Last week saw mixed movement across the majors as GU and EU continued with their quest to reach new highs while AU continued in the opposite direction, re-visiting lower levels upon prevailing bearish sentiment. Meanwhile, US yields rose after the release of the FOMC Minutes providing strength to UJ and to the USD. This also saw a rise in the DXY (dollar index) as September draws closer bringing "US tapering" into the spotlight upon speculation that US Fed plans to commence tapering next month. This week sees the release of important economic figures for the Euro, USD and Yen accompanied by speeches from both the Carney (BOE) and Bullard (US Fed).
GBPUSD
Opening the Asia session at 156159, GU commenced the session moving within a range between 156125 - 156346 before forming a pinbar that led to a break higher reaching 156729 within the next 4 candles. This immediately followed with a retracement to 156353, prompting another attempt higher, this time reaching 156706 before once again stepping back. Finding support slightly higher, GU then proceeded to range around 156469 which provided a platform for GU’s next agenda - to test 157. However, though very close, GU only managed to reach 156957 before sellers poised under 157 stepped in pushing GU back down to 156639 in one bearish candle. From here we saw a struggle for dominance of direction as buyers and sellers moved price around within the constraint of a 40 pip range just before an attempt to 157 was once again made and this breached with a new high of 157168. This level then saw an influx of sellers gain control on the 21st Aug, pushing GU down in a bearish 5 candle move to 156144 (just above DP) before finding support.
Once at this lower level, GU proceeded to attempt a continuation south breaking down to 155874 (23%) where support was found leading to further consolidation throughout the 22nd Aug between 15135(DP) and 15562(previous day low), finding support at 155866(23%). GU remained within the range from the NY session into the beginning of the 23rd Aug. From here GU then broke higher out of this range in one bullish candle (low of 15580 and high of 156370) reaching 156370(76%) before facing rejection. This led to a fall back to yesterday’s low around 155626 with an extended target of DS1 touching 155386 which became the low of the NY session.
As expected, this new low attracted buyers forming a bullish marubozu candle (low of 155421 and high of 155961) which pushed GU back towards 157. However, once again this level met with immediately resistance, with sellers pushing GU back down in a bearish 3 candle move from 156336 to 155462. Price continued to range here momentarily before pushing back higher to 23% where it once again rejected sending GU back to yesterday’s low and closing the last NY session with a bearish marubozu candle (high of 155813 and low of 155509) at 155509.
Wednesday 21st Aug saw the release of a couple of economic figures including the Public Sector Net Borrowing (Jul), producing a result of £-1.635B vs the forecasted £-4.65, while CBI Industrial Trends Survey represented more optimism with an improved figure of 0 vs -8 which was the consensus. Following the release of data results, GU spike, reaching a high of 157168 before following with a sharp break lower, falling from great heights back to 155874 where it then paused. The economic data results by itself were not the major catalyst in promoting such a move on its own, but rather the release of the FOMC minutes in favour of the USD.
Currently the Pound sits in a slightly cautious position as investors remain concerned over any proposed action or effort to contain the recent rise in market interest rates which have risen since Carney's last speech. The rise in yields which in turn increased the cost of government borrowing, has also seen 5 year swaps rise from 1.53% to 1.75%. It is generally expected that in his speech due this week, Carney will re-focus on "forward guidance" and his commitment to keep interest rates low. Along with the pending GDP figures due later in the week, GU may choose to stay within a consolidation or embark on a short trek lower in anticipation of the upcoming events.
So far, GU has experienced a significant fall to a low of 155635 which after a period of consolidation led to a swift bullish move to a high of 156370 on the 23rd Aug in line with positive GDP figures and assisted by the output of weak data figures for US New Home Sales. However, the boost did very little to instill further momentary confidence in the Pound, which instead ending the week with investors closing out positions before the weekend ahead of this week’s events.
Looking at the 4 hour chart, it can be seen that GU has been in an uptrend from 151009, since the beginning of the month and has been supported by strong domestic data in conjunction with USD weakness, resulting in this strong bullish move over the course of the month. As we approach the end of August, GU has retraced from the high of 156900, moving to the mid 155 range. This level aligns with the top made on the 6th Aug and when looking at GU on a daily chart, it shows price in the midst of a 3rd peak which also may potentially also present as a double top should GU fall further from current levels keeping 157168 as a top intact. Should this be the case, then it would line up with the high of 157507 made on the 17th June which became the turning point for GU leading to a dramatic fall down to the 148 range. Currently price still sits within its range on the higher time frames, however whether further strength is in store for GU, will be dependent on the continued output of strong domestic data, along with supporting statements from the BOE and/or further weakness in the USD.
