Sample Category Title

Weekly

    •    Last Candlesticks pattern: Hammer
    •    Time of formation: 19 Sep 2016
    •    Trend bias: Down

Daily

    •    Last Candlesticks pattern: Doji
    •    Time of formation: 28 Mar 2017
    •    Trend bias: Near term up



EUR/JPY – 117.65




As the single currency has finally rebounded after falling to 114.85 (a white candlestick with a long lower shadow was formed on the daily chart), suggesting consolidation above this level would be seen and another bounce to 118.00 cannot be ruled out, however, reckon upside would be limited to the Kijun-Sen (now at 118.56) and bring another decline later, below 115.75-80 would bring retest of 114.85 but break there is needed to signal recent decline has resumed and extend further weakness to 114.00 and possibly towards 113.40-50.

On the upside, whilst initial recovery to 118.00 cannot be ruled out, reckon upside would be limited to the Kijun-Sen (now at 118.56) and bring another decline later. A daily close above resistance at 118.80 would defer and risk a stronger rebound to previous support at 119.32 but resistance at 119.85 should remain intact, bring another decline later. Only above resistance at 120.44 would abort and signal recent decline has ended instead, bring further gain towards the Ichimoku cloud (now at 120.99-121.01).

Recommendation: Sell at 118.70 for 116.70 with stop above 119.70.

On the weekly chart, euro’s rebound after falling to 114.85 looks set to form a white candlestick this week, hence consolidation with mild upside bias is seen for retracement to 118.00, then test of the Kijun-Sen (now at 118.47) but reckon renewed selling interest should emerge around the Tenkan-Sen (now at 118.87) and bring another decline later. Below 115.50-55 would bring retest of 114.85 but break there is needed to signal recent decline from 124.10 has resumed and extend further weakness to 114.00, then 113.70-75. Looking ahead, below the latter level is needed to signal the rebound from 109.49 has ended at 124.10, bring further fall to 113.00 and then 112.50-60.

On the upside, expect recovery to be limited to the Kijun-Sen (now at 118.47) and the Tenkan-Sen (now at 118.87) should hold, bring another decline later. Only above previous support at 119.32 would defer and suggest low is possibly formed instead, risk a stronger rebound to 120.00 but break of resistance at 120.44 is needed to confirm and suggest recent decline from 14.10 has ended instead, bring a stronger rebound to 121.15-20 but resistance at 121.84 should remain intact.

The pair is back to red in early Friday's trading, after two day recovery rally showed signs of stall after peaking at 109.47 and being unable to close above falling 10SMA (currently at 109.16).

Near-term risk is turning again towards 200SMA (108.88), return below which would weaken near-term structure.

Overall bias remains shifted lower as daily technicals are negative and last week's long bearish candle weighs heavily on the market.

The pair may hold in extended consolidation before fresh attack at this week's low at 108.11 and extension of broader downtrend an break below 108.11 and next target at 107.84 (Fibo 61.8% retracement of Jun/Dec 2016 101.17/118.65 rally).

Alternative scenario requires strength through psychological 110.00 barrier at 110.20 (falling 20SMA) to neutralize immediate downside threats and signal stronger correction of 111.56/108.11 downleg.

Res: 109.47, 109.84, 110.00, 110.20
Sup: 108.88, 108.63, 108.30, 108.11

Weekly

    •    Last Candlesticks pattern: Bullish engulfing
    •    Time of formation: 02 May 2016
    •    Trend bias: Up

Daily

    •    Last Candlesticks pattern: Hammer
    •    Time of formation: 19 Oct 2016
    •    Trend bias: Up



USD/CAD – 1.3395




The greenback found decent demand at 1.3223 early last week and has staged a strong rebound (a hammer and a long white candlestick bullish patterns were formed on the daily chart), the subsequent breach of previous resistance at 1.3456 confirms the correction from 1.3535 has ended at 1.3223, bring retest of this level later. Looking ahead, a break of the level would retain bullishness and extend early erratic upmove from 1.2461 low to 1.3599, then 1.3660-70 but still reckon upside would be limited to 1.3700 and risk from there is seen for a retreat later. 

On the downside, whilst pullback to 1.3400 cannot be ruled out, reckon the Kijun-Sen (now at 1.3362) would contain weakness and bring another rise later. A daily close below the upper Kumo (now at 1.3339) would defer and prolong consolidation, risk weakness to 1.3262 support but last week’s low at 1.3223 should remain intact, bring another rebound later. In the event the pair drops below said support at 1.3223, this would shift risk back to the downside for the erratic fall from 1.3535 to bring correction of early upmove to 1.3200, then 1.3160-65 but reckon downside would be limited to 1.3100 and price should stay well above support at 1.3056, bring rebound later.

