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Technical Outlook: USDJPY Is Awaiting US Data For Break Out Of Current Congestion
The pair failed to clear strong 113.50 barrier for the third time, as Wednesday's spike to 113.68 high was short-lived. Long-legged Doji candle was left on Wednesday, signaling strong indecision, however dips remain limited and contained by rising 7SMA for now.
Near-term action is holding within 112.80/113.68 range and awaiting stronger direction signal which would be generated by a number of important US data due today and Friday.
Studies on daily chart are bullish while overbought slow stochastic warns of correction (the indicator was holding within narrow range, in and out of overbought zone but without firmer bearish signal for now.
Initial signal of pullback will be generated on sustained break below 112.80 (base of three-day congestion) and violation of rising 10 SMA at 112.55 (also Fibo 23.6% of 108.80/113.68 upleg) for extension towards strong support at 111.80 (Fibo 38.2% / 100SMA) break of which will confirm reversal.
At the upside, eventual close above 113.50 pivot would signal bullish continuation towards 114.00 and 114.36 targets.
Res: 113.50, 113.68, 114.00, 114.36
Sup: 113.05, 112.80, 112.55, 111.80
Trade Idea: GBP/JPY – Buy at 145.15
GBP/JPY - 146.40
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 up
Original strategy:
Buy at 145.15, Target: 147.15, Stop: 144.55
Position: -
Target: -
Stop: -
New strategy :
Buy at 145.15, Target: 147.15, Stop: 144.55
Position: -
Target: -
Stop:-
As sterling has continued trading with a firm undertone after recent rally, adding credence to our bullish count for the upmove to extend further gain to 147.10 (previous resistance), having said that, loss of near term upward momentum should prevent sharp move beyond 147.50-60 and price should falter below recent high at 148.10, risk from there is seen for a retreat later.
In view of this, would not chase this rise here and we are looking to buy sterling on subsequent pullback as support at 145.15 should limit downside. Below 144.60-70 would defer and risk test of previous resistance at 144.20, break there would abort and signal a temporary top is formed, bring correction of recent rise to 143.90-00 but support at 143.30 should remain intact.
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.
Trade Idea: EUR/JPY – Buy at 127.00
EUR/JPY - 128.51
Recent wave: wave v of (C) ended at 94.12 and major correction in wave A has ended at 149.79
Trend: Near term up
Original strategy:
Buy at 127.00, Target: 129.00, Stop: 126.40
Position: -
Target: -
Stop: -
New strategy :
Buy at 127.00, Target: 129.00, Stop: 126.40
Position: -
Target: -
Stop:-
Euro’s retreat after brief rise to 129.09 (yesterday’s high) suggests consolidation below this level would be seen and pullback to 128.00, then 127.50 is likely, however, reckon 127.00 would limit downside and bring another rise later, above said resistance at 129.09 would extend recent upmove to 129.50-60 but loss of near term upward momentum should prevent sharp move beyond psychological resistance at 130.00, risk from there has increased for a retreat to take place later.
In view of this, we are looking to reinstate long on pullback as 127.00 should limit downside. Below support at 126.49 would defer and suggest top is possibly formed, risk correction to 126.00 and later towards 125.40-50.
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).
FOMC Minutes Show Split Committee Amid Weak Inflation
Fed minutes leave markets hopeless
Investors were impatiently waiting for clues about the Fed's thinking. Quite the contrary, the minutes of the last FOMC meeting showed a highly-divided committee, increasing the overall uncertainty about the timing of the next interest rate hike and the beginning of balance sheet unwinding programme.
The committee noticed that the labour market continued to strengthen together with the economic activity, the latter improving at a moderate pace though. FOMC members acknowledged both headline and core inflation measures came in below their anticipation but “viewed the recent softness in these price data as largely reflecting idiosyncratic factors” and added that it will have little bearing effect on the medium-term. However, some participants appeared quite concerned about the downside risk in inflation and raised doubts about reaching the 2% target, suggesting that dissent started to appear within Fed presidents.
