January 18th 2022: Technical Position Ahead of Tuesday’s Session

Charts: Trading View

(Italics: Previous Analysis Due to Limited Price Change)

EUR/USD:

Weekly timeframe:

Long-standing resistance from $1.1473-1.1583 (active S/R since late 2017) entertained a bearish showing last week. Downstream, familiar support resides at $1.1237-1.1281. Made up of a 61.8% Fibonacci retracement at $1.1281 and a 1.618% Fibonacci projection from $1.1237, this area, as you can see, delivered a floor heading into the close of 2021. ‘Harmonic’ traders will acknowledge $1.1237 represents what’s known as an ‘alternate’ AB=CD formation (extended D leg).

Strengthening the aforementioned resistance area, the pair took out 2nd November low (2020) at $1.1603 in late September (2021), suggesting a downtrend on the weekly timeframe. This is reinforced by the monthly timeframe’s primary downtrend since mid-2008.

Daily timeframe:

Technical observations on the daily timeframe reveal the currency pair forming a potential whipsaw above a 7-month trendline resistance, extended from the high $1.2254. Note also that price movement established a bearish engulfing candle (a reversal pattern in which focus is directed to the real candle body rather than upper and lower shadows). Should bearish follow-through emerge, Quasimodo support offers an obvious target at $1.1213.

Momentum studies, derived through the relative strength index (RSI), shows the indicator spun lower ahead of resistance at 63.66 and is threatening a move back to the 50.00 centreline.

Trend on this scale has been lower since June 2021.

H4 timeframe:

Fibonacci resistance between $1.1506 and $1.1476 served this market well at the tail end of last week, welcoming a one-sided decline on Friday and throwing light on support at $1.1382, closely followed by a decision point at $1.1354-1.1379. Harmonic traders (much like the weekly timeframe) will acknowledge that the 1.272% Fibonacci projection at $1.1476 forming the lower side of the noted resistance is commonly referred to as an ‘alternate’ AB=CD formation (extended D leg).

What also gave credibility to the Fibonacci resistance (underlined in previous writing) is the area overlapping the lower edge of weekly resistance from $1.1473-1.1583.

The technical framework on this chart, therefore, shines light on a possible test of support at $1.1382 and neighbouring decision point at $1.1354-1.1379.

H1 timeframe:

Thin US holiday trading on Monday witnessed Europe’s single currency slip beneath trendline support, drawn from the low $1.1285, and shake hands with $1.14. Despite the psychological figure arranging a modest floor heading into US hours, the currency pair is tipped for additional underperformance (according to higher timeframe structure).

Having noted $1.14 offering support, protective stop-loss orders will be present south of the number (sell-stops). Additionally, a break lower may encourage breakout selling (additional sell-stops). With that being the case, a whipsaw to prime support at $1.1360-1.1383 (houses demand within at $1.1363-1.1375 and shares a connection with H4 support and the decision point) could arise as larger short-term players attempt to take advantage of the stop run.

The technical picture drawn out of the relative strength index (RSI) reveals bullish divergence, with the indicator’s value tipped to perhaps join the lower side of the 50.00 centreline.

Observed Technical Levels:

While weekly, daily and H4 timeframes display scope to navigate lower, short-term flow (H1) highlights the possibility of a whipsaw through $1.14 to prime support at $1.1360-1.1383. A rebound from here, followed by a subsequent H1 price close above $1.14 is likely to pull in an intraday bullish move higher.

Though do remain aware that a trade long is counter to higher timeframe direction, therefore the move north could be short-lived.

AUD/USD:

Weekly timeframe:

Prime support at $0.6968-0.7242 continues to play a crucial role on the weekly timeframe. Bulls, as you can see, embraced a modestly bullish stance into the close of 2021. 2022, on the other hand, has been undecided so far. Should buyers continue pressing higher, resistance is formed at $0.7501. Manoeuvring beneath $0.6968-0.7242 reveals support at $0.6673 and a 50.0% retracement at $0.6756.

Since mid-Feb 2021, a modest downside bias has been seen. This followed higher prices since pandemic lows of $0.5506 (March 2020). However, it is important to note that from the monthly timeframe the unit has been entrenched within a large-scale downtrend from mid-2011.

Daily timeframe:

Resistance—made up of a 61.8% Fibonacci retracement at $0.7340, a 100% Fibonacci projection at $0.7315, an ascending resistance, drawn from the low $0.7106, trendline resistance, drawn from the high $0.7891, and the 200-day simple moving average at $0.7421—came within a pip of making an entrance last week and finished the week by way of a shooting star candle (bearish configuration).

Aside from the $0.7130 low (7th January) and the $0.7082 (20th December [2021]) low, obvious support at $0.7021 calls for attention.

The relative strength index (RSI) continues to circle the 50.00 centreline. $0.7421-0.7315 sellers, therefore, will likely be watching for the indicator to secure position beneath the 50.00 neighbourhood, movement that informs market participants that average losses exceed average gains.

H4 timeframe:

Prime resistance drawn from $0.7323-0.7308 received price action late last week. Thursday’s response and Friday’s additional softness manoeuvred through support at $0.7250 (now a marked resistance level). The $0.7169-0.7187 demand is next in the line of fire for sellers, with Quasimodo support residing a touch below at $0.7146.

H1 timeframe:

Despite joining hands with the $0.72 figure, Monday’s holiday-induced session had price action congregate between two merging trendlines ($0.7223 and $0.7196) to form a potential pennant formation (continuation pattern). Should the unit breakout to the downside and take on $0.72, Quasimodo support calls for attention at $0.7168 (set a pip beneath H4 demand at $0.7169-0.7187), followed by demand at $0.7126-0.7141.

