Last Friday’s Non-Farm Payroll report was a game changer for longer-term short euro positions. What was a terrible miss now has many market investors puzzled as to what is the direction of the Federal Reserve. Many believe that an October hike is off the table and the market expectations by Bloomberg for a December Fed rate hike initially fell from 42% to 30%.
The initial reaction from the September payroll miss saw EUR/USD skyrocket to 1.1317 from 1.1153. Price has now settled closer to the 1.1250 zone, but still remains above the 200-, 100- and 50-day SMA(s). The EUR/USD daily chart shown above displays that since forming a bearish butterfly pattern on August 24th, price has consolidated into a triangle pattern.
If we see market investors become even more uncertain of a December rate hike, we may see euro appreciate to the 1.16 handle. It is around that area that we could see the formation of a bearish Gartley pattern.
Upside momentum however may be temporarily because the ECB is likely to remain accommodative. If we see price have a weekly close below the 1.11 handle, we may see price target the 1.09 region.
The trade: Sell EUR/USD at 1.1525, with a stop loss at 1.1625 and take profit at 1.1125. The risk/reward ratio is 1:4
Weaker economic activity in the U.S. and growing expectations for the Federal Reserve to delay tightening has provided silver prices with a significant bullish move above the 200-day SMA. The current rally began off the August low of 13.91 and the current daily gain of 2.21% has the metal trading at 16.055.
Further upside may be upon us due to technical buying. The silver daily chart shows that price may find resistance from a bearish ABCD at the 16.10 level. Point D is targeted with the 161.8% Fibonacci expansion level of the B to C drop. The reversal pattern may be invalidated, because technical buying may remain strong and the reversal pattern typically does not like having a long-bodied candle to trigger the pattern.
If valid, we could see limited downside target the 15.50 region. Further weakness could target the 50-day SMA, which currently trades at the 14.855 level.
Silver prices may finally see a major bullish rally here and key upside resistance may come from the 17.775 level. Only a weekly close above here could open the door for a move towards psychological 20 handle.
The trade: Buy Silver at 15.50 with a stop loss at $14.50 and a take profit at $18.50 The Risk/Reward Ratio is almost 1: 3
The Australian dollar has been one of the worst performing currencies over the last quarter, but a continuation of the slide may not occur as price was unable to make a fresh low below the .6900 level. If we see a further bounce higher, initial resistance may come from the .7275 level. It is around that area that we could see price tentatively form a double-top pattern. Bearish bets may want to wait and see we don’t see a major short-covering rally that may take the currency pair towards the .7400 and .7500 level.
If we do see price rally towards that area, we could see the formation of a bearish ABCD pattern. Point D would be targeted by either the 127.2% or 161.8% Fibonacci expansion levels of the B to C move. If valid, we could see a resumption of the downward move and ultimately weakness may target the .6750 level.
Tonight, the general consensus is expecting the RBA to remain on hold and if we do not see any dovish signals for future meetings, we could see the Australian dollar move significantly higher. If however, the Australian currency is heavily sold, .6937 will remain major support. A daily close below that level could open the door for fresh 2015 lows.
The trade: Buy AUDUSD at .7050, with a stop loss at .6950 and a take profit at .7350. The risk/reward ratio is 1:3
Gold prices rallied from a two-week low after a very disappointing jobs report. The September report showed payrolls climbed only 142,000, much lower than the forecast of 201,000 gain. The unemployment rate stayed at 5.1%, but payrolls for the last two months were significantly lower. August’s reading was lowered to 136,000, quite a different story than what is usually a typically higher revised month. It was an overall terrible report, as average hourly earnings, hours worked, and the labor force participation rate fell to 62.4%, the lowest level since 1977. Job growth may run slower than we are used and this could delay the Fed’s tightening plan until next year.
Early in NY, gold prices are up 2.36% to $1,140 and the bullish rebound may see further upside over the coming weeks. The immediate reaction has taken gold above both key trendline resistance and the 50-day SMA. Further upside may find tentative resistance from the 100-day SMA, which is currently trading at the $1,145.50 level.
If we see a major rally here, major resistance may come from the $1,190 area. It is around that area that a bearish butterfly may emerge. Point D is targeted by both the 127.2% Fibonacci expansion level of the X to A leg and the 161.8% Fibonacci expansion level of the B to C move. If valid we may see price sharply reverse and target the 100-day SMA.
The bullish stance may be invalidated if we see consecutive daily closes below the $1,100 psychological level.
The trade: Buy Gold at $1,135, with a stop loss at $1,125 and a take profit at $1,175. The risk/reward ratio is 1:4
Despite overall commodity currency weakness this summer, the Australian dollar is finding key support from the 82.00 handle against the Japanese yen. The AUD/JPY shows that the recent bearish trend almost formed a major bullish butterfly pattern around the 81.00 region.
Since making a major low at 82.02 on August 24th, price has made a couple higher lows and higher highs. Key resistance has come from the 50-day SMA, which currently trades around the 87.48 level. The yen rallied after Bloomberg reported that the Bank of Japan decided that it see little need to increase its stimulus, but those gains were limited here as commodity currencies across the board staged a decent rally.
If we see price continue to make higher highs, key resistance may come from 90.00 handle. It is around that area that a bearish Butterfly pattern may emerge. If the bullish move stalls, key support will remain the 81.50 zone.
