Sample Category Title

USD/JPY - 109.10

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 109.28

Kijun-Sen level                  : 109.41

Ichimoku cloud top             : 109.18

Ichimoku cloud bottom      : 109.10

New strategy  :

Stand aside

Position :  -

Target :  -

Stop : -

Despite intra-day initial brief rise to 109.83, lack of follow through buying on break of resistance at 109.60-67 and the subsequent retreat suggest consolidation below this level would be seen and pullback to 109.00 cannot be ruled out, however, break there is needed to signal the rebound from 108.60 has ended there, bring further fall to 108.80, then test of said support. A break of this support would confirm recent decline has resumed and may extend further weakness to 108.30 (1.618 times projection of 110.95-109.67 measuring from 110.37), then towards 108.00.

On the upside, above 109.60 would bring test of said resistance at 109.83, break there would signal low has been formed at 108.60 and bring a stronger rebound to 110.00 and later towards resistance at 110.37 which is likely to hold from here. As near term outlook is still mixed, would be prudent to stand aside in the meantime.

Recent comments from US Treasury Secretary Steven Mnuchin and Senate Majority Leader Mitch McConnell appeared to have lifted market confidence that the government will eventually be able to raise the debt ceiling and avoid default. While our base case is that a debt ceiling would be suspended or raised, and the government would avoid a shutdown, we do not expect things to go smoothly and it would likely be a last-minute deal. US' politics has been under the spotlight since Donald Trump has become the president. At over 200 days in office, Trump's Russia scandal probably caught most attention, followed by the war of words with North Korean leader Kim Jongun. More recently, Trump dissolved several business advisory councils after resignations of a number of CEOs. On economic achievement, Trump has failed to pass the healthcare reform bill and was unable to kick start any pro-growth or tax policy. The government's debt issue is close watched and volatility of the stock markets could increase as we approach the deadline.

The Congress suspended the debt ceiling in November 2015 until mid-March 2017. Since then, the Treasury has been using "extraordinary measures" to raise capital. In a June report, the Treasury revealed that the extraordinary measures include (1) suspending sales of State and Local Government Series Treasury securities; (2) redeeming existing, and suspending new, investments of the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund; (3) suspending reinvestment of the Government Securities Investment Fund; and (4) suspending reinvestment of the Exchange Stabilization Fund. However, these measures will run out in early September and the Treasury would resort to incoming tax receipt for financing until September 29. Therefore, it would be critical to raise the debt ceiling by that day. Mnuchin has suggested that he strongly prefer to have "a clean raise of the debt limit", while McConnell added that there is "zero chance - no chance - we won't raise the debt ceiling. No chance".

Freedom Caucus Links Vote to Borrowing and Spending Restrictions

The confidence might come from the fact that, together with a Republican president, the GOP is also control of both the House and the Senate. During the debt ceiling crisis in 2011 and 2013, the Congress was split under a Democrat President, while the Congress was controlled by Republicans under a Democrat President in 2015. Failure to pass the healthcare reform bill has already reflected that a full control by one party does not necessarily be more efficient. The vote amongst Republicans is not unanimous. The House Freedom Caucus, consisting of conservative and libertarian Republican members of the United States House of Representatives, is split on whether they would link a spending cut with the debt-ceiling vote.

60 Votes Needed in Senate

In the Senate where Republicans take 52 seats, 60 votes are needed to pass debt ceiling legislation. So far, Democrats' position regarding a "clean" raise has been ambiguous. Democrat leaders Schumer and Pelosi threatened in June they might not vote for the raise in debt ceiling if the tax cut for the very wealthy might result in huge increases the deficit. Yet, they later changed mind and noted that they would support a "clean" bill, free of conditions. There is no recent update on Democrats' view.

Will Fed Postpone Announcement of Balance Sheet Reduction?

2013

Bearing a resemblance to the situation in 2013, one may worry about Fed's move in light of possible government shutdown. Back in 2013, the FOMC, led by the then Chair Ben Bernanke, noted at the July meeting minutes that "if economic conditions improved broadly as expected, the Committee would moderate the pace of its securities purchases later this year. And if economic conditions continued to develop broadly as anticipated, the Committee would reduce the pace of purchases in measured steps and conclude the purchase program around the middle of 2014". This had spurred strong expectations that the announcement would be made in September. Yet, haunted by threats of not raising debt ceilings by Republicans at the time, Bernanke refrained from making related announcement at the meeting on September 17-18. As noted in the minutes, the Fed acknowledged that "a number of significant risks remained, including those related to the potential economic effects of the sizable increases in interest rates since the spring, ongoing fiscal drag, and the possible fallout from near-term fiscal debates". Thus, it decided to "await more evidence that progress will be sustained before adjusting the pace of its purchases". US dollar slumped with the DXY index sinking over -1% on the day of this dovish announcement.

