Daily Technical Outlook

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USDJPY Countertrend Play (Jan 24, 2017)

USDJPY is trending lower on its 1-hour time frame, moving inside a descending channel and approaching support at the 111.50-111.75 area. A bounce off this area could take price back up to the channel resistance around the 114.00 major psychological level.

The 100 SMA is below the 200 SMA for now so the path of least resistance is to the downside, but the short-term moving average appears to be getting ready for an upward crossover so a bounce could be likely. If buying pressure is strong enough, traders could even push for a break past the channel resistance.

Meanwhile, stochastic is in the oversold area, also suggesting that a bounce from the selloff is due. A break above the channel resistance could take USDJPY up to the next area of interest at 115.50.

The dollar has been in a lot of selling pressure before Trump officially took office, as investors have been speculating about a lot of uncertainty during his administration. His "America First" theme seems to have backfired on the dollar as a potential trade war would also have dire consequences on US economic growth.

On the other hand, the Japanese yen has been the beneficiary of risk-off moves, especially during the Asian session. Trump's Treasury Secretary pick Mnuchin shared his plans to investigate China's currency manipulation tactics while Trump signed an executive order quitting the TPP during his first day in the White House.

Medium-tier data from Japan came in stronger than expected today, as the flash manufacturing PMI climbed from an upgraded 52.4 figure to 52.8 instead of dipping to 52.3. Prior to this, the all industries activity index posted a 0.3% uptick. US flash manufacturing PMI, existing home sales, and Richmond manufacturing index are due next.

By Kate Curtis from Trader's Way

 

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EURGBP Triangle Breakout Pullback (Jan 25, 2017)

EURGBP recently broke to the upside from an ascending triangle formation and zoomed up to a high of .8850. From there, price showed signs of a correction to the broken triangle resistance at the .8520 area.

Applying the Fib tool on the latest swing low and high shows that the 61.8% Fib is close to the broken resistance, which might now hold as support. If so, EURGBP could make its way back up to the highs and beyond.

The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside. In addition, the 200 SMA lines up with the broken triangle resistance and might keep losses in check. Stochastic is indicating oversold conditions so buyers could take over soon.

Euro zone reports turned out mixed, as German flash manufacturing PMI and French flash services PMI came in better than expected but the German flash services PMI missed expectations. German Ifo business climate is due today and a rise from 111.0 to 111.3 is expected.

In the UK, the High Court ruling seems to have boosted the pound as requiring parliamentary approval before invoking Article 50 and starting the negotiation process sparked hopes that the actual Brexit could be postponed. UK public sector net borrowing fell from 10.8 billion GBP to 6.4 billion GBP, reflecting improving finances.

Moving forward, Brexit headlines could continue to push this pair around as these have been crucial in setting the outlook for the UK economy. Still, Prime Minister May has been reassuring in terms of making the best of Brexit and securing the best possible deal for the nation.

By Kate Curtis from Trader's Way

 

[katetrades]

EURUSD Rising Wedge (Jan 26, 2017)

EURUSD has been trending higher but slowly consolidating inside a rising wedge formation visible on the 1-hour and 4-hour charts. This signals that a breakout in either direction could take place soon as price is approaching the peak of its formation. The wedge is approximately 400 pips tall so the resulting breakout could be of the same size, possibly taking EURUSD either to the 1.0350 lows or to highs at 1.1150.

The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside. Stochastic seems to be on the move up but is nearing the overbought zone so buyers might be getting exhausted and ready to let sellers take control of price action.

Economic data form the euro zone has been weaker than expected recently, as the German Ifo business climate index printed a surprise drop from 111.0 to 109.8 versus the projected rise to 111.3. As it turns out, German manufacturers are less optimistic about current and future business conditions in the country, possibly due to Brexit concerns.

However, demand for the dollar has also been weak even as US equities have been advancing. Reports that Trump's team has a list of 50 infrastructure projects that could rein in a lot of investment and employment have boosted stock indices to record highs but the US currency has failed to follow suit.

Today has initial jobless claims, goods trade balance, flash services PMI, and new home sales due from the US. The euro zone is set to print the Spanish unemployment rate, German GfK consumer climate index, and Italian retail sales.

