Sample Category Title

GBP/USD - 1.3180

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.3149

Kijun-Sen level                    : 1.3149

Ichimoku cloud top              : 1.3099

Ichimoku cloud bottom        : 1.3096

Original strategy :

Exit long entered at 1.3085

Position : -  Long at 1.3085

Target :  -

Stop : -

New strategy  :

Buy at 1.3130, Target: 1.3230, Stop: 1.3095

Position : -

Target :  -

Stop : -

Current rally in NY morning together with the breach of previous resistance at 1.3159 confirm recent upmove has resumed and upside bias is seen for further gain to 1.3210-20, then towards 1.3240-50, however, near term overbought condition should prevent sharp move beyond 1.3275-80 and reckon 1.3300 would hold from here, 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 cable on pullback as the Tenkan-Sen (now at 1.3149) should limit downside, bring another upmove later. Below 1.3110-15 would defer and risk test of support at 1.3097 but only break there would signal a temporary top is possibly formed, bring further fall towards previous support at 1.3052.

EUR/USD - 1.1793

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 1.1761

Kijun-Sen level                  : 1.1761

Ichimoku cloud top             : 1.1711

Ichimoku cloud bottom      : 1.1700

New strategy  :

Buy at 1.1750, Target: 1.1850, Stop: 1.1715

Position : -

Target :  -

Stop : -

As the single currency has surged again after finding renewed buying interest at 1.1723 and price just broke above last week’s high at 1.1777, adding credence to our bullish view that recent upmove from 1.0340 low is still in progress and upside bias remains for further gain to 1.1820-25, then towards 1.1850-55 (50% projection of 1.1370-1.1777 measuring from 1.1650) but loss of near term upward momentum should prevent sharp move beyond 1.1875-80 and price should falter below 1.1900-05 (61.8% projection), risk from there has increased for a retreat later.

In view of this, would not chase this rise here and would be prudent to buy euro on pullback as 1.1750 should limit downside. Below said support at 1.1723 would defer and suggest top is possibly formed, bring retracement of recent rise to 1.1690-95 first but indicated support at 1.1650 should hold. 

WTI oil eventually cracked psychological $50.00 barrier (also top of weekly cloud) on Monday, but showed strong hesitation at the resistance on quick pullback below broken 200SMA ($49.41), to pressure broken bull-channel resistance at $49.14.

Reaction at $50.00 barrier was expected, as traders also booked profits after last week's strong rally (the biggest weekly advance since the last week of Nov 2016).

Deeper pullback could be anticipated as slow stochastic is reversing in deep overbought territory.

Daily close below 200SMA will be bearish signal for further correction. Friday's low at $48.85 marks next support, ahead of more significant $48.25 level (Fibo 38.2% of $45.39/$50.01 upleg) where extended dips should be ideally contained, before bulls resume towards targets at $50.13 (FE 123.6% of the wave C from $43.63) and $50.27 (29 May high).

Res: 50.01; 50.13; 50.27; 50.50
Sup: 49.14; 48.92; 48.25; 47.70

USD/JPY - 110.47

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 110.58

Kijun-Sen level                  : 110.65

Ichimoku cloud top             : 111.49

Ichimoku cloud bottom      : 111.17

New strategy  :

Sell at 111.20, Target: 110.20, Stop: 111.55

Position :  -

Target :  -

Stop : -

As the greenback has remained under pressure after recent anticipated selloff, adding credence to our bearish view that the decline from 114.50 is still in progress and downside bias remains for further weakness to 110.00-05 but near term oversold condition should limit downside to 109.75-80 and reckon 109.50 would hold from here, risk from there is seen for a rebound later.

In view of this, would not chase this fall here and would be prudent to sell dollar again on subsequent rebound as 111.29 resistance should cap upside. Above the upper Kumo (now at 111.49) would defer but only break of resistance at 111.71 would abort and signal low is formed instead, bring subsequent rise towards last week’s high at 112.20.

Major currencies were steady in European trading on Monday as risk aversion and central bank meetings later in the week kept investors on the sidelines despite some key data releases. The US dollar inched higher against most other currencies but was weaker against the Japanese yen. The euro saw a mixed response to flash inflation numbers out of the Eurozone, while the pound held near last week's 10-month highs ahead of 'Super Thursday'.

Fresh geopolitical tensions gave rise to some risk-off sentiment at the start of the trading week following Friday's long-range missile test by North Korea. Gold climbed to a near 7-week high of $1270.98 an ounce in the Asian session and the yen was firmer against most major currencies. The Swiss franc was also broadly up, including against the euro where it looks on track to end the single currency's run of four straight sessions of sharp gains. The euro was marginally weaker at around 1.1375 francs, having hit a 2½-year high of 1.1406 francs on Friday. However, the franc was slightly down against the dollar with the greenback reclaiming the 0.97 handle today.

