Eddie Tofpik's currency analysis as EU referendum approaches

Britain decides! Eddie Tofpik’s currency analysis as EU referendum approaches

Andrew Saks

By Eddie Tofpik, Head of Foreign Exchange at ADM Investor Services International Limited. As at close of business on June 3, 2016, Eddie Tofpik takes a close look at FX trading for this coming week, in anticipation of Britain’s referendum on European Union membership. GBPUSD TREND? My choice last time to leave the bullet point in […]

Eddie Tofpik's currency analysis as EU referendum approaches

By Eddie Tofpik, Head of Foreign Exchange at ADM Investor Services International Limited.

As at close of business on June 3, 2016, Eddie Tofpik takes a close look at FX trading for this coming week, in anticipation of Britain’s referendum on European Union membership.

GBPUSD

TREND?

My choice last time to leave the bullet point in neutral was just about right…my choice for doing the same until at least the 23rd of Jun may also probably be as fortuitous. This doesn’t mean we haven’t had any action during this past month but that we’ve ended within 100 tics of where we started when last I wrote – 1.4611 down to 1.4519! In that time we’ve had on the Daily Chart two Key Reversals Down (3rd and 31st of May) plus one KR Up (3rd of Jun).

The Weekly Chart is a good illustration of what indecision is actually occurring under the guise of seemingly definitive TA patterns. The last two weeks have a Bearish Dark Cloud Cover Pattern but before that we had a Bullish Engulfing Pattern and then the week before that we had a Bearish Harami. As for the Monthly Chart, we’ve a Bearish Dark Cloud Cover Pattern so you can see the confusion, after all this is precedes Friday’s KR. So we’re in the 3rd State of Markets…neutrality but with some wild

Nevertheless, there are some interesting signs. The rally at the start of Jun failed at the Upper Tine of the Jul 2014 – Apr 2015 Schiff Pitchfork (currently 1.4624). The next rally reached this but notably failed forming a new high and also failed at the Long MA (currently 1.4732) so it would seem we have some selling resistance over 1.4624 (dynamic) up to 1.4732 (dynamic).

On the downside, we tried lower under the Apr-to-date 50% Fib at 1.4386 but only after numerous attempts and then only one close underneath plus that was when prices failed ahead of the Feb-to-date 50% Fib at 1.4302 which is also coincident with the 61.8% Fib at 1.4295 of the Apr-to-date move.

Those are the two key recent bands of support and resistance in a neutral but seemingly volatile pair. Further support can also be found at 1.4476, 1.4412, 1.4343(dynamic), 1.4192, 1.4129, 1.4088 & 1.4004 whilst further resistance can be found at 1.4600. 1.4723, 1.4738, 1.4769, 1.4813, 1.4947 & 1.5050.

From last month’s commentary ‘The key move for the recent rebound upwards would seem the previously mentioned 50% Fib at 0.7883…and I agree it is important but in the ascending action I would say the new Apr 50% Fib at 0.7923 is key. Consecutive closes over this and we are back where we were last month at this time.’…and then later ‘Given the peaking action during the month & despite the bullish turnaround of the last few days (…it is after all only a few days…) I feel obliged to tone down to a milder bullish sentiment on the bullet point above…with a question mark.’

From this you can gather how the then key 50% Fib at 0.7923 figured in the structure…well we tried up to 0.7923 for just about the first half of the month…and then we failed. No two consecutive closes over it…not even one…though intraday prices had risen up as far as just short of 0.7950.

The failure happened over the 17th & 18th of Jun when prices first closed on the Bullish Middle Tine (currently 0.7875) of the 2015 Andrews Pitchfork and the next day well below it. Prices bounced then tumbled until they approached the combination of the Lower Tine of the 2015 AP (currently 0.7563) and the Long MA (currently 0.7535) where they formed a very nice Bullish Double Bottom and have risen since then. Last Friday’s action on its own is very interesting as it has technically formed a Key Reversal Up whilst also testing for the first time the 50% Fib of the 2016 high-to-date move down at 0.7839 for the first time.