Given that we have retraced back to high key levels with another rejection at the high, it is very possible that we will see a further movement lower before we see another attempt to breach 157 again. Though, even with a retracement back to the 154 range, this will still keep GU within range and in contention of a move higher unless resistance is found lower. The next couple of weeks will play an important role in setting direction as "US tapering" becomes the focus for September. This could very well be the catalyst to drive the USD higher which in turn will have an impact on all majors and be the catalyst to finally break the range. Carney’s upcoming speech on the 28th Aug will also be loosely observed with particularly attention to any form of expansion upon points made in former speeches.
In light of the current uncertainty revolving around the Pound and the US dollar, this week could see an extension of the decline made towards the end of last week's NY session. If so, the first support level sit at 155431 (DS1) followed by 154999(DS2). Should both levels fail to support GU then a further move to 154405(DS3) will come into view. Alternatively, if GU continues range at current levels and break higher, then a move back to 156015(DP) will be the level watch in regards to a break. Resistance at 156404 (76%) should still contain GU within an immediate bearish continuation otherwise a break higher will see resistance at 156441(DR1) followed by a re-test of 15706(DR2). If GU is successful in breaking above 157 again, the next level to watch is 157447(DR3)
EURUSD
Commencing in mid range from the last NY session, EU broke higher to 133741 forming a top wick, closing the current candle at 133580. This followed with a move lower and ranging around 133417 before a struggle for direction which finally led to EU moving lower, forming a bullish pinbar with a low of 133230 and a high of 133471. This pinbar then led to a small bullish intra-day rally taking EU from 133414 to 134514, breaking 133549(76%) along the way to reaching DR3 with only a small pause at the previous day’s high 133764.
Finding resistance at DR3, EU retraced slightly back towards 134, consolidating around 134180 ( under DR2) in preparation for a follow through lower with a complete retracement back to 133414 (around 61%) . This level interestingly also represents the point origin for the recent bullish move to the high above 134. EU ranged around current levels prior to printing a prominent bearish marubozu (low of 133066 and high of 133585) that extended the decline to a low of 132977, touching the previous day’s low. Forming a pinbar at this low, a bullish breakout candle followed (low of 133414 and high of 132514) leading to a move back to 133726(76%). From here, EU continued to range with indecision until eventually breaking higher to 134092. This was immediately met with sellers who took EU from the recent high to a small retracement back to 133726 (previous day’s high). Price remained around this level until the end of the NY session, closing at 133764.
Although the Euro did not have a full week containing significant data, there was the release of a series of positive data results such as the Markit Manufacturing PMI (Aug) 52 vs 50.8, Markit PMI Composite (Aug) 51.7 vs 50.9 and Markit Services PMI (Aug) 51 vs 50 which worked in favour of the Euro. The 20th Aug saw EU break out and move above 133730 reaching a high of 134514. However, this then followed with a gradual retracement from consolidation formed near the top. This then led to a smaller move lower in the earlier sessions on the 20th Aug and a minor reaction back to DP upon the release of the FOMC minutes reaching a low of 132977. From here, EU reversed back towards 133549 in line with 76% and was further propelled by the release of weaker US New Home Sales figures. The Euro then surged in one bullish move to a high of 134092 which then followed with a retracement back towards daily resistance 1 towards the end of the last session, closing under 134.
Similar to the Pound, the Euro also finished the week sitting at the top of its range having printed a high 134514 made on 20th Aug. Though with no major news events lined up this week aside from a few German economic figures, it is most likely that we will still continue to see EU move within familiar territory even with positive numbers. Any attempts to test higher will still hold appeal for sellers perched at the high key levels and this should continue to keep EU within the range.
Turning to the 4 hour chart, it can be seen that the recent print of a pinbar on the 22nd Aug shows a rejection of 132977 which has so far managed to keep EU above 133. However this range is still contained by the recent high of 134514 made on the 20th Aug. If bullish sentiment still prevails from the preliminary improvements in the European economy last week, an attempt back to 134 region may see re-test of the high or further ambition to create a new high, given an appropriate catalyst . As Monday does not hold any domestic data that will hold the power to propel such action, any weakness in the US data within the NY session may possibly be the instigator. However, containment within the range is still most likely with 132 as a possibility in the near future.
