Key risk events today:
UK Public Sector Net Borrowing; Canadian CPI m/m, Common CPI y/y, Median CPI y/y and Trimmed CPI y/y; FOMC Meeting Minutes.
Snapping a five-day losing streak and adding more than 0.20%, Europe’s shared currency explored higher ground against the US dollar Tuesday, with the US dollar index suggesting a revisit of weekly support at 97.72 may be on the cards.
August’s opening level at 1.1079 maintained a defensive posture yesterday, sending the H4 candles back towards the 1.11 boundary which aligns with a trend line resistance taken from the high 1.1393. Outside of this narrow range, areas of interest can be found at a fresh supply zone drawn from 1.1158-1.1142, closely trailed by June’s opening level at 1.1165. To the downside, nonetheless, traders’ crosshairs are likely fixed on Quasimodo support coming in at 1.1033, closely followed by the key figure 1.10.
On a wider perspective, daily flow is retesting the underside of 1.1109, a support-turned resistance level. A rejection formed from this neighbourhood may govern enough attention to draw in 1.1026 (the 2019 low), followed by demand (not visible on the screen) at 1.0851-1.0950.
Long-standing weekly demand at 1.1119-1.1295 had the lower edge of its base engulfed last week. Continued selling may witness the unit knock on the 2016 yearly opening level’s door at 1.0873, which houses strong historical significance. In addition to this, traders may want to acknowledge the long-term trend remains facing a southerly bearing since topping in early 2018.
Areas of consideration:
If daily resistance at 1.1109 remains in the fold and weekly flow continues to tread water beneath its demand at 1.1119-1.1295, sellers have the upper hand as far as technical structure is concerned and could prompt a selloff from 1.11 on the H4 timeframe. As highlighted above, 1.11 not only garners additional weight from the higher timeframes, it also converges with H4 trend line resistance.
On account of the above notes, a short from 1.11, with protective stop-loss orders tucked above the H4 trend line resistance, is an option, while more conservative traders may opt to wait for a H4 close to form beneath August’s opening level at 1.1079 before pulling the trigger. Downside targets can be seen at the H4 Quasimodo support at 1.1033, the 2019 low at 1.1026 and then the key figure 1.10.
Despite dipping to lows at 1.2064 mid-way through London, sterling concluded firmer vs. the buck Tuesday, adding 0.39%. With the US dollar index snapping a five-day advance, coupled with mixed rhetoric between the EU & UK on the Irish backstop – taking its que after Merkel stated they will think about practical solutions, an advance from H4 channel support (etched from the low 1.2014) emerged and challenged the opposing channel resistance (taken from the high 1.2106).
A rejection off the said channel resistance is unlikely due to nearby support at 1.2159, August’s opening level. Overhead, aside from 1.22 potentially offering resistance, limited supply is visible until 1.23. Therefore, a H4 close above 1.22 is certainly something to keep an eye out for.
Here is a reminder of where we stand on the weekly timeframe:
Extracted from Monday’s weekly report:
GBP/USD bulls went on the offensive last week, adding more than 115 points and snapping a four-week losing streak. For a currency that has been so beleaguered in recent months, this is a notable event. Further upside could have the unit shake hands with the 2017 yearly opening level at 1.2329 (resistance), set a couple of points south of a major resistance area at 1.2365-1.2615. Renewed selling interest, however, may lead to support entering the fold from 1.1904: a standout low clocked in early October 2016.
Although scope for additional upside is certainly plausible on the daily timeframe from Quasimodo support at 1.2037, with north of the page relatively free until reaching resistance at 1.2374 (aligns with channel resistance etched from the high 1.3176), traders must first contend with a local block of supply shaded in green around the 1.2150ish area.
