Last week saw some strong movement among the majors with the Pound finally surrendering its position as the performance leader with its declined from a top of 162595 down to 160 towards the end of the week. This is of course, while playing "Freaky Friday" with the AUD, who stood as last week's winner, maintaining its resilient stance above its counterparts. This week poses as an important week for AUD, with the Unemployment Rate and Unemployment change due in the coming days. Most certainly, this could be the catalyst to push AU towards the direction of parity, where it currently seems poised go, whilst holding above 94. Looking at the other markets, the US indexes rose in the earlier part of the week while interestingly, the US debt situation has recently attracted the attention of bargain investors taking advantage of current US stock prices. With all eyes on the US as they continue with their deliberation, the financial markets remain on standby and ready to respond.
GPBUSD
GU opened the week at 161404, continuing the ascension in the previous NY session from a bottom of 160616 and reaching 161722 before pausing at current levels. This then led to a retracement back to the open of 161404 in preparation for a continuation to the topside. Reaching a high of 162596, price consolidated around the highs for the next few hours which then saw GU move back to 161639. Finding support at 160, GU made another attempt back north reaching a high of 162507, which saw price maintain around 16219 (76% level) moving into the next trading session. This formed a top consolidation, with price pausing briefly at 161743, before breaking lower and finding refuge at 161539 (previous day’s low), as indecision set in, having broken through 162000. GU then proceeded lower towards 161187 (DS1), creating more ambitious targets as price continued its decline to 160970 (DS2) breaking the psychological 161 level and reaching a low of 160323. This tsaw price move back to 160779 and once again meet with rejection, sending GU back south with its sights set on 160323 (DS3). GU then proceeded to power through DS3, reaching a low of 160046, closing the NY session slightly higher at 160570.
The British Pound resumed the opposite side of the stage this week, having been the strongest performer last week to this week being the weakest performer, as poorer PMI figures provided the catalyst for profit taking and a move back to 160 by the end of Friday's NY session. This followed the positive start to the week that saw an increase in Mortgage Approvals from 61.350k (forecast) to 62.226, prompting the move higher to reaching a new top of 162596. However the bullish momentum was stumped with the release of PMI figures on the 2nd and 3rd October, showing a reduction in Manufacturing PMI from 57.2 to 56.7 (forecasted to improve to 57.3) and a poorer Construction PMI figure which printed a weaker figure of of 58.9 vs. 59.1 (also forecasted to reflect an improvement of 59.2). In response, the Pound weakened across the board, resulting in a sell off against all of its counterparts respectively.
Turning to the outlook of the British economy, the poor PMI figures were like a stone in its path as it halted the streak of its most recent output of consistent positive data. Therefore, like the earlier GDP figure, this has not greatly impacted the current positive view of the British economy and the direction of its recovery. In other area of the economy, the construction industry (as seen with previous PMI figures) has shown great a steady incline of growth, that has led to speculation for GDP growth in the upcoming third quarter. However, alongside this as mentioned last week, are speculative concerns regarding a housing bubble given that the UK's housing sector has shown an increase of 0.5% from August, with housing prices higher by 2.4%. The month of August represented the highest issue of loans since February which is a positive. In regards to this, Mark Carney has made a point of addressing the general public of their financial commitments in respect to affordability and the consideration of increasing interest rates once the economy has recovered to a suitable level.
Looking at the charts, GU created a double top at 162596 (Weekly high) with the first summit to 162595 on the 1st October and the reversal carried out on the second rejection of the move to the top on the 2nd October. This was inspired by weaker PMI figures which shifted the momentum, providing the catalyst to change directions, while promoting profit taking. With GU having advanced over 200 pips since the 24th September, a pullback or correction of some sort was imminent as the market looked to off load an accumulated stack of buy orders given the weaker domestic data and in light of the looming debt ceiling which still holds much uncertainty. However as we enter a new week, hopes of a resolution roll into the next few days while the US continue trying to resolve their issues.
This new week, GU opens higher at 160454 under the 23% level (160454). With the BOE announcing their Interest Rate decision and any changes to their Asset Purchasing Facility program on October 10, it is possible to see GU remaining subdued until the approach of critical date, which may be the catalyst to instigate another major move in GU. A break above 160807 will see 161366 (76%) as the next test point which may contain GU within its current downtrend. If this is the case, look for rejection and a move back through 160807 with support at 160454. However, if GU breaks above 161366, this may provide a long opportunity to re-test higher corrective levels. Above 161774, the next resistance level to watch is 163148. Continuing north from DP, the higher targets lie at: 161597, 163148 and 163956. Should price break through 160454, this will open GU to an extended fall to the following targets: 159237, 158480 and 156877.
