Sample Category Title

Key Points:

• Price action trapped within a 4-hour range.
• RSI Oscillator is declining within neutral territory.
• Watch for a breakout in the coming session.

The New Zealand Dollar has been roaring lately as the pair has reacted strongly to the diminished sentiment for the greenback. Subsequently, the pair has risen from a low around the 0.72 handle to form a new high around the 0.7549 mark. This is not an inconsequential rally but the air might finally be evaporating from the bullishness as price action pulls back sharply in response to renewed interest in the greenback. So the Kiwi's future remains uncertain as the pair now prepares for a 4-hour range breakout.

In particular, a cursory review of the 4-hour chart highlights the pair's current conundrum with price action having declined overnight following the upgrading of the U.S. Fed's Atlanta GDPNow estimate to 2.8%. This subsequently had a bullish impact on the greenback and has seen a significant sentiment swing in play. Subsequently, price action appears to have now formed some intra-day support around the 0.7480 mark and looks to be setting up for a breakout of the current range. In addition, the RSI Oscillator has also started to trend in a bearish direction which has helped to relieve the pressure and the indicator is now trading within neutral territory.

In addition, the RSI Oscillator has also started to trend in a bearish direction which has helped to relieve the pressure and the indicator is now trading within neutral territory.

Subsequently, there is something brewing for the pair and the present sideways direction could lead to a breakout/down of the range in the coming days. In fact, there are two potential scenarios for the pair with a breakdown likely to see price action declining back towards support at 0.7419. In the alternative scenario, price action could gather steam in a sideways fashion and then break sharply towards resistance at the 0.7558 mark.

Either of these scenarios is equally likely given that price action is presently resting right at the centre of the range. However, my personal view is that the risks are currently slanted to the downside given the meteoric rise that the Kiwi Dollar has experienced of late. Subsequently, in my view, the most probable move is a downside push towards support at 0.7418. To put it bluntly, the greenback is not going to stay depressed for long and the economic divide between New Zealand and the U.S. is far too wide for the current valuation to remain. So keep a close watch on the pair because when it finally breaks, it's likely to be relatively quick indeed.

STOCKS

Dow (21796.55, +0.39%) is firmly bullish and could continue to move up in the near term. Looking at the current momentum, the index could rally towards 22000 sooner than expected. Near term uptrend remains intact.

Dax (12212.04, -0.76%) came off from levels near 12340 instead of rising towards 12400. Note that immediate support is visible near 12050 on the weekly charts and while that holds, there is some hope of a bounce back towards 12500-12750 in the medium term. Only on a break below 12000, if seen, would we look for any further downside.

Shanghai (3252.66, +0.09%) recovered the fall to 3220 yesterday itself, closing at levels above 3240. There could be some sideways consolidation within 3220-3270 for a few sessions before it rises further towards 3280 or higher.

Nikkei (19995.37, -0.42%) is almost stable and is likely to consolidate within 19700-20280 in the medium term. Only on a break on either side of the range would we get some more clarity on further direction.

Nifty (10020.55, -0.00%) made an intra-day high of 10115 before loosing all gains to close at previous levels. 10100-10115 is an interim resistance which if holds could produce a fall towards 9900 before again rising up towards current levels. Else the rally may continue towards 10200 in the near term. A corrective fall from current levels is more preferred just now.

COMMODITIES

Gold (1260) is trading within the range of 1245-70. It has a crucial Support at 1245. If that holds, we can see a rise towards 1270. As Gold is overbought in near term time frame, we are not confident about the sustainability beyond 1270 regions. But, in case the Support at 1245 breaks, there will be a further dip to 1230 and 1210. Silver (16.55) is also within the range of 16.50-16.17.Only a close below 16.50 could open up 16.20 and 15.90 respectively.

Copper (2.86) looks on a firm footing while it is trading above 2.78 levels. Midterm resistance comes at 3.12 regions from where we may see some correction due to profit taking.

Oil Price rose higher in line with our expectation. Both Brent (51.45) and WTI (48.99) are trading within the ranges of 48-52 and 47.60-49.50 respectively. We are bullish on oil since 10th of July onwards and there are no reason to change our bullish stance in near term while Brent and WTI are trading above 48 and 46 levels on a weekly closing basis. A weekly close above those resistance levels might confirm the end of the midterm bearish trend also.

