EUR/USD

The EUR/USD pair retreated on Friday from a fresh 1-month high of 1.0782, but settled well above the 1.0700 threshold, as broad dollar's weakness dominated the FX board, following Fed's monetary policy meeting. The US Central Bank hiked rates as largely anticipated, but retain the stance of a slow pace for upcoming hikes, being far more conservative than expected. At the same time, other major Central Banks' policymakers, hinted the possibility of retrieving their facilities, further fueling dollar's easing. The BOE's meeting showed one MPC member voted to hike rates, whilst ECB's Nowotny said that the Government Council talked about the possibility of rising rates.

Over the weekend, the G-20 meeting ended with world leaders dropping a decade-long pledge to reject protectionism, unable to find common ground with the new US administration, replacing it with a light commitment to work on strengthening "the contribution of trade to our economies." This outcome will likely weigh on the USD, as it indicates Trump's desire for a weaker greenback. The week will likely start in slow motion, as the calendar is quite light in Europe and the US, until Wednesday.

After rallying for three weeks in-a-row, the daily chart for the EUR/USD shows that the pair settled above its 20 and 100 DMAs, both around 1.0610, but still below a 200 DMA, at 1.0856. It also shows that technical indicators have lost upward strength and began retreating from near overbought territory, but are far from suggesting a downward move, whilst the price stands above the 38.2% retracement of the post-US election slide at 1.0710. In the shorter term and according to the 4 hours chart, technical indicators are also retreating from overbought readings, but holding well above their mid-lines and with limited bearish strength, whilst the 20 SMA maintains a strong upward slope, converging with the mentioned Fibonacci support. Overall, the bullish potential eased, but there are no signs the pair has topped, and an extension beyond the mentioned high will likely result in further gains for the pair.

Support levels: 1.0710 1.0660 1.0635

Resistance levels: 1.0755 1.0790 1.0820

USD/JPY

The USD/JPY pair plunged on Friday to settle at 112.68, its lowest in two weeks, as early week dollar's weakness was exacerbated by poor US data. On Friday, the preliminary University of Michigan consumer confidence index rose to 97.6 for March from 96.3 in February, beating consensus, but within the report, the 1-year inflation expectations declined to 2.4% from previous 2.7% while the 5-year inflation expectations figure declined to 2.2% from 2.5%, the lowest reading in the survey’s history, and further fueling the idea that the Fed will take its time to raise rates further. A decline in US-Treasury yields also dented the pair, with the 10-year note shedding around 0.10% weekly basis, to end it at 2.50%. The pair is poised to extend its decline from a technical point of view, given that in the daily chart, it settled below its 100 SMA, now losing upward strength a few pips below 140.50, a major Fibonacci resistance, whilst technical indicators head sharply lower within bearish territory. In the 4 hours chart, the pair accelerated its decline after meeting continued selling interest on attempts to surpass a horizontal 200 SMA at 113.50, whilst technical indicators have moderated their bearish momentum, but consolidate within oversold readings, indicating further slides are likely towards 112.00.

Support levels: 112.50 112.10 111.65

Resistance levels: 113.05 113.50 114.00

GBP/USD

The GBP/USD pair settled at its highest in two-weeks, a couple of pips shy of the 1.2400 figure, as the Pound got a nice boost from the latest BOE's meeting that took place last Thursday. The Central Bank left its economic policy unchanged, but among the MPC there was one dissenter, Christine Forbes, who voted for a rate hike. But what actually fueled the GBP was a sentence included in the statement that reads "some members noted that it would take relatively little further upside news on the prospects of activity or inflation for them to consider that a more immediate reduction in policy support might be warranted." The UK will release multiple inflation figures this Wednesday, including PPI, CPI and Retail Price index, and if the figures beat market's expectations, will likely fuel Pound's rally, as a rate hike in the UK will become more imminent. From a technical point of view, the daily chart shows that technical indicators have entered positive territory, maintaining their bullish slopes and at their highest since late February, whilst the price is well above a now flat 20 SMA, around 1.2290, all of which supports additional gains for the upcoming days. In the 4 hours chart, technical indicators have lost upward strength but hold within overbought territory, whilst the 20 SMA present a sharp bullish slope, also standing in the 1.2290 region. In this last time frame, the price has settled above its 200 EMA for the first time this March, adding to the bullish case. The immediate resistance is now 1.2425, the 38.2% retracement of the January rally, while a critical support comes at 1.2345, the 50% retracement of the same rally and February's low.

