Key risk events today:
RBA Gov Lowe Speaks; US CB Consumer Confidence.
EUR/USD:
EUR/USD movement picked up a modest bid Monday amid risk-on trade, adding 20 points, or 0.19%. Overall, however, it was an otherwise quiet start to what indeed should be an eventful week ahead.
The key observation on the H4 scale this morning is the 1.11 handle and merging trend line support-turned resistance (taken from the low 1.0879). Rejection may lead to a test of 1.1062, the Oct 11 high, followed by a possible run to the key figure 1.10. This notable psychological boundary joins closely with September’s opening level at 1.0989 and a 61.8% Fibonacci retracement value at 1.0994.
Weekly flow, as underlined in Monday’s technical briefing, is respecting a long-standing resistance area drawn from 1.1119-1.1295, following a three-week advance. Increased selling from here has the 2016 yearly opening level at 1.0873 to target. Concerning trend direction, the primary downtrend has been in motion since topping in early 2018 at 1.2555, suggesting the recent three-week advance could merely be a correction within the overall trend, which is of similar size to previous corrections.
In conjunction with technical research on the weekly timeframe, daily support at 1.1110 gave way last week (now likely to serve as resistance), potentially setting the stage for an approach to the 50-day SMA (blue – 1.1034), followed by a demand area coming in at 1.0851-1.0950 (holds the 2016 yearly opening level at 1.0873 within on the weekly timeframe). The 200-day SMA (orange – 1.1202) continues to face a southerly trajectory, while the noted 50-day SMA appears to be flattening.
Areas of consideration:
Outlook unchanged.
With all three timeframes suggesting a downward bias – weekly resistance area at 1.1119-1.1295; break of daily support at 1.1110 and H4 testing the underside of 1.11/trend line support – focus shifts to potential shorting opportunities.
A sell at 1.11 is certainly an option this morning; otherwise traders may wait for the 1.1062 level to give way, thus further confirming strength to the downside. A H4 close beneath 1.1062 followed up with a retest that holds its ground is likely enough to entice sellers into the market, targeting the 50-day SMA on the daily timeframe as the initial take-profit zone, closely shadowed by the 1.10 figure on the H4.
Entry and risk levels can be set according to the rejection candle’s structure – ensure risk/reward is satisfactory before committing to a position.
GBP/USD:
Leaving the psychological level 1.28 unchallenged, the British pound mildly firmed against the buck Monday. Politically, UK lawmakers rejected Prime Minister Johnson’s request for an early election; Johnson will now issue a bill for a 12th of December election. The EU also granted an extension request to 31st October, further diminishing the chance of a no-deal Brexit.
Yesterday’s candles, however, lacked vigour. Therefore, the possibility of a retest at 1.28 today is certainly there. Traders considering longs off this boundary may also want to acknowledge the grey zone sited just beneath, made up of a weekly support at 1.2739, daily support at 1.2769 and a 161.8% H4 Fibonacci ext. point at 1.2738. This is likely an area price will test should we run stops beneath 1.28.
Areas of consideration:
Outlook unchanged.
A conservative long from 1.2738/1.2769 will likely be for H4 action to test this zone and close back above 1.28. Entry at the close of the breakout candle with a protective stop-loss order sited beneath its lower shadow is, therefore, an option to consider, targeting a move to 1.29 and possibly higher, according to higher-timeframe action which shows room to press as far north as a daily resistance area at 1.3019-1.2975.
AUD/USD:
Based on the continuation of positive US/China trade rhetoric, AUD/USD action rotated higher Monday and extended Friday’s modest gain. Yesterday wrapped up with H4 activity closing a few points short of August’s opening level at 0.6848. Interestingly, price failed to shake hands with a nearby area of support at 0.68/0.6809 marked in grey before advancing (formed by a trend line support extended from the low 0.6670, the round number 0.68, a support level at 0.6809, a 50.0 retracement ratio at 0.6803 and a 38.2% Fibonacci retracement ratio at 0.6802). Beyond 0.6848, traders’ crosshairs are likely fixed on the 0.6882 22nd October high, shadowed by the round number 0.69.
