False Breakout Will Show You the Direction

In today’s trading sniper video, I will show you the power of false breakout patterns. There has been quite a few of them on many instruments recently: indices, commodities or currencies. Today, the false breakout patterns come from the Forex market and this is what we’ll focus on today.

The EURAUD is currently moving significantly higher but it did not look so optimistic during the first half of the week. The price managed to bounce from the upper line of the triangle and used a great bearish momentum to break the lower line of this pattern. That gave us a sell signal, which turned out to be a fake one. Instead of going lower, the price created a double bottom formation and moved back inside of the triangle. That is a false bearish breakout and promote a strong upswing.

Another one is the USDMXN, where the price also went below the lower line of the triangle and in addition to this, below a crucial horizontal support. That breakout was also false and actually helped to create an inverse head and shoulders formation, which gave us a short-term buy signal.

We will finish with the most popular instrument on the market the EURUSD. The price here is obviously in a super strong up trend but it looks like the market is getting ready for a bearish correction. The price is still yet to test the broken 1.144 as a closest support. I think this movement would be more then welcome. Hard to imagine an attack on the 1.20 level without some kind of a correction in the meantime.

For a look at all of today’s economic events, check out our economic calendar.

EUR/AUD Long-term Bullish Break Aims at 1.69 Target

The EUR/AUD broke above the long-term key resistance trend line (orange line). This could indicate a major bullish reversal.

4 hour chart

EUR/AUD 4 hour chart

The EUR/AUD was unable to break below the 100% Fibonacci support. This bounce could complete a wave 5 (purple). Recently price has made several higher lows, which could be a finished wave B (purple). The current breakout is pushing above the 144 ema close as part of a potential wave 123 (light purple).

The EUR/AUD recent tops are potential support (green lines) and could act as a bouncing spot for a wave 3. A 5 wave pattern could take price up towards the main target zone at 1.69. The Fibonacci resistance could complete the bullish ABC and a downtrend could restart.

EUR/AUD 4 hour chart

Good trading,

Chris Svorcik

The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter

For a look at all of today’s economic events, check out our economic calendar.



EUR/AUD Testing 21 EMA Zone Within Massive Downtrend

The EUR/AUD resumed its downtrend after completing a wave C (purple) of wave 4 (green) at the 144 ema. However, price action was not able to break below the previous bottom. What should traders expect next?

1 hour chart

EUR/AUD 1 hour chart

The EUR/AUD is testing again the critical 21 ema zone. A downtrend resumed after price action bounced at the 144 ema and rebroke below the 21 emas. Now price will need to break again below support (blue) to confirm the downtrend continuation. A break and close above the 21 ema zone could indicate a deeper retracement towards the 38.2% Fib. This could expand the wave 4 to a new spot (green dotted arrow).

15 min chart

The EUR/AUD is testing the 144 ema on the 15 min chart. This is a key bounce or break spot. The critical aspect is to look for a breakout, pullback and continuation either up or down for a short-term price movement.


Good trading,

Chris Svorcik

The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter

For a look at all of today’s economic events, check out our economic calendar.

The Great Markets Debates

This is likely reflecting the fact that S&P500 and Nasdaq 100 futures are up 0.8% and 1.1% respectively. Asian markets are responding in kind.

Spot gold is down smalls, although gold futures are modestly higher, but the daily chart of spot gold looks bullish and we are watching for the upside closing break of 1738 for a future move into 1800.

Two important market debates

The two big debates that have been most prevalent through the weekend, or at least that I found most interesting, remain the disconnect between the real economy and asset values. And, where to for the USD. There has also been increased focus on the moral hazard argument, where at a simplistic level the Fed incentivised business to over-lever their balance sheet, and now the Fed is bailing them out or supporting them indirectly. We can also look at the number of countries that are opening their economies, gradually, and the market is eyeing the risk of a second wave, which is another factor that makes it hard to chase risk.

Italy has announced they will start to ease lockdown restrictions on 4 May, joining Spain who will ease movement restrictions on 2 May. France will detail a plan to the world tomorrow to end lockdown next month, while Belgium is due to open shops on 1 May. In the US, a number of states are easing restrictions, and we hope this is the start of more normal times ahead, although the post-virus world throws up many challenges and one focal-point that immediately springs to mind is the blame game and the US (and the world’s) ongoing relationship with China.

The disconnect between economics and asset values will be the focal point this week though.

The data and event risk rolls in and I know investors have written off 2020 as a shocker and are looking more intently into the landscape in 2021, but this argument will be seen case in point this week. On the micro-side of considerations, this week we get to hear from some big-name corporations – Amazon, Tesla, Microsoft, Apple, Boeing, FB, Alphabet, McDonald’s, and Exxon, to name but a few. Earnings expectations have come down and FY20 and FY21 consensus stand at $131 and $165, respectively, but it still means we are going into this week with investors paying 21.6x for 2020 earnings – the highest since December 2001. But they are also paying 17.1x 2021 which is still lofty given the challenges ahead.

At this juncture though, in the battle of liquidity vs earnings, liquidity is winning but these are some big names dropping this week, representing a catalyst for index traders. The NAS100 is the strongest market if looking for a vehicle to express a risk-on bias this week (in index land). However, I think the set-up on the US500 needs attention. On the upside we have downtrend resistance, the 6 March gap and 61.8% fibo to clear and a break here needs to be respected, especially when we’re hearing that the systematic funds will be ramping up outright longs on a break of 3007.