Support levels: 1.2345 1.2300 1.2260

Resistance levels: 1.2425 1.2470 1.2510

GOLD

After a 2-week decline, gold prices recovered this past one, with spot settling at $1,229.05 a troy ounce, up 2.4% for the week, underpinned by Fed's decision to maintain its rate-hike pace unchanged, which weakened the greenback against all of its major rivals. The bright metal consolidated on Friday, holding within the upper end of Thursday's range, but unable to breach the weekly high of 1,233.62, somehow indicating fading buying interest. In the daily chart, the commodity closed the day around a horizontal 20 DMA and slightly below a major Fibonacci resistance at 1,230.10, whilst technical indicators have lost upward strength, although the RSI stands at 54, this last limiting the bearish potential. In the 4 hours chart, the 20 SMA maintains a strong bullish slope below the current level, whilst technical indicators hold within overbought territory with no signs of turning lower, in line with the longer term perspective.

Support levels: 1,223.15 1,212,90 1,203.30

Resistance levels: 1,230.10 1,242.50 1,250.65

WTI CRUDE

Crude oil prices posted a modest gain this last week after reaching fresh 2017 lows, with West Texas Intermediate futures ending at $48.69 a barrel after trading as low as 47.08. The commodity pared losses after the US weekly EIA report posted a surprise drawdown after 9 straight weeks of advances, although the recovery was contained by continued fears of further gains in US production, after Friday's Baker Hughes report. According to the oilfield company, the number of active US rigs drilling for oil rose by 14 to 631, the ninth consecutive weekly gain and the highest number of active drills since September 2015. The daily chart shows that WTI developed below the 200 DMA all the week, failing to surpass it, whilst the 20 DMA heads sharply lower above the current level, after crossing below the 100 DMA. Furthermore, technical indicators in the mentioned time frame have turned flat within oversold territory after correcting extreme readings, all of which maintains the risk towards the downside. In the 4 hours chart, the price is stuck around a modestly bullish 20 SMA, whilst technical indicators head nowhere within neutral territory. A downward extension below 48.00 will likely result in a deeper slide beyond the mentioned weekly high, and leaving doors open for a test of the 45 threshold.

Support levels: 48.00 47.30 46.65

Resistance levels: 49.10 49.75 50.50

DJIA

Wall Street closed mixed once again last Friday, with major indexes not far from their daily opening levels. The Dow Jones Industrial Average lost 20 points and settled at 20,914.62, while the S&P shed 3 points, to close at 2,378.25. The Nasdaq Composite closed flat at 5,901.00. The Dow momentum faded as investors struggle to digest monetary and political news, following Fed's decision and Donald Trump's fiscal 2018 budget proposal, which put forth massive cuts throughout the federal government. Financial and health care stocks led the decline, and within the Dow, Goldman Sachs was the worst performer, down by 1.72%, followed by JP Morgan that shed 1.05% and UnitedHealth Group which lost 0.93%. The best performer was 3M that gained 1.08%. Despite closing the week modestly higher, the Dow daily chart presents an increasing bearish potential, as the index is barely holding above a horizontal 20 DMA, while the RSI indicator retreated further from overbought readings and the RSI indicator entered bearish territory with a strong downward slope. In the 4 hours chart, the index is stuck around its 20 and 100 SMAs, both converging in the current 20,910 level, whilst technical indicators pose a modest bearish potential, turning south around their mid-lines.

Support levels: 20,890 20,852 20,817

Resistance levels: 20,925 20,978 21,015

FTSE 100

The FTSE 100 advanced 9 points or 0.12% on Friday, to close the week at 7,424.96, its second consecutive record close and after extending its rally to a new intraday record high of 7,447. The advance was limited by Pound's strength. Insurance firm Admiral was the best performer, adding 1.94%, followed by ConvaTec Group that gained 1.88%. Royal Bank of Scotland was among the best performers, advancing 1.37%, following upbeat comments from Natixis analysts. Mining-related equities were off the radar as metals consolidated on Friday, while Old Mutual was the worst performer, down 2.38%. The index retains its positive tone in the daily chart, as it continued developing well above moving averages, whilst technical indicators remain within positive territory, although with limited upward momentum. In the 4 hours chart, the upside remains constructive, as the 20 SMA maintains a strong bullish slope below the current level, whilst technical indicators have turned north within positive territory, favoring a new leg higher on a break above the mentioned high.

