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AUD loses ground amid RBA minutes

The Australian dollar was little changed after the Reserve Bank of Australia published the minutes of its August meeting. AUD/USD was treading water at around $0.7870 following the release. However, in late Asian session the Aussie started to tumble amid a broad-based USD strength. The minutes revealed that the central bank was quite optimistic regarding consumption growth, arguing that “rising employment and stronger household income growth were expected to support consumption growth”. However, the RBA noted that, despite a strengthening in economic condition, further appreciation of the AUD could derail the ongoing economic recovery as well as the pick-up in inflation.

Therefore, we expect the RBA to maintain its neutral stance as the Aussie started to reverse gains. However, further strength in the Australian currency may trigger verbal interventions from Governor Lowe.

AUD/USD slid as ow as 0.7825, the lowest level since July 18th. The currency is slowing grinding towards the next support that lies at around 0.7784-0.7787 (Fibonacci 38.2% on May-July rally and low from July 18th).

German GDP increases despite falling exports

A month before the German election, news regarding the German fundamentals data are still positive. Yet, GDP Growth has slightly slowed. The figure, which has been released this morning, came in at 0.6%, a inch below markets’ expectations at 0.7%. It is the 12th quarter that Germany is printing positive economic growth. The first European economy is growing at the average pace of 0.6% per quarter since 2014. Over the last three years France GDP only increased 0.5% q/q.

It is also worth noticing that annualized growth is robust with a GDP growth at 2.1% which represents the fastest pace since 2014. German fundamentals are on the solid side with unemployment rate at its lowest since 1989. Nonetheless exports are still concerning as June showed the biggest drop since 2015 - 3% - while imports fell even more. Indeed, the euro may be too strong for Germany.

On the short-term, we believe that the Eurodollar is likely to pursue its consolidation phase below 1.1800 and markets seem to start pricing in a more cautious ECB which will definitely weigh on the currency.

GBP/JPY - 142.57

Recent wave: Medium term low formed at 120.50 and (A)-(B)-(C) major correction has commenced with (A) leg ended at 148.45, hence wave (B) is unfolding for retreat to 131.00-10.

Trend: Near term down

Original strategy:

Sold at 142.50, stopped at 142.80

Position: - Short at 142.50
Target: -
Stop: - 142.80

New strategy :

Stand aside

Position: -
Target:  -
Stop:-

As sterling has rebounded again after finding renewed buying interest at 141.95 yesterday, suggesting a temporary low has possibly been formed at 141.25 on Friday, hence further consolidation above this level would be seen and upside risk remains for another rebound to 143.35-40, break there would add credence to this view, bring retracement of recent decline to 144.00 (previous support turned resistance), however, reckon upside would be limited to 144.45-50 and 144.70 should hold, price should falter well below strong resistance at 145.30, bring another decline later.

On the downside, below said support at 141.95 would bring retest of said last week’s low at 141.25, however, break there is needed to revive bearishness and signal recent decline has resumed and extend weakness to 140.80-85 (1.618 times projection of 147.75-144.05 measuring from 146.80) but oversold condition should prevent sharp fall below 140.50 and reckon psychological support at 140.00 would hold from here. As near term outlook is mixed, would be prudent to stand aside for now.

Our preferred count is that larger degree wave V with circle is unfolding from 251.12 with wave (I) 219.34, (II): 241.38 and wave (III) is subdivided into 1: 192.60, 2: 215.89 (23 Jul 2008) and wave 3 ended at 118.87 earlier in 2009. The correction from there to 162.60 is wave 4 which itself is a double three and is labeled as first a-b-c ended at 151.53, followed by wave x at 139.03, 2nd a ended at 162.60, 2nd b at 146.75 and 2nd c leg of wave 4 ended at 163.00. Therefore, the decline from 163.00 to 116.85 is now treated as wave 5 which also marked the end of larger degree wave (III), hence wave (IV) major correction has commenced for retracement of the wave (III) from 241.38 and upside target at 183.95-00 (50% Fibonacci retracement of the wave (II) from 241.38) had been met, a drop below 160.00 would suggest wave (IV) has ended at 195.85, bring decline in wave (V) for initial weakness to 130 (already met) and 120.


