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Key risk events today:

China Fixed Asset Investment ytd/y; China Industrial Production y/y; Japanese banks closed in observance of Respect-for-the-Aged Day.

EUR/USD:

Weekly gain/loss: +0.43%

Weekly close: 1.1072

Weekly perspective:

Despite closing out August engulfing long-term demand at 1.1119-1.1295, over recent weeks Europe’s shared currency staged an impressive recovery vs. the buck, adding 84 points. Current action is leaning towards a retest of the zone (marked a resistance area) with the 2016 yearly opening level at 1.0873 fixed as the next downside target.

Concerning trend direction, since topping in early 2018 at 1.2555, the long-term trend remains pointing in a southerly bearing.

Daily perspective:

Demand pencilled in at 1.0851-1.0950 – houses the 2016 yearly opening level inside its lower bounds – has contained price action since absorbing weekly demand mentioned above at 1.1119-1.1295. Thanks to strong bidding Thursday last week, forming a clear-cut bullish outside day construction, trend line resistance taken from the high 1.1412 entered the fold Friday and produced a shooting star candlestick pattern (considered a bearish signal).

Beyond the current trend line resistance, we have trend line support-turned resistance in sight (taken from the low 1.1181), closely trailed by a 200-day SMA construction (orange – 1.1257).

H4 perspective:

The post-European Central Bank (ECB) advance ran into fresh headwinds off the 1.11 handle Friday, withdrawing to a low of 1.1061 into the closing bell. Retail sales data out of the US favoured the greenback and sent US yields further to the upside. In addition to this, the preliminary reading of the University of Michigan’s Consumer Confidence Index showed a rebound from 89.8 to 92.0 in September.

Traders who read Friday’s report may recall the following piece:

Although the H4 candles are defending 1.1079, the 1.11 handle is prime for an attack, according to our chart studies. Round numbers, as most are aware, are prone to stop runs. This is due to the number of orders these levels attract. With the underside of weekly resistance set just north at 1.1119 and the daily trend line resistance that comes in a touch above the psychological mark, a fakeout through 1.11 to these higher-timeframe barriers is a reasonable possibility. Buy stops tripped above 1.11 and higher-timeframe sellers entering the fold from the said zones will likely cause strong selling, carrying price action back down to at least 1.10ish.

On account of the above, traders are urged to set alerts at 1.11. A fakeout through this number to the said higher-timeframe levels that closes south on a H4 basis is a strong sell signal, with entry on the close of the candle likely eyed and stops plotted above the fakeout high.

As evident from the H4 chart, price action did indeed whipsaw through 1.11, though only managed to draw in sellers from the daily trend line resistance. Indicator-based traders may also wish to acknowledge the RSI displays negative divergence (red line).

Areas of consideration:

Traders short the fakeout through 1.11 will likely have protective stop-loss orders above the fakeout high 1.1109, and entry at either the 1.1087 H4 candle close or the 1.1075. Regardless, the fact we have daily sellers involved, coupled with offered liquidity in the form of buy stops above 1.11, will likely be sufficient to drop price to at least 1.10ish this week, and possibly further, according to higher-timeframe structure.

GBP/USD:

Weekly gain/loss: +1.68%

Weekly close: 1.2494

Weekly perspective:

Following a sizeable bullish outside week shaped the week prior, last week’s movement added more than 200 points and pitched price into the walls of a long-term resistance area coming in at 1.2365-1.2615. Although this zone is expected to house active sellers, traders are urged to pencil in the 2019 yearly opening level at 1.2739 in the event we press for higher ground this week.

Daily perspective:

Friday witnessed the unit overthrow resistance at 1.2374 (now likely to serve as support) in strong fashion and challenge a 61.8% Fibonacci ratio set at 1.2493. Directly overhead, stacked supply is visible around 1.2560ish (black line), closely shadowed by trend line resistance etched from the high 1.3380, and then a Quasimodo resistance at 1.2763. It might also interest some traders to note the 200-day SMA is present around 1.2737.

H4 perspective:

The pound was on a tear Friday, expanding across the board. Sentiment turned positive towards the currency in recent days as investors price out risks of the UK crashing out of the EU without a deal.

1.24 was annihilated, with little stopping the unit from reaching 1.25 into the close. 1.25 served well as resistance late July (black arrows) and has the backing of a daily 61.8% Fibonacci ratio mentioned above at 1.2493 and a considerable weekly resistance area at 1.2365-1.2615. Beyond 1.25, nevertheless, Quasimodo resistance at 1.2571 is in the firing range. Interestingly, the high 1.2558 (red arrow), and the highs set beneath it (black arrows) at 1.2522ish, likely have buy stops plotted above. This may help provide liquidity to sell the said Quasimodo resistance.

Areas of consideration:

Shorts from 1.25 are certainly an option today, considering its connection to higher-timeframe resistances (see above). It is recommended, however, that traders consider waiting for additional H4 candlestick confirmation to form before pulling the trigger, as psychological figures are prone to whipsaws/fakeouts. What this does is help identify seller intent and provide entry and risk levels to work with. The first downside target can be found at 1.24, followed by daily support priced in at 1.2374.

A break of 1.25 to the upside, nonetheless, unbolts the door to further buying, at least until reaching the H4 Quasimodo resistance aired above at 1.2571. For those who want to press this bullish theme, waiting for a retest at 1.25 as support to develop is suggested (entry and risk can be found on the back of the rejecting candle’s structure).

AUD/USD:

Weekly gain/loss: +0.50%

Weekly close: 0.6879

Weekly perspective:

After staging a healthy comeback in recent weeks, involving the unit reclaiming position above support at 0.6828, further buying materialised last week, consequently posting a modestly healthy gain. If buyers remain in the driving seat, an approach towards the 2019 yearly opening level at 0.7042 is likely on the cards.

Daily perspective:

In conjunction with weekly structure, the daily timeframe also maintained a bullish position north of support at 0.6833. The next upside target on this scale falls in at 0.6910, a swing resistance. However, beyond here the research team has eyes on Quasimodo resistance at 0.7047 and resistance at 0.7062. It might also interest some traders to note the 200-day SMA lurks close by at 0.7011 (orange).

H4 perspective:

Latest headlines surrounding the US/China trade war and a fading buck helped the pair preserve an upside bias Friday. US Treasury Secretary Mnuchin, on Thursday evening, stated he was hopeful progress will be made in trade talks. China’s State Council also announced they have decided to exclude some agricultural products including soybeans and pork from retaliatory tariffs on US imports.

Since engulfing August’s opening level at 0.6848, price has been grinding higher within a tight channel formation. With upside pointing to 0.69 from current price, closely followed by a 161.8% Fibonacci ext. point at 0.6912, longs remain favoured.

Areas of consideration:

Considering the bullish theme on the higher timeframes right now, entering long based on a retest at August’s opening level drawn from 0.6848 on the H4 is still the favoured option (black arrows). A retest of this level in the shape of a H4 bullish candlestick signal will likely entice buyers into the market, with eyeballs on 0.69 as the initial upside target, set just beneath daily resistance at 0.6910 and the 161.8% H4 Fibonacci ext. point mentioned above at 0.6912.

Should this trade eventually come to fruition, traders are also urged to take into account the tops formed just south of 0.69 which could house active sellers.

USD/JPY:

Weekly gain/loss: +1.09%

Weekly close: 108.06

Weekly perspective:

The recovery from Quasimodo support at 105.35 has so far been impressive, shaped in the form of three back-to-back bullish closes. With that being said, though, last week concluded around the underside of trend line resistance (extended from the high 112.40), which could potentially throw a spanner in the works this week.

Additional upside has the 2019 yearly opening level at 109.68 in sight.

Daily perspective:

The story on the daily timeframe has trade crossing swords with a trend line support-turned resistance (etched from the low 106.78) in the shape of an ABCD correction terminating at 108. Since crossing paths with the said trend line, price action has established little in terms of rejection. In fact, Friday’s candle wrapped up by way of a Doji formation, suggesting an indecisive tone is present in the market.

H4 perspective:

Friday witnessed price action gain traction above 108 post-US retails sales, though struggled to sustain gains into the close. As highlighted in previous reports, buy stops above the 108 handle are well and truly under fire. Continued bidding above 108 places July’s opening level at 108.48 in view as the next viable resistance, closely followed by August’s opening level at 108.74. A rotation back beneath 108, however, has trend line support (extended from the low 104.44) to target.

Areas of consideration:

While Thursday’s initial stop run above 108 drew the candles more than 50 points lower, the swift turnaround and repossession of 108 is concerning for any seller. However, what’s likely stopping a run to July’s opening level at 108.48 on the H4 timeframe is the trend line resistances on both the weekly and daily timeframes.

Given higher-timeframe structure, should H4 price reclaim 108 to the downside once again and form a reasonably notable bearish candlestick formation on a retest (entry and risk can be determined according to this structure), a short is still worthy of consideration this week, targeting the noted H4 trend line support, followed by the 107 handle.

USD/CAD:

Weekly gain/loss: +0.91%

Weekly close: 1.3284

Weekly perspective:

USD/CAD bulls entered an offensive phase last week, consequently correcting a large portion of the prior week’s precipitous decline. Resistance on this timeframe is fixed at the 2017 yearly opening level drawn from 1.3434, closely trailed by a trend line support-turned resistance extended from the low 1.2247. To the downside, nonetheless, we have the 1.3016 July 15 low, followed by Quasimodo support at 1.2887.