Gold-WTI ratio (25.92) is hovering around its crucial support at 25.90. If this support breaks then it may come down towards 24 levels. Brent-WTI ratio (2.16) may find support at current levels, could rebound towards 3.00 within a couple of week time.

FOREX

Better than expected US durable goods orders data has helped Dollar Index (93.87) to stage a sharp intraday recovery after hitting a low of 93.15 following the Fed concern over inflation. Hence our target of 93.00 was missed by a very narrow margin but the chances of a retest of 93.00 or even a further decline to 92.00 remain open at this point.

Similarly, the initial target of 1.1800 was almost met as Euro (1.1686) registered a high at 1.1777 before retreating below 1.1700. The trend remains firmly up and the higher target of 1.20 remains open but the troubling issue remains the highly overstretched state of both Euro and Dollar.

Euro is in the most overbought condition since 2008 and Dollar in the most oversold condition since 2011, which warrants a consolidation phase at least if not an outright sharp correction. So follow the trend without underestimating the possibility of a sharp reversal in the next few sessions.

Dollar-Yen (111.05) is trading closer to the lower end of the 6-day range of 110.50-112.15. if the support of 110.50-30 holds, it may bounce back to 112.00-50 levels once again.

Pound (1.3083) retreated along with other majors after hitting a high at 1.3159, not far from the major resistance of 1.32. Failure to rise above 1.32 and a break of 1.30 may invite weakness in the near term.

Aussie (0.7967) is seeing a minor correction in sync with the other majors against Dollar but the trend remains firmly up and the targets of 0.8100-70 unchanged. Only a break below 0.7925 may signal a consolidation phase in the range of 0.7870-0.8050 for a few days to be followed by a fresh rise.

We will watch today's price action in Dollar Rupee (64.11) closely. A Close below 64.25, and certainly below 64.09, will accelerate the downtrend. A Close above 64.25 (less likely) could trigger a rise to 64.35-50.

INTEREST RATES

The US yields are rising again to re-test the long term resistances. As mentioned yesterday the yield s could remain stable in the coming sessions before we see another downleg. The 30Yr (2.91%) is targeting 3% while the 10YR (2.31%) and the 5Yr (1.85%) are targeting levels near 2.50% and 2% respectively.

The US-Japan 10Yr (2.24%) has bounced from immediate support and could now move up towards 2.31% in the near term.

The Japanese yields are trading at support levels sand could move up in the coming sessions. The 10YR (.08%) and the 5Yr (-0.06%) could target levels near 0.085% and -0.046% respectively. Near term looks bullish.

Daily Pivots: (S1) 0.7917; (P) 0.7965; (R1) 0.8053; More...

While AUD/USD loses some upside momentum, with 0.7877 support intact, further rise is still expected. Current rally from 0.7328 should target next key projection level at 100% projection of 0.6826 to 0.7833 from 0.7328 at 0.8335. Nonetheless, break of 0.7877 will indicate short term topping and bring deeper pull back to 0.7711 resistance turned support.

In the bigger picture, current development suggests that rebound from 0.6826 is developing into a medium term rise. There is no confirmation of trend reversal yet and we'll continue to treat such rebound as a corrective pattern. But in any case, further rise is now expected to 55 month EMA (now at 0.8100) or even further to 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 expected.

Daily Pivots: (S1) 1.2452; (P) 1.2513; (R1) 1.2614; More....

Break of 1.2543 minor resistance is seen as an indication of short term bottoming, on bullish convergence condition in 4 hour MACD, after drawing support from 1.2460 key level. Intraday bias is turned to the upside for 38.2% retracement of 1.3346 to 1.2412 at 1.2769 first. On the downside, through, sustained trading below 1.2460 will extend the whole decline from 1.3793 to next key fibonacci level at 1.2048.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. Fall from 1.3793 is seen as the third leg and should target 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. However, firm break there will target 100% projection of 1.4689 to 1.2460 from 1.3793 at 1.1564.

Daily Pivots: (S1) 1.1624; (P) 1.1700 (R1) 1.1751; More...