Any upside attempts on this timeframe unlocks resistance at $0.7273.

The relative strength index (RSI) is seen within striking distance of the lower side of the 50.00 centreline, following movement out of oversold territory.

Observed Technical Levels:

The H1 timeframe’s potential pennant pattern is likely to welcome a bearish breakout, to which traders will observe price dip beneath $0.72. While H1 traders will likely target Quasimodo support at $0.7168, H4 demand at $0.7169-0.7187 could prove troublesome. Therefore, $0.72 breakout sellers are urged to adopt a cautious stance south of the round number.

USD/JPY:

Weekly timeframe:

After touching gloves with a 1.272% Fibonacci projection from ¥116.09 in the shape of a shooting star and refreshing multi-year pinnacles, USD/JPY tumbled 1.2 percent last week. While a modest recovery developed in recent trading, the path of least resistance remains to the downside towards support at ¥112.16.

In terms of trend, the unit has been advancing since the beginning of 2021, welcoming a descending resistance breach, drawn from the high ¥118.61. In consideration of the trend, a dip-buying theme from ¥112.16 is a reasonable assumption.

Daily timeframe:

Friday pencilled in a hammer pattern and, despite being void of an obvious technical floor, attracted a bullish following on Monday. Upstream has Quasimodo resistance to target at ¥116.33, whereas downstream shines light on demand at ¥112.66-112.07, tailed closely by a decision point from ¥111.18-111.79 and the 200-day simple moving average at ¥111.35.

In terms of the relative strength index (RSI), support between 40.00 and 50.00 (a ‘temporary’ oversold range since 10th May) remains active.

Much like the weekly timeframe, trend on the daily scale points to the upside.

H4 timeframe:

After clipping the lower edge of a decision point at ¥113.54-113.78 (leaving Quasimodo support at ¥113.22 unchallenged) last week, subsequent price movement climbed to within a stone’s throw from Quasimodo support-turned resistance at ¥114.71.

North of ¥114.71 is trendline resistance, taken from the high ¥116.35, and the decision point from ¥115.49-115.24.

H1 timeframe:

Early London hours watched price action retest support at ¥114.32 on Monday and produce a hammer pattern (bullish signal). This led the currency pair higher and directs attention to Quasimodo support-turned resistance at ¥114.83 and the ¥115 figure. Technicians will note that ¥114.83 converges closely with the H4 timeframe’s Quasimodo support-turned resistance at ¥114.71.

RSI (relative strength index) analysis shows moderate bearish divergence forming on the doorstep of overbought space. This informs traders that average losses are beginning to exceed average gains on this timeframe over a 14-period calculation: negative momentum.

Observed Technical Levels:

Both weekly and daily timeframes display room to work lower until connecting with daily demand at ¥112.66-112.07. As a result, between H4 Quasimodo support-turned resistance at ¥114.71 and H1 Quasimodo support-turned resistance at ¥114.83, sellers could be drawn to this area (some traders are likely to include the ¥115 figure in this resistance zone).

GBP/USD:

Weekly timeframe:

The current 4-week bid—initiated ahead of the double-top pattern’s ($1.4241) profit objective around $1.3093 (red boxes)—continues to echo a muscular tone, in line with the weekly timeframe’s current uptrend since early 2020. However, it’s important to recognise that while the trend on the weekly timeframe demonstrates an upside bias, the monthly timeframe’s long-term trend has been lower since late 2007.

Nevertheless, ‘consumed supply’ (blue area) is nearby between $1.4001 and $1.3830. Considering this, candle action may be guided as far north as resistance from $1.4371-1.4156 in the coming weeks.

Daily timeframe:

Counter to the weekly timeframe is the daily timeframe bonding with the lower side of the 200-day simple moving average at $1.3733 last week. Thursday assembled a shooting star candle formation (bearish signal) and Friday sailed to a low of $1.3653 with Monday extending the retracement slide.

Observed support falls in at $1.3602, aided by neighbouring trendline resistance-turned support, taken from the high $1.4250.

The relative strength index (RSI) recorded overbought conditions in line with price testing the noted SMA and has since exited the area. This is considered by many technicians a sign upside momentum is beginning to slow in which bears could take the wheel.

H4 timeframe:

Following the near-test of supply from $1.3782-1.3758 and a deep 88.6% Fibonacci retracement at $1.3758 last week, price dipped beneath trendline support, drawn from the low $1.3173, and a Quasimodo resistance-turned support at $1.3668 (now marked resistance).

You will note that although the aforesaid supports have been absorbed, a nearby decision point at $1.3622-1.3646 made its way into the spotlight. Below the decision point, aside from a number of ‘local’ lows, demand is at $1.3428-1.3444.

H1 timeframe:

Monday’s subdued setting, brought on by a lack of tier-1 data and a bank holiday in the US, left behind a dip into demand from $1.3628-1.3643 (underpinned by support at $1.3627 and placed within the H4 decision point at $1.3622-1.3646).

Below the noted demand and support, the $1.36 figure is visible, accompanied by demand from $1.3580-1.3600.

In terms of the relative strength index (RSI), the value formed bullish divergence out of oversold territory yesterday, a move telling short-term traders that downside momentum is currently slowing.

Observed Technical Levels: 

The daily timeframe connecting with the 200-day simple moving average at $1.3733 brings light to support at $1.3602. With this being the case, further losses could emerge on the H1 scale until $1.36, though this entails overthrowing noted H4 structure (and H1 demand at $1.3628-1.3643 and H1 support from $1.3627).