EURUSD
EU opened the week around 40 pips lower than its NY close (just under 135) and remained range bound between (134803 and 135058) before breaking out higher with a bullish marubozu (low of 134938 and high of 135509). From here, EU created a higher base around 135270 before continuing higher as a bullish 3 candle step saw EU meet with the range top in preparation for another breakout. This then saw sellers upon its approach to 136. Rejection was seen at 135867, pushing price down to 135434, where it stayed until descending lower to 135270. From here, EU then placed a target on 135 reaching a low of 135070 just above the round figure. Price consolidated here at the lows as it decided on its next move. This saw EU break out back higher in a spectacular fashion, creating prominent bullish candle (low of 135041 and high of 135828) leading to a push higher and breaking above 136 as it reached a high of 136066, before retreating back just under 136.
Having tested 136, EU continued to consolidate around 135928 (23%) as it proceeded with a slow ascension north, reaching a high of 136458 which immediately met with rejection with the next candle. This saw price retreat back below to the 76% level (136294), where it remained contained within a tight range between 136156 and 136307 moving into the last day of the trading week. However the 23% level was only a resting point for EU, which after 5 hours saw EU finally break lower through DS1 (135810) and continue down to DS2 (135440) touching a low of 135379, before settling at the lows round 13553, closing the NY session at 135549.
In regards to events, the Monetary Policy Conference provided good insight into economic view held by the ECB, who highlighted that inflation still remained low, with credit activity "subdued" and unemployment still sitting at a high level. As such the ECB expect for Interest Rates being kept on hold for "an extended period of time" especially in light of global economic conditions which as they stand, will not lend favourably to assisting with the improvement of timing for the eurozone economic recovery. Also last week, developments in the Italian political arena saw Italy's Prime Minister Enrico Letta win the confidence vote, keeping his coalition in tact.
Short term money market still remain on "watch" for the ECB, who have stated that will be prepared to do whatever is necessary to align money market rates with price stability. Though this does not hold the same level of attentiveness for the appreciation of the Euro, which the ECB acknowledges but does not put forward a priority concern. While economic growth is expected to continue improving at a "slow pace", this means thatwe will unlikely see changes in monetary policy in the near future, though, this still does not rule out a rate cut if it necessary. But with rates t a low level, this not only assists with money market rates but will also be more beneficial for its current position as it continues with its recovery amongst global uncertainty and lower global demand. This of course, combined with managing its own internal problems in the areas of political, social and financial. One potential issue that has received some recognition is the state of the banking sector and its ties to potential further bailouts, along with the exhaustion of borrowing capacity by sovereign states.
When looking at EU over a longer time period, we can see that the formation of a bull run from the 5th September, instigated from a low of 131040, leading to a higher consolidation area around the 13281 price point on the 12th September. Opening the next week around 60 pips higher, showed that USD weakness was still in action, giving EU the opportunity to continue its bull trend, which was further bolstered by the breakout initiated on the 18th September in response to the FOMC tapering announcement which s saw EU surge to a high of 135409. It is from this date, that we saw EU locked in a steady range type movement within the confinement of the lower to mid 135 region. Only upon the ECB announcement of maintaining rates on hold at 0.5%, did EU find the additional momentum to reach above 136 to a high of 136458 on Friday. Interestingly, when looking a price movement patterns, the recent breakdown from the high 136 area on Friday brought price back in line with DS2 (around 135549), aligns with the tops of the previous peaks formed throughout the month of September.
The recent rise in EU can be attributed to its response to the output of positive domestic data and recent events discussing the progressive developments in the Eurozone, extending from the optimism brought forward upon the earlier announcement of the Eurozone's "exit" from its recession. This of course being the key turning point for the recent price movement in the EU. However a reality check may be pending upon comments made by the ECB indicating that the Eurozone still has work to do and is not expecting a robust or change in its outlook in the near future, nor over improvements regarding the timing of its recovery. This is not only due to expectations and forecasts within the domestic economy but also in consideration of the current global environment which has no positive influence in encouraging a stronger or speedier recovery. This not only references the US but also the emerging markets.