However, on the downside we see price has broken the wedge and the head and shoulder neckline kicks in around 2726. A break here will see buying in the USD, JPY and US Treasuries. I am watching inflation expectations (breakevens) extremely closely, as where they go will underpin where equities and gold go.

On the data docket this week we get:

BoJ meeting – we saw the BoJ meeting and as expected they removed the cap and reverted to unlimited JGB buying. There has been limited reaction in the JPY. I continue to like the JPN225 on a break of 19,886 and will wait for price to compel and the structure to suggest the index is ready to trend.

USDJPY is interesting because it is just so dull – there is literally no range and it feels like it will break hard soon. At this juncture, the market feels this is fair value, but I am watching for a change here.

US – Q1 GDP (consensus at -3.9%), jobless claims (3.5m), FOMC meeting, ISM manufacturing (36.1). I would expect no reaction to Q1 GDP, as Q1 is but a relic in time and we are looking at Q2 and beyond. The FOMC meeting is the main game in town this week and after two emergency meetings, we look at the first scheduled meeting that could move markets.

We should see the Fed tweak the interest it pays banks on excess reserves by 5bp, although, the market is going some way to discounting that and it shouldn’t cause much of a move in the USD. We should also hear more about the targeted level of US Treasury and mortgage buying, with the monthly run-rate closer to $150b, but they will retain an element of flexibility towards this.

As mentioned, the debate as to where the USD is headed is key, and I will put out a note tomorrow on this as it is important. For now, the DXY (or USDX) tracks the regression channel and is not going lower despite USD funding costs (blue – 3m FRA-OIS, yellow – EUR cross-currency basis swaps) falling heavily as a result of the Fed’s swap lines, massive balance sheet expansion and excess liquidity.

Next week we get NFPs and consensus currently sits at 20m jobs lost, with the unemployment rate at 15.1%.

Eurozone – The ECB meeting is the highlight, especially given the recent widening of interbank credit metrics, notably the Euribor-OIS spread (see below), which has pushed into 30bp. The ECB will need to do more and granted the PEPP program (Pandemic Emergency Purchase Program) has been seen as a solid step forward from the bank, this program is going to need to be increased from its current E750B size – although, whether it plays out at this meeting is unlikely. We should see some tweaks to what can be offered as collateral to access PEPP funds, and similar to the Fed the ECB may accept bonds that were downgraded to junk since the start of COVID-19 the so-called ‘fallen angels’.

Whether this Thursday’s ECB meeting (21:45aest) proves to be a vol event is yet to be seen, and we see EURUSD 1-week implied volatility at 9.17%, which implies a move (higher or lower) on the week of 116p.


I am looking at the EURAUD short idea and watching price action very closely. I do not see the ECB meeting being a huge vol event, but I am loath to hold EUR exposures over this meeting.

China – Manufacturing PMI (30 April- 11am) – consensus at 51.0 (from 52.0). I am sceptical this will be a vol event but may get some headlines.

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Chris Weston, Head of Global Research at Pepperstone.

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The EUR Looking Vulnerable to Further Downside

They did give their blessing for a short-term plan of $540b, although we have no idea how it will be funded and this is not the panacea to stop an impending 15% contraction in GDP – 15% being the number ECB president Lagarde made mention of overnight.

EURUSD has seen whippy price action, trading a range of 1.0846 to 1.0756 through European and US trade, and is currently sitting towards the low-end of the range here in Asia. The technical set-up on the daily has become just that bit more damaged and the prospects of a re-test of the 23 March low (1.0634) has increased a touch, but the bears will want to see the 6 April low give way.

I looked at EURAUD shorts in yesterdays ‘Daily Fix’ trader thoughts and I’ve added to that position through 1.7014, as its working well – as in life, if something is working you do more of it. The 100-day MA at 1.6771 beckons. EURJPY (see chart below) also gets attention as we’ve seen a break down through the September lows of 115.87 and a convincing break here opens up a test of the 115-figure, where there’s not as huge amount of support through here.

There has been no move in EUR vols, with EURUSD 1-month implied volatility holding below 8%, but one factor that some traders are talking about is the Euribor-OIS spread. We see this pushing up sharply, suggesting growing stress in the EU banking sector. Granted, we’re some way from the levels seen in the GFC or even the European debt crisis (2011), but there are a few stresses in the system that are getting attention and if they start to really move higher the EUR will find sellers easy enough.

Staying on the JPY, there has been a focus on the idea that the BoJ will announce a plan to remove its ¥80t bond-buying limit. The central bank is due to meet on Monday and we may hear plans then, but we haven’t seen much of a broad sell-off in the JPY as a result.

We can focus on the JPN225 (Nikkei 225) as this could be a beneficiary if the BoJ do step up its liquidity drive. On the daily, which is good for oversight here, I see both the 5-day EMA and 20-day MA headed sideways, with the RSI mid-range – it’s a range traders paradise right now, but my view is to let the market come to me. For that, I would buy a closing breakthrough 19,886. That would give me some belief the market is benefiting from changes to BoJ asset purchases and ready to trend.

USDBRL has seen some flow too, with the pair hitting a new record high of 5.5554, largely thanks to Justice Minister Moro resigning. NZDUSD has printed an outside day (on the daily) and could make a tilt at the 50-day MA at 0.6095 – watch for follow on here, and if this prints a higher high today it could take us to the average and 14 April high.

