Here is what you need to know on Friday, August 23rd:
-Sterling was the shining star of the day, soaring over 100 pips against the Dollar following comments from German Chancellor Angela Merkel, indicating that something can be done to prevent a hard-Brexit in the upcoming 30 days. French President Macron, however, insisted on protecting the Union.
- Better-than-expected EU data failed to boost the EUR. The EUR/USD pair met sellers once again at around 1.1110, a critical Fibonacci resistance, as despite positive, the EU and German PMI indicated that the economy continued to underperform.
- US Services PMI contracted to 49.9, its lowest in almost a decade.
- Hawkish comments from Fed’s officials suggest the Fed won’t act to prevent a recession. The US yield curve inverted once again intraday, triggering risk-off. Wall Street retreated sharply after a robust start to the day.
- Commodities edged lower, with gold battling to retain the 1,500.00 level, and oil dragged lower by the usual market concerns about growth.
- The Jackson Hole Symposium stated and policymakers’ words are being closely watched and quickly priced in.
The Dollar/Yen is trading higher early Friday, which could be a sign that traders are expecting Fed Chair Powell to deliver a message that drives up demand for higher risk assets. However, since the Forex pair is still trading inside its wide range from August 13, I have to conclude that investors still aren’t sure about what to expect from Powell and that a few of the weaker shorts are just squaring up positions.
At 06:49 GMT, the USD/JPY is trading 106.637, up 0.198 or +0.19%.
Traders should look for extreme volatility when Powell delivers his speech at Jackson Hole at 14:00 GMT. Look for disappointment if Powell reiterates that “mid-cycle adjustment” narrative since the markets are pricing in a number of rate cuts starting in September. This could drive stocks sharply lower, while driving up demand for the safe-haven Japanese Yen.
The Dollar/Yen is likely to rally sharply higher if Powell delivers a dovish message with clarity and conviction.
Daily Technical Analysis
The main trend is down according to the daily swing chart. However, some of the downside momentum has been sucked out of the market since August 12 -13.
A trade through 105.049 will signal a resumption of the downtrend. The main trend will change to up on a move through 109.317.
The minor trend is also down. A trade through 107.086 will change the minor trend to up. This will also shift momentum to the upside.
The minor range is 105.049 to 106.976. Its 50% level or pivot at 106.013 has been providing support for about two weeks.
The short-term range is 109.317 to 105.049. Its retracement zone at 107.183 to 107.687 is the primary upside target. This zone is also controlling the near-term direction of the Forex pair.
Daily Technical Forecast
The direction of the USD/JPY on Friday will be determined by the momentum created by Powell at 14:00 GMT. Holding above the pivot at 106.013 is giving the market an early upside bias. Traders should watch this level all session.
A sustained move over 106.013 will give the USD/JPY an early upside bias. Holding above the uptrending Gann angle at 106.174 will indicate the buying is getting a little stronger.
If there is enough upside momentum then look for a surge into a cluster of potential resistance points. The first target is the high at 106.976. This is followed by the minor top at 107.086, the short-term 50% level at 107.183, and a pair of Gann angles at 107.299 and 107.317. Taking out 107.687 should drive the USD/JPY into the short-term Fibonacci level at 107.687. This is a potential trigger point for an acceleration into the downtrending Gann angle at 108.317.
A sustained move under 106.013 will signal the presence of sellers. The first target angle comes in at 105.612. This is the last potential support angle before the 105.049 main bottom. If this bottom fails then look for the selling to extend into the March 26, 2018 main bottom at 104.600. This is a potential trigger point for an acceleration to the downside.
Amid a quiet Asian affair on the final trading day of this week, the Kiwi emerged the top gainer across the fx space after the Reserve Bank of New Zealand (RBNZ) Governor Orr downplayed the odds of resorting to an unconventional monetary policy. Further, the Antipodean was also buoyed by moderate risk-on, with the Asian stocks, Treasury yields and US equity futures. However, the NZD bulls lacked vigor after the Yuan fell to its weakest since March 2008 against the US dollar. The Aussie also suffered amid fresh CNY weakness and hit weekly lows sub-0.6750 levels. Meanwhile, the USD/JPY pair stood firmer around the 106.60 level amid falling Japanese price pressures and improved risk appetite.
Among the European currencies, both the EUR/USD pair and Cable remained pressured amid a broadly firmer US dollar heading into the much-awaited key central bankers speeches due later today at the US Federal Reserve’s (Fed) Jackson Hole Symposium.
On the commodities’ front, gold treaded water below the 1500 mark, with the bias leaning towards the downside while both crude benchmarks traded modestly flat after Thursday’s volatile trading.
EURUSD has reached the downside target at 1.1060. Possibly, today the pair consolidate near the lows. If later the price breaks this range to the upside, the market may start a new correction towards 1.1090; if to the downside – continue trading inside the downtrend with the target at 1.1030.
Risk Warning: the result of previous trading operations do not guarantee the same results in the future
Yesterday was a bear day on the daily chart and the 2nd sell signal bar in 3 days. It was therefore a Low 2 bear flag sell setup. When today went below yesterday’s low, today triggered the sell signal. Since it also went above yesterday’s high, today is now an outside day.
Today triggered both a minor buy signal and a minor sell signal. But the range is small and it is the 5th day in a tight trading range. Traders are deciding if the 2 week selloff will lead to a new low or a higher low. The odds are 50% for each possibility.
However, since every new low over the past year reversed up for a few weeks, traders will look for a reversal up within the next couple weeks from either a higher low or from below the August low.
The EUR/USD 5 minute Forex chart rallied to above yesterday’s high and then reversed down to below yesterday’s low. It quickly revered back up to the middle third of the overnight range.
The selloff was in a tight bear channel. Today will probably not get back above the overnight high. While the bears want a trend down from the 25 pip bounce over the past hour, tight trading ranges resist breaking out. Consequently, the bears will probably not get a big move down from here. Traders are expecting a continuation of the 5 day tight trading range.
If there is going to be a trend today, down is more likely than up after the selloff from above yesterday’s high to below its low.
“Trading doesn't just reveal your character, it also builds it if you stay in the game long enough.” ― Yvan Byeajee
“Confidence is not "I will profit on this trade." Confidence is "I will be fine if I don't profit from this trade.” ― Yvan Byeajee
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