Sample Category Title

Hedge Funds have increased short positions on the dollar
FOMC minutes would be vital

Fundamental Analysis

The CFTC data is showing that the short bets are at a record level since 2013. This means there could be more weakness ahead for the dollar index. The weakness in the dollar index is mainly due to the weak economic data and the speculators are betting that the Fed is not going to be hawkish. In the light of this, the upcoming FOMC minutes will have vital importance.

Technical Analysis

Looking at it from a technical perspective, the price did break the 93.77 mark but failed to close above that mark. The most recent candle pattern, Bearish Harami, is indicating that the odds are skewed in favour of downward move. The support that we are looking at is at the 91.51 mark (which is 15 Jan2015 low).

AUD/USD – 0.7874

Recent wave: Wave 5 ended at 1.1081 and major correction has commenced for fall to 0.7000 and then towards 0.6500-10

Trend: Near term up

Original strategy :

Sold at 0.8030, met target at 0.7880

Position: - Short at 0.8030
Target:  - 0.7880
Stop: -

New strategy :

Sell at 0.7940, Target: 0.7790, Stop: 0.8000

Position: -
Target:  -
Stop:-

Although aussie rebounded after falling to 0.7839 and consolidation above this level is in store, if our view that top has been formed at 0.8066 is correct, upside should be limited to 0.7940-50 and bring another decline, below said support at 0.7839 would extend the erratic fall from 0.8066 top (wave iii peak) for retracement of early upmove in wave iv to 0.7800, however, near term oversold condition should prevent sharp fall below 0.7786 support and price should stay above wave i top at 0.7712, bring rebound later.

In view of this, would not chase this fall here and would be prudent to sell aussie again on subsequent rebound as 0.7940-50 should limit upside. Above indicated resistance at 0.7980 would abort and suggest low is formed instead, bring a stronger rebound to 0.8000, then towards 0.8043 resistance, above there would signal the pullback from 0.8066 top has ended instead, bring retest of this level first. 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.

USD gives up gains amid soft CPI print

The US dollar came under renewed selling pressure on Friday amid a soft CPI report. Headline CPI printed at 1.7% y/y, while the market was expecting a reading of 1.8%. The core gauge, which excludes the most volatile components, held steady at 1.7%, matching expectations. The report is definitely not a game changer as weakening inflation pressures are no secret. However, this is another warning bell that is calling the Fed to take it easy with tightening.

The minutes of the July's FOMC meeting are due for release this Wednesday and they'll likely show that anemic inflation pressure has kept Fed members on their toes. We do not expect the monetary institution to lift borrowing rates in September, rather wait for December. However, Yellen will certainly give further details because of the balance sheet run-off. This could be as good a time as any to set a hard date for the kick-off.

EUR/USD bounced as high as 1.1847 on Friday afternoon and has stabilized at around 1.1820 since then. July's retail sales are due for release today. Headline gauge is expected to have risen 0.4% m/m compared to a contraction of 0.2% in the previous month, while sales excluding auto and gas should increase 0.4% m/m, compared to a decrease of 0.1% in June. A solid print of those indicators could ignite a dollar recovery as it would bode well for the US consumption and to some extend inflation.

Japan GDP growth beats expectations

Japan's growth came in much higher than forecasted at 1% q/q versus 0.6% for the second quarter. Looking back, this release is the best data in the last two and a half years. It also represents the sixth consecutive quarter of positive GDP growth.

Consumer spending has largely improved and helped spur on the good data. Indeed, spending rose 0.9% from Q1 and beat the estimate of 0.5% for the quarter. Consumer spending has traditionally been the weakest point of the Japanese economy. This is maybe changing, but a string of data will be needed to confirm this trend.