Daily perspective:

Tuesday saw the unit dip its toe into a familiar support at 1.3136, which followed through with a bullish engulfing candle Wednesday with additional bidding observed. Resistance in the form of a 200-day SMA (orange) at 1.3307 is now in the offing, tracked by a 61.8% Fibonacci resistance at 1.3357 and resistance at 1.3382.

H4 perspective:

Motivated by upbeat US retail sales data and fading WTI prices (printed its fourth consecutive daily loss), USD/CAD movement broke out of its subdued range in early US trade Friday and settled the week at the underside of a 61.8% Fibonacci ratio at 1.3287. Overhead, additional layers of resistance are visible at the 1.33 handle and September’s opening level at 1.3314. Note also the 200-day SMA (orange) intersects with this neighbourhood and, for indicator-based traders, the RSI is seen tackling overbought territory.

Areas of consideration:

The area between September’s opening level at 1.3314, the round number 1.33 and the 61.8% Fibonacci ratio at 1.3287 (1.3314/1.3287) is likely a zone of interest for sellers this week – even more so knowing we have the 200-day SMA housed within. For traders looking to add a little more confirmation to the mix before engaging, consider waiting for candlestick confirmation to develop. For example, a H4 bearish engulfing formation moulded off the 1.33 handle not only identifies seller intent, it also delivers entry/risk levels to work with. As for downside targets, the 1.32 handle is a logical starting point, followed by August’s opening level at 1.3187.

USD/CHF:

Weekly gain/loss: +0.27%

Weekly close: 0.9899

Weekly perspective:

Longer-term flow has action engaging with familiar supply coming in at 1.0014-0.9892. This is the second time back to the area and, therefore, its strength may be compromised.

A rotation lower from here, nevertheless, has the 2018 yearly opening level at 0.9744 in sight. In the event buyers brush aside the said supply (unlikely a straightforward feat but certainly a possibility), resistance at 1.0110 is in view, as is long-term trend line support-turned resistance taken from the low 0.9187.

Daily perspective:

Daily activity fashioned a clear bearish outside day Thursday, though left an interesting area of resistance at 0.9986/0.9953 unopposed by a few points (Quasimodo resistance at 0.9963, a 200-day SMA [orange – 0.9953] and resistance coming in from 0.9986 [red]). Friday attempted to extend Thursday’s move, but failed off session lows of 0.9854, consequently establishing a robust lower shadow.

Continued downside this week may call for a revisit of trend line support (extended from the low 0.9542), as demand to the left of price appears consumed.

H4 perspective:

Early European trade Friday witnessed a break of 0.99 to the downside and a test of nearby trend line support taken from the low 0.9713 into US hours. Common viewing typically sees some form of reversal occur as US traders enter the fight; in this case it was off the said trend line support, which resulted in a retest at 0.99 by the day’s end. Outside 0.99, immediate resistance resides around August’s opening level at 0.9934 and a channel resistance drawn from the high 0.9877.

Areas of consideration:

Selling this market, though appealing on the weekly and daily timeframes, is difficult according to H4 structure. It would, as highlighted in Friday’s analysis, take a break of trend line support (0.9713) to clear sufficient space to channel support (0.9659)/0.98 handle.

The daily resistance area between 0.9986/0.9953 is still open for possible shorting opportunities in the event we turn higher this week. As emphasised in previous reports, an ideal entry point would be the H4 channel resistance taken from the high 0.9877, as this line intersects with the upper boundary of the said daily zone. A test of the H4 channel area in the shape of a H4 bearish candlestick signal (entry and risk to be set according to this structure) is considered a high-probability setup with the likelihood of a sizeable move occurring from its formation.

Dow Jones Industrial Average:

Weekly gain/loss: +1.47%

Weekly close: 27231

Weekly perspective:

US equities notched a third consecutive weekly gain last week, according to the Dow Jones Industrial Average. Adding nearly 400 points, the index settled the week extending its position north of support at 26667 and a short walk from the all-time high 27388.

Daily perspective:

As highlighted in Thursday’s report, daily price engulfed Quasimodo resistance at 26988 last week and now serves as possible support. A retest of this barrier may come to fruition before we touch gloves with all-time highs.

H4 perspective:

The Dow Jones Industrial Average firmed Friday, posting its first eight-day winning streak in more than a year, amid improving sentiment around US/China trade relations. The Dow added 37.07 points Friday, or 0.14%; the S&P 500 ended the day unchanged at minus 2.18 points, or 0.07% and the tech-heavy Nasdaq 100 declined 24.39 points, or 0.31%.

With respect to the Dow’s technical landscape on the H4 scale, price action is poised to approach all-time highs at 27388. Last week Wednesday observed the index overthrow resistance at 27058 (now acting support) and trend line resistance etched from the high 27388, with Thursday/Friday’s activity directionless, confined to tight consolidations at the top edge of Wednesday’s range.

Areas of consideration:

Outlook unchanged.

On account of the above chart studies, longs remain in favour this week. A retest at the area between 26988 (the daily support level) and H4 support at 27058 is eyed, specifically the point which H4 support intersects with trend line support (green). A retest formed by way of a H4 bullish candlestick signal will likely be sufficient to entice involvement even from the most conservative buyers. Entry and risk can be set according to the rejecting candlestick’s structure, with a take-profit target fixed at the all-time high underscored above at 27388.

XAU/USD (GOLD):

Weekly gain/loss: -1.20%

Weekly close: 1488.5

Weekly perspective:

Since breaking a strong four-week bullish phase, bullion rotated lower from notable resistance priced in at 1536.9 (boasts strong historical significance – check late 2011 and early 2012) and logged a further two consecutive losing sessions since. Recent selling positioned the yellow metal back beneath nearby channel resistance-turned support (taken from the high 1375.1) and at the top edge of a support area coming in at 1487.9-1470.2 (drawn from April 2013).

Daily perspective:

Resistance at 1550.4 capped upside in recent weeks, consequently guiding the daily candles towards a support area at 1495.7-1480.3. Glued to the top edge of the current weekly support area, we can see this is the third time back to this zone in the space of a month. So far, buyers are lacking oomph out of this zone, airing the prospect of a run towards another layer of support coming in at 1448.9-1419.9 this week.

H4 perspective:

Risk-on flows continued to weigh on the precious metal Friday, alongside upbeat retail sales out of the US. The week concluded with the H4 candles engaging with a familiar area of support marked in green at 1477.3/1493.7. Not only does it hold H4 channel support within (pencilled in from the high 1437.7), it merges with a daily support area coming in at 1495.7-1480.3, and the top edge of the weekly support area at 1487.9. Another constructive development worth underlining is a possible ABCD correction (black arrows) at 1480.8, essentially marking the lower edge of the current daily support zone.

Areas of consideration:

Considering the current market trend and the likelihood the current retracement is simply a pullback, the area of support stationed on the H4 timeframe between 1477.3/1493.7 remains an option for long opportunities this week. The research team specifically favours the H4 channel resistance-turned support as an entry point (entered the mix Friday) and the completion of the ABCD correction around 1480.8. For conservative traders desiring a little more confirmation, waiting for a H4 bullish candlestick formation to develop could be the way to go. This helps confirm buyer intent and provides entry and risk levels to trade with. Concerning upside targets, September’s opening level at 1526.2 remains a logical starting point.

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Global Markets:

• Asian Stock Markets : Nikkei up 1.05%, Hang Seng up 0.78%, ASX up 0.21%
• Commodities : Gold at $1512.05 (+0.31%), Silver at $18.23 (+0.28%), Brent Oil at $60.36 (-0.03%), WTI Oil at $55.13 (+0.07%)
• Rates : US 10-year yield at 1.787, UK 10-year yield at 0.690, Germany 10-year yield at -0.503

News & Data:

• (USD) Core CPI m/m 0.30% vs 0.20% expected
• (USD) CPI m/m 0.10% vs 0.10% expected
• (EUR) Main Refinancing Rate 0.00% vs 0.00% expected

Markets Update:

Asian stock markets are mostly higher on Friday with investor sentiment boosted by positive developments on the U.S.-China trade front and following the European Central Bank’s announcement that it will resume its quantitative easing program.

U.S. President Donald Trump said he would consider an interim trade deal with China, though it would not be preferred. Meanwhile, the ECB lowered its main deposit rate by 10 basis points and announced plans to restart its quantitative easing program by purchasing assets at a pace of 20 billion euros per month beginning November 1.

In Japan, the Nikkei 225 rose 1.05% as shares of index heavyweights Fast Retailing and Softbank Group gained 0.62% and 3.2%, respectively. Markets in China and South Korea were closed on Friday for holidays. The Australian market is advancing, with banks and the major miners among the leading gainers. The ASX traded higher by 0.21%

Rising risk appetite kept the yen near its six-week low of 108 to the dollar. Ten-year German Bund yields also rose back to minus 0.503%. That also helped keep the yield on 10-year U.S. Treasuries at 1.7838%, near early August levels, breached in Thursday’s session. Fed funds rate futures imply a 0.25 percentage point interest rate cut by the Fed next week but have effectively priced out any chance of a larger cut.

Oil prices were on course to post weekly losses, on continued worries about weakening demand and on speculation Trump may ease sanctions on Iran after his former national security adviser John Bolton, an Iran hawk, left the White House earlier this week.

Upcoming Events:

• 12:30 PM GMT – (USD) Core Retail Sales m/m
• 12:30 PM GMT – (USD) Retail Sales m/m
• 2:00 PM GMT – (USD) Prelim UoM Consumer Sentiment
• &more…

Key risk events today:

US Core Retail Sales m/m; US Retail Sales m/m; US Prelim UoM Consumer Sentiment.