By Kate Curtis from Trader's Way

 

[katetrades]

GBPUSD Long-Term Uptrend Signal (Jan 27, 2017)

GBPUSD seems to be tired from its dive, as the pair formed a reversal pattern on its longer-term charts. Price failed in its last two attempts to break below the 1.1975 area, creating a double bottom formation with the neckline at 1.2750. A break past that level could take price up by around 800 pips.

However, the 100 SMA is below the longer-term 200 SMA on the daily chart so the path of least resistance is to the downside. Also, the 100 SMA seems to be holding as dynamic resistance for now. If it continues to keep gains in check, another move towards the 1.1975-1.2000 handle could be in the cards.

Stochastic is also indicating overbought conditions so buyers might need to take a break or book profits and let sellers take over. A bit of bearish divergence can also be seen as price made lower highs while stochastic had higher highs.

UK preliminary GDP came in better than expected for Q4 2016, as the economy expanded by 0.6% versus the projected 0.5% growth figure. To top it off, the earlier reading was upgraded to show 0.6% growth. BBA mortgage approvals also ticked higher, indicating a robust housing market even with Brexit risks.

As for the US, data came in mixed with new home sales falling short of expectations and initial jobless claims signaling a higher rise in unemployment. Still, the flash manufacturing PMI beat expectations by rising from 53.9 to 55.1.

Up ahead, the US will print its advanced GDP reading and might show slower growth of 2.1% for Q4. A weaker than expected result could mean more losses for the dollar, which is already being weighed down by rising risk appetite.

By Kate Curtis from Trader's Way

 

[katetrades]

USDJPY Short-Term Range (Jan 30, 2017)

USDJPY has been trading sideways recently, bouncing off support at the 112.65 level and resistance at 115.30. Price recently made a test of resistance and seems to be heading back to the bottom of its range again.

The 100 SMA is below the 200 SMA for now so the path of least resistance is to the downside. However, the gap between the two is narrowing so an upward crossover might be due, signaling that the path of least resistance is to the upside. In that case, the pair could attempt to break higher and climb by an additional 250-300 pips.

Stochastic is heading south so sellers are in control at this point, but the oscillator is already dipping into the oversold region. Once it starts heading back up, buyers could regain control and push price further north.

The main event risks for this setup this week are the BOJ decision, the FOMC statement, and the US NFP release. No actual policy changes are expected from the Japanese central bank this week, although they've made some changes in their bond-buying program in targeting the yield curve late last week.

Meanwhile, no policy changes are expected from the Fed as well but policymakers could drop some hints on whether or not they can be able to hike interest rates again in March. Trump's fiscal policy plans are likely to be at the front and center of discussions as market watchers would like to find out how the new administration's first few days in office have influenced the Fed's bias.

As for the NFP, another strong jobs figure could reinforce the view that a March rate hike is possible. Analysts are expecting to see 170K in hiring gains, higher than the earlier 156K increase. A weak result, on the other hand, could be bearish for the dollar.

By Kate Curtis from Trader's Way

 

[katetrades]

GBPJPY Trend Line Pullback (Jan 31, 2017)

GBPJPY recently broke past a descending trend line visible on its 4-hour time frame and is showing signs of a pullback. Applying the Fib tool on the latest swing high and low shows that the 50% retracement level lines up with the broken resistance, which might now hold as support.

The 100 SMA is still below the 200 SMA so the path of least resistance is to the downside. However, the 100 SMA is close to the 38.2% Fib and might function as dynamic support. Stochastic is indicating oversold conditions, which means that sellers need to take a break and might let buyers take over.

If so, GBPJPY could resume its climb to the swing high at 144.75 or higher. On the other hand, a break below the lowest Fib at 139.75 could put the pair back on the downtrend.

The BOJ refrained from making any policy changes in their statement today but this comes after a round of bond-buying adjustments last week. Recall that they skipped the schedule to buy short-term maturities while increasing their long-term bond purchases in their attempt to target the yield curve.

Up ahead, the BOE Super Thursday is lined up and this could mean a lot of volatility for pound pairs. Although no actual policy changes are expected from the central bank, the focus will be on Brexit-related discussions and potential adjustments. Traders might also get a glimpse of how policymakers are reacting to Trump's decisions so far.