In regards to my levels, a break above 135800 will see the first test of resistance at 136093. Another attempt above 136 cannot be ruled out if the US disappoint with developments in their own domestic affairs especially and a sudden bout of weakness takes over whilst anticipation over a resolution is expected to bring relief. However, I still see any movement north as corrective and favour an opportunity to short. If EU does break above 136093, the first test will be 136194. Breaking above this will open up to a re-test of 136313, followed by 136870 and then 137290 (or around the 137 figure). Alternatively, a break through 135800 (DP) will see 135599 (23%) as the next support level. A confirmed break through the 23% level, will promote further bearish momentum and expose the following levels: 135108, 134720 and 134050.
AUDUSD
AU opened the week at 93078, continuing on from the last NY session which closed at 93113. The start of the Asia session saw AU’s movement quite subdued, breaking through 93 first and reaching a low of 92802 before moving back higher in line with the open, where it ranged for half of the Asia session before breaking higher reach to test above 93 reaching a high of 93344. This then saw AU pull back slightly to 93110 in preparation for another attempt, reached a slightly higher mark at 93539. However the approach of this mid 93 area, saw sellers enter upon this second attempt, leading to steady decline back to the open which prompted a further push south, penetrating 93 and reaching a low of 92875, just 7.3 pips from the previous low. Closing the candle at 92960, this produced a potential bearish continuation but was rejected with the next candle, which saw buyers intervene at 92966, shortly leading to a breakout and producing a bullish 3 candle move, taking AU above 94 to a high of 94227.
Creating top consolidation around this area, AU touched a new high of 94346, before breaking lower producing a bearish candle (high of 94259 and low of 93849), followed by a consolidation that continued into the next day. AU then broke lower from the range, falling from 94080 down to 93682, which followed through with a further decline reaching a low of 93370, where it found support. From here, AU began its travel back north, aligning back at the 23% level (93778) and continuing higher, meeting back in line with the previous range at 93920. This then saw price consolidate just under 94 for much of the day as it struggled to break the range in either direction. Moving into the 4th October, AU started to edge slightly higher, reaching the 76% level (94032) where price maintained briefly before breaking higher, producing a break out candle from 94001 with a high of 94234. This then paved the way for a continuation north to a high of 94471, followed by a small retracement to 94218 before a re-attempt higher saw AU meet with resistance at 94582, creating a double top that led to a small retracement back to DR2 where price finally settled with a final price of 94348.
No doubt that the RBA has been recognised for its commendable job in containing the impact of global conditions while addressing the internal factors that have contributed to the decline in the Australian economy. This brings us back to 2008, when Australia was the first country to post out of a recession from the GFC – not that Australia was even truly in a recession - not in the sense that the other advanced countries were. Though part of this can be attributed to temporary changes such as the restructuring of the workforce as well other initiatives acted out by the RBA in preparation for a possible negative impact on the domestic economy. Once again, we have seen this action take hold as global uncertainty resurfaces, and efforts are exerted to minimize any adverse effects that may ricochet from global uncertainty. However, even given the stronger disposition, as the domestic economy starts to show improvements, much like the other advanced countries working towards economic growth and stability, the RBA will look not only at domestic performance but at the current global economic position as well.
So far, previous cash rates have factored in the current global situation in an effort to offer a type of protection for the economy. This level of caution will be adjusted accordingly, however, this will be based upon further reassurance in both areas, that will be factored into a building a case for the eventual raising of the cash rate. Expanding on this, the RBA see 2014 to hold more promise of improvements in both the global economic arena and domestic economy. This does lend to the idea of a possible rate rise to come in the future and Australia to be the first.
In regards to the outlook, domestic growth is expected to remain under par in the near term future largely due to the decline in the mining sector, while a depreciating currency is still preferred, to assist with the economic recovery. Earlier adjustments to monetary policy have been noted to be producing a positive outcome in the areas of investment and recent economic data such as the AIG Manufacturing PMI printing stronger figures for the first time in 2 years, along with improvements in retail sales, consumer confidence have contributed to a positive outlook for Australia. Taking this into consideration along with the view of a potential rate rise in 2014 has sparked recent buying interest in the AUD and until today has seen AU stand defiantly towards the upper region of its recent price range. However looking at things objectively and more "near-term", the RBA are not looking to make any move towards changes in monetary policy without the demonstration of further consistent economic data supporting stronger evidence of economic growth. This is of course also taking into consideration the position of the global economy at that time as well.
