USD/CHF – 0.9047

Most recent candlesticks pattern    : N/A
Trend                                    : Near term up

Tenkan-Sen level                       :0.9039
Kijun-Sen level                         :0.9004
Ichimoku cloud top                     :0.8982
Ichimoku cloud bottom                 :0.8958

Original strategy : 

Buy at 0.8970, Target: 0.9100, Stop: 0.8935

Position: –
Target:  –
Stop:-

New strategy  :  

Buy at 0.8970, Target: 0.9100, Stop: 0.8935

Position: –
Target:  –
Stop:-

Dollar’s intra-day rally to 0.9086 after breaking previous resistance at 0.9022 suggests the decline from 0.9183 top has possibly ended at 0.8918 and consolidation with upside bias is seen for further gain to 0.9100 would be seen, however, it is necessary to see a breach of previous resistance at 0.9144 to retain bullishness and signal early upmove has resumed for eventual retest of 0.9183.

In view of this, we are still looking to buy dollar on pullback as 0.8958-65 (current level of the Ichimoku cloud bottom and previous support) should limit downside. Only below said support at 0.8918 would extend the decline from 0.9183 towards previous support at 0.8886 before prospect of another rebound later.

Risk markets attempted a recovery last week on some positive news as Germany and Finland approved expansion of the EFSF while Troika returned to Greece finally. However, strength of the recovery was far from impressive and lost momentum towards the end of the week. While major US and European stock indices managed to hold well above recent low, the CRB commodity index made a new low on Friday and closed below 300 level for first in almost a year. Dollar index’s retreat was rather shallow and was contained at 77.30 while Friday’s rally put the index back pressing recent high of 78.86. This could also be reflected in major dollar pairs which lost momentum. Commodity currencies also turned weak with Canadian dollar and New Zealand dollar making new record low against US dollar.

Markets are facing a number of even risks this week and it’s great opportunity for traders to watch the reactions, and thus, get a sense on the underlying sentiments. China manufacturing PMI was released on Saturday and has surprisingly rose to 51.2 in September. More importantly, this marked the second consecutive months of increase, though little. There have been much worries on hard landing in China. While PMI only showed little improvements in the outlook, at least, it’s not deteriorating and indicates that economic development is stabilizing.

EU finance ministers are not likely to approve the disbursements of next EUR 8b tranche of Greece bailout this week. However troika, the EU/IMF/ECB inspection team will complete an evaluation as early as on Monday and thus give the signal on whether Greece has done their austerity jobs satisfactorily. Also, as the Bundestag has now passed the bill for expanding the EFSF, there would possibly be some news on how the fund would be enlarged to a size that’s capable to contain Italy and Spain eventually.

While the surprised surge in inflation dented hope for a rate cut from ECB, the bank would nonetheless announce new stimulus measures in Trichet’s last meeting as President this week. The unconventional measures to be adopted would include resumption of the one-year refinancing operations and restart of covered-bonds purchase. These should be positive to the markets.

While these events might trigger some recovery in risk markets, we’d anticipate that the impact would be short-lived. We’re staying bearish in risks and bullish in dollar. The technical developments suggest that dollar is ready for another round of rally this week while stocks would likely revisit recent lows. Market sentiment would once again be proved to remain bearish if the above mentioned events fail to provided sustainable boost to risk markets. And, extension in decline in the CRB, if accompanied by a break of 10600 level in dow, and a sustained break of 79 in dollar index, should confirm the trend of risk selling in the first half of Q4.

The week ahead

In addition to the above events, Fed will also start the operation twist program on October. Fed will purchase a total of $44b of longer-mautrity treasuries and sell that same amount of short term debts. Four central banks will meet including RBA, ECB, BoE and BoJ. In addition, there will be key economic data release including Japanese Tankan, UK PMIs, US ISM indices and Non-farm payroll, Canadian job report. So, be prepared for a busy and volatile week.

• Monday: Japanese quarterly Tankan; Swiss retail sales, SVME PMI; Eurozone PMI manufacturing final; UK PMI manufacturing; US ISM manufacturing
• Tuesday: Australian building approvals, trade balance, RBA rate decision; UK construction PMI; Bernanke speech, US factory orders
• Wednesday: Australian retail sales; Eurozone PMI services final, retail sales; UK services PMI, GDP final; US ADP job, ISM services
• Thursday: BoE rate decision; ECB rate decisions; Canada building permits, Ivey PMI; US jobless claims
• Friday: BoJ rate decision; Swiss unemployment; UK PPI; Canada employment; US non-farm payrolls

Technical Highlights

Dollar index’s strong rally on Friday suggests that recent rise from 72.69 is ready to resume. Initial focus is on 78.86 resistance today and break there will confirm this bullish case and should send the index through 80 psychological level to 50% retracement of 88.70 to 72.69 at 80.69 next. Break of last week’s low of 77.30 will delay this case and bring more consolidations but we’ll stay bullish as long as 76.06 support holds.

