Key risk events today:
UK Average Earnings Index 3m/y; UK Claimant Count Change; UK Unemployment Rate; German ZEW Economic Sentiment; FOMC Member Clarida Speaks.
EUR/USD:
EUR/USD movement opened the new week a shade higher, consequently snapping a five-day bearish phase from 1.1175. The dollar index, or DXY, receded from highs of 98.40, poised to revisit its 98.00 threshold.
On the data front, there was not too much to shout about. As reported by the Federal Statistical Office (Destatis), the selling prices in wholesale trade fell by 2.3% in October 2019 from the corresponding month of the preceding year. From September 2019 to October 2019 the index slightly fell by 0.1%. US banks were also closed in observance of Veterans Day.
Technically, the EUR/USD concluded pretty much unchanged.
Weekly flow has sellers marching south from the underside of a long-standing resistance area drawn from 1.1119-1.1295, recording its worst weekly decline since August last week. Increased selling has the lower boundary of a descending channel to target (extended from the low 1.1109), set a few points north of the 2016 yearly opening level at 1.0873. Concerning trend direction, the primary downtrend has been in motion since topping in early 2018 at 1.2555.
Although a mild pullback was observed Monday, the daily 50-day SMA (blue – 1.1041) proved a tough nut to crack, in terms of dynamic resistance. With the said SMA in sight, as well as another layer of daily resistance sited at 1.1072, traders’ crosshairs likely remain fixed on daily demand at 1.0851-1.0950 – houses the 2016 yearly opening level mentioned above on the weekly timeframe at 1.0873.
As underscored in recent technical research on the H4 timeframe, a distinct double-top pattern formed (peaks plotted at 1.1179/1.1175) after breaking the 1.1073 October 24 low (the confirmation point) on November 5. Some technicians would label the peaks as an ‘eve and eve’ formation, considered to be a higher-probability pattern. The next downside target on this scale can be seen at the 1.10 handle, sited close by September’s opening level at 1.0989 and a 61.8% Fibonacci retracement ratio at 1.0994. Despite yesterday’s pullback, the pair is still likely to test 1.10, given the double-top’s take-profit target is set beneath this value at 1.0965 (black arrows – measured by taking the value from the tallest peak and adding this to the breakout point).
Areas of consideration:
Traders short the H4 double top pattern likely reduced risk to breakeven before the close. The initial take-profit target, as underscored above, is set around the key figure 1.10. Considering its local confluence (sited close by September’s opening level at 1.0989 and a 61.8% Fibonacci retracement ratio at 1.0994), active buying is expected from here. However, with higher-timeframe structure suggesting a move to as low as the top edge of daily demand plotted at 1.0950 this week, which happens to converge closely with the H4 double-top’s take-profit target, it’s unlikely the buying will be anything to get excited about.
GBP/USD:
Sterling, an outperformer against its US counterpart Monday, advanced more than 80 points, or 0.63%. The main catalyst fell on news that Brexit Party’s Nigel Farage announced his party will not be contesting any conservative led seats as he was worried about a hung parliament if he were to go ahead with his initial plan after UK Prime Minister Boris Johnson rejected his leave alliance deal. The move lifted GBP/USD action to highs just shy of the 1.29 handle, before mildly trimming gains into the close.
In terms of macroeconomic data, UK gross domestic product (GDP), released by the Office for National Statistics, came in lower than expected at 0.3% in Q3 2019. UK manufacturing production m/m also disappointed.
Traders who read Monday’s technical briefing may recall the following:
Following a brief period of consolidation a few points north of 1.28, likely gathering buy orders, GBP/USD action swung lower and shook hands with an interesting area of support marked in grey. Made up of weekly support at 1.2739 and daily support coming in at 1.2769, as well as a H4 ABCD correction pattern taken from the high 1.3012 (black arrows) and RSI confirmation (hidden bullish divergence within oversold territory – blue line), this area is likely of interest for potential longs today/early this week. What’s also interesting is a number of sell stops were tripped on the break of 1.28, both from traders attempting to fade the figure and those short the breakout, thus potentially providing liquidity to buy.
A bounce from 1.2739/1.2769 followed up with a break back above 1.28 on a H4 closing basis could entice buyers into the market. A conservative entry on the close of the breakout candle is then an option, with protective stop-loss orders either plotted beneath 1.2739 or the lower shadow of the breakout candle.
Areas of consideration:
Traders who entered long above 1.28 on the back of the H4 closing candle at 1.2803 ended Monday with a smile. With risk reduced to breakeven and the majority of the position liquidated, traders are now likely looking for additional gains.
An upside break of 1.29 today could draw in November’s opening level at 1.2938, followed by a possible move to the key figure 1.30. Until 1.2938 is engulfed, entering fresh longs is tricky on the H4 scale.
AUD/USD:
Following last week’s decline of more than 55 points, AUD/USD action wrapped up Monday mostly unmoved as US banks closed in observance of Veterans Day. As such, we head into Tuesday employing a similar outlook aired in Monday’s technical briefing.