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The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.

USD/CAD Tests Support At 1.2525

Canadian Dollar Is Gaining Some Ground Against U.S. Dollar

USD/CAD  is currently trying to settle below 1.2525 while U.S. dollar is moving higher against a broad basket of currencies.

The U.S. Dollar Index managed to get above the resistance at 95.20 and is moving towards the next resistance at 95.40. A move above 95.40 will open the way to the test of the 50 EMA at 95.55 which will be bullish for USD/CAD.

Today, Canada reported that Manufacturing Sales increased by 2.6% month-over-month in November compared to analyst cosnensus which called for growth of 3.1%.

Foreign exchange market traders also focused on the dynamics of commodity markets. WTI oil made an attempt to get to the test of the psychologically important $85 level but lost momentum and pulled back below the $84 level.

In case WTI oil manages to settle back above $84, it will have a good chance to test the $85 level which will be bullish for commodity-related currencies, including Canadian dollar.

Technical Analysis

usd cad january 17 2022

USD to CAD is currently trying to settle below the support level at 1.2525. In case this attempt is successful, USD to CAD will get to another test of the next support level which is located at 1.2500. This support level has been recently tested and proved its strength.

A move below the support at 1.2500 will push USD to CAD towards the support level at 1.2475. If USD to CAD gets below this level, it will move towards the next support at 1.2460. A successful test of the support at 1.2460 will open the way to the test of the next support level which is located at 1.2425.

On the upside, USD to CAD needs to settle above 1.2525 to have a chance to gain upside momentum in the near term. The next resistance level for USD to CAD is located at 1.2550. If USD to CAD manages to settle above 1.2550, it will gain additional upside momentum and head towards the next resistance at 1.2590.

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

Speculators Rotate Towards Crude Oil and Natgas

A week that saw continued stock market weakness and rising bond, albeit at a much reduced pace after Jerome Powell pledged to do what’s necessary to reduced inflation while at the same time prolonging the economic expansion. The dollar traded weaker ahead of last Wednesday’s, thereby supporting a strong rally in commodities led by energy and industrial metals.

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

Commodities

The Bloomberg Commodity Index jumped 2.2% during the reporting week to January 11 with a 6.3% gain in energy and 1.2% in industrial metals offsetting weakness across the agriculture sector which with the exception of coffee and cocoa saw broad losses led by sugar and hogs. Responding to these developments, money managers accumulated fresh longs across the energy sector, not least in crude oil, while cutting back on exposure across all other sectors.

In crude oil, the combined net long in Brent and WTI jumped by the most since November 2020 to reach 538k lots or 538 million barrels, still well below the most recent peak at 737k lots from last June. A US cold blast helped send natural gas up by 14% and the net long up by 30% to 163k lots.

In the other sectors of metals and agriculture, speculators opted to reduce their exposure with the few exceptions being soybeans, cocoa and coffee. Rangebound HG copper as an example saw its net long reduced by 15% to 22.2k lots, primarily due to increased short selling, some of which were probably stopped out during the failed breakout attempt above $4.47 towards the end of last week. Gold and silver both saw net selling , while the platinum short jumped 86%.

In agriculture, speculators increased their long positions in all three soybeans contract, the corn long was cut by 6% while the CBOT wheat short jumped by 40% to an 18-month high. In softs, the sugar long continued to be cut, this time by 61.6k lots to 76.5k lots, and since hitting a cycle peak last August the net long has now been reduced by 72% to a near 18 month low. Cocoa flipped back to a small net long, the coffee long rose 4% while the cotton long was cut by a similar percentage.

Market comments from today’s Market Quick Take:

Crude oil (OILUSFEB22 & OILUKMAR22) trades mixed with Brent crude oil briefly challenging the double-top at $86.75, a seven-year high, before having a rethink as China GDP and retail sales slowed amid ongoing measures to curb the spreading of the omicron variant.

The prompt spreads in WTI and Brent remain elevated at 63 and 74 cents per barrel, thereby signaling rising tightness. Later this week monthly Oil Market Reports from OPEC on Tuesday and IEA on Wednesday will shed some further light on the current situation. Speculators, a little late to the recent rally, boosted bullish oil bets in WTI and Brent bets by the most in 14 months last week.

Copper (COPPERMAR22) slid the most in seven weeks on Friday as weaker-than-expected U.S. economic data (see below) together with weakness in China added to concerns that global growth may slowing amid rising inflation and the spreading virus. High Grade’s drop back below $4.50 triggered some stop loss selling from recently established longs before stabilizing overnight after China, the world’s top consumer, cut rates to support its economy. The worry over tight supplies, however, has not gone away and should cushion any short-term weakness.

Gold (XAUUSD) remains resilient despite Friday’s renewed surge in bond yields as the market continues to price in the prospect of rising US interest rates, potentially at a more aggressive pace than previously expected. Support continues to build in the $1800-area while a break above $1830 could see it target $1850 ahead of the November peak at $1877.

Forex

In forex, the major flow was selling of JPY, where the net short increased by 25.3k lot or the equivalent of $2.7bn. Additional selling of AUD (-2.1k lots) took the net short to a fresh record short at 91.5k lots. The EUR position flipped back to a net long after speculators bought 7.6k lots while the GBP short was reduced by 26%. Overall, the dollar long against ten IMM currency futures and the Doller Index rose by a small 1% to $23.5 billion.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other

Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other

Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

US Dollar Recovers Against Japanese Yen

The US dollar has seen a bit of strength against the Japanese yen during the trading session on Monday, although it should be said that it was Martin Luther King Jr. Day in America. That being said, the move actually happen before US trading, so it does make a certain amount of sense that perhaps technical traders have stepped back into the market in order to pick up this market after a nice pullback.