More positive times have been seen in the NOK, with better flows seen in crude. As I type front-month Brent sits up 7.2% and WTI 23%. I am not sure much has fundamentally changed, but price has shifted. Interestingly we haven’t seen any real relief in inflation expectations, with 5-year breakevens unchanged, with the HYG ETF closing -0.05%.

The S&P500 also closed -0.05%, again on light volumes, with futures finding sellers after the close. One to keep an eye on as there was no interest in participants supporting the index above 2800. Asia has seen broadly mixed trade, with the ASX200 higher but sellers are seen in China and Japan. S&P500 and DAX futures are lower and indicating a weaker open for European trade. Although, as said, it’s the EUR that is more heavily on the radar.

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Chris Weston, Head of Global Research at Pepperstone.

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Oil Volatility is a Sight to Behold

While we’ve seen the USD outperform, I can’t go past moves in the options markets, with oil volatility (vol) moving like a freight train, and there are a few charts that suggest trading in a more defensive tone for now.

I won’t go through all the news flow, as price tells the clearest story here and maybe I’ll cover off on most the news and views in tonight’s webinar, which if you haven’t sign up for and are keen click here.

Once again, when it comes to focal points, the session belonged to crude, and while we saw June crude trade into $6.50 (our ‘spot’ crude price traded to $3.39), and we’ve seen June Brent crude into $17.51, the move in implied vols that have materialised have been incredible.

The CBoE oil volatility index, for example, traded in a monster range of 517 to 213 today, although it ultimately closed up an impressive 99-vols on the day at 325.

This implies that crude will move (higher or lower) by 20% a day. So, consider since the futures re-set June crude is +21% and July 13% and despite this being an incredible percentage change, it feels effortless.

Source: Bloomberg

The ICE exchange has announced they are preparing the Brent futures to accept negative prices, so that is one to watch as we head towards expiry on 30 April – although the June WTI expiry on 19 May will be the main event.

If we look at the crude 1-month risk reversals – that being the difference between 1-month crude 25-delta call volatility minus put volatility, we’ve seen it blow out to -78 vols. That is an insane move. Options traders are saying if there is a move the downside move is going to be far greater than any upside move.

Let’s take the near-term storage issues out of the equation and look further out the crude curve, at say the 5th-month futures (October contract). I like this part of the curve as it removes a lot of the near-term storage issues that are playing into the front-month futures.

As we can see, price never really took off from the March lows, or should I say it did but now it has rolled over hard. Clearly, the lack of follow-through highlights that crude wasn’t affected by the Fed’s buy everything program, in the same way, equities and credit have.

That said, when crude collapsed in January, the S&P500 followed. When 5th-month crude rallied in March, the S&P500 followed. Could this be a sign the S&P500 is to follow? Maybe this tells a far clearer story of future demand and economics.

Inflation expectation rolling over

This chart also throws weight to the notion that volatility is going to stay high and that I should be trading on the defensive side of the ledger. For perspective, from the March lows US 5-year inflation expectations/’breakevens’ (blue) moved sharply higher and this put a backbone, not just into the S&P500 (orange), but gold too – which I have left off.

US 5yr Treasury yields (white) remained anchored through the move, with the Fed ramping up its QE program and no one is going to fight the Fed here – as inflation expectations moved up faster than bond yields we saw ‘real’ yields falling and this not only boosted the equity market but weakened the USD.

Maybe it’s been driven by crude, but inflation expectations are now rolling over hard and this is boosting real yield. This could be very influential to the risk trade, as well as where to for the USD.

Blue – USDX, white – US real yields


In terms of FX vols, we’ve seen a slight move in petro-currency volatility, but they haven’t been as punchy as I would expect. This is also quite interesting, as I would certainly have expected vols to ramp up and FX traders are taking a calm approach to the madness seen in crude markets.

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Chris Weston, Head of Global Research at Pepperstone.

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EUR/AUD Bearish Breakout Targeting 1.6990 and Below

Dear Traders,

The EUR/AUD is bearish. At this point the market is close to breaking out below the trendline. SHS pattern shows signs of rejection at the top of the right shoulder.

1.7100 zone is where we can see sellers. The ATR pivot point is exactly at 1.7096 and a move lower might cause the pair to close below the trend line and proceed with bearish continuation move. Targets are 1.7052, 1.7008 and 1.6993. If the price moves below 1.6990 which is the weekly L3 camarilla pivot, we could expect 1.6900. Only a move above thr 1.7190 might negate this bearish scenario.

The Analysis has been done with the CAMMACD.Core and Sit Systems


Playing the S&P500 Through FX – the AUD has Found its Mojo

We can also consider the notion that the RBA has been active in cutting its daily bond purchases from $5b p/d to $1.5b p/d and that may also be another factor boosting the AUD of late.

Source: Bloomberg

If I look at the technical set-up of the S&P500 it looks like the benchmark heads towards the 50-day MA (2919) in the near-term, and the pain trade in the market is clearly higher. Liquidity is at the heart of the move

  • Top pane – white – Feb excess reserves, blue -RBA excess cash, orange – ECB excess liquidity
  • Lower pane – blue – global money supply, yellow – S&P500
Source: Bloomberg

I like the outperformance from small over large caps, cyclical over defensive sectors, and even companies with levered buybacks are outperforming the S&P500 – until we start to see earnings roll in, I would not want to be short the S&P500 here. Although, we have event risk in spades today, with weekly jobless claims (consensus 5.5m claims) and Fed chair Powell speaking on the economy.

