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JPY stronger as investors switch to risk-off mode

The Japanese yen gained momentum on the last trading day of the week as it rose 0.85% and 0.63% against the pound and the Aussie respectively. USD/JPY fell as much as 0.53%, down to 111.25, as investors switched to risk-off mode ahead of the weekend. Gold inched higher and rose $5.5 to 1,262.30 during the Asian session, while the Swiss franc rose 0.15% against the greenback.

During the early morning session, the Ministry of Internal Affairs published the inflation figures for the month of April. There was no big surprise. Inflation accelerated in the last month with the headline measure rising 0.4% y/y, matching forecast, up from 0.2% a month earlier. The BoJ favourite measure of core inflation climbed to a 2-year high of 0.3% y/y versus 0.2% in March and 0.4% median forecast. The measure that excludes fresh food and energy costs printed at 0.0%, highlighting the fact that the pickup in inflation was mostly driven by higher food and energy prices. With crude oil prices back in the doldrums, it is very unlikely that we will see further momentum in headline inflation. We still wonder how the BoJ will reach its 2% target before April. They will have to delay further as upside pressures in the core measure are inexistent.

USD/JPY is currently breaking the 111.25 support level (Fibonacci 50% on April’s rally). If broken, the closest support can be found at 110.51 (Fibo 61.8%). On the upside, a resistance lies at around 112.

United States: Markets expect data to be on the soft side

Markets will look towards the US today as a set of data is expected to be released with Q1 GDP likely showing decent growth. Markets estimate a GDP increase of 0.9%. But when looking deeper at the fundamentals, the economic recovery may not be as strong as it seems.

April's durable goods orders are also expected to take a hit at -1.5% from March when data had been revised higher at 1.7% m/m. Inventories have also declined in April and the trade deficit has widened. Exports of goods declined in April while imports grew. First quarter personal consumption data is also going to be released today and should show a continued increase but far from the Q4 level when it increased by 3.5%. EUR/USD is still trending higher and has broken 1.1200. Equity markets are still on the rise, the S&P 500 is trading at all-time highs. The bullish breakout needs to show some follow-through though. Despite the economic uncertainty, we believe there is now room for dollar strengthening.

In our view, investors’ sentiment is more correlated to the equity markets (and central banks underpinning stocks with free money) than the real economic fundamentals which are showing softness in the recovery.

US oil is in recovery mode in early Friday and returned above $49.00 handle after suffering heavy losses the day before. Oil price fell sharply on Thursday, losing 5% for the day after OPEC announced agreement for nine-month extension of production cut.

OPEC decision disappointed markets that were expecting stronger action, prompting traders out of long positions that triggered sharp sell-off.

Oil price registered the biggest one-day fall since 08 Mar on Thursday that turned near-term focus lower after daily close below a cluster of supports at $49.76/$49.44, formed by 10/200 and 55SMA’s, as well as $48.83 (Fibo 38.2% of $43.74/$51.98 rally).

Daily 20SMA at $48.47 was cracked on Friday’s extension to $48.24 low, but is still acting as valid support which may hold for corrective rally on strongly oversold 4-hr studies.

Near-term action is biased lower on fresh bearish sentiment and may extend losses towards $47.86 (daily Kijun-sen / 50% retracement) after correction which should be capped under psychological $50.00 barrier, reinforced by daily Tenkan-sen.

Res: 49.23, 49.67, 50.00, 50.55
Sup: 48.83, 48.24, 47.86, 47.35

EUR/JPY - 124.71




EUR/JPY: Wave v as well as larger degree wave (C) ended at 94.11 and first leg of larger degree wave C upmove has possibly ended at 149.79 and wave 2 correction has possibly ended at 109.49.




As the single currency has surged again after finding renewed buying interest at 122.56 last week, suggesting recent upmove from 109.49 low is still in progress and bullishness remains for this move to extend further gain to resistance at 126.47 and possibly 127.50-60, however, reckon upside would be limited to 128.17 resistance and price should falter well below 129.00 (61.8% Fibonacci retracement of 141.06-109.49), risk from there has increased for another retreat to take place later.

The daily chart is labeled as attached, early selloff from 169.97 (July 2008) to 112.08 is wave (A) of B instead of end of entire wave B and then the rebound from there to 139.26 is wave (B), hence, wave (C) has possibly ended at 94.12 with a diagonal triangle as labeled in the daily chart, hence upside bias is seen for further gain. Recent rally above indicated retracement level at 116.69 (50% Fibonacci retracement of the intermediate fall from 139.26-94.12) adds credence to this view and signal major reversal has commenced but first leg of this wave C has possibly ended at 149.79, hence wave 2 has commenced with wave A ended at 126.09, followed by wave B at 141.06, wave C commenced and could have ended at 109.49, above 125.00 would add credence to this view. 



