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The Bannon Bounce?

The markets pivot to Jackson Hole this week could obscure the underlying political Trump risk that currency markets have been feeding off. And while debate unfolds as to what Bannon's removal means for the Trump administration economic agenda, it's difficult to believe the answer to all that ails the West Wing, was a Steve Bannon departure.

Traders were looking to square positions ahead of Jackson Hole and even the subtle notion that Bannon's departure would skewer the presidents contentious ” America First” policies was signal enough ahead of the potentially Topsy Turvy Thursday when Jackson Hole summit commences. Overall one senses the FX markets are adopting a neutral to flatting bias in early APAC trade

US Dollar

Whitehouse politics will remain in play, but given some of the outsized currency moves of late, it's not too surprising dealers are paring short dollar risk as the shift to the Jackson Hole summit will put the focus back on Centeral Bank watch. And of course, dealers will start to factor in the best case calculus for the USD dollar. As unlikely as it may be, if the Feds provide a definitive balance sheet reduction date, and affirmation of a December rate hike we could have an abrupt shift in USD sentiment.

Japanese Yen

Given the North Korea Geo risk and the Whitehouse expanding quagmire, it's difficult to view Friday's move above 109.25 USDJPY as little more than a dead cat bounce. But with the shift to Monetary Policy on tap as we approach Jackson Hole, market moves are more about risk paring than risk taking

Euro

There's been a lot of anticipation on whether ECB President Mario Draghi used the Jackson Hole platform to signal a change in ECB balance sheet policy. However, the unknown ECB sources threw cold water on the debate last week, and while the EURO has remained bid on dips, it's lacked any serious upward momentum since. And with the ECB minutes showing officials expressing concern over EUR strength, it's hard to hard to see this view changing ahead of Thursday

Australian Dollar

A highly debatable rebound in risk appetite saw the Aussie trading above the .7940 level into the weekend. From my seat, it looks more about weekend positions squaring rather than anything else. With the lack of fundamental drivers for the moment, best to pick your spots wisely and trade nimbly.

EUR/USD's consolidation from 1.1908 continued last week and outlook is unchanged. Initial bias stays neutral this week as such consolidation might extend. But downside should be contained by 38.2% retracement of 1.1119 to 1.1908 at 1.1606 to bring up trend resumption. Break f 1.1846 minor resistance will argue 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.

In the long term picture, 1.0339 is now seen as an important bottom as the down trend from 1.6039 (2008 high) could have completed. It's still early to decide whether price action form 1.0339 is developing into a corrective or impulsive move. But in either case, further rally would be seen to 38.2% retracement of 1.6039 to 1.0339 at 1.2516

USD/JPY tried to rebound last week but it was limited at 110.94 and reversed. The cross was also limited below 55 day and 55 week EMA. Breach of 108.72 suggests that fall from 114.49 is resuming. Initial bias remains on the downside this week for 108.12 low first. Whole corrective decline from 118.65 is possibly resuming and break of 108.12 will target 61.8% retracement of 98.97 to 118.65 at 106.48. On the upside, break of 110.94 is needed to indicate short term bottoming. Otherwise, outlook remains bearish in case of recovery.

In the bigger picture, the corrective structure of the fall from 118.65 suggests that rise from 98.97 is not completed yet. Break of 118.65 will target a test on 125.85 high. At this point, it's uncertain whether rise from 98.97 is resuming the long term up trend from 75.56, or it's a leg in the consolidation from 125.85. Hence, we'll be cautious on topping as it approaches 125.85. If fall from 118.65 extends lower, downside should be contained by 61.8% retracement of 98.97 to 118.65 at 106.48 and bring rebound.

In the long term picture, the rise from 75.56 long term bottom to 125.85 top is viewed as an impulsive move. Price actions from 125.85 are seen as a corrective move which could still extend. But, up trend from 75.56 is expected to resume at a later stage for above 135.20/147.68 resistance zone.

GBP/USD's decline from 1.3267 extended to as low as 1.2830 last week. Initial bias stays on the downside this week for 1.2588 key near term support. 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, above 1.2915 minor resistance will turn intraday bias neutral first. But near term outlook will remains cautiously bearish as long as 1.3030 resistance holds.

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.

In the longer term picture, no change in the view that down trend from 2.1161 (2007 high) is still in progress. On resumption, such decline would extend deeper to 100% projection of 2.1161 to 1.3503 from 1.7190 at 0.9532. However, firm break of 1.3444 should confirm reversal and turn outlook bullish.

USD/CHF failed to take out 0.9772 resistance last week and reversed. But the pair stays inside range of 0.9582/9772. Initial bias remains neutral this week first. 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.

AUD/USD's recovery last week argues that pull back from 0.8065 has completed at 0.7807 already. Initial bias is mildly on the upside this week for retesting 0.8065 first. Firm break there will resume the medium term rise and target 100% projection of 0.6826 to 0.7833 from 0.7328 at 0.8335. In case of another fall, we'd continue to expect strong support from 0.7785 cluster support (38.2% retracement of 0.7328 to 0.8065 at 0.7783) to contain downside and bring rebound.