Recent fundamentals are good news for the Bank of Japan, which is still the only major central bank not able to hint about further tightening. For the time being, good numbers must at some point translate into inflation. Nationwide inflation stands at 0.4% y/y – way below the inflation target of 2% – and this despite the country's Abenomics policies and massive quantitative easing. The BoJ monetary policy still cannot be considered as a success. The only true gains have been in stock market, where the Nikkei 225 increased by 16% over the last 12 months.

Currency-wise, the yen is weakening against the dollar and remains under pressure for further appreciation. Geopolitical tensions and market uncertainties may trigger a risk-off move towards yen again. This is the curse of being a safe haven.

The dollar rallied against yen on Monday as geopolitical tensions eased, recovering last week's heavy losses.

Larger bears showed strong indecision ant key 108.80 support (low of 14 June which was dented on Friday's spike to 108.72 low) after long-legged Doji candle was left on Friday.

Fresh rally is forming reversal pattern on daily chart which requires sustained break above psychological 110.00 barrier (also Fibo 38.2% of 112.19/108.72 bear-phase) for confirmation.

Bullish scenario of lift above 110.00 pivot would open way for stronger recovery towards barriers at 110.45 and 110.85, with key resistance at 111.00 expected to come in focus.

Alternatively, fresh downside risk could be expected while 110.00 barrier caps.

US retail sales data on Tuesday (0.4% f/c for July vs -0.2% in June) are in focus and expected to generate fresh signals.

Res: 109.88, 110.00, 110.16, 110.45
Sup: 109.34, 109.03, 108.80, 108.72

The greenback took another hit on Friday, after the US CPI data for July disappointed market expectations. Even though the core CPI rate remained unchanged as anticipated, the headline rate rose by less than what was expected, likely leading investors to add to their short-USD positions. This lackluster set of data was soon followed by some cautious comments from Dallas Fed President Robert Kaplan, who is a voting FOMC member this year. He said that he would like to see evidence of progress towards the inflation target before raising rates again, and that he is “willing to be patient” for now. Indeed, the probability for another hike this year fell to below 40% in the aftermath of these developments from roughly 50% previously, according to the Fed funds futures.

Even though the outlook for the dollar remains negative, and we are not calling for a reversal yet, we should point out that the short-USD trade is looking increasingly crowded to us. Market expectations for another near-term Fed hike are already very subdued, and economic data have frequently surprised to the downside lately. Meanwhile, the continued uncertainty on the US political front probably intensified the negative sentiment surrounding the greenback. Bearing all these in mind, we believe that further downbeat US developments could have a diminishing negative impact on the dollar, while any positive US news could result in strong upside reactions, especially considering the thin-liquidity trading environment in August.

The next major market mover for the dollar will probably be the minutes of the July FOMC meeting, due out on Wednesday. We will look for specific details as to when the Fed is set to announce a normalization of its enormous balance sheet, and on whether the “cautious” camp among the FOMC has grown larger in the face of soft inflation.

EUR/USD rebounded following the US CPI data on Friday from near the crossroads of the 1.1750 (S1) hurdle and the short-term uptrend line taken from the low of the 23rd of June. The rate hit resistance a few pips above the 1.1830 (R1) level and subsequently, it retreated somewhat. Given that the rate continues to trade above the aforementioned line, we consider the short-term picture to still be positive. As such, we would expect the bulls to retake control soon and perhaps aim for another test near the 1.1830 (R1) zone. A clear break above that barrier could pave the way for further upside extensions towards our next resistance at 1.1900 (R2).

How big of a concern is the strong AUD for the RBA?

During the Asian day Tuesday, the RBA will release the minutes of its August policy gathering. At that meeting, the Bank acknowledged the latest progress in employment growth, but maintained its concerns regarding subdued wage growth. Perhaps more importantly, the officials expressed discomfort with the latest AUD appreciation. Even though the currency reacted little at the time, Governor Lowe recently raised the stakes by reminding investors that direct FX intervention is always on the table if needed. As such, these minutes may be closely watched for more details regarding how big of a concern the strong AUD is for policymakers. Clear signals that the Bank wants a lower Aussie or any mention to intervention, could weigh on the currency. Having said that, we think that AUD's short-term direction may be primarily decided by the wage data for Q2, due out on Wednesday.