Traders are also getting excited about today’s OPEC meeting (commences at 3pm London time), with Kuwait suggesting we could see up to 15m barrels of crude output being cut. Russia has committed to a cut of 1.6m barrels. The sticking point being how the cuts will be distributed through OPEC nations, and how involved the US will be, or whether they even go down the tariffs route. Oil could easily be 10% higher or lower by the end of the day, but one suspects it will influence the S&P500 and the AUD by proxy.

Here, we see S&P500 10-day realised volatility (white) has collapsed, but at 59% details the S&P500 is moving 3.71% a day (over the past 10 days). Implied volatility has dropped hard from 77% to 37% (although the VIX index sits higher at 43%), which suggests the market still sees daily moves of some 2.3%. Either way, vols are painting a picture of calmer conditions, although, they’re not at levels which tell us we are firmly out of the woods by any means.

Source: Bloomberg

AUD the strong

The reason I have singled out the AUD, is that it is strong – simple as that. If you believe you can obtain an edge by keeping things simple in FX trading by buying strong and selling weak, albeit assessing how mature that move is, then the AUD has found its mojo. That said, if you look at the weekly commitment of traders (CoT) report as a loose guide on positioning, with non-commercial accounts holding a short position of 31,664 contracts, so, clearly the recent rally has been part driven by a position readjustment.

The technical set-ups

All of these positions are a play on the US500 moving higher, as the correlation suggests, and while I feel there could be downside risk next week when earnings start rolling in, the pain trade in the short-term, as I say, is higher.

AUDJPY – marries the weakest and the strongest and the look on the daily is certainly compelling. Price is just breaking horizontal resistance, with the 5-day EMA portraying the move, and that may define a more aggressive move higher. If price is to trend, traders will lean into this average especially when the impulsive move is in its infancy, but if this kicks higher I’d follow.

AUDUSD – finding sellers into the 61.8% retracement of the March sell-off, after a break of 0.6212 high. Watch price action around the fibo, but a break here and I’d be holding for 0.6350.

EURAUD – Price has broken below the 61.8% retracement of Feb-March rally at 1.7510 and maybe headed into trend support. Conditions are oversold, and we watch for a turn in stochastic momentum, but unless we see a sharp turnaround in market dynamics, rallies are to be sold

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Chris Weston, Head of Global Research at Pepperstone.

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EUR/AUD Bulls are Regaining Control

Dear Traders,

The EUD/AUD is in uptrend. Bullish marubozu candle (encircled arrow) suggests a move to the upside.

Bounce above 1.6200 is bullish. Continuation is expected due to a bullish signal on CAMMACD template. Targets are 1.6254 and 1.6288. Only above 1.6290, 1.6350 will be xposed. A drop below 1.6170 will negate bullish scenario. If 1.6254 is reached, the pair might have a pullback as 1.6154 is the ATR projection high for today.

The analysis has been done with the CAMMACD.MTF template.

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Many green pips,
Nenad Kerkez aka Tarantula FX
Elite CurrenSea

EUR/AUD Still Neutral but Might Be Setting For an Upmove

Dear Traders,

The EUR/AUD is still neutral but it might be setting for a bullish bounce from the POC zone.

1.6200-20 is the POC zone. If the price makes a bounce above 1.6220 the first target is 1.6278. A 4h bullish close above 1.6280 should make a move to the upside targeting 1.6312 followed by 1.6388. The price will face a strong resistance there as there is a lot of confluence – M H4, W H4, Wizz Lvl 3. We might see an interim selling within the zone 1.6380-1.6400. However a bullish close above should target the highest weekly resistance – W H5 at 1.6517.

The analysis has been done with the CAMMACD.MTF template.

For more daily technical and wave analysis and updates, sign-up up to our ecs.LIVE channel.

Many green pips,
Nenad Kerkez aka Tarantula FX
Elite CurrenSea

EUR/AUD Trend is Still Unscathed

Dear Traders,

The EUR/AUD seems it could proceed with a bearish momentum as the price is trending lower.

1.6105-15 is the POC zone where we could see fresh sellers. Bearish MA cross is suggesting a move down as the price is below Wizz Level 4 – 1.6140. If we see bearish momentum, watch for 1.6050 and possibly a retest of the 1.6000 zone. Final target is 1.5996. However, for this scenario to remain valid, ideally the price should stay below 1.6165. If it goes higher we will see a deeper retracement.

The analysis has been done with the CAMMACD.MTF template.

For more daily technical and wave analysis and updates, sign-up up to our ecs.LIVE channel.

Many green pips,
Nenad Kerkez aka Tarantula FX
Elite CurrenSea

EURUSD Holds Despite Germany’s Q2 Economic Contraction

With Germany’s manufacturing and export sectors showing their vulnerabilities to external headwinds, largely due to heightened US-China trade tensions, it highlights the prospects of Europe’s economic engine falling into a recession.

Q2 GDP figures out of France and Italy over the coming days should give investors a better assessment over the broader state of the EU economy. Still, EURUSD is expected to continue its bias towards the downside, as long as the US-China trade conflict continues to take its toll on global demand, while Brexit risks and Italy’s political uncertainties also add to the negativity surrounding the bloc’s currency.