Earlier today, Japan reported stronger than expected household spending and preliminary industrial production data, shoring up demand for the yen and underscoring the BOJ's upgraded growth forecasts in their previous statement. The yen is also drawing support from the selloff in US assets as traders seem to be pricing in additional uncertainty.

By Kate Curtis from Trader's Way

 

[katetrades]

EURAUD Range Support Bounce (Feb 01, 2017)

The bottom of the long-term range on EURAUD seems to be holding as a floor, with a small double bottom formation materializing. Price is testing the neckline at the 1.4300 major psychological level and a break past this resistance could send the pair up by 200 pips or the same height as the chart formation.

In that case, the pair could make it up to the range resistance at the 1.4500 major psychological mark. However, the 100 SMA is below the 200 SMA so the path of least resistance could still be to the downside. Also, the 200 SMA appears to be holding as dynamic resistance for the time being.

Stochastic is moving up but is already dipping into the overbought region, signaling that buying pressure is exhausted and that sellers could take over. If that happens, another test of the range support could be seen.

Economic data from China showed a small dip in manufacturing activity, as the official PMI for the industry fell from 51.4 to 51.3. The non-manufacturing component improved from 54.5 to 54.6. However, the Aussie seems to be moving in tandem with the Kiwi, which has recently been dragged down by its employment report miss.

In the euro zone, the flash CPI estimate turned out much stronger than expected. The headline reading climbed from 1.1% to 1.8%, outpacing the consensus at 1.5%, while the core reading was unchanged at 0.9% as expected. The region printed a higher than expected flash GDP reading of 0.5% versus the 0.4% consensus and the earlier 0.3% uptick.

For today, EU economic forecasts are lined up, along with final manufacturing readings from the region's top economies. Australia is set to print its building approvals and trade balance in the next Asian session.

By Kate Curtis from Trader's Way

 

[katetrades]

EURUSD Ascending Channel (Feb 02, 2017)

EURUSD continues to trend higher, moving inside an ascending channel on its 1-hour chart. Price just bounced off the resistance at 1.0800 and might be due for a test of support at 1.0700.

The 100 SMA Is below the 200 SMA so the path of least resistance is to the downside. However, the moving averages are oscillating tightly so this could simply be indicative of consolidation. An upward crossover could draw more bulls to the mix and possibly allow the moving averages to hold as dynamic support around the middle of the channel.

Stochastic is on the move up to suggest that buyers are in control of EURUSD price action for now. In that case, the pair could make it back up to the resistance from here until the oscillator indicates overbought conditions and turns lower.

Economic data from the US came in stronger than expected, as the ADP jobs report printed a much larger than expected increase in hiring for January while the ISM manufacturing PMI also beat expectations. These signal that the January NFP could beat expectations and keep the Fed on track towards hiking rates soon.

However, the latest FOMC statement didn't turn out as hawkish as many predicted. The Fed removed the phrase referring to transitory effects of energy prices on inflation and acknowledged that consumer and business sentiment have improved. Still, the FOMC maintained that conditions warrant gradual tightening and risks are roughly balanced.

Up ahead, ECB Governor Draghi has a speech coming up and this might trigger some volatility for the euro even though he might simply repeat his remarks from a testimony earlier in the week. US initial jobless claims and preliminary non-farm productivity and unit labor costs are due.

By Kate Curtis from Trader's Way

 

[katetrades]

GBPAUD Triangle Formation (Feb 03, 2017)

GBPAUD has formed lower highs and higher lows on its daily time frame, creating a symmetrical triangle formation on the long-term chart. Price just bounced off the triangle resistance and could be due for another test of support.

Stochastic is pointing down to confirm that sellers are taking control of price action. If bearish pressure is strong enough, traders could push for a break below support at 1.6300 and a corresponding 1,800-pip selloff, which is the same height as the triangle formation.

The 100 SMA is below the 200 SMA on this time frame so the path of least resistance is downwards. Also, the 100 SMA lines up with the triangle resistance, adding to its strength as a ceiling. The gap between the moving averages is widening so bearish pressure is getting stronger.

In their latest policy statement, the BOE refrained from making any changes to interest rates or bond purchases as expected. The central bank raised its GDP forecasts while keeping inflation estimates unchanged, signaling that they are in no rush to tighten monetary policy.

