would dampen this bullish scenario and suggest the rebound from 0.9808 has ended, bring another test of this level, below there would signal the wave iv correction from 0.8066 is still in progress for weakness to 0.7786 support, however, oversold condition should prevent sharp fall below 0.7750 and price should stay above i top at 0.7712, bring rebound later. We are keeping our latest bullish count that recent impulsive waves is unfolding as (1 2, (i)(ii), i ii) and may extend headway towards 0.8150. 

On the 4-hour chart, the move from 0.8066 is the wave 5 with i: 0.8860, ii: 0.8315, wave iii is an extended move ended at 1.0183, iv: 0.9706 and wave v has ended at 1.1081 (also the top of entire wave 5). The subsequent selloff is the major correction which is unfolding as ABC-X-ABC and 2nd A leg has ended at 0.8848, followed by a-b-c wave B which ended at 0.9758, hence, 2nd C wave is now in progress and indicated downside target at 0.7000 and 0.6950 had been met, so further fall to 0.6710-20 cannot be ruled out.

Spot Gold extends strong bullish acceleration from Monday which resulted in eventual break above key $1300 barrier. The yellow metal received fresh boost from deteriorating geopolitical situation over North Korea that strongly increased demand for safe-haven assets.

Yesterday's close above $1300 barrier was strong bullish signal for today's fresh bullish acceleration which extended above initial target at $1315 and broke above bull-channel upper boundary at $1319, to meet next target at $1325 (Fibo 200% projection of the upleg from $1276). Bulls are eyeing next barrier at $1337(09 Sep 2016 spike high).

Strong bullish sentiment continues to drive the price higher, ignoring overbought conditions of daily studies, which suggest corrective action that could be expected in coming sessions.

Res: 1331, 1337, 1343, 1352
Sup: 1319, 1313, 1300, 1296

The Aussie dollar regained traction and recovered the most of overnight's losses, maintaining overall bullish tone. Strong two-day bullish acceleration was capped by Fibo 61.8% of 0.8065/0.7807 pullback at 0.7970 zone yesterday, with overnight's pullback triggered by North Korea news, as strong sales of AUDJPY dragged lower the AUDUSD pair. Dip was contained by the base of thickening hourly cloud which continues to underpin recovery which returned near yesterday's high and neutralized downside threats. However, break and close above Fibo barrier at 0.7967 is required to confirm bullish continuation towards 0.80000/65 targets, signaled by yesterday's break above the triangle pattern. Meanwhile, overbought slow stochastic on daily chart may trigger extended consolidation before bulls resume. Plethora of strong supports at 0.7930 zone, comprising of hourly cloud top / converged 10/30SMA's and daily Tenkan-sen, should keep the downside protected.

Res: 0.7973, 0.8000, 0.8042, 0.8065
Sup: 0.7936, 0.7927, 0.7905, 0.7864

The pair fell to fresh multi-month low at 108.33 overnight, as rising geopolitical tensions put the greenback under pressure. Break below supports at 108.70/60 zone which kept downside attempts in past two weeks limited, opens way towards key med-term support at 108.11 (2017 low posted on 17 Apr). Sustained break here would generate strong bearish signal for continuation of larger downtrend from 118.66 (15 Dec 2016 peak). Strong bearish sentiment and firmly bearish technical studies are supportive for further weakness, however, hesitation ahead of 108.11 pivot could be anticipated. Daily cloud is going to twist next week and may attract for some corrective action before final push through 108.11 trigger. Former lows at 108.60/70 now act as immediate barriers, followed by falling 10SMA (109.30) and 20SMA (109.70) which should cap extended upticks.

Res: 108.70, 109.00, 109.70, 110.00
Sup: 108.11, 107.49, 107.00, 106.71

Weekly
    •    Last Candlesticks pattern: Long white candlestick
    •    Time of formation: 16 Jan 2017
    •    Trend bias: Down

Daily
    •    Last Candlesticks pattern: Long white candlestick
    •    Time of formation: 18 Apr 2017
    •    Trend bias: Near term up

GBP/USD – 1.2963

As cable found good support at 1.2774 and has staged a strong rebound, suggesting decline from 1.3269 has formed a temporary low there, hence consolidation with upside bias is seen for gain to the Kijun-Sen (now at 1.3020), however, upside should be limited to 1.3032 resistance and reckon 1.3080 (61.8% Fibonacci retracement of 1.3269-1.2774) would hold, bring retreat later to 1.2900, then 1.2870-75, having said that, said support at 1.2774 should continue to hold and bring another rebound later.