The CRB commodity index extended recent down trend to close at 298.15. Near term outlook will remain bearish as long as last week’s high of 312.26 holds and further fall should be seen to 50% retracement of 200.15 to 370.70 at 285.43. The main focus would indeed be on whether the current decline would accelerate again. That’s crucial in determining whether CRB could draw support inside 247.25/293.75 zone and rebound.

S&P 500 stayed in recently established range last week but felt strong pressure well ahead of 55 weeks EMA at 1230.3. While the 38.2% retracement support at 1101.7 might provide some more support in near term, it shouldn’t last long. Friday’s fall puts initial focus this week on 1101.54 recent low. Break there will resume whole decline from 1370.58 and should send the index through 1010.91 support within October. In any case, we’ll stay bearish as long as 1258 head and shoulder resistance holds.

EUR/USD turned into brief recovery last week but such recovery was likely finished at 1.3689 already. Initial bias is mildly on the downside this week for 1.3362 first. Break will confirm resumption of recent decline and should target 161.8% projection of 1.4939 to 1.3969 from 1.4548 at 1.2979, which is close to 1.3 psychological level. On the upside, above 1.3689 will delay the bearish case and bring more consolidations. But recovery is, nonetheless, expected to be limited below 1.3936 resistance and bring another fall eventually.

In the bigger picture, current development indicates that medium term rise from 1.1875 has completed with three waves up to 1.4939 already. That also suggests that it’s merely part of the consolidation pattern that started back in 2008 at 1.6039. Further decline would now be seen to 1.2873 support first and break will target 1.1875 and below. On the upside, above 1.4548, resistance is needed to confirm completion of the fall from 1.4939 or we’ll stay bearish in EUR/USD.

In the long term picture, EUR/USD turned into a long term consolidation pattern since reaching 1.6039 in 2008. Such consolidation is still in progress and we’d expect range trading to continue for some time between 1.1639 and 1.6039.

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EUR/JPY – 102.98

Recent wave: wave (i) of 3 ended at 105.44 and wave (ii) has ended at 123.33

Trend: Down

New strategy :

Sell at 104.50, Target: 102.50, Stop: 105.15

Position: –
Target:  –
Stop:-

Despite intra-day resumption of recent decline to 101.95 (lowest since 2001), the subsequent quick rebound from there suggests a minor low is formed and retracement to intra-day high of 103.80 cannot be ruled out, however, upside should be limited to 104.45-50 (50% Fibonacci retracement of 107.00 – 101.95) and bring another decline later. A break of said support would extend recent downtrend to 101.41 (50% projection of 107.00-102.22 measuring from 103.80), however, reckon downside would be limited to 100.85 (61.8% projection).

Our latest preferred count is that wave (ii) is ABC-X-ABC which ended at 123.33 and wave (iii) is unfolding with diagonal (1) ended at 108.01, followed by wave (2) at 111.93 and wave (3) is unfolding for weakness to 101.00 but psychological support at 100.00 should remain intact.

On the downside, indicated downside target at 101.98 (1.618 times projection of 114.16-108.01 measuring from 111.93) has already been met and further subsequent weakness to 100.85 would be seen. In view of this, would be prudent to wait for such recovery and sell at a higher level. Only above 105.07 (61.8% Fibonacci retracement of 107.00 to 101.95) would signal a temporary low is formed and risk test of resistance at 105.40.

Our preferred count is that the decline from 139.26 is wave C and is sub-divided into (a): 127.00, (b) 138.49 and wave (c) has commenced from there with a diagonal wave 1 (i: 126.95, ii: 134.37, iii: 120.70, iv: 125.24 and then wave v at 119.66). The rebound from 119.66 to 127.95 was an a-b-c wave 2 and wave 3 is taking place from 127.95 with minor wave (i) ended at 105.44. The wave (ii) correction commenced from 105.44 and has ended a 123.33 as a complex correction ABC-X-ABC, so wave (iii) should extend towards psychological support at 100.00.