Recent activity on the weekly timeframe witnessed the AUD/USD deliver a two-candle fakeout to the top edge of a 3-month long consolidation zone between 0.6894/0.6677 (light grey). Although likely to encourage further selling over the coming weeks, resistance outside of the said range holds at the 2019 yearly opening level drawn from 0.7042, in the event we push higher.
With a primary downtrend in play since early 2018, breaking higher is likely to be a challenge.
In conjunction with weekly analysis, daily swing resistance seen at 0.6910 – coupled with daily trend line resistance taken from the high 0.7393 – held price action lower last week. Further downside from this point will likely draw in daily support at 0.6808, aligning closely with the 50-day SMA (blue – 0.6816 [rising]). Note the 200-day SMA (orange – 0.6942) remains pointing south.
Friday kicked off defensively after the Reserve Bank of Australia (RBA) reiterated the board is prepared to ease policy further if needed. This, alongside a robust US dollar and US President Trump stating he has not yet agreed to roll back tariffs on China, added to the downbeat tone throughout the day.
Traders who read Friday morning’s technical briefing may recall the following piece (slightly adapted):
With buyers and sellers squaring off around the 0.69 region and trend line support-turned resistance (0.6723) this morning, as well as resistance observed on the higher timeframes, technical studies suggest sellers have the upper hand. Should a notable H4 bearish candlestick signal form from 0.69 today, this may encourage a run lower, targeting yesterday’s session low at 0.6861, followed by H4 support coming in at 0.6809/trend line support etched from the low 0.6670.
Denoted by a black arrow, Friday sported an inside candlestick formation prior to the descent and engulfed 0.6861, potentially clearing the path to the H4 trend line support/H4 support combination highlighted above.
Areas of consideration:
Outlook unchanged.
From a technical standpoint, additional downside is a possibility this week at least until reaching H4 support at 0.6809 (essentially marking the same base as daily support at 0.6808). Despite this, though, a minor pullback is expected due to the completion of a H4 ABCD correction taken from the high 0.6928 (blue arrows), though is unlikely to breach 0.69.
Those short Friday’s H4 inside candle formation likely reduced risk to breakeven before the weekly close, with eyes on lower levels this week. Traders who missed the move may, assuming a correction based on the H4 ABCD pattern, get a second opportunity to enter short, preferably around the 0.69 region.
USD/JPY:
USD/JPY traded modestly lower Monday, weighed by US President Trump’s recent comments regarding tariffs on China, as well as geopolitical concerns intensifying in Hong Kong in early trade.
Technically, the H4 candles revisited the 109 region yesterday and have so far held ground, despite a mild breach to lows of 108.89. South of here lies last Thursday’s low 108.64, while to the upside tops are visible at around the 109.50ish mark, closely shadowed by a Quasimodo resistance at 109.74 (not visible on the screen).
On a wider perspective, weekly movement reveals resistance is nearing in the form of the 2019 yearly opening level at 109.68 and a 127.2% Fibonacci ext. point at 109.56 (taken from the low 104.44). Also sited close by is trend line resistance extended from the high 114.23.
Activity on the daily timeframe holds north of the 200-day SMA (orange – 109.01), which, by and of itself, is considered a bullish indicator. Having noted weekly resistance plotted nearby at 109.68, and a daily ascending wedge formation unfolding since early September (104.44/108.47 – red lines), the likelihood of a continuation north, long term that is, is unlikely.
Areas of consideration:
Outlook unchanged.
While traders may have bought 109 as a point of potential support, in hopes of joining the immediate trend, the fact we came within 8 points of connecting with weekly structure is concerning. Therefore, a cautious stance in regards to longs is recommended.
In the event we continue to punch higher from current price, however, and cross swords with H4 Quasimodo resistance at 109.74, selling this market countertrend is then an option. Knowing the Quasimodo resistance boasts additional backing from weekly structure is certainly appealing. Given this is a countertrend trade, though, traders may find comfort in waiting for additional H4 bearish candlestick confirmation to form before pulling the trigger. A bearish candlestick signal will not guarantee a winning trade, but it will help identify seller intent and provide entry and risk levels to work with.
USD/CAD:
Monday had the US dollar a touch higher vs. the Canadian dollar, though impetus was lacking due to US and Canadian banks closing in observance of Veterans Day and Remembrance Day, respectively. WTI prices nudged lower, holding south of $57.50/bbl, while the dollar index modestly retreated.
USD/CAD flow, in recent hours, gathered momentum and is attempting to dethrone October’s opening level at 1.3239 on the H4 scale.
In similar fashion to Monday’s technical briefing, weekly price continues to exhibit a bullish presence as buyers extend the recovery off trend line support (taken from the low 1.2061) in reasonably strong fashion. Additional upside from this point has tops around 1.3342 in sight, closely followed by the 2017 yearly opening level at 1.3434 and trend line resistance taken from the peak at 1.3661. Overall, the immediate trend faces north since bottoming in September 2017, though this move could also be considered a deep pullback in a larger downtrend from the 1.4689 peak in early January 2016.
A closer reading of price action on the daily timeframe reveals the unit closed above the 50-day SMA (blue – 1.3205), suggesting a possible approach towards the 200-day SMA (orange – 1.3275) may come about this week.