On the upside, whilst initial recovery to the Kijun-Sen (now at 1.3020) cannot be ruled out, reckon upside would be limited to 1.3050-55 and dynamic resistance at 1.3080 (61.8% Fibonacci retracement of 1.3269-1.2774) should hold, bring retreat later. A daily close above 1.3080 would risk a stronger rebound to 1.3120 and possibly towards 1.3165-70, however, we are keeping our view that a temporary top has been formed at 1.3269 earlier this month, reckon upside would be limited to 1.3200 and price should falter well below said resistance, bring another corrective decline later.

Recommendation: Sell at 1.3050 for 1.2850 with stop above 1.3150 or buy at 1.2875 for 1.3020 with stop below 1.2775.

 



On the weekly chart, as the British pound has rebounded on back of the rally in euro, suggesting first leg of decline from 1.3269 top has ended at 1.2774, hence initial upside bias is seen for the rebound from 1.2774 to extend gain to the Tenkan-Sen (now at 1.3021), however, reckon upside would be limited to 1.3080 (61.8% Fibonacci retracement of 1.3269-1.2774) and price should falter below 1.3165-70, bring another decline later, above there would bring a retest of 1.3269 but only break there would shift risk back to upside and extend early erratic rise from 1.1986 low to 1.3330-40 and later towards 1.3400-10.

On the downside, expect pullback to be limited to 1.2900 and cable should find renewed buying interest at 1.2873, bring another rebound later. Below 1.2800 would bring retest of 1.2774, break there would signal the fall from 1.3269 top is still in progress for retracement of recent upmove to the Kijun-Sen (now at 1.2689), however, reckon downside would be limited to previous support at 1.2589 and bring rebound later. Looking ahead, only a sustained breach below 1.2589 would signal the entire correction from 1.1986 has ended at 1.3269, bring further decline to 1.2500, then towards support at 1.2365.



Weekly
    •    Last Candlesticks pattern: Shooting star
    •    Time of formation: 7 Mar 2017
    •    Trend bias: Sideways

Daily
    •    Last Candlesticks pattern: Morning star
    •    Time of formation: 9 May 2017
    •    Trend bias: Near term up

USD/CHF – 0.9468

As the greenback has remained under pressure after breaking below indicated previous support at 0.9583, adding credence to our bearish view that the erratic decline from 0.9773 is still in progress, hence test of another previous support at 0.9438 would be seen, break there would signal early fall from 1.0344 (2016 high) has resumed and extend weakness to 0.9390-00, then towards 0.9330-35, having said that, near term oversold condition should prevent sharp fall below previous support at 0.9259 and reckon 0.9220 (38.2% Fibonacci retracement of entire rise from 0.7401-1.0344) would hold, risk from there is seen for a rebound to take place later.

On the upside, whilst recovery to 0.9530-40 cannot be ruled out, said previous support at 0.9583 should turn into resistance and limit dollar’s upside and bring another decline to aforesaid downside targets. Above 0.9620 would defer and risk a stronger rebound to 0.9663 and possibly test of resistance at 0.9698, however, upside should still be limited and price should falter below said resistance at 0.9773, bring another selloff next month.

Recommendation: Sell at 0.9520 for 0.9320 with stop above 0.9620

On the weekly chart, the greenback opened lower this week after breaking below previous support at 0.9583, suggesting the erratic decline from 1.0344 top has resumed and break of another previous support at 0.9438 would confirm and extend the aforesaid fall for further weakness to 0.9350, then towards previous support at 0.9259, however, near term oversold condition should prevent sharp fall below 0.9220 (38.2% Fibonacci retracement of 0.7401-1.0344) and reckon 0.9150 would hold from here, risk from there is seen for a rebound later.

On the upside, expect recovery to be limited to 0.9530-40 and said previous support at 0.9583 should turn into resistance and limit upside. A weekly close above the Tenkan-Sen (now at 0.9606) would defer and risk a stronger recovery to 0.9698 resistance, however, still reckon upside would be limited and resistance at 0.9773 should remain intact, bring another decline. Only a break of the Kijun-Sen (now at 0.9805) would abort and signal a temporary low is formed instead, bring a stronger rebound to the lower Kumo (now at 0.9894) but upside should be limited to the upper Kumo (now at 1.0023), price should falter well below resistance at 1.0100.

