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Currency pair USD/JPY

The USD/JPY seems to be retracing within a wave 2 (brown) back to the Fibonacci levels which could act as support. The wave 1-2 (brown) structure is invalidated once price breaks below the bottom (blue).

The USD/JPY is building an ABC (orange) within wave 2 (brown) and could retrace back to the Fibonacci levels of wave 2 vs 1 (brown).

Currency pair EUR/USD

The EUR/USD remains between a support (green) and resistance trend line (red), which mark the borders of the corrective zone. A break above resistance (red) could see price move higher to test the Fibonacci levels of wave 2 (purple) but a push above the 100% level invalidates the wave structure. A break below support (green) could see the downtrend continue within waves 3 (red/green).

The EUR/USD is moving lower in a choppy and corrective way, which makes it likely that price is retracing within a wave B (blue). The invalidation spot of this wave B (blue) is the bottom (green)

Currency pair GBP/USD

The GBP/USD continued with the downtrend yesterday and posted a new lower low. Price remains in a bearish trend as long as it stays in the channel and below resistance (red/orange).

The GBP/USD break below the support trend line (blue) could see price continue with wave 5 (blue) of wave 3 (green). A break above the inner resistance line (light orange) could see price expand the wave 4 (orange). A break above the 61.8% Fibonacci level would make a wave 4 (orange) unlikely.

A note on lower timeframe confirming price action...

Waiting for lower timeframe confirmation is our main tool to confirm strength within higher timeframe zones, and has really been the key to our trading success. It takes a little time to understand the subtle nuances, however, as each trade is never the same, but once you master the rhythm so to speak, you will be saved from countless unnecessary losing trades. The following is a list of what we look for:

• A break/retest of supply or demand dependent on which way you're trading.
• A trendline break/retest.
• Buying/selling tails ... essentially we look for a cluster of very obvious spikes off of lower timeframe support and resistance levels within the higher timeframe zone.
• Candlestick patterns. We tend to only stick with pin bars and engulfing bars as these have proven to be the most effective.

EUR/USD

As we entered into the early hours of yesterday's London segment, the single currency tapped the underside of the 1.06 handle and sold off. Despite this, the selloff was a relatively short-lived one, as price found support just ahead of the H4 mid-way support level at 1.0550.

With the session producing very little in terms of movement, our desk continues to favor the 1.05/1.0520 area for longs. The zone comprises of: a round number at 1.05, January's opening level at 1.0515, daily support at 1.0520 as well as being reinforced by the weekly support area at 1.0333-1.0502.

Our suggestions: Seeing as how the 1.05/1.0520 zone has already been tested twice, we would not be comfortable trading from here without additional lower-timeframe confirmation. This could be either an engulf of demand followed by a retest as supply, a trendline break/retest or simply a well-defined collection of buying tails around the higher-timeframe zone.

Data points to consider: US ADP non-farm employment change at 1.15pm GMT

Levels to watch/live orders:

• Buys: 1.05/1.0520 ([wait for a lower-timeframe signal to form before looking to pull the trigger] stop loss: dependent on where one confirms the zone).
• Sells: Flat (stop loss: N/A).

AUD/USD

Kicking this morning's report off with a look at the daily timeframe, we can see that the commodity currency has now chalked in two back-to-back bearish pin bars off the underside of a daily resistance pegged at 0.7609. Assuming that this encourages selling, the next downside target to have noted is the daily demand area drawn from 0.7511-0.7543. In conjunction with the daily picture, weekly action also indicates that there's room to push lower down to a weekly support area seen at 0.7524-0.7450 (bolsters the aforementioned daily demand).

Stepping across to the H4 candles, price settled for the day just ahead of February's opening level at 0.7577. Despite what we've noted on the higher-timeframe structures, to become sellers we would need to see a H4 close beyond 0.7577. This would, as you can see, potentially open up the runway south down to the H4 mid-way point 0.7550 which happens to be positioned directly above the top edge of the current daily demand.

Our suggestions: Should a close below 0.7577 come to fruition, we would look to short any retest seen to the underside of this line assuming that it's backed with a lower-timeframe confirming signal (see the top of this report), targeting 0.7550.