Meanwhile, the Aussie is being weighed down by weaker than expected Chinese Caixin manufacturing PMI, which dipped from 51.9 to 51.0 instead of 51.8. This forced the currency to return some of its gains after seeing stronger than expected trade balance and building approvals data in the previous day.

UK services PMI is up for release and a fall from 56.2 to 55.8 is expected. Stronger than expected data could still shore up the pound while downbeat results could push the UK currency lower.

By Kate Curtis from Trader's Way

 

[katetrades]

EURGBP Double Bottom (Feb 06, 2017)

EURGBP seems to be tired from its dive as the pair failed in its last two attempts to break below the .8500 level. Price has now completed a double bottom formation and is testing the neckline at .8650. A break above this resistance could send price up by 150 pips or the same height as the chart formation.

The 100 SMA just crossed above the longer-term 200 SMA to signal that the path of least resistance is to the upside. A pullback could last until the moving averages, which might hold as dynamic support around the .8550 minor psychological level.

Stochastic is turning lower to suggest that sellers are taking control of price action. Stronger bearish pressure could take EURGBP back down to the bottoms at .8500 for another test of support or perhaps a breakdown.

Economic data from the euro zone came in mostly in line with expectations last week when it came to PMI readings but the headline flash CPI estimate turned out stronger than expected. Meanwhile, PMI readings from the UK fell short, signaling that the economy may be starting to feel Brexit jitters.

German factory orders and euro zone retail PMI figures are due today. The former is expected to show a 0.6% rebound from the earlier 2.5% slide while the latter could improve from 50.4. There are no major reports due from the UK today.

Several medium-tier reports such as French industrial production and German trade balance are lined up from the euro zone for the rest of the week. UK manufacturing and industrial production numbers are scheduled for release on Friday and weak readings could spur more losses for the pound.

By Kate Curtis from Trader's Way

 

[katetrades]

GBPJPY Head and Shoulders Breakdown (Feb 07, 2017)

GBPJPY indicated its intention to head further south by breaking below the head and shoulders neckline at 141.00. The chart pattern is approximately 300 pips tall so the resulting selloff could be of the same size.

The 100 SMA has crossed below the longer-term 200 SMA to confirm that the path of least resistance is to the downside. The gap between the moving averages is getting wider, which means that bearish pressure is getting stronger.

Stochastic is on the move up, though, suggesting that buyers could regain control of price action while bears book profits. If so, a pullback to the broken neckline support could offer a better opportunity to catch the drop.

Risk aversion has been favoring the Japanese yen this week as traders shy away from the US dollar, which is bogged down by domestic uncertainties. Data from Japan has shown improvements in consumer spending and sentiment, underscoring the BOJ's upgraded growth forecasts.

In the UK, data is starting to turn a corner and suggest that the economy is starting to feel the Brexit jitters. Last week's PMI releases were mostly weaker than expected while today's BRC retail sales monitor showed a 0.6% decline.

UK Halifax HPI is due next and a meager 0.2% uptick in price levels is eyed, much slower than the earlier 1.7% gain. Manufacturing and industrial production numbers are due on Friday and downbeat reports could put more downside pressure on Guppy.

By Kate Curtis from Trader's Way

 

[katetrades]

USDCAD Falling Wedge (Feb 08, 2017)

USDCAD has formed lower highs and lower lows recently, creating a falling wedge chart pattern visible on the 4-hour chart. Price is currently testing the wedge resistance and may be due for a move back to support. If a breakout happens, the pair could move by around 500 pips, which is the same height as the chart formation.

The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside. In addition, the gap between the moving averages is getting wider, which means that bearish pressure is strengthening. The 200 SMA is close to the wedge resistance, adding an extra layer of defense in case price pops higher.

Stochastic is already in the overbought zone, which means that buyers might want to book profits off their recent positions. Once the oscillator turns lower, USDCAD could follow suit as sellers regain control.

Economic data from Canada was mostly weaker than expected in the latest US session, as the trade surplus narrowed while building permits showed a steeper 6.6% fall compared to the estimated 3.5% drop. The Ivey PMI also posted sharper fall from 60.8 to 57.2 versus the estimated 58.3 figure.

