Key risk events today:
UK Average Earnings Index 3m/y; UK Claimant Count Change; UK Unemployment Rate; German ZEW Economic Sentiment; US CPI m/m and Core CPI m/m.
EUR/USD:
Monday witnessed the FX space dominated by risk-off trade. Tensions in Hong Kong, and analysts noting Italian political woes, led a bid into perceived safe-haven assets. The US dollar index, however, concluded the day down 0.39%, lifting Europe’s single currency a shade higher at 0.14% on the day.
The technical climate on the EUR/USD remains unaltered on the weekly timeframe:
(Extracted from Monday’s weekly outlook).
Despite clocking multi-year lows of 1.1026 and long-standing demand at 1.1119-1.1295 having its lower edge submerged, price movement staged an impressive recovery last week and snapped a three-week losing streak. Continued bidding could eventually see the unit knock on 1.1445’s door again, the 2019 yearly opening level, whereas support is not expected to emerge until shaking hands with the 2016 yearly opening level at 1.0873.
In addition to this, it is worth noting the long-term trend remains facing a southerly bearing since topping in early 2018.
From the daily timeframe, Monday’s session wrapped up a whisker above a local trend line support-turned resistance (taken from the low 1.1181), despite last week’s back-to-back selling wicks/inside days. Continued buying may call for a run towards the 200-day SMA (orange – currently circulating around 1.1294).
For those who read Monday’s weekly outlook concerning the H4 technical picture you may recall the following:
(Extracted from Monday’s weekly outlook).
Since Tuesday (last week), the H4 space has been busy sculpting a clear-cut pennant formation (1.1249/1.1167). As a pennant is typically considered a continuation pattern, a breakout north is likely eyed by many traders this week.
Another scenario worth considering this week is the completion of an ABCD correction (black arrows) within a particularly interesting area of support at 1.1144/1.1165 (yellow – comprised of June’s opening level at 1.1165 and a 38.2% Fibonacci retracement ratio, a 127.2% Fibonacci ext. point at 1.1144 and an intersecting trend line resistance-turned support taken from the high 1.1392).
As is evident from the H4 chart, price action tested 1.1144/1.1165 and advanced beyond 1.12 to the upper limit of the said pennant formation into the close. Well done to any of our readers who managed to jump aboard this move.
Areas of consideration:
Medium-term flow (H4) remains biased to the upside, according to current technical structure. Having seen orders taken from the support area at 1.1144/1.1165 yesterday, focus shifts to a breakout of the pennant pattern today. Assuming the analysis is correct, either buying the breakout candle above the pennant or waiting and seeing if a retest motion occurs is an option. The latter is considered the more conservative route.
Although the pennant formation boasts a healthy take-profit target just shy of weekly resistance at 1.1445 (red arrows), the first port of call to be aware of, in terms of structure, is H4 resistance between the round number 1.13, a resistance level at 1.1279 and a 61.8% Fibonacci retracement value at 1.1265 (1.13/1.1265 – green).
GBP/USD:
UK’s pound traded mildly firmer vs. the dollar Monday (+0.43%), correcting a portion of Friday’s UK GDP data-driven slide. On the political front, news surfaced MPs are drawing up plans to force a Brexit extension from the European Union (EU), as well as mixed reports UK PM Johnson will meet his Irish counterpart in September for talks.
Shifting focus to the technical landscape, the weekly timeframe’s outlook remains unchanged:
(Extracted from Monday’s weekly outlook).
The British pound retained a heavy tone last week, erasing more than 130 points and recording its fourth consecutive losing week. After tunnelling through bids residing within long-standing demand at 1.2365-1.2615 (now acting resistance area) and overthrowing the 2017 yearly opening level at 1.2329, the next downside objective on the weekly timeframe falls in around support from 1.1904: a standout low clocked in early October 2016.