Oil And Dollar To Gain From Harvey
More Bullish Move Still On Cards

Stock markets have rattled over in Asia and things are looking ugly over in Europe as well. It is a risk off mode and safe havens such as gold and the Japanese Yen extended their gains due to the recent escalation of tensions over in Asia. Investors have panicked after the North Korean missiles have flown over Japan and the president of Japan has called the action reckless. The Asian markets have felt the pain of this event and we are expecting this pain to become even starker as the counter-reaction from the US would make investors only more nervous. Statements such as "fire and fury" are the most worrying.

US futures are trading sharply lower because investors are either staying on the side lines for this dust to settle or are booking their gains.

Oil And Dollar To Gain From Harvey

The effects of Hurricane Harvey are still going to remain prominent as the flooding process continues over in the US. Less and less refineries can work and this is pushing the price of the refined products higher. Both Brent and crude oil are still holding on to their gains and we still do expect them to score more gains.

In currencies, the dollar weakness continues and the aftermath of the Jackson Hole meeting is still very much influencing the price of the dollar index. The index is more likely to continue its journey to the 91 mark and the Euro-dollar pair could touch the likes of 1.25 by the end of the third quarter.

Hurricane Harvey is going to have some serious economic impact and just how large that would be is still unclear. However, the upcoming jobs reports are likely to show one element which is that more people would be filing for unemployment benefits. If history serves us correctly, it is that in the past when a similar catastrophe occurred, the initial jobless claims spiked in the following weeks. We need to have a strong number when it comes to the labour market as that would continue to support the dollar but in the absence of such, it simply means more weakness for the dollar index.

More Bullish Move Still On Cards

The yellow metal has rallied to the highest point this year due to the geopolitical tensions and the dollar weakness. We have witnessed the highest intraday price level of 1322.41 which had not been seen since Nov 9. The price could easily touch the level of 1350 because the worst is still to come, which would be a reaction from the US. If North Korea decides to retaliate further to that reaction, it would only add fuel to the fire.

This morning, North Korea fired what was likely to have been an intermediate range ballistic missile over Japan into the Pacific. After a short period of calm, the North Korean crisis is again escalating.

How serious is this? The missile test is clearly a strengthening show of force from North Korea to show it is not bending to US demands. That the missile is flying over Japanese territory is a clear provocation, although not the first time it has happened. As recently as 2016, North Korea fired a rocket over Okinawa. At the same time, North Korea did not go through with its plans to send the missiles close to the waters of Guam as indicated on 9 August. Kim Jong-un had said he was reconsidering this and the missiles into the Pacific could be seen as a moderation compared to the initial plans. Japanese Foreign Minister Taro Kono said the launch to the east rather than to the south towards Guam was a sign that Pyongyang had ‘flinched' in the face of US warnings.

North Korea had warned that the annual military exercises of US and South Korea taking place during these weeks would trigger a reaction. The so-called Ulchi-Freedom Guardian military exercises started earlier this month. It is not unusual that these exercises escalate tensions. Last year, North Korea launched a missile from a submarine around the time of the exercises and put its military on high alert. China asked the US and South Korea to suspend the drills this year in order to ease the conflict and pave the way for diplomatic talks.

What's next? Following today's launch, Japan has asked the United Nations Security Council to hold an emergency meeting. More sanctions may be imposed but we still see war as a very low probability as the risks involved on both sides are simply too big. Ultimately, we believe that we will have talks between the involved parties. However, before this, both sides will need to illustrate a big show of force to strengthen the positon at the negotiating table. What the response might be from the US this time is not clear. However, a military strike does not seem likely.

A diplomatic solution will be difficult to find as it will involve on the one hand North Korean demanding an end to the annual military exercises, which will be difficult to obtain given that the US and South Korea see a big threat from North Korea. Similarly, the demand from the US for North Korea to back down from its nuclear ambition is also difficult as long as North Korea sees the US as a major threat. However, a diplomatic solution would be the best outcome, as a military conflict would entail severe losses on both sides. The road will not be easy and we are likely to see continued waves of escalations before the parties are finally pushed to the negotiating table.

Market outlook. The markets reacted again with the usual safe haven flows sending equities and bond yields lower. Asian stocks took a hit again as after the recent escalation. However, things are likely to calm down again soon and markets will recover. Overall, though, the crisis is keeping risk appetite dented as long as we see these continued waves of escalation. In combination with the looming US debt limit deadline coming closer, there is a risk that markets will find it hard to gain real momentum despite positive growth numbers overall at the moment.