Areas of consideration:
Outlook remains unchanged:
A H4 close above 1.22 delivers an opportunity to enter long, targeting 1.23 as the initial take-profit zone, closely followed by the 2017 yearly opening level on the weekly timeframe at 1.2329 and then H4 resistance at 1.2346. Depending on risk appetite, traders have the option of entering long on the breakout candle (with a protective stop-loss order positioned beneath the tail) or conservatively waiting for a possible retest motion to occur before pulling the trigger, preferably in the form of a H4 bullish candlestick signal (entry and risk can then be set according to this structure).
Tuesday saw the Reserve Bank of Australia release the Minutes of its latest meeting, stating further monetary policy easing would be considered if the accumulation of additional evidence suggests it is needed to support sustainable domestic growth. The AUD/USD market largely ignored the statement and wrapped up the day +0.18%, pretty much unchanged concerning the technical foundations.
With that being the case, much of the following analysis will echo thoughts aired from Monday’s weekly briefing.
The weekly timeframe has its candles languishing beneath resistance at 0.6828, organised as two back-to-back indecision candles. The long-term downtrend, intact since the beginning of 2018, remains unbroken, with further selling towards support at 0.6395 being a real possibility (not seen on the screen).
Meanwhile, on the daily timeframe, since elbowing beneath weekly support mentioned above at 0.6828, support at 0.6733 on the daily timeframe, along with a 127.2% AB=CD (black arrows) formation at 0.6735, entered the fray and held things higher. Despite this, the pair remains deeply in bearish territory and may not have the firepower to cross swords with resistance at 0.6833 (June 18 low).
Analysing the H4 candles, gains have been contained by 0.68 since August 9, while compressing within a bullish flag formation (0.6817/0.6745). Flags typically slope in the opposite direction from the trend, which is clearly not the case here but may still form part of a correction move if we break higher. Beyond 0.68, a tight area of resistance (yellow) resides between a 127.2% Fibonacci ext. point at 0.6862, a Quasimodo resistance at 0.6858 and August’s opening level at 0.6848.
Areas of consideration:
Although the target for the bullish flag configuration will come in much higher, overlooking H4 resistance at 0.6862/0.6848 is chancy. Further to this, though, between 0.68 and the aforesaid H4 resistance zone, traders must contend with not only daily resistance at 0.6833, but also weekly resistance at 0.6828.
On account of the above, the research team feel longs above the current H4 flag formation/0.68 are dicey. Excessive resistance from all three timeframes analysed will likely hamper any upside attempt. With this taken on board, two sell zones remain in view:
- The point the upper limit of the H4 channel flag merges with 0.68 may prompt a selloff (green). With higher-timeframe structure positioned nearby, though, which could promote a fakeout above 0.68, waiting for additional candlestick confirmation to form before entering a trade is recommended (entry and risk parameters can be set according to the selected candlestick formation).
- The yellow H4 area of resistance between 0.6827/0.6848. Granted, while this zone is a touch above higher timeframe-resistance, a fakeout above these levels to the said H4 zone is a strong possibility. Entry at 0.6848 is, therefore, valid, with a tight protective stop-loss order plotted above 0.6862, but if you prefer waiting for additional confirmation, a bearish candlestick pattern would suffice.
Tuesday witnessed the 10-year US Treasury yield erase Monday’s gains, down more than 3.00%, and the US dollar index snap a five-day bullish phase. Sour market sentiment increased demand for the safe-haven Japanese yen, positioning the USD/JPY just north of the 106 handle as we head into Asia Pac hours. As a result, a revisit of 106 is a reasonable possibility today.
As highlighted in previous reports, weekly Quasimodo support at 105.35 – a level that already proved its worth by holding the unit higher at the beginning of the year – contained losses last week, encouraging a run higher that snapped a two-week losing streak. Outside of this base, limited support is evident until 100.61, whereas a push north has the 2019 yearly opening level at 109.68 to target.