On the downside, whilst initial pullback to 124.40-50 and possibly 124.00 cannot be ruled out, reckon downside would be limited to 123.00-10 and 121.60-65 (38.2% Fibonacci retracement of 114.85-125.82) should hold, bring another rise later. A daily close below 121.60-65 would defer and suggest top is formed instead, risk correction to 121.00 and possibly towards support at 120.60 but reckon 120.30-35 (50% Fibonacci retracement) would limit downside and psychological level at 120.00 should hold.


Recommendation: Buy at 121.60 for 124.50 with stop below 120.60.

To re-cap the corrective upmove from the record low of 88.93 (18 Oct 2000), the wave A from there is subdivided as: 1:88.93-113.72, 2:99.88 (1 Jun 2001), 3:140.91 (30 May 2003), 4:124.17 (10 Nov 2003) and 5 ended at record high of 169.97 (21 Jul 2008). The brief but sharp selloff to 112.08 is viewed as a-b-c x a-b-c wave (A) of B. The subsequent rebound to 139.26 is (B) of B and (C) of (B) has possibly ended at 94.12 and in any case price should stay well above previous chart support at 88.93, bring rally in larger degree wave C towards 150.00.

EUR/USD

Current level - 1.1212

The corrective pattern below 1.1270 peak is still underway, so I favor a break through 1.1170 to challenge 1.1080 area. Crucial resistance lies at 1.1300.

Profit-taking affects gold curbing silver and platinum

USD/JPY

Current level - 111.30

The intraday bias is negative after the second failure at 112.00, for a slide towards 110.80, en route to 110.20.

GBP/USD

Current level - 1.2878

The intraday bias is bearish, for a break through 1.2830, towards 1.2705 zone. Initial resistance lies at 1.2930.

USD/CHF –  0.9718

 
USD/CHF – Wave IV ended at 1.1730 and wave V has possibly ended at 0.7068

 
As the greenback has remained under pressure after recent selloff below previous support at 0.9813 (now resistance), adding credence to our bearish view that the decline from 1.0344 top is still in progress, hence downside bias remains for this move to extend further weakness to 0.9675-80, then 0.9600-10, however, near term oversold condition should prevent sharp fall below latter level and price should stay above previous chart support at 0.9550, risk from there is seen for a rebound to take place later. 

Our preferred count on the daily chart is that early selloff to 0.9630 is an end of the larger degree wave III and major correction is unfolding from there with a leg ended at 1.2298 (Nov 2008 with (a): 1.0625, (b):1.0011 and (c):1.2298), wave b ended at 0.9910 with (a): 1.0370, (b): 1.1967, (c): 0.9910. The rise from there to 1.1730 is the wave c which also marked the end of wave IV and wave V has possibly ended at 0.7068.


On the upside, whilst initial recovery to 0.9770-75 and possibly 0.9800 cannot be ruled out, reckon said previous support at 0.9813 would limit upside and bring another decline later. Above 0.9859 (another previous support) would defer and suggest a temporary low is possibly formed, bring a stronger rebound to 0.9900 but price should falter below 0.9955-60. Above 0.9955-60 would defer and risk rebound to 1.0000 but upside should still be limited and price should falter well below resistance at 1.0100-08, bring retreat later.
 
Recommendation: Sell at 0.9800 for 0.9600 with stop above 0.9900

Dollar's long-term downtrend started from 2.9343 (Feb 1995) and it was unfolding as a (A)-(B)-(C) with (A): 1.1100, (B): 1.8310 (26 Oct 2000), then followed by another impulsive wave (C) with wave III ended at 0.9630 (Mar 2008). Under this count, correction in wave IV has possibly ended at 1.1730 and wave V already broke below support at 0.9630 and met indicated downside target at 0.7500 and 0.7400. The reversal from 0.7068 suggests the wave V has possibly ended and the breach of resistance at 0.9595 add credence to this view and indicated upside target at 1.0000 had been met, however, the sharp retreat from 1.0296 to 0.7401 suggests choppy trading would be seen but price should stay above said record low at 0.7068.

EUR/JPY - 124.79

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 124.60, Target: 126.50, Stop: 124.00

Position: -
Target: -
Stop: -

New strategy :

Buy at 124.10, Target: 126.10, Stop: 123.50

Position: -
Target:  -
Stop:-

As the single currency has retreated after faltering below resistance at 125.82, retaining our view that consolidation below this level would be seen and correction to 124.50 cannot be ruled out, however, reckon support at 124.10 would limit downside and bring rebound later, above 125.45-50 would bring retest of 125.82 but break there is needed to confirm recent upmove has resumed and extend further gain to 126.20-30 and possibly 126.60-70 but reckon 127.00-10 would hold from here.