So what now? Well, we have a significant opportunity to try higher again but we also have some significant obstacles – for this we need two consecutive closes over the 0.7839 Fib, we also need to see the market’s action at the Middle Tine of the 2015 AP (currently 0.7875) and then we need to see if the market can have two consecutive closes over the previous resistance around 0.7975. Only then can the apparent band of resistance formed between 0.8117 – 0.8166 made up of the 2016 high, the key 2008-to-date Downtrend and the key 50% Fib of the 2007 – 2008 move…interesting that one. Support is currently at 0.7798, 0.7773 – 0.7780, 0.7563 – 0.7535.

With MAs having two neutrals and one down & up respectively, I am minded to follow the Long MA and keep the bullet point above bullish but with a question mark.

Capture

EURGBP

TREND UP?

From the last part of last month’s commentary ‘…would bring your attention to the two smaller circles on the 3rd – 5th and 12th – 13th where possible significant market changes may occur.’

Though I’ve since taken the circles off the Daily Chart above, the 3rd of Jun has ended up – so far – being the high for 2016. The 13th you can only see in hindsight – it was when the May move down broke down through its yet to be established 50% Fib – so the first circle was very useful whilst the second is academically so for the most part though I imagine if you followed the first one then you may have added on the second. The move down in May culminated at the vital support of the Long MA (currently 1.1093) and the Aug 2015 – Dec 2015 50% Fib at 1.1125.

I suspect the Dec 2015-to-date Uptrend (currently 1.1072) being nearby also helped. For a while last week it seemed as if the market was being held between the previously mentioned support against the resistance of the Medium MA (currently 1.1187) but the Key Reversal Up last Wednesday put paid to that and was the overture to the big move up on NFP Friday. On Friday’s action, the most significant feature among many is the close over the previously mentioned 50% Fib of the May move down at 1.1355…very significant.

A second consecutive one wouldn’t hurt the bullish case. So where next? Well, we have newly formed Bullish Andrews & Schiff Pitchforks which you can see on the Daily Chart above and might seem opportune targets but ideally the 2016 high at 1.1615 ought now to be in some sights…thereafter the Aug 2015 high at 1.1711, the action which has played such a significant role in this market plus the first of the longer term Fibs – the 38.2% Fib of the 2014 – 2015 move at 1.1806.

In the meantime resistance is also at 1.1417, 1.1429(dynamic), 1.1446, 1.1464, 1.1521(dynamic) & 1.1735(dynamic). Support is at 1.1355, 1.1311, 1.1294, 1.1263, 1.1217; key 1.1154 – 1.1093(dynamic) & again key at 1.1072(dynamic)…if these last two are consecutively broken then we go into neutral. I’ve decided to keep the bullet point above in mildly bullish for the moment. The reason, well the Monthly Chart has a KR Down whilst both the Weekly & Daily Chart have KRs Up plus with three MAs sideways and one going up it seemed appropriate.

My caution from last time…it was there but perhaps too conservative…’ All of the potential from last month has been fulfilled and now it seems the market doesn’t quite know where to go? We’ve had within the last month five of the twenty sessions as KRs, three down/two up and we’re only 66 tics lower.

The volatility is disguising some uncertainty in the market that lagging indicators such as MAs would not be able to pick up. Hence, I’m putting a question mark on the bullish bullet point above…the least that ought to be done.‘. Two days after this we had a huge KR down followed by declining markets that slowed at the 50% Fib of the May 2015 – Jan 16 move at 0.7492 but then regained enough energy to test the Jan – Apr 50% Fib at 0.7329 and then the Long MA(currently 0.7256) before pushing through the next Fib at 0.7210. However, here was the start of the end of the current decline as an Indecisive Doji Cross on the 23rd of Jun presaged a subsequent Double Bottom with a KR Up in between.

The only reason I can see for halting there is the large band of support formed from the Jan – Feb action… and so we come to NFP Friday’s action. A huge move up with the first close back over the Long MA, the 0.7329 50% Fib and just 1 tic over the Medium MA at 0.7363.