As is evident from the daily timeframe, before reaching 1.1904 on the weekly timeframe, daily movement must contend with channel support (taken from the low 1.2605) and Quasimodo support close by at 1.2037. This, particularly on the daily timeframe, is the last line of defence for buyers it seems as a clear run beneath here is visible to 1.1904.
Across the page on the H4 timeframe, the research team notes price action left the key figure 1.20 unchallenged Monday and, aided by channel support (extended from the low 1.2079) which merges closely with a 127.2% Fibonacci ext. point at 1.2028, corrected to 1.21, which, as you can see, capped upside into the close.
Areas of consideration:
Entering long at 1.20 is still an option, specifically at the point the round number aligns with the current H4 channel support (green). By doing so, nevertheless, take into account that while you have additional support on the daily timeframe from channel support/Quasimodo support at 1.2037, directional flow on the weekly timeframe portends further downside to 1.1904. A H4 bullish candlestick printed from 1.20 would likely encourage buying and provide a base for you to set entry and risk levels, though whether price will reach 1.21 again is difficult to judge.
The point H4 channel resistance (extended from the high 1.2249) and August’s opening level at 1.2159 converge offers possible resistance (yellow), in line with weekly flow, but against daily structure.
In the event we overthrow 1.20 on a H4 closing basis, this would likely put a test of 1.19 in view. A retest at 1.20 as resistance by way of a H4 bearish candlestick formation is ideal for sellers, allowing traders to position entry and risk levels according to the pattern.
AUD/USD:
Concerns over an escalation of conflict in Hong Kong, a waning Chinese yuan and lack of positive developments regarding the US/China trade dispute provided a risk-off cocktail for markets Monday, keeping investors away from risk-sensitive antipodeans.
In terms of weekly structure, the AUD/USD continues to languish sub resistance at 0.6828, extending the pullback from the 2019 yearly opening level (resistance) at 0.7042. Recently refreshing multi-year lows at 0.6677, and with the long-term downtrend remaining intact, further selling is likely on the cards as the next support is not visible until 0.6395 on this timeframe (not seen on the screen).
Elsewhere, daily price, once again, is poised to shake hands with support at 0.6733 (merges with a 127.2% AB=CD [black arrows] formation at 0.6735), after failing to connect with resistance fixed at 0.6833 (June 18 low). This could have something to do with the fact weekly resistance is positioned a touch beneath this barrier at 0.6828.
H4 movement, on the other hand, connected with the top edge of fresh demand at 0.6746-0.6771 in early trade Monday and initially attempted a correction, though failed to harvest anything to get excited about. Leaving 0.68 unchallenged, price turned lower and spent the remainder of the day tunnelling through bids within the said demand, wrapping up the session in negative territory, down 0.52%. Beyond here, daily support highlighted above is present at 0.6733, closely followed by the 0.67 handle.
Areas of consideration:
As of current price, entering long within the parapets of H4 demand is incredibly chancy. There’s a greater likelihood of a move to daily support at 0.6733 taking shape or the 0.67 handle on the H4 timeframe. While 0.6733/0.67 offers reasonably strong support, buying into this zone against the overall trend (which shows signs of continuing the weekly timeframe) is tricky. An option, if considering longs within 0.67/0.6733, is hold fire until a H4 bullish candlestick configuration presents itself. By doing so, you’ve identified buyer intent and have set structure to base entry/risk levels from, targeting the underside of H4 demand (will be a resistance area at that point) at 0.6746 as the initial take-profit zone.
USD/JPY:
Demand for perceived safe-haven assets increased Monday as the FX space rooted itself in risk-off trade. Major US equity indexes all concluded lower, in line with the US benchmark 10-year Treasury yield falling more than 5.50%.
The USD/JPY fell to depths not visited since the flash market crash witnessed in January at 105.05 yesterday, but did make an attempt to correct higher. The fact markets remain risk averse over a cocktail of issues suggests the rebound is unlikely to accumulate momentum as a flight to safety appears the dominant theme right now.
