Key risk events today:
MPC Member Vlieghe Speaks; US PPI m/m and Core PPI m/m.
EUR/USD:
The US dollar set the tone Thursday, with CPI inflation figures coming in better than expected. This weighed on the EUR/USD, topping out just south of the 1.13 handle at a H4 supply area drawn from 1.1288-1.1273. Traders short this supply zone likely have buy stops planted a few points above its top edge. The next downside target from the said area falls in around the 1.12/1.1211 region (1.12 round number, the 161.8% Fibonacci ext. point at 1.1202 and May’s opening level at 1.1211).
With respect to the higher timeframes, Wednesday’s report had the following to say:
Buyers and sellers continue to battle for position within a long-standing weekly demand area at 1.1119-1.1295. A break of this zone has the 2016 yearly opening level at 1.0873 (support) in sight, whereas to the upside we have the 2019 yearly opening level at 1.1445.
A closer reading of daily movement shows the pair meandering between notable demand at 1.1075-1.1171, formed on May 17, 2017 (note this area is glued to the underside of weekly demand mentioned above at 1.1119-1.1295), and the 200-day SMA (orange) around 1.1324. Of interest, daily price chalked up a striking shooting star candlestick pattern yesterday, which is typically considered a bearish signal.
Areas of consideration:
Having seen the H4 candles respond from supply at 1.1288-1.1273, this area has ‘fakeout’ written all over it this morning. In other words, a possible run through buy stops above the supply to sellers at 1.13 could be seen for a move lower. An ideal scenario would be for the H4 candles to chalk up a shooting star formation that pierces through the top edge of supply that tests 1.13 (see H4 chart for a visual representation). This, by and of itself, is a reasonably strong sell signal, targeting 1.12/1.1211.
GBP/USD:
For traders who read Wednesday’s briefing you may recall the piece highlighted further buying as a possibility:
Seeing the daily Quasimodo support positioned just south of 1.25 at 1.2480 holding firm, and 1.25 holding ground for the time being on the H4 timeframe as well as weekly price engaging with demand at 1.2365-1.2615, a move higher could be in store today.
Ultimately, H4 price already produced a satisfactory bullish tail upon retesting 1.25, therefore, according to the overall technical picture, a long with a protective stop-loss order tucked beneath 1.2490 (the bullish candlestick’s lower shadow) could be considered. In regard to take-profit targets, H4 supply (green arrow) at 1.2591-1.2557 is an option for an initial take-profit zone.
As is evident from the charts this morning, we can see price did as expected and rallied to H4 supply at 1.2591-1.2557. Unfortunately, most who went long are likely now out at breakeven given the abrupt reaction at the H4 supply zone, influenced by hotter-than-expected US inflation numbers.
Areas of consideration:
Going forward, another reaction could be observed from 1.25 today, though it is a chancy move entering long from this number without additional candlestick confirmation. Similar to above, the first upside target is the H4 supply (green arrow) at 1.2591-1.2557, closely followed by 1.26 and then June’s opening level at 1.2626.
AUD/USD:
The commodity-linked currency extended gains vs. its US counterpart Thursday, adding 0.21%. Impetus lacked, however, as we transitioned into US hours, influenced largely on the back of upbeat US inflation data. Technically speaking, H4 price action dethroned resistance at 0.6964 in recent movement and clocked a session high of 0.6988, before mildly paring gains into the close. To the upside, key figure (resistance) at 0.70 resides close by, followed closely by July and May’s opening levels at 0.7030 and 0.7041, respectively.
The technical landscape on the bigger picture has weekly price capped beneath the 2019 yearly opening level at 0.7042. The initial response triggered additional selling early on in the week, though has since recovered in the form of a strong buying tail. In the event further downside emerges, support at 0.6828 is in sight, whereas a break north has the 2017 yearly opening level to target at 0.7199.
In terms of daily flow, a similar scenario to weekly structure is present, although current resistance forms by way of two resistances at 0.7062/0.7010 (yellow). Assuming sellers remain in the driving seat, the next downside target on the daily timeframe can also be seen around the weekly support mentioned above at 0.6828. It may also interest some traders to note the 200-day SMA (orange – 0.7091) is lurking just north of the daily resistance area, in the event we explore higher ground.