On the bigger picture, we are treating the rally to 169.97 as end of wave A, then selloff from 169.97 (July 2008) to 112.08 is wave (A) of B instead of end of entire wave B and then the rebound from there to 139.26 is wave (B), hence, wave (C) has commended from there with minor wave 1 ended at 119.66 and wave 2 at 127.95. This wave (C) of B should be limited to psychological support at 100.00 and reckon 95.00 would remain intact.

Weekly

• Last Candlesticks pattern: Hammer
• Time of formation: 12 July 2011
• Trend bias: Sideways

Daily           

• Last Candlesticks pattern: Shooting star
• Time of formation: 19 Aug 2011
• Trend bias: Near term up

GBP/USD – 1.5703

The British pound opened lower again this week and adding credence to our bearish view that the major decline from this year’s high of 1.6747 to retracement of medium term uptrend and indicated target at 1.5750 and 1.5650/55 (100% projection of 1.6747-1.5781 measuring from 1.6618) had been met. As price is still trading well below all Tenkan-Sen, Kijun-Sen and Ichimoku cloud, bearishness remains for further fall towards 1.5550/60, however, near term oversold condition should prevent sharp fall below 1.5488 (50% Fibonacci retracement of 1.4228-1.6747) and risk from there has increased for a corrective rebound later.

On the upside, whilst recovery back to 1.5800 cannot be ruled out, reckon 1.5858-69 (current level of the Tenkan-Sen and previous resistance) would limit upside and bring such decline to aforesaid downside targets. Only a daily close above 1.5900 would suggest a minor low is in place and risk retracement to psychological resistance at 1.6000 but reckon resistance at 1.6084 would limit upside and 1.6126-28 (current level of the Kijun-Sen and Ichimoku cloud bottom) would limit upside, bring another selloff.

Recommendation: Sell at 1.5800 for 1.5550 with stop above 1.5900

On the weekly chart, a series of windows were formed since the decline began from 1.6618 and as price has clearly traded inside the Ichimoku cloud area (indicated downside target at 1.5650/55 – 100% projection of 1.6747-1.5781 measuring from 1.6618 had been met last week), bearishness remains for further fall to 1.5550 and possibly towards 1.5488 (50% Fibonacci retracement of 1.4228-1.6747). Having said that, near term oversold condition should limit downside to previous support at 1.5345 and the Ichimoku cloud bottom (now at 1.5317) should hold from here.

On the upside, expect recovery to be limited to last week’s high of 1.5869 and bring such a decline. Only above 1.5920 would suggest a minor low is formed and risk test of the Ichimoku cloud top (now at 1.5975) and then towards resistance at 1.6084, however, upside should be limited to the Tenkan-Sen (now at 1.6126) and the Kijun-Sen (now at 1.6190) should remain intact, bring another decline later.

USD/CHF – 0.8828

Most recent candlesticks pattern    : N/A
Trend                                    : Near term up

Tenkan-Sen level                       :0.8821
Kijun-Sen level                         :0.8819
Ichimoku cloud top                     :0.8839
Ichimoku cloud bottom                 :0.8817

Original strategy : 

Buy at 0.8710, Target: 0.8850, Stop: 0.8675

Position: –
Target:  –
Stop:-

New strategy  :  

Buy at 0.8710, Target: 0.8850, Stop: 0.8675

Position: –
Target:  –
Stop:-

Although the greenback has rebounded after yesterday’s fall to 0.8758, a sustained break of indicated resistance at 0.8880/85 is needed to signal the pullback from 0.8927 has ended there and bring retest of this level, above there would extend upmove from record low of 0.7068 to 0.8950 and possibly 0.8970, however, reckon upside would be limited to psychological resistance at 0.9000, bring correction.

If said resistance continues to hold, then further consolidation would be seen and another corrective fall cannot be ruled out. A break of 0.8758 would bring retracement to 0.8730 but reckon 0.8706 (previous support) would attract renewed buying interest and bring another rise later.

In view of this, we would look to buy dollar on next corrective fall. Only below 0.8688 (61.8% Fibonacci retracement of 0.8540-0.8927) would abort and signal a temporary top is formed, then stronger correction to 0.8630 (previous resistance) would follow.

USD/CHF – 0.8595

Most recent candlesticks pattern    : N/A
Trend                                    : Near term up

Tenkan-Sen level                       :0.8593
Kijun-Sen level                         :0.8576
Ichimoku cloud top                     :0.8413
Ichimoku cloud bottom                 :0.8224

Original strategy : 

Buy at 0.8440, Target: 0.8600, Stop: 0.8405

Position: –
Target:  –
Stop:-

New strategy  :  

Buy at 0.8440, Target: 0.8600, Stop: 0.8405

Position: –
Target:  –
Stop:-

Despite yesterday’s rebound from 0.8540, the greenback needs to penetrate this week’s high of 0.8630 to confirm recent upmove from record low of 0.7068 has resumed and extend gain to 0.8650, however, near term overbought condition should limit upside to 0.8700 and reckon 0.8750 would hold from here, risk from there has increased for a correction to take place later.