The FOMC meeting was followed by a 16-day government shutdown from October 1. The shutdown delayed the releases of key economic data including the September employment report, CPI and PPI data, as well as GDP growth estimates. Undoubtedly, the accuracy of the delayed data was questionable as there was data collection in the first half of October was suspended due to the shutdown.

2017

The July minutes noted that "participants generally agreed that, in light of their current assessment of economic conditions and the outlook, it was appropriate to signal that implementation of the program likely would begin relatively soon, absent significant adverse developments in the economy or in financial markets". The market has almost fully priced in an announcement at the meeting on September 20, 9 days before the deadline of raising the debt ceiling so as to avoid additional payment delays and a default. We do not expect the Fed would postpone the announcement this time. The chance that a debt ceiling can be raised on time is much higher this time so that the likelihoods of a default and a government shutdown are lower. Moreover, economic developments are more upbeat and financial conditions more accommodative today than in 2013. On the economic developments, the unemployment rate this year has fallen about three percentage points from four years ago, while GDP growth is also less volatile. Therefore, we expect the Fed would ignore the noise of a potential shutdown and make formal announcement of balance sheet reduction in September.

• US stocks opened lower after President Trump injected fresh uncertainty into markets by threatening to shut down the government if Congress did not pay for his proposed border and to pull out of the North American Free Trade Agreement.
• Economic activity in the eurozone has picked up in August after a disappointing July, with a strong performance in the manufacturing sector (57.4 from 56.6 vs 55.4 expected) offsetting a slight decline in the services industry (54.9 from 55.4 vs 55.4 expected), according to August PMI's.
• US PMI's printed in the opposite direction of EMU ones. The manufacturing gauge unexpectedly declined from 53.3 to 52.5 (vs 53.5 expected) while the services PMI rose from 54.7 to 56.9 (vs 55.0 forecast).
• Mario Draghi didn't give any specific clues on the future of the ECB's asset-purchase program in his speech to Nobel laureates and young economists, saying instead that central banks need to be open-minded when preparing for new challenges. Focus turns to his Jackson Hole address on Friday.
• US oil inventories fell 3.6 million barrels last week, according to API data. EIA figures today are expected to confirm a similar drop. However, increasing gasoline and diesel supplies offset the withdrawal, balancing the effect on prices.

Rates

Core bonds go higher on Trump inspired risk-off

Core bonds move modestly higher despite strong EMU business confidence, as comments of president Trump on NAFTA and on a possible government shutdown spook markets. Riskier assets like equities, peripheral bonds and even the dollar lose ground. Core bonds, gold and the yen benefit. Trump comments caused some risk-off jitters during the Asian overnight session, slumbered during the European morning session, but re-appeared with a vengeance as the US session gets going.

President Trump threatened to end the NAFTA deal and would eventually prefer to close the government in case Congress doesn't foresee money for his pet project (" the Wall"). Trump often threatens in negotiations and all his comments shouldn't be taken for granted, but this time they send some shivers through the markets. Intrinsically, one would expect that US Treasuries be hit most, but investors consider them as a safe haven refuge. T-bills on the contrary reflect the fear for a failure to raise the debt ceiling on time. The spread between the 28 sept/T-bill and the Oct 5 T-bill rose today to 17 bps. End September, the ceiling should be reached.

The Bund opened a tad lower, but immediately gained some ground. However, stronger than expected EMU PMI business confidence pushed the Bund slightly lower again. European equities opened somewhat higher catching up with US equities which finished strongly yesterday. However, equity opening gains vanished soon and sideways trading kicked in. Similarly the Bund went nowhere till noon. The German Bund auction was only just covered, but didn't impact dealings. When US traders entered the fray, Trump's comments were prominently discussed. The US Treasuries went up in a move duplicated by German Bunds. The Bund future currently tests the August high at 164.64, which if broken opens the path to the June and April highs at 165.55/93.

At the time of writing, German yields drop 1.4 (2-yr) to 2 (10-yr) bps, while US Treasury yields decline between 1.2 (2-yr) and 3.1 (10-yr) bps. Peripheral spread widening continued today with the 10-yr yield spread up by 3 (Spain) to 5 bps (Italy/Portugal).

Currencies

Trump comments weigh on US dollar

A new wave of unconventional comments of US president Trump on NAFTA and on a government shutdown aborted yesterday's USD rebound. At the same time, the euro was supported by very strong EMU PMI's. EUR/USD returned to the 1.18 area. USD/JPY is drifting back to the 109 barrier.