Data points to consider: Chinese trade balance (tentative). US ADP non-farm employment change at 1.15pm GMT.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Watch for price to engulf 0.7577 and then look to trade any retest seen thereafter (waiting for a lower-timeframe confirming signal to form following the retest is advised] stop loss: dependent on where one confirms the level).

USD/JPY

USD/JPY prices are little changed this morning, with the market spending the day ranging (43 pips) around the 114 handle. This lackluster performance, as you can see on the daily chart, formed yet another daily indecision candle!

With weekly action recently printing a strong-looking weekly bullish engulfing candle, and daily movement seen loitering around the underside of a daily resistance area at 115.62-114.60, higher-timeframe technicals are somewhat mixed at the moment.

Our suggestions: While a H4 close above 114 would be considered a bullish signal, and considering that you'd also be trading in line with weekly flow, price may very well reach the nearby H4 trendline resistance extended from the high 115.62. However, this would also place one against daily sellers! It's just not worth the risk, in our opinion. The same goes for shorting this piece. A short would obviously place one in line with daily flow, but at the same time, against weekly direction!

Therefore, at least for now, we will remain on the sidelines.

Data points to consider: US ADP non-farm employment change at 1.15pm GMT.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Flat (stop loss: N/A).

USD/CAD

Much the same as yesterday, the USD/CAD is still seen capped at 1.3434/1.3419 (November, December and January's opening levels). Also worth noting is the converging weekly trendline resistance extended from the high 1.4689 and daily supply coming in at 1.3461-1.3426. While this collective structure places the unit in a somewhat overbought position right now, there's been very little bearish intent registered so far. This, of course, could have something to do with the daily support area seen in play at 1.3387-1.3317! Assuming that the bears regain consciousness here, however, the next downside target on the H4 scale is a broken Quasimodo line at 1.3353.

Our suggestions: If one is able to pin down a lower-timeframe short position (see the top of this report) from the above noted monthly levels today, a short position could be considered, targeting the above said broken H4 Quasimodo level. In regards to buying this unit, we would advise against this given the opposing structures seen on the weekly and daily timeframes.

Data points to consider: US ADP non-farm employment change at 1.15pm. Crude oil inventories at 3.30pm GMT.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: 1.3434/1.3419 ([wait for a lower-timeframe signal to form before looking to pull the trigger] stop loss: dependent on where one confirms the zone).

USD/CHF

For a while now we have been banging the drum about the 1.02/1.0170 (yellow zone) neighborhood for shorts. The reason being is that this area comprises of the following converging structures: both December and January's opening levels at 1.0170/1.0175, a H4 trendline resistance pegged from the high 1.0118, a H4 Quasimodo resistance at 1.0197, a 1.02 psychological handle and let's not forget that all of this is seen housed within the daily supply zone mentioned above 1.0248-1.0168.

As can be seen from the H4 chart this morning, price actually tagged the underside of this region yesterday and aggressively sold off. Unfortunately, we were looking to sell from January's opening level at 1.0175, so we missed the trade by five pips! Well done to any of our readers who managed to short from this beautiful zone.

Going forward, the pair is now seen trading between a H4 resistance at 1.0135 and a nearby H4 demand base coming in at 1.0107-1.0118. Given the near-touch of January's open level, our team believes further selling could very well be on the cards today/this week. However, selling is a little tricky right now. Apart from the nearby H4 demand, we also have a psychological band coming in at 1.01, followed closely by the March opening level at 1.0066 to contend with!

Our suggestions: in the absence of cleaner price action, we have decided to remain flat for the time being.

Data points to consider: US ADP non-farm employment change at 1.15pm GMT.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Flat (stop loss: N/A).

DOW 30

In recent hours we have seen the US equity market tumble down to a H4 demand area marked at 20837-20869. Be that as it may, we have our eye on the zone seen between this H4 demand and the one directly below it: 20769-20801/ 20837-20869, which happens to be positioned within the walls of the nearby daily demand zone at 20714-20821. The interesting thing here is that in between these two H4 barriers (the yellow zone) is March's opening level at 20824 and a possible H4 AB=CD completion point at 20813 (see black arrows).