In view of this, we are still looking to buy dollar on subsequent pullback as renewed buying interest should emerge around 0.8435/40, bring such rise. Below 0.8400/05 would defer and risk retracement to 0.8360/70 but reckon 0.8320/25 (38.2% Fibonacci retracement of 0.7822 to 0.8630) would limit downside and bring another rise later.

USD/CHF – 0.7961

Most recent candlesticks pattern    : N/A
Trend                                    : Near term up

Tenkan-Sen level                       :0.8019
Kijun-Sen level                         :0.8022
Ichimoku cloud top                     :0.8117
Ichimoku cloud bottom                 :0.8097

Original strategy : 

Buy at 0.7950, Target: 0.8080, Stop: 0.7915

Position: –
Target:  –
Stop:-

New strategy  :  

Buy at 0.7900, Target: 0.8050, Stop: 0.7865

Position: –
Target:  –
Stop:-

Although the greenback has fallen again after intra-day brief bounce which faltered below the Kijun-Sen and decline from 0.8240 top may bring a stronger retracement of recent upmove to 0.7935/40 (61.8% projection of 0.8240-0.7994 measuring from 0.8089), reckon previous support at 0.7892 would limit downside and bring rebound later. Having said that, a break of the Kijun-Sen (now at 0.8022) is needed to suggest low is possibly formed but only above resistance at 0.8089 would add credence to this view and then stronger rebound to previous support at 0.8121 would follow.

In view of this, we are inclined to buy dollar on next fall. Below previous support at 0.7875 would risk one more fall to 0.7850 before prospect of another rebound probably tomorrow.

USD/CHF – 0.8073

Most recent candlesticks pattern    : N/A
Trend                                    : Near term up

Tenkan-Sen level                       :0.8026
Kijun-Sen level                         :0.8026
Ichimoku cloud top                     :0.7938
Ichimoku cloud bottom                 :0.7925

Original strategy : 

Bought at 0.7905, met target: 0.8010

Position: – Long at 0.7905
Target:  – 0.8010
Stop:-

New strategy  :  

Buy again at 0.8000, Target: 0.8120, Stop: 0.7965

Position: –
Target:  –
Stop:-

The greenback finally resumed recent rise from record low of 0.7068 in line with our expectation, our long position entered at 0.7905 met indicated target at 0.8010 (with 105 points profit), however, as price has retreated from 0.8158, suggesting consolidation below there would take place and pullback to the Tenkan-Sen (now at 0.8026) is likely. Having said that, renewed buying interest should emerge above 0.7990-95 (61.8% Fibonacci retracement of 0.7892-0.8158) and bring another rise. A break of said resistance would extend the aforesaid upmove towards 0.8201 but minor resistance at 0.8247 should limit upside and 0.8278 should remain intact due to near term overbought condition.

As we have taken profit on our long position, we would look to buy dollar again on pullback. Only below 0.7960 would suggest top is possibly formed and risk weakness to 0.7920/25 but intra-day low at 0.7892 should hold from here.

Although the greenback rallied across the board yesterday as the Federal Reserve looked less likely to announce QE3, the greenback failed to extend yesterday’s gain and retreated quite sharply versus most major currencies. In the past 2-3 trading days, the greenback started to rebound as more and more traders changed their view and bet on Fed Chairman Ben Bernanke may not signal addition bond-buying in today’s Jackson Hole Symposium, USD/JPY and USD/CHF surged to as high as 77.70 and 0.7989 respectively whilst EUR/USD and GBP/USD slipped to 1.4328 and 1.6260. Dollar retreated against the Japanese yen from a 2-week high of 77.70 (as indicated in our previous update that decent offers remain at 77.90-00). Market has been and is still yen long, with traders couldn’t push the yen much higher (this week’s high is 76.47) due to persistent bids from semi-official names and intervention fears, dealers are forced to cover their short ahead of today’s key event. Having said that, exporters are still determined to defend the level of 78’s with heavy offers still seen from 77.80 up to 78.00 and further out at 78.30-50 (large), however, they are unlikely to sell dollar aggressive in their usual month end transactions as they would prefer to wait for the Bernanke’s speech (due at 14:00GMT). Current retreat is threatening stops from short-term speculators placed at 76.80 but bids from them are still noted at 77.10 and sizeable stops remain at 76.40 with more buying interest seen around 76.50-60. The much anticipated resignation of Japanese Prime Minister Kan had little impact on the currency market and new leader of the ruling DPJ party will be selected on Monday, with former Foreign Minister Seiji Maehara, being the top-pick. However, the economic minister Yosano said that the government will also release a list of suggestions for the new administration on how to deal with the strong yen, so yen traders shall closely keep an eye on the development next Monday.

