Currency pair GBP/USD

The GBP/USD is building a correction between support (green) and resistance) which is most likely a wave 4 (purple). A bearish ABC (orange) seems to be completed within a larger wave B (blue) correction as price bounced strongly at the 50% Fibonacci level.

The GBP/USD bullish momentum is probably a 5 wave (orange) structure, which could mean that price is retracing within wave 4 (orange) as long as price stays above the 50% Fibonacci level.

Currency pair EUR/USD

The EUR/USD break below the support trend line (blue) could spark a continuation of the wave 3 (purple). A break of the resistance trend lines (orange/red) could change the wave structure

The EUR/USD is most likely in a wave 4 (blue) retracement, which would be invalidated if price broke above the resistance (red) and 61.8% Fibonacci. A break below support (green) could see a continuation.

Currency pair USD/JPY

The USD/JPY is building a retracement back to the Fibonacci levels of wave 4 (purple). The 38.2% and 50% are likely support levels to complete a wave 4 (purple).

The USD/JPY could have completed a bearish ABC zigzag (orange) at the 38.2% Fibonacci level of wave 4 (purple). A break above the resistance trend lines could indicate a continuation of the bullish momentum whereas a break below support (green) could see a bearish continuation.

Daily Pivots: (S1) 1.2386; (P) 1.2466; (R1) 1.2585; More...

GBP/USD rebounded strongly after hitting 1.2346 and intraday bias is turned neutral first. Price actions from 1.1946 are viewed as a consolidation, no change in this view. In case of another rise, we'd expect upside to be limited by 1.2774 to bring larger down trend resumption. On the downside, below 1.2346 will revive the case that such consolidation is completed at 1.2705 already. In that case, intraday bias will turn back to the downside for retesting 1.1946 low.

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.

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EUR/USD Daily Outlook

Daily Pivots: (S1) 1.0641; (P) 1.0695 (R1) 1.0734; More.....

Intraday bias in EUR/USD remains neutral as it's staying in range of 1.0619/0828. As noted before, choppy rise from 1.0339 is seen as a correction. Hence, in case of another rise, upside should be limited by 1.0872 resistance and bring fall resumption eventually. Break of 1.0619 will argue that the corrective rise is completed and turn bias to the downside for retesting 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.

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Key Points:

• Fed likely to embark on monetary tightening.
• Industrial Silver demand remains strong.
• Watch for sharp volatility and declines if the central bank hikes rates.

Silver has continued to see concerted selling pressure as price action remains trapped within the confines of the bearish channel. The past few days has seen price action trending strongly towards the upper channel constraint which now threatens a breakout of the medium term bearish trend. However, the question remains as to whether this is a definite breakout or simply a dead cat bounce ahead of the Fed potentially normalising interest rates.

In particular, the metal could potentially be facing a relatively large rout as the US economy continues to gear up for a range of monetary tightening. The risk of the Fed normalising rates was always ever present but as we move towards sustained economic growth and job gains it becomes relatively clear that the central bank will need to take action sooner, rather than later. Subsequently, the market is likely to focus upon the near term risk that a cycle of potential interest rate hikes poses

Any such move by the Fed would potentially send Silver reeling from its current level and forward forecasting shows that 75bps of hikes to the FFR, over the next year, would see the metal trading around the $14.00 an ounce mark. However, that risk might yet to be reflected within the Silver futures curve which is still showing rising prices throughout most of 2017 and 2018. Subsequently, if the Fed does indeed embark upon an adventure it could lead to the air escaping rapidly from the balloon which is currently financial markets.

Fortunately, the one fundamental factor which appears to be holding relatively static is the industrial demand for Silver. Physical demand continued to soar throughout most of 2016 which bodes well for the overall price direction and may be what much of the futures curve is based on. However, this ignores the impact of the waterfall effect as large institutions, such as JP Morgan, seek to continue floating derivative paper to ensure the metal remains depressed. Subsequently, it’s relatively unlikely that any of us will see a fair quote on COMEX any time soon.

Ultimately, Silver is in for a rough few months ahead as the volatility is likely to be fairly severe when the Fed tightening cycle eventually commences. That rate hikes are coming is largely inevitable, especially given some of the gains in inflation and the tightening of the job market, so it is imperative that position holders assess their reaction now before the madness of a ‘live’ FOMC meeting arrives.