In the US, data came in mostly in line with expectations. The trade deficit narrowed as both imports and exports picked up while the JOLTS job openings figure was mostly unchanged in December. An index for economic optimism improved, signaling stronger consumer confidence for the next six months.

In crude oil news, the US EIA lowered demand forecasts for next year while upping production estimates, possibly yielding another wave lower in prices. For this year, they kept demand forecasts unchanged while trimming production estimates.

By Kate Curtis from Trader's Way

 

[katetrades]

EURJPY Channel Pullback (Feb 09, 2017)

EURJPY is trending lower after recently breaking below its consolidation pattern with support at 121.00-121.50. Price is now moving inside a descending channel and testing support, possibly setting the stage for a pullback to the resistance.

Applying the Fib tool on the latest swing high and low shows that the 61.8% level lines up with the resistance and area of interest. If this area keeps gains in check, the pair could resume its drop to the swing low at 119.50 or much lower.

The 100 SMA is below the longer-term 200 SMA so the downtrend is likely to carry on. In addition, the moving averages are close to the channel resistance and Fibs, adding another layer of defense. Stochastic is on the move up to show that buyers are in control of price action while sellers are taking a break.

Economic data from Japan has been mixed, although the latest batch of reports printed stronger than expected results. Core machinery orders increased by 6.7% versus the projected 3.2% rise while M2 money stock also beat expectations. Prior to this, leading indicators advanced from 102.8% to 105.2% but average cash earnings fell short with a 0.1% uptick versus the projected 0.2% rise.

Euro zone data has also been mixed but ECB Governor Draghi has emphasized that they're open to increasing the size and duration of their QE program if necessary. He downplayed inflationary pressures once again, citing the pickup in energy prices as a one-off boost.

German trade balance is due today and a larger surplus of 23.2 billion EUR is expected. In Japan, preliminary machine tool orders is up for release and another upside surprise could mean more yen gains. Note that the BOJ has upgraded its growth forecasts so no additional easing measures are expected in the near term.

By Kate Curtis from Trader's Way

 

[katetrades]

USDJPY Channel Breakout? (Feb 10, 2017)

USDJPY has been trending lower on its 1-hour time frame, moving inside a descending channel since the start of the year. Price is now testing the channel resistance and might be due for a drop back to support at 111.00.

The 100 SMA is below the longer-term 200 SMA on this time frame so the path of least resistance is to the downside. However, the gap between the moving averages is narrowing so an upward crossover might be due, possibly drawing more buyers to the mix.

In that case, USDJPY could break past the channel resistance at the 113.70 area and start a reversal. However, stochastic is indicating overbought conditions and might turn lower, allowing the downtrend to resume.

The US dollar has rallied across the board when US President Trump shared that he is about to announce something "phenomenal" on taxes in the next two or three weeks. This could cover more details on his tax reform plan, which is expected to cut corporate taxes to 15-20% and lessen the tax burden on middle-class Americans.

US equity indices closed at record highs on upbeat expectations, including potential reforms in the aviation industry. Trump recently had a meeting with CEOs of US carriers who hinted that they are ready to bring more job opportunities back to the US. Trump is also meeting with Japanese Prime Minister Abe today and traders are speculating that currency manipulation might be discussed.

With that, yen bulls closed their recent positions as traders also reestablished their dollar longs. Japanese data has been upbeat and the BOJ has issued a brighter economic outlook but market sentiment and politics could play a greater role in price action from here.

By Kate Curtis from Trader's Way

 

[katetrades]

NZDUSD Broken Trend Line (Feb 13, 2017)

NZDUSD recently broke past a descending trend line visible on its 4-hour and daily time frames, signaling that an uptrend is due. Price zoomed past the .7300 mark before showing signs of a correction, and applying the Fib tool on the latest swing high and low shows that the 50% level lines up with the broken trend line and the .7100 major psychological support.

The 100 SMA is still above the 200 SMA so the path of least resistance is to the upside for now. However, the gap between the moving averages is narrowing so a downward crossover might be imminent. In that case, more sellers could get in the game and increase downside pressure.

Stochastic is heading south, which means that sellers are in control of NZDUSD price action for now. The oscillator is dipping into the oversold region and might turn higher soon, drawing buyers back to the mix and causing a bounce off the area of interest.