AUD/USD traded higher on Friday after it hit support at 0.7840 (S2), and during the early European morning Monday, it is trading marginally above the 0.7900 (S1) level. Even though the price structure on the 4-hour chart suggests a short-term downtrend, considering the rate's proximity to the key barrier of 0.7800 (S3), we prefer to stay sidelined for now. That hurdle was the upper bound of the sideways range that contained the price action from the 2nd of March 2016 until the 14th of July and thus, it may be proved a rebound zone now that the rate is trading above it. As such, even in case the pair dips on the RBA minutes tonight, we would remain mindful of a potential rebound from near 0.7800 (S3). We prefer to wait for a clear close below that level before we begin to examine the case for larger declines.

Today's highlights:

The calendar is very light today. The only noteworthy indicator we get is Eurozone's industrial production for June.

As for the rest of the week:

On Tuesday, besides the RBA minutes, we also get CPI data for July from both the UK and Sweden. In the US, retail sales for the same month are due out. On Wednesday, the main event will probably be the July FOMC minutes. We also get Australia's wage price index for Q2 as we already mentioned, as well as the UK employment data for June. On Thursday, focus will be on Australia's jobs data and UK retail sales, both for July. Finally on Friday, Canada's inflation data for July will take center stage.

EUR/USD

Support: 1.1750 (S1), 1.1715 (S2), 1.1655 (S3)

Resistance: 1.1830 (R1), 1.1900 (R2), 1.1980 (R3)

AUD/USD

Support: 0.7900 (S1), 0.7840 (S2), 0.7800 (S3)

Resistance: 0.7950 (R1), 0.8000 (R2), 0.8060 (R3)

Key Highlights

• The US Dollar after correcting towards the 1.1680 support against the US Dollar found support.
• The EUR/USD pair recovered recently and broke a bearish trend line at 1.1800 on the 4-hours chart.
• The pair bounced from the 100 SMA (H4) and now placed comfortably above 1.1750.
• China's Retail Sales for Jul 2017 (YoY) reported today posted an increase of 10.4%, less than the forecast of 10.8%.

EURUSD Technical Analysis

The Euro started a downtrend from 1.1910 against the US Dollar. The EUR/USD pair traded as low as 1.1688 and currently attempting to move back in the bullish zone.

Looking at the 4-hours chart of EUR/USD, there is a crucial support near 1.1700-1.1680. It acted as a solid buy zone, and as a result, the pair bounced and recovered above 1.1750. Furthermore, the pair was rejected from the 100 simple moving average (H4) (1.1710).

The pair was able to move above a bearish trend line at 1.1800 on the 4-hours chart. Later, buyers took EUR/USD above the 50% Fib retracement level of the last decline from the 1.1910 high to 1.1688 low.

It is a strong bullish sign and could lift the market sentiment for the Euro, and EUR/USD might continue to move higher towards 1.1850 or 1.1880.

The H4 RSI is now above 50, currently positioned at 62 and moving higher, which is a positive sign.

China's Retail Sales

Recently in China, the Retail Sales report for July 2017 was released by the National Bureau of Statistics of China. The market was aligned for an increase of 10.8% in sales compared with the same month a year ago.

However, the actual result was a bit on the lower side, as there was an increase of 10.4% in sales. It was also less compared with the last 11%.

Furthermore, China's industrial output for July 2017 posted a growth of 6.4 percent on-year, down from the last +4.6%. And, the Fixed-asset investment was up by 8.3% (seven months figure) in 2017, which is less than the 8.6% increase in the first half of 2017.

The risk sentiment was dented after the release, and EUR/USD was down by roughly 20-30 pips. However, the pair remains supported on the downside near 1.1780.