Areas of consideration:
In the event 0.70 re-enters the fight, a sell from here could be an option, given it is positioned just south (10 points) of the daily resistance area at 0.7062-0.7010.
Like all round numbers, though, fakeouts are common viewing. For that reason, waiting for additional confirmation to form before pulling the trigger is an idea. Not only will this help identify seller intent, it can also help set entry and risk levels. This could be anything from a bearish candlestick pattern, an MA crossover or even drilling down to the lower timeframes and attempting to enter based on local structure.
USD/JPY:
For those who read Thursday’s briefing you may recall the research team highlighted an attractive fakeout play:
Having seen the H4 candles park just north of 108 this morning, and taking into account a fresh H4 demand is positioned just beneath the level at 107.70-107.88, this has ‘fakeout’ written all over it. In other words, a possible run through sell stops beneath 108 to the said demand could take shape before pushing higher. An ideal scenario would be for the H4 candles to chalk up a hammer formation that pierces through 108 and taps the top edge of the current demand.
Clearly, a hammer candlestick formation did not form on the H4, though a fakeout motion beneath 108 into demand, followed by a continuation to the upside, was seen. The run higher from here crossed above both June and July’s opening levels at 108.27 and 108.48, respectively. Well done to any of our readers who managed to jump aboard this move.
Higher-timeframe analysis has the current weekly candle emphasising an indecisive week, albeit with a slight twang to the upside. Resistance on the weekly timeframe is set around the 2019 yearly opening level at 109.68, while downside movement, aside from the 106.78 June 24 low, could stretch as far south as Quasimodo support at 105.35.
Daily action, on the other hand, is hovering just south of a particularly interesting area of resistance at 109.68/109.06 (comprised of resistance around 109.17, an ABCD bearish pattern [black arrows] at 109.30, the 127.2% Fibonacci ext. at 109.06 and a 61.8% Fibonacci retracement value at 109.18).
Areas of consideration:
Traders who are long from the initial fakeout beneath 108, it may be an idea to consider reducing risk to breakeven and taking partial profits off the table.
As for additional setups going forward, a H4 close above resistance at 108.48 could be viewed as a bullish indicator, targeting the 109 handle. A H4 close above 108.48 that’s followed up with a retest play in the shape of a bullish candlestick formation, would be ideal. That way, traders have identified buyer intent and also have structure to place entry and risk levels (according to the retesting candlestick structure).
USD/CAD:
Thursday witnessed the USD/CAD descend to a weekly low of 1.3042, clipping the lower edge of the current H4 range (blue) at 1.3140-1.3053, before modestly recovering into the closing bell. Although WTI saw a sharp increase in value, establishing ground above the critical $60 mark, limited reaction was seen in USD/CAD as markets focused on upbeat inflation figures out of the US.
Since the beginning of the month, the H4 candles have been busy carving out the consolidation zone highlighted above between 1.3140-1.3053, which incorporates the 1.31 handle and also July’s opening level at 1.3087. Thanks to recent movement, the pair is seen trading nearer the lower edge of this range this morning. It might also be worth noting the Quasimodo support at 1.3028, in the event we push lower today.
Higher-timeframe analysis, as underlined in Thursday’s briefing, shows further selling is potentially on the cards on the weekly timeframe. limited support is evident until reaching as far south as a Quasimodo formation at 1.2887. Daily action, on the other hand, remains trading within the walls of a support area coming in at 1.3028/1.3089 (yellow). Comprised of an AB=CD (black arrows) formation at 1.3089, a support at 1.3067 and a 161.8% Fibonacci extension at 1.3028 (forms part of the AB=CD structure), this zone has held price action higher since late June. It’s also essentially bolstering the lower edge of the noted H4 range.
Areas of consideration:
As stated in Thursday’s briefing:
In essence, weekly price suggests lower levels could be seen, while daily structure emphasises support. This – coupled with H4 price ranging at the moment – makes for a difficult market to trade.
Something that may be worth keeping an eye on, however, is the H4 Quasimodo support at 1.3028 since it aligns perfectly with the daily 161.8% Fibonacci ext. point. A run to this H4 level could trigger sell stops beneath the current H4 range and drive higher. Waiting for a H4 bullish candlestick pattern to form (entry and risk can be determined according to this structure) prior to pulling the trigger may be worth considering, given weekly price.
