Key risk events today:
Crude Oil Inventories.
EUR/USD:
In recent sessions, the euro, shaped by way of a near-full-bodied daily bearish candle, fell to a three-week low vs. the buck. The dollar reigned supreme, bolstered by a promising ISM non-manufacturing PMI print and the continuation of positive trade rhetoric between the US and China. According to Institute for Supply Management, the non-manufacturing PMI registered 54.7%, which is 2.1 percentage points above the September reading of 52.6%. This represents continued growth in the non-manufacturing sector, at a faster rate.
Technically speaking, sellers show promise at the underside of the current weekly resistance area drawn from 1.1119-1.1295, with a run for the lower limit of the current descending channel/the 2016 yearly opening level at 1.0873 certainly a possibility.
Daily support at 1.1084 was mildly engulfed Tuesday, exposing the 50-day SMA (blue – 1.1038) which appears to have begun flattening. Beyond this line, limited support is visible until the unit crosses paths with familiar demand at 1.0851-1.0950, which houses the 2016 yearly opening level mentioned at 1.0873, mentioned above on the weekly timeframe.
Across the page on the H4 timeframe, a clear double-top formation has taken shape after breaking the 1.1073 October 24 low (the confirmation point). 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.
Areas of consideration:
All three timeframes reflect a somewhat bearish vibe this morning. The confirmation of the H4 double-top pattern, reinforced by a weekly resistance area at 1.1119-1.1295 as well as daily support recently giving way at 1.1084, is likely enough to entice sellers towards the 1.10 neighbourhood.
Traders considering a short based on the H4 double top pattern may already be in the market; others, however, may wait and see if a retest at 1.11 forms before pulling the trigger. The latter offers a better price, and therefore more favourable risk/reward.
GBP/USD:
The British pound concluded unmoved against the US dollar Tuesday, ranging no more than 50 points on the day. GBP/USD movement, however, did clock a session high at 1.2917 shortly after the release of UK Services PMI. According to Markit, the seasonally adjusted IHS Markit/CIPS UK Services PMI Business Activity Index ticked up to 50.0 in October, from September’s 49.5, signalling no change in service sector output. The latest figure was among the lowest registered in the past ten-and-a-half years, and below each of the trend levels for the first, second and third quarters of 2019 (50.1, 50.5 and 50.5 respectively).
The technical landscape on GBP/USD is interesting. Recall in Tuesday’s technical briefing the piece highlighted the following on the H4 timeframe:
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.
And…
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.
As evident from the H4 timeframe, price retested the underside of 1.29 Tuesday and produced a notable shooting star candlestick signal (considered a bearish signal) and is so far holding ground.
The only grumble, nonetheless, is higher-timeframe structure, specifically the daily timeframe trading at channel support:
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, 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). 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:
Whether the H4 shooting star candlestick configuration was enough evidence to sell is, of course, trader dependent. Some likely feel it was sufficient, given weekly price showing room to press lower; others may feel it may be better to wait for a daily close beneath the daily channel support to form before committing funds.
Irrespective of the entry measure, 1.28 represents an initial take-profit target.
Beneath 1.28, shaded in grey, the 1.2739/1.2769 area is also likely of interest as potential support, 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:
Early Asia Tuesday witnessed the Reserve Bank of Australia (RBA) stand pat on policy at 75bps, as expected. The statement was largely unchanged and maintained its easing bias. An advance ensued, nonetheless, drawing the market to highs of 0.6928 into London hours.
Heading into London’s afternoon session, nevertheless, sellers strengthened their grip, reinforced on the back of healthy USD buying. The day wrapped up a shade higher, with AUD/USD stationed a touch beneath its 0.69 handle, though remains bolstered by H4 trend line support extended from the low 0.6723. Note we also have familiar support sited nearby at 0.6883.
With respect to the bigger picture, structure remains unchanged from Tuesday’s technical briefing:
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 – 0.6950). The 50-day SMA (blue – 0.6806) 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 could, once again, provide enough impetus to press higher today. However, failure to push to fresh highs yesterday likely casts doubt here.
Failing a push higher, a H4 close beneath H4 trend line support mentioned above at 0.6723/support at 0.6883 will possibly be viewed as a bearish indicator, targeting H4 support coming in at 0.6809/trend line support etched from the low 0.6670. As such, shorts beyond the said H4 support at 0.6883 are a consideration today. Conservative traders may opt to wait and see if a retest forms prior to pulling the trigger, though, as this helps identify seller intent as well as providing additional entry and risk levels to work with.
USD/JPY:
A further unwind out of safe-haven assets took form Tuesday, extending the USD/JPY’s three-day ascent to highs of 109.25. The move saw orders at 109 give way, though recent hours has seen the pair recede and retest 109 as support. Indicator-based traders may also wish to note the relative strength index (RSI) recently exited overbought territory.