A degree of risk-on sentiment returned to the markets, as the tensions between the US and North Korea appear to have “cooled” down. On Monday Japan's Q2 growth topped estimates, showing higher domestic demand. Japan's growth accelerated to a 4.0% annualized rate and, whilst inflation stays weak, it is not likely that the Bank of Japan will reign in its massive stimulus program any time soon.

China's economy posted its worst showing this year as curbs on property, excess borrowing and industrial overcapacity began to take hold. Chinese Factory output increased 6.4% from a year earlier, below the 7.1% forecast and against 7.6% in June. Retail sales slowed to 10.4 % from 11% in June.

In separate Sunday talk shows CIA Director Pompeo and National Security Advisor McMaster both commented that there was no indication that war will break out. However, markets will be on guard for any rhetoric from Trump or Kim Jong-un.

Last Friday's data showed US CPI edged up just 0.1% in July after it was unchanged in June. Many market participants had forecast CPI rising 0.2% in July. With weak inflationary pressure the FOMC will struggle to justify any further rate hikes, which will keep USD under pressure. This week, the markets will be focusing on US retail sales (Tuesday) and FOMC minutes (Wednesday).

EURUSD improved slightly over the weekend to currently trade around 1.1830.

USDJPY showed little reaction to Q2 gross domestic product data, which revealed that the economy expanded for a 6th straight quarter led by private consumption and capital expenditure. Currently, USDJPY is trading around 109.50.

GBPUSD is little changed in early trading and currently trades around 1.3015.

Gold is down 0.25% in early trading, at around $1287.50, following last week's 2.4% gain on the week.

WTI, down 1.5% last week, is currently flat on the day, trading around $48.90pb.

A relatively “light” start to the week for economic data releases with the markets likely to focus on:

At 10:00 BST, Eurostat will release Eurozone Industrial Production Month-on-Month and Year-on-Year for June. The MoM consensus call for a disappointing consensus of -0.5% (prev. 1.3%) with the YoY consensus of 2.8% (prev. 4.0%). Such poor forecasts will underscore poor inflationary conditions, making any near-term hike in interest rates unlikely. The markets will also be concerned will further USD weakening in the current risk averse atmosphere.

USD/CHF edges higher and is trading much above the 0.9634 and above the 50% Fibonacci line (descending dotted line). The next upside target will be at the median line (ml) of the minor descending pitchfork. A valid breakout will attract more buyers, which will drive the rate towards the upper median line (uml).

Price rebounded in the previous week and tries to reach and retest the upper median line (uml) of the minor ascending pitchfork, where he may find resistance again. A retest followed by a minor decrease will signal at drop at least towards the 1.1711 static support and towards the median line (ml) of the minor ascending pitchfork. The perspective is bullish as long as is trading above the median line (ml).

Price increased today and stays bullish until more sellers appear. GBP/USD could rebound as the USDX is still under selling pressure on the short term. USDX dropped in the last three days and is pressuring the 93.00 psychological level again.

The index could still come down to retest the 92.49 long term support in the upcoming days if the US data will come in mixed. Only a failure to reach the 92.49 support and the 92.55 previous low will signal a reversal.

The behavior will change if the rate will start to make higher lows, but needs a bullish spark from the United States economy to do that.

Is the retreat completed? This is the question right now, price retested the warning line (wl1) and now is fighting hard to rebound and to jump above the 1.3046 static resistance (support turned into resistance). Only a breakout above the static resistance will validate a further increase because a breakdown will become imminent if will stay too long on the warning line (wl1).

The perspective is bullish as long as the warning line (wl1) remains intact. You can notice that we had a false breakdown o Friday, signaling that the bulls are still in the game and could drive the price higher.

Remains to see what will happen because a retest of the 1.3046 level could signal a breakdown below the wl1. Support can be found at the UML as well and lower at the 1.2798 static support.