USD/CHF:
Kicking things off from the weekly timeframe this morning, we can clearly see the market stressing a somewhat indecisive tone so far. In terms of structure, the research team has the trend line support-turned resistance taken from the low 0.9187 in view and the 2018 yearly opening level as support at 0.9744.
Closer analysis of price action on the daily timeframe saw the unit chalk up a hammer formation yesterday from a mid-level demand area at (black arrow) at 0.9835-0.9876. Follow-through buying has Quasimodo resistance in view at 0.9963, followed by resistance at 0.9986 and the 200-day SMA (orange).
Moving across to the H4 timeframe, traders may wish to acknowledge the unit is trading around the 0.99 handle this morning, following Thursday’s modest bid on the back of optimistic US inflation data. Further buying has a nearby Quasimodo resistance at 0.9932 to target, whereas a move lower could revisit support at 0.9841.
Areas of consideration:
In regard to technical setups that offer confluence, the only area that really jumps out this morning is on the daily timeframe between 0.9986/0.9963, as highlighted above. However, given the area is positioned less than 20 points beneath parity (1.0000) on the H4 timeframe, traders may wish to include this number, and possibly June’s opening level at 1.0010 as well.
Entry anywhere within the zone 1.0010/0.9963 is viable, according to the technical studies presented, with a protective stop-loss order positioned a couple of points above the area.
Dow Jones Industrial Average:
The Dow Jones Industrial Average advanced to a record high Thursday, after testimony by Federal Reserve Chair Jerome Powell this week, signalling easier monetary policy later this month. The Dow added 0.85%, while the S&P 500 also added 0.23%. The tech-heavy Nasdaq 100, however, closed marginally in negative territory, down 0.08%.
Technically, higher-timeframe flow has weekly support at 26667 in the mix. Supporting the current weekly support is daily price holding above support at 26773, which held by way of a hammer formation on Tuesday.
Examining the market’s action on the H4 timeframe, we can see the unit recently tested channel resistance extended from the high 26984, which happens to converge with a 127.2% AB=CD (black arrows) termination point at 27158. In addition to this, traders may also note the RSI indicator is testing overbought territory.
Areas of consideration:
With the index strongly entrenched within an uptrend at present, entering short is chancy. However, a pullback from the current H4 channel resistance and its aligning AB=CD approach, could be worthy of consideration, targeting H4 channel support taken from the low 26436. In light of the strong buying, traders are urged to wait for bearish candlestick confirmation before pressing the sell button. This will help identify seller intent and also set out entry and risk levels to work with.
In the event the above comes to fruition, longs off the aforementioned H4 channel support is also something to keep on tab. For obvious reasons, not many traders will likely pass on buying this market right now!
XAU/USD (GOLD):
Upbeat US inflation kept the US dollar on the winning side of the table Thursday, particularly during US hours, consequently weighing on the yellow metal, down 1.00%.
Overall, the H4 candles have been carving out a consolidation between 1436.5/1382.9 since June 25, bolstered by weekly support at 1392.0 and July’s opening level on the H4 timeframe at 1395.9. Another development to potentially consider is the pennant pattern (blue levels – 1437.7/1381.9). This is generally considered a continuation pattern, and therefore may eventually pressure the unit to the upside.
The story on the higher timeframes has weekly price tightly sandwiched between resistance at 1417.8 and support located nearby at 1392.0. A move higher, according to the weekly timeframe, exposes potential resistance in the form of a 1:1 correction (black arrows) at 1452.1. Contrary to this, however, as highlighted in Thursday’s technical briefing, daily movement recently reconnected with the underside of supply at 1448.9-1419.9. Note this area also happens to be positioned just above the said weekly resistance at 1417.8.
Areas of consideration:
As of current market structure on the H4, daily and weekly timeframes, the research team notes limited opportunity to trade at present. Aside from the daily timeframe suggesting a move lower from supply at 1448.9-1419.9, both the H4 and daily timeframes are in a range and in desperate need of a breakout.
With that being said, traders may wish to attempt to trade between the H4 range limits, either the rectangle formation between 1436.5/1382.9 or the current H4 pennant pattern. Either way, it is wise to ensure you have reasonable risk/reward in place before pulling the trigger, and preferably confirmed by bullish/bearish candlestick structure (entry and risk levels can then be determined according to its extremes).
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