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Sterling was the biggest winner last week on the back of drastic turn in speculations on expansion of quantitative easing campaign from Bank of England. Dollar, on the other hand, dived to new 14 month low after risk appetite as DOW closed above 10000 level for two consecutive days before ending the week at 9995.9. The Japanese yen was even weaker as yen crosses were pushed higher by rise in treasury yields. Aussie and Kiwi were firm on solid data from New Zealand. Euro's rally lost steam as the common currency was pressured by sharp selling in EUR/GBP cross.
The FOMC minutes for September's meeting suggested that the Fed, while acknowledged that the economic outlook has improved, remained cautious about the downside risk. Moreover, policymakers stressed that uncertainty about growth and subdued inflationary pressure made the central bank decided to keep interest rate low at an extended period of time. More in FOMC Minutes: Policymakers Remained Cautious Although More Optimistic Than Before
US advance retail sales showed less than expected contraction by -1.5% in September while ex-auto sales rose more than expected by 0.5%. CPI rose 0.2% mom, dropped -1.3% yoy in September with core CPI rose 0.2% mom, 1.5%. Empire state manufacturing index beat expectation by rising strongly to 34.57 in October but Philly Fed survey missed expectation and dropped to 11.5. INdustrial production rose 0.7% in September with capacity utilization rose to 70.5%. U of Michigan consumer sentiment disappointed and dropped to 69.4 in October.
German ZEW economic sentiment disappointed by dropping to 56 in October while German ZEW dropped to 56.9. Eurozone CPI was flat mom, dropped -0.3% yoy in September.
UK headline CPI slowed much more than expected from 1.6% yoy to 1.1%, a seven year low. Core CPI also dropped slightly from 1.8% yoy to 1.7%. Unemployment rate was unchanged at 7.8% in August versus expectation of a rise to 8.0%. Nevertheless, Sterling rebounded strongly on speculation that BoE may pause the quantitative easing program. BoE Markets Director Paul Fisher said that he's more confidence now that the GBP 175b asset purchase program was "having the scale and speed of impact that we would have hoped for when we started" in March. He hinted MPC might opt to pause the program to give themselves the option of "doing more later" rather than stopping the program. This echoed the comments from Deputy Governor Charles Bean that BoE "will need gradually to remove the large monetary stimulus that we have imparted to the economy, otherwise we will be in danger of overshooting our 2 percent inflation target".
BoJ left rates unchanged at 0.1% as widely expected.
Canadian CPI was flow mom in September, dropped -0.9% while core CPI rose more than expected by 0.3% mom, 1.5% yoy in September
New Zealand Q3 GDP rose an impressive 1.3% qoq, 1.7% yoy, much stronger than expectation of 0.8% qoq, 1.1% yoy. Retail sales rose much more than expected by 1.1% mom in August, with ex-auto sales rose 1.2% mom.
Technically, while dollar index managed to recover mildly after dropping to as 75.21, there is no sign of bottoming yet. We're holding on to the view that dollar index is in the fifth wave of the five wave fall from 89.62, it now looks like it will dive further into 71.31/74.31 support zone before conclusion. In any case, a break above 77.43 resistance is needed to be the first sign of bottoming. Otherwise, near term outlook will remain bearish.
The Week ahead
A few things to note going ahead. Firstly, while Sterling's rebound was impressively strong last week, it's vulnerable to another sharp fall considering the event risks of BoE minutes, retail sales and more importantly, Q3 GDP report to be released this week. Sterling's strong was based on speculations that BoE might pause the QE campaign after completing the GBP 175b asset purchases. However, disappointing GDP report and dovish MPC minutes will flip the sentiments 180 degrees and send trigger some selloff in the pound.
Secondly, note that dollar's managed to find some footing towards the end of the week even though stocks confined to make new high while crude oil broke through 75 level to as high as 78.75. The greenback was just mildly down against Euro, Swissy and Canadian and even managed to close higher against Japanese yen. While there is no sign of bottoming yet, the greenback is quite oversold in near term and make be staging for a bounce. A number of Fed officials are scheduled to speak this week and will provide the guidance on whether Fed is preparing for exit and that will likely trigger some volatility in the greenback.
Thirdly, Canadian dollar lost some momentum even though crude oil maintained its strength. CPI report released last week was a bit disappointing but markets are still leaning towards that case that BoC will revere policy accommodations earlier than expected. This week's BoC rate be important in a way that focus will be on whether BoC will change its conditional commitment to hold rates at record low till Q2 of 2010.