Support levels: 7,399 7,363 7,338

Resistance levels: 7,447 7,480 7,510

DAX

European equities posted modest gains last Friday, with the German DAX ending the week at 12,095.24, up on the day by 12 points, but the week at its highest since April 2015, with sharp losses in automobile stocks offsetting other sectors' gains. E.ON was the best performer within the DAX, closing 4.83% higher, followed by Commerzbank that gained 1.54%. Deutsche Bank was the worst performer, down 2.13%, followed by Volkswagen that shed 1.45%. The daily chart shows that the index held above a bullish 20 DMA, currently at 11,973, but that technical indicators have lost their upward momentum, turning flat within positive territory, indicating easing bullish strength, but not enough to suggest an upcoming downward move. In the 4 hours chart, technical indicators have also turned neutral within positive territory, whilst the index holds above all of its moving averages, with the shortest now providing an immediate dynamic support at 12,037.

Support levels: 12,039 11,977 11,932

Resistance levels: 12,105 12,140 12,178

STOCKS

Overall the indices are stable just now and could be quiet for the next coupel of sessions without much movement expected.

Dow (20914.62, -0.10%) could remain paused within the 21000-20800 region for maybe another couple of sessions before again bouncing back towards important resistance at 21200.

Dax (12095.24, +0.10%) continues to trade along the upper trend line of a medium term channel. There is potential of a rise towards 12220-12300 levels in the near term before a short dip is possible.

Nikkei (19521.59, -0.35%) has scope of moving towards 19800 on a break above 19600 but while below 19600 it could remain stable in the 19400-19600 region. We could see some consolidation for the next couple of sessions.

Shanghai (3246.69, +0.29%) came off sharply after showing an initial rise above 3250 last week. Immediate support seen near 3225 and while that holds, we could see a rebound towards 3250 and higher in the coming sessions.

Nifty (9160.05, +0.07%) saw an intra-day high of 9218 on Friday before coming off to close at lower levels of 9160. Our upside target remains at 9280 for the near term from where a sharp corrective fall is expected.

COMMODITIES

Gold (1233) has closed at higher levels from a weekly low of 1196. We continue to look for a close above 1240-45 levels in the near term to take fresh long positions. But before that it may spend a few sessions within the 1215-45 region.

Silver (17.46) has tested immediate resistance at 17.47-48 before closing slightly lower. A break above that could take it up to 18.00. Overall we need to wait for confirmation for immediate directional clarity.

Copper (2.67) was almost unchanged and trading within a narrow range of 2.65-72. We will remain bearish while it is trading below 2.70-72.Only a close above 2.72 could negate our short term bearish view.

Brent (51.45) and WTI (48.41) still shows no strong sign of recovering as both of them had registered the intraday low at 51.36 and 48.26, close to our supports of 50 and 47.50 respectively. We will remain bearish while Brent and WTI are trading below 53 and 50 levels.

FOREX

As all the major events are past now, a quiet week can be expected with Dollar remaining weak as no fresh triggers are visible in the near term.

Dollar Index (100.16) remains weak and may see a gradual decline towards 99.00 over the week with the upside limited to 100.70-101.00.

Euro (1.0760) is wandering about listlessly near the major resistance 1.08, which if holds, may push it down to 1.07-1.06. Only a firm break above 1.08 opens up 1.10 but the probability of that stands at not more than 40% right now. The current net short position of the speculators is the smallest since May’16, which may well turn out to be an indicator for a top formation. Must be kept in mind.

Dollar-Yen (112.55) is getting closer to our target/support of 112.00-111.70 which is expected to hold by the speculators as the net short positions continue to pile up. But a break below 111.70 may open up much lower levels of 110.00 and even 108.50-00.

Pound (1.2382) has almost achieved our initial target of 1.2410 with a high of 1.2405 and now requires a rise above 1.2430-40 to extend the rally to 1.26 levels.

Aussie (0.7718) is testing the major resistance area of 0.7750-0.7850. As discussed last week, this long term resistance area is a very significant make or break zone which, if overcome, may determine the path for the next few months but it remains to be seen if Aussie manages a break above 0.7750-0.7850 immediately or not.

Dollar Rupee (65.45) has tested and currently holding above our target/support of 65.20. Now a sideways consolidation in the range of 65.20-70 can be expected for the next few sessions before any more major move.