Daily Pivots: (S1) 0.9916; (P) 0.9961; (R1) 1.0021; More.....

Intraday bias in USD/CHF remains neutral for the moment as the corrective rise from 0.9860 continues. As long as 1.0043 holds, deeper decline is expected. Current fall from 1.0342 is seen as the third leg of the pattern from 1.0327. Below 0.9860 will target 61.8% retracement of 0.9443 to 1.0342 at 0.9786 and below. On the upside, break of 1.0043 will indicate short term bottoming and turn bias back to the upside.

In the bigger picture, rejection from 1.0327 resistance suggests that consolidation pattern from there is still in progress. Fall from 1.0342 is seen as the third leg and retest of 0.9443/9548 support zone could be seen. But we'd expect strong support from there to contain downside. At this point, we're still expecting the larger rally to resume later to 38.2% retracement of 1.8305 to 0.7065 at 1.1359, after the consolidation completes.

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Key Points:

• Further gains could be realised moving ahead.
• Push above the 100 day EMA shows the metal’s underlying strength.
• Trump-based uncertainty also fuelling the rally.

Gold has been one of the big winners of the past few weeks and, much to the enjoyment of the gold bulls out there, its resurgence could be only partially complete. Notably, a number of technical signals are now in agreement that the metal could be midway to completing a rather sizable rally which could see it touch the post-US-election highs.

Primarily, the EMA bias present on the daily chart provides the clearest indication that upside potential could still be rather substantial. I am speaking of course of gold’s recent push above the relentlessly bearish 100 day average which made the metal’s underlying strength plain. Furthermore, this push higher significantly caps downside risks as the 100 day EMA should now be a source of dynamic support for gold prices.

Aside from the EMA activity, there are at least two other technical readings suggestive of continued gains moving ahead. Firstly, there is the Parabolic SAR reading which is in little danger of switching its trend in the near to medium-term. Secondly, there is evidence that an Elliot wave is forming up which could carry gold significantly higher over the coming weeks.

However, this forecasted push higher is likely to run into a small snag which should mean we see a brief period of moderation this week. Specifically, the 61.8% Fibonacci level appears to be holding firm despite the swell in buying pressure over the past session. Moreover, the RSI reading is verging on overbought which might need to be relieved slightly prior to any further surges for the metal.

Ultimately, it is likely to come down to the fundamentals if we hope to see the 1300.00 handle challenged yet again. Market uncertainty will be the key force among these fundamentals but, as always, finding a measure that captures this sentiment in no small task. However, if you’re not already doing so, keep a close eye on the Trump administration as a little common sense goes a long way in forecasting how the market will react to any given announcement.

Daily Pivots: (S1) 111.78; (P) 112.18; (R1) 112.77; More...

No change in USD/JPY's outlook. The choppy decline from 118.65 could extend lower. But such decline is seen as a correction. Hence, we'd expect strong support from 38.2% retracement of 98.97 to 118.65 at 111.13 to contain downside and bring rebound. Above 113.44 minor resistance will turn bias neutral first. Break of 115.36 resistance will argue that such correction is finished and turn bias to the upside for 118.65 high.

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.

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Global Markets:

• Asian stock markets: Nikkei gained 0.20 %, Shanghai Composite lost 0.30 %, Hang Seng up 0.05 %, ASX 200 gained 0.60 %
• Commodities: Gold at $1235 (-0.10 %), Silver at $17.71 (-0.30 %), WTI Oil at $51.60 (-1.10 %), Brent Oil at $54.65 (-0.75 %)
• Rates: US 10-year yield at 2.39, UK 10-year yield at 1.29, German 10-year yield at 0.36

News & Data:

• Japan BoP Current Account Balance (Dec): JPY 1112.2 Bln (est JPY 1183.3 Bln prev JPY 1415.5 Bln)
• Japan BoP Current Account Balance Adjusted (Dec): JPY 1669.2 Bln (est JPY 1709.4 Bln prev JPY 1799.6 Bln)
• Japan Trade Balance BoP Basis (Dec): JPY 806.8 Bln (est JPY 738.9 Bln prev JPY 313.4 Bln)
• PBoC Fixes USDCNY Reference Rate At 6.8849 (prev fix 6.8604 prev close 6.8861)
• Asia shares down, euro pressured by doubts over Trump's policies, French election – RTRS
• U.S. trade deficit falls as exports hit more than 1-1/2 year high – RTRS

Markets Update:

A relatively quiet session in FX due to a lack of data and news. The Japanese Yen had the largest move overnight, with USD/JPY declining from 112.50 to 112.05. The outlook is still negative, and techs point to further losses. Support is now seen at 111.00.