In the bigger picture, rise from 0.6826 medium term bottom is still in progress. At this point, there is no confirmation of trend reversal yet and we'll continue to treat such rebound as a corrective pattern. But in any case, break of 55 month EMA (now at 0.8097) will target 38.2% retracement of 1.1079 to 0.6826 at 0.8451. Break of 0.7328 support is needed to confirm completion of the rebound. Otherwise, further rise is now in favor.

In the longer term picture, 0.6826 is seen as a long term bottom. Rise from there could either reverse the down trend from 1.1079, or just develop into a corrective pattern. At this point, we're favoring the latter. And, as long as 38.2% retracement of 1.1079 to 0.6826 at 0.8451 holds, we'd anticipate another decline through 0.6826 at a later stage.

USD/CAD's corrective recovery from 1.2412 could have completed at 1.2777 already. Initial bias remains mildly on the downside for retesting 1.2412 first. Break there will resume the larger decline and target next long term fibonacci level at 1.2048. On the upside, above 1.2690 will extend the correction fro 1.2412 with another rise. But we'd expect upside to be limited by 38.2% retracement of 1.3793 to 1.2412 at 1.2940 to bring fall resumption eventually.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. Such corrective fall is still expected to extend to 50% retracement of 0.9406 to 1.4869 at 1.2048. At this point, we'd look for strong support from there to contain downside and bring rebound. Nonetheless, on the upside, sustained break of 1.2968, 38.2% retracement of 1.3793 to 1.2412 at 1.2940 will be the first sign of completion of the correction and will turn focus back to 1.3793 key resistance.

In the longer term picture, rise from 0.9056 (2007 low) is viewed as a long term up trend. It's taking a breath after hitting 1.4689. But such rise is expected to resume later to test 1.6196 down the road. But firm break of 50% retracement of 0.9406 to 1.4869 at 1.2048 will raise doubt over this view. In that case, the long term trend could have reversed.

EUR/AUD's sharp decline last week argues that rebound from 1.4421 is already completed at 1.5019. And, the corrective pattern from 1.5226 is still unfolding. Initial bias is neutral this week first with a temporary low in place at 1.4732. Below 1.4732 will bring another fall. But we'd expect 1.4421 cluster support (50% retracement of 1.3624 to 1.5226 at 1.4427) to hold and bring rebound. On the upside, above 1.5019 will target a test on 1.5226 high instead.

In the bigger picture, we're holding on to the view that corrective decline from 1.6587 medium term has completed at 1.3624. Rise from 1.3624 is expected to extend to retest 1.6587. The corrective structure of the fall from 1.5226 is affirming this view. Above 1.5226 will target a test on 1.6587 key resistance. However, break of 1.4421 will dampen our view and would drag EUR/AUD lower to retest key support zone around 1.3624.

In the longer term picture, the rise from 1.1602 long term bottom isn't over yet. We'll keep monitoring the development but there is prospect of extending the rise to 61.8% retracement of 2.1127 to 1.1602 at 1.7488 and above. However, sustained trading below 1.3671 should confirm trend reversal and target 1.1602 long term bottom again.

While upside momentum was a bit unconvincing, the EUR/GBP did extend recent rally last week. Initial bias stays on the upside this week as rise 0.8312 would target a test on 0.9304 high. At this point, there is no clear sign of up trend resumption yet. Hence, we'll be cautious on strong resistance from 0.9304 to limit upside and bring another fall. On the downside, considering bearish divergence condition in 4 hour MACD, break of 0.9007 support will indicate short term topping. Intraday bias will then be turned back to the downside for 0.8742/8948 support zone.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. It's uncertain whether it is finished yet. But in case of another fall, we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside and bring rebound. Whole up trend from 0.6935 is expected to resume after consolidation from 0.9304 completes.

In the long term picture, firstly, price action from 0.9799 (2008 high) is seen as a long term corrective pattern and should have completed at 0.6935 (2015 low). Secondly, rise from 0.6935 is likely resuming up trend from 0.5680 (2000 low). Thirdly, this is supported by the impulsive structure of the rise from 0.6935 to 0.9304. Hence, after the correction from 0.9304 completes, we'd expect another medium term up trend to target 0.9799 high and above.

EUR/CHF's consolidation from 1.1537 extended with another fall last week. But so far it's still holding on to 38.2% retracement of 1.0830 to 1.1537 at 1.1267. Initial bias remains neutral this week first. On the upside, break of 1.1477 resistance will argue that the consolidation from 1.1537 has completed and larger rise is resuming. However, firm break of 1.1267 will extend the correction to 61.8% retracement at 1.1100 before completion.

In the bigger picture, firm break of 1.1198 key resistance confirms resumption of the long term rise from SNB spike low back in 2015. In this case, EUR/CHF would eventually head back to prior SNB imposed floor at 1.2000. For now, this will be the favored case as long as 1.1087 resistance turned support holds.