In terms of the higher-timeframe levels, weekly price remains consolidating between 0.6894/0.6677 (light grey). With the primary downtrend in play since early 2018, the current consolidation may eventually breakout to the downside, despite price action toying with its upper edge at the moment. A decisive push lower likely clears the airstrip to as far south as 0.6359 (not visible on the screen).
Price action on the daily timeframe reveals the unit established a ‘floor’ ahead of support at 0.6808 in recent movement. Below here we have the 50-day SMA lurking nearby (blue – 0.6789), which is currently facing northbound after a sizeable downside move. Aside from 0.6882 and the 0.6894 September 12 high, swing resistance resides around 0.6910.
Areas of consideration:
The 0.68/0.6809 support area on the H4 timeframe remains of interest for potential long scenarios this week. In the event we cross above August’s opening level at 0.6848, nonetheless, an intraday long may also be an option, targeting the 0.6882 22nd October high, followed closely by the upper edge of the weekly range at 0.6894.
Conservative traders threatened by the overall downtrend, however, might opt to wait for additional confirmation before committing funds to a long position. This could be as simple as a H4 bullish candlestick pattern (on a retest at 0.6848), or even drilling down to the lower timeframes and attempting to trade local structure, a trend line break/retest formation, for example.
USD/JPY:
Safe-haven demand for the Japanese yen diminished following a risk-on start to the week, consequently drawing the H4 candles towards the 109 handle. This follows last Wednesday’s advance, culminating in a break of a H4 bullish flag (108.94/108.46) to the upside.
The 109 handle has been a level of interest for some time, due to its mouth-watering connection with daily resistances between 109.17/108.99 (comprised of a resistance level at 109.17, the 200-day SMA [orange/109.05 – seen flattening] and Quasimodo resistance at 108.99). In the event sellers make a stand from the said daily resistances, support at 106.80 is in view, fixed south of the 50-day SMA (blue – 107.54) which is currently facing north. The only grumble to a downside move is weekly price exhibiting scope for a pop higher to the 2019 yearly opening level at 109.68, which happens to merge closely with a 127.2% Fibonacci ext. point at 109.56.
Areas of consideration:
Outlook unchanged.
Those who entered long based on the break of the H4 bullish flag face robust resistance around 109, therefore reducing risk to breakeven and maybe liquidating a portion of the position here might be an idea.
Traders with eyes on 109 as a sell zone might opt to simply enter at market off the 109 base and position protective stop-loss orders above daily resistance at 109.17. Conservative traders, though, may elect to wait and see how H4 action behaves before pulling the trigger. This helps avoid whipsaws through 109, which are common viewing around psychological boundaries. As for downside targets out of 109, 108.70 appears a logical starting block on the H4, followed by the upper edge of the noted bullish flag.
USD/CAD:
Monday observed limited change to USD/CAD, ranging little more than 25 points. As a result of this, much of the following analysis will exhibit points aired in Monday’s technical briefing.
From the weekly timeframe, we can see the pair has traded lower for three consecutive weeks – each session shaped in the form of a near-full-bodied bearish candle. Support is not expected to emerge until the 1.3015 July 15 low, followed by Quasimodo support stationed at 1.2887. The primary trend has remained north since bottoming in September 2017 (1.2061). Currently, though, the candles appear to be in a secondary downtrend after breaking trend line support (extended from the low 1.2247), with a market peak at 1.3661.
According to the daily timeframe, the stage appears set for a run towards 1.3015 (essentially the July 15 low highlighted on the weekly timeframe).
USD/CAD action on the H4 trades around the lower edge of yesterday’s range. The next port of call in terms of support rests at 1.3028 (not visible on the screen), with the relative strength index (RSI) seen chalking up bullish divergence out of oversold territory (blue line).
Outlook unchanged.
Areas of consideration:
On account of the above analysis, sellers appear to have the upper hand. A decisive retest seen at the underside of 1.31/H4 resistance at 1.3115 (preferably in the shape of a H4 bearish candlestick pattern) would help confirm this downside bias and open the door to bearish scenarios.