Our suggestions: Should we see price strike the yellow zone today, our team would, assuming that a reasonably sized H4 bull candle takes shape, look to buy from here with stops either placed below the trigger candle or below the H4 demand at 20769-20801.

Data points to consider: US ADP non-farm employment change at 1.15pm GMT.

Levels to watch/live orders:

• Buys: 20801/20837 region ([wait for a reasonably sized H4 bull candle to form before looking to pull trigger here] stop loss: ideally beyond the trigger candle).
• Sells: Flat (stop loss: N/A).

GOLD

Gold took yet another hit to the mid-section yesterday as the unit crashed through bids at a H4 Quasimodo support level coming in at 1221.7. In view of the H4 candles now seen loitering mid-range between this H4 level and February's opening level at 1211.5, where do we go from here? Well, both weekly and daily action suggest further selling could be on the horizon, with the closest higher-timeframe support coming in at 1197.4-1187.7: a daily support area. Therefore, a short from the recently broken 1221.7 hurdle could be an option today, targeting 1211.5 as your initial take-profit zone (as per the black arrows).

Our suggestions: Since we are dealing with a fixed level here, to avoid the possibility of a fakeout we would strongly recommend waiting for a lower-timeframe sell signal to form before pulling the trigger.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: 1221.7 region ([wait for a lower-timeframe signal to form before looking to pull the trigger] stop loss: dependent on where one confirms the zone).

Global Markets:

• Asian stock markets: Nikkei down 0.55 %, Shanghai Composite gained 0.05 %, Hang Seng rose 0.40 %, ASX 200 declined 0.10 %
• Commodities: Gold at $1217 (+0.10 %), Silver at $17.51 (-0.15 %), WTI Oil at $52.80 (-0.65 %), Brent Oil at $55.65 (-0.50 %)
• Rates: US 10 year yield at 2.51, UK 10 year yield at 1.19, German 10 year yield at 0.32

News & Data:

• China Trade Balance (CNY) (Feb): -60.4bn (est 172.50B, prev 354.50B)
• China Exports YoY (CNY) (Feb): 4.2% (est 14.60%, prev 15.90%)
• China Imports YoY (CNY) (Feb): 44.7% (est 23.10%, prev 25.20%)
• Japan GDP Nominal SA (QoQ) (Q4 F): 0.40% (est 0.50%, prev 0.30%)
• Japan GDP Annualized SA (QoQ) (Q4 F): 1.20% (est 1.50%, prev 1.00%)
• Japan GDP Private Consumption (QoQ) (Q4 F): 0.0% (est 0.00%, prev 0.00%)
• Japan GDP Business Spending (QoQ) (Q4 F): 2.0% (est 1.70%, prev 0.90%)
• Japan BoP Current Account Balance (JPY) (Jan): 65bn (Est 270.0B, prev 1112.2B
• Japan Trade Balance BoP Basis (JPY) (Jan): -853.4bn (Est -800.2B, prev 806.8B)
• Asian stocks slip as caution sets in; debt yields firm – RTRS
• Pharma, bank stocks pull Wall Street lower – RTRS

Markets Update:

Risk appetite decreased in Asia. Most of the major stock markets are down on the day, led by the Nikkei 225, which lost more than 0.50 %. Meanwhile, the Japanese Yen rose against most other currencies overnight.

The main event in Asia was the release of Chinese trade data. The trade balance showed a deficit, while the market was expecting a surplus of over 170 billion Yuan. However, the big increase in imports was caused by the Chinese New Year holiday and has only a temporary effect.

Volatility in the major currency pairs has been low in the past few trading days. Traders are waiting for the ECB rate decision tomorrow and the US employment data on Friday. The market is not expecting any changes from the ECB, but is looking for hints if the QE programme could end earlier.

Upcoming Events:

• 07:00 GMT – German Industrial Production
• 07:45 GMT – French Trade Balance
• 08:15 GMT – Swiss CPI
• 13:15 GMT – US ADP Nonfarm Employment Change
• 15:30 GMT – US Crude Oil Inventories

Key Points:

• Long-term pennant should encourage a reversal.
• 61.8% Fibonacci level should hold strong.
• German data could put pressure on the pair ahead of the minimum bid rate.