Pound broke below strong support at 1.2939 on fresh bearish acceleration after UK CPI miss. Inflation stayed unchanged at 2.6% in July, missing forecast at 2.7% and disappointed traders who expected stronger figure to support scenario of interest rate hike.

Sterling hit fresh one-month low at 1.2910 in extension below strong supports at 1.29340/40 zone, turning near-term risk towards next layers of supports between 1.2869/18 (span of daily cloud) among which 100SMA and Fibo 61.8% of 1.2588/1.3268 lay.

Broken 1.2939 level now turned to resistance, with former congestion top at 1.3031, reinforced by 30SMA, expected to limit stronger upticks.

Res: 1.2939, 1.2970, 1.3000, 1.3031
Sup: 1.2910, 1.2869, 1.2857, 1.2848

As it was expected, the EUR/USD currency pair is continuing the decline. On Tuesday morning the pair suddenly reached the support of the weekly S1, which is located at the 1.1726 level. The move was expected to occur, and it came into reality, as the 100-hour SMA was passed at the 1.1770 level.

The currency pair rebounded against the mentioned weekly support level. However, it is still to be expected that the rate will decline. The reason for that is the fact that the pair remains in a medium term descending channel pattern.

Most likely in the near future the pair will go for the support of the pattern. On Tuesday the support of the channel was already located below the 1.17 mark.

Despite forming a triple bottom, the Pound failed to surge against the US Dollar on Monday. It reached the 1.3020 area and fell back down to the aforementioned support.

The morning session can be characterised by a lack of volatility. This situation, however, will change later when both the UK and the US is to release fundamental data.

The failure to fall below 1.2960 four times suggests that this level, together with the weekly and monthly S1s, may halt the rate, thus setting it for a test of the 55– and 100-hour SMAs and the weekly PP circa 1.30.

During the last trading session, the US Dollar managed to recover some losses against the Yen, as political tensions in the Korean peninsula eased. The rate surpassed all three SMAs and the weekly PP just to reach the weekly R1 at 110.51. In addition, the pair managed to breach two descending channels.

The weekly R1 is likely to be a turning point, as technical indicators seek to retrace from the current levels. In case strong fundamental data do not put an upward pressure on the Dollar, the American currency may range between the weekly R1 and PP in this session.

Possible downside limit could be either the 200-hour SMA or the upper boundary of the senior channel down.

The decline of the commodity price continues, as expected. The bullion is reaching for the 1,270 mark, which it will most likely reach during Tuesday's trading session.

However, just above that level the support of the 200-hour SMA was located at the 1,271 level on Tuesday morning. In addition, it could be observed that the SMA is not likely to move, as it had set a horizontal direction. Moreover, near that level at 1,271.18 the first weekly resistance was located at.

It can be expected that the bullion will retreat down to this support level. Although, the afterwards direction is likely going to be dictated by political events and this weeks scheduled events like the release of the FOMC meeting minutes.

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Risk off trade a major theme
Gold eased off but not no major sell off
Dollar Index moving higher on Dudley's comment
Oil price struggles due to lack of demand

The US futures show that markets would extend their gains and investors would also continue to reward the equity markets. The geopolitical fear has faded due to the violence in Charlottesville. The volatility index took a nosedive on the back of this and the relief rally prompted a slide in the index. It is safe to say that the safe haven demand is badly quelled.

Having said that, the latest comments by the US defence secretary has upped the ante somewhat by saying if North Korea fires a missile at the United States, it would mean a war. So the latest pull-back in the gold price doesn't mean that the bulls are out of energy. The US economic data is abate if not derailing and the wind of protectionism is still strong. North Korea is not going to change its stance towards the US and another missile test would be just around the corner. The planned joint military exercises between the US and South Korea towards the end of this month could spark some counter-reaction from North Korea. Therefore, the pull-back in the gold price could be an opportunity. The gold price is likely to test the level of $1300 and this could happen if the US retail sales number disappoints. But, as the wage growth has picked up in the US, it is likely that we may see an uptick in the US retail sales number.

