Key risk events today:
RBA Rate Statement and Cash Rate; UK Services PMI; Canada Trade Balance; US ISM Non-Manufacturing PMI.
EUR/USD:
Europe’s shared currency bowed south against its US counterpart Monday, as the dollar index recorded healthy gains. Shrugging off final EUR Markit manufacturing PMI data which ticked up to 45.9 from 45.7, the EUR/USD tunnelled through Friday’s low 1.1128 and produced a daily bearish engulfing candle.
1.11 is seen as the next support on the H4 scale, closely shadowed by support at 1.1073. Inside this region, traders may also wish to note daily support plotted at 1.1084, located a few points north of the 50-day SMA (blue – 1.1039). Despite Monday’s downside move, traders are urged to keep Quasimodo resistance at 1.1187 noted. Not only is this level reasonably strong in its own right, additional resistance is visible in the form of a 200-day SMA (orange – 1.1193) and a Fibonacci cluster between 1.1121/1.1203.
Long-standing resistance drawn from 1.1119-1.1295 remains at the forefront of this market on the weekly timeframe, with buyers and sellers squaring off at the underside of the said zone. Increased bidding has the upper boundary of a descending channel (1.1169/1.1569) to target, whereas a decisive rotation lower could make a run for the lower limit of the current descending channel/the 2016 yearly opening level at 1.0873.
Areas of consideration:
Follow-through selling based off yesterday’s daily bearish engulfing candle has the H4 support area between 1.1073/1.11 in sight – includes daily support at 1.1084. As such, risk/reward is unfavourable should protective stop-loss orders be positioned according to the daily candlestick formation.
Buying from within 1.1073/1.11 is an option today. An ideal entry here is for H4 price to drive through sell stops at 1.11 and decisively close back above the figure. Entry on the close of this candle is then a possibility, with protective stop-loss orders plotted either beneath the candlestick’s lower shadow or 1.1073. The initial upside target from here would likely be set at 1.1163.
Although unlikely to hit today, 1.12 also remains a level worthy of the watchlist for possible shorting opportunities. Knowing this barrier merges with 1.1121/1.1187 on the daily scale as well as weekly price trading within a resistance area at 1.1119-1.1295, 1.12 represents a high-probability sell zone.
GBP/USD:
Sterling kicked off the week on the backfoot, driven mostly by dollar gains. Leaving the key figure 1.30 unchallenged, H4 price concluded the session driving through sell stops at the 1.29 handle. To the left of current price, limited demand is visible – note 1.2845 and 1.2806 (black arrows) resemble possible consumption tails – until reaching potential support off the 1.28 region.
With respect to the bigger picture this morning weekly structure remains unchanged from Monday’s technical briefing:
Following the break of the 2019 yearly opening level at 1.2739, price action on the weekly timeframe has entered a somewhat indecisive phase over the past two weeks. A retest at 1.2739 or additional upside towards supply at 1.3472-1.3204/long-term trend line resistance etched from the high 1.5930 is certainly a possibility on this scale going forward.
The immediate trend faces a downward trajectory from 1.4376, with a break of the 1.1904 low (labelled potential support) confirming the larger downtrend from 1.7191.
In terms of daily price, however, the small area of resistance at 1.3019-1.2975, which aligns with the 161.8% Fibonacci ext. point at 1.2978, forced a retest of channel resistance-turned support (extended from the high 1.2582) yesterday. Quasimodo resistance plotted at 1.3102 is considered the next port of call beyond 1.3019-1.2975, whereas below the said channel support, support resides close by at 1.2769, closely shadowed by the 200-day SMA (orange – 1.2706).
Areas of consideration:
The break of 1.29 has potentially set the technical stage for a bearish theme, according to H4 structure, targeting 1.28. A retest at the underside of 1.29 this morning, preferably in the shape of a H4 bearish candlestick formation (entry and risk can be set based on this structure), could, therefore, be something to keep an eye out for. Ideally, though, before shorts are considered, a daily close beneath the daily timeframe’s channel resistance-turned support (extended from the high 1.2582) is needed.
Beneath 1.28, shaded in grey, the 1.2739/1.2769 area is also likely of interest as potential support this week, made up of weekly and daily supports highlighted above. This area marks an ideal location to bounce from in the event of a fakeout beyond 1.28.
AUD/USD:
Despite a miss on Australia retail sales data (0.2% vs. expected 0.4%), which initially weighed on the commodity-linked currency, the AUD/USD gathered momentum in Asia on Monday, though topped at highs of 0.6224, in the form of a H4 bearish outside candlestick signal going into London. US trade saw a break of 0.69 form, largely driven by USD strength, and a test of support at 0.6883, which aligns with trend line support taken from the low 0.6723, enter the mix.
