Q2 Outlook

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BNN Interview: Fed will maintain dovish stance despite growth

TTN Ed Moya photo

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Today’s Trading Edge: EUR/USD downside risks grows as ECB action expected

Yesterday, the euro’s three-week rally fell six pips shy of the critical resistance 1.15 handle. Weakness may continue now as expectations grow for European policymakers to add further stimulus. The recent euro rally may be hurting economic growth and the inflation outlook. If we see the ECB cut the deposit rate, we may see a major selloff for the common currency.

The EUR/USD 240- minute chart is displaying a key respect of the 50-period SMA. If downward pressure breaks below this level, we could see price target the 1.1250 zone.   If we see further weakness, the next major support level will come from the 200-day SMA which currently trades at 1.1134.

However, if price continues to rebound here, the 1.15 level will provide major resistance. Only a daily close above this level will end short-term bearish bias

The trade: Sell EUR/USD at 1.1375 with a stop loss at 1.1425 and a take profit at 1.1275.  The Risk/Reward Ratio is around 1: 2

 

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Today’s Trading Edge: AUD/USD bullish stance remains strong despite big jobs miss

The Australian dollar initially fell 43 pips to .7296 after the Australian Bureau of Statistics released an unexpected weak jobs report. The slide however was short-lived and the currency pair rallied to fresh session highs. Employment weakened 5,100 from August, significantly worse than expected gain 9,600.

Other key data points include the unemployment rate remaining steady at 6.2% and the participation rate dropped to 64.9% from 65%. Regardless of the weak employment print, the RBA might remain on hold at its next meeting in November. The key to further RBA cuts may remain if we see more weakness from China.

The AUD/USD daily chart shown above displays the strong bullish rebound that has been in place since September 24th is tentatively finding major resistance from the 100-day SMA. If we see bullish momentum rally above the .7400 zone, we could see price surge towards .7495. It is around that area that we could see price form a bearish butterfly pattern. Point D is targeted with the 161.8% Fibonacci expansion level of both the X to A and B to C legs. If valid, we could see price reverse back towards the long-term trendline shown in red. If the pattern is invalidated, we could see price ultimately target the 200-day SMA.

If we see bearish momentum return here, we could see price find support from the .7150 region. Major support will come from the .6950 level.

The trade: Buy AUDUSD at .7335, with a stop loss at .7285 and a take profit at .7485. The risk/reward ratio is 1:3

 

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Today’s Trading Edge: Gold rallies to a 3-month highon tame inflation

Late in NY, Gold prices rallied $22.30 to $1,187.70, taking price to a three-month high. The rally was triggered after tame inflation in the U.S. supported the growing belief that the Federal Reserve is going to have a hard time agreeing to raise rates this year.

Price action on the Gold daily chart shows that since forming a bullish butterfly on July 20th with the $1,072.30 low, bullish momentum has accelerated once price broke above the 100-day SMA. Now riding a fourth consecutive daily rally, price is tentatively finding resistance from a bearish ABCD pattern.

Point D of the reversal pattern is targeted with the 161.8% Fibonacci expansion level of the B to C move. If valid, we could see price have a pullback towards the $1,175 area. A deeper correction could find support from the $1,145 zone.

If bullishness continues and the reversal pattern is invalidated, we could see price target the psychological $1,200 level. Further upside may come from the $1,220 level.

Downward momentum may eventually return, but for now, the precious metal may trade range bound between $1,150 and $1,250.

The trade: Sell Gold at $1,195 with a stop loss at $1,205 and a take profit at $1,175. The Risk/Reward Ratio is 1: 2

 

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Forex Alert! Loonie Poised To Benefit From Commodity Gains

The Canadian dollar has weakened significantly over the past year as the oil price shock surprised both many investors and central bankers.  The Bank of Canada has already lowered rates twice this year and many anticipate them to remain on hold for quite some time.  While many believe the excess supply and consistent production will keep oil prices lower, we are seeing a potential key technical move higher with oil and may see another major leg higher over the next couple of weeks.

Price action on the USD/CAD daily chart shows that recent slide accelerated once breaking below the 50-day SMA and is tentatively respecting the 100-day SMA.  This key support level may tentatively hold, but eventually we may see further downward pressure support a decline towards the 1.2750 region.

If commodity prices across the board are hit with major weakness, we could see USD/CAD rally towards the 1.3500 region.  Further upside may eventually stall out around the 1.3800 zone.

The Trade: Sell USDCAD at 1.3120 with a stop loss at 1.3220, and a take profit at 1.2820.  The Risk/Reward ratio is 1:3.