USD/JPY Video 18.01.22

The size of the candlestick was rather impressive, but at the end of the day it is interesting that the market bounced exactly where it did. Friday ended up showing signs of stability as we formed a nice looking hammer, which also happened to be right there at the 50 day EMA. Because of this, it looks as if we tried to recover from the bigger pullback, and it certainly looks as if there is a little bit of follow-through in both Europe and Asia during the Monday session.

At this point, the market is very likely to see a lot of noisy behavior, but it looks like we are going to see a continuation of the longer-term uptrend that we had seen previously. Because of this, I think the market is more likely than not going to continue to the upside, with the ¥115 level being an area of interest, as large, round, psychologically significant figures come back into the picture and throw things around. Nonetheless, we are still very much in an uptrend, so I think value has come back into the picture for longer-term traders.

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

British Pound Continues to Slump Against US Dollar

The British pound has pulled back a bit during the course of the trading session on Monday as we continue to see a lot of give back from the massive move that we had seen previously. With this being the case, the market looks as if the 1.37 level continues to be an area of concern. Nonetheless, I do not necessarily think that this is a situation that is something to be concerned about, due to the fact that the breakout was so strong that it is only a matter of time before the buyers will return.

GBP/USD Video 18.01.22

The 200 day EMA is sitting around the 1.36 level, and that could offer a bit of a area of support, and then again at the 1.35 level we should see a certain amount of support as well. If we were to break down below there, then it simply is going to be more or less a continuation. To the upside, if we can break above the top of the shooting star from the Thursday session, then the market could go much higher. All things being equal, this is a market that will be noisy, but the British pound is probably going to be a bit of an outlier against the greenback as we have seen lately. I do not think that changes anytime soon, due to the fact that the British economy is supposedly going to be one of the first once the exit the pandemic. That being said, it is a simple matter of momentum at this point in time, so I do believe we will find value hunters on this pullback.

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

Euro Pulls Back Toward Support

The Euro has pulled back a bit during the trading session on Monday, showing signs of testing the 50 day EMA. The 50 day EMA of course is an indicator that a lot of people will pay attention to, so it is most certainly worth looking at. Starting to curl higher and is sitting on top of the previous consolidation area, so it does make a certain amount of sense that traders would be interested in this region. Whether or not it holds remains to be seen, and you can only read so much into the Monday candlestick due to the fact that it was Martin Luther King Day and the United States, meaning that Americans were essentially not at work.

EUR/USD Video 18.01.22

To the upside, if we can break above the top of the candlestick for the trading session on Monday, it is very likely that we will go looking towards 1.15 handle, which is a large, round, psychologically significant figure, and then eventually the 1.16 level above where we had seen such a massive selloff previously. That being said, the market looks very likely to continue to see the 1.1375 level underneath is possible support as it had been previous resistance in our nice consolidation area.

All things been equal, this is a market that I do believe eventually finds a decision made, probably on Tuesday that could have ramifications for the next several sessions. All things being equal, pay attention to the US dollar overall, because of this is the closest thing to the US Dollar Index that a lot of you can trade. In general, this is a market that is probably ready to make a bigger move.

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

British Pound Tries to Reenter Consolidation

The British pound has shot higher during the trading session on Monday, to reach back into the previous consolidation area that had been so important over the last couple of weeks. That being said, the market has given back quite a bit of those gains to show a less than impressive candlestick. Nonetheless, this is a market that you cannot short anytime soon because quite frankly it has been so strong over the last several weeks. I believe that the ¥155 level underneath will continue to be important, so pay close attention to that area. If we reach back to push that area, it could give us a bit of a heads up as to where we are going next.

GBP/JPY Video 18.01.22

The British pound against the Japanese yen is a highly sensitive pair when it comes to risk appetite, so you need to pay close attention to what is going on around the world. Ultimately, this is a market that I do think eventually will find enough momentum to make some type of decision, but right now it is obvious that we just do not know what to do. If we were to break down below the ¥155 level, that can send this pair much lower, but until we smash through that level, I think that we have a situation where you have to look it dips as potential buying opportunities, assuming that the other markets around the world are doing fairly well. Keep in mind that we recently tested the ¥158.50 level, so that is an area worth paying close attention to.

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

Australian Dollar Has Quiet Session

The Australian dollar has gone back and forth during the course of the trading session on Monday as we had seen a major breakdown in this pair on Friday, and now we are trying to settle things as to which direction we want to go. That being said, with Martin Luther King Jr. Day in the United States, meaning that liquidity would have been an issue at certain times of the day. Nonetheless, the 0.72 level does seem to have made a bit of a difference, and therefore it looks like we may settle right around this area. Given enough time, we will obviously have to make a real decision, but right now it looks as if we are simply going to be comfortable spinning our wheels.

AUD/USD Video 18.01.22

The 50 day EMA sits just above the candlestick, so it does suggest that perhaps we are simply killing time in an area that would of course keep a lot of attention, but if we break down below the 0.72 level, it is likely that we could go down towards the 0.7150 level. All things being equal, this is a market that has been in an upward channel, so it is possible that we could see the market continue that channel, but if we do break down from here, it is likely that we could see a move to the upside, but obviously we would need to see the 50 day EMA broken above on a daily close. All things been equal, this is a market that it is probably going to be very choppy to say the least.