Recommendation: Buy at 1.3400 for 1.3590 with stop below 1.3300.


On the weekly chart, as the greenback has staged another strong rebound after finding good support at 1.3223 last week, suggesting the pullback from 1.3535 has ended there and consolidation with upside bias is seen for further gain towards said resistance, however, break there is needed to retain bullishness and extend the rise from 1.2969 to indicated previous resistance at 1.3599 but only a break of this resistance would signal upmove from 1.2461 (2016 low) has resumed for headway to 1.3700 and later towards 1.3835-40 (61.8% Fibonacci retracement of 1.4690-1.2461) which is likely to cap upside.

On the downside, expect pullback to be limited to 1.3400-10 and 1.3360-65 should hold, bring another rise later. Below the Kijun-Sen (now at 1.3284) would bring test of said support at 1.3223 should remain intact, bring another rebound later. A weekly close below this support would signal top has been formed at 1.3535 and test of previous resistance at 1.3210 would follow, however, break there is needed to add credence to this view, bring further fall to 1.3150-60, break there would signal the rebound from 1.2969 has ended, bring subsequent decline towards 1.3083 but indicated support at 1.3056 should hold from here, risk from there has increased for a rebound later.

EUR holds ground ahead of busy week-end

The Asian session was extremely calm on Friday as traders adjusted their positions ahead of the first round of the French presidential election that will take place on Sunday. The single currency edged slightly higher against most of its peers with the exception (obviously) of the Swiss franc. EUR/CHF was trading sideways at around 1.07.

On the surface, there is no evidence to suggest that the market is worried: the yellow metal is down 0.15%, the Japanese yen edges down 0.05% against the EUR and equities are treading water. However, in the option market it is a complete different story. The 1-week implied volatility (ATM) on EUR/USD hit 18% overnight, compared to 6.37% a week ago. The 1-week 25-delta risk reversal measure (the difference between the volatility of a call and a put) collapsed to -3.90%, indicating that investors rushed to buy insurance against further downside in EUR/USD. The same phenomenon happened to USD/JPY as traders braced themselves for a massive flight to safe-haven in case of pro-business candidates get squeeze out. Indeed, if none of Emmanuel Macron and François Fillon make it to the second round, and assuming that Benoît Hammond is already out, the EUR will take a wild ride. The worst scenario for the euro would be Le Pen and Mélenchon at the second round.

In EUR/USD, the key support stands at around 1.06-1.0630 (previous low and bottom of uptrend channel). Lower, a support can be found at 1.0341 (low from January 3rd). Investors will react violently to a squeeze out of pro-business candidates and we won’t be surprise to see EUR/USD free falling toward the 1.03 threshold. On the other hand, we’ll see a relief rally should Macron or Fillon make it to the second round (a Fillon/Macron second round would be a blessing for the EUR and French bonds). In any case, be ready for some opening gap on Monday morning.

Short JPY

The EURJPY remains the currency to watch for the market view on the French Presidential elections. Recent polls that suggest market friendly Macron has a slight lead gave Euro a boost however, terrorist acts in Paris reintroduced uncertainty (Fillon and Le Pen have suspended campaigning). Developments in European also support our short JPY call. We had anticipated a pullback in USD demand but that downwards correction in USDJPY has outpaced our expectations. We anticipate a recovery to resistance at 112.15. The JPY has been supported less by growing inflation expectations but rather weakening in global risk environment. JPY remains the dominate risk aversion trade above gold, USD and CHF (however, we are not seeing significant JPY buying on fluctuations in French polls). Clearly rising geopolitical worries have caused investors to rotating out of risky asset and into JPY. We suspect tensions have reached a peak and suspect that the historically customary path of diplomacy with takeover. IMM positioning indicates that the JPY is well overbought suggesting room for readjustments. This week BoJ meeting will bring no bring meaningful adjustment to the current strategy as policy board member are likely to shift focus on personal changes rather than monetary policy. Last week the BoJ nominated two very dovish member show support aggressive balance sheet expansion to its committee. For now the realization that the BoJ ¥80trn annual balance sheet expansion was unstable leading to a switch to yields curve control will dictate strategy. While the ECB inches towards tapering and Fed contemplate the next 25bps hike the BoJ policy continue to be the loosest. This strategy should remain supportive of USDJPY.