EURJPY set to break below 117 mark on risk aversion

EURJPY has broken past every support level on the way down since April, as the currency pair saw a relatively easy path towards the 117 level. The “flight-to-safety” mantra has resulted in substantial gains for the Japanese Yen against the Euro, with the palpable risk aversion in the markets implying that EURUSD is very likely to further explore its downside over the coming months.

Weakening Australian Dollar offers Euro respectability among G10

Still, the Euro has seen better year-to-date fortunes against the Australian Dollar. EURAUD has gained about 0.9 percent year-to-date, in contrast to EURUSD’s drop of more than three percent and EURJPY’s 6.7 percent decline so far this year. Australia’s economic exposure to China is dampening AUD, allowing the Euro some measure of respectability among its G10 peers.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Waiting for a bigger movement on the Euro

Every movement like this should eventually end with the breakout and that is what we are currently looking for.

First instrument in our analysis is the main pair – EURUSD. Here, the sideways trend is shaped like a descending triangle pattern. Normally, this kind of a formation should result with the breakout to the downside but this triangle is different as it was created after a rise, not a drop. In this case, both directions are opened and we just have to be patient. Breakout of the blue line will give us a signal to sell and the breakout of the red line will give us a signal to go long.

Situation on the EURAUD is a bit clearer. Here, we do have an ascending triangle, where we already had a breakout to the upside. Most recent sideways trend, tested the broken resistance as a closest support. Test, was positive for the buyers, which means that we should see the continuation of the upswing.

Last instrument in our review is the Bitcoin, which is also moving sideways. The price is locked inside of the symmetric triangle pattern. Breakout of the upper right line will be a signal to buy and the breakout of the lower blue line will be signal to go down.

This article is written by Tomasz Wisniewski, a senior analyst at Alpari Research & Analysis

Australian Dollar tango down

Some traders prefer to avoid such market conditions and trade elsewhere. For those, we made this video. Today,3 occasions on the pairs without the USD.

First one is the AUDCAD, where the price is falling down sharply after two bearish price patterns. First, major one, is the flag, which is present in the proper downtrend and was giving us a hint, that this trend was about to be continued. The breakout happened after the price drew a second pattern – double top formation. Currently, we are close to mid-term lows, which can be a good occasion for taking some profits and, in consequence, reversal.

Second instrument is the EURAUD, where we can also witness the weakness of the Australian currency. Setup presented here is the Head and Shoulders pattern, with a false breakout to the downside. Movement south stopped on the long-term up trendline and since that, we do have a strong upswing. In my opinion, the positive sentiment should be continued.

CHFJPY is the last instrument in this analysis. Here, the price is creating the third bearish correction pattern in a row. We already had one flag and a pennant and now, we are having flag again. The sell signal will be created, when the price will break the lower line of the flag and horizontal support on the 109.1. Chances for that are quite high.

This article is written by Tomasz Wisniewski, a senior analyst at Alpari Research & Analysis

A New Race to The Bottom Buoying Markets

In hindsight, I was incorrect because when we heard Williams speech, there was little doubt it gave us the impression that a 50bp cut was on the cards. The Fed acting “aggressive” in setting policy for more worrying outlook sounds like 50bp. As do comments that “it’s better to take preventative measures than to wait for disaster to unfold. When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress”.

I guess it’s hard to hear these words, knowing that there is a blackout period from next week and not feel they were designed to guide the market to that the Fed had to do something big on 31 July.

The debate on 25 or 50 rolls on

The fact, then, that the comments promoted a broad USD sell-off, largely driven by a move in rates, pricing the chance of a 50bp cut from 33% to 67%, with equities and gold following closely, and this feels like it was the right reaction. We saw economists alter their base-case for Fed action to 50bp, another sign behind the conviction Williams words were a key signal.

The NY Fed’s message to the market – calm the farm

What happened in the early Asia session has been all the talk on the floors this morning, with the NY Fed putting out a statement that John Williams words were aimed at an academic level, and not a cat-out-bag type policy guidance on behalf of the broader Federal Reserve. This seems incredibly important, and aside from calls that the Fed should be more in-tune with markets, there are two schools as to where we stand. Firstly, we should genuinely take it at face value that the market overreacted and the ‘insurance’ cut we should expect is more realistically 25bp. The second, Williams actually poured his heart out, and gave us perhaps too much insight into the potential actions from the Fed in the July meeting, and where the broader Committee was now concerned that they lacked the shock factor to positively move markets. That being, if they cut by 50bp when it isn’t full discounted, we could see asset prices react positively and importantly the USD heading south.

Asian markets are giving us a message

I’m sympathetic to both accounts, as the domestic data, on balance, warrants no change, although, given the external picture I have been arguing that the Fed was better off going hard than bringing a knife to a gunfight. There is clearly some impetus lost now, but what’s important is the market reaction through Asia. Granted, the odds of a 50bp cut now sit at 39.5%, but we’re seeing the USD remain soft, notably against the AUD, where AUDUSD is eyeing a re-test of the post-Williams speech high of 0.7082. Gold fell back into $1440 but is finding a base and looks likely to head back into $1450, and Asian equities are clearly bid, with the Nikkei 225, Hang Seng and ASX 200 up 1.7%, 1.1% and 0.7% respectively. S&P 500 futures are up 0.4%, despite US treasury futures up 3bp.