Better-than-expected data out of the Eurozone failed to lift the euro on Monday. Flash inflation readings for the euro bloc showed headline CPI was unchanged at 1.3% year-on-year in July, in line with forecasts. However, the core reading, which excludes food and energy prices, beat expectations of 1.1% to rise to 1.3% y/y - the highest since August 2013 - from 1.2% in May. Also coming in stronger-than-expected was the Eurozone's unemployment rate, which fell to 9.1% in June from a revised prior and expected figure of 9.2%.

Traders also shrugged off robust German retail sales numbers released earlier in the day. The euro rose slightly after the data before continuing its steady downtrend during the course of the day. It was last trading at $1.1732, having opened at $1.1761.

Sterling also lost some ground against the dollar but remained supported above the $1.31 level for most of the day. The British currency briefly fell below $1.31 after lending figures released by the Bank of England showed consumer credit rose less-than-expected in June, although mortgage lending increased more strongly than anticipated. The BoE had recently warned about unsustainable increases in consumer debt and today's rise, which was the slowest in over a year, may be of some comfort to the Bank, which meets on Thursday for its latest policy meeting.

Meanwhile, the greenback remained pressured against the yen even as it recovered against its other peers. Dollar/yen hovered around 110.50 for much of the day as the ongoing turmoil in the White House continued to worry investors. US data today included the Chicago PMI and pending home sales.

The Chicago PMI - a gauge of business activity in the Chicago region - fell to 58.9 in July from 65.7 previously and was below forecasts of 60.0. Pending home sales rose by more-than-expected however, jumping by 1.5% in June, compared with the 0.7% gain anticipated.

Another currency heading down versus the US currency was the Canadian dollar. A bigger-than-expected drop in Canadian producer and raw material prices weighed on the loonie today, as well as a downward reversal in oil prices. Dollar/loonie gained about 0.5% to 1.2485 in late European trading, moving away from last week's 2-year low of 1.2412.

Oil prices reversed earlier gains when they were lifted by the prospect of US sanctions on Venezuela, which is a major oil producer and OPEC member. Prices were also boosted by reports that OPEC members will hold a meeting in Abu Dhabi next week to discuss improving compliance to the output deal. WTI and Brent crude hit 2-month highs of $50.06 and $52.92 respectively before retreating. The commodity came under pressure after analysts cut their forecasts of crude oil prices for 2017. This led to the WTI oil price falling by 0.8% in late session to $49.30 a barrel, though the price of Brent was down a more moderate 0.3%.

USD/JPY is showing little movement in the Monday session. In North American trade, the pair is trading at 110.50, down 0.22% on the day. In Japan, Preliminary Industrial Production gained 1.6%, matching the forecast. As well, Housing Starts posted a strong gain of 1.7%, crushing the estimate of 0.1%. Later in the day, Japan releases Final Manufacturing PMI. Over in the US, we'll get a look at Pending Home Sales, which is expected to gain 0.9%. On Tuesday, the US releases two key indicators – Personal Spending and ISM Manufacturing PMI.

Japanese manufacturing and industrial indicators for June started the week on a positive note. Preliminary Industrial Production rebounded with a strong gain of 1.6%, after a decline of 3.3% in the May. As well, Housing Starts gained 1.7%, compared to a reading of -0.3% in May. These numbers underscore a stronger Japanese economy, buoyed by stronger demand for Japanese exports. Still, weak inflation levels remain a serious concern. The BoJ's ultra-loose monetary policy has failed to coax inflation upwards, and consumers remain wary, as borrowing and spending levels remains soft. At its policy meeting earlier in July, the BoJ again extended its time-frame for reaching its inflation target of 2%. The bank is reluctant to make scale back its asset-purchase program, which means that it will likely lag behind other central banks, such as the ECB, in reducing its stimulus program.

The US dollar has posted broad losses in response to climbing political risk in the US. This was again the case on Friday, as President Trump's struggling healthcare bill gasped its final breath as the bill was defeated in the Senate after three Republican lawmakers joined the Democrats and voted against the bill. This is another setback for President Trump, who has been unable to get Congress to pass any significant legislation, despite the Republicans controlling both the House and the Senate. Trump will now be able to focus on other issues such as tax reform, but investors are skeptical as to whether the President will have the support he needs in Congress to pass major legislation. On Monday, USD/JPY touched a low of 110.30, its lowest level since June 15.

