Greg’s Weekly Analysis W/C 23rd October 2017

Fundamentals: The Australian economy is seeing improvement regarding jobs due to the unemployment rate coming down to 5.5%. This initially strengthened the currency against the USD but by the end of the week the USD prevailed based on a tax overhaul as the senate passed a multi trillion dollar budget that Pres. Trump has called a first step towards massive tax cuts. Investor bid the dollar on these political fundamentals and they could continue to do based on the outlook that the tax cut will provide large companies to repatriate their earnings back in the US.

Technicals: The aussie failed to close above the 0.7900 price level which indicated that buying the pair was not on the table. By the end of the week price formed a double top, rejected the daily 50 ema and made daily and intra-day new lows in form of a bearish engulfing candle. This evidence points to further downside and price could fall sharply as soon as the market opens.

Fundamentals: Since the ECB President Mario Draghi stated that the unwinding of QE will be aslow process that euro strength halted, although there are plenty market participants that are still long the euro with no rate hike in sight in the short or medium term from the Eurozone, the bids are shifting back towards the dollars favour. Next week investors will pay attention to the ECB Monetary policy report which will provide clues on future monetary guidance.

Technicals: The euro rejected the 1.1850 price again marking significant resistance and bounced lower from that level. Of price action continues its bearish sell off we might find ourselves in a sell position that we can hold for the longer term going into year end. A new swing low with intra-day pullbacks to value and lower high formations will provide plenty of chances to short the pair.

Fundamentals: The pound is going through some tough times as fundamentals and the BoE are uncertain as ever. Just 2 weeks ago BoE Gov Mark Carney stated that at least one rate hike could be a possibility by year end, this strengthened the pound because at that time there was no USD strength. Investor were biding on value and with the pound losing massively against its counterparts due to Brexit, the upside could provide more than expected reward to risk. Inflation numbers came in better than expected at 3% which should’ve strengthened the case for a hike from the BoE however in a surprise move GoV Carney changed his stance and stated that he expects inflation to peak at 3% erasing higher probability for rate hikes and going back to his original stance from 4 months ago. With these uncertain factors along with ongoing Brexit negotiation investor will find it hard to buy the pound and have confidence in holding the running positions.

Technicals: The pound had a shaky price action and fell almost to new lows but by the end of the week bulls rejected the 1.3100 levels and price slightly managed to close above the daily 50 ema while forming an imperfect pinbar candle. Next week buy are in order only if price confirms on multiple timeframes.

Fundamentals:  With the dollar hawks buying the dollar on political fundamentals and expectations of a massive tax break, it’s hard to see the pair reverse to the downside for the USD to become weak, however if these political developments, along with economic figures don’t support improvement then the strength might not be sustained for too long, especially against the CAD which next week is about to announce its monetary policy report along with the overnight interest rate. The consensus is that the BoC will refrain from adjusting rates for the 2nd time this year but many believe that their economy could withstand another rate hike and we could get a surprise rate hike.

Technicals: The Canadian pair is respecting the higher time frame formation including the monthly price action which formed a massive pinbar rejecting the lows. While price was mostly moving sideways throughout the week, on the last day of the trading week bulls stepped into the market driving prices to a new high above the 1.2600 price level, this could the first clue of the continuation of the reversal trend, pullbacks should be considered as buying opportunities going forward.

Fundamentals: The New Zealand currency took a hit and its weakness was tenfold against a strengthening dollar however the NZD weakened on its own due to market participants waiting in the agenda of the newly formed government. The NZ Labour will form the government with support of the small nationalist party. Market participants sold the currency as the proposed outlook from the newly formed government would be greater restriction on migration and trade, factors which contributed to the robust growth of the economy in recent years.

Technicals: The new Zealand has experienced a heavy fall without any retracement from the lows and with price being below the 0.7000 level its safe to say that buyer confidence has been crushed which is the reason why when retracement do occur we’ll approach the pair with a short bias.

Fundamentals: The BoJ doesn’t offer much other than what we already know regarding their monetary stance with QQE running until inflation hits improved levels. The elections are due this Sunday in japan however many expect it will be a non event with Shinzo Abe winning by a landslide which wouldn’t shake up the yens’ price. With the USD at the start of a bullish phase we can assume that the pair will trade based on previous fundamentals in regards to the central banks as well as trade and politically driven fundamentals which favour the dollar to a weak yen.

Technicals: Although initially coming from last week we’ve been looking for the pair to sell off the sentiment changed quickly when the 112.00 has been held and bullish presence started dominating the pair. By the end of the week a new weekly daily and weekly high could be observed above resistance and the trendline, pullbacks on daily or intra-day timeframes should be viewed as opportunities to buy the pair.

The FTSE didn’t deliver much as price had low volatility and traded in a contained range between the 7560 and 7520,  a break and close on multiple timeframes below the 7520 would open up the path for further downside, while a break above the 7560 would resume the momentum and long term trend.

The dax started out with low volatility as well and mid week it experienced a sharp fall which invited buyers later in the session, it’s still early to tell whether the index is ready to reverse to the downside or will continue its upward trajectory, prices to watch are the 1.2950 to the downside and 1.3070 top then upside.

No major pullbacks on the DOW as US equities rallied without a losing day closing higher sessions after session. Technically buying the index is feasible based on intra-day pullback to value, only when lower highs would occur on intra-day would we prepare for a possible short play.

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