EUR/USD continues to lose upside momentum for the moment. But still, with 1.1612 minor support intact further rise is expected. Current medium term rally is expected to target 1.2 handle next. Nonetheless, considering bearish divergence condition in 4 hour MACD, break of 1.1612 will indicate short term topping and bring lengthier consolidation first.

In the bigger picture, an important bottom was formed at 1.0339 on bullish convergence condition in weekly MACD. Sustained break of 55 month EMA (now at 1.1760) 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) 1.3023; (P) 1.3091; (R1) 1.3131; More...

No change in GBP/USD's outlook. Price actions from 1.1946 is seen as a corrective pattern. Considering bearish divergence condition in 4 hour MACD, we'd stay cautious on strong resistance from 61.8% projection of 1.2108 to 1.3047 from 1.2588 at 1.3168 to limit upside. Break of 1.2932 support will be the first sign of reversal and will turn bias to the downside to target 1.2588 key support next. Though, sustained break of 1.3168 will bring further rise towards 1.3444 before completing the correction.

In the bigger picture, overall, price actions from 1.1946 medium term low are seen as a corrective pattern that is still in progress. While further upside is expected, overall outlook remains bearish as long as 1.3444 key resistance holds. Larger down trend from 1.7190 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) 110.79; (P) 111.25; (R1) 111.72; More...

Intraday bias in USD/JPY remains neutral as it's staying in consolidation above 110.61 temporary low. With 112.41 intact, further decline is expected. Below 110.61 will target 108.81. Break there will resume whole correction from 118.65 and target 61.8% retracement of 98.97 to 118.65 at 106.48. Nonetheless, break of 112.41 will dampen this bearish view and turn focus back to 114.49 resistance instead.

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, down side should be contained by 61.8% retracement of 98.97 to 118.65 at 106.48 and bring rebound.

Daily Pivots: (S1) 0.9538; (P) 0.9600; (R1) 0.9709; More...

USD/CHF's rebound from 0.9437 accelerated to as high as 0.9720 so far. The break of 0.9699 resistance now suggests that it has bottomed at 0.9437 after defending 0.9443 key support level. This is also supported by bullish convergence condition in daily MACD. Intraday bias is on the upside for 38.2% retracement of 1.0342 to 0.9437 at 0.9783 first. Break will target channel resistance (now at 0.9912). On the downside, below 0.9633 minor support will turn intraday bias neutral and bring consolidations first.

In the bigger picture, current development argues 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 rising level. 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.

Selloff in Swiss Franc continued overnight and weakness extends into Asian session. EUR/CHF is trading up over 300 pts, or 2.75% for the week. As we noted before, the strong break of 1.12 handle is now setting up the stage for EUR/CHF to head back to prior SNB floor at 1.2. USD/CHF's break of 0.9699 resistance also argues that the down trend from 1.0342 has completed and reversed after defending 0.9443 key support level. Oversold condition could start to limit selling in the Swiss Franc and we might see Franc crosses slow down a little bit before ending the week. Focus will be turned back to US with Q2 GDP data featured.

Japan national CPI core unchanged at 0.4% yoy

A bunch of economic data is released from Japan today. National CPI core was unchanged at 0.4% yoy in June. Tokyo CPI core rose to 0.2% yoy in July, up from 0.0% yoy and beat expectation of 0.1% yoy. Unemployment rate dropped to 2.8% in June versus expectation of 3.0%. Household spending rose 2.3% yoy, retail sales rose 2.1% yoy. Core inflation remained well below BoJ's 2% target. Indeed, the central bank has lowered inflation forecast for the current fiscal year to 1.1% and pushed back the timing for hitting the target by a year. And the summary of opinions of the July meeting also showed that one member is concerned that repeated delays would hurt BoJ's credibility. Based on current outlook, there is little chance for BoJ to follow other major global central banks to start exiting from stimulus.

Also released in Asian session, Australia PPI rose 0.5% qoq, 1.7% yoy in Q2. UK Gfk consumer confidence dropped to -12 in July.