The EURGBP is in focus again this week as the recent vote from The House of Lords has put Brexit back in the spot light. As a result, it could be worth taking a closer look at the pair’s technical bias as it could provide some clue as to where we can expect to see it travel following the injection of fresh uncertainty into the Brexit saga.

Firstly, there is a fairly patent bullish pennant being retraced on the daily chart which looks set to remain intact going forward. Specifically, both the upside and downside constraints of the structure have weathered a number of assaults which speaks volumes of how entrenched the consolidation phase is. As a result of this pattern, we are now expecting to see a reversal take place within the next week or so.

Moreover, aside from the trend line, there are a number of technical readings suggestive of an imminent downtrend. For instance, we have stochastics deep in oversold territory which has already been applying some downward pressure on the pair. In addition, the presence of the 61.8% Fibonacci retracement could further limit upside potential as the pair approaches the 0.8673 handle.

Revealingly, a quick look at the Bollinger bands also shows that, despite the strong price action seen recently, the pair has failed to move above the upper band which typically indicates a breakout is unlikely. Combined with the relatively strong divergence in the upper and lower band, chances of pushing through that upside of the pennant are looking fairly slim indeed.

From a fundamental perspective, we have a few things on the radar this week which could be worthfactoring in. Firstly, the German Industrial Production figure is on the way and, if the German Factory Orders result is anything to go by, it could be significantly weaker than originally forecasted. Further, the ECB minimum bid rate is due to be posted which, by itself, will probably be uneventful but the accompanying remarks could generate some solid movement.

Ultimately, both the fundamental and technical forecasts seem to be in line which should generate some negative sentiment moving forward. As a result, we are expecting to see a gradual decline bring the pair back to around the 0.84 handle before support kicks in strongly due to the presence of the lower constraint of the pennant. However, stay vigilant for any fundamental upsets that could instead see a rather sharp reversal take hold.

Recent Chinese economic indicators have been positive. The country surprisingly recorded trade deficit, of RMB 60B, in February. The market had anticipated a decline of surplus to RMB 173B from RMB 355B in January. Imports soared +44.7% y/y while exports gained +4.2% y/y, compared with growths of +15.9% and +25.2%, respectively, in January. The sharp rise uin imports might indicate improvement in domestic demand. China's FX reserve added +US$ 6.9B to US$ 3.01 trillion in February, marking the first increase in 8 months. The market had anticipated further decline for the month. After adjusting for currency valuation effects, the reserves probably increased US$ 19-25B in the month. While this might be the first sign of the effect of China's capital control measures, we expect the government remain cautious as outflow should remain a problem for the rest of year. Note that a reason for the uptick in February was the improved performance of renminbi at the beginning of the year. Further information, including PBOC's FX position and SAFE flow data, is needed to grasp a clearer outlook of the capital flow situation. We remains bearish over renminbi as the Fed's monetary policy normalization program should continue to support USDCNY.

Separately, China's Premier Li Keqiang in his working report to the National People's Congress outlined a more benign economic growth outlook for the year. The GDP growth target for this year is "around 6.5%, or higher if possible", down from 2016's 6.5-7.0%. Inflation target stays at around 3% and a fiscal deficit at around 3% of GDP. The growth target of money supply M2 has been lowered, by -1 percentage point, to 12%. Also suggested in the Work Report, the RMB exchange rate will "be further liberalized, and the currency's stable position in the global monetary system will be maintained". It is apparent that the policy focus has shifted from a pro-growth one to one that aims at stable social and economic developments and prevention of macro risks. Meanwhile, we believe a stable monetary policy stance, as suggested by the government, refers to one with tightening bias. Yet, the tightening is targeted more at the asset market but not at cooling the real economy.