We reiterate our view that the weakness in inflationary pressures that has emerged at the beginning of the year will force the Fed to slow down the pace of monetary tightening. Therefore, we expect only one other rate hike this year, most likely in December. We also anticipate that the Fed will wait until December to announce the timing of the balance sheet reduction, which will most likely start at the earliest in the second half of 2018.
Given the lack of new information provided by the minutes, the USD was little changed on Thursday. EUR/USD consolidated around 1.1350, still trading with a negative bias as investors catch their breath after last week's euro rally. The pound sterling moved in a similar fashion as markets awaited fresh news regarding the Brexit negotiations, with GBP/USD treading water below the 1.30 threshold.
Fade rising tensions
The wires continue to push rising geopolitical tensions and for good reason. Between the US Ambassador to the UN Nikki Haley's harsh warning to countries enabling trade with North Korea and US President Trump's aggressive tweets against China, it feels as if rhetoric has reached a new high.
It's likely the US will enact further sanctions on North Korea in the coming days and the possibility of a trade war with China has increased significantly. Like clockwork, FX markets shifted into safe haven JPY buying and KRW selling, with regional trade dependent currencies also weaker.
However, there is also the feeling that we have been here before under the Trump administration. The strategy of pushing advisories/issues to the edge only to back off at the last minute are hallmark Trump. So despite the threat of war, implied volatility in FX markets have been in decline for the last few days.
In our view, this shift has created an opportunity in FX EM. The macro story of solid external demand, higher interest rates, and low expectations for protectionism to stymie trade will continue to drive carry trades. We have consistently expressed that the key to 2017 will be to filter out the hype, and the current environment is a prime example.
Trade Idea: AUD/USD – Sell at 0.7650
AUD/USD – 0.7610
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 0.7650, Target: 0.7500, Stop: 0.7690
Position: -
Target: -
Stop: -
New strategy :
Sell at 0.7650, Target: 0.7500, Stop: 0.7690
Position: -
Target: -
Stop:-
Although aussie has recovered after falling to 0.7571 and consolidation above this level would be seen, if our view that top has been formed at 0.7712 is correct, upside should be limited to 0.7650-60 and bring another retreat later, below said support at 0.7571 would add credence to this view, bring retracement of recent rise to 0.7535 support, break there would extend further fall towards 0.7500 which is likely to hold from here..
In view of this, we are looking to sell aussie on recovery as 0.7650 should limit upside. Above 0.7683 resistance would abort and suggest the retreat from 0.7712 has ended instead, bring retest of this level first, then towards 0.7750.
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.
Growth In British Services Sector Slows For June
'Given the deterioration in the forward-looking indicators, such as business optimism and order book growth, the risks are tilted towards the economy slowing in the third quarter.' - Chris Williamson, IHS Markit
Services sector activity in the UK fell more than expected in June amid rising uncertainty surrounding the Brexit negotiations. Markit reported on Wednesday that its Purchasing Managers' Index for Britain's services sector declined to 53.4 in June, compared to the preceding month's 53.8 points. The weaker-than-expected figures added to evidence that the country's economic expansion started to fade, following the disappointing PMI reports on the UK construction and manufacturing sector. Moreover, survey showed that the amount of new orders grew at the slowest pace in nine months, while business confidence registered the second-weakest reading since December 2011. However, experts suggested that there were some gains, notably in business services and financial services, but in general, investment, exports and business spending failed to provide a sufficient boost to fully offset a slowdown in consumption. In contrast, the labour market registered its fastest pace of job creation in 14 months, while companies faced difficulties of recruiting new staff.
US Factory Orders Fall 0.8% In May
'The market is watching every morsel of economic data to see if inflation is moving in the direction that the Fed wants' - Quincy Krosby, Prudential Financial
New orders for US-made goods declined more than estimated for the second consecutive month in May, a worrisome sign for the manufacturing industry. The US Commerce Department reported on Wednesday that the country's factory orders dropped 0.8% month-over-month in May, following a downwardly revised 0.3% fall registered in April. Meanwhile, analysts anticipated new orders to show a smaller decline of 0.5%. On a yearly basis, factory orders were up 4.8%, suggesting that US manufacturing activity continued to expand at a moderate pace. Excluding transport, orders plunged 0.3% in the reported month after being flat in April. Moreover, the report showed that orders for non-defence aircrafts dipped 11.6%, following a 12.2% decline in the previous month. Overall, factory data marked slow growth amongst most industry sectors without any signs of a sustained expansion. Mixed US macroeconomic reports called to question the US economy's ability to achieve Trump's ambitious targets. However, despite sluggish inflation and economic growth the Fed left the third interest rate hike on the table.