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Today’s Trading Edge: Euro attempts to extend rebound after Britain signals deflation

The British pound weakened significantly against its major trading partners after Britain’s inflation rate surprisingly turned back into negative territory in September. The Office for National Statistics announced CPI plummeted to -0.1, a record level low that was last seen in April. Price inflation was led lower by falling oil and clothing prices. This report is likely to push back expectations for the Bank of England to raise interest rates.

Price action on the EUR/GBP daily chart has risen to a 5-month high after finally breaking out above the .7441 resistance level. The bullish stance is firmly in place as price is trading above the 200-, 100-, and 50-day SMA(s). The next key resistance level may be the psychological .7500 handle. Further upside may ultimately target the .7550 zone. It is around that area that we may see a bearish butterfly pattern form. Point D of the reversal pattern is targeted with the 161.8% Fibonacci expansion level of the X to A leg and the 200.0% Fibonacci expansion level of the B to C move. If valid, we could see profit taking occur around that area and lead a reversal back towards the .7400 region.   If the pattern is invalidated and bullish momentum continues, we could see price rally towards the .7750 level.

In the event we see a major reversal with the euro, major support will come from the 200-day SMA, which currently trades around the .7270 level.

The Trade: Buy EURGBP at .7445 with a stop loss at .7395, and a take profit at .7545.  The Risk/Reward ratio is 1:2.

 

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Today’s Trading Edge: US Oil respects Butterfly pattern and 200-day SMA

Early in NY, oil prices continued to fall during thin conditions on the Columbus holiday. After trading sideways for a month between the $44 and $50 range, price broke out higher and formed a bearish Butterfly pattern. Price is also to respecting both the 200- and 100-day Simple Moving Average(s).

Price action on the US oil daily chart highlights the key technical move. The bearish reversal pattern was targeted by the 161.8% Fibonacci expansion level of the X to A move and the 200.0% Fibonacci expansion level of the B to C move. If the slide continues major support will come from the heavily tested $44.00 level. If we continue to see a rebound across the board with commodity prices, we could see oil prices eventually target the $55 area.

If we see bearish momentum break the $44 level, major support may come from the psychological $40 handle. If the current consolidation range breaks above $57.50, further upside may target the $60.00 region.

The Trade: Buy US Oil at $45.75, with a stop loss at $43.75, and a take profit at $49.75.  The Risk/Reward ratio is 1:2.

 

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Today’s Trading Edge: AUD/USD recovery continues

The Australian dollar has benefited from both a commodity rally and delayed expectations for the Federal Reserve to raise rates. Another positive catalyst for the currency is that the Chinese stock market is improving. However, if growth returns to a slower pace in China, the Australian currency could remain heavy and we could see fresh 2015 lows.

Price action on the AUD/USD daily chart shows that the current rally that started from a dogi candlestick on September 29th. The current eight day rally appears poised to make a run towards the 100-day SMA, which currently trades at the .7372 level. Further upside may find major resistance just ahead of the psychological .7500 handle. It is around that area that we could see price form a bearish Gartley pattern. Point D is targeted with the 161.8% Fibonacci expansion level of the B to C leg and the 61.8% Fibonacci retracement level of the X to A drop. If valid, we could see price reverse back towards the .7300 region.

If the bullish rally ends, critical support will come from the .7170 area. Only consecutive daily closes below that area could open the door for another run towards the .6950 level.

The trade: Buy AUD/USD at .7300, with a stop loss at .7241 and take profit at .7475. The risk/reward ratio is 1:3

 

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Today’s Trading Edge: Dollar Index tentatively respects major support after Fed Minutes

The U.S. dollar initially weakened following the release of the minutes for the September Federal Reserve meeting. The decision to keep rates on hold was due to global economic and financial market concerns, the China slowdown and low inflation.

The initial reaction for the dollar index was a quick selloff from 95.355 to 95.045, but price quickly pared its losses before the end of the U.S. session and currently trades around the 95.415 area.

The US dollar index daily chart shows the tentative respect of major support line from the August 24th low of 92.52. If we see price rally, initial resistance may come from the 50-day SMA which currently trades at the 96.13 level. Further upside could target the 97.20 region, it is around that area that we could see the formation of a bearish Gartley pattern.

If we see bearish momentum break below the noted support level, downward pressure could target the 94.00 handle.

The trade: Buy Dollar Index at 95.20 with a stop loss at 94.80 and take profit at 96.40.  The risk/reward ratio is 1:3

 

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