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

EUR/GBP Trades on a Crucial Bullish Stronghold

We will discuss the situation on the weekly chart, so there is not much here for the scalpers and day traders. First of all, taking a quick look on the chart and you do not see this Armageddon effect which was supposed to happen after Brexit. Traders, have no hesitations in terms of buying the Pound and they have been doing that constantly since the March 2020.

The main reason, why we wrote this piece is the fact that after weeks of declining, the price finally reached the mother of all supports for the EURGBP. This support is a horizontal area around 0.8320. It was a key level, at the end of 2016 and beginning of 2017. Also, at the end of 2019 and beginning of 2020. It is important now as well.

EURGBP reached that support last week and surprise surprise, we saw a bullish bounce. This is an amazing place to open a long-term long position, in theory though. We always need to be aware of the possible breakout to the downside. That should not worry us as there are always stop loss orders, which you can use and, in this case, it is pretty clear where they should be placed – below the orange support. That gives us an amazing long trade possibility with a very tempting risk to reward ratio.

In case the support would be breached, that opens us an occasion to go short but chances for that are now limited, although we cannot exclude this possibility and if it will happen, traders should act accordingly, so open a long-term short.

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

USD/CAD and USD/JPY Elliott Wave Cycles Point Lower

Notice that pair broke the trendline support of a base channel last week which normally occurs within wave three of an impulse, thus we think there can be more weakness coming, firstly to around 1.2450 and then possibly even to 1.2250-1.23 area. The short-term invalidation level is now at 1.2625; as long it holds the bearish impulse is expected to resume lower within wave 3/C.

USDCAD 4h Elliott Wave Analysis

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USDJPY has been very bullish through 2021 but now it may face a limited upside since we are seeing a fifth wave trying to complete wave c of a higher degree wave d) that can belong to a multi-year triangle. However, calling a top can be too soon since we are not seeing a completed five waves down from recent high when looking at the 4h chart, but so far it looks promising with recent extensions below the base channel support line.

If pair will rise back above 115.05 then market may stay sideways for a big triangle.

USDJPY 4h Elliott Wave Analysis

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Will Inflation Hit the Markets?

With US inflation at a 40-year high, in this week’s market update XTB’s market analyst Przemysław Kwiecień examines what this could mean for stocks, commodities and forex, the impact this will have on investors, and how the Fed might react. Expect to find answers to questions such as:

  • What does elevated inflation mean for stocks and commodities?
  • Are investors unprepared for monetary tightening?
  • What is the key data and levels for the pound this week?

Don’s miss our latest market update: Watch now!

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

Kiwi Buyers Defending Short-Term Support Zone

The New Zealand Dollar is struggling to get its footing on Monday as the U.S. Dollar clung to a late week bounce as investors braced for January’s U.S. Federal Reserve meeting and raised bets it will chart a year ahead by announcing several rate hikes. Volume is tight, however, with the U.S. on a bank holiday.

At 12:10 GMT, the NZD/USD is trading .6808, down 0.0004 or -0.05%.

The move by the Kiwi follows the dollar’s jump on Friday along with U.S. yields and underscore support for the greenback from the hawkish rates outlook, even if momentum for gains has started to wane.

The Fed meets January 25-26 and is not expected to move rates, but there is a growing drumbeat of hawkish comments coming from within and outside the central bank.

The cash Treasury market was closed for a holiday on Monday but 10-year futures were sold to a two-year low and Fed funds futures also fell, reflecting a strengthening conviction in the market of a least four hikes in 2022.

Daily NZD/USD

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through .6891 will signal a resumption of the uptrend. A move through .6733 will change the main trend to down.

The short-term range is .6702 to .6891. The NZD/USD is currently testing its retracement zone at .6797 to .6774.

The minor range is .7053 to .6702. Its 50% level at .6878 is resistance. This level stopped the rally last Thursday.

The main range is .7219 to .6702. If the uptrend resumes then its retracement zone at .6961 to .7022 will become the next upside target area.

Short-Term Outlook

The direction of the NZD/USD over the short-run will be determined by trader reaction to .6797 to .6774. Since the main trend is up, buyers are defending this zone. They are trying to form a potentially bullish secondary higher bottom.

Bullish Scenario

A sustained move over .6797 will indicate the presence of buyers. The first upside target is a minor pivot at .6839. Overcoming this level could trigger an acceleration into .6878 to .6891.

Bearish Scenario

A sustained move under .6774 will signal the presence of sellers. This could trigger a break into the main bottom at .6733. Taking out this level will change the main trend to down with .6702 the next target.

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

Aussie Finds Support Despite Fed Rate Hike Fears

The Australian Dollar is trading flat on Monday on low volume due to a U.S. bank holiday. The move follows a steep decline the previous session that was fueled by expectations of more aggressive rate hikes by the U.S. Federal Reserve. Meanwhile, mixed economic news from China failed to move the needle in either direction.

At 11:09 GMT, the AUD/USD is trading .7227, up 0.0010 or +0.13%. On Friday, the Invesco CurrencyShares Australian Dollar Trust (FXA) settled at $72.18, up $0.02 or +0.03%.

In domestic news, investors are betting the sharp hawkish shift by the Federal Reserve will put pressure on the Reserve Bank of Australia (RBA) to follow and tighten well before its preferred window of 2023.

Meanwhile, data out of China showed coronavirus restrictions badly hurt retail sales in December, though industrial output fared better and the economy overall grew a bit faster than forecast in the fourth quarter.