Overnight, Asian equities opened strong after the WS rally. USD/JPY filled offers in the 109.83 area, but risk sentiment deteriorated after Donald Trump said he may end NAFTA at some point. He also threatened to shut down the US government if he wouldn't get the funding to build a wall along the Mexican border. Equities ceded part of the early gains. USD/JPY returned to the mid 109 area. EUR/USD was little affected by Trump's comments.

They nevertheless prevented European equities to profit from the late session WS up-leg. However, there was initially little additional negative impact on the dollar. The focus for (currency) trading turned to the EMU data. EMU PMI's (especially the German manufacturing PMI) were very strong. EUR/USD jumped to high 1.17 area and found a short-term equilibrium in the 1.1780 area. LT interest rate differentials narrowed marginally in favour of the euro. Risk sentiment remained fragile, preventing USD/JPY to profit from the slight post-PMI rise in core yields. EUR/JPY mirrored the EUR/USD uptick.

US equity futures continued to trade with a negative bias at the start in the US as the overnight Trump headlines returned to the forefront. The dollar continued to fight an uphill battle. EUR/USD (temporary?) regained the 1.18 barrier. USD/JPY dropped to the low 109 area. Yesterday's USD rebound obviously wasn't anything more than a technical move. Dollar sentiment remains fragile. The focus stays on the CB Jackson Hole speeches. However, we wouldn't be surprised if Draghi and Yellen stay muted on any changes in their respective policy approach.

EUR/GBP jumps north of 0.92 barrier

There were plenty of press articles on the role of the ECJ and on how the UK and the EMU will handle juridical disputes in the post-Brexit era. Some comments considered the British language that it will accept no 'DIRECT' jurisdiction of the court as a potential opening/moving back on earlier tough separation rhetoric. At least for now, this potential softer approach didn't help sterling much. EUR/GBP even jumped north of 0,92, admittedly in the first place due to the strong EMU PMI's. However, cable also dropped temporary below 1.28. Sterling clearly needs concrete signs of progress in the run-up to the next round of formal talks that will take place next week. Cable trades near 1.28. EUR/GBP has settled in the 0.9215 area.

The Japan 225 stock index consolidated for six weeks after it touched a two-year high of 20322 on June 20. Then, on August 8 the index followed a bearish path, crossing below the Ichimoku cloud and the 50-day exponential moving average (EMA).

According to the technical indicators, the picture in the short term is bearish. The RSI has continued trending below its neutral zone even after emerging from oversold area on August 11, while the MACD has been moving in a negative territory since August 8. The negative alignment between the Kijun-sen and the Tenkan-sen which is still intact since July 20 also gives an additional bearish evidence.

If the index extends its current downtrend, the 50% Fibonacci level at 19257 of the upleg from 18199 to 20322 (April – June) would provide an immediate support. Any violation of this point would likely push prices further down and shift focus to the point of 19005, which is also the 61.8% Fibonacci, while the 78.6% Fibonacci at 18650 could act as an additional barrier to downside movements.

On the other hand, a market action to the upside would first touch the 38.2% Fibonacci of 19510, which was tested recently, before it meets resistance at the 23.6% Fibonacci of 19818. The latter is considered a strong area as the 50-day EMA and the bottom of the Ichimoku cloud are also located in this zone. From here, the index would target June's two-year high of 20322 as a resistance.

Regarding the medium-term outlook, the index looks neutral as long as it ranges between 19261 and 20322.

EUR/GBP - 0.9216

Original strategy  :

Buy at 0.9070, Target: 0.9190, Stop: 0.9030

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.9115, Target: 0.9215, Stop: 0.9075

Position : -

Target :  -

Stop : -

 
As the single currency has surged again after brief pullback, adding credence to our bullish view that recent upmove is still in progress and may extend further gain to 0.9245-50, however, weakening of near term upward momentum should prevent sharp move beyond 0.9270-75 and price should falter below 0.9300-05, risk from there has increased for a retreat to take place later.

In view of this, would not chase this rise here and would be prudent to buy euro on subsequent pullback as 0.9110-15 would limit downside. Below 0.09090 would defer and suggest a temporary top is possibly formed, risk test of support at 0.9063, however, break there is needed to add credence to this view, bring retracement of recent upmove towards 0.9005-10. 

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.

USD/CAD - 1.2590

Trend:  Down

 
Original strategy       :

Sold at 1.2690, Target: 1.2490, Stop: 1.2610

Position: - Short at 1.2690

Target:  - 1.2490

Stop: - 1.2610

 
New strategy             :

Hold short entered at 1.2690, Target: 1.2490, Stop: 1.2610

Position: - Short at 1.2690

Target:  - 1.2490

Stop:- 1.2610

As the greenback has rebounded after falling to 1.2525 yesterday, suggesting minor consolidation above this level would be seen, however, as long as 1.2605-10 holds, bearishness remains for the fall from 1.2778 top to extend weakness to 1.2490-00 but a sustained breach below there is needed to signal the wave iv correction from 1.2414 (wave iii trough) has ended at 1.2778, bring further fall towards support at 1.2451 which is likely to hold on first testing. We are keeping our count that wave v as well as wave (C) ended at 1.3794 and impulsive wave (i ii, i ii) is now unfolding with minor wave iii possibly ended at 1.2414, hence wave iv correction is underway.

