Sample Category Title

The pair was slightly higher on Monday and recovered a small part of strong losses from Thu/Fri, when the greenback fell over 1.8% against Canadian counterpart in two days. Bearish extension on Friday broke below previous base at 1.2413 and posted fresh 26-month low at 1.2339, last seen at the end of June 2015. Overall picture remains firmly bearish as the pair completed short-term correction from 1.2413 (25 July low) to 1.2778 (15 Aug high), signaling continuation of larger downtrend from 1.3793 (05 June peak). Today's action is likely to hold within narrower range due to US Labor Day holiday, but the price action may remain choppy and directionless until Wednesday, awaiting for the outcome of Bank of Canada's policy meeting, which is the key event for Loonie this week. Markets see 50/50 chance for another 0.25% hike after the BoC increased interest rates in July by 25 basis points from 0.50% to 0.75%. Possible scenarios see CAD jumping if BoC hikes and expect Loonie to drop if central bank keeps rates unchanged. Break below Friday's fresh low at 1.2339 could trigger extension towards 1.2124 (18 June 2015 trough), possibly to 1.2036 (50% retracement of larger 0.9384/1.4688 2011/2016 uptrend) on stronger bearish acceleration. Conversely, fresh acceleration higher may revisit 1.2501 barrier (daily Tenkan-sen) and may extend towards 1.2558 (daily Kijun-sen) on break.

Res: 1.2425; 1.2501; 1.2539; 1.2558
Sup: 1.2374; 1.2339; 1.2274; 1.2188

The CAC index is slightly lower in Monday trade. Currently, the index is at 5,113.80, down 0.18% on the day. On the release front, it's a quiet start to the trading week. Eurozone Sentix Investor Confidence climbed to 28.2, above the forecast of 27.4 points. Eurozone PPI continues to improve, coming in at 0.0%, short of the estimate of 0.1%. On Tuesday, we'll get a look at French Final Services, Eurozone Revised GDP and Eurozone Retail Sales.

The eurozone economy continues to hum in the second half of 2017, as economic indicators have generally been positive. Investors and analysts continue to give the economy a thumbs-up, as the Sentix Investor Confidence improved to 28.2, pointing to strong optimism. Germany, the largest economy in the bloc, continues to lead the eurozone with robust growth, but France and others have also improved in 2017. Last week, French numbers impressed, as CPI and Consumer Spending rebounded with gains, following declines in the previous release. As well, Preliminary GDP improved to 0.5% in the second quarter.

A stronger eurozone economy has raised questions as to what monetary moves the ECB has planned – will it finally taper its ultra-accommodative monetary policy? The bank's asset purchases program is scheduled to end in December, and analysts expect the ECB to withdraw stimulus in early 2018. Still, the ECB has not provided much guidance as to its plans. ECB President Mario Draghi was mum on monetary policy at last week's meeting of central bankers at Jackson Hole, following the lead of Federal Reserve Chair Janet Yellen. However, the ECB head will not get another free pass this week, as the ECB holds its next policy meeting on Thursday. Any discussion about tapering the ECB's asset purchase program could have a strong effect on European stock markets.

EUR/GBP - 0.9188

Original strategy  :

Buy at 0.9115, Target: 0.9235, Stop: 0.9175

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 0.9265, Target: 0.9115, Stop: 0.9305

Position : -

Target :  -

Stop : -

 
Although the single currency has rebounded after finding support at 0.9150 and consolidation above this level is seen with mild upside bias for recovery to 0.9220-25, then 0.9245-50, if our view that a temporary top formed at 0.9307 is correct, upside would be limited to 0.9270 and bring another retreat later, below 0.9148-50 (38.2% Fibonacci retracement of 0.8892-0.9307 and said support would bring retracement of recent rise to 0.9110-15 and possibly towards 0.9095-00 (50% Fibonacci retracement). 