In tandem with the weekly Quasimodo support, daily trend line resistance-turned support (extended from the high 112.40) also entered the mix last week. The convergence of these two higher-timeframe levels witnessed a strong recovery take shape on August 13. This foundation supports further buying, according to the technical studies, at least until we reach trend line support-turned resistance (etched from the low 106.78).
H4 action has the 106 handle in view as its next support, whereas to the upside, resistance resides at 107.19/107, comprised of a 50.0% retracement value at 107.19, a resistance level at 107.05 and the round number 107 (lower yellow zone). Above here, we also have another area of resistance formed at 107.88-107.46, with specific emphasis on the 107.70/107.48 region (upper yellow zone), comprised of a 61.8% Fibonacci retracement value at 107.70 and an AB=CD (black arrows) 127.2% Fibonacci extension at 107.48.
Areas of consideration:
A reaction from 106 is a possibility today, along with a run towards 107.19/107. Psychological levels are prone to whipsaws, or more commonly referred to as ‘stop runs’, therefore waiting for additional bullish candlestick confirmation prior to committing funds is worth considering.
While the lower yellow H4 zone at 107.19/107 could contain price action, the research team feels the area holding the ‘juice’ in this market is 107.88-107.46, given it merges closely with the daily trend line support-turned resistance. A short from the upper yellow zone held within at 107.70/107.48 is an ideal location to seek shorting opportunities, should we press this high.
Manufacturing sales out of Canada fell 1.2% to $58.0 billion in June, following a 1.6% increase in May. Manufacturing sales were down in 16 of 21 industries, representing 68.0% of total manufacturing sales, according to Statistics Canada. However, this and the US dollar index breaking a five-day bullish phase had minimal effect on USD/CAD movement Tuesday, consolidating a few points north of the 1.33 handle.
With 1.33 potentially serving as support, scope to attack H4 channel resistance etched from the high 1.3186, and possibly 1.34, is in sight. What’s also notable from a technical perspective is a possible ABCD correction (black arrows) forming that terminates a shade above 1.34.
Focus on the weekly timeframe remains to the upside. Since bottoming at 1.3018 in the form of an inverted hammer pattern, the pair has been steadily grinding higher. Last week’s movement, as evident from the chart, clocked highs of 1.3339. Continued buying from this point has the 2017 yearly opening level at 1.3434 in sight, closely shadowed by trend line support-turned resistance etched from the low 1.2247.
A closer reading of price action on the daily timeframe reveals the 200-day SMA (currently circulating around 1.3305) gave way in recent trade, unbolting upside towards resistance drawn from 1.3382 and a closely converging 61.8% resistance at 1.3357.
Areas of consideration:
Daily resistance at 1.3382 houses strong historical significance, and will likely hold price action lower if approached. Whether the rejection will inspire additional selling is difficult to interpret, though, as the possibility of a run towards the 2017 yearly opening level at 1.3434 is certainly present.
In regards to the H4 timeframe, the point 1.34 and the channel resistance merge (green) will likely entice active selling, with the expectation of daily price ending the session back beneath resistance at 1.3382. For that reason, between 1.34 and daily resistance at 1.3382 is a particularly interesting sell zone. Since round numbers are prone to fakeouts, nevertheless, traders are urged to wait and see if H4 action prints a H4 bearish candlestick signal before trading the zone (entry/risk levels can be determined according to this structure).
In recent sessions, the US dollar recoiled from 2-week highs amid a mild risk-off environment favouring the safe-haven Swiss franc. The USD/CHF reclaimed 0.98 and July’s opening level at 0.9791 to the downside, exposing trend line resistance-turned support (extended from the high 0.9797) on the H4 timeframe. This descending support line sports two points of interest (green), one at the 50.0% retracement value drawn from 0.9739 and the other at the 61.8% Fibonacci retracement value fixed from 0.9720.
What’s also interesting from a technical perspective is the higher-timeframe convergence present at the 50.0% retracement 0.9739. Not only do we have the daily trend line support (etched from the low 0.9542) merging close by, we also have the 2018 yearly opening level stationed on the weekly timeframe at 0.9744.