On a wider perspective, weekly price is seen toying with the upper edge of its consolidation zone between 0.6894/0.6677 (light grey). Buying could see the 2019 yearly opening level at 0.7042 enter the fray, though do remain cognizant of the primary downtrend which has essentially been in play since early 2018.
Before pressing for higher ground on the weekly timeframe, daily traders must contend with a swing resistance plotted at 0.6910, a trend line resistance (extended from the high 0.7393) and a 200-day SMA (orange – 0.6951). The 50-day SMA (blue – 0.6803) currently faces northbound, while the said 200-day SMA still points south. It may also interest some traders that a violation of the 200-day SMA potentially clears the runway for an advance towards Quasimodo resistance at 0.7047, closely followed by another layer of resistance priced in at 0.7062 (set nearby the 2019 yearly opening level on the weekly timeframe at 0.7042).
Areas of consideration:
The H4 trend line support taken from the low 0.6723 and support at 0.6883, along with an ABCD correction (black arrows) could provide enough impetus to press higher. Traders are urged to wait and see if the H4 candles can decisively reclaim +0.69 status before committing funds, however, since entering long here goes against daily resistance mentioned above at 0.6910/trend line resistance.
Failing a push higher, a H4 close beneath H4 trend line support mentioned above at 0.6723 is likely to be viewed as a bearish indicator, targeting H4 support coming in at 0.6809. As such, shorts beyond the said trend line support are also a consideration today.
USD/JPY:
Safe-haven assets largely traded lower Monday amid positive trade updates from both China and the EU. USD/JPY flow added more than 40 points, or 0.38%, consequently extending Friday’s recovery off the 108 handle, which happened to unite with a notable trend line support extended from the low 104.44 and October’s opening level at 108.07.
The next upside target on the H4 scale forms at the 109 neighbourhood. Note this level also benefits from daily resistances between 109.17/108.99 (comprised of a resistance level at 109.17, the 200-day SMA [orange/109.03 – seen flattening] and Quasimodo resistance at 108.99).
With reference to the weekly timeframe, last week’s bearish engulfing candlestick pattern has yielded zero interest to the downside so far. Further buying from this point could see the unit rally as far north as the 2019 yearly opening level at 109.68 and a 127.2% Fibonacci ext. point at 109.56 (taken from the low 104.44).
Areas of consideration:
109 on the H4 is potentially eyed as possible resistance this morning, having noted it aligns with daily resistance. The threat of further upside on the weekly timeframe, however, is likely of concern to some traders, therefore, waiting for additional H4 candlestick confirmation – think bearish engulfing formations and shooting star patterns – to develop may be an option. Although not guaranteeing a successful trade, it does help identify seller intent and provides entry and risk levels to work with.
USD/CAD:
USD/CAD prices enter Tuesday mostly unchanged, as a healthy advance in WTI bolstered the Canadian dollar against US dollar upside. Considering yesterday’s lacklustre performance, much of the following report will echo thoughts aired from Monday’s technical briefing.
From the weekly timeframe:
Snapping a three-week losing streak and reclaiming all the prior week’s losses, weekly flow rebounded from trend line support (extended from the low 1.2061) in reasonably strong fashion last week. 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.
A violation of the aforementioned trend line support exposes Quasimodo support at 1.2887.
Daily timeframe:
Supply at 1.3239-1.3199 entered the fold Wednesday and held into the close, with Friday producing an impressive downside rotation. Intersecting with this area is the 50-day SMA (blue – 1.3215), with the 200-day SMA (orange – 1.3273) positioned a few points above.
With both SMAs pointing south, last Tuesday’s low at 1.3042 could be targeted this week, set a few points north of support at 1.3018.
H4 timeframe:
USD/CAD movement remains capped beneath a familiar resistance area between 1.32/1.3187 (comprised of a 50.0% retracement ratio at 1.3194, August’s opening level at 1.3187 and a trend line support-turned resistance etched from the low 1.3134. Note this area also unites with the underside of daily supply mentioned above at 1.3239-1.3199.
Traders who read Friday’s technical briefing may recall the following piece:
In light of the technical confluence supporting 1.32 as resistance on the H4 scale, this could promote further selling. However, entering at current price places the trader at a slight disadvantage in regards to risk/reward. Waiting and seeing if price action retests 1.32 a second time may be the alternative, entering on the back of the rejection candle’s structure and targeting a move to 1.31.
Areas of consideration:
Outlook unchanged.
Well done to any readers who managed to short 1.32/1.3187 on the H4 scale. Reducing risk to breakeven and liquidating a portion of the position is certainly an option now. This helps protect against the possibility of buying on the weekly scale off trend line support.