The momentum and the seasonals diverge as we head into August. The loonie as the top performer in July as the Swiss franc lagged. A big week for data and central banks awaits. Just earlier, the Chicago PMI fell to 58.9 in July from 65.7, posting its bioggest decline since Feb 2015.  Prending Home Sales rose rose 1.5% vs an exp 1.0%.  Friday's Premium USD trade has been filled and is in progress. Ashraf's Bitcoin webinar this evening is at 8 pm London.

The July story was liftoff in central bank hike expectations as signs of global growth emerged. There are no obvious signs that it will be derailed this time but we're reminded of the many times in the past where it seemed growth was going to turn a corner only to stumble later.

In recent years, August has been a challenging month due to Chinese policy shifts and risk aversion. Seasonally, there are warning signs. AUD/USD has fallen in 10 of the past 12 Augusts and the average decline over the past decade is 1.05%. The RBA could set the tone in its Aug 1 decision.

Seasonal patterns are hit and miss but at the start of July we warned that it was the worst month for USD/JPY and the pair fell 1.5%. On the flipside, oil defied July seasonal weakness but the pattern continues in August and September.

Another seasonal pattern (and another central bank) to watch is pound weakness. August is the worst month on the calendar for cable in the short and long term.

Meanwhile, gold has some momentum and a seasonal tailwind as the August average gain over the past decade is 2.2%.
Ultimately, many of these patterns will need help from a bout of risk aversion so we will be watching all the usual and usual suspects.

CFTC Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

• EUR +91K vs +91K prior
• GBP -26K vs -16K prior
• JPY -121K vs -127K prior
• CHF -2K vs -4K prior
• CAD +27K vs +8K prior
• AUD +56K vs +51K prior
• NZD +35K vs +36K prior

The market was a bit wrong-footed on sterling this week as it gained across the board. With the BoE coming up this week and US/CA jobs to follow, expect more moves ahead. The other story continues to be CAD as specs shake off the sting of the wrong-footed bet against the loonie and pile into longs. How far can the pendulum swing before the BOC gets cold feet about rate hikes?

EUR/GBP - 0.8951

 
Recent wave: Major double three (A)-(B)-(C)-(X)-(A)-(B)-(C) is unfolding and 2nd (A) has possibly ended at 0.6936.

Trend: Near term up

Original strategy  :

Buy at 0.8925, Target: 0.9025, Stop: 0.8885

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.8925, Target: 0.9025, Stop: 0.8885

Position : -

Target :  -

Stop : -

 
The single currency rebounded after finding support at 0.8891, suggesting the pullback from 0.8995 has possibly ended there, hence retest of this level would be seen, however, break there is needed to confirm upmove has resumed for test of psychological resistance at 0.9000, then 0.9020 but reckon upside would be limited to 0.9050 due to overbought condition, risk from there has increased for a retreat later.

In view of this, would not chase this rise here and would be prudent to buy euro on dips as 0.8920-25 should limit downside. A break of said support at 0.8891 would defer and suggest a temporary top is formed instead, bring correction to 0.8860-65 but only break of support at 0.8829 would provide confirmation, bring correction to 0.8800 first. 

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 - 1.2493

 
Recent wave: Only wave v of c has ended at 0.9407 and wave C of major A-B-C correction is underway with wave iii ended at 1.4690, wave v of C may bring one more marginal rise probably in 2018

Trend:  Down

 
Original strategy       :

Sell at 1.2690, Target: 1.2490, Stop: 1.2750

Position: -

Target:  -

Stop: -

 
New strategy             :

Sell at 1.2690, Target: 1.2400, Stop: 1.2750

Position: -

Target:  -

Stop:-

As the greenback has recovered after holding above last week’s low at 1.2414, retaining our view that further consolidation would take place and another corrective bounce too 1.2575-80 is likely, above there would bring retracement of recent decline to 1.2640-50 but reckon 1.2700-05 would limit upside and bring another decline later, below said support at 1.2414 would signal downtrend has resumed and extend weakness to 1.2400, then  towards 1.2350-60, however, oversold condition should prevent sharp fall below 1.2330 and reckon 1.2300 would hold, risk from there is seen for a rebound later. 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 still in progress, hence bearishness remains for this fall to extend weakness to aforesaid downside targets.

In view of this, would not chase this fall here and would be prudent to sell the pair again on recovery as 1.2690-95 should limit upside. Above 1.2745-50 would defer and risk a stronger rebound to 1.2800-10 but only break of latter level would signal a temporary low is formed instead, bring retracement of recent decline to 1.2850, then 1.2900, however, price should falter below 1.3000 and the greenback shall head south again from there.

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.