From EU’s current position of 133764, the next target is 134 - 134146(DR1) followed by 134610(DR23). If 134610 breaks then EU will look towards 135 with 134830 as a potential top resistance level, should EU manage to move this far north. However should EU resume from the retracement made towards the close of the NY session, then a move towards 133549(76%) will be the next support level to keep EU within bullish sentiment. A break of this level however, will see 133400 (DP) re-visited once again which may prompt further selling from this level. If DP does break, we will see EU continue south which will also confirm a rejection of the 134 region. The next support levels will then lie at 133263(33%) followed by 133154(23%). If EU breaks 23% then 133098(DS1) will be back in view followed by 132640(DS2) and then 132340(DS3).
AUDUSD
AU commenced the week opening at 91849 moving slightly higher to 92326 (just above MR1) where it remained until breaking lower in the form of a bearish marubozu (high of 92043 and high of 91500) towards the end of the day. From here, AU proceeded with a gradual decline starting with a pause around 91450 that followed with a continuation lower pausing again at 91090 just above DR2. Rejecting a minor attempt higher at 91319, AU followed with a sequence of small bearish candles taking AU to a low of 90265(just above 76%) which found support in the form of a pinbar.
This pinbar then led to a minor rally back towards 92 reaching a high of 90973 where it ranged until breaking lower on the 21st Aug to 90210. Price maintained briefly around this level before once again breaking to a new low of 90007(61%). However upon hitting close to 90 (7 pips), buyers instinctively stepped in taking AU back towards to 90426, the previous day’s high (100%). Further ranging continued at current levels until an attempt to break higher in the next candle was immediately met with rejection resulting in a high of 90572 followed by a move to a low of 89751, closing the candle at 90239 as a doji candle. This then followed with a bearish marubozu (high of 90270 and low of 89767) that extended the decline touching the previous day’s low of 89314.
Price then bounced back above 90 to 90013 ranging at the 61% level before moving back higher to 90164(76%) containing price between this range until it broke high to 90426(100%) where it momentarily paused before falling back towards 90001(61%). Price remained contained between 61% and the previous day’s high until the next day. The 22nd Aug then saw AU re-test 90426 and stay within this upper band until Friday 23rd Aug where price fell from 90321 to a low of 89865. AU continued to range around 89912 before breaking higher with a bullish marubozu (low of 89852 and high of 90496). This break of 90164(76%) followed with price suspended in range at the highs with a final close of 90260.
AUD was rather light with data during the week with only the RBA Meeting Minutes holding any sort of significant importance. The week started with a continuation of its decline from 92326 (high made on the 16th Aug) after completing a bullish run from 90578 (low made on 15th Aug). Once again the RBA Meeting Minutes released on the 20th Aug described the global economic environment and its impact that it has on the domestic economy. Also discussed were the economic conditions of Australia’s trading partners such as China who has displayed growth but still under par from the expected 7.5% set for 2013. On the domestic front, it was mentioned that economic activity still requires improvement although exports have risen in line with an increase in mining investment. Commodities experienced a fall though demand for iron-ore still remained in place. Underlying this however is still the prevailing concern for the mining sector which still faces the possibility of a further decline over time. Therefore given the current domestic picture along with global factors, the outlook is still somewhat soft.
In regards to the domestic currency, of particular importance was the mention of the AUD still being perceived as "high" which as mentioned previously still reflects the encouragement of a further decline to help "re-balance" the domestic economy. Further easing of Monetary Policy still remains as an option while the implementation of further cash rate cuts still sits on the table. However any adjustments will be dependent on the extent to which a currency depreciation has provided assistance resulting in positive outcomes , alongside other economic indicators.
Still contained within a range, AU continues to move within its parameters unable to break higher or lower. Though the RBA Meeting Minutes did not provide any sort of catalyst to inspire a significant move to break AU out of its current range, the Meeting Minutes did confirm the validity for the AUD's strong bearish tone, providing an incentive to maintain the ongoing pattern of selling upon retracements and higher key levels. Prior to the RBA Meeting Minutes, AU proceeded with a cautious move north from a low of 90265, reaching 90969, where it consolidated briefly before proceeding with this decline.