Technical Outlook: GBPUSD – Daily Cloud Top Is Still Holding But Stronger Direction Signal Is Required
Near-term bears from 1.3029 peak are taking a breather above daily cloud, holding in directionless mode on Thursday and awaiting data for firmer signals.
Probe below daily cloud top on Wednesday was short-lived and hopes for fresh upside attempts would remain in play while cloud supports.
Multiple bull-crosses of daily MA's are also supporting bulls, along with north-heading daily Tenkan-sen, which diverges from Kijun-sen line.
Corrective pullback from 1.3029 should ideally bottom above daily cloud top, as technical studies support this scenario.
However, fundamentals are likely to be the key driver these days. US jobs data are in focus with BoE MPC hawk McCafferty due to speak today and may also affect cables near-term action.
Bullish scenario requires stronger bounce from daily cloud top (1.2945 and 1.2977 Fibo barriers are seen as triggers) with extension above 1.2977 to confirm reversal.
Alternatively, break below daily cloud top (1.2906) would open plethora of MA supports below (lying between 1.2870 and 1.2809).
Res: 1.2945, 1.2961, 1.2977, 1.3000
Sup: 1.2906, 1.2893, 1.2870, 1.2831
Technical Outlook: EURUSD Is In Quiet Mode Awaiting US Data For Fresh Signal
The Euro is holding neutral near-term tone ahead of US jobs data which are expected to give fresh direction signal.
ADP private employment data is due today with forecast for June at 185K compared to 253K in May. In addition, US weekly jobless claims (forecast at 243K vs 244K previous week) and US Non-Manufacturing PMI (forecast for June at 60.8 vs 60.7 in May) are due today, ahead of key release, US Non-Farm payrolls on Friday (forecast for June stands at 179K vs 138K in May) which could generate stronger direction signal.
The EUR/USDcracked strong Fibo 38.2% support at 1.1320 on Wednesday (dip to 1.1312 low was contained by rising 10SMA) but failed to close below.
Wednesday’s trading ended in Doji candle, signaling indecision ahead of key US data.
Technical studies on daily chart are bullishly aligned and supportive for fresh advance, as 1.1320 support marks ideal reversal point for pullback from 1.1445 tops.
However, falling hourly cloud continues to limit upside attempts and lift above it (cloud top lies at 1.1380) is needed to signal reversal and open targets at 1.1400/45.
Conversely, sustained break below 1.1320/00 zone would signal fresh extension of bear-leg from 1.1445 and expose supports at 1.1282 (daily Kijun-sen) and 1.1256 (20SMA).
Res: 1.1368, 1.1380, 1.1400, 1.1426
Sup: 1.1336, 1.1320, 1.1308, 1.1282
GBP/JPY Daily Outlook
Daily Pivots: (S1) 146.04; (P) 146.42; (R1) 146.84; More....
No change in GBP/JPY's outlook. With 145.13 minor support intact, further rise is expected to 148.09/42 resistance. Decisive break there will extend whole rally from 122.36 to long term fibonacci level at 150.43 next. On the downside, below 145.13 minor support will turn intraday bias neutral and bring consolidation again before staging another rally.
In the bigger picture, rise from medium term bottom at 122.36 is expected to continue to 38.2% retracement of 196.85 to 122.36 at 150.43. Decisive break there will carry long term bullish implications and pave the way to 61.8% retracement at 167.78. In case the sideway pattern from 148.42 extends, we'd be looking for strong support from 135.58 and 50% retracement of 122.36 to 148.42 at 135.39 to contain downside.
