• AUD/CAD bulls moving in from a fresh monthly low.
  • Eyes on the Fibonacci retracements across the daily bearish impulse and beyond. 

AUD/CAD is correcting the recent bearish impulse and the following top-down analysis offers a comprehensive insight to prospects of a bullish correction as well as downside probabilities. 

Weekly chart

The weekly chart is showing that the current area of support has been a critical structure in the past. 

This means it may take some doing to close the week out lower, but not impossible. 

We have already seen a breach of the prior monthly low of 0.9248 in this week’s low, so far, of 0.9217:

Looking forward, considering that net speculators’ long CAD positions fell sharply, back to their lowest levels since early May, there are prospects of a short squeeze.

This could equate to further downside in the cross in the coming weeks. Such a view is personified when taking into account the divergence between the Reserve Bank of Australia and the Bank of Canada.

However, from a daily perspective, the correction from long term lows is underway. 

Daily chart

On a break of 2 July lows near 0.9250, the bulls could well maintain control and take each Fibonacci confluence target one step at a time, (0.9265, 0.9300), until the 50% mean reversion near 0.9320.

This is where resistance would be expected to be the firmest, potentially resulting in an eventual downside continuation in accordance with the dominant trend. 

However, we have a bullish monthly M-formation:

Should the 50% mean reversion near 0.9320 resistance give way, a monthly correction to target the 38.2% Fibonacci retracement level near 0.9520 will be on the cards.

A break of the 0.9360 weekly support structure will be critical in this regard:

  • GBP/USD remains sidelined following a rebound from five-month low.
  • EU rejects UK’s request to alter NI protocol but ready for “flexible, practical solutions”.
  • UK cheers having antibody but reports a 50% weekly jump in virus-led deaths on a day.
  • US policymakers jostle over infrastructure spending, budget, ECB eyed.

GBP/USD takes rounds to 1.3710-20 amid a quiet Asian session on Thursday. The pair reversed from February lows, marking the biggest daily gains in two weeks, on the US dollar pullback the previous day. However, the bulls seemed to have lost upside momentum of late amid a lack of major catalysts and cautious sentiment ahead of the European Central Bank (ECB) meeting.

The US Dollar Index (DXY) snapped a four-day uptrend while stepping from the highest levels since April on Wednesday as market sentiment improved. Although no major positive headlines could be held responsible, upbeat earnings can be traced for strong equities and risk-on mood.

That said, the European Union (EU) rejected a 28-page paper to alter the Northern Ireland (NI) protocol request by the UK. Even so, EU Vice President Maroš Šefčovič said, per The Guardian, that Brussels has sought “flexible, practical solutions” and “will not agree to a renegotiation of the protocol”.

On the other hand, UK reported a slightly higher daily covid count, 44,104 versus 42,302 the last Wednesday, but a 50% weekly jump in the death toll to 73 keeps highlighting the Delta covid variant fears. It’s worth noting that Australia also reported the highest daily infections since September, per ABC News data.

Elsewhere, the US policymakers rejected opening debate on President Joe Biden’s infrastructure spending bill, pushing it back to Monday, but the Democrats seem optimistic over the passage. Further, the Sino-American tussles escalate as US Trade Representative Katherine Tai backs the Australian trade dispute with China.

Amid these plays, Wall Street closed positive and helps S&P 500 Futures to print mild gains by the press time. Further, the US 10-year Treasury yields also remain firm for the third consecutive day.

Considering a lack of major data/events in the UK, the GBP/USD traders will keep their eyes on the ECB meeting results and US second-tier data flow, not to forget risk catalysts, for fresh impulse.

Technical analysis

Although GBP/USD regains 200-DMA, around 1.3710, bulls need to cross the early July lows near 1.3735 to extend the recovery moves.

 

  • EUR/USD edges higher after bouncing off three-month low.
  • Bearish pattern is underway near the key support line, Momentum line also favors sellers.
  • Corrective pullback needs fresh monthly high to reject bearish hopes.

EUR/USD flirts with 1.1800, after a rebound from early April levels, amid the initial Asian session on Thursday.

The major currency pair bounced off an ascending support line from November the previous day but the looming bearish cross, a condition where 50-DMA drops below 200-DMA and signals further downside, tested the recovery moves.

