The yen floats with the flow

Despite the absence of important events in the economic calendar for the Land of the Rising Sun, the Japanese yen can still easily claim a role of the most interesting currency for the last full week of August. The reason could be seen in the reduced sensitivity of the major world currencies to macroeconomic statistics. So, the US dollar was rather calm about the strong data on the labor market, the retail sales, and the consumer sentiment index from the University of Michigan. Add to that the dollar's response to the political situation in the US. The dollar hardly reacted to the dissolution of Donald Trump's economic advice, the rumors about the departure of Gary Cohen from the White House, and the resignation of Stephen Bennon. The policy continues to eclipse the economy. In such conditions, the demand for the assets-shelters goes off scale.

It is a wonder if the Bank of Japan could foresee the direction of the policy which targets the yield curve that indicates that it will not be able to control the yen's rate. Theoretically, pegging the USD / JPY pair to the yield of US Treasuries in a situation where the Fed raises the federal funds rate should have sparked a green light before the devaluation of the local currency, increased inflation expectations, and accelerated consumer prices. In practice, it turned out differently. Geopolitics and the loss of faith of investors in Donald Trump lead to lower rates of the US debt market and falling quotations USD / JPY.

Dynamics of USD / JPY and US Treasury yields


Source: Trading Economics.

In such cases, few people look at the internal statistics for the Land of the Rising Sun. What difference does it make if the GDP in the second quarter was the best growth since the beginning of 2015 (+ 1% m / m)? Does it matter that external demand does not keep pace with domestic demand? This, coupled with the revaluation of the yen, is reflected in the outstripping of import dynamics (+ 16.3% y / y) over exports (+ 13.4% y / y). The main driver for change in USD / JPY pair is the events occurring in the States. Meanwhile, the yen appears to only go with the flow.

Dynamics of Japan's exports and imports


Source: Bloomberg.

In this respect, further dynamics of the analyzed pair will depend on the change in the world view of investors. It was not expected that Trump's economic advice would be so effective that their dissolution would finally kill the hopes for the dispersal of the US GDP to 3%. It wasn't expected as well that the withdrawal of the main supporter of the trade war with China will lower the bond yields below its current amount. Rather, the expectations were on the contrary. Putting things in order in the White House will increase the chances of realizing the tax reform and will strengthen the dollar.

It is generally believed that the "bears" for the USD / JPY pair will soon have new trump cards in the form of a problem with regards to the ceiling of the national debt and the potential correction of US stock indices. Nevertheless, few believe in the technical default of the United States. That's why the rollback of the S&P 500 is said to come for a very long time, but it is still there. The factors are clearly short-term and their repayment will make it possible to buy the dollar.

Technically, a break below the supports at 109 and 108 activates the pattern AB = CD and will increase the risk of continuing the downward path towards the direction of 104. On the contrary, the inability of the "bears" to keep the quotes below the lower limit of the upward trading channel will be an indication of their weakness.

USD / JPY, daily chart


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Trading plan for EUR/USD and GBP/USD for August 21, 2017


Technical outlook:

A short-term view has been depicted here for EUR/USD, with the most probable wave counts. The pair might be looking to produce a wave 4 corrective structure (zigzag) labelled as A-B till now. Wave C might be looking to push lower towards 1.1550 levels at least. Also please note that a resistance trend line is also passing very close to the current price action and pushes prices lower again. Furthermore, be prepared for a more complex correction in wave 4, since the second wave was pretty sharp (not seen here). We shall present alternate scenarios of wave counts as it unfolds here. For now, the resistance should be strong around 1.1850 levels, while the interim support is seen at 1.1650. A simple trade strategy could still be to sell on rallies through 1.1850 levels. Broadly speaking, bears should remain in control till prices stay below 1.1900 levels going forward.

Trading plan:

Please remain short and add more around 1.1840/50, stop at 1.1920, target 1.1600 and lower.

GBP/USD chart setups:


Technical outlook:

The GBP/USD pair and chart setups are still looking sideways, with possibilities of yet another lows at 1.2800 levels before producing the much awaited counter trend rally as depicted here. We would like to present the current sideways movement and declare a no-trading zone for now unless prices spike lower towards 1.2800 levels producing a long opportunity. On the flip side, if 5 wave is already complete, as an alternate, a counter trend rally could come into play from current levels and push through 1.3100 levels as depicted here. Please note that 1.3100 level is the Fibonacci 0.618 resistance for the entire drop from 1.3270 through 1.2850 levels respectively. For now, the immediate resistance should be seen at 1.3000 levels while the interim support is found around 1.2850 levels.

Trading plan:

Please remain flat for now. Shall be looking to sell higher around 1.3000 and 1.3100 levels respectively.

Fundamental outlook:

No major event lined up for the day.

Good luck!

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Analysis of GBP/USD for August 21, 2017


Recently, the GBP/USD pair has been upwards. The price tested the level of 1.2897. Anyway, according to the 30M time frame, I found that the price is breaking the upward trendline and that there is a strong resistance cluster in the background, which is a sign that buying looks risky. The Stochastic oscilator is in the oberbought condition, which is another sign of weakness. My advice is to watch for potential selling opportunities. The downward targets are set at the price of 1.2845 and 1.2830.

Resistance levels:

R1: 1.2900

R2: 1.2935

R3: 1.2990

Support levels:

S1: 1.2845

S2: 1.2820

S3: 1.2765

Trading recommendations for today: watch for potential selling opportunities.

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Analysis of EUR/JPY for August 21, 2017


Recently, the EUR/JPY pair has been trading sideways at the price of 128.20. According to the 30M time frame, I found a fake breakout of supply trendline in the background and successful testing of the intraday supply trendline, which is a sign that buying looks risky. The stochastic oscilator is showing an overbought condition, which is another sign of weakness. My advice is to watch for potential selling opportunities. The downward targets are set at the price of 127.55 and 127.00.

Resistance levels:

R1: 129.10

R2: 129.90

R3: 131.00

Support levels:

S1: 127.95

S2: 127.55

S3: 126.40

Trading recommendations for today: watch for potential selling opportunities.

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NZD/USD intraday technical levels and trading recommendations for August 21, 2017


Daily Outlook

In February 2017, the depicted short-term downtrend was initiated around the depicted supply zone (0.7310-0.7380).

However, a recent bullish breakout above the downtrend line took place on May 22. Since then, the market has been bullish as depicted on the chart.

The price zone of 0.7150-0.7230 (key zone) stood as a temporary resistance zone until a bullish breakout was expressed above 0.7230.

This resulted in a quick advance towards the next supply zone around 0.7310-0.7380 which was temporarily breached to the upside.

The recent bearish pullback was executed towards the price zone of 0.7310-0.7380 (newly-established demand zone) which failed to offer enough bullish support for the NZD/USD pair.

Re-consolidation below the price level of 0.7300 enhances the bearish side of the market. This brings the EUR/USD pair again towards 0.7230-0.7150 (the key zone) where the recent bullish recovery is being manifested.

Currently, the NZD/USD pair remains trapped between the price levels of 0.7240 and 0.7320 until a breakout occurs in either directions.

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