INTEREST RATES

The US yields fell sharply in the last 2-sessios but could see some recovery in the near term. The 5yr (2.02%), 10YR (2.50%) and the 30Yr (3.11%) are trading slightly lower from previous levels of 2.04%, 2.54% and 3.15% respectively.

The German-US 2yr (-2.11%) is testing resistance at current levels coinciding with the resistance at 1.08 on Euro. If the resistance levels hold, we could see a fall in both Euro and the yield spread.

The Japan yields are mixed. The 30Yr 90.84%) could test 0.9% before dipping slightly while the 5YR (-0.13%) and the 10Yr (0.08%) could either remain stable or see some fall in the coming sessions towards -0.15% and 0.05% respectively.

Home on the Range

Are the markets about to deliver some March Madness? For dealers seeking volatility, it has been a challenging start to the year, kicking the can from one news event to the next, growing restless, mired in markets that are at'home on the range'. Real average ranges are squashed like a pancake, and home run trades are a fleeting memory. It's been a challenging start to the year with misdirections the name of the game with dealers doing little more than kicking the can from one news event to the next. Traders are growing incredibly restless mired in markets that are stuck “ home on the range. However, as the Greenback's pressure cookers elastomer bindings look set to yield, we need to remain cognizant that short-term market was carrying significant long dollar (and short Treasury positions) and we see those positions unwind. However, the lack of volatility suggests while the Buck is wavering, it's unlikely to give way anytime soon.

While Friday's APAC session was another muted affair, the gradual grind lower in USD yields was the real story as USDJPY dove below the significant 113 level, just as UST 10's slipped beneath 2.5%, ahead of the weekend's G-20. For now, and likely until the June FOMC, the'build up the divergence' theme has all but run its course. As such, expect shifting portfolio allocations to accelerate as dealers chuck the long dollar view for long Yen, Aussie and Kiwi overweight positions.

While agnostic on the current market view and very on the fence, the randomness of Friday's session indicates that Traders are practising their duck and cover drills while stuck in the lacuna. I think the currency markets are a bit deranged, as dealers continue to maladminister positions, ending up shooting themselves in the foot time and time again. I think there will be a reluctance to chase this USD move lower.

Why do I get a feeling that the plethora of Fed-speak this week will lean against the markets dovish lean? Call it a hunch, but if history suggests anything, betting on Fed flip flops is as predictable an outcome as siding on FOMC forward guidance.

The reasons to be USD bullish are fading, for now, because 1) the Fed is less of a factor, and 2) the expected Trump reform is likely too far in the distance to be of immediate concern, and 3) G20's bark is probably more ferocious that the real bite on a trade. We are likely to see risk continue to shine, but I sense the markets are waiting for the Fed Speak this week to clarify the FOMC statement before overcommitting to any one side.

Australian Dollar

The AUD is holding on to the top side of the ranges, but as we all know, the so-called death valley .7720-60 will be a tough nut to crack. Iron ore is finding support, and with Yellen sounding every so risk friendly, the Aussie continues to be the vehicle of choice for shifting short dollar portfolio flows.

It's hard to refrain from putting up a good argument for the AUD not to test .7800, even if the Greenback holds current levels on the G-3. While some less welcoming remarks on trade from the US occurred at the weekend G-20, the market is viewing the comments as more bark than bite as this stage, despite the possibility of a shifting global trade landscape. After all, much of the recent global growth storyline is written on the back of lowering trade barriers, so one should expect the opposite to hold true in the face of protectionism.

Euro

The Euro lost a bit of its topside momentum as the French election risk is still a key concern for EUR. The first French presidential TV debate is to be held tonight, and I suspect the market will be in wait and see mode.However, the comments from the ECB's Nowotny the day prior, suggesting that the ECB could commence with raising rates before the conclusion of QE continue to resonate and provide support for the EURUSD above 1.0700

Japanese Yen

The break of 112.75 has opened up the door for a move lower, but the market remains bid as current levels are viewed by traders as good medium term levels for dollar bulls. Only a washout below 112 will likely change that tune. Despite the dovish Fed hike, the dollar apple cart has not tipped as of yet. More so, if you're of the view that the Fed considered it premature to take a more hawkish stance before seeing details of the Trump policies, after which the markets expects the Feds to take a more hawkish tone and bolster the USDJPY upside trajectory.