Given the downward sloping Momentum line, coupled with the failures to recover, EUR/USD stays ready to welcome the bears should the quote closes below the stated support line, near 1.1775.

In doing so, the pair will also confirm the bearish cross and will be well-set to challenge the yearly low near the 1.1700 threshold. Following that, lows marked during September 2020 and high of March 2020, respectively around 1.1615 and 1.1500, could gain the market’s attention.

Alternatively, the pair’s recovery moves may aim for June’s low surrounding 1.1845 but the monthly top near 1.1900 will be the key for further upside.

Above all, the pair traders should keep their eyes on the European Central Bank (ECB) monetary policy meeting for fresh impulse.

Read: ECB Preview: Three reasons why Lagarde could hit the euro when it is down

EUR/USD: Daily chart

Trend: Further weakness expected

 

  • AUD/JPY bears are on the prowl as the price moves into daily resistance.
  • A downside continuation is probable in the days ahead for a test of 79.50. 

From a daily and weekly perspective, AUD/JPY is offering the bear’s a free lunch or a discount at the minimum.

The following is a top-down analysis that illustrates the opportunity on the table from deep within the bear’s lair. 

First, for some background, the price has followed precisely the following analysis from the 15 July and the start of the weeks follow up in the following articles

  • 15 July AUD/JPY Price Analysis: Bears in control, eye daily extension,
  • 18 July COVID spread weighing on market’s risk appetite

Prior AUD/JPY technical analysis, 18 July

As per the prior analysis, AUD/JPY Price Analysis: Bears in control, eye daily extension, the cross is back under pressure and heading towards weekly support structure as per technical analysis below. 

Prior analysis, AUD/JPY daily chart, 15 July

The price is in a bearish trend and given the recent correction that has started to run out of momentum, there are prospects of a continuation to the downside.

Prior market update, 18 July

The above chart illustrates the progress made since the original article on the 15 July. 

Bears will eye between the 80.90 and 80.50 weekly target area at this juncture following the prior week’s bearish weekly close. 

Live market update, 22 July Asia session 

As shown, the weekly downside target area was breached this week and the current wick is compelling as it represents a correction on the lower time frames.

It is early days yet, but presuming that the week will close bearishly with a lower weekly close, the prospects of a bearish continuation will be even higher. 

Meanwhile, zooming out to the monthly time frame and applying volume profile analysis, the price is well below the Point of Control dating all the way back to 2005. 

In more recent annual ranges, the Point of Control since the summer of 2017 is located at 82.00 the figure. 

While there are probabilities that the price will retest the level in due course, the current trajectory and momentum are with the bears for the time being.

In fact, the price has broken below the 38.2% Fibo.

The market would, therefore, be expected to continue to test the 50% mean reversion and the confluence of prior structure, if not continue all the way to the old resistance and confluence of the 61.8% Fibo. These levels are located at 79.50 and 78.00 respectively. 

Meanwhile, taking into consideration the weekly wick:

… and the daily chart’s subsequent correction: 

… there are prospects of a downside continuation to test the monthly confluence of the 50% mean reversion and the daily -272% target area near 79.50. 

However, with that being said, there is still room to go in this correction to the upside until a 50% mean reversion of the current daily bearish impulse at 81.3320.

In any case, bears will be looking for upside deceleration and bearish structure from within this correction to position for a downside continuation in the coming sessions. 

  • NZD/USD seesaws inside a 20-pip range after bouncing off yearly low.
  • Market sentiment remains directionless following a positive day.
  • Risk catalysts, US data and ECB will be crucial for immediate direction.

NZD/USD struggles to extend the previous day’s recovery moves, the strongest in over a week, around 0.6960-80 area amid the early Asian session on Thursday. In doing so, the kiwi pair portrays the pre-ECB trading lull amid a light calendar.

The quote’s recovery moves from the eight-month low could be traced to the upbeat performance of US equities amid strong earnings. The same dragged the US Dollar Index (DXY) from a three-month high while also snapping a four-day uptrend. It’s worth noting that the economic optimism also backed the US Treasury yields to post a second positive day following its drop to the early February levels on Monday.

Challenging the moves were headlines concerning the coronavirus Delta variant as Australia marked the highest daily infections since September whereas figures from the UK and Indonesia were also grim. Even so, policymakers were optimistic to overcome the pandemic, as they did in the first wave.

