Eddie Tofpik's end of 2016 currency and markets review.

Eddie Tofpik’s end of year review. The uptrends and downtrends as 2016 enters its final month

Prominent FX market specialist Eddie Tofpik makes a detailed analysis of this month’s major currency trends.

By Eddie Tofpik, Head of FX at ADM ISI, and visiting lecturer at the University of Essex

GBPUSD TREND?

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Last time, I noted we had seen then our first Bullish close over the then Downtrend from Early Sep running through & coincident with not only the 50% Fib of the Sep – Oct move down at 1.2447 (which included the Flash Crash) but also the old Lower Tine of the Jun 2014 – Apr 2015 Schiff Pitchfork at the same level.

I further noted that ‘I can see a recovery to perhaps the 1.2800 area, but we’re still within an overall Bearish scenario.’ Well the rally proved short lived at that time but we had another attempt higher the following week and we at that attempt formed the Nov high at 1.2672, just about coincident with the 61.8% Fib at 1.2683 that you can see on the Daily Chart.

Following this, prices wandered back down and hung around the 50% Fib at 1.2447 whilst gradually building up fresh support with a new Uptrend (currently 1.2427) on the late Oct-to-date action. The time to go down was last Tuesday as on the previous Monday we had a Key Reversal Down that you can see on the Daily Chart above…but it failed. That was a clear indication that at least for the time being the move lower was off the table. So during last week prices carried on higher and we are now not only well over the old Downtrend but we are likely about to test the Medium MA (currently 1.2798).

If that goes then the next real resistance is at the Upper Tine of the recent Schiff Pitchfork (currently 1.2859) coincident with the Aug low at 1.2863 plus also the Sep low at 1.2912. However, not to belittle these levels but we really could look at the late Sep highs at 1.3058 & 1.3120 as potential targets.

If they go then the super key 50% Fib at 1.3233 of the whole Brexit move is on the table. Downside, well 1.2447 is still key. Two, maybe three consecutive closes below that and we are back into bearish territory. Given the action and that we’ve one MA pointing up, two about to flatline & the Long MA still pointing down. I think it appropriate to move the bullet point above into neutral.

Last month, prior to the U.S. Election…I’d already set the scene for a move lower in this pair. ‘…there is some room for manoeuvre lower should we have consecutive closes below the 0.8848 50% Fib, that would be down to 0.8690 – 0.8725…but even then it’s not saying anything other than just getting back to where we were in early Oct.’.

I added ‘Given these points, the bullet stays mildly Bullish for the while…expecting a pullback down but not convinced of its strength.’. Since then we have indeed headed lower and my thoughts of 0.8690 – 0.8725 as a target proved false as prices were stronger and pushed lower…but then they started to have misgivings through the middle to late part of Oct and we saw Indecisive Days upon Indecisive Days as prices approached the key Brexit move 50% Fib at 0.8482 as well as the Jul – Nov Uptrend (currently 0.8472).

Then last Thursday we had the first real try lower…but seemingly failed with a Bullish Doji, almost a Butterfly Doji which ought to have signalled a pull back up. However, the next day…Friday…saw a full turn around back down with a Bearish Long Black Marubozo that closed well below the Fib. Now, the market needs to exploit this move with at least a further close lower, maybe testing the 0.8330 low of Sep. If we can do that, well then prices have a decent chance at tackling the Long MA as a target…not too far away at 0.8281 currently.

Topside, you’d need consecutive closes over the Medium MA (currently 0.8635) to make the market regret trying lower. Given all this action plus MAs heading lower or flatlining bar the Long MA…I suggest it only appropriate to move the bullet point above into mildly Bearish territory.

EURGBP TREND DOWN?

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I wrote a lot last time as I had observed a number of features. Let’s go through them…’First off, we’ve a potential Bearish Dead Cross of the Short/Medium MA down through the Medium MA…that may happen as soon as Monday.’ – it did and it carried on till the middle/end of Nov (I’ve used a bit of license with the Trump Key Reversal Down move).

Secondly, we have a potential (though not perfect) Bearish Bow Tie formation of the Short/Medium, Medium & Long MAs.

This happened about the 13th and by normal counting should start to kick in between the 3rd – 10th of Nov, i.e. about now, so watch out for that one this coming week.’ – this indeed turned out to be the case. Then to complete, my last point…’Finally, I would just once again like to point our 1.1139, this level is key.