China

China is back on the market radar with the PBOC surprising markets by increasing OMO and MLF rates by 10bps for the second time this year. In addition to tempering financial market leverage and possible asset bubbles, it is clear that the PBOC hike, coming in on the back of the Fed move, is also designed to keep interest rate differentials between the US and China moving in tandem, to kerb capital outflows.

EM Asia

The less hawkish stance by the Fed has opened the door for local EM trade, even more so with the stronger than expected Chinese data last week, adding to the global dollar squeeze. Stability in China will bode well from regional sentiment, which will be supportive of a recovery in commodity prices, along with higher inflation, all of which should pass through to the region.

The MYR is picking up interest on the back of infrastructure investment and as investors view the stability in the commodity space as a positive for the region. Indeed, the prospects of GDP growth on the back of local infrastructure projects bodes well for other commodity related baskets and could produce a much-needed reprieve to local rubber markets.

Ah, the power of confluence!

We were watching this confluence of resistance on EUR/JPY on the blog mid last week and I wanted to bring it back up again:

EUR/JPY Daily:

Here you can see the higher time frame confluence of resistance that I'm talking about on the daily chart. Price has not only hit the pretty obvious trend line resistance, but also the horizontal resistance zone.

Both are pretty obvious levels, with the trend line resistance speaking for itself and the horizontal zone formed by a retest of previous swing lows.

Moving to today's start to the week, we can see that the level held:

EUR/JPY Hourly:

From here, I just wanted to highlight a few things with the 2 markings on the chart.

1. While price pulled back above the little swing high, the higher time frame resistance still held. This shows the importance of trading in the direction of the higher time frame level.

2. Now that the higher time frame level has been reactivated and has held, we look to trade short term pullbacks into previous support turned possible resistance. This is a nice area of interest.

USDCHF - The pair weakened the past week leaving risk to the downside into the new week. On the downside, support lies at the 0.9950 level. A turn below here will open the door for more weakness towards the 0.9900 level and then the 0.9850 level. Its daily RSI is bearish and pointing lower suggesting further weakness. On the upside, resistance resides at the 1.0050 level where a break will clear the way for more strength to occur towards the 1.0100 level. Further out, resistance comes in at the 1.0150 level. All in all, USDCHF faces further price weakness.

GOLD - The commodity took back its previous week losses to close higher the past week. On the downside, support comes in at the 1,220.00 level where a break will turn attention to the 1,210.00 level. Further down, a cut through here will open the door for a move lower towards the 1,200.00 level. Below here if seen could trigger further downside pressure targeting the 1,190.00 level. Conversely, resistance resides at the 1,235.00 level where a break will aim at the 1,245.00 level. A turn above there will expose the 1,255.00 level. Further out, resistance stands at the 1,270.00 level. All in all, GOLD looks to strengthen further.

EURUSD: With the pair closing higher the past week, further recovery is envisaged. On the upside, resistance comes in at 1.0800 level with a cut through here opening the door for more upside towards the 1.0850 level. Further up, resistance lies at the 1.0900 level where a break will expose the 1.0950 level. Its weekly RSI bullish and pointing higher suggesting further upside pressure. Conversely, support lies at the 1.0700 level where a violation will aim at the 1.0650 level. A break of here will aim at the 1.0600 level. All in all, EURUSD faces further upside pressure but with caution.

There were some major surprises in the markets, much volatility and some interesting developments, last week. Dollar ended the week as the weakest major currency as markets were clearly disappointed by the outcome of the dovish FOMC rate hike. Technical developments in Dollar index and treasury yields suggest that more down would be seen in near term. There were some good reasons for Euro to surge last week. Those factors include speculations of ECB rate hike by the end of the year, as well as the Euro-friendly results of Dutch elections. But the common currency did end up as the second weakest one. In particular, the sharp pull back of EUR/CHF from as high as 1.0823 to close at 1.0718 indicates that traders are still concerned with political uncertainties ahead. On the other hand, Australian dollar ended as the strongest major currency last week in spite of weak employment data. Sterling followed as the second strongest major currency after hawkish BoE minutes. Also, FTSE 100 closed at new record high despite all the Brexit and Scexit news.