Whilst this does not portend to a super recovery rally, it is noteworthy and may mean the recent 50% Fib at 0.7488 may be back in sight. If not then we head back to see if 0.7142 may hold…but with current action this seems unlikely. Support therefore is at 0.7363, 0.7334 – 0.7329, 0.7299, 0.7256, 0.7210, 0.7183, 0.7159 & 0.7142. Resistance is 0.7406, 0.7448, 0.7488 – 0.7492, 0.7550, 0.7570 & 0.7650. With two bearish MAs, one Bullish & the fourth neutral I ought to put the bullet point into neutral. However, I’m cautious enough to leave it – bullish with a question mark – one more time.

eurgbp

AUDUSD

TREND UP?

Last time I removed the question mark on the bearish bullet point above and of course the market thereafter turned right back up…it’s just what it does to show you that you may get it some of the time…but not all of the time. We’ve had a nice rally since then for most of the month, enough of one that I initially thought we might have a rare Bullish Diamond Pattern but events this past week have obviously stymied that idea – no new high and the NFP fall.

Instead we may have a variation on the Pattern or rather a cross between that and a Bear Flag. It is known as a Half Staff Pattern. Typically, we’d look to see a move down once the breakout of the Half Staff occurred equivalent to the length of the move entering into the Diamond…i.e. initial move A – B could mean a move of C – D…or to about 103.50 on the Daily Chart above. Unfortunately, much like life, there are some issues with this pattern above.

First off – it hasn’t a clear top point to the Diamond – we had a Double Top & as with using a DT here – you have to project an imaginary point which may impact on accuracy and strength of the move. Secondly, the exit from the Diamond was shoddy; we saw prices rise an eventually fall. This may take some of the zest out of the move lower.

So all in all, it isn’t a great Pattern but it still is the only Pattern we’ve got. On the way down we intersect with level ‘X’ at about 105.25 which is the as yet unachieved target for the original Feb – Apr Descending Triangle (we’ve already managed level ‘Y’). Support is currently at 106.22, 105.50, 105.19, 104.66 & of course 103.50. Resistance topside is at 106.92, 107.94, 108.70, 109.80, 109.45, 110.09, 111.43& key 111.68 – 112.06(dynamic). With all MAs pointing Down and Key Reversals Down on Daily Chart above as well as the Weekly Chart I think it appropriate to maintain the fully bearish bullet point above.

USDJPY

TREND DOWN

The idea I had for a Descending Triangle last time petered out with a Pipe Bottom the next day after my publication and was further extinguished by the Key Reversal Down on the 9th. Though the KR Down is a bearish sign, coming as it did at that particular point it took a lot of the impetus out of an already fragile market. After all, I‘d written ‘With three out of four MAs turned down I think it appropriate to push the bullet point above into neutral.’

This just made it into a reality, especially as following the KR Down prices did weaken but failed again with another Pipe Bottom at the same level as the previous one and on the Middle Tine of the Sep 2015 – Jan 2016 Schiff Pitchfork (currently 3.3479).

Just for reference, these two individual Pipe Bottoms have together formed a Double Bottom which is just about the first bullish sign here in quite a while. Since then we have moved sideways to higher with an ‘almost’ KR Up in the mix last Tuesday but with a very significant close below the recent 50% Fib (3.5528) on Friday, the first for over two weeks. I’m glad I have the market bullet point in neutral and will continue this month as though we have had KRs Down, Pipe & Double Bottoms indicating higher, there is an underlying movement for a pattern that has not fully explored or developed yet.

It may be that I am seeing Diamond Bottoms or Bearish Half Staffs elsewhere but I can still see it here yet I can also see a Bullish Rounded Bottom, the previously mentioned Bullish Double Bottom with additional Bullish Pipe Bottoms plus even a possible Bear Flag Pattern. Overall, it is still too early to tell which will overcome so I stay with neutral & keep an eye out for the Bearish Schiff Tines (currently 3.3479 & 3.6954). Support is currently 3.5121, 3.4812, 3.4288, 3.4034, 3.3479(dynamic) & 3.2327. Resistance is at 3.5235, 3.5528, 3.5648, 3.5820, 3.6378, 3.6767, 3.6934, 3.7272(dynamic) & 3.7262.

QJPY

 

DEFINITIONS!

In the commentary you will note immediately following the commodity there’s a bullet point indicating the TREND. To clarify the comments & notes for this point I’ve prepared a short summary.

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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