After tumbling yesterday to 1.4328 on several bad news, including Greek yields around record high, renewed eurozone debt crisis concerns plus rumors of a German downgrade, euro staged a stronger rebound among other major currencies. The single currency bounced on sign of a possible solution to the differences on the collateral for emergency loans after a report from FT which indicated a so-called ‘euro working group’ is examining a non-cash collateral arrangement. Through this arrangement Greece would put up either property or equity in state-owned enterprises as a guarantee against eurozone bailout loans. FT also reported that the euro area will discuss a new version of Finland’s collateral agreement with Greece. In addition 3 rating agencies cleared the rumors of a German downgrade as CNBC reported that S&P’s Moody’s and Fitch all affirmed their ratings on German government debt. Moreover, news that Spanish government said an agreement had been reached with the main opposition People’s Party over plans to preserve in its constitution limits on the public deficit, also supported euro. Last but not least, French President Nicolas Sarkozy said after meeting Chinese President Hu Jintao that Hu showed definitive confidence in the euro and the European economy also seen euro positive. As key of the day remains Fed’s annual economic conference in Jackson Hole, euro is likely to stay within recent established range of 1.4259-1.4517 ahead of Bernanke’s speech.

Meanwhile the Australian dollar benefited from upbeat comments from RBA Governor Glenn Stevens, in his semi-annual testimony before Parliament committee he said Australia was well positioned to tackle any further weakening of international conditions. He also stated that Australia’s mining boom along with low unemployment and strong banking system will assist the country to go through global uncertainties.

On the data front, before the Jackson Hole at 14:00GMT, key for the day will be UK Q2 GDP (08:30GMT), US Q2 GDP (12:30GMT) and Aug University of Michigan Confidence survey at 13:55GMT.

Daily Pivots: (S1) 76.97; (P) 77.33; (R1) 77.82; More.

USD/JPY’s recovery extends further to as high as 77.68 so far before retreating mildly. With 76.46 minor support intact, intraday bias is mildly on the upside for further rise. But after all, we’ll stay bearish as long as 80.23 and expect more downside ahead. Below 76.46 minor support will flip bias back to the downside. Break of 75.94 will confirm decline resumption and should target 100% projection of 81.46 to 76.28 from 80.23 at 75.05 next.

In the bigger picture, USD/JPY is still staying well inside the falling channel that started back in 2007 at 124.13. There is no indication of trend reversal yet even though medium term downside momentum is diminishing with bullish convergence condition in weekly MACD. Such down trend is still in favor to continue to 70 psychological level. In any case, break of 80.23 resistance is first needed to indicate completion of fall from 85.51. Secondly, break of 85.51 is needed to be the first signal of medium term reversal. Otherwise, we’ll stay cautiously bearish in the pair.

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USD/CHF – 0.7893

Most recent candlesticks pattern    : N/A
Trend                                    : Near term up

Tenkan-Sen level                       :0.7919
Kijun-Sen level                         :0.7923
Ichimoku cloud top                     :0.7908
Ichimoku cloud bottom                 :0.7894

Original strategy : 

Sold at 0.7965, Target: 0.7830, Stop: 0.8000

New strategy  :  

Hold short at 0.7965, Target: 0.7830, Stop: 0.7975

Remark: No update tomorrow, next Candlesticks and Ichimoku Trade Idea update will be made on Monday 22 Aug.

Despite intra-day rebound to 0.7991, as the greenback has retreated after faltering below indicated level at 0.8000, retaining our view that a temporary top has been formed at 0.8020 and consolidation with mild downside bias remains for another corrective fall to yesterday’s low at 0.7825. Looking ahead, only breach of this level would add credence to our view and bring correction of recent rally to 0.7770 (previous support).

In view of this, we are holding on to our short position entered at 0.7965. Only above 0.8000 would risk a retest of 0.8020 but break there is needed to signal upmove has once again resumed for gain to 0.8050.