In view of this, we are inclined to turn short on recovery as 0.9265-70 should limit upside. Only above said resistance at 0.9307 would revive bullishness and extend recent upmove to 0.9325-30 and possibly towards 0.9350 but loss of upward momentum should limit upside and price should falter below 0.9390-00.

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 - 1.2419

 
New strategy             :

Sell at 1.2500, Target: 1.2340, Stop: 1.2560

Position: -

Target:  -

Stop:-

As the greenback has recovered after falling to 1.2340 on Friday, suggesting minor consolidation would be seen and recovery to 1.2450-55 is likely, however, as last week’s breach of previous support at 1.2414 confirms recent decline has resumed in wave v, reckon upside would be limited to 1.2500 and bring another decline to 1.2335-40, then 1.2310-15, having said that, oversold condition should limit downside and reckon current wave v would be limited to 1.2250-60 and price should stay above 1.2200-10. 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 ended at 1.2414, followed by wave iv correction possibly ended at 1.2778, wave v should extend towards 1.2200.

In view o this, would not chase this fall here and would be prudent to sell on recovery as 1.2500-10 should limit upside. Above 1.2550 would suggest a temporary low is formed instead, bring a stronger rebound to 1.2575-80 but indicated resistance at 1.2663 should remain intact. 

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) 0.9575; (P) 0.9614; (R1) 0.9682; More....

Intraday bias in USD/CHF remains neutral for the moment. Considering it's close to to 0.9443 key support, consolidation from 0.9427 might extend further. But still, break of 0.9772 resistance is needed to confirm near term reversal. Otherwise, outlook stays bearish for another decline. Below 0.9537 minor support will turn bias back to the downside for retesting 0.9427 first. Break of 0.9427 will resume whole decline from 1.3042.

In the bigger picture, current development suggests that 0.9443 key support (2016 low) could be taken out firmly as down trend form 1.0342 extends. There are various interpretation of the price actions. But in any case, medium term outlook will stay bearish as long as 0.9772 resistance holds. Current down trend could extend to 38.2% retracement of 0.7065 (2011 low) to 1.0342 (2016 high) at 0.9090. However, break of 0.9772 will indicate that USD/CHF has successfully defended 0.9443 again and turn outlook bullish for 1.0099 resistance.

The news is huge but the reactions in the markets are relatively mild. Quick escalation in North Korea tension over the weekend triggered selloff in global equity markets. Nikkei suffered much by dropping -0.93% to 19508.25, closing close to intraday low at 19479.40. While European stocks follow, FTSE is back at 7410 after dipping to 7404, down -0.37% at the time of writing. DAX dropped to 10050 but it's back at 12118, down only -0.20%. CAC, similarly, dips to 5088.28 but is back at 5109, down -0.28%. In the currency markets, no follow through buying is seen in Japanese Yen and Swiss Franc after initial gap up. The more decisive movement is found in gold, which jumps to as high as 1345.5 and is trading above 1340, up fro than 0.75%.

North Korea conducted a sixth nuclear test on Sunday. It's believed that this one, an advanced hydrogen bomb or a long-range missile, is of a significantly larger scale and more powerful. The detonation of the bomb triggered an initial magnitude 6.3 earthquake in the northern part of North Korea. Nonetheless, both China and Japan said that no radiation is detected after North Korea's nuclear test. Japan's government spokesman Yoshihide Suga said today there was "nothing special detected from monitoring posts across the country". China's Environment Ministry said that "results of monitoring make clear that this North Korean nuclear test as of now has produced no effect on our nation's environment or the public."

More on North Korea: Acceleration Of Nuclear Test Reinforces Kim's Brinkmanship Diplomacy

Trump criticized for lashing out his own allies

US President Donald Trump's main message was condemnation of North Korea's "hostile and dangerous" and warned of "massive military response". But Trump's is being criticized for lashing out at allies of US in South Korea and China, which could eventually alienate the US. He said 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!" Trump also hinted at withdrawing from the US-Korea Free Agreement agreements earlier. Its also reported that Trump had two phone calls with Japanese Prime Minister Shinzo Abe, but none with South Korea President Moon Jae-in. Moon was left with his national security director to talk with US national security adviser H.R. McMaster on phone for 30 minutes.