GBP/USD Weekly Outlook
GBP/USD rebounded strongly after dipping to 1.5706 and reached as high as 1.6398. Initial bias remains mildly on the upside this week and further rise could be seen to falling trend line resistance at 1.6485. Nevertheless, upside should be limited there and bring pull back. On the downside, below 1.6212 will turn intraday outlook neutral first. Further break of 1.5919 support will flip intraday bias back to the downside for retesting 1.5706 low. However, note that sustained trading above the trend line will be the first sign that whole fall from 1.7043 has completed and will turn focus to 1.6740 resistance instead.
In the bigger picture, with 1.6740 resistance intact, there is no change in the bearish outlook. GBP/USD should have made a medium term top after completing a head and shoulder top reversal pattern (ls: 1.6742, h: 1.7043, rs: 1.6740). Whole rise form 1.3503, which is treated as correction in the long term decline form 2.1161 has completed too. Fall from 1.7043 is tentatively treated as resumption of the long term down trend, which should target a new low below 1.3503 eventually.
On the upside, however, break of 1.6740 resistance will indicate that fall from 1.7043 has completed already. The three wave structure will in turn suggest that it's merely a correction to the medium term rise from 1.3503. In other words, another high above 1.7043 should be seen before GBP/USD tops.
In the longer term picture, the corrective nature of the multi-decade advance from 1.0463 (85 low) to 2.1161 as well as the impulsive nature of the fall from there suggests that GBP/USD is now in an early stage of a long term down trend. Rebound from 1.3503, which is treated as correction in the larger down trend, has likely completed and fall from 1.7043 is tentatively treated and resumption of such down trend that will send GBP/USD through 1.3503 low eventually.
EUR/JPY Weekly Outlook
EUR/JPY's rise from 129.02 extended further to as high as 136.05 last week. The break of 135.47 resistance indicates that whole fall from 138.70 has completed at 129.02 already. Initial bias remains on the upside this week and further rally could be seen to retest 138.70/139.21 resistance zone. On the downside, below 134.62 will turn intraday outlook neutral and bring retreat. But short term outlook will remain bullish as long as 132.25 support holds and further rally is still in favor.
In the bigger picture, current development dampens the view that medium term rebound from 112.10 has completed at 139.21. Price actions from 137.28 has possibly just consolidation in the medium term rise, inform of triangle. Break of 138.70 will affirm this case and target 61.8% projection of 112.10 to 137.38 from 129.02 at 144.64 next. On the downside, though, break of 129.02 support will revive the case that rise from 112.10 has completed and will turn outlook bearish for retesting this low.
In the long term picture, up trend from 88.96 (00 low) has completed at 169.96 and made a long term top there. Subsequent price actions are either developing into resumption of the multi decide down trend from 285.56, or wide range corrective pattern. In either case, upside should be limited well below 169.96 high and we're expecting at least one more medium term fall. The final structure of the rebound from 112.1 will provide more indication on whether a test on 88.96 low would be seen.
EUR/CHF Weekly Outlook
EUR/CHF continued to gyrate inside range of 1.6076/1.5280 last week without making any progress. As noted before, risk remains on the downside with 1.5238 resistance intact and another fall cannot be ruled out. But even in that case, downside should be contained by 1.5007 key support to complete the fall from 1.5364 and bring strong rebound. On the upside, decisive break of 1.5238 will indicate that fall from 1.5364 has finally completed and will turn bias back to the upside for retesting 1.5364/5446 resistance zone.
In the bigger picture, firstly, price actions from 1.5446 are treated as consolidation to rise from 1.4577 only and such rise is expected to resume sooner or later to test 1.5880 resistance. Secondly, the corrective structure of the fall from 1.5880 to 1.4577 indicates that it's a correction to medium term rise from 1.4315. Rise from 1.4577 is tentatively treated as resumption of rally from 1.4315. Hence we're expecting an eventual break of 1.5880 as rise from 1.4315 resumes. In other words, we're favoring the case that long term down trend from 1.6826 has completed at 1.4315 already. We'll hold on to this bullish view as long as 1.5007 support remains intact.
In the long term picture, outlook is rather mixed for the moment. On the one hand, the corrective three wave structure of the rise from 1.4391 to 1.6827 is arguing that fall from 1.6827 is resumption of long term down trend from 1.8234. The pattern of lower highs since 1.6826 gives no indication that such fall has completed yet. On the other hand, the failure to sustain below 1.4391 (01 low) and the lack of impulsive structure of fall from 1.6827 is not confirming the bearish case. Focus will be on the development of the rebound from 1.4315 for further hints.