EUR/USD:

The European Central Bank (ECB) went above and beyond on Thursday in rolling out an enormous stimulus package. The central bank unveiled fresh stimulus measures to bolster the eurozone, including cutting a key interest rate and reintroducing open-ended QE, announcing bond buying for €20 billion per month starting November 1st. The deposit facility rate was already negative, though has now been cut 10bps from minus 0.4% to minus 0.5%.

Despite a boisterous session, ranging 160 points, Europe’s shared currency concluded the day higher against the buck by around 0.50%.

Higher-timeframe analysis shows weekly price languishing south of 1.1119-1.1295, a demand-turned resistance area. Current action is leaning towards a retest of the zone with the 2016 yearly opening level at 1.0873 fixed as the next downside target. Elsewhere, daily flow remains buoyed by demand pencilled in at 1.0851-1.0950 – houses the 2016 yearly opening level within its lower limits. Thanks to strong bidding yesterday, forming a clear-cut bullish outside day formation, trend line resistance taken from the high 1.1412 is now in sight.

Closer examination of price action on the H4 timeframe reveals the candles settled around the underside of August’s opening level at 1.1079, which happens to intersect with a trend line support-turned resistance etched from the low 1.1026. Note, another layer of potential resistance resides close by at 1.11, whereas to the downside, 1.10 remains in view, closely shadowed by September’s opening level at 1.0989.

Areas of consideration:

Although the H4 candles are defending 1.1079, the 1.11 handle is prime for an attack, according to our chart studies. Round numbers, as most are aware, are prone to stop runs. This is due to the number of orders these levels attract. With the underside of weekly resistance set just north at 1.1119 and the daily trend line resistance that comes in a touch above the psychological mark, a fakeout through 1.11 to these higher-timeframe barriers is a reasonable possibility. Buy stops tripped above 1.11 and higher-timeframe sellers entering the fold from the said zones will likely cause strong selling, carrying price action back down to at least 1.10ish.

On account of the above, traders are urged to set alerts at 1.11. A fakeout through this number to the said higher-timeframe levels that closes south on a H4 basis is a strong sell signal, with entry on the close of the candle likely eyed and stops plotted above the fakeout high.

GBP/USD:

The British pound wrapped up Thursday’s session a shade higher vs. the buck, +0.07%. Recovering from a session low at 1.2282, trailing the euro lower after ECB movement, the GBP/USD respected 1.23 as support and clocked highs at 1.2366 going into the close.

Having seen the notable high set at 1.2309 (black arrow) recently engulfed on the H4 scale, many traders will likely look upon the retest at 1.23 as a cue to begin buying this market. While a run higher could certainly materialise, caution is suggested. Higher-timeframe analysis has a weekly resistance area positioned at 1.2365-1.2615 in motion, and daily price is tackling resistance at 1.2374, closely shadowed by a 50.0% resistance value at 1.2399.

Areas of consideration:

Although the retest off 1.23 is appealing, and could entice additional buying, entering long into higher-timeframe resistance is an enormous partition to overcome. With that being the case, Thursday’s outlook remains unchanged:

Considering the technical position on the higher timeframes, sellers likely have the upper hand. Before pressing the sell button, though, traders are urged to let H4 price prove itself: reclaiming 1.23 to the downside which should clear the pathway south to at least 1.22. A H4 close below 1.23 that’s followed up by a retest is considered an ideal sell signal (entry and risk can be determined on the back of the rejection candle’s framework).

AUD/USD:

Although clocking fresh weekly highs at 0.6894, the commodity-linked currency failed to generate anything meaningful to the upside, concluding the session little moved. In response to this, the research team feels the previous technical briefing holds:

Kicking things off on the weekly timeframe, we can see the pair staged a strong comeback last week. By way of a bullish outside day, the unit wrapped up the week north of support at 0.6828. If buyers remain in the driving seat, an approach towards the 2019 yearly opening level at 0.7042 is likely on the cards.

In conjunction with weekly structure, the daily timeframe also ended last week north of support at 0.6833. The next upside target on this scale, nonetheless, falls in at 0.6910, a swing resistance, though beyond here the research team has eyes on Quasimodo resistance at 0.7047 and resistance at 0.7062. It might also interest some traders to note the 200-day SMA also lurks close by at 0.7023 (orange).

Across the page, H4 movement is set just north of August’s opening level at 0.6848, with upside reasonably clear to 0.69, closely followed by a 161.8% Fibonacci ext. point at 0.6912. Indicator-based traders, however, may wish to acknowledge the RSI is exiting overbought terrain and producing negative divergence.

Areas of consideration:

Considering the bullish theme on the higher timeframes right now, entering long based on a retest at August’s opening level drawn from 0.6848 on the H4 is still the favoured option. A retest of this level in the shape of a H4 bullish candlestick signal will likely entice buyers into the market, with eyeballs on 0.69 as the initial upside target, set just beneath daily resistance at 0.6910 and the 161.8% H4 Fibonacci ext. point mentioned above at 0.6912.

Should this trade eventually come to fruition, traders are also urged to take into account yesterday’s high at 0.6894 which could house active sellers.

USD/JPY:

Thursday saw the USD/JPY shape its fourth successive winning day, clocking highs at 108.18, levels not seen since the start of August. Rising US Treasury yields along with renewed trade optimism diminished demand for the safe-haven Japanese yen.

Buy stops above the 108 handle on the H4 timeframe are well and truly under fire, as we write. Continued bidding above 108 places July’s opening level at 108.48 in the firing range as the next viable resistance, closely followed by August’s opening level at 108.74.

Meanwhile, the story on the higher timeframes has daily trade crossing swords with a trend line support-turned resistance (etched from the low 106.78) in the shape of a ABCD correction terminating at 108. In terms of where we stand on the weekly timeframe, Quasimodo support at 105.35 held form and has positioned the current weekly candle at the underside of trend line resistance (extended from the high 112.40).

Areas of consideration:

While the initial stop run above 108 drew the candles more than 50 points lower yesterday, the swift turnaround and repossession of 108 into the later stages of yesterday’s session is concerning for any seller. The only thing likely stopping a run to July’s opening level at 108.48 on the H4 timeframe is the trend line resistances on both the weekly and daily timeframes. Given higher-timeframe structure, should H4 price reclaim 108 to the downside once again and form a reasonably notable bearish candlestick formation, a short is still worthy of consideration, targeting 107 and possibly beyond, according to the higher timeframes.

USD/CAD:

WTI prices ceded ground for a second consecutive session Thursday, with USD/CAD movement clinging to gains just north of 1.32 and August’s opening level at 1.3187. Supply above 1.32 is limited, according to our chart studies. Directly to the left, a large upper shadow marked with a black arrow at 1.3241 is visible and likely consumed most sellers around this region. Beyond here, reasonably thin air is evident until reaching the 1.33 neighbourhood.

In tandem with H4 direction, daily price displays room to gravitate as far north as its 200-day SMA (orange) at 1.3307, after printing a two-day bullish run off support at 1.3136. Weekly price, on the other hand, is attempting to correct last week’s precipitous decline, shaped in the form of a bearish outside week. Resistance on this timeframe can be seen at the 2017 yearly opening level drawn from 1.3434, whereas to the downside we have the 1.3016 July 15 low, followed by Quasimodo support at 1.2887.

Areas of consideration:

Even though back-to-back candles retested 1.32 as support and held, upside strength appears limited as each contains sizeable upper shadows. Should a notable bullish candlestick pattern develop off 1.32, however, a long is certainly worthy of consideration. With entry and risk to be determined according to the candlestick configuration, traders are urged to watch for a H4 close above 1.3250 to form. Clearing this figure likely unlocks the pathway towards 1.33, which as we know meanders close by the 200-day SMA and also September’s opening level at 1.3314.

USD/CHF:

Early US hours Thursday witnessed the USD/CHF pair shift northbound as the EUR/USD (an inversely correlated market) came under heavy selling pressure in response to the European Central Bank rolling out an enormous stimulus package.

H4 action failed to sustain gains beyond August’s opening level at 0.9934 and retreated to a low of 0.9880, likely tripping sell stops around 0.99 and September’s opening level at 0.9896 along the way. Trend line support extended from the low 0.9713 offers a potential floor beyond the said supports, followed by an opening to channel support (taken from the low 0.9659) and the 0.98 handle.

On a wider perspective, daily activity produced a noticeable bearish outside day in recent trading, though left an interesting area of resistance at 0.9986/0.9953 unchallenged (Quasimodo resistance at 0.9963, a 200-day SMA [orange – 0.9953] and resistance coming in from 0.9986 [red]). Longer-term flow, nevertheless, has the current candle engaging with familiar supply coming in at 1.0014-0.9892. A rotation lower from here has the 2018 yearly opening level at 0.9744 in sight. In the event buyers brush aside the said supply (unlikely a straightforward feat), resistance at 1.0110 is in view, as is a long-term trend line support-turned resistance taken from the low 0.9187.

Areas of consideration:

As of current price, selling this market is difficult according to H4 structure. It would take a break of trend line support (0.9713) to clear sufficient space to channel support (0.9659).

Failing the above, the daily resistance area between 0.9986/0.9953 is still open for possible shorting opportunities. As emphasised in yesterday’s report, an ideal entry point would be the H4 channel resistance taken from the high 0.9877, as this line intersects with the upper boundary of the said daily zone. A test of the H4 channel area in the shape of a H4 bearish candlestick signal (entry and risk to be set according to this structure) is considered a high-probability setup with the likelihood of a sizeable move occurring from its formation.