Yet, it is not the BoJ that will drive USDJPY higher but the reactions of the US economy and interest rate. US economy seems to have slipped into a period of cyclical softness which should organically pick-up in early summer. However, while investors have all but thrown the Trump-reflation trade always there is still the probability that that the Trump administration gets a pro-growth win (tax reform remains the clearest). IMM data indicates that USD is oversold indicating room for additional demand. In addition implied yields on Fed Futures for 2017 are near the lowest they have been in 2017 and 2018 suggesting it would not take much for markets to quickly reprice the pace of Fed interest rates hikes. Sending USDJPY higher.

We have seen this week, that during risk-off as a result of uncertainty from the French elections that Equities has fallen, the JPY has strengthened and the Japanese Trade Balance has fallen. Despite this, PMI data in both the EU and Japan has been solid. Perhaps the EUR has already priced the French election risk, and the JPY has strengthened accordingly. Depending on first election results, we might see renewed volatility and possible spike.

In the wake of the first round of French elections, the EUR/JPY has been bought on dips, although the daily chart still shows a downtrend so this up-move might be just a correction. The POC is 116.20-35 (ATR low, D L4, 50.0) and it is the last POC zone for bulls. Rejection from POC should get the price to 116.80, 117.00 and 117.80 on higher volatility. Breakout should happen only above 117.85. If the price gets below 115.85 (D L5 support), 115.50 might be tested as the last line of defense for bulls. Be careful.

On Sunday, French citizens are called to elect their government leader, but the final outcome is unlikely to be sealed on that day. According to the opinion polls, there is no candidate gaining the absolute majority, so a second round between the two leading candidates is very likely to be held on the 7th of May.

A couple of weeks ago, the leading candidates were three: Emmanuel Macron, Marine Le Pen, and Francois Fillon. Nevertheless, following a strong performance in the TV debates, left-wing candidate Jean-Luc Melenchon enjoyed a stellar rise of support. His program displays a similar Eurosceptic stance to Le Pen’s. He advocates for holding a 'Frexit' referendum as well. Therefore, a run-off between him and Le Pen seems to be the biggest risk scenario for the financial world.

If something like that takes flesh and bones, we expect the euro to sink as investors will likely price in a much greater risk of European disintegration. A general risk-aversion mood is likely to dominate as well. Safe-havens like the yen are likely to benefit, while equity markets, especially European indices, could take the down road. The other side of the coin is a Macron - Fillon second round. In this case, the opposite market reaction may be observed, as this run-off combination may eliminate the risk for any 'Frexit' referendum.

However, at the moment, polls suggest that the most likely outcome is for Macron and Le Pen to make it to the second round, with the former winning by a large margin. In general, Macron is seen as the winner against any other of the candidates. So if Macron makes it on Sunday, this could cause a market relief and the common currency may open Monday with a gap up. In the less likely scenario of him being kicked out, the only combination that could be seen as relatively pro risk is a Fillon - Le Pen run off, given that polls give the final victory to Fillon. In a Fillon - Melenchon race, Melenchon is preferred.

EUR/JPY is one of the best proxies to play this election in our view. At the time of writing, the pair is trading near the support level of 117.00 (S1). We believe that due to the elections on Sunday, the pair may enjoy a quiet Friday session in the absence of any surprise news. If Sunday’s combination favors a risk-averse mood in the financial community, the pair is possible to tumble and perhaps challenge the psychological territory of 115.00. On the other hand, a pro-risk result could cause the pair to rally and break the downtrend line taken from the peak of the 13th of March. This could be the trigger for a short-term trend reversal.

Of course, much will depend on who gets the first place in the aforementioned combinations, and by how much margin.

As for today’s events:

During the European morning, we get the preliminary Markit manufacturing and services PMIs for April from several European nations and the Eurozone as a whole. Given that investors are likely to be on the edge of their seats for Sunday’s outcome, we don’t expect a major euro reaction from these releases.

In the UK, retail sales are forecast to have fallen somewhat in March, which could cause the pound to erase some of the gains it posted after PM Theresa May called for snap elections.

From Canada, we get CPI data for March. Expectations are for the headline rate to have declined somewhat, while no forecast is available for the core rate. The nation’s Markit manufacturing PMI for the month indicated that manufacturers raised the prices on final products at the steepest rate in three years.

So, although temporary factors may have dragged down the headline rate, the core rate may have remained unchanged or even ticked up, which could prove CAD-positive. USD/CAD could correct back below the 1.3455 (S1) support and perhaps challenge as a support the prior downside resistance line taken from the peak of the 9th of March.