Daily AUD/USD

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum has been trending lower since the formation of the closing price reversal top on January 13.

A trade through .7314 will negate the closing price reversal top and signal a resumption of the uptrend. A move through .7130 will change the main trend to down.

The minor range is .7130 to .7314. The AUD/USD is currently testing its retracement zone at .7222 to .7200. Buyers are trying to form a potentially bullish secondary higher bottom.

The short-term range is .6993 to .7314. Its retracement zone at .7153 to .7116 is support.

The main range is .7556 to .6993. Its retracement zone at .7275 to 7341 is resistance. This zone stopped the rally at .7314 on January 13.

Daily Swing Chart Technical Forecast

The direction of the AUD/USD on Monday is likely to be determined by trader reaction to .7222 and .7200.

Bullish Scenario

A sustained move over .7222 will indicate the presence of buyers. If this creates enough short-term momentum then look for a surge into the main 50% level at .7275.

Bearish Scenario

A sustained move under .7200 will signal the presence of sellers. If this move generates enough downside momentum then look for the selling to possibly extend into .7153 to .7116.

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

EUR/USD Still Going Higher as Bulls Are Targeting 1.1544

EUR/USD Technical Analysis

  • EUR/USD is bullish
  • Bounce above the inside bar is possible
  • Continuation of uptrend above M H4
  • Target is M H5

DAILY CHART EUR/USD

  1. Trend changed to bullish
  2. Inside bar breakout
  3. Target

The EUR/USD is bullish. It’s a US holiday today – Martin Luther King Day so there is less volatility than usual. Stock markets and banks have slightly different holiday schedules in the market as we get things going in the new week. The EUR/USD is moving up and it should continue as the inside bar on the daily is showing a breakout to the upside. We can also spot diverging MAs as the trend is up. The first target is 1468 followed by 1.1517 and 1.1544.

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

Cheers and safe trading,

Nenad

 

Key Events This Week: Busy Week of Asian policy Meetings Amid Policy Tightening Angst

Here are the key economic events and data releases to look out for this week:

Monday, January 17

CNH: China 4Q GDP, December industrial production and retail sales
US markets closed for Martin Luther King Jr. holiday

Tuesday, January 18

JPY: Bank of Japan decision
EUR: Germany ZEW survey expectations
GBP: UK November jobless claims, December unemployment
Goldman Sachs Q4 earnings

Wednesday, January 19

EUR: Germany December inflation
GBP: UK December inflation
GBP: Bank of England Governor Andrew Bailey speech
Bank of America Q4 earnings
Morgan Stanley Q4 earnings

Thursday, January 20

CNY: PBOC loan prime rate decision
JPY: Japan December external trade
AUD: Australia December unemployment
EUR: European Central Bank publishes Dec meeting account
USD: US weekly initial jobless claims
US crude oil: EIA inventory report
Netflix Q4 earnings

Friday, January 21

JPY: Japan December inflation
GBP: BOE policy maker Catherine Mann speech, UK December retail sales
EUR: Eurozone January consumer confidence

The potential for the removal of the liquidity punchbowl (aka monetary policy tightening) is dominating the market’s thinking at present.

The strong US CPI report released last week added more pressure on the US Federal Reserve to stat lifting rates earlier than once thought, potentially as soon as March. We’ve had numerous FOMC members recently marking a more hawkish bias to the committee’s views, including notably, the fabled dove Brainard in her Fed chair nomination appearance before the Senate.

Another Fed official, Waller, also mentioned the chance of five rates hikes this year, although he doesn’t favour a 50bp hike in March. It’s worth remembering that it is a US holiday on Monday, so their markets are closed, and the blackout period has started before the next Fed meeting on 26 January so there won’t be any more Committee members to listen out for on the wires.

Company earnings also continue with more bulge bracket US banks releasing their fourth quarter results. US stocks notched their second straight weekly decline, pushed lower by disappointing earnings from financial industry bellwether JPMorgan Chase which has clouded an already mixed outlook for the US economy.

S&P 500 daily chart

Asian policymakers in focus

We kick off the week with Chinese fourth quarter GDP (4% y/y vs. 3.3% est.), as well as December’s industrial production (4.3% vs. 3.7% est.) and retail sales (1.7% vs. 3.8% est.). The full-year GDP came in at 8.1%, slightly above the median estimate by economists but well above the government’s 2021 target of over 6%. Still, the data confirmed that the final quarter was losing momentum but the real test for the domestic economy will come in the first quarter of this year, due to current regional lockdowns on top of the ongoing woes in the property sector.

With this in mind, the PBoC lowered both the one-year medium-term lending facility rate abd the seven-day reverse repurchase rate by 10 basis points respectively, a move not seen in nearly two years, and also injected more liquidity into the financial system via US$110 billion in loans.

The Bank of Japan meeting on Tuesday is also getting some airtime after “sources” said it is thinking of a rate hike at some point beyond this year and debating how to manage the messaging. Inflation is picking up and possibly risks to prices may now be described as “balanced” but hitting the 2% inflation target is still a long way off.

USD/JPY daily chart

UK data to add pressure to the BoE

We get the usual mid-month data dump in the UK with signals about labour market strength, the pace of consumer price inflation and retail sales. These are the last official updates before the BoE meeting on 3 February, with CPI expected to rise above the forecast 5% going forward and a labour marker remaining tight.

GBP/USD daily

By Lukman Otunuga Senior Research Analyst

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.