Dow Jones Industrial Average:

US equities firmed Thursday, buoyed on the back of positive developments on the US/China trade front and a promise of continued stimulus from the European Central Bank. The Dow Jones Industrial Average added 45.41 points, or 0.17%; the S&P 500 added 8.64 points, or 0.29% and the tech-heavy Nasdaq 100 advanced 29.76 points, or 0.38%.

With respect to the Dow’s technical landscape, price action is poised to approach all-time highs at 27388. As highlighted in Thursday’s report, daily price engulfed Quasimodo resistance at 26988 and is now serving as possible support. A retest of this barrier may come to fruition before we touch gloves with all-time highs.

A closer reading of price action on the H4 timeframe saw recent bidding overthrow resistance at 27058 (now acting support) and trend line resistance etched from the high 27388. To the upside, the research team notes limited resistance until reaching all-time highs.

Areas of consideration:

Outlook unchanged.

On account of the above chart studies, longs are in favour. Therefore, a retest at the area between 26988 (the daily support level) and H4 support at 27058 is eyed (and its intersecting trend line support). A retest formed by way of a H4 bullish candlestick signal will likely be sufficient to entice involvement even from the most conservative buyers. Entry and risk can be determined according to the candlestick’s structure, with a take-profit target set at the all-time high underscored above at 27388.

XAU/USD (GOLD):

For traders who read Thursday’s briefing you may recall the following:

The green area on the H4 timeframe between 1477.3/1493.7 is considered a notable buy zone. Not only does it hold H4 channel support within, it merges with a daily support area coming in at 1495.7-1480.3, and the top edge of the weekly support area at 1487.9.

Entry can be found anywhere within the green buy zone, with protective stop-loss orders positioned beneath 1477.3. For conservative traders desiring a little more confirmation, though, waiting for a H4 bullish candlestick formation to develop could be the way to go. This helps confirm buyer intent and provides entry and risk levels to trade with.

There was a nice-looking H4 inside candlestick formation printed in the early hours of trade Wednesday, which so far is holding firm. Well done to any of our readers long from the said H4 buy zone. The initial upside target from here is set around September’s opening level at 1526.2.

Well done to any of our readers who managed to jump aboard this mover as price came within shouting distance of September’s opening level.

Areas of consideration:

Going forward, it appears the H4 candles are to test the green H4 support zone at 1477.3/1493.7 once more. This, considering its connection to higher-timeframe structure, could certainly hold price action higher for a second time. As such, entry at 1493.7 is likely on the radar for some traders, with protective stop-loss orders positioned beneath 1477.3. As highlighted above, for conservative traders desiring a little more confirmation, waiting for a H4 bullish candlestick formation to develop could be the way to go. This helps confirm buyer intent and provides entry and risk levels to trade with.

The accuracy, completeness and timeliness of the information contained on this site cannot be guaranteed. IC Markets does not warranty, guarantee or make any representations, or assume any liability regarding financial results based on the use of the information in the site.

News, views, opinions, recommendations and other information obtained from sources outside of www.icmarkets.com.au, used in this site are believed to be reliable, but we cannot guarantee their accuracy or completeness. All such information is subject to change at any time without notice. IC Markets assumes no responsibility for the content of any linked site.

The fact that such links may exist does not indicate approval or endorsement of any material contained on any linked site. IC Markets is not liable for any harm caused by the transmission, through accessing the services or information on this site, of a computer virus, or other computer code or programming device that might be used to access, delete, damage, disable, disrupt or otherwise impede in any manner, the operation of the site or of any user’s software, hardware, data or property.

Dear Trader,

Please find our updated Trading schedule for the Mid-Autumn Festival on 13th September 2019. Times mentioned below are Platform time (GMT +3).

If you have any questions or require any assistance, please contact one of our support team members via Live Chat, email: support@icmarkets.com, or phone +61 (0)2 8014 4280.

Kind regards,
IC Markets

Global Markets:

• Asian Stock Markets : Nikkei up 0.88%, Shanghai Composite up 0.30%, Hang Seng down 0.34%, ASX up 0.19%
• Commodities: Gold at $1504.95 (+0.12%), Silver at $18.19 (+0.12%), Brent Oil at $61.31 (+0.82%), WTI Oil at $56.31 (+1.00%)
• Rates : US 10-year yield at 1.747, UK 10-year yield at 0.638, Germany 10-year yield at -0.558

News & Data:

• (JPY) Tertiary Industry Activity m/m 0.10% vs -0.30% expected
• (AUD) MI Inflation Expectations 3.10% vs 3.50% previous
• (JPY) PPI y/y -0.90% vs -0.80% expected
• (JPY) Core Machinery Orders m/m -6.60% vs -9.00% expected
• (GBP) RICS House Price Balance -4.00% vs -10.00% expected
• (NZD) FPI m/m 0.70% vs 1.10% previous
• (USD) 10-y Bond Auction 1.74|2.5 vs 1.67|2.2 previous
• (USD) Crude Oil Inventories -6.9M vs -2.7M expected
• (USD) Final Wholesale Inventories m/m 0.20% vs 0.20% expected
• (USD) PPI m/m 0.10% vs 0.00% expected
• (USD) Core PPI m/m 0.30% vs 0.20% expected
• (CAD) Capacity Utilization Rate 83.30% vs 82.00% expected
• (CNY) M2 Money Supply y/y 8.20% vs 8.20% expected
• (CNY) New Loans 1210B vs 1200B expected
• (AUD) Westpac Consumer Sentiment -1.70% vs 3.60% previous

Markets Update:

Asian stocks hit a six-week high on Thursday on hopes for a thaw in U.S.-China trade frictions and expectations that the European Central Bank would kick off another wave of monetary easing by global central banks. Chinese stocks rose and the yuan hit a three-week high after U.S. President Donald Trump agreed to delay an additional increase in tariffs on Chinese goods by two weeks. Investors also await an ECB meeting later on Thursday to see how far policymakers will go to support a flagging economy.

Asian markets were mostly up in early trading Thursday as trade-war tensions eased. Nikkei rises 0.88% after Trump delays tariff hikes, but stocks in mainland China give up early gains and are trading at 0.3%. Hong Kong’s Hang Seng Index slid 0.34% after Hong Kong Exchanges & Clearing made an unsolicited $36.6 billion bid to buy London Stock Exchange. Australian stocks rose by 0.19%.

U.S. stock futures jumped 0.42% and safe-havens such as the yen, U.S. Treasuries, and gold weakened in a sign of improving appetite for risk. The dollar briefly rose to a six-week high of 108.11 yen before paring gains slightly to trade up 0.17% at 108.04 yen. The yield on benchmark 10-year Treasury notes rose to 1.747%, the highest in more than five weeks, extending a sell-off in government bonds that started on Sept. 4. Oil prices rose in Asia, rebounding from a tumble on Wednesday, on hopes OPEC members will cut output to support prices. U.S. crude ticked up 1% to $56.31 in Asia on Thursday. Futures tumbled more than 2% on Wednesday following a report that Trump is considering easing sanctions on Iran, which could potentially boost oil supplies. Gold prices were unchanged and stayed above the key $1,500 level ahead of the highly anticipated European Central Bank (ECB) meeting due later in the day. Spot gold is trading at $1504.95.

Upcoming Events:

• 9:00 am GMT – (EUR) Industrial Production m/m
• Tentative – (All) OPEC-JMMC Meetings
• 11:45 am GMT – (EUR) Main Refinancing Rate
• 11:45 am GMT – (EUR) Monetary Policy Statement
• 12:30 pm GMT – (CAD) NHPI m/m
• 12:30 pm GMT – (EUR) ECB Press Conference
• 12:30 pm GMT – (USD) CPI m/m
• 12:30 pm GMT – (USD) Core CPI m/m
• 12:30 pm GMT – (USD) Unemployment Claims
• 1:30 pm GMT – (GBP) CB Leading Index m/m
• 2:30 pm GMT – (USD) Natural Gas Storage
• 5:01 pm GMT – (USD) 30-y Bond Auction
• 6:00 pm GMT – (USD) Federal Budget Balance
• 10:30 pm GMT – (NZD) Business NZ Manufacturing Index

Key risk events today:

Europe Main Refinancing Rate and Monetary Policy Statement; ECB Press Conference; US CPI m/m and Core CPI m/m.

EUR/USD:

Firmer-than-forecast US PPI contributed to the buck’s advance Wednesday, though the dollar index largely broke higher on the back of pronounced euro weakness ahead of today’s ECB policy decisions and President Draghi’s press conference.

The producer price Index for final demand rose 0.1% in August, seasonally adjusted, the US Bureau of Labour Statistics reported yesterday. Final demand prices moved up 0.2% in July and 0.1% in June. The index for final demand less foods, energy, and trade services rose 0.4% in August following a -0.1% decline in July.

EUR/USD technicals have the H4 candles shaking hands with key figure 1.10 into the close, despite a whipsaw to September’s opening level nearby at 1.0989. The move likely tripped sell stops, both from traders attempting to long 1.10 and also breakout sellers. An advance from current price has tops around the 1.1050 region to target (red area), closely shadowed by August’s opening level at 1.1079, trend line support-turned resistance (taken from the low 1.1028) and the 1.11 handle. A rotation south, on the other hand, has last Tuesday’s low at 1.0926 in sight, followed by 1.09.