On more of a broader perspective, technicians likely have their crosshairs fixed on daily resistance priced in at 109.17, which aligns closely with the 200-day SMA (orange – 109.02). 109.17, by and of itself is a key level, boasting significant history. Higher up on the curve, nonetheless, we have weekly price threatening a move to 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 a key barrier this morning.
A decisive rejection off 109 suggests weakness around daily resistance mentioned above at 109.17 and a potential run to the 2019 yearly opening level at 109.68 on the weekly scale. A close above 109.17 on a H4 closing basis is likely sufficient to consider a bullish theme.
A violation of 109, on the other hand, helps validate a downside bias from daily resistance at 109.17 and perhaps clears the runway south to H4 trend line support pencilled in from the low 104.44, followed by October’s opening level at 108.07/the 1.08 handle. A H4 close beneath 109 followed up with a retest that holds is likely enough to attract sellers into the market.
USD/CAD:
On the one hand, the greenback received a boost on the back of a promising ISM non-manufacturing PMI print, though on the other hand, crude oil prices rallied and bolstered the Canadian dollar. USD/CAD action ended the day mostly unmoved, despite ranging from a high of 1.3178 and a low of 1.3115.
Considering yesterday’s lacklustre performance, technical structure remains unchanged. As a result, much of the following analysis will represent thoughts aired in recent writing.
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 supply at 1.3239-1.3199 entered the fold last week, with Friday producing an impressive downside rotation. Intersecting with this area is the 50-day SMA (blue – 1.3212), 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, set a few points north of support at 1.3018.
USD/CAD movement remains capped beneath a familiar resistance area between 1.32/1.3187 on the H4 scale (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.
Areas of consideration:
Outlook unchanged.
Well done to any readers who managed to short 1.32/1.3187 on the H4 scale (a noted setup to watch in previous reports). 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.
USD/CHF:
The US dollar accelerated its recovery against the Swiss franc Tuesday, boosted by upbeat US ISM non-manufacturing and trade deal optimism.
The technical setting on USD/CHF this morning has the H4 candles firm above the 0.99 handle and challenging trend line resistance extended from the high 1.0027. A violation of this structure implies a possible move to the 0.9970 October 28 high, closely trailed by October’s opening level at 0.9977. It may also interest some traders to note the relative strength index (RSI) is seen nearing overbought terrain.
With reference to the higher timeframes, supply at 1.0014-0.9892 on the weekly timeframe has remained at the forefront of this market since early September. 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 reflects a slightly bullish tone; however, do remain aware we have been rangebound since the later part of 2015 (0.9444/1.0240).
Daily flow recently crossed back above the 50-day SMA (blue – 0.9915), consequently exposing the 200-day SMA (orange – 0.9953), followed by a nearby area of familiar resistance at 1.0010/0.9986.
Areas of consideration:
With the 200-day SMA lurking at 0.9953, a move higher to this line is highly likely, therefore engulfing the current H4 trend line resistance. For that reason, tread carefully shorting this barrier today.
The green area on the H4 scale between 1.0000 (parity), Quasimodo resistance at 0.9989 and October’s opening level at 0.9977 is likely of interest for shorts. Not only is it positioned within the walls of the current weekly supply, the H4 zone is also glued to the underside of the noted daily resistance area.
Dow Jones Industrial Average:
Major US equity benchmarks hovered near record highs Tuesday before closing mostly lower, as investors digested the latest earnings and economic data. The Dow Jones industrial average added 30.52 points, or 0.11%; the S&P 500 lost 3.65 points, or 0.12% and the tech-heavy Nasdaq 100 closed unchanged.
The Dow registered an all-time high of 27498 Tuesday, though closed in the shape of a daily shooting star candlestick formation (considered a bearish signal). With little stopping the index from exploring higher ground, the bearish candlestick motion might just be enough to force a retest at weekly support coming in at 27335.
Areas of consideration:
Outlook unchanged.
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. 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.
In recent movement, the yellow metal experienced its largest single-day decline since late September amid an unwind of safe-haven assets. H4 price remains contained within the aforementioned range, though is seen testing the lower boundary, as we write. Additionally, the relative strength index (RSI) is seen testing oversold territory.
Weekly price trades back at the top edge of a familiar support area at 1487.9-1470.2, thanks to yesterday’s descent. Resistance is seen at 1536.9, whereas two layers of support are visible at 1392.0 and 1417.8, in the event we navigate 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 forced its way back within the walls of a bullish flag (1557.1/1484.6) yesterday and tunnelled through the 50-day SMA (blue – 1501.6). Increased selling has a support area priced in at 1448.9-1419.9 in view, which happens to align closely with a 38.2% Fibonacci retracement ratio at 1448.5.
Areas of consideration:
Technically, the expectation on the H4 timeframe is a recovery from the lower edge of its range, though a whipsaw to October’s opening level at 1472.8 is not out of the question. Although buying is bolstered by the fact we’re also coming off a weekly support area, daily price must, once again, contend with the upper edge of the daily bullish flag and 50-day SMA. As such, buying may be problematic.
In the absence of clearer price action, opting to remain on the side lines may be the better path to explore.
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