The same could be identified from comments of World Health Organisation (WHO) head Tedros Adhanom Ghebreyesus who said, per Reuters, “The world’s leading economies could bring the covid-19 pandemic under control in months.”

Other than the covid woes, uncertainty over US President Joe Biden’s infrastructure spending plan and US budget also challenged the NZD/USD buyers but failed.

New Zealand’s Credit Card Spending for June was also among the negatives that initially weighed on the kiwi pair before the bullish play during the US session. That said, the early signal for retail sales eased to 6.3% YoY versus 27.2% prior.

Given the lack of major data/events, coupled with cautious mood ahead of the ECB, NZD/USD may remain sidelined but the challenges to the risk appetite could keep prices pressured.

In this regard, ANZ Bank said, “There is no local data today or tomorrow, but there are some big global events including the ECB meeting, which will shape how EUR trades, and by extension the NZD and other correlated currencies. In the meantime, it’s back to watching bonds, which are driving FX.”

Technical analysis

Although the monthly support line teases NZD/USD bears around 0.6915-10, the pair’s recovery moves need to cross 21-DMA immediate hurdle near the 0.7000 threshold to recall short-term buyers. 

 

  • US stocks post gains amid economic optimism, upbeat earnings.
  • Chipotle Mexican Grill becomes the gainer of the day, Netflix dropped.
  • US policymakers jostle over infrastructure spending bill, budget.
  • ECB, covid headlines and weekly US Jobless Claims will be crucial for fresh impulse.

Wall Street had another upbeat session as firmer company results renewed market optimism amid a light calendar on Wednesday. In doing so, investors shrugged off the coronavirus woes as well as uncertainty over the US President Joe Biden’s infrastructure spending bill and budget.

Among the top-notch earnings, Chipotle Mexican Grill, Verizon Communications and Interpublic Group were the gainers. On the contrary, Netflix had to bear the burden of late Tuesday’s results whereas United Airlines reacted to the positive results conveyed the previous day. Additionally, Bank of American raised quarterly cash dividend by 17% whereas Whirlpool also marked firmer revenue and EPS figures for Q2 2021.

Amid these plays, Dow Jones Industrial Average (DJI) gained 0.83% or 286 points to 34,798 whereas S&P 500 added 35 points to end the day around 4,358. Above all, Nasdaq led the run-up with a 0.92% daily gain, or 133 points, before closing around 14,632.

US Treasury yields also followed the suit and rose for the second consecutive day to regain 1.23% by the end of the North American session of Wednesday.

Although the coronavirus woes remain on the table, with multi-day high numbers in Australia and fears of Delta covid variant spread in the West, policymakers seem to be positive over tackling the pandemic. This is somewhat on the line of World Health Organisation (WHO) head Tedros Adhanom Ghebreyesus who said, per Reuters, “The world’s leading economies could bring the covid-19 pandemic under control in months.”

On the other hand, the US spending deadlines are inching closer and the policymakers are pushed to discuss a fresh budget to avoid government office closure. However, the diplomats are yet to mark any progress on the same, not to forget flashing mixed signals over the infrastructure spending bill with initial block to opening debate.

Looking forward, the pre-ECB trading lull may bore the markets but the covid updates and stimulus news can offer intermediate moves. Also in the pipeline were the second-tier data like weekly US Jobless Claims, Chicago Fed National Activity Index and US Existing Home Sales figures.

While the ECB may have to reiterate the bearish bias to disappoint the equity bulls, the scheduled data may offer little direction to the markets.

 

Read: Forex Today: Dollar eases, ECB looms

US Senate, Democratic Senator Joe Manchin crossed wires, via Reuters, to renew optimism over President Joe Biden’s infrastructure spending plan.

The policymaker said, “We have made significant progress in bipartisan infrastructure proposal negotiations,” while also adding, “We are close to an agreement.”

Earlier in the day, Senate Republicans blocked the opening debate on the infrastructure spending bill by 51-49 votes, pushing it back to Monday.

FX implications

Given the market’s recent optimism, backed by strong earnings, the news should help risk barometers to consolidate recent losses. It should, however, be noted that the updates on the procedural vote over the stimulus is uncertain despite today’s deadline and the same tests the latest risk-on mood.

Read: AUD/USD: Recovery remains capped around 0.7350 on mixed sentiment