Should H4 price overthrow 1.3239, limited resistance is visible until reaching 1.33. Supporting 1.33 as a resistance area, we have a potential ABCD correction (black arrows) terminating at 1.3287, a 161.8% Fibonacci ext. point at 1.3314, Quasimodo resistance at 1.3310 and September’s opening level at 1.3314 (green). In addition, the 200-day SMA is seen lurking just south of this zone.
Areas of consideration:
Outlook unchanged.
1.3314/1.3287 on the H4 timeframe is certainly an area of resistance to keep an eye on for potential shorts.
More immediate, however, we could witness a retest at 1.32 form as support today should sellers defend 1.3239. A long based off this level has the backing of weekly price rallying from its trend line support, and daily price recently crossing above its 50-day SMA. In order to help avoid a whipsaw to November’s opening level at 1.3168, though, traders may opt to wait and see if a H4 bullish candlestick signal forms before pulling the trigger, targeting 1.3239 as the initial upside target.
USD/CHF:
Safe-haven demand benefitted the Swiss franc Monday, weighed by renewed trade uncertainty between the US and China.
Based on Monday’s technical briefing, traders may recall the following:
Broad-based USD strength Friday lifted the H4 candles to October’s opening level at 0.9977, where a modest reaction was observed into the close. Accompanied closely by a Quasimodo resistance level at 0.9991, a H4 ABCD correction (red arrows) at 0.9982 and the 1.0000 figure (parity), we have ourselves a reasonably tight area of resistance to work with today/early this week.
From the weekly timeframe:
Supply at 1.0014-0.9892 remains in play, despite recent buying. 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. An upside move out of the said supply may draw in Quasimodo resistance at 1.0124, while downside has the 2018 yearly opening level at 0.9744 in sight.
According to the primary trend, price also reflects a slightly bullish tone; however, do remain aware we have been rangebound since the later part of 2015 (0.9444/1.0240).
Technical research on the daily timeframe reveals price overthrew the 200-day SMA function Friday (orange – 0.9953), though crossed back beneath the value yesterday. A few points north of the said SMA sits a familiar resistance area coming in at 1.0010/0.9986.
Areas of consideration:
Well done to any readers who managed to sell 1.0000/0.9977. Not only is the zone positioned within the walls of the current weekly supply, it is also glued to the underside of the noted daily resistance area. The 50-day SMA (blue – 0.9920) appears to be the next logical downside target.
Dow Jones Industrial Average:
US stocks kicked off the week in negative territory, falling amid uncertainty surrounding trade between the US and China. The Dow Jones industrial average closed flat; the S&P 500 erased 6.07 points, or 0.20% and the tech-heavy Nasdaq 100 lost 13.97 points, or 0.17%.
The Dow’s technical picture, despite US President Trump sparking fresh doubts about when the world’s two largest economies will end a 16-month trade war, reveals the H4 candles retested channel support extended from the low of 25710. Price action traders may also wish to acknowledge recent movement formed a reasonably nice-looking hammer candlestick pattern on the daily timeframe (considered a bullish signal).
In terms of higher-timeframe structure, however, weekly support is a central floor at 27335.
Areas of consideration:
The rebound off H4 channel support yesterday has likely caught the attention of many chartists, with some likely entering long at the close of the H4 rejection candle (27653), with protective stop-loss orders plotted around 27464. For some traders, though, this may represent too much risk. Therefore, waiting and seeing if an additional retest occurs might be an option.
XAU/USD (GOLD):
In recent trade, the yellow metal opened the new week lower, trading as far south as 1448.4 against the greenback.
From the H4 timeframe, we can see price action retested Quasimodo support-turned resistance at 1464.2 and H4 trend line support-turned resistance extended from the low 1381.9, and traded lower. For traders who read Monday’s technical briefing you may recall the following piece:
Having watched weekly price dethrone a significant support area at 1487.9-1470.2 and daily price exhibit space to press lower to a daily support area at 1448.9-1419.9, selling the H4 rejection candle off the underside of the H4 Quasimodo support-turned resistance at 1464.2 and H4 trend line support-turned resistance could be an option.
With a protective stop-loss order plotted above 1468.2 and an entry at current price, there’s ample room to reduce risk to breakeven before connecting with the first downside target: the top edge of the daily support area at 1448.9.
As evident from the chart, those who entered short Monday ended the session in profit as daily price shook hands with the top edge of its support area mentioned above at 1448.9-1419.9 (aligns closely with a 38.2% Fibonacci retracement ratio at 1448.5). What’s also interesting here is the completion of a potential three-drive pattern around the top edge of the said support zone (black arrows).
Areas of consideration:
On the one hand, we now have daily buyers likely attempting to make an appearance, though on the other hand weekly sellers likely target support coming in at 1392.0 and 1417.8. As you can see, irrespective of the direction selected, opposition is clear on both sides of the market.
For sellers short, reducing risk to breakeven and liquidating a portion of the position is certainly something to consider. However, keeping a portion of the position running in case weekly price (tends to override daily structure) kicks in and pushes lower is also worthy of consideration.
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