Dollar sold off on Fed disappointment

To recap, Fed raised federal fund rates by 25bps to 0.75-1.00% as widely expected. The disappointment comes from effectively no upward revision in the projected rate path. The median projection of federal fund rates was held at 1.4% by the end of 2017, same as December projection. Median projection for rate by the end of 2.18 was held at 2.1%, also same as December projection. Median projection for rate by the end of 2019 was revised by a mere 0.1% to 3.0%. More in FOMC Delivered, Market Disappointed.

Minneapolis Fed Kashkari explained his dissent

It should also be noted that Minneapolis Fed president Neel Kashkari dissented on rate hike and voted for keeping it unchanged. He explained on Friday that he'd prefer to wait until there is a detailed "balance sheet plan" before raising interest rate. He noted that shrinking the balance sheet would "trigger somewhat tighter monetary conditions." And, "after it has been published and the market response is understood, we can return to using the federal funds rate as our primary policy tool, with the balance sheet normalization under way in the background." This balance sheet normalization first, rate hike later approach is clearly different from Fed chair Janet Yellen's and some other members', for the moment. But more policy makers could lean towards this approach after the federal fund rate is raised a few more times.

Another thing to note is that Fed was clear that fiscal policies, with the lack of details, are not being considered in latest economic projections. Dollar bulls would likely need to at least see that realized in the projections before commiting more on the greenback's up trend. But it would probably take some more time for US president Donald Trump to move his focuses back from travel ban and military spending into things like tax reforms and others.

Dollar index heading to 97.66

Last week's sharp fall confirmed that dollar index's corrective rise from 99.23 is finished at 102.26. More importantly, fall from 103.82 is resuming. Near term outlook is bearish for a test on 99.23 support first. Break will target 100% projection of 103.82 to 99.23 from 102.26 at 97.66. Considering that it's close to 55 week EMA (now at 98.51) we'd tentatively expect strong support from there to contain downside.

TNX to fall back to 2.314

TNX's rejection from 2.621 resistance suggests short term topping again. There are two main interpretations of the price actions. Firstly, consolidation from 2.621 is extending with fall from 2.615 as the third leg. Secondly, rise from 2.314 to 2.615 is a failure fifth that ends the whole impulsive rally from 1.336. In both cases, TNX should now head to 55 day EMA at 2.435 and sustained break will target 2.314 and below. But still, in both cases, we'd expect strong support from around 38.2% retracement of 1.336 to 2.621 at 2.130 to contain downside and bring up trend resumption. This is in line with the outlook in dollar index.

Sterling jumped on hawkish BoE

To the market's surprises BoE MPC member Kristin Forbes voted in favor of a 25 bps rate hike last week. While this had not altered the decision of keeping the Bank rate unchanged at 0.25%, the overall message sent to the public has now become more hawkish. The members voted unanimously to leave the government bond purchases at 435B pound and corporate bond purchases at up to 10B pound. Adding to the rising speculations of tightening is the minutes, which suggested that some of those who voted for unchanged policy believed 'it would take relatively little further upside news on the prospects for activity or inflation for them to consider that a more immediate reduction in policy support might be warranted'. More in Forbes' Dissent Would Unlikely Speed Up BOE's Rate Hike Schedule.

FTSE closed at record high

The interesting development is that FTSE 100 surged to new record high and closed strongly at 7424.96 last week. It should be noted that it came with speculation of rate hike by early next year and rebound in Sterling in the background. And UK prime minister Theresa May has cleared the way to trigger Article 50 for Brexit later in the month. And Scotland is calling for another independence referendum after Brexit agreement is settled. The strength in UK stocks is indeed a statement. The coming weeks will be important to seen if both Sterling and stock could remain in sync to move higher.

Technically, FTSE is now pressing a key long term channel resistance. Rejection from there and break of 0.7093.56 will indicate reversal and drag the index below 55 week EMA (now at 6855.44). However, further upside acceleration would send the index to 100% projection of 4791.01 to 7122.74 from 5499.50 at 7831.24. And that could help pull some funds back into Sterling assets.

Aussie to look at China stocks for guidance

The Australian dollar outperformed other major currencies last week despite disappointing employment data. The diminishing chance of another rate cut by RBA is seen as a factor as the housing markets were heating up again in recent months. Two major Australian banks, NAB and Westpac has hiked mortgage rates this month blaming surging wholesale funding costs. Meanwhile, developments in China could be another factor favoring Aussie. China's PBoC raised key short term repo rate and medium term MLF rate last week. PBoC said that the hikes doesn't constitute a benchmark rate increase. But some analysts said that's a sign of acceleration in tightening. The SSE composite jumped to as high as 3274.19 before reversing sharply on Friday. It remains to be seen if the index can take out key medium term resistance at 3301.21. That could be another factor in deciding Aussie's fate.