The RBNZ was slightly more dovish than expected in their latest interest rate statement, as they pushed back their projected date for achieving 2% inflation by a couple of quarters. This signals that the central bank could still be open to additional rate cuts in order to shore up price levels if needed.

In contrast, geopolitical tensions seem to have subsided as the Trump administration had a productive meeting with Japanese Prime Minister Abe. US equities are also climbing to new highs on Trump's tax reform plans, which he plans on announcing sometime in the next two to three weeks.

Recall that Trump has talked about lowering the corporate tax rate and deregulating the financial sector, both of which are likely to mean strong gains for corporate America and the overall US economy. More details on these plans could remind traders that the Fed is looking to tighten monetary policy in order to keep growth under control so March rate hike hopes could continue propping the dollar up.

By Kate Curtis from Trader's Way

 

[katetrades]

GBPJPY Symmetrical Triangle (Feb 14, 2017)

GBPJPY has formed lower highs and higher lows, creating a symmetrical triangle pattern visible on its 4-hour time frame. Price is getting ready to test the resistance around the 142.50 minor psychological level and could be due for a bounce or a break.

The 100 SMA seems to be crossing above the longer-term 200 SMA to suggest a potential upside break. If so, the pair could climb by an additional 900 pips, which is roughly the same height as the chart formation. Similarly, a downside break below support at 140.00 could send price lower by 900 pips.

Stochastic is indicating overbought conditions and turning lower could draw more sellers to the mix, allowing the triangle resistance to keep gains in check and push GBPJPY back to the bottom of the chart pattern.

UK CPI is up for release today and analysts are expecting a gain from 1.6% to 1.9% in the headline figure and a rise in the core figure from 1.6% to 1.7%. Stronger than expected data could reinforce BOE official Forbes' views that a rate hike should be considered to prevent inflation from rising out of control.

Later on in the week, the UK will print its jobs figures, likely showing a 1.1K rise in claimants for January and no change in the average earnings index at 2.8%. UK retail sales is expected to show a rebound from the 1.9% drop recorded in December.

As for the yen, market sentiment has been pushing the lower-yielding currency around, although it has been sensitive to currency-specific data. Over the weekend, Japan printed a weaker than expected preliminary GDP reading of 0.2% for Q4 versus expectations at 0.3%.

By Kate Curtis from Trader's Way

 

[katetrades]

AUDUSD Short-Term Range (Feb 15, 2017)

AUDUSD bounced off support around the .7615 area once more and is now making its way back to the top of its short-term range visible on the 1-hour time frame. Price could find resistance near .7700 and head back to the bottom again.

The 100 SMA crossed above the longer-term 200 SMA to show that the path of least resistance is to the upside, keeping price supported until it tests the ceiling or perhaps breaks higher. In that case, the pair could head north by an additional 100 pips or roughly the same height as the chart formation.

Stochastic is also heading north so AUDUSD could follow suit but is closing in on the overbought area. Once the oscillator hits this region and turns lower, selling pressure could increase and trigger another move towards support or even a breakdown.

The US dollar has gained strong support on Fed Chairperson Yellen's hawkish remarks, affirming that a March interest rate hike could be possible. She downplayed the recent miss in average hourly earnings, citing that tightening labor market conditions could keep upside pressure on wages. Other Fed officials and FOMC voting member Kaplan echoed this upbeat sentiment and confirmed that three rate hikes could be possible this year.

However, the Aussie has also been able to put up a strong fight, thanks to the less dovish than expected RBA statement last week. The central bank acknowledged that commodity prices have been picking up and that China's performance continues to improve, something that was supported by the latest batch of data. Since China is Australia's largest trading partner, this could mean higher demand for commodity products.

By Kate Curtis from Trader's Way

 

[katetrades]

AUDUSD Countertrend Play (Feb 16, 2017)

AUDUSD has been trending higher on its short-term time frames, moving inside an ascending channel on its 1-hour chart. Price is currently testing the resistance at the .7700 major psychological level and might be due for a selloff back to the channel support at .7650.

The 100 SMA is above the longer-term 200 SMA on this time frame, which means that the path of least resistance is to the upside, and the gap between the two is getting wider to indicate stronger bullish momentum. In addition, the 200 SMA lines up with the channel support, adding to its strength as a floor.