Areas of consideration:
The 50.0% retracement on the H4 timeframe at 0.9739, which boasts an intersecting trend line resistance-turned support highlighted above, and nearby higher-timeframe supportive structures, is certainly a zone worthy of consideration for longs today. To help position entry and risk levels, traders have the option of waiting for additional candlestick confirmation to form before executing a trade.
Dow Jones Industrial Average:
Benchmark US equity indexes finished lower Tuesday as geopolitical and macroeconomics kept buyers at bay. The Dow Jones Industrial Average erased 173.35 points, or 0.66%; the S&P 500 also erased 23.14 points, or 0.79% and the tech-heavy Nasdaq 100 declined 54.85 points, or 0.71%.
Buyers remain in a fragile state on the weekly timeframe as price action attempts to regain its footing around trend line support extended from the low 21452. A move higher from here has resistance at 26667 in view, whereas a break southbound could sink to depths not visited since early June 2019 at the 2018 yearly opening level drawn from 24660.
Price action on the daily timeframe is currently bounded by a Quasimodo support coming in at 25198 and a resistance area forged at 26539-26200, which, as you can see, entered the mix yesterday and forced the unit lower. What’s notable is the said resistance zone is sited just south of weekly resistance underlined above at 26667, which happens to fuse closely with a daily ABCD correction (black arrows).
Between resistance at 26434, a 127.2% Fibonacci ext. point at 26328 and a 61.8% Fibonacci retracement value at 26402, this zone, 26434/26328, held H4 price action lower at the beginning of last week and on Wednesday. It is also worth noting the current daily resistance area merges with the said H4 zone.
Areas of consideration:
Having noted weekly price indicating weakness around trend line support, and daily movement rejecting a resistance area at 26539-26200, shorts from the H4 resistance zone at 26434/26328 is an idea again.
While there’s a chance weekly price may make a play for resistance at 26667, the odds of a reaction being seen from the H4 resistance is strong, though positioning protective stop-loss orders beyond the daily resistance zone is recommended. This simply adds another layer of protection from a whipsaw through the narrow H4 resistance area. As for downside targets, limited support is in view until 25229 on the H4 timeframe, closely trailed by the daily Quasimodo support at 25198.
Kicking things off with a look at the weekly timeframe this morning, we can see the yellow metal trades marginally beneath channel resistance (etched from the high 1375.1), targeting a support area at 1487.9-1470.2. Overhead, it is also worth keeping a tab on resistance at 1536.9. The story on the daily timeframe has price action rebounding from a support area coming in at 1495.7-1480.3 (glued to the top edge of the weekly support area), with the possibility of a run materialising towards resistance at 1526.8.
Across the page on the H4 timeframe, although bullion explored higher ground against the dollar Tuesday, technical structure remains unchanged, according to our technical studies. Eyes likely remain on the 1467.9/1477.3 area. Comprised (yellow) of a potential ABCD correction at 1473.8 (red arrows), a channel resistance-turned support extended from the high 1437.7 and a 50.0% retracement ratio at 1467.9, 1467.9/1477.3 stands a good chance of holding price action higher if tested. In addition, it might also be worth noting the H4 support area is sited around the lower edge of the weekly support area mentioned above at 1487.9-1470.2, though is positioned outside of the borders of the daily support area at 1495.7-1480.3.
Areas of consideration:
Entry at 1477.3 is an option at the H4 support area, with a protective stop-loss order placed at 1465.2. Traders wanting to add a little more confirmation may opt to wait and see if H4 price chalks up a candlestick signal before committing funds to the market. That way, buyer intent is visible, as well as having a base (the candlestick structure) to set entry and risk levels.
In terms of initial upside targets, the research team suggests considering the 38.2%/61.8% Fibonacci retracements of the A-D legs, once the ABCD formation completes.
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