To sell USD/JPY this week

Regarding trading strategies, our EUR/AUD long, entered at 1.3900, was stopped out at 1.4000 with 100 pips profit last week due to the deeper than expected pull back from 1.4183. The development dampened our bullish view of medium term trend reversal and we will move away from the cross first. We bought USD/JPY at 114.00 last week but that was quickly stopped out at 113.50 as Fed disappointed the markets. As noted above, we're expecting near term weakness in both Dollar and treasury yields. That makes selling USD/JPY a choice to ride on the developments. Hence, we will send USD/JPY on recovery to 113.50 this week, with stop at 114.50. We'd expect a test on 111.12/13 as the whole fall from 118.65 resumes.

USD/JPY Weekly Outlook

USD/JPY's fall from 115.49 accelerated last week and the development invalidated our original bullish view. Instead, it suggests that price action from 111.58 are a consolidation pattern and is completed with three waves to 115.49. And the corrective decline from 118.65 is resuming.

Initial bias remains on the downside this week for 111.58 and below. At this point, we'd tentatively expect strong support from 111.12/13 cluster support to contain downside. This level represents 61.8% projection of 118.65 to 111.58 from 115.49 at 111.12 and 38.2% retracement of 98.97 to 118.65 at 111.13. On the upside, above 113.53 minor resistance will turn bias to the up for 115.49 resistance. However, sustained break of 111.12/13 will bring deeper decline to 100% projection of 118.65 to 111.58 from 115.49 at 108.42.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Nonetheless, sustained trading below 55 week EMA (now at 111.08) will extend the consolidation from 125.85 with another fall through 98.97 before completion.

In the long term picture, the rise from 75.56 long term bottom to 125.85 medium term top is viewed as an impulsive move. Price actions from 125.85 are seen as a corrective move which could still extend. But, up trend from 75.56 is expected to resume at a later stage for above 135.20/147.68 resistance zone.

EUR/USD's rebound from 1.0494 accelerated higher last week. The development dampened our bearish view of down trend resuming. Instead, it suggest that corrective rise from 1.0339 is still in progress. And further rise would be seen through 1.0828 resistance in near term.

Initial bias in EUD/USD stays on the upside this week for 1.0828 resistance and above. However, since rise from 1.0339 is seen as a corrective move. We'd upside to be limited by 100% projection of 1.0339 to 1.0828 from 1.0494 at 1.0983 to bring larger down trend resumption eventually. On the downside, break of 1.0639 minor support will turn bias back to the downside for 1.0494 support.

In the bigger picture, as long as 1.1298 key resistance holds, whole down trend from 1.6039 (2008 high) is still expected to continue. Break of 1.0339 low will send EUR/USD through parity to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115.

In the long term picture, the down trend from 1.6039 (2008 high) is still in progress and there is no clear sign of completion. We'd expect more downside towards 0.8223 (2000 low) as long as 1.1298 resistance holds. However, firm break of 1.1298 should now confirm long term reversal.

USD/JPY's fall from 115.49 accelerated last week and the development invalidated our original bullish view. Instead, it suggests that price action from 111.58 are a consolidation pattern and is completed with three waves to 115.49. And the corrective decline from 118.65 is resuming.

Initial bias remains on the downside this week for 111.58 and below. At this point, we'd tentatively expect strong support from 111.12/13 cluster support to contain downside. This level represents 61.8% projection of 118.65 to 111.58 from 115.49 at 111.12 and 38.2% retracement of 98.97 to 118.65 at 111.13. On the upside, above 113.53 minor resistance will turn bias to the up for 115.49 resistance. However, sustained break of 111.12/13 will bring deeper decline to 100% projection of 118.65 to 111.58 from 115.49 at 108.42.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Nonetheless, sustained trading below 55 week EMA (now at 111.08) will extend the consolidation from 125.85 with another fall through 98.97 before completion.

In the long term picture, the rise from 75.56 long term bottom to 125.85 medium term top is viewed as an impulsive move. Price actions from 125.85 are seen as a corrective move which could still extend. But, up trend from 75.56 is expected to resume at a later stage for above 135.20/147.68 resistance zone.