EUR/GBP Weekly Outlook
EUR/GBP reversed after edging higher to 0.9410 and retreated sharply last week. A short term top is in place with bearish divergence conditions in 4 hours MACD. Initial bias will remain on the downside this week and further fall could be seen. But after all, downside is expected to be contained by 0.8983 cluster support (61.8% retracement of 0.8722 to 0.9410 at 0.8985) and bring strong rebound. Above 0.9202 minor resistance will flip intraday bias back to the upside for retesting 0.9410 first. Nevertheless, note that decisive break of 0.9410 is needed to confirm rally resumption. Otherwise, more consolidations would be seen first.
In the bigger picture, medium term correction from 0.9799 has completed with three waves down to 0.8399 already and rise from there is tentatively treated as resumption of long term up trend. Break of 0.9799 bring rally to next medium term target at 61.8% projection of 0.6535 to 0.9799 from 0.8399 at 1.0416. We'll hold on to this bullish view as long as 0.8704 support holds.
In the long term picture, long term up trend in EUR/GBP might be resuming as correction from 0.9799 has completed at 0.8399. Decisive break of 0.9799 high will confirm this bullish view and target 261.8% projection of 0.5680 to 0.7258 from 0.6535 at 1.0666.
USD/CAD Weekly Outlook
USD/CAD recovered after dipping further to 1.0205 and a short term bottom is likely formed there. Initial bias is mildly on the upside this week for further rebound but after all, note that short term outlook will remain bearish as long as 1.0590 support turned resistance holds (50% retracement of 1.0991 to 1.0205 at 1.0598). Below 1.0282 will flip intraday bias back to the downside first. Further break of 1.0205 will bring fall resumption to 100% projection of 1.1723 to 1.0631 from 1.1101 at 1.0009, which is close to parity.
In the bigger picture, at this moment, there is no sign of bottoming in USD/CAD yet and the break of rising trend line in daily MACD is arguing the fall is regathering momentum. Fall from 1.1723 is viewed as resumption of fall from 1.3063 to 1.0784 and is possibly developing into it's own five wave sequence. Next medium term target will be 100% projection of 1.3063 to 1.0784 from 1.1723 at 0.9444. On the upside, break of 1.0590 is needed to be the first sign that USD/CAD has bottomed. Otherwise, outlook will remain bearish.
In the longer term picture, the deeper than expected fall from 1.3063 dampens the view that it's a correction to long term up trend from 0.9056 to 1.3063 and mixes up the outlook. Main focus now is on how the fall from 1.3063 will develop into. So far it's interpreted as having the first wave completed at 1.0784 and second wave completed at 1.1723. The longer term outlook will depends on whether it will unfold to be a five wave impulsive sequence, or a three wave corrective fall.
AUD/USD Weekly Outlook
AUD/USD's rally continued last week and extended further to as high as 0.9268 before retreating. The break of 0.9150 minor support indicates that a short term top might be in place with bearish divergence conditioning 4 hours MACD. Initial bias is mildly on the downside this week and further pull back should be seen to 55 days EMA (now at 0.9053) first. Sustained trading below will target 0.8567/8857 support zone next. But strong support should be seen there (with 23.6% retracement of 0.6284 to 0.9268 at 0.8564) and bring conditions in On the upside, though, break of 0.9268 will bring rally resumption to 100% projection of 0.6284 to 0.8262 from 0.7702 at 0.9756 next.
In the bigger picture, the strong break of 0.9 psychological level indicates that AUD/USD is regaining upside momentum after drawing support from the medium term rising trend line a few times. As long as this trend line support holds, rise from 0.6284 is still in progress and could extend further to retest 08 high of 0.9849. On the downside, a break of 0.8567 support will have the trend line support firmly taken out and will in turn indicate that a medium term top is formed. In such case, deeper pull back could be seen to 0.7702/8262 support zone before resuming the up trend.
In the longer term picture, as noted before, long term correction from 0.9849 has likely completed at 0.6008 already, after being supported slightly above 76.4% retracement of 0.4773 (01 low) to 0.9849 (08 high). Rise from 0.6008 is possibly developing into a new up trend which extend the long term rise from 0.4773. We'll continue to favor the long term bullish case as long as 0.7702 support holds and expect an eventual break of 0.9849 high. However, a break of 0.7702 support will firstly argue that rise from 0.6008 has completed. Secondly this will open up the case that AUD/USD is in phase of a long term consolidation and will gyrate in the large range of 0.6008/0.9849 for some time.
USD/CHF Weekly Outlook
USD/CHF dropped further to 1.0117 last week before recovering mildly. With an intraday low in place, initial bias remains neutral this week and some consolidations could be seen. Nevertheless, short term outlook will remain bearish as long as 1.0358 resistance holds and recent decline is still expected to extend further. Below 1.0117 will bring fall resumption to 100% projection of 1.2296 to 1.0366 from 1.0883 at 1.0033, which is close to parity. However, break of 1.0358 will signal that a short term bottom is at least formed and will turn focus to 1.0452 resistance.
