Market Analysis: WC 30th Sept 2013

Once again, the market remained in risk mode this week, while weakness to the USD saw majors such as GU and EU make its way back to the highs. No doubt, that GU  was the best performer of the week, while AU benefited from the ride back to 94 where it met with resistance, taking the currency pair back to 93 by the end of the week. Meanwhile UJ managed to find some strength mid week making its way back over 99 (99104), only to decline back to 98 during Friday's trading session.   With the US government currently in the spotlight (and on a tight deadline to pass their federal budget by 30th Sept), timing is now of the essence, with a government shutdown potentially on the cards. However also in focus this week is the Non Farm Payroll Figure and the Interest Rate Decision for Australia, Europe, Japan and the US. We kick start with the  Australian RBA scheduled for tomorrow, Tuesday 1st October 2013. 

---

GPBUSD

GU opened the Asia session at a price of 160017, following on from last week’s NY close at 159949. Starting with a move north, GU steadily began its ascension to a high of 160719, where price maintained (between 160285 and 160728), before dropping lower on the 24th September in the form of a prominent bearish candle (high of 160273 and low of 159739).  Once the 160 level was broken,  GU paused briefly  before resuming its move lower, finding support at 159545 (DS2).  From here, GU  moved back towards 159906 (DS1), proceeding north and finding temporary resistance at 160217 (23%). With the 23% level now as a temporary ceiling, GU attempted another move lower, only managing to reach 159787, before buyers stepped in, taking GU back above 160403 (DP) and then further north to 150728 (78%). GU stayed around the 76% level for most of the trading session on the 25th September in clear indecision as its next move was contemplated.  This resulted in a break higher to 160956, which immediately faced rejection upon its approach to 161, sending price down in singular bearish candle (high of 159950 and low of  160348). Pausing briefly at DP, GU continued its move down, breaking DP, followed by the 23% level (160217), until finding support just under 160 at 159989.

Having re-tested the low of 160, GU reversed back to DP which once reached, prompted a major breakout upon a news headline, that saw price surge to a high of 161322, breaking above the psychological 161 level.  However, once reached, indecision set in,  resulting in a pull back upon profit taking, representing a bearish 3 candle move. Finding support around 150728 (78%), buyers stepped in taking  GU to a high of 161422, where GU closed the NY session.

Looking at GU at the start of the week, we can see price movement resuming from break of top resistance made on the 19th September from 161394. This saw GU break from 161394 to 160768 in a bearish marubozu that followed by a range type movement as price stayed contained between its effort to reach 160 but with its inability to sustain over 161.  As such, the high of 160710 made on the 23rd September aligns with the high of 160663 made on the 20th September, providing a type of ceiling, that followed with a gradual decline to a low of 159545 on the 24th September. When observing  movement on the 4 hour chart, we can see price intending  to resume lower, but changing direction as price breaks above 160 producing a bullish breakout candle (low of 159887 and high of 160594) in response to the positive data (Distributive Trades Survey figures exceeding expectations at 34 vs. forecasted 24).  This then brought price back towards 161,  but once again was unable to hold, thus proving the significance of this psychological ceiling, which led to  GU retreating back to the 160217 (23% level) touching a low of 159989. From this point, it was clear that upon settling in the lower region of 160, this now held a good possibility for GU to extend the move lower into the 159 region,  having already tested the mid 159 region twice.

However, the move was disrupted by a news headline quoting BOE Governor Mark as saying that “he did not see a need for more easing”.  This provided the catalyst for a direction change in favour of the bulls, who then proceeded to push price above the 161 level. Interestingly, GU met with resistance at the same level that it initially broke from (top consolidation) on the 19th September. However, more interesting is the reaction to this comment which overlooks the second portion of the statement which mentions that he would change his stance should “the economy falter”. This basically means that QE is still data dependent and while data remains positive, further QE is not necessary. However should inconsistency start to emerge in data figures, this may change the directive of the comment completely.

Since the introduction of forward policy, this has seen a rise in swap rates which have moved higher along with yields. It has always been questionable whether this would actually be addressed, given that high interest rates are not good for a recovering economy. As such, this then places focus on the asset purchasing facility, which for the last 3 votes has resulted in “no change” and a positive reaction in the market to follow. However, if high interest rates start to pose as a problem for the recovering economy, the BOE may start to consider increasing bond buying as an interim solution. 

Aside from this, lies other concerns within the British economy such as a potential new “housing bubble” as  Britain’s Prime Minister looks to move forward the second phase of an assistance program called “Help to Buy”. While the intention is sincere in its objective, there is general fear that while increasing housing debt, this may also inflate the property market which will provide the adverse outcome, placing home ownership further more out of reach for the average UK resident.

