Eddie Tofpik takes a detailed look at the performance of major currencies

Eddie Tofpik takes a detailed look at the performance of major currencies for September

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

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Eddie’s Crayons…*

GBPUSD – TREND?

COB above is at 1.3288…last month when I wrote this report it was 1.3228…just as I had written; one of the most recent volatile currencies had a quiet month. From my last review ‘…I’ll keep the bullet point above in neutral as if we’re to go lower…well, we ought to have done it by now. So, limited downside but unobtainable upside and we look for another crack at 1.3481 and maybe failure.’. Since those words we have failed to try higher & turned down.

Then failed to try lower – not even managing to break the 2nd lowest move in Jul before turning back up sharply. Only again to fail with a lower high and a Key Reversal Down before bouncing up off the 1.3058 Fib to try higher as at last Friday. However, as I pointed out last time…we still haven’t had a new high over the 1.3481 Jul-to-date high.

Overall, we still have bearish potential with all but the Short Term MA still pointing down and the Bearish Jul 2014 – Apr 2015 Schiff Pitchfork dictating to a certain degree the angle of attack lower. However, there is enough data to suggest a potential Sideways Triangle/Coil Pattern since at least the start of Jul. We are currently testing the Downtrend of this right now and I am keen to see what will be the outcome. We’d need at least a higher high & higher close than early Aug (1.3355 & 1.3371 respectively) & we’re yet to do that.

If we fail then it’s back down to test the Jul-to-date Uptrend (currently 1.2899) with support at 1.3220, 1.3139, 1.3058 & 1.3020. If on the other hand we have at the very least two consecutive closes over the Downtrend, then apart from 1.3371 we have nothing topside resistance till 1.3481, which is currently apparent. If we have consecutive closes over 1.3481 then there is only the 1.3533 high, the 1.3643 Fib & the Medium MA dynamic resistance (currently 1.3801) before we may test the key 50% Brexit Fib at 1.3906. A current measured move up in the Sideways Triangle/Coil Pattern would suggest a target in the 1.4000 area…but it is too early as we haven’t really tried higher…yet. For the moment, bullet point above stays the same…but look out.

We’re down 37 ticks since last time but the move up until mid-month justified the previous month’s ‘TREND UP?’ bullet point above.

After I wrote the piece last time I thought …oh-oh… as we witnessed a Key Reversal Down only two days afterwards. However this was essentially a failure as then two days following that KR Down…we had a KR Up. This set the tone for the rest of the first part of August and prices rallied until the Bearish Dark Cloud Cover Pattern on the 16th which happened due to the market’s approach of the resistance from the Upper Tine of the late June – early July Schiff Pitchfork (currently 0.8802) that you can see on the Daily Chart above which is setting the gentle Bullish angle of attack.

After the DCC Pattern, prices swiftly fell, retesting briefly the Middle Tine (currently 0.8600) as resistance before testing the Lower Tine (currently 0.8398) and closing right on it last Friday. So where now?

It would be reasonable to suggest a further try lower early next week but caution as not only do we have the Lower Tine, we also have support based around lows between 0.8346 – 0.8341. After that we have 0.8293, 08246 & the key 50% Fib area 0.8161 – 0.8166. However first you need consecutive closes under the Lower Tine. Topside, apart from the previously mentioned levels, we have resistance at 0.8429, key at 0.8485, 0.8541 – 0.8552, 0.8570, 0.8653, 0.8691 & then the recent high at 0.8724.

Overall, would suggest looking to see if the test lower early next week has some follow through, If it does then 0.8166 – 0.8161…otherwise 0.8485 followed by 0.8541 – 0.8552 with a possible outside chance of 0.8598. MAs are still bullish apart from the Short MA but we’re below two MAs already(Short & Short/Medium)…so I’ll move it down a notch to neutral for this moment.

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EURGBP – TREND?

I was minded last time to move the bullet point above to mildly bullish on the back of the ‘closed right on the key 50% Brexit Fib. Monday or possibly Tuesday, will be key! If we manage a further close over 1.1171 plus possibly striking up to the Medium MA (currently 1.1235) then this bull move has a chance to tackle bigger resistance at 1.1262 & maybe even have a crack at the Brexit high.’.