Commodities are also looking good, and it is a surprise to see copper up 1.8%, with Brent crude +2.1%, and we are starting to see better buying coming back into iron ore futures. In fact, if we look at the Bloomberg industrial metals index, this has had a cracking run in the past two months and is usually a good indicator of gains in the AUD.

White – Bloomberg industrial metal index, orange – AUDUSD (Source: Bloomberg)

A new race to the bottom?

This may be premature, but it feels like the market is back on with the ‘race to the bottom’ trade. Consider if the Fed does go 50bp, which is a lesser proposition given the NY Fed statement, but it would give the ECB increased incentive to go hard in next Thursday’s ECB meeting. The market has already discounted a 52% chance the ECB take its deposit rate, effectively the charge it passes to European financial institutions to park excess reserves on its balance sheet, down to -50bp. And, that would be considered punchy relative to expectations a week or so ago. We saw the Bank of Korea cutting yesterday, which was somewhat out-of-consensus, and the implied chance of the RBA cutting in November has pushed up to 65%.

Let’s see if there are any material changes from the BoJ, when they meet on 30 July. Because if they offer guidance, that they are ready to do more post-ECB, we just need more from the PBoC and markets will ride a new wave of liquidity. A few hypotheticals, but it’s not out of the realms of possibility.

EURAUD short positions looking compelling

I like EURAUD shorts here into the ECB meeting. The technical set-up looks bearish, and it feels like the AUD has been the best performer in the past two days for a reason – that being, there’s more to come. Rallies offer an opportunity to fade (in my opinion), and I am happy to close and admit I am wrong on a close through 1.6034. Happy to start with a small position, but if this kicks lower, I would be adding. As in life, if something is working, you try and do more of it.

Q2 earnings due next week

With limited US corporate earnings in play tonight, the focus turns to speeches from Fed members Bullard (01:10aest) and Rosengren (06:30 aest). Both are voters, and we’ve heard from Bullard of late, which makes it interesting because if his caution increases, when he’s already stated, 25bp is the best course of action, then some may take this to mean 50bp is on the cards. One to watch.

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Chris Weston, Head of Research at Pepperstone.

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EUR/AUD Fresh Sellers are Waiting Within the POC Zone

Dear Traders,

The EUR/AUD has formed a strong resistance at 1.6271 zone. However, fresh selling could be possible if the price gets to the POC zone

Today the only news concerning EUR is the German CPI. It represents Change in the price of goods and services purchased by consumers and it could be important for the overall direction of the EUR/AUD currency pair. However, the news is categorized as a medium-impact so only a high deviation from the forecast could impact the price in the more volatile manner.

1.6305-24 is the POC zone where the price might react but only if the cluster of resistance breaks. A rejection will aim for 1.6271 and 1.6225. The final target is 1.6189.

The analysis has been done with the CAMMACD.MTF template.

For more daily technical and wave analysis and updates, sign-up up to our ecs.LIVE channel.

Many green pips,
Nenad Kerkez aka Tarantula FX
Elite CurrenSea

Draghi Brings Out the Big Gun, and Trump isn’t Happy

Draghi gave his most explicit reference to future easing, in what was a carefully constructed statement to portray to the world they are in control. The fact that we saw European 5-year inflation expectations rise by an impressive 9bp to 1.23% speaks volumes on how his comments went above and beyond. Any view that the bank is concerned about tiering the deposit rate (currently -30bp), or taking it deeper into negative territory have been altered, and this was a view shared by Draghi’s spokesman and economist Peter Praet, who spoke shortly after Draghi.

QE is also very much on the cards, and while many felt we were more likely to see asset purchases ahead of rate cuts, from the narrative heard in European trade, we can swap this order of future easing around.

The ECB to cut in September

We saw two-year German bonds fall 7.5 basis points to -76bp, and that tells a clear story in itself. It is incredible that short-end German debt trades at these levels, and to get your head this around takes some doing – who wouldn’t want to issue debt and get paid handsomely to do so? But we can head into the European rates market and see that the market holds the conviction that we get a cut in the September ECB meeting.

Consider that yesterday we saw an absolute collapse in the EU ZEW survey of economic expectations. So, perhaps put the 16 July on the radar, as we get an updated EU ZEW expectations report, and if the ECB measures truly enthuse respondents, it may be seen in a better feel to this survey.

Triggers for a July cut from the Fed

As a timetable, we should see the ECB drop its calendar-based guidance for rate hikes (by the end of 2019) in the 25 July meeting, and do a full 180 turn, indicating that rates are likely to head lower in the period ahead, should more be needed. Of course, we get the July FOMC meeting on 31 July, and should the USD continue its run of form, and we see another weak non-farm payrolls or a poor feel to the G20 meeting in Osaka, then the Fed will embark on a rate cut here.

The ECB will respond and likely cut rates in its 12 September and depending on how financial conditions and inflation expectations play out, we could also see a rate cut and an announcement of QE. That would be a fine way for Draghi to live out his days as ECB president and handover to the incoming president, by effectively pulling out the big guns.

