Sample Category Title

AUDUSD made a sharp fall last week, which we now see as a trigger and an indication for a wave three in progress. As such we can say, that a running flat correction was completed in the previous wave 2, at the 0.7558 level. A running flat correction is like a normal flat, the only difference is that wave C) of a running flat does not breach the end of wave A), as in our case. That said, we now expect pair to stay bearish in sessions ahead, and ideally unfold a five wave movement within the current bigger wave three that can be underway down to 0.7250 or even 0.7130.

AUDUSD, 4H

Weekly 



    •    Last Candlesticks pattern: Shooting star 
   

    •    Time of formation: 13 Mar 2017 
   

    •    Trend bias: Down



Daily



    •    Last Candlesticks pattern: Bearish engulfing pattern 
   

    •    Time of formation: 16 Feb 2017 
   

    •    Trend bias: Near term down





Although the Australian dollar rebounded last week to as high as 84.55, the subsequent retreat has retained our bearishness and as long as this level holds, consolidation with mild downside bias remains for another decline, below 82.65-70 would bring weakness to 82.00 but a daily close below there is needed to signal the rebound from 81.49 low has ended, bring retest of this level later. A drop below this level would extend recent decline from 88.15 top to support at 81.10-15, however, near term oversold condition should limit downside and reckon 80.00 psychological support would hold from here, bring rebound later.

On the upside, whilst marginal recovery from here cannot be ruled out, as long as said resistance at 84.55 holds, prospect of another decline to aforesaid downside targets remains. Only a break above said resistance at 84.55 would abort and suggest low is formed instead, risk a stronger rebound to 85.00-10 but said resistance at 85.75 should remain intact, bring another decline later.




Recommendation: Hold short entered at 83.65 for 81.65 with stop above 84.65.

On the weekly chart, although aussie found support at 82.70 and rebounded, still reckon the Tenkan-Sen (now at 84.50) would limit upside and bring another decline, below 83.00 would bring test of said support at 82.70 but break of 82.00 is needed to signal the rebound from 81.49 has ended, bring retest of this level later. A drop below this level would extend the fall from 88.15 top to support at 81.10-15, a weekly close below there would retain bearishness and suggest the rise from 72.50 has ended, then further fall to 80.50 and possibly psychological support at 80.00 would follow.

On the upside, expect recovery to be limited to the Tenkan-Sen (now at 84.50) and bring another decline. A weekly close above resistance at 84.55 would suggest low is formed instead, bring a stronger rebound to 85.00, then towards resistance at 85.75 but only break there would abort and signal low is formed instead, bring further subsequent gain to 86.00 and then 86.50-60, however, price should falter below resistance at 87.50.

'The fall (in retail sales) confirms our sense that the pace of household consumption recorded late last year was facilitated by a sharp drop in the savings rate, and was unsustainable.' - Tom Kennedy, JP Morgan

Australian retail sales dropped for the second straight month in March, official data revealed on Tuesday. According to the Australian Bureau of Statistics, sales were down 0.1% on a seasonally adjusted basis in March, following the downwardly revised drop of 0.2% registered in the preceding month and falling short of analysts' expectations for a 0.3% increase. However, in trend terms, Australian turnover soared 2.5% in March compared with the same month a year ago. The rise was backed by an uptick in food retailing, which rose 0.1% in March, but the gain was still offset by a slowdown in household goods retailing and sales of clothing, footwear and personal accessory, with both industries registering a 0.3% dip in the observed period. In the meantime, sales at department stores, cafes, restaurants and takeaway food services were relatively flat, coming in with a 0% change in March. In regional terms, sales plummeted 0.4% in Queensland, 0.1% in West Australia and Tasmania and 0.3% in the Northern Territory, setting off moderate gains observed in other areas.