The Euro is suffering from concerns about the upcoming French election. In Asia, it continued to trade with an offered tone and fell from 1.0690 to 1.0665. Support is noted at 1.0620, while resistance lies at 1.0720 and 1.0780.

The Pound has recovered a bit as the focus switched from Brexit to the political situation within the European Union. GBP/USD rose from 1.2480 to 1.2515 in Asia. However, the recovery looks fragile and tech suggest more losses are ahead.

Gold should continue to benefit from the risk-off sentiment in the markets and there is little resistance until $1252 now.

Upcoming Events:

• 13:15 GMT – Canadian Housing Starts
• 15:30 GMT – US Crude Oil Inventories
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• 21:45 GMT – New Zealand Building Consents

Nearer term $ index outlook :

In the Jan 31st email, once again said that there was still no confirmation of a bottom but that lots of positives suggested that an important low may finally be near. The market pushed to a slight new low at 99.20 on Feb 2nd, within that previously discussed 'ideal' area to form a more important low at 99.00/25 (38% retracement and base of the bullish channel from May low at 91.90, multi-week falling support line) before bouncing. Note that the slowing downside momentum, technicals that are turning positive (see daily macd) and view of that month or 2 of downside since late Dec but with a resumption of the longer term gains above 103.80 after (see longer term below), all support this bottom/bottoming view. Though there is still no confirmation 'pattern-wise' (5 waves up for example), the market has broken above that bearish trendline from the Jan high and increasing the likelihood of such a bottom/bottoming (see in red on daily chart below). Nearby resistance is seen at 100.80/95 and 101.45/60 (38% retracement from the Jan 3rd high at 103.80). Key support remains in that 100.00/25 area. Bottom line : still no confirmation of a bottom 'pattern-wise', but the likelihood of an important low in that long discussed 'ideal' 100.00/25 area has increased.

Strategy/position:

Short from the Jan 11th sell at 102.80 and for now, would take profit (and if more aggressive) also reverse to the long side here (currently at 100.35 for 245 ticks). For now, would stop on a close 15 ticks below the base of the channel from May. As discussed above, there is still no confirmation of a low 'pattern-wise', but the likelihood has increased enough to warrant taking profit (and even reversing to the long side). Note too that even a break below the base of that channel would not abort the bigger picture bullish view, but would suggest a further period of bottoming.

Long term outlook:

No change in the longer term bullish view since May as well as the view since late Dec of a month or 2 of correcting within this longer term uptrend. Note that the action from the Jan 3rd high at 103.80 is seen as a correction (wave 4 in the rally from the May low at 91.90) and with eventual new highs above 103.80 after (within wave 5). As discussed above, the likelihood of a bottom has increased and with larger upmoves generally beginning with smaller ones, there is potential of that more major low as well (end of downside correction from Jan). Bottom line : long term bullish view since May remains with increasing potential of a more important bottom and new highs above 103.80 ahead.

Strategy/position:

With some potential of a more important bottom forming, would also switch that longer term bias to the bullish side here (currently at 100.35).

Current:

Near term : long Feb 7th at 100.35, still no confirmation of a bottom (some risk for more bottoming).
Last : short Jan 11th at 102.80, took profit Feb 7th at 100.35 (235 ticks).

Longer term : with increased potential of more important low, also switch bias to bull Feb 7th at 100.35.
Last: : bull bias Aug 24th at 94.75 to neutral Oct 28th at 98.35.

Daily Pivots: (S1) 0.7594; (P) 0.7637; (R1) 0.7669; More...

Intraday bias in AUD/USD is turned neutral with lost of upside momentum as seen in 4 hour MACD. Another rise cannot be ruled out yet. But considering bearish divergence condition in 4 hours MACD, we'd expect strong resistance from this resistance zone to limit upside and bring near term reversal. On the downside, break of 0.7510 minor support will indicate that rise from 0.7158 has completed already and turn bias back to the downside for this key near term support level.

In the bigger picture, we're still treading 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 0.8205) and above.

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