Any try higher has to be effective through this area and though we’re back at neutral, we have Bearish pressure above that is coming closer to the market each day.’. We did indeed try up & through 1.1139 on the Trump KR Down but as the name describes, we ended lower and carried on basically until 30th. We had been racing down during the past month to the Dec 2015 low support at 1.0537 along with the Apr 2015 low support at 1.0518 and last week we started a small pullback. So far…no big thing. However, the action on the 30th was a KR Down…yet this time it has seemingly failed.

This doesn’t mean we are heading back up…all the MAs still point lower, etc…but it does seem to indicate that the move lower has halted and we may be in the process of pulling back up a bit. So if that’s the case, topside resistance is at 1.0684, 1.0709, 1.0777, 1.0814 and then the key recent 50% Fib at 1.0906. Only consecutive closes over this level would turn the market back to neutral from the newly changed mildly Bearish bullet point above. Below the market support is at 1.0551, 1.0537, 1.0518, 1.0455, 1.0357, 1.0331 and 1.0170. If we get to the last support…well…it’s not a big leap to try down to parity.

EURUSD TREND DOWN?

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An interesting Daily Chart this one…First off, the Ascending Triangle Pattern I have been writing about for a few months now…well it did not materialise. We have a big Key Reversal Down on the Monthly Chart and that has put paid to such action I think. I’ve taken off the Jan – May Schiff Pitchfork and recalibrated the Uptrend (currently 0.7318) as the first was redundant and no longer showed the Angle of Attack of the market plus the second was punctured and needed a shallower Angle.

The action since the U.S. Election moved a spike higher and then rapid decline with the market following on since has been classic Bearish with three out of four MAs pointing down and a Dead Cross of the Short/Medium MA down through the Medium MA on the 22nd of Nov. However, we’ve seen a recent small recovery from the move lower.

At this time, would only suggest caution if we have consecutive closes over the Key 50% Fib of this move lower at 0.7541 as though on the face of it one might be inclined to see higher prices, I have a suspicion that this might become a Bear Flag.

If that is the case then I’ve marked an ‘X’ at the approximation of where the potential target might be…about 0.7060. Interestingly, whilst marking this on the Daily Chart above, I noted the crossover of the Centre Tine of the main Bearish Andrews Pitchfork and the Lower Tine of the Bearish Schiff Pitchfork of the same move.

These crossovers usually indicate high volatility days or a change in trend rather than a target. This one is marked above with a circle and is on about the 12th of Dec. So with all this being said, support is currently at 0.7448, 0.7427, 0.7406, 0.7366 & 0.7329 – 0.7305.

Resistance is currently at 0.7485 – 0.7488, 0.7529(dynamic), 0.7541, 0.7597 & 0.7692(dynamic). With three out of four MAs pointing down and the market trading below basically all of them, I’ve pushed the bullet point into mildly bearish with a view for further bearishness…but not fully convinced till after any attempt at 0.7541.

AUDUSD TREND DOWN?

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From neutral last month we moved into mildly Bullish this month…actually since the Trump Key Reversal Up after the U.S. Election. Most recently we have dithered a little but we are still at the top end of the recent range and the Triple/Quad Bottom has kicked in and then some more. The Feb 114.89 high is realistically the last real resistance before 116.00 and it could be argued the last before the old support/resistance band based around 120.00 from last year, so it will be interesting how the market now reacts.

There is also the doubled up target for the Triple/Quad Bottom (we’re there) so it would be interesting also to see if there is anything further that this pattern could provide. With three out of four MAs pointing upwards it is appropriate that I turn the bullet into above into mildly Bullish…I’m just a bit concerned by the pullback over the last two days, just cautious I guess. Support is currently at 111.32, 109.61, 108.82, 107.99 and then a congested band between 106.96 – 106.38 which contains amongst many supports the two key recent 50% Fibs (107.99 & 106.96) plus the Long MA (currently 106.33). If all of these get taken out on the downside with two consecutive closes beneath then we are definitely back into neutral and with a Bearish tinge.

USDJPY TREND DOWN?

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I was very inclined last time to look to see a move back down to test support; especially as I thought then the Medium MA support (currently 3.2528) needed another test of its resilience. However, this proved not to be the case as prices continued higher from the possible Double Bottom Pattern that had formed over the summer and we pushed up through the key July high at 3.3716 and started to test the high formed mid Jun around 3.5150 before falling back.