He said that Pyongyang "has become a great threat and embarrassment to China, which is trying to help but with little success." Trump also warned that the US is " is considering, in addition to other options, stopping all trade with any country doing business with North Korea." That clearly refers to China, which continue to be a key economic partner of North Korea despite supporting the economic sanctions. China hit back with Foreign Ministry spokesman Gen Shuang saying that "what is definitely unacceptable to us is that on the one hand we work so hard to peacefully resolve this issue and on the other hand our interests are subject to sanctions and jeopardized" and "this is unfair."

Other options on North Korea tensions

Swiss President Doris Leuthard offers to mediate the standoff between North Korea and US, as well as other countries. Swiss is well know to be a "neutral" and has represented US interests in Iran and Cuba. And, Kim Jong Un once studied in Switzerland too. Leuthard said that "we are ready to also offer our role for good services as a mediator, and in the coming weeks it will all depend on how the U.S. and China can have an influence in this crisis." She added that "perhaps these actions of North Korea are also an invitation for dialogue: We'll see."

The United Nations Security Council will hold its second emergency meeting in a week regarding North Korea. The Council is expected to bring issue fresh condemnation on North Korea's provocative acts and discuss other potential steps. Some also called for speeding up of implementation of existing sanctions.

Eurozone investor confidence improved

Eurozone Sentix investor confidence rose to 28.2 in September, up from 27.7 and beat expectation of 27.0. The current conditions sub-index edged down from 40.0 to 39.8. But expectations sub-index rose from 16.0 to 17.3. The Germany tracking index also improved from 33.2 to 34.0. Sentix noted that "low interest rates, increased state spending on refugees and high government subsidies are driving the domestic economy". And, "in addition, Germany is still benefitting from a relatively weak euro." Nonetheless, Sentix also warned that "the data from Germany and the United States last month was disappointing. In both regions, the trend is reversing moderately." Also from Eurozone, PPI rose 0.0% mom, 2.0% yoy in July versus expectation of 0.1% mom, 2.1% yoy.

UK construction PMI dropped to year low

UK PMI construction dropped to 51.1 in August, down from 51.9 and beat expectation of 52.0. That's also the lowest level in a year. Markit noted that "civil engineering activity was close to stagnation and commercial work dropped at the fastest pace since July 2016. Reports from survey respondents widely suggested that concerns about the UK economic outlook had weighed on the commercial development sector, with clients opting to delay spending decisions and, in some cases, scale back planned projects."

Former BoJ Kiuichi: YCC is fragile and unsustainable

Former BoJ board member Takahide Kiuchi said today that the central bank "has already begun normalizing policy since it shifted to yield curve control (YCC) last year, and that's the direction the bank seems to heading." He criticized that "YCC is a very fragile framework that won't be sustainable once the economy is hit with an external shock." And, to rectify, "reviewing YCC and targeting yields for bonds with a shorter duration is one option. It's quite possible this could happen." Meanwhile, Kiuchi also warned that "there's not much left monetary policy can do to prop up the economy, and the cost of ultra-easy policy is becoming huge." Kiuchi had been a regular dissenter in BoJ before he left in July.

Elsewhere, Japan monetary base rose 16.3% yoy in August. Australia TD securities inflation rose 0.1% mom in August. Australia company operate profits dropped -4.5% qoq in Q2.

USD/CHF Daily Outlook

Daily Pivots: (S1) 0.9575; (P) 0.9614; (R1) 0.9682; More....

Intraday bias in USD/CHF remains neutral for the moment. Considering it's close to to 0.9443 key support, consolidation from 0.9427 might extend further. But still, break of 0.9772 resistance is needed to confirm near term reversal. Otherwise, outlook stays bearish for another decline. Below 0.9537 minor support will turn bias back to the downside for retesting 0.9427 first. Break of 0.9427 will resume whole decline from 1.3042.