From the US, we get the preliminary Markit manufacturing and services PMIs for April, and existing home sales for March.

We have several speakers at the G20 meeting and the IMF/World Bank conference, including ECB President Mario Draghi and ECB Board member Benoit Coeure.

EUR/JPY

Support: 117.00 (S1), 116.45 (S2), 115.75 (S3)

Resistance: 117.85 (R1), 118.45 (R2), 119.00 (R3)

USD/CAD

Support: 1.3455 (S1), 1.3425 (S2), 1.3345 (S3)

Resistance: 1.3500 (R1), 1.3535 (R2), 1.3600 (R3)

'Brexit will be a litmus test of the future of international cooperation.' - Marc Carney, Bank of England

On Thursday, the Bank of England Governor Marc Carney delivered a speech at the Institute of International Finance in Washington. In his speech, Carney said that financial regulations implemented after the global financial crisis should be able to transform in accordance with unexpected changes. He also stated that the Bank of England would stick to a 'dynamic' approach towards financial regulations, ensuring the global financial system's stability. Meanwhile, in the US, Donald Trump started the process of creating new financial regulations, arguing that financial restrictions are hampering economic growth. Carney also claimed the global financial system was at a 'fork in the road', providing boost to mutual suspicion between regulators. In addition, he highlighted that Britain's withdrawal from the European Union would be a test for cooperation between financial regulators. The BoE Governor said that the Financial Stability Board was working on a revamp of the current financial regulations since the financial crisis, stressing that the FSB do not have the authority to force countries to act in accordance with its view. Back in January, the Congressman Patrick McHenry urged the Fed Chair Janet Yellen to stop cooperating with the FSB, claiming that the FSB's rules run counter to the US interests.

'They have come down from really high levels, but these are still very good, positive readings.' - Michael Trebing, Philadelphia Federal Reserve

US manufacturing activity in the Mid-Atlantic region slowed markedly in April, official figures revealed on Thursday. The Philadelphia Federal Reserve reported its Manufacturing Index dropped to 22.0 in the reported month, following March's reading of 32.8 and falling behind analysts' expectations for a decrease to 25.6 points. Analysts stated that business optimism prompted by Donald Trump's win in the presidential election started to fade, putting downward pressure on business activity. Thursday's data also showed the New Orders Index fell to 27.4 from 38.6 points posted in March, the highest since December 1987. Meanwhile, the six-month business outlook declined to 45.4 from 59.5 points registered in March, the strongest since August 2014. The Price Index dropped to 33.7 from 40.7 points posted in March, the highest since May 2011. On the positive side, the Employment Index rose to 19.9, the strongest since May 2011. Manufacturers also said that they would increase capital spending this year due to expected higher sales. Furthermore, 36.7 of the respondents said that capital spending would take place in the first half of the year. Other data release on Thursday showed initial jobless claims climbed 10,000 to 244,000 last week.

'Both Le Pen and Melenchon represent a risk for markets, but Melenchon would be more disruptive for the French economy than Le Pen.' – Frederic Leroux, Carmignac Gestion (based on Bloomberg)

Pair's Outlook

On Friday morning the common European currency against the US Dollar traded once more below the weekly R2, which is located at the 1.0729 level. The reason for that is the fact that the resistance put up by the weekly R3 at 1.0780 held its ground on Thursday. It is most likely that large fluctuations in the currency pair would not occur during today's trading session, as the French presidential elections will be held on Sunday. These elections are the main focus now for Euro traders, and the results are sure to cause a fundamental shift in the currency pricing.

Traders' Sentiment

SWFX traders remain bearish, as 54% of open positions are short. In addition, 52% of trader set up orders are to sell the Euro.

'Rising global inflation should have little impact on GBP, we think, since the BoE is not expected to change policy anytime soon.' – Morgan Stanley (based on PoundSterlingLive)

Pair's Outlook

A failure to edge lower on Thursday suggested that the Cable has entered a period of consolidation and is likely to remain within its current trading range today, namely between 1.2750 and 1.29. From a broad technical perspective, another rally is unlikely, due to the weekly R3 and the upper Bollinger band forming resistance just above today's opening price, while the nearest support rests only at 1.2743, represented by the monthly R1. Furthermore, the GBP/USD pair appears to be gravitating towards the 1.28 mark, which also implies another leg down today is more probable. Meanwhile, technical indicators are giving mixed signals in the daily timeframe.

Traders' Sentiment

For the fourth day in a row the bull and the bear ratio remains equal to one. At the same time, the share of buy orders surged from 50 to 57%.