Chinese growth resilience

China has proven more resilient than expected over the past couple of months. The housing market is holding up still despite tightening measures and PMI manufacturing suggests that growth may have rebounded a bit again towards the end of Q2. The official PMI manufacturing figure for July, published today, fell slightly to 51.4 (consensus) from 51.7 in June. However, despite being below consensus, the level is still in line with fairly robust activity (see chart).

Another sign of rebounding Chinese activity lately is a turnaround in commodity prices. After trading moderately lower during spring, metal prices have moved higher in June and July to a new high for this year. Oil prices have also pushed higher from USD45 per barrel in mid-June to just below USD53 per barrel.

What is behind the resilience? Most of our leading indicators had pointed to a Chinese slowdown, so what is behind the rebound? One explanation may be a lift to infrastructure and construction projects ahead of the 19th National Congress of the Communist Party of China, taking place this autumn. It is striking in the PMI data for the past few months that it is the large enterprises that have rebounded, while PMIs for small and medium-sized companies have weakened. The latter are more exposed to the shadow banking sector, which has seen significant regulatory tightening this year. Large enterprises are typically exposed to heavy industry with exposure to infrastructure and construction. PMI for construction was strong in July.

Looking ahead, we continue to look for softer Chinese activity, as credit has been tightened and projects to boost growth ahead of the congress will fade again. We expect the housing market to slow soon in response to the tightening measures. However, the downside risks to Chinese growth have diminished over the past one to two months.

Stocks robust, USD/CNY lower

In Chinese financial markets, stocks have continued to perform, while the CNY has strengthened further against the USD. However, the latter is more a reflection of USD weakness than of CNY strength. Still, with USD/CNY moving down to 6.73, our 12M forecast for USD/CNY of 7.1 looks increasingly too high. We intend to review this when we next revise our forecasts in mid-August. While CNY is stronger than expected versus the USD, it continues to weaken against EUR and EUR/JPY has moved higher to 7.89. We continue to recommend hedging of CNY receivables as we look for a further increase in EUR/CNY. Bond yields in China have been quite stable lately. The financial stress in bond markets seen in May is no longer in place, as the authorities have eased liquidity leading to lower 3M money-market rates.

Crisis intensify with North Korea

On the geopolitical front, tensions with North Korea continue to rise after it did a second test of an intercontinental ballistic missile (ICBM) on Friday 29 July. It followed a similar test on 4 July. However, according to western experts, the latest ICBM could reach Los Angeles, whereas the missile tested on 4 July had Alaska within its scope if fired at a lower angle. The test is another sign that North Korea is advancing much faster than expected when it comes to technology that can reach the US with a nuclear warhead - a clearly stated goal of the North Korean regime.

US President Donald Trump said in a statement that 'By threatening the world, these weapons and tests further isolate North Korea, weaken its economy and deprive its people...The United States will take all necessary steps to ensure the security of the American homeland and protect our allies in the region.' The US has also displayed military firepower by flying two supersonic B-1 bombers over the Korean Peninsula as part of a joint exercise with Japan and South Korea and performed successful missile defence tests over the Pacific Ocean.

A military solution comes with very high risk but at the same time, the US is likely to lose credibility if it keeps saying it will take all necessary steps while not responding. This makes the situation very uncertain and unpredictable. For now, there are no signs the North Korea's leader is backing down from his nuclear ambitions, despite the increasing threat from the US.

Tensions in US-China relations - watch out for US measures

The crisis is also worsening the relationship between China and the US. Trump tweeted after the latest test 'I am very disappointed in China. Our foolish past leaders have allowed them to make hundreds of billions of dollars a year in trade, yet...they do NOTHING for us with North Korea, just talk. We will no longer allow this to continue. China could easily solve this problem.' Following a period of more friendliness between the two leaders, the tone from Trump towards China has sharpened significantly recently. As late as 20 June, Trump tweeted that he appreciated the efforts by China and said '...at least I know China tried!'. In another sharp critique of China following the missile test, US ambassador to the United Nations Nikkie Haley said the US would not seek an emergency meeting of the UN Security Council, as it would be pointless as long as China will not commit to increasing the pressure on North Korea's leader Kim Jong Un.

On the trade front, Trump has still not introduced any protectionist measures. In late June, he clearly indicated that tariffs and/or quotas were coming on steel but so far no action has been taken. In an interview in The Wall Street Journal recently, he suggested the decision on steel would come fairly soon but suggested it was not urgent. However, according to Politico.com, Trump is working on a plan to 'punish China', that may be enacted as early this week. Any action aimed directly at China would be taken very seriously in Beijing and would be likely to lead to retaliation on, for example, trade.