Stochastic is already heading south from the overbought zone to indicate a pickup in selling pressure. However, if buyers remain in play, price could still move past the resistance and go on a sharper climb.

The dollar gave back some of its recent gains to its peers after Fed Chairperson Yellen sounded less hawkish in her second testimony. Market watchers focused on her remarks on weak investment spending and productivity, which are dampening wage growth and inflationary pressures. Data from the US, namely retail sales and CPI, all came in stronger than expected while industrial production chalked up a surprise 0.3% drop versus the estimated 0.1% uptick.

This was less upbeat compared to her earlier speech, which revealed that she is also looking to tighten sooner rather than later. In that testimony, she pointed to the progress in terms of achieving the Fed's dual mandate of full employment and 2% inflation. Other Fed officials are supporting this view, with a couple of voting members also citing that they could vote to hike soon.

As for the Australian dollar, the currency is enjoying strong support from the less dovish RBA statement last week and improved data from China. CPI and PPI figures beat expectations for January, signaling stronger inflationary pressures and potentially higher demand. Australia's jobs figures also turned out stronger than expected, with the economy adding 13.5K versus 9.7K jobs in January and the jobless rate improving from 5.8% to 5.7%.

By Kate Curtis from Trader's Way

 

[katetrades]

EURAUD Downtrend Pullback (Feb 17, 2017)

EURAUD has been trending lower and has recently broken below support around the 1.3800-1.3850 area. Price has dipped to 1.3725 before showing signs of a correction, and applying the Fib tool on the swing high and low on the 1-hour chart shows that the 50% level lines up with the area of interest, which could keep gains in check and push price back to the swing low.

The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside. In addition, the 200 SMA coincides with the highest Fib, adding to its strength as the line in the sand for this selloff. Stochastic is in overbought territory and looks ready to turn lower, possibly drawing more sellers to the mix.

On the other hand, a break past the 61.8% Fib and 1.3850 area could signal that buyers are putting up a fight and that a larger pullback to the 1.4000 major psychological level could be in the cards.

Economic data from Australia turned out stronger than expected, as the employment change figure came in at 13.5K versus the projected 9.7K increase. This brought the jobless rate down from 5.8% to 5.7%.

In Europe, recent top-tier reports haven't been so upbeat as the preliminary GDP readings from its top economies turned out below expectations. German ZEW economic sentiment also fell, indicating weaker confidence in growth prospects.

Only the euro zone current account balance is lined up next and there are no other reports due from Australia for the rest of the week. Still, the commodity currency could continue to draw support from risk appetite and China's improved economic outlook while the euro could be weighed down by financial troubles in Greece and Italy, as well as foreseen risks from France's elections.

By Kate Curtis from Trader's Way

 

[katetrades]

USDJPY Broken Channel Correction (Feb 20, 2017)

USDJPY recently broke above its descending channel visible on the 1-hour time frame, indicating that it's done with its downtrend. Price climbed up to a high of 115.00 before pulling back and applying the Fib tool on its latest swing high and low shows that the 61.8% retracement level lines up with the broken channel resistance.

The 100 SMA is above the longer-term 200 SMA on this time frame so the path of least resistance is to the upside. Price also seems to have bounced off the 200 SMA dynamic support, which is also near the channel resistance, and might be on its way back to the swing high.

Stochastic is pulling up from the oversold territory, which means that bullish pressure is building up once more. Stronger buying momentum could take USDJPY past the swing high onto the next ceiling around 115.50 and beyond.

US banks are closed for the holiday today so liquidity could be low and range-bound conditions could be in play. Over the weekend, Japan printed a weaker than expected trade surplus of 0.16T JPY compared to the estimated 0.28T JPY figure and the earlier 0.33T JPY surplus.

Japan's flash manufacturing PMI is up for release tomorrow and a drop from 52.7 to 52.1 to reflect a slower expansion in the industry. A weaker than expected read could reflect a sharper slowdown, which could be bearish for the Japanese yen.

As for the US, the flash manufacturing PMI is due and a rise from 55.6 to 55.8 is eyed, which would be indicative of a faster pace of growth. Traders are also on the lookout for Trump's tax reform plan as a truly "phenomenal" announcement could lead to more gains for US equities and the dollar.

By Kate Curtis from Trader's Way