This year's growth target, at 'around +6.5%', allows the government more flexibility. The tolerance of lower growth was probably a lesson learnt from the past two years as the government had to revise lower the targets after actual growth turned out weaker than expected. This also reflects that the policy focus has shifted from pursuing growth to reining in financial risks and leverage. Growth targets for total social financing (TSF) and M2 were trimmed one percentage point to +12% in 2017. The fact that TSF growth target is lower than the 2016's growth of +12.8% might signal the government's credit tightening policy in certain areas, such as real estate. The M2 growth target is higher than last year's growth of +11.3%. That said, the more conservative forecast for this year, when compared with last year, still reflects a tightening bias in monetary policy stance.

Daily Pivots: (S1) 1.0548; (P) 1.0575 (R1) 1.0592; More.....

EUR/USD is still consolidating in range of 1.0493/1.0630. Intraday bias remains neutral at this point. On the upside, firm break of 1.0630 resistance will argue that pull back from 1.0828 is completed. Also, rise from 1.0339 could possibly be resuming. In that case, intraday bias will be turned back to the upside for 1.0828 resistance and above. On the downside, below 1.0493 support will affirm the case that fall from 1.0828 is resuming the larger down trend. In that case, intraday bias will be back to the downside for resting 1.0339 low.

In the bigger picture, whole down trend from 1.6039 (2008 high) is in progress. Such down trend is expected to extend to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

Daily Pivots: (S1) 113.75; (P) 113.95; (R1) 114.18; More...

Intraday bias in USD/JPY remains neutral as it's staying in range of 111.58/114.94. Corrective fall from 118.65 might not be completed yet. But still, in case of another fall, we'd still expect strong support from 38.2% retracement of 98.97 to 118.65 at 111.13 to contain downside and bring rebound. On the upside, decisive break of 114.94 will indicate that it's completed with a double bottom pattern (111.58, 111.68). In such case, intraday bias will be turned to the upside for retesting 118.65.

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. Rejection from 125.85 and below will extend the consolidation with another falling leg before up trend resumption.

Daily Pivots: (S1) 1.2163; (P) 1.2207; (R1) 1.2246; More...

Intraday bias in GBP/USD remains on the downside as decline from 1.2705 continues. Current fall should target a test on 1.1946/86 support zone. As noted before, consolidation pattern from 1.1946 should have completed with three waves to 1.2705 already. Break of 1.1946 will confirm our bearish view and resume the larger down trend. On the upside, break of 1.2346 support turned resistance is needed to invalidate this view. Otherwise, outlook will remain cautiously bearish in case of recovery.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term bottoming yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

Daily Pivots: (S1) 1.0101; (P) 1.0136; (R1) 1.0165; More.....

USD/CHF's rise from 0.9860 is still in progress. Intraday bias remains on the upside for a test on 1.0342 key resistance level next. As noted before, based on neutral medium term outlook, we'd be cautious on topping at around 1.0342. On the downside, break of 1.0008, however, will indicate completion of the rebound from 0.9860. And intraday bias will be turned back to the downside for 0.9860.

In the bigger picture, prior rejection from 1.0327 resistance argues that USD/CHF is staying in a medium term sideway pattern. In any case, decisive break of 1.0342 resistance is needed to confirm underlying strength. Otherwise, we'll stay neutral in the pair first. In case of another fall, we'd expect strong support from 0.9443/9548 support zone. Meanwhile firm break of 1.0342 will target 38.2% retracement of 1.8305 to 0.7065 at 1.1359.

Daily Pivots: (S1) 0.7563; (P) 0.7598; (R1) 0.7620; More...

Intraday bias in AUD/USD remains neutral for the moment. With 0.7635 minor resistance intact, outlook is unchanged. That is, rebound from 0.7158 is finished at 0.7740. Below 0.7542 and sustained trading below 55 day EMA will pave the way back to 0.7144/7158 support zone. However, firm break of 0.7635 will dampen our bearish view and turn focus back to 0.7740 instead.

In the bigger picture, we're still treating price actions from 0.6826 low as a correction. And, as long as 38.2% retracement of 0.9504 to 0.6826 at 0.7849 holds, long term down trend from 1.1079 is expected to resume sooner or later. Break of 0.6826 low will target 0.6008 key support level. However, firm break of 0.7849 will indicate that rise from 0.6826 is developing into a medium term rebound, rather than a sideway pattern. In such case, stronger rise should be seek to 55 month EMA (now at 0.8164) and above.