EUR reversals in play

In FX, it was all EUR sellers, although the SEK fared worse as traders asked if the ECB is going down this road, what rabbit will the Swedish Riksbank pull out its hat. EURGBP has pulled back to trend support (seen best on the 4-hour chart), but the pair I put out yesterday was EURNZD, which had broken out and looked so strong. On the daily, price printed a bearish outside day reversal, although we really need the sellers to come in again (and a lower low) through today’s session to confirm a shift in momentum.

EURAUD printed an outside period, closing below the 5-day EMA and again, this is one to watch as AUDUSD has found better buyers, and there is pronounced divergence (between price and the 14-day RSI that could play out).

Trump the currency manipulator

So incensed was Trump at Draghi’s actions that he went after both Draghi and Powell in a Twitter rage. There are just no level playing fields anywhere for Trump right now, and at the heart of this is a Fed governor who won’t play ball. The timing of his tweet, and the news that the Fed have been looking at the legalities of replacing Powell, the day before the FOMC meeting is interesting, but whether this has any bearing on the Fed’s psyche is debatable. If anything, recent comments from the ex-Fed vice chair, Stanley Fischer, would suggest Trump’s directive could see Powell hold off from the dovish turn the market craves. What it tells us though, is Trump wants a lower USD.


The Fed to open the door to a cut

Of course, it’s all eyes on tonight’s FOMC meeting. As detailed, it’s very unlikely we get a cut tonight, if we do the USD will be savaged and US equity indices will likely trade to new highs. It’s not like equities need much encouragement though, as traders feel a currency war is on, and it’s a race to the bottom. I could put a full list of what to watch, but consider the world is so long of short-term bonds and rates that the FOMC needs to bring their A-game or the risk is we will see disappointed.

Consider the interest rate markets have an 82% probability of a cut in the July FOMC, so from a truly simplistic standpoint we need to hear a willingness to act or traders will pile into USDs, and short equities. There seems little doubt that the elephant in the room is the G20 meeting (28 June) though, and while traders got very excited overnight that we are going see a face-to-face meeting between Trump and Xi, backed by a 4% rally in crude. If we don’t see convergence between these two leaders, then the view on the street is the Fed will cut in July.

The period between 4 am, and 5 am AEST, is therefore crucial, and it could be a period where reduced liquidity makes for more erratic moves in price. The risk is we see USD upside, as the bar for disappointment seems elevated. But, in times like these, when the playbook is diverse, we need to go back to trading 101. Managing risk, and understanding how exposures could be impacted by an event very much out of control. So often, in this situation, it can be prudent to reduce risk, and we sleep better. As I wrote in ‘chart of the day’, USDJPY is one to watch, as price is consolidating in a 100-pip range, and is possibly the cleanest vehicle for understanding the reaction to the meeting.

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Chris Weston, Head of Research at Pepperstone

Chart of the Day

For breakout traders this is an absolute cracker as the bull flag has now obviously complete, providing a decent medium-term upside in itself. Price has now broken the near-term high of 1.7194 and now needs a clean break of the January spike high of 1.7209, and ideally, we’d want to see a re-test to confirm this breakout is now support. The prospect of a stop run through 1.7209 is a risk, so I wouldn’t want to get caught here, but the momentum behind the pair gives an elevated view that this could be closer to 1.7300/50 in the next week or so. If we assess implied volatility, we can see the expected move in the next two weeks is 92-pips, so hardly explosive range expansion.

Some have focused on the daily of EURAUD too, but with Aussie employment data due tomorrow at 11:30AEST, with an elevated risk for a strong election fuelled print of above 16,000, the preference is to shy away from AUD short exposure.

We’ve discussed global rates and trade tensions in some depth of late, but news that was undoubtedly a key feature yesterday was the idea of renewed China stimulus. We saw the China CSI 300 index close up 3%, with A50 index (CN50) closing 2.5% higher. The Chinese government will now allow local governments to use select bonds as capital to finance projects, leading traders to feel credit growth is once again is on the up. We also saw news that the PBoC is issuing short-term bills in Hong Kong, which could withdraw liquidity from the market, and that is having the effect of promoting a strong bid in CNH (offshore yuan).

As we see in the daily chart of USDCNH, and once again traders have faded the move into the top of the consolidation range. The PBoC has guided the CNY somewhat stronger than market expectations in the past few days, and that seems to be sending a message that the central bank is keen to curb the upside.

China CN50 index

For those who haven’t looked at this market, it is effectively the top 50 China mainland stocks packaged as futures market and traded on the Singapore futures exchange. It is one of the cleanest vehicles to express a view on Chinese stocks.  As we can see, momentum is to the upside, and the price is threatening to break out of the consolidation range. It feels as though a weaker USDCNH (or USDCNY) should promote a further move higher in the CN50 index.

Trump’s comments overnight could take some of the wind out of the Chinese equity sail, with a tweet that he, himself, is holding up the deal with the Chinese, and that a trade deal won’t happen unless China agrees to the original terms, we saw a couple of months ago. We understand that Xi and Trump will meet at the G20, but Trump’s comments suggest they are a long way from convergence. All part of his game theory? Push the Fed into easing rates, do a deal with Mexico, and China and, off we go into the 2020 elections!

Outside of Chinese markets, I have focused on a number of charts that seem incredibly important for macro traders. They may/may not have come up on your radar, and if you want clarification on any of them do reach out.