BOJ Rate Hike Hardly Imminent with CPI Below Target

The new week begins with the Bank of Japan (BOJ) becoming the first major central bank to meet in 2022.  The good news for BOJ policymakers meeting January 17-18:  inflation is creeping higher and the economy is picking up. The bad news?  Inflation is rising for the wrong reasons and this poses a problem for central bank officials.

On Friday, the USD/JPY settled at 114.205, up 0.039 or +0.03%. Also on Friday, the Invesco CurrencyShares Japanese Yen Trust finished at $82.15, down $0.05 or -0.06%.

Consumer prices rose at their fastest pace in nearly two years in November. Even Japan’s giant of affordable attire, Uniqlo says it has no choice but to raise prices – a change in a nation where deflation is the norm and firms deal with any rise in costs by tightening belts rather than passing them on, Reuters wrote.

The problem is, instead of being the fruit of nearly a decade of super-charged monetary stimulus, rising prices are being driven by surging energy prices and a weakening Japanese Yen.

Central bank officials face the challenge of preventing rising living costs from hurting weak household spending and a fragile recovery. So we’ll be watching to see if the BOJ will start discussing how it can start telegraphing a rate hike while maintaining its ultra-easy policy this year.

BOJ under Pressure to Make a Move after Consumer Inflation Jumps to Nearly 2-Year High

Japan’s November consumer inflation marked the biggest year-on-year rise in nearly two years on surging fuel costs, a sign that the fallout from global commodity price gains is broadening.

The data released in late December highlights the fresh challenge policymakers face in preventing rising costs of living from hurting already weak household spending and Japan’s fragile economic recovery.

Meanwhile, BOJ Governor Haruhiko Kuroda is on record saying that a weak yen could be inflicting bigger pain on households than before by pushing up prices of imported goods.

Japan’s core consumer price index (CPI), which excludes volatile fresh food but includes oil costs, rose 0.5% in November from a year earlier, government data showed, exceeding a median market forecast for a 0.4% gain. It was the biggest increase since February 2020 and followed a 0.1% rise in October.

Short-Term Outlook

Back in December, most analysts said the rise in inflation is unlikely to prompt the BOJ to withdraw monetary stimulus any time soon, with inflation still distant from the central bank’s 2% target.

However, that won’t stop policymakers from debating how soon they can start telegraphing an eventual interest rate hike, which could come even before inflation hits the bank’s target, sources told Reuters, emboldened by broadening price rises and a more hawkish Federal Reserve.

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

Weekly Waves 17 Jan: Ethereum, GBP/USD, and Gold

Weekly Waves 17 Jan: Ethereum, GBP/USD, and Gold

Our analysis indicates a bearish ABC correction on the GBP/USD, a potential 5 waves down on ETH/USD, and a slow wave 4 pattern on XAU/USD.

ETH/USD Downtrend Must Respect Shallow Fibs

ETH chart, 17.01.22

The Ethereum (ETH/USD) crypto currency pair is in a downtrend after breaking below the support trend lines (dotted green):

  1. Price action could be moving down lower in 5 waves (pink). But price action should respect the shallow Fibonacci levels (red box) and resistance trend line (red).
  2. A break above these Fib levels place the bearish analysis on hold. A bearish bounce and continuation lower, however, could confirm the 5 wave pattern in wave A (grey).
  3. The main targets of the bearish swing are the -27.2% and -61.8% Fibonacci targets.
  4. In any case, a larger ABC (grey) pattern seems to be taking place in a wave 4 (yellow) correction.

GBP/USD Strength Expected to Face Opposition

GBP/USD chart, 170122

The GBP/USD is showing a strong bullish impulse, which was able to break above the resistance trend line (red) of the downtrend:

  1. The bulls however are facing a strong resistance zone from the previous top (red box). A bearish bounce is likely to occur here (orange arrows).
  2. A bearish ABC (blue) pattern could emerge at the resistance to create a pullback. But this could simply complete a wave B (pink) within a larger ABC (pink) pattern.
  3. The blue box could indicate an inverted head and shoulders pattern. A deeper bearish retracement would place the bullish ABC on hold or invalidate it. A stronger push up above the resistance (red box) however still will indicate a wave A (pink) most likely.

XAU/USD Bullish Chart Pattern

Gold is moving sideways after a strong impulsive move up:

  1. A bullish break above (green arrow) the resistance (red) trend line could indicate an uptrend continuation. But if the current Elliott Wave analysis is correct, then the previous top should stop the uptrend.
  2. A bearish bounce (orange arrow) could complete the ABC (blue) in wave B (pink) and send price back down to the previous bottom.
  3. A bullish bounce (green arrow) at the previous bottom could complete the ABC (pink) pattern within wave 4 (yellow) and restart the uptrend.
  4. A deeper retracement below the previous bottom places the uptrend on hold or invalidates it.

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

 

EUR/USD Tries To Rebound At The Start Of The Week

Euro Gains Ground Against U.S. Dollar

EUR/USD is currently trading near the support level at 1.1420 while U.S. dollar is losing some ground against a broad basket of currencies.

The U.S. Dollar Index has recently made an attempt to settle above the resistance at 95.20 but failed to develop sufficient upside momentum and pulled back. The nearest support level for the U.S. Dollar Index is located at 95. In case the U.S. Dollar Index gets to the test of this level, EUR/USD will get more support.

There are no important economic reports scheduled to be released in the U.S. and EU today, so it remains to be seen whether foreign exchange market traders will be ready for big moves.