Well Tuesday was interesting as we had a great crack up at the Medium MA (currently 1.1212) but then we had an even greater try back down the next day and formed a Bearish Pipe Top. However, the decline was false as two days following we had a great Key Reversal Down…which failed. Mostly I think because there was no confirmation with a close or two below the Long MA (currently 1.1130) at the time.

Prices then indeed went to try much higher as a result and it looked like we might actually try up to the Brexit high at 1.1432. However, prices soon ran out of steam over the Apr – Jun 50% Fib at 1.1263 and gave up just over the Fib at 1.1345 with a Bearish Harami and a Bearish Shooting Star Top either side of a weekend.

Then came along the big Jackson Hole KR Down. This caused the market to drop further to the combi of Long MA & the 50% Fib of the 2015 at 1.1125. We’ve since rallied up from there for a couple of days but we seemingly have formed another Bearish Shooting Star Pattern and also a possible Bearish Matching Pattern, all during last Friday. So it will be interesting to see – despite Labor Day – what early next week brings. At the moment it seems we’re apparently building up for another test lower. With this in mind and with two MAs Up & two MAs Down, I’ve felt it appropriate to move the bullet point above into neutral, possibly in anticipation of a more bearish look next time.

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EURUSD – TREND?

To quote from last time ‘It is right the market is trying higher – all MAs basically point that way – but suggest it will be a grind rather than a flash move at the moment. I’m actually minded to think we may halt between the Middle Tine of the Jan – May move (currently 0.7687) and the May high at 0.7719 – one to watch. Taking all this on board, I’ll have a bullish bullet point above…but with a question mark until I see what happens between 0.7687 – 0.7719.’

Well the market did indeed try higher with a ‘grind’ rather than a ‘flash’ and even managed to exceed 0.7719 and rally up to just before the next resistance mentioned at 0.7765 where we made a small Double Top & headed back down. Please note, though the move extended the suggested range, there were no closes over 0.7719, a vindication in part at least. The move down saw a Key Reversal Down on the 26th of Aug but as expected on any move down, the fall hit problems, in this case between 0.7488 – 0.7492, the combination of 50% Fib supports and Medium MA support.

We did an Indecisive Spinning Top once testing the lows last Wednesday and then moved back up with two Bullish White Soldiers. I’m tempted to draw Bullish Andrews & Schiff Pitchforks for the action late Jul – Aug but I’ve chosen not to this time because 1) this Daily Chart above is messy enough already and 2) the Jan – May Schiff Pitchfork seems to be doing a pretty good job telling us the bullish angle-of-attack of the market. Support is at 0.7570, 0.7529, 0.7488 – 0.7492, 0.7476, 0.7448 & key at 0.7773 (dynamic).

Resistance is at 0.7583, 0.7650, 0.7691, 0.7723 & 0.7756. With MAs, two up, one down and one sideways I’m tempted to go neutral. However, currently the 0.7488 – 0.7492 area seems to be reasonably firm and would therefore suggest a try to 0.7750 before a try to 0.7450…and the bullet point stays the same mildly bullish state.

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AUDUSD  – TREND UP?

What an interesting month! Last time I had hopes then for the following Monday ‘…we’ve headed south with Friday having the first close below both the Long MA and the 50% Fib at 103.27. We obviously need another consecutive close to seek any confirmation so Monday should be interesting.’.

Well, Monday proved to be just what we needed with a second consecutive close followed by Tuesday and a Key Reversal Down…and this is where it all started to get awkward. The low on the KR Down on Tuesday was right on the key 50% Fib of the 2011 – 2015 move at 100.69. Because of this we traded back up again & tried to get back over the high of the previous KR Down (102.81)…but failed…and we gradually eased lower, once again below the 100.69 50% Fib & yet again it was a ‘bitty’ inconclusive move.