Higher-timeframe analysis shows weekly price to be languishing south of 1.1119-1.1295, a demand-turned resistance area. Current action is still leaning towards a retest of the zone, though a run to the 2016 yearly opening level at 1.0873 is also a possibility. Elsewhere, daily flow remains buoyed by demand pencilled in at 1.0851-1.0950 – houses the 2016 yearly opening level within its lower limits. Trend line resistance taken from the high 1.1412 remains the initial port of call for upside targets on this scale.

Areas of consideration:

Ahead of today’s ECB policy decisions and President Draghi’s press conference, price action will likely consolidate around 1.10. Technically, the weekly timeframe points to lower prices, at least until reaching 1.0873, though faces support from the upper base of demand on the daily timeframe at 1.0851-1.0950 before reaching 1.0873.

H4 resistances to be aware of for potential selling, should we press higher following ECB movement, are August’s opening level at 1.1079 and its intersecting trend line resistance, the 1.11 handle and the closely converging daily trend line resistance and June’s opening level at 1.1165. 

In the event we turn lower, however, watch for 1.10 to be taken followed up by a retest for possible selling opportunities, targeting the top edge of daily demand at 1.0950 as the initial target.

GBP/USD:

Sterling concluded a shade lower vs. the buck Wednesday, largely weighed by a robust dollar index on the back of pronounced euro weakness ahead of today’s ECB policy decisions.

Despite the recent descent, technical structure remains unaltered according to our chart studies. As a result, much of the following report will echo thoughts aired in Wednesday’s briefing.

From a technical perspective, having seen the notable high set at 1.2309 (black arrow) recently engulfed on the H4 scale, traders, particularly on the H4 timeframe and lower, are likely eyeing higher movement. However, this comes at a price. Higher-timeframe analysis has a weekly resistance area positioned at 1.2365-1.2615 in motion, and daily price tackling resistance at 1.2374, closely shadowed by the 50.0% resistance value at 1.2399.

Areas of consideration:

Considering the technical position on the higher timeframes, sellers likely have the upper hand. Before pressing the sell button, though, traders are urged to let H4 price prove itself: reclaiming 1.23 to the downside which should clear the pathway south to at least 1.22. A H4 close below 1.23 that’s followed up by a retest is considered an ideal sell signal (entry and risk can be determined on the back of the rejection candle’s framework).

AUD/USD:

The Westpac-Melbourne Institute Index of Consumer Sentiment declined by 1.7% to 98.2 in September from 100 in August, according to Westpac Banking Corporation yesterday. Following the release, AUD/USD movement turned lower and came within touching distance of connecting with August’s opening level at 0.6848 on the H4 timeframe.

Thanks to a somewhat lacklustre close, technical structure remains unchanged and, therefore, the following will offer a similar outlook put forward in Wednesday’s briefing.  

Kicking things off on the weekly timeframe, we can see the pair staged a strong comeback last week. By way of a bullish outside day, the unit wrapped up the week north of support at 0.6828. If buyers remain in the driving seat, an approach towards the 2019 yearly opening level at 0.7042 is likely on the cards.

In conjunction with weekly structure, the daily timeframe also ended last week north of support at 0.6833. The next upside target on this scale, nonetheless, falls in at 0.6910, a swing resistance, though beyond here the research team has eyes on Quasimodo resistance at 0.7047 and resistance at 0.7062. It might also interest some traders to note the 200-day SMA also lurks close by at 0.7023 (orange).

Across the page, H4 movement is set just north of August’s opening level at 0.6848, with upside reasonably clear to 0.69, closely followed by a 161.8% Fibonacci ext. point at 0.6912. Indicator-based traders, however, may wish to acknowledge the RSI is exiting overbought terrain and producing mild negative divergence.

Areas of consideration: 

Considering the increasingly strong bullish theme on the higher timeframes, entering long based on a retest at August’s opening level drawn from 0.6848 on the H4, is still the favoured option. A retest of this level in the shape of a H4 bullish candlestick signal will likely entice buyers into the market, with eyeballs on 0.69 as the initial upside target, set just beneath daily resistance at 0.6910 and the 161.8% H4 Fibonacci ext. point mentioned above at 0.6912.

Should this trade eventually come to fruition, traders are also urged to take into account yesterday’s high at 0.6884 which could house active sellers.

USD/JPY:

In recent news, China announced that some US products will be exempted from additional 25% tariffs. The update appears to be a trade concession ahead of October talks, though the items are mostly lubricants and fodder. Nevertheless, major European equity indexes gained in response to the announcement, consequently strengthening risk appetite and diminishing demand for the safe-haven Japanese yen.

USD/JPY bidding observed the H4 candles ascend higher within the walls of a resistance area coming in at 107.88-107.46.

For those who read Wednesday’s briefing you may recall the following:

107.88-107.46 boasts a reasonably strong standing, therefore a response from within its parapets is still possible. Directly overhead, traders may also wish to acknowledge possible resistance emerging from 108. It may also interest some traders to note the RSI indicator is seen testing overbought territory.

In terms of where we stand on the weekly timeframe, Quasimodo support at 105.35 held form and has positioned the current weekly candle within shouting distance of trend line resistance (extended from the high 112.40). Note this trend line also happens to intersect with the upper boundary of the H4 resistance area highlighted above at 107.88-107.46.

Looking at the daily timeframe, the technical picture emphasises further upside may be in store, targeting trend line support-turned resistance (extended from the low 106.78) in the shape of a potential ABCD correction terminating at 108.

Areas of consideration:

Outlook unchanged.

Although a response is possible from the H4 resistance area at 107.88-107.46, a fakeout through this area to orders sitting at 108 is also a strong possibility. Also remember the current weekly trend line resistance intersects with the UPPER limit of the H4 resistance zone and the daily candles are on course to complete an ABCD correction at 108.

Based on the chart studies, everything points to a move towards 108ish before sellers step in. An ideal bearish theme would be for H4 price to chalk up a bearish candlestick configuration that pierces through the upper edge of the current H4 resistance area, tripping a portion of buy stops, and tagging in sellers from 108 (see chart for a visual representation of a shooting star pattern). Selling on the back of the candlestick signal is certainly an option, with 107 set as a reasonable possibility regarding downside targets.

USD/CAD:

Snapping a three-day losing streak, the US dollar switched higher against its Canadian counterpart Wednesday, taking cues from broad-based USD strength, partly influenced by firmer-than-forecast US PPI, and waning WTI prices. Canada’s capacity utilisation data did come in better than expected, though did little to provide any strength to the loonie.

Wednesday’s technical briefing had the research team highlighting daily support at 1.3136 after price retested the underside of August’s opening level at 1.3187 on the H4 timeframe. Recent bidding, however, took the candles beyond 1.3187 to 1.32 which happens to merge closely with a trend line support-turned resistance extended from the low 1.3177.

Although selling 1.32 faces support off the daily timeframe at 1.3136, weekly flow suggests additional selling could still be in store.

Extracted from Wednesday’s briefing:

Leaving the 2017 yearly opening level at 1.3434 unchallenged on the weekly timeframe, last week’s movement wrapped up the week deeply within bearish territory. Down more than 1.00% and forming a clear-cut bearish outside day, traders’ focus will likely be on the 1.3016 July 15 low, followed by Quasimodo support at 1.2887.

Areas of consideration:

To confirm seller intent off 1.32, waiting for a H4 close to form beneath August’s opening level at 1.3187 (preferably followed up with a retest in the shape of a bearish candlestick configuration) is an option before pulling the trigger. This clears the path south back to daily support mentioned above at 1.3136.

A push above 1.32 today, nevertheless, signals longs could be the order of the day, placing 1.33 back on the radar. Note 1.33 also converges with the 200-day SMA (orange).

USD/CHF:

Broad-based USD bidding lifted the USD/CHF market to higher ground Wednesday, challenging levels not seen since the beginning of August.

August’s opening level at 0.9934 plotted on the H4 timeframe entered the fray and withstood numerous upside attempts. Beyond this point, the research team has their crosshairs fixed on channel resistance extended from the high 0.9877, whereas continued rejection off 0.9934 could lead to a revisit of 0.99/September’s opening level at 0.9896.

On more of a broader perspective, daily structure trades within close proximity to an interesting area of resistance. Between Quasimodo resistance at 0.9963, a 200-day SMA (orange – 0.9953) and resistance coming in from 0.9986 (red), this zone is likely to hold price action lower. Coupled with 0.9986/0.9953 on the daily scale, weekly activity has the current candle climbing into familiar supply coming in at 1.0014-0.9892. In the event buyers brush aside the said supply (unlikely a straightforward feat), resistance at 1.0110 is in view, as is a long-term trend line support-turned resistance taken from the low 0.9187.

Areas of consideration:

With weekly players trading from supply at 1.0014-0.9892, the research team has eyes on the daily resistance area between 0.9986/0.9953 for possible shorting opportunities. An ideal entry point would be the H4 channel resistance highlighted above, as this line intersects with the said daily zone. A test of the H4 channel area in the shape of a H4 bearish candlestick signal (entry and risk to be set according to this structure) is considered a high-probability setup with the likelihood of a sizeable move occurring from its formation.

Dow Jones Industrial Average:

The Dow Jones Industrial Average notched its sixth consecutive session of gains Wednesday, boosted by a rally among tech shares. The Dow added 227.61 points, or 0.85%; the S&P 500 added 21.52 points, or 0.72% and the tech-heavy Nasdaq 100 advanced 72.84 points, or 0.93%.