Continued selling on the H4 timeframe, nevertheless, highlights 1.31 as the next downside target, which despite weekly price suggesting higher prices, is backed by daily price exhibiting scope to press lower from supply mentioned above at 1.3239-1.3199.
USD/CHF:
USD/CHF activity snapped a four-week losing streak Monday amid upbeat sentiment, adding more than 20 points, or 0.23%.
The H4 support area at 0.9852-0.9873, although recently suffered a mild breach, remains in the fight with trade approaching September’s opening level at 0.9896, closely trailed by the 0.99 handle. A violation of 0.99 has trend line resistance etched from the high 1.0027 to target, whereas a move beneath 0.9852-0.9873 could lead to price tackling the 0.98 handle.
The story on the bigger picture, nonetheless, has weekly price shaking hands with the underside of familiar supply at 1.0014-0.9892. 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 view. 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).
Supporting a bearish theme out of the current weekly supply is daily action currently in the process of completing a bearish head and shoulder’s formation out of a resistance area at 1.0010-0.9986. The break of the neckline taken from the 0.9843 September 24 low (blue line) needs to be engulfed before this pattern is tradeable, with an optimal downside target present at Quasimodo support fixed from 0.9692.
Areas of consideration:
Based on the three timeframes analysed above, a reasonably strong bearish tone remains present, despite recent upside. Ideally, the 0.99 handle should hold as resistance and force a move lower. Therefore, this could be a location to search for shorting opportunities.
Ultimately, though, traders are likely watching for a daily close below the head and shoulders neckline (0.9843) before committing funds to a short position. A decisive H4 close below the support area at 0.9852-0.9873 will potentially be viewed as an early cue, however. Therefore, aggressive traders may look to begin loading up on shorts at this point, and pyramiding positions on a break of the head and shoulder’s neckline.
The first downside target for shorts falls in at 0.98, though according to weekly price, 0.9744 is a possibility, followed by daily Quasimodo support at 0.9692.
Dow Jones Industrial Average:
The Dow Jones industrial average joined major US stock indexes at record highs Monday, rising on positive trade-deal hopes. The Dow Jones industrial average added 114.75 points, or 0.42%; the S&P 500 advanced 11.36 points, or 0.37% and the tech-heavy Nasdaq 100 closed higher by 49.50 points, or 0.61%.
Technically, we’re in unchartered territory right now, with little stopping a run higher. With weekly resistance at 27335, along with the previous all-time high 27388, both likely to serve as support going forward, further buying is a strong possibility.
Areas of consideration:
Weekly support at 27335 is central to today’s outlook. A retest of this level, preferably by way of a H4 bullish candlestick formation (entry and risk can then be set according to this structure), is likely enough to entice buyers into the market. Once/if the trade moves in favour, trailing the position behind swing lows is an option.
XAU/USD (GOLD):
As highlighted in Monday’s technical briefing, the H4 candles have been busy carving out a consolidation between a support area coming in at 1481.1-1490.2 and a resistance zone at 1519.9-1512.1 since early October. Note last week concluded at the top edge of the said range. Outside of this consolidation, nearby resistance resides in the form of September’s opening level at 1526.2, whereas below we have October’s opening level pencilled in from 1472.8.
Technically speaking, a breakout higher is the more likely route on the H4, considering the higher-timeframe’s picture.
Weekly price recorded its third successive week in positive terrain, bolstered by a familiar support area at 1487.9-1470.2. Resistance is seen at 1536.9, whereas two layers of support are visible at 1392.0 and 1417.8, in the event we eventually push for lower ground. With respect to the longer-term primary trend, gold has been trading northbound since the later part of 2015 (1046.5).
Daily price brushed aside the upper edge of a bullish flag (taken from the high 1557.1) and the 50-day SMA (blue – 1504.3) last Thursday, supporting longs off the weekly support area mentioned above at 1487.9-1470.2. The next upside target from this region falls in at the 1535.6 September 24 high, closely shadowed by resistance at 1550.4, as price retests the said 50-day SMA as support.
Areas of consideration:
Having noted higher-timeframe action is poised to move higher, selling the top edge of the current H4 range at 1519.9-1512.1, despite the area holding a number of times in the past, is considered chancy.
An alternative is to simply enter long at current price, basing the setup on a H4 bullish candlestick signal off the 50-day SMA, in anticipation of further upside. In that case, keep eyes on September’s opening level at 1526.2 as possible resistance.
More conservative traders, on the other hand, may wait for a breakout north above 1526.2 to occur. While a break higher may be appealing, this leaves little room for manoeuvre to weekly resistance mentioned above at 1536.9.
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