'Housing demand appears to have been curbed in recent months due to the deterioration in housing affordability caused by a sustained period of rapid house price growth during 2014-16.' - Martin Ellis, Halifax

The value of dwelling permits issued by Canadian municipalities slid for the second straight month, government data revealed on Tuesday. The report released by Statistics Canada showed building permits in Canada dropped 5.8% to a total of $7.0B over the month of March, following the downwardly revised 2.8% plunge registered in February and falling well behind the 4.2% gain eyed by most of the economists. The fall was mainly driven by weaker building intentions for multi-family apartment buildings in nine regions of the country, with British Columbia and Ontario registering the biggest drops. In the meantime, single-family dwelling construction intentions surged 3% to $2.7B in the reported period, putting Ontario and Alberta atop of the four provinces that booked gains. In the non-residential sector, the value of building permits inched 0.5% down to settle at $2.4B in March, with lower commercial building intentions being the main contributor to the decline. Still, the latter was almost completely offset by a 9.1% jump in the institutional component, led by Quebec and Ontario.

'With a 17-year high share of small businesses reporting jobs are hard to fill, an acceleration in quits would bode well for a pick-up in wage growth later this year.' - Sarah House, Wells Fargo

The number of job openings in the US rose in March, according to the JOLTS monthly report. Data from the US Bureau of Labour Statistics released on Tuesday showed that the US job openings increased to 5.74M over the course of March, following the previous month's downwardly revised figure of 5.68M. Meanwhile, analysts anticipated a slight decrease to 5.67M. Job openings grew across business and professional services as well as in local and state government education, while they declined in education services. The number of hires over the reported month was changed insignificantly, coming in at 5.3M with an increase in social assistance and healthcare services, though a modest decrease was registered in logging and mining. Moreover, data showed that total separations, including layoffs, quits and discharges, were little changed at 5.1M in March. The total number of separated employees diminished for government and was slightly changed for the private sector. Separately, the US employment data reported earlier this month suggested that the job market is likely to continue being strong.

Weekly
    •    Last Candlesticks pattern: Shooting doji
    •    Time of formation: 20 Feb 2017
    •    Trend bias: Sideways

Daily
    •    Last Candlesticks pattern: Bearish engulfing pattern
    •    Time of formation: 21 Mar 2017
    •    Trend bias: Near term down



As aussie has dropped again after brief, adding credence to our bearish view (our short position entered at 0.7590 met target at 0.7390 with 200 points profit) and downside bias remains for the decline from 0.7750 to bring at least a strong retracement of the rise from 0.7158, hence further weakness to 0.7300-10 and possibly 0.7250-60 is underway, however, near term oversold condition should prevent sharp fall below 0.7200-10 and price should stay well above support at 0.7158.

On the upside, whilst initial recovery to 0.7400 cannot be ruled out, reckon the Tenkan-Sen (now at 0.7443) would limit upside and bring another decline later. A daily close above 0.7490-00 would defer and risk a stronger rebound towards resistance at 0.7556 but break there is needed to signal a temporary low is formed instead, bring a stronger rebound to 0.7590-95 but price should falter below resistance at 0.7611 and bring another decline later.  



Recommendation: Target met and sell aussie again at 0.7440 for 0.7240 with stop above 0.7540.



On the weekly chart, last week’s selloff adds credence to our view that the rebound from 0.7158 has ended at 0.7750, bearishness remains for the fall from there to extend further decline to 0.7290-00 and possibly towards 0.7230, however, reckon downside would be limited to 0.7200 and price should stay well above previous support at 0.7158, risk from there is seen for a rebound to take place later. 

On the upside, although initial recovery to 0.7420-30 cannot be ruled out, reckon the Kijun-Sen (now at 0.7454) would limit upside and bring another decline later. Only above last weeks high at 0.7556 would abort and signal low is formed instead, risk a stronger rebound to 0.7590-95 but break of resistance at 0.7611 is needed to add credence to this view, bring further gain towards resistance at 0.7680 but a sustained breach above this level is needed to signal the retreat from 0.7750 has ended, bring another bounce towards this level.

USD/CHF - 1.0066

Most recent candlesticks pattern : N/A

Trend                                    : Near term up

Tenkan-Sen level                  : 1.0064

Kijun-Sen level                    : 1.0039

Ichimoku cloud top                 : 0.9961

Ichimoku cloud bottom              : 0.9926

Original strategy :

Buy at 0.9980, Target: 1.0080, Stop: 0.9945

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.0005, Target: 1.0105, Stop: 0.9970

Position : -

Target :  -

Stop : -

Although dollar has eased after rising to 1.0091 and consolidation below this level would be seen, reckon pullback would be limited to the Kijun-Sen (now at 1.0039) and renewed buying interest should emerge around 1.0000-05, bring another rise, above said resistance would add credence to our view that early upmove has resumed for retest of 1.0108 resistance, break there would confirm and encourage for headway to 1.0130 and then 1.0150-55. 