US GDP to watch today

US GDP data will be the main focus for today. The US economy is expected to grow 2.5% annualized in Q2, a notable rebound from Q1's sluggish 1.4% growth. GDP price index, however is expected to slow to 1.3%. US will also release Q2 employment cost index. Dollar has been under selling pressure after the dovish FOMC statement. But that just confirmed markets view that Fed is concerned with the slowdown in inflation. And it will likely opt for starting to shrinking the balance sheet first in September. Fed will hold its card on rate hike and do it in December after seeing a few more months of data.

The dollar index is staying weak with recent fall from 103.82 still on course for 91.91 key support level. But for the moment, downside is held by the medium term channel support, indicating no further acceleration. There is prospect for a rebound should today's GDP data meets expectations.

Elsewhere, France will also release Q2 GDP in European session. German CPI, Eurozone confidence indicators and Swiss KOF will be featured. Canada will also release GDP.

USD/CHF Daily Outlook

Daily Pivots: (S1) 0.9538; (P) 0.9600; (R1) 0.9709; More...

USD/CHF's rebound from 0.9437 accelerated to as high as 0.9720 so far. The break of 0.9699 resistance now suggests that it has bottomed at 0.9437 after defending 0.9443 key support level. This is also supported by bullish convergence condition in daily MACD. Intraday bias is on the upside for 38.2% retracement of 1.0342 to 0.9437 at 0.9783 first. Break will target channel resistance (now at 0.9912). On the downside, below 0.9633 minor support will turn intraday bias neutral and bring consolidations first.

In the bigger picture, current development argues 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 rising level. 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.

Economic Indicators Update

Household spending has been a burden on inflation, so the recent pickup up is good news for the BoJ. Yet for this to be sustained, we need to see an increase in wages which BoJ say institutions are working on initiatives. Meanwhile CHFJPY breaks key support and looks to extend losses.

Household spending was one of the better surprises from today's data set, by expanding by 2.3% YoY to far exceed the 0.6% forecast and -0.1% prior. At 2.3% it is the fastest rate of expansion since August 2015 and has been helped higher by three consecutive monthly gains. In June, spending rose by 1.5%, its fastest increase in 4 months.

Consumer spending is a much-needed lubricant for inflation to pick up. Yet for this to sustain wages need to increase. Whilst wages have not yet materially increased, BoJ reported in the in recent meeting that many companies are looking at initiatives to provide this increase to provide support for the BoJ's 2% inflation target.

Inflation was underwhelming as ever and there is a long way to go to turn this sanguine ship around. Yet baby steps appear to be in the making and all turnarounds must start somewhere.

Unemployment dropped by 3 percentage points to remove the 3-point increase in May. Although this takes us to multi-year low and firmly below the 1yr average once more, we'll continue to keep an eye to see if a similar pattern occurs to that of 2007 to 2008. This period saw several crosses around the average before the trend turned and several years of rising unemployment ensued. Of course, we can also argue the famous last words that ‘it's different this time' because this era was the beginning of the GFC.

The job to application rate beat expectations of 1.5 to move to a fresh record high of 1.51. If we are to see this move lower whilst unemployment stutters at the lows then the case for an economic turnaround builds.

The Swiss Franc is in focus for traders after the SNB reiterated that their currency is significantly overvalued despite negative rates remaining in place. This has helped all majors to appreciate against the negative-yielding currency as we expect losses to be sustained into next week.

The weekly chart of CHFJPY is on track for a bearish engulfing candle and currently trades just above the low of the week. The break below 116.43 confirmed a double top pattern which, if successful, projects and an initial target at 114.26, just above the monthly S1. Yet as yesterday's candle was so bearish and the right peak of the double top is relatively small compared with the first peak, we think it may trade beyond this target in due course.

The 8 eMA has crossed below the 21 eMA on D1 to show near-term momentum is increasingly bearish and as they both point lower, near-medium term momentum is also turning bearish. 115.13 is currently holding as support and is likely a pivotal level going forward. The monthly pivot is a sensible place to assume resistance at this point but we can use the zone between the monthly pivot and the original neckline (116.430 as a zone to aid with either entry or stop placement if we seek to fade into rally.

As there are only two trading session left in the month, the pivots will be recalculated at Monday's close which will bring S1 lower. This may make the eventual 112.47 target more achievable.