This then ties in with the domestic currency. Should the property market appreciate, alongside an appreciating currency, other problems will start to surface for the economy, given that the UK attracts foreign inflow brought in by  investors who look to buy into growth periods such as an asset or housing booms.  An appreciating currency will make assets more expensive and less appealing to foreign investors while a rise in assets will be detrimental for both foreign and domestic investment. In short, not a positive for the UK and not a positive for a recovering economy.

Moving back to the week’s events, the drop in GDP  saw GU aggressively sell back to the 160 level.  This does bring us back to reality that the reliance on a continual output of positive data may be over ambitious in expectation, as a negative result can reverse sentiment quickly.  This does also open the to the possibility that consecutive negative numbers could be enough to cause doubt and reverse current market sentiment. With this in mind, it is still wise to keep GU within its trading parameters as it continues on its steep incline, as this will surely meet with exhaustion should the move be too aggressive, too quickly. I do think there will be a pullback and a reassessment of direction however, whether this is before or after a move higher remains to be seen. With price currently around 161442, GU sits in a very delicate position with a possibility of surging higher towards 162 even to 163 should it maintain its position above 161. Unless backed by its own positive domestic figures, it is possible that we may see caution among the majors, until the release of their own domestic data  while also relying on the outcome of the  pending US situation. This may mean that price stays contained within its range for the meantime. 

In regards to my levels, a break above 161454 will then see 161904 come into view, followed by 162394 and then 163346. Even with current moment in favour of risk, there will be sellers at the higher key levels looking for opportunities to short GU back towards 160. Alternatively, a bearish scenario will need to see a break lower through 161100 (76%) followed by a break through 1160925 (DP) and then 160567(23%). Breaking through the 23% level, will expose: the following targets: 160407, 159456 and then 159000.

---

EURUSD

EU opened the week higher at 135457, maintaining its movement around current levels before a  rejection higher led to a push lower, taking EU from a high of 135426 to a low of 13578 in the form of a prominent bearish candle. This then followed by a steady move down, finding support upon reaching a low of 134790. Supported at DP, this inspired another bullish breakout printing a bullish marubozu (134913 and high of 135140) that saw price stop just under reaching the 76% level. Holding as momentary resistance, price then retraced back to DP, where it attempted to replicate the same move north, only to meet with the same fate upon resistance at the 76% level. Now, having met with double rejection, this opened the pathway for a further decline which saw EU break 135, reaching a low of  135639 on the 25th September. This then followed by a small bounce  back to 134850 (23%) which upon  providing minor resistance, saw GU once again retrace back lower towards DS1.

Unable to penetrate DS1, EU instead found buyers at this level who proceeded to push EU back above DP in 3 bullish candles back to the 76% level. Price paused here for a few hours, locked in a small consolidation, that then led to a breakout, reaching a high of 13568. This immediately followed by a consolidation between the high and 76% level, before proceeding to break lower on the 26th September. This saw GU first pause at DP, before resuming towards the 23% level, meeting back in line with the low of 134719. Still unable to break the low, EU once again found refuge at the 23% level where it consolidated in preparation for its next move.  Breaking from consolidation, EU reversed higher towards  DP, breaking the previous high at 135418 and pushing to 135639, forming an inverted pinbar. This followed with a retracement back to 135170 (76%) and price closing the session slightly higher at 135306.

Looking at charts, EU has engaged in a steady decline from the commencement of the week until the discovery of support at 134639 on the 25th September. This instigated a bullish reversal from the support level within the preceding downtrend. Referring to the 4 hour chart, a breakout candle (low of 134660 and high of 13494) can be seen, taking EU back to DP and then to a high of  135558 on a spurt of bullish momentum. When assessing this particular move on a smaller time frame such as a one hour chart, the breakout candle forms the first candle of a 3 candle bullish formation reaching a target of DR2 (135538) but achieving a high of 135639 post the release of the Reuters/Michigan Consumer Sentiment Index which fell slightly short of the 78 forecasted figure at 77.5. This then saw EU move higher piercing through MR2 and meeting with the previous high of 135678 made on the 19th September.

Although there was not much in the way of economic data to inspire this move, it does align in timing with a speech delivered by Joaquín Almunia (Vice President of the European Commission) in Washington DC on the 25th September. This follows with an announcement of the decision to grant authority to the ECB to supervise 6000 banks within 17 European countries on the 26th September in line with the new Banking Union. The appointment will see the ECB take its role as the supervisor in 2014 and forms part of a 3 stage process for the new Banking Union introduced in June 2012, comprising of 3 components: 1) Single Bank Supervisor  2) Single Resolution Authority   3) Single Depository.   This system will  endevour to address and  improve the problems of the former European banking system in an effort to achieve financial stability.