It should be noted that the yield of 2-year Treasuries is already close to the psychologically important 1.00% level, but the recent rise in yields failed to provide support to the American currency.

Traders look ready to push yields higher which could be bullish for the U.S. dollar, but is unclear whether the American currency will react to such a move given the recent trading action.

Technical Analysis

eur usd january 17 2022

EUR/USD is currently trying to settle back above 1.1420. In case this attempt is successful, EUR/USD will gain upside momentum and move towards the next resistance level at 1.1460. RSI is in the moderate territory, so there is plenty of room to gain momentum in case the right catalysts emerge.

In case EUR/USD settles above 1.1460, it will head towards the resistance at 1.1490. A move above this level will push EUR/USD towards the resistance at 1.1525.

On the support side, a move below 1.1400 will push EUR/USD towards the support level at 1.1390. If EUR/USD declines below this level, it will head towards the support at the 50 EMA at 1.1370. A successful test of the support at the 50 EMA will open the way to the test of the next support at 1.1350.

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

Weaker Risk Appetite, Higher US Yields Pressure Aussie, Kiwi

The Australian and New Zealand Dollars fell on Friday amid renewed demand for the U.S. Dollar as the recent selling spree driven by the view that Federal Reserve tightening moves were largely priced in abated, and as weaker risk appetite in financial markets led investors to shun riskier currencies like the Aussie and Kiwi.

On Friday, the AUD/USD settled at .7217, down 0.0063 or -0.87% and the NZD/USD finished at .6812, down 0.0052 or -0.76%. The Invesco CurrencyShares Australian Dollar Trust closed at $72.18, up $0.02 or +0.03%.

The Aussie and Kiwi still managed to post a gain for the week despite Fed Chair Jerome Powell saying that the U.S. economy is ready for the start of tighter monetary policy and data showing the largest annual rise in inflation in nearly four decades.

Weaker global stock markets and higher Treasury yields also weighed on the Australian and New Zealand Dollar’s appeal as liquid proxies for risk appetite.

Aussie, Kiwi Traders Shrug-Off Powell’s Hawkish Comments

The Aussie and Kiwi were supported throughout the week as traders disregarded hawkish comments from Fed Chair Jerome Powell. It should be made clear, however, that investors weren’t buying the two currencies because of strengthening domestic fundamentals, but rather because of a massive liquidation of the U.S. Dollar.

Federal Reserve Chairman Jerome Powell, with a seemingly clear path to a second term heading the central bank, declared Tuesday that the U.S. economy is both healthy enough and in need of tighter monetary policy.

As part of his confirmation hearing before the U.S. Senate Committee on Banking, Housing and Urban Affairs, Powell said he expects a series of interest rate hikes this year, along with other reductions in the extraordinary help the Fed has been providing during the pandemic era.

“As we move through this year…if things develop as expected, we’ll be normalizing policy, meaning we’re going to end our asset purchases in March, meaning we’ll be raising rates over the course of the year,” he told committee members. “At some point perhaps later this year we will start to allow the balance sheet to run off, and that’s just the road to normalizing policy.”

Short-Term Outlook

Powell’s testimony offered no surprises and were likely already priced into the Australia and New Zealand Dollars. Looking at the current timeline, the Fed tipped their hand on a rate hike at its mid-December meeting. The Fed minutes released in early January confirmed policymakers were willing to get more aggressive with policy and Tuesday’s comments from Powell confirmed this news.

The AUD/USD has been building a support base since December 15. The move is being fueled by strong domestic jobs data and increased bets that the Reserve Bank of Australia (RBA) will wind down its pandemic-era bond buying early next year. Essentially following in the footsteps of the U.S. Federal Reserve.

The short-term focus is likely to be on the RBA’s next meeting, scheduled for February 1 with traders wondering how much of an effect the Omicron outbreak will have on monetary policy decisions.

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

GBP/USD Tests Support At 1.3665

British Pound Is Mostly Flat Against U.S. Dollar

GBP/USD continues its attempts to settle below the support level at 1.3675 while U.S. dollar is mostly flat against a broad basket of currencies.

The U.S. Dollar Index is testing the resistance level at 95.20. In case the U.S. Dollar Index manages to settle above this level, it will move towards the next resistance at 95.40 which will be bearish for GBP/USD.

There are no important economic reports scheduled to be released in the U.S. and UK today so foreign exchange market traders will focus on general market sentiment.

China has recently released its fourth-quarter GDP Growth Rate report which indicated that GDP increased by 4.0% year-over-year compared to analyst consensus which called for growth of 3.6%.

China’s Retail Sales grew by 1.7% year-over-year in December compared to analyst consensus of 3.7%, while Industrial Production increased by 4.3% year-over-year compared to analyst consensus which called for gorwth of 3.6%.

At this point, economic reports from China had minimal impact on the currency market.

Technical Analysis

gbp usd january 17 2022

GBP/USD settled below the support at 1.3700 and made several attempts to settle below the next support level which is located at 1.3665.

In case GBP/USD declines below the support at 1.3665, it will head towards the next support level at 1.3635. A successful test of this level will push GBP/USD towards the support at 1.3600. If GBP/USD gets below 1.3600, it will head towards the next support level which is located at 1.3575.

On the upside, the previous support level at 1.3700 will serve as the first resistance level for GBP/USD. In case GBP/USD manages to settle above this level, it will move towards the next resistance which is located at 1.3735.

A move above the resistance at 1.3735 will open the way to the test of the next resistance at 1.3765. In case GBP/USD gets above 1.3765, it will move towards the resistance level at 1.3800.

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