In view of this, we are holding on to our short position entered at 1.2690. Only above 1.2691 resistance would risk a stronger rebound to 1.2740-50, however, said resistance at 1.2778 should hold. Only break of said resistance at 1.2778 would abort and signal the rebound from 1.2414 is still in progress for retracement of recent decline to 1.2825-30 but still reckon upside would be limited to 1.2880-85 (50% Fibonacci retracement of wave iii) and price should falter well below 1.2990-95 (61.8% Fibonacci retracement), bring retreat later.

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.

Daily Pivots: (S1) 140.00; (P) 140.51; (R1) 140.98; More

GBP/JPY's fall continues today and reaches as low as 139.58 so far. Intraday bias remains on the downside for 138.65 support. Break there will extend the fall from 147.76 towards 135.58 key support level. At this point, price actions from 148.42 are seen as a sideway consolidation pattern. Hence, we'll expect strong support from 135.58 to contain downside and bring rebound. On the upside, above 141.02 minor resistance will turn intraday bias neutral first.

In the bigger picture, the sideway pattern from 148.42 is extending with another leg. We'd expect strong support from 135.58 and 50% retracement of 122.36 to 148.42 at 135.39 to contain downside. Medium term rise from 122.36 is still expected to resume later. And break of 38.2% retracement of 196.85 to 122.36 at 150.43 will carry long term bullish implications. However, firm break of 135.58/39 will dampen the bullish view and turn focus back to 122.36 low.

Daily Pivots: (S1) 1.1729; (P) 1.1776 (R1) 1.1809; More...

Intraday bias in EUR/USD remains neutral as the consolidation from 1.1908 might extend. In case of deeper fall, downside should be contained by 38.2% retracement of 1.1119 to 1.1908 at 1.1606 to bring up trend resumption. Break of 1.1846 minor resistance will argue that larger rise from 1.0339 is resuming for 1.2042 long term support turned resistance next.

In the bigger picture, an important bottom was formed at 1.0339 on bullish convergence condition in weekly MACD. Sustained trading above 55 month EMA (now at 1.1768) will pave the way to key fibonacci level at 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. While rise from 1.0339 is strong, there is no confirmation that it's developing into a long term up trend yet. Hence, we'll be cautious on strong resistance from 1.2516 to limit upside. But for now, medium term outlook will remain bullish as long as 1.1295 support holds, in case of pull back.

Daily Pivots: (S1) 1.2785; (P) 1.2847; (R1) 1.2883; More...

GBP/USD's decline from 1.3267 continues today and intraday bias remains on the downside for 1.2588 key near term support. As noted before, we're favoring the case that correction from 1.1946 is completed at 1.3267. Decisive break of 1.2588 will confirm our view and target a test on 1.1946 low. On the upside, break of 1.2952 resistance is needed to indicate short term bottoming. Otherwise, outlook will stay cautiously bearish in case of recovery.

In the bigger picture, overall, price actions from 1.1946 medium term low are seen as a corrective pattern. While further rise cannot be ruled out, larger outlook remains bearish as long as 1.3444 key resistance holds. Down trend from 1.7190 (2014 high) is expected to resume later after the correction completes. And break of 1.2588 will indicate that such down trend is resuming.

Daily Pivots: (S1) 0.9630; (P) 0.9659; (R1) 0.9711; More....

Intraday bias in USD/CHF remains neutral as it's bounded in range of 0.9582/9772. On the upside, decisive break of 0.9772 resistance will revive the bullish case of reversal. That is, whole decline from 1.0342 has completed at 0.9437 after defending 0.9443 support. USD/CHF should then target channel resistance (now at 0.9862) next. Meanwhile, the pair is bounded inside medium term falling channel and limited below 38.2% retracement of 1.0342 to 0.9437 at 0.9783 for the moment. Break of 0.9582 will turn bias back to the downside for 0.9437. This could also extend the fall from 1.0342 through 0.9437/43 key support level.

In the bigger picture, we're slightly favoring the case that USD/CHF has successfully defended 0.9443 key support level. And long term range trading in 0.9443/1.0342 is extending with another rise. At this point, there is no sign of an up trend yet. Hence, while further rise is expected in USD/CHF, we'll start to be cautious on loss of momentum above 61.8% retracement of 1.0342 to 0.9437 at 0.9996. However, firm break of 0.9443 will carry larger bearish implication and would target next key support at 0.9072.