With the ECB due to announce the next Interest Rate decision, it is generally expected that rates will remain on hold at 0.5% while the ECB continues to use the low rate to  assist the short-term money market rate. However, although this may the case for now, it does not rule out the possibility for further cuts in the future. Much like all the recovering economies, it is not practical to commit to such decisions without firmer evidence of stability. Though the rise  in the interbank rate (in reference to the “interbank market”) has been largely due to the recent rise in US yields combined with the output of positive economic data. As such a high rate is not sustainable in current economic conditions and the ECB have confirmed that although there are no targets for money market rates, the ECB does have the  “tools” to bring the rates down.

In regards to my levels, a move higher from 135220 (DP)  will see 135426 (76%) tested for resistance. If this level breaks higher, this will then see 135639 (previous day high) tested and breaking higher from here will open the following targets: 135710, 136123 and 136634. Alternatively,  a break through  135220(DP) will see 134950 (23%) as the next support level. A confirmed break through the 23% level, will promote further bearish momentum and expose the following levels:  134800, 134287 and 133874.

---

AUDUSD

AU commenced the week lower than its NY close, opening the Asia session at  93678 from its NY close 93912. However,  only managing to move a few pips lower to 93621, AU instead broke higher, pausing around 93866 (76%) before breaking out in a prominent bullish candle (low of 93814 and high of 94372). Price maintained its momentum above 94 (94207) before moving north, reaching a high of 94545, which upon approach met with rejection sending price back in line  with 94207 before making its move back to 93866 (76%). This saw price then make its way back towards 94, where it rejected upon reaching 94189, declining to a low of 93731. However, unable to follow through, price instead re-attempted a move back to 94, once again meeting with rejection as sellers poised at this key level contained higher price movement. A second rejection then prompted the move lower, which saw AU make another move south reaching a low of 93379 (DS1).  Finding support at this level, AU then bounced back towards 93866 (76%) which acted as resistance, sending it back to DP where it consolidated briefly before moving lower to 93466 (23%).

Now supported at the 23%, AU made a bullish move back to 94, reaching a high of  94008. Sellers then intervened once more pushing price back to the 76% level, where it paused before breaking down back to DP and  through the 23% level,  meeting back in line with the low made on the 25th September with its current new low at 93379. Still unable break through, AU moved back to DP, which then became new resistance as price rejected accordingly producing a prominent bearish candle (high of  93744 and low of 93400). Upon its first test of this fall, AU found support taking price back to DP. However, the retracement back to this pivot level, signaled another sell with price breaking through the previous day low (93398) , finding support at 93000. AU closed the NY session positioned at the lows with a final price of 93113 (around DS2).

Supporting domestic data was fairly light for AUD, which meant that it had very little support to hold itself up in regards to  positive figures or support  from its correlation with other financial markets. AUD has done very well most recently,  reaching higher corrective points between 94 -95 upon weakness in the USD. The 95 level was always a key area to watch, that if price could sustain around this area, held the possibility of promoting another boost towards the direction of parity despite its own prevailing weakness. With the announcement of the next Interest Rate decision due tomorrow,  the position of the AUD will be closely observed as many look to its position for any type of indication as to whether the RBA may feel  another cut is warranted. So far, the RBA still supports a weaker currency and as mentioned last week, there is no certainty or indication leaning towards a further cut while the RBA believes that all factors contributing to meeting its economic objectives are still intact. While the AUD remains weak, this effectively serves its purpose in fulfilling its current role in adding stimulus to the domestic economy.

When looking at the 4 hour chart, it shows a continuation from the top of 95281 formed on the 18th September after the FOMC announcement representing an exaggerated bullish candle (low of 93612 and high of 95281) that immediately sold off with the next 4 hour candle.  Given that price closed at a key support level, it is possible that we may see a retracement high before resuming lower. In light of the pending outcome for the US Debt Ceiling situation currently  looming over financial markets, with its threat to initiate a "government shutdown", AU will react accordingly in the event that the markets turn in favour of risk. Though performance wise, the AUD has started to slacken as key events draw closer and the charts show no sign of a bottom as yet. Should the currency find the drive to head back south, this will bring back 91 into view.

In regards to my levels, a break above  93340 (DP) will see AU test 93561 (76%). Moving north from this level will then see AU extend its retracement, opening the following targets: 93760 , followed by 94410 and then 94800. Alternatively,  a break through 93340 (DP)   will then see the next support level at 93152 (23%). A break through the 23% level will  promote bearish momentum exposing the following levels: 92695, 92303 and 91654. 