In the bigger picture, whole set of price actions from 1.2296 are treated as correction to the medium term rally from 2008 low of 0.9634. Fall from 1.1963 is the third wave of such correction in form of five wave sequence (1.1158, 1.1740, 1.0590, 1.0883, ?). With 1.0452 resistance intact, there is no indication of bottoming yet. Nevertheless, USD/CHF should lose downside momentum as it approaches key cluster support level of 1.001, 100% projection of 1.2296 to 1.0366 from 1.0883 at 1.0033, which is close to parity and finally bring reversal.
On the upside, break of 1.0452 resistance will have the medium term falling channel resistance taken out firm. This will be an important signal that fall whole fall from 1.1963 has completed and will turn focus back to 1.0883 resistance for confirmation. Also, this will argue that whole consolidation pattern from 1.2296 has finished too. We'll be looking at the prospect of much stronger medium term rally in such case.
In the longer term picture, a long term bottom is no doubt in place at 0.9634 with bullish convergence condition in daily MACD. USD/CHF failed to take out 55 months EMA and reversed again and thus gives no confirmation of long term reversal yet. We're neutral in the long term outlook for the moment and would wait for further evidence from the markets before making a stance.
USD/JPY Weekly Outlook
USD/JPY's choppy rebound from 88.00 extended further to as high as 91.31 last week. Initial bias remains on the upside, and further rise might be seen to 38.2% retracement of 97.77 to 88.00 at 91.73 first and possibly further to 92.52 resistance. But after all, recent down trend is still expected to continue as long as 92.52 holds. Below 90.17 minor support will turn intraday outlook neutral first. Further break of 88.82 will suggests that down trend is resuming for 87.12 key support. However, note that break of 92.52 will indicate that whole fall from 97.77 has completed and stronger rebound should then be seen.
In the bigger picture, there is no change in the bearish outlook with 92.52 resistance intact. Fall from 101.43 is treated as resumption of the whole down trend from 124.13. Break of 87.12 low will confirm resumption of this down trend and should target next key level of 1995 low at 79.75. However, note that break of 92.52 resistance will firstly suggest that fall from 97.77 has completed. Additionally, this will raise the possibility that whole decline from 101.43 has finished with three waves down to 88.00 after meeting 100% projection of 101.43 to 91.73 from 97.77 at 88.07. The three wave structure will in turn indicate that rise from 87.12 is going to resume. Further break of 97.77 will target a retest of 101.43 instead.
In the long term picture, firstly, fall from 124.13 is still in progress. Such decline is treated as part of the long term down trend after triangle consolidation from 79.75 has completed at 124.13. In other words, a break of 1995 low of 79.75 is likely as fall from 124.13 extends. Break of 97.77 resistance is needed to be the first indication of bottoming in medium to longer term. Otherwise, outlook will remain bearish.
EUR/USD Weekly Outlook
EUR/USD rose further to as high as 1.4965 but turned sideway since then. Initial bias remains neutral this seek and some more consolidation could still be seen. But after all, short term outlook will remain bullish as long as 1.4671 support holds. Break of 1.4965 will bring rally resumption to 1.5 psychological level first. However, note that a break of 1.4671 support will argue that a short term top is at least formed with bearish divergence condition in 4 hours MACD. Deeper fall should then be seen to 1.4483 support first.
In the bigger picture, the strong break of 1.4867 resistance argues that whole fall from 1.6039 has completed at 1.2329 already and rise from there is still in progress. At this point, there is no sign of topping yet and the current rally could extend further for retesting 1.6039 high. Nevertheless, as we're not seeing a clear impulsive structure in the current rally, we'd expect upside to be limited there and bring another medium term fall to continue the wide range consolidation from 1.6039. On the downside, break of 1.4483 support will be the first sign that rise fro 1.2456 has completed. Further break of 1.3747 support will confirm and turn focus back to 1.2329/2456 support zone.
In the long term picture, the lack of impulsive structure of the rise from 1.2329 argues that it's the second wave of the wide range consolidation that started from 1.6039. Another medium term decline could still be seen to 1.2329 and below but downside should be well contained above 1.1639 support. The long term up trend from 0.8223 is set to resume after completing the three wave medium term consolidation from 1.6039.
Disclaimer: Content of this article is for informational purposes only; they are based upon information gathered from various sources believed to be reliable, complete, and accurate. However, no guarantee can be made as to the validity of the believed sources. All statements and expressions in are opinions, and not meant as investment advice or solicitation. Forex Markets can be volatile and opinions may change without notice.
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