The weekly timeframe has its current candle marginally surpassing Quasimodo support at 105.35 – this level already proved its worth by holding the unit higher at the beginning of the year. Outside of this base, limited support is evident until 100.61.
In tandem with the weekly Quasimodo support, as highlighted in Monday’s weekly report, traders may also want to acknowledge daily trend line resistance-turned support (extended from the high 112.40) is in play now, albeit struggling to hold ground at this time.
A closer examination of price movement on the H4 timeframe reveals the 105 handle offers possible support, whereas upside is currently bounded by resistance at 105.50. Also worthy of note is the RSI indicator houses positive divergence around the top edge of oversold territory (blue line).
Areas of consideration:
If a H4 close beneath 105 is observed, this is considered a strong bearish indicator, targeting the 104.62 26 March low, with the possibility of further selling occurring to daily Quasimodo support at 102.55 (both levels not visible on the screen). A H4 close below 105 that’s followed up with a retest as resistance, preferably in the shape of a H4 bearish candlestick formation (entry and risk levels can then be set according to this pattern), is ideal.
Despite everything, though, buyers still likely have a hand in this fight. Before considering a long position, however, waiting for a H4 close to form back above 105.50 is an idea. Not only does this possibly clear the path north to 106 on the H4 scale, it helps confirm buyer intent from the higher-timeframe supports aired above.
USD/CAD:
Monday had the US dollar a shade higher against the Canadian dollar (+0.17%), consequently breaking a two-day bearish phase. WTI explored higher ground for a third consecutive daily session yesterday, building on gains from $50.55/bbl, a clear-cut support in this market.
Technically, limited change is seen in weekly structure on the USD/CAD this morning. Extracted from Monday’s weekly report, here’s where we stand:
Since bottoming at 1.3018 in the form of an inverted hammer pattern, the USD/CAD has been steadily grinding higher. Last week’s movement, as evident from the chart, clocked highs of 1.3344 and closed in the mould of a shooting star formation (considered a bearish signal).
Continued buying from this point has the 2017 yearly opening level at 1.3434 to target, closely shadowed by trend line support-turned resistance etched from the low 1.2247. In the event we turn lower, however, traders’ crosshairs will likely be fixed on the 1.3016 July 15 low, followed by Quasimodo support at 1.2887.
Although weekly price exhibits scope to press higher, daily action is constrained by resistance coming in at 1.3251. This level embraces a strong history as a support and resistance base, so overlooking it may prove troublesome. Continued selling from this point has support at 1.3136 as its next port of call, which, as you can see, sports an appealing history as support/resistance.
While the 1.32 handle on the H4 timeframe continues to offer a floor of support, traders are likely watching for a retest of the number to play out today, specifically at the point August’s opening level at 1.3187 and a channel support (extended from the low 1.3015 – yellow) merge.
Areas of consideration:
Unchanged from Monday’s outlook.
Keeping it simple this morning, should the H4 candles retest 1.32, specifically the point where the round number combines with August’s opening level/channel support, a long from here could be something to consider, targeting daily resistance at 1.3251 as the initial take-profit zone. Entry can be found at 1.32, with a tight protective stop-loss order positioned a few points beneath August’s opening level at 1.3187. Conservative traders requiring a little more confirmation may opt to wait and see if a H4/H1 bullish candlestick signal develops before pulling the trigger. That way, entry and risk can be set according to this structure.
The reason traders may require additional candlestick confirmation simply comes down to the fact the higher timeframes display room to press lower.
USD/CHF:
The perceived safe-haven status of the Swiss franc remained in demand Monday, resulting in the USD/CHF testing waters beneath the 0.97 handle on the H4 timeframe. A combination of factors contributed to yesterday’s risk-off tone, including an escalation of conflict in Hong Kong and a waning Chinese yuan.
