Sell the EUR/JPY rally?
(Giles Coghlan LLB, Lth, MA – HYCM)
On Friday the Eurozone Global Composite PMI print for July dropped to 49.4 from 51.0. This was below the minimum expectations for a print of 50. On top of this, the German PMI composite fell sharply to 48 from a minimum expected reading of 49.5.
The prospects of a coming eurozone recession continue to mount and this gives the EUR a bearish bias. This bearish bias has been compounded by the last ECB meeting.
The ECB’s last meeting
The ECB delivered a surprise 50 bps rate hike last week, but the growth concerns are more focused on the eurozone than an extra rate hike. This was particularly due to the fact that the ECB made it clear that the extra hike was to do with front-loading the hikes not raising expectations of a higher terminal rate. The ECB is facing eurozone headline inflation of 8.1% and core inflation of 3.8%. It is determined to act to get it under control which is why the hike came in at 50bps. Yet, many analysts project that the ECB will hit the brakes on hiking rates once slowing growth really bites the eurozone.
Furthermore, the announcement of the new anti-fragmentation tool (Transmission Protection Instrument) did not lift the euro as the eligibility criteria still may make it hard for some of the more vulnerable eurozone countries to qualify. Since the meeting, the BTP/Bund spread has kept rising, so fragmentation risk is still present.
EUR/JPY sell bias
The JPY tends to strengthen around the summer months on a seasonal basis, so there is some scope for EURJPY selling from decent levels at market. See chart below for the stop and target levels marked. However, any significant change in the outlook for either Japan’s monetary policy or the eurozone, as well as the overall risk tone, can impact this view.
Where is USD/JPY heading next?
Looking at USDJPY’s chart, we can see that the fx pair is currently traded at the rate of around 135.30. As last night, the FED signaled a lower pace of interest rate hikes, the dollar lost its strong momentum, therefore you can see a big drop in the rate, and today we could expect it to test its support level at around 135.
USD/CAD: Minor waves Y and Z tend to equality?
(Jing Ren – Orbex)
USDCAD seems to be forming a long-term correction wave (4) of the intermediate degree, which is part of the global downward impulse –– of the primary degree.
Perhaps the correction wave (4) is a side wave consisting of minor waves W-X-Y-X-Z. Most likely, the W-X-Y-X sub-waves have already been fully built. Not so long ago, the second intervening wave X was completed, and now the price is rising in the final wave Z, taking the form of a minute double zigzag.
The growth rate in the minor wave Z is possible to 1.332. At that level, wave Z will be at 100% of previous actionary wave Y.
Then, after reaching the specified price level, a market reversal is possible and the beginning of a decline in a bearish impulse (5).
According to an alternative option, the formation of an intermediate corrective wave (4) could be fully completed. Therefore, let’s assume that the first sub-waves of the descending intermediate impulse (5) are being formed.
It is possible that impulse 1 and bullish correction 2 have been fuly completed today, and now we see a decline in the minor wave 3.
The target for bears is at the support level of 1.230, this level is located on the red line drawn through the ends of the descending waves –– and X. At the level of 1.230, a market reversal may occur and the formation of a minor correction 4 may begin.
An approximate scheme of possible future movement is shown on the chart.
Murrey math lines: USD/CHF, gold
USD/CHF, “US Dollar vs Swiss Franc”
In the H4 chart, USDCHF is trading below the 200-day Moving Average to indicate a possible descending tendency. In this case, the pair is expected to test 2/8, break it, and then continue falling towards the support at 1/8. However, this scenario may be cancelled if the price breaks the resistance at 3/8 to the upside. After that, the instrument may move upwards to reach 4/8.
As we can see in the M15 chart, the pair has broken the downside line of the VoltyChannel indicator and, as a result, may continue its decline.
XAU/USD, “Gold vs US Dollar”
In the H4 chart, XAUUSD is also trading below the 200-day Moving Average, thus indicating a descending tendency. In this case, the price is expected to test 4/8, rebound from it, and then resume moving downwards to reach the support at 3/8. However, this scenario may no longer be valid if the price breaks the resistance at 4/8 to the upside. After that, the instrument may reverse and resume growing to return to 5/8.
As we can see in the M15 chart, the downside line of the VoltyChannel indicator is pretty far away from the price, that’s why the pair may resume trading downwards only after rebounding from 4/8 in the H4 chart.