The dollar index secured another day in the green territory despite the fact that the core inflation in the US remains far off from the Fed inflation target. Another rate hike for this year looks really dull. At the same time, the three months annualised core CPI is not miles away from the Fed's inflation target. Thus, ruling out an interest rate hike completely could be naive. Investors will be looking for a more encouraging reading for the US retail sales number. A small change in the consumer behaviour will be reflected in the retail sales number and that would provide support for the dollar bulls. However, shaving some profit off ahead of the US retail sales number would remain the famous trade.

The oil price continues to struggle and the Chinese industrial economic data further dampen the demand outlook for the commodity.

The Euro was burnt on the back of shrinking industrial Eurozone data. The currency is retracing from its highs against the dollar. For Sterling, it is the UK CPI number which is going to keep Mark Carney, the governor of the Bank of England, on his toes. The bank left the inflation target unchanged in its latest quarter inflation report despite the fact that the forecast for the wage growth was lowered. The manufacturing and services PMI have both moved lower in their latest reading, so the best outcome for the retail sales data may not be that rosy.

The Aussie is feeling the pain after the RBA released its minutes. Lowering the GDP forecast was the recent reaction by the bank and it also came out with some dovish comments by stating that higher currency would damage the GDP growth and unemployment. The bank shifted its focus on household debt as an excuse to justify their dovish tone.

EUR/JPY - 129.78

Recent wave: A 5-waver is unfolding from 114.85 with wave iii and iv ended at 125.82 and 122.40 respectively, wave v has possibly ended at 131.40.

Trend: Near term up

New strategy :

Buy at 129.00, Target: 130.50, Stop: 128.40

Position: -
Target:  -
Stop:-

As the single currency has surged again after staging a strong rebound from 128.05, adding credence to our view that at least the first leg of decline from 131.40 top has ended there and consolidation with mild upside bias is seen for further gain to 130.50, then towards 130.85-90, however, as broad outlook remains consolidative, upside would be limited and said resistance at 131.40 should remain intact, bring another retreat later this week. 

In view of this, we are looking to turn long on dips as 128.90-00 should limit downside and bring another rebound. Below 128.50 would risk retest of Friday’s low at 128.05 but break there is needed to revive bearishness and signal the decline from 131.40 top is under way for retracement of early upmove to 127.50-60, then towards 127.00-10.

Our latest preferred count is that wave (ii) is ABC-X-ABC which ended at 123.33 and wave (iii) is unfolding with wave iii ended at 100.77, followed by wave iv at 111.57 and wave v as well as the wave (iii) has ended at 97.04, followed by wave (iv) at 111.43 and wave (v) has ended at 94.12 which is also the end of the larger degree v, this also implied the major wave (C) has also ended there, hence major correction has commenced from there with (A) leg unfolding in its lower degree wave c which has possibly ended at 145.69. Under this count, A-B-C wave (B) has commenced with A leg ended at 136.23, wave B at 143.79 and wave C has possibly ended at 149.79.

Our larger degree count is that the decline from 139.26 is wave (C) and is sub-divided into a diagonal triangle i-ii-iii-iv-v with wave i - 105.44, wave ii- 123.33, wave iii - 97.03, wave iv - 111.43, followed by the final wave v as well as the end of wave (C) at 94.12, this also mark the bottom of larger degree wave B. Under this count, major rise in wave C has commenced as an impulsive wave with minor wave III ended at 145.69, wave V is still in progress for further gain to 150.00. Having said that, this so-called wave V could well be the first leg of larger degree 5-waver wave C and this wave C should bring at least a retest of wave A top at 169.97 (July 2008).

AUD/USD – 0.7847

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 :

Sell at 0.7940, Target: 0.7790, Stop: 0.8000

Position: -
Target:  -
Stop: -

New strategy :

Sell at 0.7915, Target: 0.7675, Stop: 0.7975

Position: -
Target:  -
Stop:-

As aussie has remained under pressure after recent anticipated selloff, adding credence to our view that top has been formed at 0.8066 (wave iii peak) and bearishness remains for this move to bring retracement of early upmove in wave iv to 0.7786 support, however, near term oversold condition should prevent sharp fall below 0.7750 and price should stay above 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 0.7915-20 should limit upside. Only 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.