Eurodollar three-month futures

We head into the June FOMC meeting on 20 June with traders expecting the door to be opened for an easing cycle from the Fed. If I look at the weekly Commitment of Traders report, and the level of positioning in eurodollar futures (a tradeable interest rate product) is at the highest net long position since 2008 – clearly a very crowded trade. As mentioned in my event risk video yesterday, if the Fed doesn’t meet the market pricing and the degree of easing expected from the rates market, then the USD is going to fly on 20 June. This chart shows just how crowded the rate cut trade is.

Source: Bloomberg

Rate cut expectations

Here I have looked at the spread, and therefore rate cut expectations, between the rolling front-month fed funds future (another tradeable interest rate product) vs the rolling fifth month. At this point in time rate cut expectations between June and October sit at 37bp (the Fed usually cut in increments of 25bp or 0.25ppt). The green circles show levels where we have often seen an easing cycle, and at current pricing, we are somewhere in-line. The market is expecting an easing cycle.

Source: Bloomberg

The liquidity effect

Fed excess reserves (green – inverted) vs the USD index (USDX on MT4/5). As suggested in the video, the prospect of the Fed announcing a formal end to its balance sheet normalisation program in June, as opposed to October, could be big news for the USD. We can see the relationship between excess USD reserves and the USD, and should we see excess reserves increase (i.e. the green line falls), then one would expect the USD to face headwinds over time. Liquidity, as they say, is the oxygen of markets and the driver of USD.

Source: Bloomberg

12-month US recession probability

So much has been made about the US yield curve and the recessionary environment expressed here. Here is the NY Fed implied recession probability model, which at 29% is the highest since 2007. The red shaded areas represent periods of prior recessions. 29% may not sound like a lot, but as we can see, this is where the probability stood in all eight of the previous recessions. It feels as though the rates markets are taking this as gospel and has made its mind up.

Source: Bloomberg

Tomorrow I will throw some charts out there that are great leading indicators, and they don’t support the notion of a recession — one for the optimists.

Inflation risks

At 22:30 AEST tonight we get US core and headline CPI. With the market searching for further clues on a July rate cut, this could be an event risk to pay homage too. Here we see:

  • White line – NY Fed inflation gauge
  • Purple – CPI inflation
  • Blue – core PCE inflation
Source: Bloomberg

With the consensus calling for 2.1% (core) and 1.9% (headline), we can assess how the USD will likely trade on the extent of the beat or miss.

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Chris Weston, Head of Research at Pepperstone

Aussie Dollar is Worst G10 Currency So Far in May, Leading Up to Weekend’s Elections

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After testing the 0.72 resistance level mid-April, the downward momentum for AUDUSD has gathered pace going into the current month, as the re-intensification of US-China trade tensions, coupled with the recent negative data in the domestic jobs market, have ramped up expectations for a rate cut by the Reserve Bank of Australia. Since enduring a massive leg down on April 24, AUDUSD has fallen further away from the 0.70 psychological level. As headwinds grow stronger surrounding the currency pair, a meaningful break below 0.68 may even open a path towards the 0.65 level.

AUDJPY testing 76 support level

Amid the risk aversion that has permeated the markets last week, demand for safe haven assets have surged, prompting AUDJPY to test the 76 support level. The bearish channel appears firmly entrenched for the time being, as another bout of risk-off sentiment may see the currency pair opening a path towards the 75 psychological mark and below.

EURAUD to register new 2019 high?

EURAUD is well on its way back towards its year-to-date high of 1.635, which came before the flash crash that took place on Jan 3. Even against the dismal Eurozone outlook, the Australian Dollar hasn’t been able to hold its own ground against the bloc’s currency. Should this bullish momentum take the currency pair past the 1.63 handle, a new high for the year then shouldn’t come as a surprise for traders.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Euro Tumbles as ECB Highlights Downside Risks

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Dovish Draghi strikes again! The Euro fell by some 0.5 percent against the US dollar before recovering some of its losses, after the European Central Bank stood pat on monetary policy on Wednesday.

The ECB President, Mario Draghi, once again highlighted that risks to the Euro-area are tilted to the downside, as incoming economic data still point to fragile economic conditions. The outlook for the Eurozone is also riddled with trepidations surrounding Brexit, pockets of political risks on the continent, and potentially ramped-up US-EU trade tensions.

Taking a look at the technical picture, the EURUSD tumbled roughly 50 pips during the ECB press conference. With such a gloomy outlook, the 1.120 support level could be tested in the near-term. A solid breakdown and daily close below 1.120 is likely to open the gates towards 1.113 and 1.100 as discussed this morning.

EURJPY sinks below 125.00

The Euro extended losses against the Japanese Yen after Mario Draghi expressed concerns over geopolitical uncertainties impacting the Eurozone economy. With the EURJPY breaking below the 125.00 level, the gates have been opened towards 124.40 and 123.80.

EURGBP more concerned with Brexit

There was some movement on the EURGBP following the ECB press conference with prices dipping below 0.8600 as of writing. However, the muted reaction suggests that the currency pair may be more concerned with the looming Brexit summit. Prices are likely to range until more clarity is offered on Brexit. Major support can be found at 0.8500 while resistance can be seen at 0.8680.

EURAUD edges towards 1.5700 support

There is a classical breakdown opportunity forming on the EURAUD with support at 1.5700 and resistance at 1.6100. A solid move below the 1.5700 level with signal further downside with the next key point of interest at 1.5560.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.