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.
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