With 0.97 out of the picture as support, it’s likely to offer the market a ceiling of resistance today with the next downside target observed at H4 demand drawn from 0.9635-0.9670. This area happens to converge with a daily Quasimodo support at 0.9641, a level that become available yesterday after engulfing daily trend line support etched from the low 0.9542.
Regarding weekly flow, as underscored in Monday’s weekly report, the US dollar retained its bearish tone vs. the Swiss franc last week, extending losses from supply at 1.0014-0.9892 beyond support at 0.9744: the 2018 yearly opening level. Increased downside this week could introduce the 0.9542 September 17 low as support, though before reaching this target a retest at 0.9744 may be on the cards.
Areas of consideration:
An appealing area of support comes in at H4 demand mentioned above at 0.9635-0.9670. Not only is the zone a high-probability base in and of itself, it aligns with Quasimodo support on the daily timeframe at 0.9641. This potentially offers enough ‘juice’ to entice buying to at least 0.97, providing sufficient room to reduce risk to breakeven at the first target. Do remember, though, by entering long here you are effectively buying into weekly (directional) flow. This simply means you are buying when weekly price shows room to press lower.
Dow Jones Industrial Average:
US stocks and Treasury yields turned sharply lower Monday, in a new burst of negative sentiment around the trade war with China and political developments in Hong Kong. The Dow Jones Industrial Average erased 389.73 points, or 1.48%; the S&P 500 also erased 35.96 points, or 1.23% and the Nasdaq declined 84.59 points, or 1.11%.
For those who read recent reports on the DJIA you may recall the following:
The technical landscape on the Dow’s H4 chart this morning is appealing for shorts. Between resistance at 26434, a 127.2% AB=CD (black arrows) correction point at 26315 and a 61.8% Fibonacci retracement value at 26402, we have a compact sell zone (yellow). What’s also notable from a technical perspective is a converging daily resistance area in the mix at 26539-26200.
The only grumble to selling the current H4 sell zone is the weekly timeframe showing price could potentially run as far north as weekly resistance at 26667.
Well done to any of our readers who managed to sell the H4 resistance area at 26434/26292. Note we also had additional H4 candlestick confirmation in the form of a hanging man pattern (red arrow). As for downside targets, keep eyes on the 38.2% and 68.1% Fibonacci retracements at 25868 and 25547, respectively.
Areas of consideration:
As can be see from the H4 chart this morning, the 38.2% Fibonacci retracement at 25868 was hit (the first downside target). Risk should be reduced to breakeven with the expectation of price action reaching the 61.8% Fibonacci ratio at 25547.
XAU/USD (GOLD):
Demand for the yellow metal increased Monday vs. the buck, up 0.92%. In a bid to attain perceived safe-haven status, weekly price brushed aside channel resistance etched from the high 1375.1 and appears poised to approach resistance pencilled in at 1536.9.
Meanwhile, on the daily timeframe, price action responded strongly from the top edge of a support area at 1495.7-1480.3 yesterday by way of a bullish engulfing candlestick formation. This potentially set the stage for a move towards resistance at 1526.8, positioned a touch below the weekly resistance mentioned above at 1536.9. In terms of the H4 timeframe, however, the chart displays room to push as far north as supply coming in at 1568.4-1552.9 (not visible on the screen).
Areas of consideration:
As expected, and aired in Monday’s weekly report, the current weekly channel resistance was breached, as we felt traders were still likely focused on the current uptrend and looking for an opportunity to get involved. The research team stated H4 support at 1477.3 to be a perfect location to look for longs, though price failed to reach this far south before propelling northbound.
With weekly and daily resistance targets yet to enter the fold, and a newly formed H4 flag pattern (1510.4/1489.7 – red lines) recently breaking out to the upside, a long play could still in store. Traders have the choice of either buying the breakout candle (once closed) or, more conservatively, waiting and seeing if a retest of the breakout level takes form. This, alongside a H4 bullish candlestick signal is ideal. Not only does it identify buyer intent, it provides traders entry/risk levels to work with.
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