With respect to the technical scene on the Dow, weekly price continues to establish ground north of support at 26667, eyeing all-time highs at 27388. A retest at 26667 may also occur prior to exploring unchartered territory. Another constructive development, though on the daily timeframe, is the recent engulfing of Quasimodo resistance at 26988, now serving as possible support. A retest of this barrier may also come to fruition before we touch gloves with all-time highs. To the left of current price, traders may be looking at the supply area marked in yellow as a potential sell zone. Caution is advised here as the orders from this area appear mostly consumed by the wick marked with a black arrow at 27140.

A closer reading of price action on the H4 timeframe saw recent bidding overthrow resistance at 27058 (now acting support) and trend line resistance etched from the high 27388. To the upside, the research team notes possible supply around the 27219ish area (green) and is essentially the last line of defence until reaching all-time highs.

Areas of consideration:

On account of the above chart studies, longs are in favour. Therefore, a retest motion at the area between 26988 (the daily support level) and H4 support at 27058 is eyed. A retest formed by way of a H4 bullish candlestick signal will likely be sufficient to entice involvement even from the most conservative buyers. Entry and risk can be determined according to the candlestick’s structure, with a take-profit target set at the all-time high underscored above at 27388.

XAU/USD (GOLD):

Bullion, in $ terms, entered an offensive phase Wednesday, consequently snapping a four-day losing streak. Despite this, the uptick lacked meaningful conviction.

Regular readers will likely recall the following piece aired in Wednesday’s technical briefing:

With USD bidding observed in Tuesday’s session, gold extended its losing streak to four consecutive days. This consequently brought a rather interesting area of support into the mix between 1477.3/1493.7 (green): two layers of H4 support and a channel resistance-turned support extended from the high 1437.7.

What’s also interesting is the higher-timeframe structure. Gold rotated lower from notable weekly resistance priced in at 1536.9 (boasts strong historical significance – check late 2011 and early 2012) last week by way of a bearish outside week (considered a bearish signal). Registering a close back beneath nearby channel resistance-turned support (taken from the high 1375.1), recent movement shook hands with a support area at 1487.9-1470.2.

As for the daily timeframe, we are now within the walls of a support area coming in at 1495.7-1480.3 with signs of buying present. A violation of this area has another support area in the firing range at 1448.9-1419.9.

Areas of consideration:

Outlook unchanged:

The green area on the H4 timeframe between 1477.3/1493.7 is considered a notable buy zone. Not only does it hold H4 channel support within, it merges with a daily support area coming in at 1495.7-1480.3, and the top edge of the weekly support area at 1487.9.

In Wednesday’s report, the research team stated the following:

Entry can be found anywhere within the green buy zone, with protective stop-loss orders positioned beneath 1477.3. For conservative traders desiring a little more confirmation, though, waiting for a H4 bullish candlestick formation to develop could be the way to go. This helps confirm buyer intent and provides entry and risk levels to trade with.

There was a nice-looking H4 inside candlestick formation printed in the early hours of trade Wednesday, which so far is holding firm. Well done to any of our readers long from the said H4 buy zone. The initial upside target from here is set around September’s opening level at 1526.2.

The accuracy, completeness and timeliness of the information contained on this site cannot be guaranteed. IC Markets does not warranty, guarantee or make any representations, or assume any liability regarding financial results based on the use of the information in the site.

News, views, opinions, recommendations and other information obtained from sources outside of www.icmarkets.com.au, used in this site are believed to be reliable, but we cannot guarantee their accuracy or completeness. All such information is subject to change at any time without notice. IC Markets assumes no responsibility for the content of any linked site.

The fact that such links may exist does not indicate approval or endorsement of any material contained on any linked site. IC Markets is not liable for any harm caused by the transmission, through accessing the services or information on this site, of a computer virus, or other computer code or programming device that might be used to access, delete, damage, disable, disrupt or otherwise impede in any manner, the operation of the site or of any user’s software, hardware, data or property.

Global Markets:

• Asian Stock Markets : Nikkei up 0.91%, Shanghai Composite down 0.37%, Hang Seng up 1.63%, ASX up 0.11%
• Commodities: Gold at $1502.45 (+0.22%), Silver at $18.30 (+0.61%), Brent Oil at $62.76 (+0.61%), WTI Oil at $57.80 (+0.70%)
• Rates : US 10-year yield at 1.716, UK 10-year yield at 0.631, Germany 10-year yield at -0.547

News & Data:

• (NZD) Visitor Arrivals m/m 1.30% vs -0.10% previous
• (USD) JOLTS Job Openings 7.22M vs 7.31M expected
• (CAD) Building Permits m/m 3.00% vs 2.10% expected
• (CAD) Housing Starts 227K vs 213K expected
• (USD) NFIB Small Business Index 103.1 vs 103.6 expected
• (GBP) Unemployment Rate 3.80% vs 3.90% expected
• (GBP) Claimant Count Change 28.2K vs 29.3K expected
• (GBP) Average Earnings Index 3m/y 4.00% vs 3.70% expected
• (EUR) Italian Industrial Production m/m -0.70% vs -0.10% expected
• (EUR) French Industrial Production m/m 0.30% vs 0.50% expected
• (JPY) Prelim Machine Tool Orders y/y -37.10% vs -33.00% previous
• (EUR) French Final Private Payrolls q/q 0.20% vs 0.30% expected
• (CNY) PPI y/y -0.80% vs -0.90% expected
• (CNY) CPI y/y 2.80% vs 2.60% expected
• (AUD) NAB Business Confidence 1 vs 4 previous
• (JPY) BSI Manufacturing Index -0.2 vs -7.1 expected
• (AUD) Westpac Consumer Sentiment -1.70% vs 3.60% previous

Markets Update:

Asian markets mostly gained in early trading Wednesday, ahead of expected further monetary easing by the European Central Bank. The ECB is expected to take rates even deeper into negative territory at its Thursday meeting. Policy makers have indicated the ECB could introduce a tiered system of deposits, which would see only a portion of deposits subject to negative rates, which could ease a further hit to the banking sector’s profitability. Investors may also have been encouraged by a lack of bad news on the trade-war front.

Asian stocks mostly drifted higher Wednesday as investors await a handful of central bank meetings. Japan’s Nikkei and Australia’s ASX rose 0.91% and 0.11%, respectively, while Hong Kong’s Hang Seng gained 1.63%. But China’s Shanghai Composite Index – Mainland Chinese shares were mainly lower by the afternoon, declining 0.37%.

The U.S. dollar index, which tracks the greenback against a basket of its peers, was last at 98.344 after trading below 98.4 for much of this week. The Japanese yen, often viewed as a safe-haven currency, traded at 107.72 against the dollar following its weakening from levels around 106.8 earlier this week.

Oil prices rose in the afternoon of Asian trading hours following a slip on Tuesday after U.S. President Donald Trump said he fired national security advisor John Bolton, viewed as a hawk on Iran and North Korea. Gold prices slipped on Wednesday in Asia and remained below the $1,500 level as traders awaited the upcoming European Central Bank (ECB) monthly meeting.

Upcoming Events:

• 12:30 pm GMT – (CAD) Capacity Utilization Rate
• 12:30 pm GMT – (USD) Core PPI m/m
• 12:30 pm GMT – (USD) PPI m/m
• 2:00 pm GMT – (USD) Final Wholesale Inventories m/m
• 2:30 pm GMT – (USD) Crude Oil Inventories
• 5:01 pm GMT – (USD) 10-y Bond Auction
• 10:45 pm GMT – (NZD) FPI m/m
• 11:01 pm GMT – (GBP) RICS House Price Balance
• 11:50 pm GMT – (JPY) Core Machinery Orders m/m

Key risk events today:

US Core PPI m/m; US PPI m/m; Crude Oil Inventories.

EUR/USD:

Trading volume remained light Tuesday, confined within the previous range. The US dollar index is somewhat firmer, though was also within Monday’s trading range, with desks attributing the limited bouts of upside to risk aversion, as stocks turned lower.

Considering recent movement, much of the following analysis will echo thoughts aired in Tuesday’s report.

The EUR/USD is languishing south of 1.1119-1.1295 on the weekly timeframe, a demand-turned resistance area. Current action is leaning towards a retest of the zone, though a run to the 2016 yearly opening level at 1.0873 is also a possibility.

Elsewhere, daily flow remains buoyed by demand pencilled in at 1.0851-1.0950 – houses the 2016 yearly opening level within its lower limits – poised to approach trend line resistance taken from the high 1.1412. A closer reading of price action on the H4 timeframe, however, has the candles capped beneath August’s opening level at 1.1079 and a nearby trend line support-turned resistance (extended from the low 1.1026). Beyond here, the research team notes possible resistance emerging from 1.11 and June’s opening level at 1.1165, which also merges closely with an ABCD correction (black arrows) at 1.1173.

Areas of consideration:

According to the chart studies on all three timeframes, this remains a sellers’ market right now. The problem is knowing which H4 resistance will hold, if any. A short from August’s opening level at 1.1079 and its intersecting trend line resistance may hold, for example, whereas we might press higher and attack the 1.11 handle and the closely converging daily trend line resistance, which may also hold, as might June’s opening level at 1.1165.

The best way to overcome this is wait and see how H4 action behaves at the said resistances. A bearish configuration from either barrier, for instance, helps identify seller intent and provides strict entry and risk levels to work with.

GBP/USD:

By way of a clear-cut daily Doji candlestick formation, sterling held at the upper end of Monday’s range on Tuesday. The pound was underpinned on the back of upbeat UK employment data, with the UK unemployment rate ticking lower to 3.8%, lower than a year earlier (4.0%) and unchanged on the quarter. Bank of England Governor, Mark Carney, also kept the currency on the winning side of the table, stating ‘the core of the financial system in the UK is ready for Brexit whatever form it takes’.