In view of this, we are inclined to buy euro on further corrective fall. Below 123.60-65 would suggest top has been formed and risk weakness to 123.30-35 and possibly towards 123.00, however, outlook remains consolidative and previous support at 122.56 should remain intact, bring another rebound later.

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 – 0.7432

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 down

Original strategy :

Buy at 0.7405, Target: 0.7570, Stop: 0.7345

Position: -
Target:  -
Stop: -

New strategy :

Buy at 0.7405, Target: 0.7570, Stop: 0.7345

Position: -
Target:  -
Stop:-

Although aussie has retreated after faltering below indicated resistance at 0.7518 and near term downside risk remains for weakness to 0.7415-20, if our view that low has been formed at 0.7329 is correct, downside should be limited to 0.7400-05 and bring another rebound later, above 0.7480 would bring test of said resistance at 0.7518, break there would extend the rise from 0.7329 low to resistance at 0.7556, having said that, a break above there is needed to provide confirmation, bring subsequent rise towards 0.7595-00.

In view of this, we are looking to buy aussie on dips as 0.7400-05 should limit downside and bring another rise. A break of support at 0.7388 would abort and signal top is formed, bring further fall to 0.7360 but said recent low at 0.7329 should remain intact. Only a drop below this support at 0.7329 would abort and signal recent decline has resumed and extend weakness to 0.7295-00 (76.4% retracement of 0.7158-0.7750). 

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.

EURUSD extends consolidation within 1.1166/1.1268 range for the fifth consecutive day after broader bulls stalled at 1.1268 (2017 high) and downside attempts were so far contained by Fibo 23.6% of 1.0839/1.1268 upleg at 1.1166, reinforced by the top of thick 4-hr cloud / 10SMA.

Bullish technicals suggest further upside towards next target at 1.1313 (Fibo 76.4% of 1.1614/1.0340) but bulls may be dented by extended daily studies (RSI is attempting to reverse from overbought territory).

Stronger bearish signal could be expected on break below 1.1166 pivot that would trigger further weakness towards 1.1121 (daily Tenkan-sen) and 1.1104 (Fibo 38.2% of 1.0839/1.1268) and confirm correction on break.

US GDP data, due later today, are eyed for stronger direction signals.

Res: 1.1250, 1.1268, 1.1299, 1.1313
Sup: 1.1183, 1.1166, 1.1121, 1.1104

USD/CHF - 0.9715

Most recent candlesticks pattern : N/A

Trend                                    : Near term down

Tenkan-Sen level                  : 0.9728

Kijun-Sen level                    : 0.9723

Ichimoku cloud top                 : 0.9739

Ichimoku cloud bottom              : 0.9738

Original strategy :

Bought at 0.9700, Target: 0.9800, Stop: 0.9700

Position : - Long at 0.9700

Target :  - 0.9800

Stop : - 0.9700

New strategy  :

Hold long entered at 0.9700, Target: 0.9800, Stop: 0.9700

Position : - Long at 0.9700

Target :  - 0.9800

Stop : - 0.9700

The greenback met resistance at 0.9777 and has retreated, suggesting caution on our long position entered at 0.9700 but as long as support at 0.9692 holds, further consolidation would be seen with mild upside bias for another rebound, above said resistance at 0.9777 would add credence to our view that temporary low is formed, bring retracement of recent decline to 0.9800, then 0.9819-25 (38.2% Fibonacci retracement of 1.0025-0.9692 and previous resistance) but price should falter below resistance at 0.9851 (also just below 50% Fibonacci retracement at 0.9858), bring another decline later.

In view of this, we are holding on to our long position entered at 0.9700. Below said support at 0.9692 would signal recent decline has resumed and extend weakness to 0.9670-75 but reckon downside would be limited to 0.9650 and 0.9620-25 should hold, bring another rebound later. 

GBP/USD - 1.2883

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.2897

Kijun-Sen level                    : 1.2938

Ichimoku cloud top              : 1.2989

Ichimoku cloud bottom        : 1.2971

Original strategy :

Bought at 1.2960, stopped at 1.2925

Position : - Long at 1.2960

Target :  -

Stop : - 1.2925

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Sterling ran into heavy selling pressure at 1.3015 yesterday and has dropped sharply, price just broke below 1.2866 support earlier today, suggesting top has indeed been formed at 1.3048 earlier and downside bias is seen for this the erratic decline from there to extend weakness to previous support at 1.2844, then 1.2831, however, near term oversold condition should prevent sharp fall below 1.2800 and reckon 1.2770-75 would hold from here.

In view of this, would not chase this fall here and would be prudent to stand aside for now. Above previous support at 1.2926 (now resistance) would defer and suggest an intra-day low is formed instead, bring a stronger rebound to 1.2950 but upside should be limited to 1.2990-00.