The trade: Buy AUD/JPY at 84.50, with a stop loss at 83.50 and take profit at 88.50. The risk/reward ratio is 1:4
USD/CAD made a fresh 11-year high as price continues to extend its recent rally above a consolidation triangle pattern. The currency pair continues to rally despite a strong rebound with oil prices, Canada’s largest export. With only one down day over the last nine sessions, the current uptrend appears firmly in place. The bullish move made a key high today at 1.3456 before settling closer to the 1.3420 area.
The USD/CAD daily chart shows that price is rallying above key resistance from the 1.34 handle, which is the 161.8% Fibonacci level of 1.2834 to 1.1919 move. Further upside may find major resistance from the 1.3750 level.
If the current uptrend begins to stall, we could see price find major support from the 50-day SMA which trades around the 1.3200 handle. Further weakness may find major support from the 1.30 handle.
The trade: Buy USD/CAD at 1.3375 with a stop loss at 1.3275 and take profit at 1.3575. The risk/reward ratio is 1:2
GBP/USD may weaken as expectations grow for BOE to hike rates until mid-2016
The British pound continues to trade below the 200-day SMA, but has tentatively found support from the 1.5150 area as downside momentum fades. The currency pair may remain weak as expectations are growing for the Bank of England to delay raising interest rates until mid-2016.
If data this week shows a significant decline with U.K. manufacturing growth in September, we could see price selloff towards the 1.50 handle. The forecast is currently at 51.3, but if we see the index from Markit Economics print below the 50.00 handle we could see downward momentum take the currency pair towards the 1.4850 level. It is around that area that we could see the formation of a bullish butterfly pattern. Point D of the bullish reversal pattern is targeted by both the 200.0% Fibonacci expansion level of the X to A leg and the 161.8% Fibonacci expansion level of the B to C move.
If the downward move for sterling does not continue, major resistance will come from the 200-day SMA, which currently trades at the 1.5330 area. A daily close above the 1.5550 could open the door for further momentum to target the 1.5800 region.
The trade: Sell GBP/USD at 1.5200 with a stop loss at 1.5250 and a take profit at 1.4900. The Risk/Reward Ratio is 1:6
USD/CHF started the week slightly higher, but was unable to hold its earlier gains after New York Fed President William Dudley said that the Fed will likely raise rates this year. Typically, a hawkish comment could help the dollar rally, but the overall market reaction was bearish for stocks and the safe haven currencies like the yen and franc appreciated against many of their major trading partners. With the end of the quarter approaching us, we could see also limited downside with these price moves.
Since forming a bearish Gartley pattern on August 11th, it appears the pattern was completed with the .9257 low made on August 24th. Recently, the USD/CHF daily chart shows that price continues to respect the .9850 level. Price is now comfortably trading above both the 200- and 100-day SMA(s). If we continue to see range bound trading until the end of the month, we could see price slide to the 50-day SMA, which is trading at the .9686 level. It is around that level we could see bullishness return and target a run towards the .9900 area.
If we continue to see risk aversion dominate market headlines, we could see the downward pressure target the .9550 region.
The trade: Buy USD/CHF at .9690 with a stop loss at .9630 and a take profit at .9870. The Risk/Reward Ratio is 1:3
The U.S. dollar rallied overnight after Janet Yellen’s speech clarified that she may be leaning towards a December rate hike. Her testimony after the Fed’s decision to keep rates steady at the September 17th meeting appeared rather dovish and many market participants wrote off any rate hikes until March or later.
The dollar extended its rally after the final reading for second quarter US GDP came in better than expected with a 3.9% reading. This was considered a very strong revision because both the forecast and prior reading was 3.7%. Core PCE was upgraded to 1.9% vs a prior 1.8% reading.
The USD/JPY daily chart shows that price formed a bearish butterfly pattern on June 5th and that ended with the formation of a bullish butterfly pattern on August 24th. For most of the month of September range bound trading occurred with price respecting the 200-day SMA. With Yellen’s comments and the strong GDP revision, price is now tentatively breaking out above the 200-day SMA and could be poised for a rally targeting the 123.00 area. If over the next couple of trading sessions, price remains above the 121.00 level, we could see a strong bullish tone remain in place for the next week or two.
If bullish momentum fails to extend its gains, we could see price find support around the 120.00 handle.
The trade: Buy USD/JPY 120.50, with a stop loss at 119.75 and take profit at 122.75. The risk/reward ratio is 1:3
Gold prices are poised to have the largest daily advance since January. The precious metal is seeing strong buying volume as demand for the safe haven increased amid a strong selloff with global equities. In addition to risk aversion, short covering is also contributing to the bullish move.
Price action on the gold daily chart shows that the recent two-day rally is tentatively forming a bearish ABCD pattern (shown in gray). The pattern however is not ideal because the last candle is a long bodied one. Despite point D’s initial respect to the 161.8% Fibonacci expansion level, we will wait and see if this level is respected until the end of the Asian trading session. If price does continue to rally, further upside may target the 200-day SMA, which currently trades at the $1,179.70 level. Further upside may find critical resistance from the psychological $1,200 handle.
If downward momentum occurs, key support will come from the $1,100 – $1,120 zone. A weekly close below that level could open the door for an attempt at the $1000 handle
The trade: Sell Gold at $1,181 with a stop loss at $1,201 and a take profit at $1,141. The Risk/Reward Ratio is 1: 2