Continued selling from current price, however, will likely land the H4 candles at 1.3028, the H4 support, bolstered by the 1.3015 July 15 low on the weekly timeframe. This, therefore, represents a possible area active buyers may look to enter the field – entry/risk levels may be found on the back of a H4 bullish candlestick signal.
USD/CHF:
Risk-on mood spurred by trade optimism mildly weighed on the Swiss franc’s safe-haven status Monday. Trend line resistance extended from the high 1.0027 on the H4 timeframe entered the mix and capped upside, possibly setting the stage for a retest at August’s opening level at 0.9934. A push higher, on the other hand, exposes October’s opening level at 0.9977, a trend line support-turned resistance taken from the low 0.9843 and the key figure 1.0000 (parity).
With respect to the higher timeframes, supply on the weekly timeframe at 1.0014-0.9892 remains in play though does highlight somewhat of a delicate tone. The beginning of October witnessed a penetration to the outer edge of the supply area’s limit, possibly tripping a portion of buy stops and weakening sellers. Furthermore, a potential ABCD correction (black arrows) at 1.0214 implies higher prices could be on the cards, engulfing Quasimodo resistance at 1.0124 and drawing in trend line support-turned resistance extended from the low 0.9187. According to the primary trend, price reflects a slightly bullish tone. However, do remain aware we have been rangebound since the later part of 2015 (0.9444/1.0240).
In recent movement, daily price tested the 200-day SMA (orange – 0.9955) which held firm by way of a shooting star candlestick pattern (considered a bearish signal). Downside from this angle could see the 50-day SMA (blue – 0.9905) re-enter the fold.
Note the underside of a daily resistance area marks the 0.9986 point, sited only a few points north of October’s opening level at 0.9977 on the H4. The H4 trend line support-turned resistance, as of current price, aligns almost to-the-point with the underside of the daily structure. Therefore, between 1.0000 and 0.9977 (green) on the H4 appears a reliable location to consider searching for shorting opportunities.
Areas of consideration:
Outlook unchanged.
A break of the H4 trend line resistance will likely trip a number of buy stops, filling orders from traders attempting to fade the descending line and those anticipating a breakout higher. These orders offer liquidity for bigger players to short from 1.0000/0.9977 (green).
Traders not comfortable selling at 0.9977 and positioning protective stop-loss orders above 1.0000 may elect to wait and see how price action behaves before pulling the trigger. For example, a lower-timeframe bearish flag may form or an ascending wedge or even a diamond top, each offering high-probability opportunities to jump aboard any downside move generated out of 1.0000/0.9977.
Dow Jones Industrial Average:
Major US equity benchmarks firmed across the board Monday, cheering healthy earnings and progress on US/China trade. The Dow Jones Industrial Average added 132.66 points, or 0.49%; the S&P 500 added 16.87 points, or 0.56% and the tech-heavy Nasdaq 100 climbed 81.45 points, or 1.01%.
Resistance at 27335 remains a focal point on the weekly chart, sited only a few points south of the all-time high 27388. And, despite a minor setback to 21452, the primary trend in this market remains facing northbound. Research on the daily timeframe shows price holding firmly north of the 50-day SMA (blue – 26661). Both the 50-day SMA and the 200-day SMA (orange – 26189) face north, with the next upside target set at the weekly resistance presented above at 27335.
The Dow’s technical setting on the H4 timeframe has the candles greeting resistance at 27086, after tunnelling through October’s opening level fixed at 26947 and trend line resistance pencilled in from the high at 27321. Clearance of 27086 potentially offers an early cue to a move towards the said weekly resistance level.
Areas of consideration:
The area between H4 resistance at 27086 and weekly resistance at 27335 is of interest this morning. A decisive close beyond 27086 on a H4 basis likely unlocks the door to 27335, offering traders potential long opportunities, either on a retest motion at 27086 or simply entering on the breakout candle’s close.
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