UK Parliament is now prorogued, possibly allowing the GBP to adopt a quieter path of trade, though desks still see election risks presenting downside to GBP, and as such, it remains a sell on rallies, desks say.

Overall, limited change is visible in terms of technical structure, therefore much of the following piece will represent Tuesday’s analysis.

From a technical perspective, having seen the notable high set at 1.2309 (black arrow) recently engulfed on the H4 scale, traders, particularly on the H4 timeframe and lower, are likely eyeing higher movement. However, this comes at a price. Higher-timeframe analysis has a weekly resistance area positioned at 1.2365-1.2615 in motion, and daily price tackling resistance at 1.2374, closely shadowed by the 50.0% resistance value at 1.2399. 

Areas of consideration:

Considering the technical position on the higher timeframes, sellers are likely to make an appearance. Before pressing the sell button, though, traders are urged to let H4 price prove itself: reclaiming 1.23 to the downside and likely clearing the pathway to at least 1.22. A H4 close below 1.23 that’s followed up by a retest is an ideal sell signal (entry and risk can be determined on the back of the rejection candle).

AUD/USD:

Following an impressive five-day bullish run, collectively adding nearly 130 points, the AUD/USD pair entered a consolidative phase Tuesday. Earlier in the day the National Bank of Australia reported both business confidence and conditions declined in the month, with both now at +1 index point – well below long-run averages. This outcome suggests momentum in the business sector continues to weaken, with both confidence and conditions well below the levels seen in 2018. In addition to this, China’s CPI rose 2.8% y/y, beating 2.6% expected, and the producer price index slumped to -0.8% y/y.

Technically speaking, things remain unchanged.

Kicking things off on the weekly timeframe, we can see the pair staged a strong comeback last week. By way of a bullish outside day, the unit wrapped up the week north of support at 0.6828. If buyers remain in the driving seat, an approach towards the 2019 yearly opening level at 0.7042 is likely on the cards.  

In conjunction with weekly structure, the daily timeframe also ended last week north of support at 0.6833. The next upside target on this scale, nonetheless, falls in at 0.6910, a swing resistance, though beyond here we have eyes on Quasimodo resistance at 0.7047 and resistance at 0.7062. It might also interest some traders to note the 200-day SMA lurks close by at 0.7023 (orange).

Across the page, H4 movement recently overthrew August’s opening level at 0.6848, potentially clearing the runway to 0.69, closely followed by a 161.8% Fibonacci ext. point at 0.6912. Indicator-based traders may also wish to acknowledge the RSI is set deeply within overbought territory (yellow).

Areas of consideration:

Considering the increasingly strong bullish theme on the higher timeframes, entering long based on a retest at August’s opening level drawn from 0.6848 on the H4, could be an option. A retest of this level in the shape of a H4 bullish candlestick signal will likely entice buyers into the market, with eyeballs on 0.69 as the initial upside target, set just beneath daily resistance at 0.6910 and the 161.8% H4 Fibonacci ext. point mentioned above at 0.6912.

USD/JPY:

US Treasury yields continued to explore higher ground Tuesday, with the 10-year note reaching highs of 1.74%. Also reinforcing the USD/JPY was rising US equity markets.

Recent bidding witnessed the USD/JPY’s H4 candles enter the parapets of a resistance area coming in at 107.88-107.46. The said zone boasts a reasonably strong standing, therefore a response from within its walls is possible. Directly overhead, traders may also wish to acknowledge possible resistance emerging from 108. It may also interest some traders to note the RSI indicator is seen testing overbought territory.

In terms of where we stand on the weekly timeframe, as highlighted in Tuesday’s analysis, Quasimodo support at 105.35 held form, prompting a possible revisit at trend line resistance (extended from the high 112.40). Note this trend line also happens to intersect with the upper boundary of the H4 resistance area highlighted above at 107.88-107.46. Looking at the daily timeframe, the technical picture emphasises further upside may be in store, targeting trend line support-turned resistance (extended from the low 106.78) in the shape of a potential ABCD correction terminating at 108.

Areas of consideration:

Although a response is possible from the H4 resistance area at 107.88-107.46, a fakeout through this area to orders sitting at 108 is also a strong possibility. Also note the current weekly trend line resistance intersects with the UPPER limit of the H4 resistance zone and the daily candles are on course to complete an ABCD correction at 108.

Based on the chart studies, everything points to a move towards 108ish before sellers step in. An ideal scenario would be for H4 price to chalk up a bearish candlestick configuration that pierces through the upper edge of the current H4 resistance area, tripping a portion of buy stops, and tagging in sellers from 108 (see chart for a visual representation of a shooting star pattern).

USD/CAD:

For traders who read Tuesday’s analysis you may recall the following:

August’s opening level at 1.3187 is a notable resistance level as daily price has yet to connect with support at 1.3136 and we also have another layer of resistance closely supporting 1.3187 at 1.32 and a trend line support-turned resistance (taken from the low 1.3177). Therefore, a retest of 1.32/1.3187 today, preferably formed by way of a H4 bearish candlestick pattern (entry/risk can be determined according to this structure), is certainly an option with an initial downside objective set at 1.3136, the noted daily support level.

As can be seen from the H4 chart this morning, price action retested 1.3187 and produced a solid bearish rejection candle. Daily support at 1.3136 was shortly after brought into the mix in the form of a bearish outside day. Well done to any of our readers who managed to jump aboard this move. Beyond the current daily support, the 161.8% Fibonacci ext. point resides at 1.3028, which held price action higher throughout July.

In terms of the weekly timeframe, Tuesday’s analysis aired the following:

Leaving the 2017 yearly opening level at 1.3434 unchallenged on the weekly timeframe, last week’s movement wrapped up the week deeply within bearish territory. Down more than 1.00% and forming a clear-cut bearish outside day, traders’ focus will likely be on the 1.3016 July 15 low, followed by Quasimodo support at 1.2887.

Areas of consideration:

Those who remain short from 1.3187 are likely watching for daily support at 1.3136 to give way, as this clears the runway to 1.31, closely followed by July’s opening level at 1.3087.

Aside from the short in motion, there’s not much else to hang our hat on at this time.

USD/CHF:

USD/CHF action enters Wednesday unchanged, forming a clear-cut Doji formation Tuesday and ranging no more than 45 points.

Higher-timeframe technical analysis, as underscored in Tuesday’s report, has the weekly candles climbing higher into the walls of a familiar supply zone coming in at 1.0014-0.9892. In the event buyers brush aside the said supply (unlikely a straightforward feat), resistance at 1.0110 is in view, as is a long-term trend line support-turned resistance taken from the low 0.9187.

A closer interpretation of price action on the daily timeframe shows an impressive recovery off trend line support (etched from the low 0.9542), which since mid-August has seen the candles grind higher. Areas of interest to the upside fall on Quasimodo resistance at 0.9963, a 200-day SMA (orange – 0.9953) and resistance coming in from 0.9986.

H4 price, on the other hand, is seen establishing support off the 0.99 handle and September’s opening level at 0.9896. August’s opening level at 0.9934 is considered the next upside hurdle, closely shadowed by channel resistance extended from the high 0.9877.

Areas of consideration:

With weekly players trading from supply at 1.0014-0.9892, the research team has eyes on the daily resistance area between 0.9986/0.9953 (red) for possible shorting opportunities. An ideal entry point would be the H4 channel resistance highlighted above, as this line intersects with the said daily zone. A test of this area in the shape of a H4 bearish candlestick signal (entry and risk to be set according to this structure) is considered a high-probability setup.

Dow Jones Industrial Average:

Major US benchmark indexes wrapped up Tuesday mostly higher, erasing much of an early slide as investors continued to gravitate to value shares. The Dow Jones Industrial Average added 73.92 points, or 0.28%; the S&P 500 added 0.96 points, or 0.03% and the tech-heavy Nasdaq 100 declined 17.66 points, or 0.23%.

With respect to the technical scene on the Dow, weekly price continues to hover north of support at 26667, eyeing all-time highs at 27388. A retest at 26667 may also occur prior to exploring higher ground. In terms of the daily timeframe, nonetheless, we have Quasimodo resistance next on tap at 26988 and a support area below at 26539-26200.

H4 action, on the other hand, remains buoyed by August/July’s opening levels 26799/26811, targeting resistance at 27058.

Areas of consideration:

For those who read Tuesday’s analysis you may recall the following:

In view of the latest technical movement, H4 price retested August/July’s opening levels 26799/26811 in the form of a hammer pattern. This could entice buyers into the market today, targeting clear-cut resistance at 27058.

Those who entered long on the back of the hammer candlestick pattern, dependant on stop-loss placement, likely suffered a loss. Unfortunately, price has risen too high to consider another attempt at longs, given daily Quasimodo resistance at 26988 resides close by. Ultimately, the research team is looking for price to take out H4 resistance at 27058 as this should clear upside to all-time highs at 27388.

Therefore, with everything taken on board, opting to stand on the sidelines may well be the best path to take today, unless of course we push through 27058 and ignite possible long opportunities.

XAU/USD (GOLD):

With USD bidding observed in Tuesday’s session, gold extended its losing streak to four consecutive days. This consequently brought a rather interesting area of support into the mix between 1477.3/1493.7 (green): two layers of H4 support and a channel resistance-turned support extended from the high 1437.7.