Since then we’ve managed to stay above the recent 50% Fib at 3.3343 and slightly longer term 50% Fib currently at 3.3040. We have also breached, failed, breached again, failed again either side of the Long MA which leads me to say that its bearish action has been an interesting market attractor and a very recent market angle of attack indicator. However, all this is seemingly coming to an end as last Friday we had our highest close over the Long MA since Mar this year.

If the suggested idea of a Bull Flag actually comes about then prices will first have to overcome with at least two consecutive closes the 3.5074 Nov high. Next up there is the 50% Fib of the May 2015 – Sep 2015 move at 3.5648 & then the May highs at 3.6378 & 3.6755. However, those latter ones may be too big an ask as we can plot an approximate target for the DB of around 3.6300 (marked by an ‘X1’ above).

Additionally, if we were to have a Bull Flag then potential targets could be the 3.6650 area (marked ‘X2’ above) or the 3.6850 area (marked as ‘X3’ above) depending on your count & crayon. All this is supposition at the moment…let’s see what happens if and when we get to 3.5074. Other downside support is at 3.7672, 3.4516, 3.4034, 3.3839(dynamic), 3.3752, 3.3520.

Finally there’s the possible Bullish Bow Tie formed around the 15th along with the following Golden Cross of the Short/Medium MA up over the Medium MA. Using the 15th then the Bullish action for the Bow Tie ought to kick in between the 6th – 13th of Dec. The Golden Cross would affirm should it happen and hopefully be a good indicator beforehand. With three out of four MAs pointing up and the market over the Long MA, I’ll turn the bullet point above into mildly bullish.

USDBRL TREND UP?

Definitions

TREND UP – Any one or more of the following may occur! Market has turned upwards/risen & is likely to carry on, usually till at least the next Monthly Foreign Exchange Commentary. Moving Averages (MA’s) are pointing higher or have either crossed, formed a ‘Golden Cross’ or based out. Chart patterns & trendlines (Channel, Support, Andrew’s Pitchfork, etc…) point higher. No appreciable resistance levels (Fibs, Historical, etc…) are noted.

TREND UP? – Any one or more of the following may occur! Market exhibiting signs of exhaustion after a recent rally. Prices may be achieving an upside/downside target level or approaching major/strong resistance. Market may have started/completing a rally/recovery and it may be looking indecisive/going sideways or it is too early to tell in the short, medium or long-term charts. Moving Averages (MA’s) may point higher or have positive crosses but the picture is not conclusive. Some, but not all chart patterns & trendlines (Channel, Support, Andrew’s Pitchfork, etc…) indicate higher. Appreciable resistance levels (Fibs, Historical, etc…) are noted close to the market.

TREND? – Any one or more of the following may occur! Market exhibiting neither a bias for a rally or a decline. Market is either nowhere near or alternatively caught within narrow bands of support/resistance. Moving Averages (MA’s) point sideways & indicate no immediate likelihood of crossing. No strong chart patterns or trendlines evident. Sometimes, I frankly haven’t a clue!

TREND DOWN? – Any one or more of the following may occur! Market exhibiting signs of a recovery after a recent fall. Prices may be achieving an upside/downside target level or approaching major/strong support. Market may have started/completing a decline/fall and it may be looking indecisive/going sideways or it is too early to tell in the short, medium or long-term charts. Moving Averages (MA’s) may point lower or have negative crosses but the picture is not conclusive. Some, but not all chart patterns & trendlines (Channel, Support, Andrew’s Pitchfork, etc…) indicate lower. Appreciable support levels (Fibs, Historical, etc…) are noted close to the market.

TREND DOWN – Any one or more of the following may occur! Market has turned down/fallen & is likely to carry on, usually till at least the next Monthly Foreign Exchange Commentary. Moving Averages (MA’s) are pointing lower or have either crossed, formed a ‘Dead Cross’ or topped out. Chart patterns & trendlines (Channel, Support, Andrew’s Pitchfork, etc…) point lower. No appreciable support levels (Fibs, Historical, etc…) are noted.

 

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Eddie Tofpik’s annual FX review – January 2017

“Last year I wrote how I had in the run up to the end of 2015 written quite a few fairly Bearish pieces and that the market had been fairly bearish and that it seemed to be settling into a somewhat neutral state with possible bearish tendencies.’ I went further a suggested in Nov 2015 we have two possible outcomes for the next 12 months” – Eddie Tofpik