The re-confirmation of the weakness in the AUD, prompted a move back towards the lower 90 range where it remained until the 21st Aug. Along with the other majors, AU also reacted to the FOMC Meeting Minutes on the 21st Aug which saw AU reach a high of 90572, followed by an accelerated fall to a low of 89314, breaking the 90 psychological price level to re-rest the lows. From here, AU once again found its way back towards 90 which followed with a consolidation and attempts to break higher which in each instance resulted in containment within the consolidation range between 89890 (around DP) and 90426 (yesterday's high). The weak US figures released in the NY session prompted a move back to a high of 90496 from DP and price sustained above 90 (psychological support level) into the close of the session.
When looking at the 4 hour chart the high of 92326 made on the 19th Aug aligns with the high of 92204 made on the 12th Aug confirming a double top by the break of 91013(DR2). Currently AU sits around 76% which can be perceived as an important level for determining its immediate direction. Should this level (90309) succeed in containing AU, then AU will move back lower towards 90, a strong psychological support level. Recently AU broke this level re-testing the mid 89 region and should AU once again break 90 and then re-visit the mid 89 region, then the next target will be 88784, should 89416(DS1) fail to support AU. Following this, a re-test of the low made on the 2nd Aug 88473 will be the next target and then an attempt at a new low breaking 88 to test 87 with a low of 87585(WS2). However,should AU find strength from its counterparts, a move back towards 92 and higher is still within reach.
USDJPY
UJ opened the week at 97606 continuing the retracement from 97050 made on the 16th Aug, reaching a high of 98118 (above 38%). Sustained at this level briefly, UJ then broke lower printing a bearish marubozu candle(high of 97967 and low of 97633). This followed with a further decline to 97467 which found support spring UJ back to a high of 97857 which once again was met with rejection. This led to a decline reaching a low of 96970 on the 20th Aug and followed with ranging at this level until a pinbar tested a low of 96905 which paved the way for an impressive bullish rally commencing from the 20th Aug to the last session on the 23rd Aug. This rally saw UJ move from a low of 96905 to a high of 99129 until the end of the week. Once DR1 was reached on the 22nd Aug, UJ remained at this level, supporting al attempts to fall which includes a low of 98731 within this range. The week ended with UJ breaking the top range with a significant bearish marubozu (high of 98997 and low of 98386) which then followed with a minor retracement back 98694 where UJ closed.
There was not much data due this week for the Yen, however economic figures that were released did very little to support the currency. Some figures include the Leading Economic Index which came in weaker at 107.2 vs the previous figure 110.7 and the All Industry Activity Index (MoM) (Jun) which released -0.6% vs the expected -0.5%. Later in the week, Foreign Bond Investment resulted in ¥903.8B vs ¥1,625.2B followed by Foreign Investments in Stocks which came in at ¥47.9B vs the previous figure ¥148.5B. Unlike the majors who dropped in response to the FOMC minutes, UJ continued north from the pinbar printed on the 20th Aug.
With no real strength in economic data to support the Yen, the only other catalyst were movements in the Nikkei. However, any favourable outcome in US data only helped with maintaining strength gained from the rise in treasury yields after the FOMC minutes. Though this saw a short decline in the majors against the USD, UJ remained well intact. The 22nd Aug saw some selling in response to the weak US initial Jobless Claims (336k vs 322k), however this was not enough to overturn the recent strength obtained the day before and was quickly was overshadowed by positive figures released for Market Manufacturing PMI and the CB Leading Indicator which assisted in UJ finding its feet to continue higher to 99.
The last minutes released by BOJ saw improvements towards domestic economic stability which was further supported in the Jackson Hole Symposium, where BOJ governor Kuroda confirmed that their asset purchasing program initiated earlier in the year has so far been effective with targeting their problem with deflation. Given this, there is still scope for the Yen to gain strength especially when momentum is no longer fuelled by the focus on US tapering which may see a favour in risk start to subside.
Looking at the charts, UJ ended the week retracing from the high upon the US New Home Sales figures which came in weaker at 0.394M vs an expected rise of 0.485M from the previous figure of 0.455M. Currently UJ sits just above DP however still remains in line with continuing its uptrend. A fall back to 98440(DP) could hold as support which will see UJ move back towards resistance at 98964(76%). If this level is broken, then a target to 991527 followed by 99589(DR2) will come into view. However a break lower from DP will see UJ re-visit the 97 region with the first target at 97928(DS1) followed by 97109(DS2) and finally 96676(DS3). It would seem more likely that any move higher will be met with sellers restraining UJ from making any significant progress north. Therefore the bias for this pair would be to watch for resistance at higher key levels for shorting opportunities.