What’s also interesting is the higher-timeframe structure. As underscored in Tuesday’s report, bullion rotated lower from notable weekly resistance priced in at 1536.9 (boasts strong historical significance – check late 2011 and early 2012) last week by way of a bearish outside week (considered a bearish signal). As we also registered a close back beneath nearby channel resistance-turned support (taken from the high 1375.1), further downside towards a support area at 1487.9-1470.2 was seen. As for the daily timeframe, thanks to recent selling, we are now within the walls of a support area coming in at 1495.7-1480.3. A violation of this area has another support area in the firing range at 1448.9-1419.9.

Areas of consideration:

Outlook unchanged:

The green area on the H4 timeframe between 1477.3/1493.7 is considered a notable buy zone. Not only does it hold H4 channel support within, it merges with a daily support area coming in at 1495.7-1480.3, and the top edge of the weekly support area at 1487.9.

Entry can be found anywhere within the green buy zone, with protective stop-loss orders positioned beneath 1477.3. For conservative traders desiring a little more confirmation, though, waiting for a H4 bullish candlestick formation to develop could be the way to go. Not only does this help confirm buyer intent, it also provides entry and risk levels to trade with.

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While many still think of traders dressed in coloured jackets in a crowded trading pit, few people picture a computer server churning away making millions of decisions.

It is estimated approximately 75% of all US equity trades are not placed by humans, but by machines, also known as ‘algorithms’. The same algorithmic trend is also evident in other electronically traded asset classes, such as foreign exchange (FX or forex), the futures market, bonds, energy and so on.

With such huge volumes, it’s a subject traders must be at least mindful of.

What is an algorithm?

The term algorithm attracts several definitions, though in essence it is a computational procedure beginning with an input value that yields an output value.

Surprisingly, algorithms are used in everyday life, a cooking recipe or a route finder on maps, for example. Despite living in a society where algorithms have become ubiquitous, the main theme of this article is focused on trading and how algorithms fit into this field.

Algorithmic trading

Today, algorithmic trading (also referred to as ‘automated trading’, ‘machine learning’, ‘algo trading’ or ‘black-box trading’) is amongst the most talked about technologies in the financial sector.

This wasn’t always the case. Exchanges only began transitioning from the ‘physical’ ­to electronic trading in the early 1970s, a notable exception being the New York Stock Exchange (NYSE), now largely a promotional backdrop for companies listed there. The real action on the NYSE takes place in suburban Mahwah, New Jersey, at a data centre ringed by telecommunication masts. In the late 1980s into early 1990s, electronic communication networks became increasingly popular for traders looking for more efficient access to the markets, consequently setting the stage for automated trading.

With respect to algorithmic trading, algorithms are a series of conditions which must be met to execute a buy or sell order. Powerful computers directly interact with trading platforms, executing orders without human intervention. Based on a built-in algorithm, computers observe market data at high frequency and send back trading instructions, often within milliseconds.

Algorithmic trading strategies and limitations

Several algorithmic trading systems are implemented across various asset classes in the financial sector, and remains a highly competitive segment:

• Arbitrage. Arbitrage strategies aim to profit from price differences between assets that are strongly correlated. Since the foreign exchange market price differences tend to be incredibly small, large positions are required to generate profits. ‘Triangular arbitrage’ is a popular technique within this domain. It involves two currency pairs and a currency cross between the two. For example, EUR/USD, USD/JPY and EUR/JPY. Without getting too technical, the trader first buys EUR using USD, then sells EUR in exchange for JPY, and finally buys USD with JPY. This is considered a USD-to-USD triangular arbitrage. By definition, a triangular arbitrage opportunity is exploited if a trader carries out the corresponding three-leg trade to remove it from the market.
• High-frequency trading (HFT). This is a special category of automated trading using proprietary algorithms characterised by brief position-holding periods, low-latency response and high trading volumes in a day. Success depends on the speed and the efficiency of technology. Financial institutions continually work to find ways to modernize their IT to execute trades faster than competitors. The constant need for speed has created competition to see who can achieve the fastest performance in terms of connectivity, data access, computation and real-time analytics.

Overclocking is a practice commonly seen in this sector: running hardware at faster speeds than the manufacturer-specified clock of frequency. Though this improves performance, speed and reduces system latency, this practice carries risks, such as overheating, individual component breakdown, unreliable functioning etc.

Two common types of HFT:

• Execution trading is when an order (often a large order) is executed via a computerized algorithm. The program is designed to get the best possible price. It may split the order into smaller pieces and execute at different times.
• The second type of high frequency trading is not executing a set order but looking for small trading opportunities in the market.
• News-based algo trading. Most traders understand news events tend to produce rapid movement across multiple asset classes. Owing to the vast array of news released by modern electronic communication, it’s increasingly difficult for human eyes to process this information in a timely manner. A computer would do a better job given its ability to respond immediately and process vast amounts of information. The challenge, nevertheless, is building an algorithm capable of converting news to quantified numbers, which can be used to make objective quantitative trading decisions.
• Mean reversion. This strategy is based on the idea that assets revert to their mean periodically. Identifying a range allows algorithms to place trades when the asset breaks in and out of its predefined range.
• Market makers. Agents who are ready to buy and sell financial instruments to guarantee traders counterparty for their transaction. Market-maker algorithms tend to reduce transaction costs, increase liquidity, reduce volatility and control risk management more effectively.

Although not an exhaustive list, automated systems boast extensive capabilities, able to program a simple moving average crossover approach right up to the most complex. The latter tends to be kept secret within financial institutions.

Though many benefits are evident in the automated world, limitations exist:

• Lack of control. While measures are often put in place to protect capital, things can malfunction. Since trades are automated, if the program runs in a way it’s not supposed to, controlling losses may be a challenge. Programs need to be tested thoroughly to avoid these mistakes. Trading algorithms must also be modified over time in order to keep ahead of front-running competition. If an edge is lost, trades can quickly turn negative, especially if no one is paying close attention.
• Technical expertise. Automated trading requires specialised skills usually from ‘quants’ – a person who specializes in the application of mathematical and statistical models. As the core of algorithmic trading revolves around algorithms, data, and high-level programming skills, a thorough understanding of statistics and calculus is required. On top of this, an understanding of financial markets and theoretical knowledge is necessary.

Some of the types of quants employed at financial institutions are statistical arbitrage quants, research quants, desk quants and front office quants.

• Like manual trading, a one-size-fits-all approach cannot be applied to every trading situation, hence constantly monitoring/altering the algo’s parameters is essential to ensure smooth running in all market conditions.

The future of algorithmic trading

Some financial experts consider high-level automation is set to expand. It is common belief algorithms will become more complex, able to adjust to different market patterns using artificial intelligence ‘AI’.

Historically, automated trading was reserved for the elites – large institutional banks. With the explosion of technological advances in recent decades retail traders are making an appearance. Retail traders have the option of designing their own algorithmic systems or having programmers code the system for them. It’s also common to purchase existing systems from established institutions which have shown a good track record and hold a strong reputation in the financial industry. Of course, though, this does not come cheap.

Does algorithmic trading improve liquidity?

Over the years, there’s been widespread interest in understanding the potential impact of algo trading on market dynamics. Some experts have highlighted the possibility of improved liquidity (liquidity is best described by three measures: size, price and time – basically it is the depth of the market to absorb buy and sell interest), and more efficient price discovery, while others expressed concern it may be a source of increased volatility and reduced liquidity, particularly in times of market stress.

As traders, we know one of the most essential parts of any trading method is liquidity. In terms of high-frequency trading, due to the sheer volume of trades, the effectiveness of the overall markets and narrowing of the bid-ask spread is enhanced, according to some analysts. Challengers, nevertheless, feel whatever liquidity high frequency trading brings to the table is artificial, owing to brief holding periods. The topic remains subjective and will likely remain a point of debate going forward.

Market impact

Trading decisions made by machines are based on algorithms derived from a statistical model. Essentially, these algorithms monitor when the market is considered overbought/oversold, and then act accordingly.

It is of the opinion of some experts when prices fall, algorithms can exacerbate the decline and, therefore, cause markets to crash. The argument is machines fail to apply human common-sense values.

There are a number of cases where the finger has been pointed to machine trading. One in particular is the GBP selloff back in October 7, 2016. In seconds, the currency fell sharply across the board (figure 1.1). The Bank of International Settlements (BIS) found that ‘automatic stop-loss orders’ were a factor contributing to the ‘flash crash’. The BIS report, however, also stated sell orders from human traders were partially responsible for the precipitous drop in price.

(FIGURE 1.1)

In the equity domain, a well-known case was the Knight Capital Group. The company announced in August 2012 it lost $440 million because of a computer glitch, causing a stock market disruption. Shares of Knight Capital finished the day down a whopping 63%.

While there’s evidence automated trading does influence market movement, certain experts state machines are used as a scapegoat for human mistakes.

With debate on-going, and multiple research papers printed over the years, one thing for certain is machine trading is here to stay.

Going forward

With the algorithmic trend expanding, and likely to continue to do so into the future, it is certainly an exciting time for retail traders.

IC Markets MetaTrader 4 and 5 platforms have absolutely no restrictions on trading. We offer some of the best trading conditions in the market for both scalping and high-frequency trading, allowing traders to place orders between the spread as there is no minimum order distance and a freeze level of 0. This means orders, including stop-loss orders, can be placed as close to the market price as you like. Furthermore, traders can hedge positions with IC Markets as there is no first in first out rule (FIFO) – traders also do not pay margin on hedged trades and enjoy the benefits of margin netting.