Looking at AU on the daily chart, we can clearly see the pair in the midst of a correction, having broken above the top of 92955, which currently sees price now aligning with the previous pullback in the long term downtrend. As such, this retracement does present a nice top formation should price reject from current levels, however moving higher, the mid 95 - 97 also sets up as a possible topping area. Moving to the 4 hour chart, we see a completed bullish retracement back to the previous point of break instigating the fall from 94502 to a low of 92802. It is possible for AU to continue trading with the parameters set up on the 4 hour chart while on stand by with US developments otherwise this week does present the potential for the currency pair to advance with support from the Unemployment Rate and Unemployment change due later this week. However, until then, it is likely to see AU either stay subdued at currently levels or sell off slightly prior to the announcement. Both figures are forecasted to produce a positive outcome (with the Unemployment rate unchanged), therefore, pre-announcement market sentiment looks in favour of AU long, seeking a top at the higher key levels for now. This of course can change if the US come to the table.
In regards to my levels, a break above 94416 (76%) will promote bullish momentum and bring the following targets into view:94706, 95097, 95629. Alternatively, should a break lower through 94178 (DP), will see 94043(23%) tested for support. Breaking this level will expose 93797, 93280 and then 92877. If AU does make a run for the 95 - 97 area, this would be a good candidate for a topping area.
USDJPY
UJ opened the week at 97639 having tested the bottom, and breaking out higher printing a bullish marabozu (low of 97653 and high of 98122) that saw price push higher to 98315 where price consolidated before attempting to a move north reaching a high of 98720. This immediately met with rejection with the next candle sending UJ all the way back to a low of 976365 where price found support. From here, UJ then bounced back up from this level to a high of 98290 that followed with price maintaining its position around current levels contained within a range between 97749 – 98120 before finally breaking lower on the 2nd October to a low of 97137.
UJ then attempted a small bounce back to 97562 which then saw price retrace back to the 38% (97282). Holding as support, UJ then made another attempt to the topside reaching a high of 97863 that immediately rejected with the next candle, sending UJ declining from a high of 97863 to a low of 96923, breaking 23% (97145). Having pierced 97, UJ found support around this round number which then followed price consolidating around the 23% before attempting a small rise, taking UJ above 50% level (97394) with a final close at 97448.
In the latest release issued by the BOJ, it was stated that Japan's economy (3rd largest) is growing at a moderate pace. Recent data has also pointed to improvements in the domestic economy such as the rise in CPI rose, along with other improvements such as business confidence and foreign investment. As such, the BOJ kept Interest Rates on hold at 0.1% last week, standing by the affirmation that the Japanese economy was indeed recovering and thus there was no further need to ease policy. In addition, this also saw the approval of the corporate sales tax increase, which earlier in the week, raised concerns over its impact on the appreciating Yen. However, the BOJ have now moved forward with the decision to go ahead as planned, keeping in mind the 2% inflation target which will continue to be monitored. In regards to the global outlook, Japan is also closely monitoring the movements in the US as well as the emerging markets and exporting economies which may potentially have an impact on their own economy and their recovery.
Moving on to the US, all eyes are on the US shutdown which still continues to take the spotlight. With October 17 approaching, there is anticipation for some sort of resolution or development to be announced in the coming days. Until then, UJ stands very weak while Yen continues to act as a safe haven currency against the USD. Developments in the US or a favourable resolution will see this quickly change, but until then, it is likely to UJ contained within range until an appropriate catalyst is presented.
Looking at the charts, the 4 hour chart still shows movement within a downtrend. However with the daily still showing UJ locked within a range, it is very possible to see UJ move north should the USD receive strength. This is a big week for US economic data which includes last week's postponed NFP figure due out on Oct 11. Currently the 1 hour shows UJ sitting at DS1 which is also around the previous day's low at 96946. Movement between this level and 97390 would be a good range to intra day trade while UJ stays in the lower band of this price movement. Breaking above 97349 could see UJ move north towards 98, though I am weary of USD strength without a proper catalyst in place and see that any push higher may just result in price remaining contained while uncertainty looms. Any surge among its counterparts will need to be inspired by domestic events, while the US deliberate over their Fiscal Budget. A bounce from the 23% level (97071) could produce a nice intraday 30 -40 pip return, while breaking lower, will bring targets within the 96 price range into view.
In regards to my levels, with price at current levels, a break above 97474 will promote bullish momentum level, opening up to the following targets: 97865, 98353 and 98841. Alternatively, a break lower through 97387 (DP) will see the first test of support at 97071 at the 23% level (current position) with a break through this level exposing the following targets: 96928, 96454 and 960183
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