No closes below the Jun low & only a single close below the Jul low, not enough to confirm a try lower and that’s what we had until enough pressure built up for the Jackson Hole KR Up that was followed two days later by another KR up. So far, it could be seen as a recovery in an otherwise still bearish market. However, the rally continued & this time with conviction.

Another KR Up on Friday and this past week closes over the 50% Fib at 103.27 on a couple of occasions, most notably last Friday which was not only with another KR Up but with the first close over the whole of the 2016 Downtrend. Prices stopped short of closing over the Upper Tine of the May – Jul Schiff Pitchfork (currently 104.09) but it seems likely that may well be next. Now…a few words of caution. As you are no doubt aware, I believe KRs to be suspect in anything to do with JPY.

That being said, I have seen in recent times KRs Up be more significantly accurate than KRs Down…just be aware that they are still not to be too trusted. Secondly, we are awfully close to the descending Medium MA (currently 105.33). This has been a major stumbling block for most of 2016 and I imagine it will continue (dynamically) to be so here. If prices are to succeed higher then they will need to have at least three consecutive closes over it. With that all being said, it does indeed look like we may have the start of a move higher here. Support apart from previously mentioned levels is at 102.81, 102.65, 102.28, 100.93, 100.06 & 99.69. Resistance apart from previously mentioned levels is at 104.26, 106.63, 106.71 & 107.47.

Two other quick items, I mentioned & circled on the Daily Chart last time two significant crossover dates ‘Whilst not directly giving an idea of direction I would nevertheless caution that these days may have either larger volatility moves and/or may give direction for the next phase.’. The 16th turned out to be the Aug low & the 30th a false Bearish Shooting Star Pattern midway on the move up. With the one MA heading up, one side-lining and two still falling plus given where we are, I think it appropriate to go into neutral on the bullet point above…just in case.

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USDJPY – TREND?

It’s never over till the fat lady sings. I wrote three months ago that there was a possible bearish pattern known as a Bearish Diamond/Half Staff Pattern & I placed a ‘Y’ on the Daily Chart above as a potential target, just over 3.1500. Last month I suggested the late Jun fall & recovery was the final result of that move – well done me I guess!

However, the Bearish Sep 2015 – Jan 2016 Andrews Pitchfork which caused that pattern to formulate and was superior to it also was & is still in operation and hence we’ve had a drop to 3.1125, oddly enough a minor mid-Jul low from 2015 and also coincident on the low date of the 10th of Aug with the Middle Tine – both these at 3.1120 – of the previously mentioned AP. This then was the reason why the last fall happened and why it halted & reversed.

Prices rose to the recent 50% Fib at 3.2421, halted for a while & then rose again but since the 23rd of Aug and despite there being a Key Reversal Up on the 23rd followed by a Bearish Engulfing Pattern on the 24th, we’ve stayed within the 38.2% Fib (3.2115) – 61.8% Fib (3.2727) on a closing basis. The only features of note is the mildly bullish looking but likely Indecisive Doji Cross last Friday and the new Aug Uptrend.

So let’s get this clear, the Bearish Sep 2015 – Jan 2016 AP is still running the show, Middle Tine Support currently at 3.0267 & Upper Tine Resistance currently 3.3742. However, we’ve indecision along with a recent nascent Uptrend. Support is at 3.2421, 3.2115, 3.1881, 3.1835, 3.1622 – 3.1551, 3.1120 & 3.0854. Resistance is at 3.2727, 3.2905 – 3.2984 & 3.3716 – 3.3742(dynamic). Overall, all the MAs bar one are pointing downwards so I’ll keep the bullet point above bearish but tone it down a notch because we’ve reached the recent target, we’ve indecision & there is also a small Uptrend.

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USDBRL – TREND DOWN

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

 

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.

THE STORY OF ‘ Eddie’s Crayons…*

This refers to a deep, long conversation I had with another technician (and also a very dear friend) as to where exactly the neckline on a H+S Top on USDJPY should go… to which he uttered in exasperation & seriousness the immortal words: “Eddie…it depends how thick your crayon is!!!”. Thank you Lou – we laughed till I started to hurt & it made my day!

 

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Inside View, Opinion

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