In the bigger picture, current development suggests that 0.9443 key support (2016 low) could be taken out firmly as down trend form 1.0342 extends. There are various interpretation of the price actions. But in any case, medium term outlook will stay bearish as long as 0.9772 resistance holds. Current down trend could extend to 38.2% retracement of 0.7065 (2011 low) to 1.0342 (2016 high) at 0.9090. However, break of 0.9772 will indicate that USD/CHF has successfully defended 0.9443 again and turn outlook bullish for 1.0099 resistance.

Economic Indicators Update

USD/CHF - 0.9578

Original strategy :

Buy at 0.9540, Target: 0.9640, Stop: 0.9505

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.9540, Target: 0.9640, Stop: 0.9505

Position : -

Target :  -

Stop : -

The greenback opened lower today and further consolidation below last week’s high of 0.9680 would be seen, hence downside risk is for another fall towards 0.9539-47 support area, however, if our view that low has been formed at 0.9428 last week is correct, downside would be limited and bring another rebound later. Above 0.9653-55 resistance would bring another test of 0.9680 but break there is needed to add credence to this view and extend gain to resistance at 0.9698-99 which needs to be penetrated to retain bullishness for headway to 0.9730-40. 

In view of this, would not chase this rise here and would be prudent to buy dollar on subsequent retreat. Below 0.9515-20 would risk weakness to 0.9490-00 but still reckon downside would be limited to 0.9450-60 and said support at 0.9428 should remain intact, bring another rebound later.

GBP/USD - 1.2955

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Although Friday’s anticipated rally has justified our bullishness, lack of follow through buying on break of previous resistance at 1.2979 suggests upside would be limited to 1.3000 and price should falter below another previous resistance at 1.3032, risk from there is seen for a retreat to take place due to loss of near term upward momentum.

In view of this, would not chase this rise here and would be prudent to stand aside for now. Below 1.2930 would risk test of support at 1.2905 but only break there would signal top has been formed at 1.2996 instead, bring subsequent fall to 1.2875-80 and later towards said support at 1.2852.

EUR/USD - 1.1904

Original strategy  :

Sell at 1.1955, Target: 1.1855, Stop: 1.1990

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.1955, Target: 1.1855, Stop: 1.1990

Position : -

Target :  -

Stop : -

Although the single currency staged a brief bounce to 1.1980 on Friday, the subsequent anticipated retreat suggests the rebound from 1.1823 has ended there and consolidation with downside bias is seen for another fall to this level, break there would add credence to our view that top has been formed at 1.2070 earlier and extend the fall from there to 1.1815-18 (61.8% Fibonacci retracement of 1.1662-1.2070), then 1.1790-00 but downside should be limited and previous support at 1.1773 should remain intact. 

In view of this, we are looking to sell euro again on recovery as 1.1950-55 should limit upside. Only break of said resistance at 1.1980 would abort and signal the fall from 1.2070 has ended at 1.1823 yesterday, bring further gain to 1.2000 and possibly towards 1.2025-30.

USD/JPY - 109.58

New strategy  :

Stand aside

Position :  -

Target :  -

Stop : -

The greenback opened lower today and has remained under pressure, suggesting top has possibly been formed at 110.67 last week and downside risk remains for weakness to 109.15-20 (61.8% Fibonacci retracement of 108.27-110.67), however, break there is needed to add credence to this view, bring further fall to 108.95-00, however, reckon 108.55-60 would remain intact.

On the upside, expect recovery to be limited to 109.80 and 110.00-05 should hold, bring another retreat. Only a firm break above resistance at 110.49 would revive bullishness and signal the pullback from this week’s high of 110.67 has ended, bring retest of this level, break there would confirm the rise from 108.27 low has resumed and extend gain towards previous chart resistance at 110.95 later.