EURUSD & USDJPY

News flow over the weekend was relatively light, with markets adding to the positive mood from Friday as the new week kicks off. US President Trump returned from his summer holidays with a tweet saying, “We are doing very well with China, and talking!”. Later he made remarks to the media, where he added that China wants to make a deal and President Xi has something in mind concerning trade. But he did say that Huawei is a national security threat. This was followed by a comment that he was not ready to make a deal with China. He said that a trade deal would be more difficult if there were a violent crackdown on protesters by Chinese forces. Finally he added that he hopes the US-Canada-Mexico trade deal would be up for a vote in Congress soon. Trades will have to sift through his comments for details on the direction to take going forward but there were positives to take away. Overnight there has been a peaceful protest in Hong Kong of up to 1.5 million people. This has settled markets somewhat but it may yet turn out to be that calm before the storm. Brexit headlines appeared in the media over the weekend, with the Sunday Times revealing leaked reports that indicate a return to rationing and a three month meltdown at ports, resulting in shortages of food, fuel and medicine, if the UK crashes out without a deal. The report says that a hard border in Ireland and rising costs in social care are “likely, basic, reasonable scenarios – not the worst case”. German Finance Minister Olaf Scholz say that the government could deploy up to 50 Billion Euros extra in spending if needed, adding that Germany has fiscal strength and can counter a crisis with full force. Gold is trading down to 1507.00 as the positive sentiment creates a backdrop to trade this morning. Asian equities are higher along with US Bond yields.

On a light day for data releases, the Eurozone Final CPI data is expected to match its 1.1% previous reading this morning.

EURUSD

The EURUSD pair has traded around the 1.1100 level overnight, after finding support on Friday at 1.1066. Price slipped down under the 1.1070 support level on Thursday, which had been in place since late April and reappeared in May. A continued move lower takes the pair towards the August low at 1.1027 followed by the 1.1000 level. The falling support trend line around 1.0967 may be used as support in the event of a break below the previous level. Under the trend line the 1.0940 and the 1.0900 levels may be used as support.

Resistance at the broken support level of 1.1107 may not be strong enough to resist a squeeze higher in the short term, until liquidity conditions improve later in the day. A break back higher may push price up towards the 1.1161 level, followed by the 1.1200 area. Above this level the lower high at 1.1250 may resist a move up to retest the trend line at 1.1260. However the line may combine with the level in the near future to create a stronger area of potential resistance. The 1.1300 level is followed by the 1.1324 April high. The 1.1400 round number forms a zone of resistance up to 1.1448.

USDJPY

The USDJPY pair has consolidated its position around 106.000, forming a range from 107.000 to 105.000. Support has been re-established around 106.000 as price traded above the level on Friday. However a push back under this area may point to a retest on the supports around 105.500 and 105.050/105.000. A break below the bottom of the range may find initial support around 104.843 followed by the 104.000 area if risk sentiment continues to deteriorate.

Resistance for the pair may be seen around the 107.000 level from 106.780 up to 107.213. A breakout above this area may potentially create a short squeeze to retrace some of the move down from 109.000. The 107.000 to 109.000 area formed the recent range where price consolidates during June and July. Above this range, the 109.320 level is followed by 109.713 and 110.000. A push above the latter level may encounter resistance around the 110.675 level followed by 111.000 and 112.000, with the high at 112.400.

Phillip Konchar

Core Spreads

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