---

 

USDJPY

UJ commenced the week, resuming within the price movement from the last session. Opening at 99241,  it was a steady decline to 98787 (DP), reaching a low of 98642 just above the 38% level, which upon holding support, pushed UJ back to the 76% level where it found resistance. This then saw UJ make another move lower to 98655, where it found support, creating a double bottom. From here, UJ then reversed north, breaking 76% and reaching a high of 99167. This followed shortly by a breakdown in the form of a bearish marubozu (high of 99109 and low of  98768) that extended lower reaching 98501 and then 98467 , forming a bullish pinbar. From here, price moved higher with another effort to break above 76% level, reaching a high of 98999. However upon this second re-test, price steadily fell moving into the 25th September, making a new low of 98378, which formed  a row of pinbars around 98465 (23% level). This gave UJ a little push back to 98810, (around the DP level), which immediately rejected, taking UJ back to the 23% level, forming a new low at 98260. Upon approach to 98, buyers then intervened, reversing the direction within two candles (low of 98372 to a high of 99104), meeting in line with the top of 99167 made on the 23rd September.

Price maintained around the 76% level (wedged between DP and 76%), before breaking lower from 98980 through the 50% level (98694). This then saw price make its way to the 23% level at 98500 where support was found, in the form of a pinbar. This then boosted UJ back to resistance at the 76% level, trying to break above 99, but price remained contained. Shortly after, a sell back to DP, inspired one more attempt higher, however, this met with the same outcome and  resistance clearly in place just above 99. The reluctance of buyers to push price above 99 instead saw UJ retreat from the highs declining back to the lows, touching 98090 and closing NY at 98227.

There was very little support in seeing a rise in UJ last week which was burdened with strength in the Yen and weakness in the USD. The rise in Japan's CPI took the spotlight last week, which saw a rise from 0.7% to 0.9%, beating the forecasted 0.8%. The improvement clearly pointing positively towards Japan's recovery strategy. However, although a positive, the appreciation in the Yen also translates into higher export prices, acting as a negative for the domestic economy, given its heavy reliance on exportation.   This follows earlier news of Japan considering to cut corporate tax, leading to a rise in the Nikkei and the Yen during the Asia session. Since then, a further comment was issued by Japan’s Finance Minister, stating that they may no longer proceed with the cuts to corporate tax in light of the boost it has given to the Yen. For UJ, the pair was given a double dose of weakness upon strength in the Yen and aversion to the USD upon the current US debt concerns as the Yen resumes its place as a safe haven currency against the USD.

This week sees a focus on the US and the outcome of the debt ceiling issue that may prompt a government shutdown. We also have the NFP figure due out on Friday (should the US till continue to be release data figures this week). There is a possibility that we may see the majors against the USD fall upon a positive NFP figure (which is the current forecast). However, underneath the movement in the financial markets, sits the tension between the US government parties which continues to build up while a  resolution or agreement has not been made, pointing to the possibility of a government shutdown becoming a reality. However, this is not the first time the US has faced this crisis, with the last event in 2011 resulting in a last minute resolution. In the charts, this showed a small rise in the majors against the USD just before the deadline and upon the resolution a drop of over 100 pips upon immediate strength to the USD. Whether this repeats the same behavioural pattern remains to be seen. However, there is speculation that the US stock markets will drop in response to the crisis within the new trading week. Given the shift in correlation between the USD and the US stock market, it is also likely that the USD will follow based upon recent trends. 

Looking back at last year, the USD had an adverse correlation to the US stocks which meant that sales in US equities were offset with purchasing the US currency. It does appear that the USD is re-aligning back with risk and if this is the case, then should the USD  remain without the assistance of domestic data and within the absence of a resolution to the debt ceiling situation, it is more than likely to maintain its weak position. 

Moving to the charts, it was a weak finish for UJ, ending  the NY session positioned under DS1 (98420). Looking at the 4 hour chart, it does appear that there is still room for the pair to travel further south with the last bottom of 96808 printed on the 28th August and more recently a low of 97755 which found support, pushing the pair back above 99 to a high of 99662. However with price settled around a key support level, this may see a price range or retrace a little higher first. When looking at UJ  on the daily chart, UJ is still nestled well within range with room to move in either direction. Though the current bias for the pair does point in a bearish direction for now, any retracement may see containment around the 99 level, possibly around the previous day's high of 99128.

In regards to my levels, a break above 9903 will promote bullish momentum level which will see the following targets come into view: 999475, followed by 99885 and then the psychological 100000 level. Alternatively, a break lower through 98465(DP) will expose the following levels: 97400, 96790 and then 96454.

Want to keep up to date with our posts? We are now on Twitter! Follow @GFXTRADER and receive updates throughout the week.  

---