In view of this, would not chase this rise here and we are looking to buy dollar on pullback as 1.0000-05 should limit downside. Only below previous resistance at 0.9957 would defer and suggest top is possibly formed, bring test of 0.9920-25 but break of previous resistance at 0.9903 is needed to add credence to this view, bring further fall to 0.9880-85.

EUR/USD

Current level - 10886

Yesterday's slide broke below 1.0870 low, thus showing a negative bias on the senior frames, for further depreciation towards 1.0700 area. Key resistance lies at 1.0950.

Profit-taking affects gold curbing silver and platinum

USD/JPY

Current level - 113.81

Today's pullback below 104.30 should be considered corrective in nature, thus preceding another leg upwards, to 115.60 resistance zone. Major support is projected at 113.07 level.

GBP/USD

Current level - 1.2956

The bias here remains neutral, as major resistance is still 1.3000 sentiment area and initial support lies at 1.2900, followed by the crucial one at 1.2830.

GBP/USD - 1.2980

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.2963

Kijun-Sen level                    : 1.2944

Ichimoku cloud top              : 1.2952

Ichimoku cloud bottom        : 1.2951

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Despite yesterday’s euro-led retreat to 1.2903, as cable found good support there and has staged a strong rebound, suggesting the pullback from 1.2991 has possibly ended there and gain towards 1.2999-00 (1.236 times projection of 1.2109-1.2616 measuring from 1.2365 and psychological resistance) cannot be ruled out, however, break there is needed to signal recent upmove has resumed and extend further rise to 1.3040-50, then towards 1.3075-80 which is likely to hold from here due to near term overbought condition. 

In view of this, would be prudent to stand aside in the meantime. Below 1.2940 would brig another test of said support at 1.2903, however, break there is needed to revive near term bearishness and suggest a temporary top has been formed at 1.2991, bring correction to 1.2875-80 but price should stay well above last week’s low at 1.2831.

The best way to describe recent market price action is boring. Although S&P 500 touched a new record-high on Tuesday, the index has been trading in a range of less than 0.5% for the past ten days, and when excluding the rise of 0.41% on 5th May, it was a trading range of less than 0.2%.

Low volatility indicates that investors seem to be relaxed for now. Although they're not willing to take much risk, they aren't worried about a sharp correction. Multiple factors may explain the low volatility: steady earnings, stable economic indicators, and a decline in equities correlation, limiting a one-sided move. One of the questions I hear all day, is how long can this prolonged period of low volatility last? But the more important question should be, what direction are equities going to take when volatility returns?

First, let's examine how markets reacted in the immediate aftermath of historic low volatility levels:

July 1993: The VIX fell to 9.11, S&P 500 gained 3.6% in the following eight weeks.

December 1993: the VIX dropped to a low of 8.89, four weeks later the S&P 500 surged 2.6%, then fell by more than 7% in two months.

December 2006: the VIX fell below 10. S&P 500 posted gains of 3.25% in ten weeks, followed by a 6.7% correction.

The takeaway from these samples is that for the most part, when the VIX falls below the 10 benchmark, equities make short-term gains, followed by a correction. On the longer-term, it's much different. For example, in 1995 the S&P 500 surged 37.2% and in 2008 crashed 36.55%, suggesting that the VIX is a poor indicator of long-term trends.

A period of very low volatility doesn't persist for long, and it only needs little surprises, whether it's macro factors, a change in earnings expectations, or a political shock to change investors' behavior.

I still believe that valuations are overstretched, and if not supported by stronger earnings in the next two quarters, it will be hard to justify current price levels, especially considering that fixed income instruments will become more attractive as the Fed and other central banks start tightening monetary policies. I will also keep a close eye on oil prices, although I believe that we'll be ending the year above $50. Any sharp move to the downside from current levels will drag equities with it.