Thursday's FX Technicals

Traders’ focus today will be on ECB and BoE: The news had little impact on the dollar in yesterday’s session, which weakened throughout much of the day against the G10. The British pound was the main winner as it gained against the USD and EUR after the release of the service-sector PMI which came better than expected at 60.5 in August.

Central Banks
It's a big day for central bank meetings. The Bank of Japan overnight kept policy unchanged, as expected, but modestly upgraded its view on the economy to "recovering moderately" from "starting to recover." Today in Europe we have the Riksbank, the Bank of England and the European Central Bank. No change in policy is expected at any of them. The focus of attention therefore will be on the statements and the press conferences afterwards and particularly whether the BoE and ECB can clarify their forward guidance and convince the market that they do intend to maintain a loose monetary policy. In that respect the press conferences if successful are likely to be negative for GBP and EUR.

Jobs
Later in the day, the weekly job claims are forecast to fall slightly to 330k from 331k, while the ADP employment report for August is forecast to be 185k vs 200k in July. The July figure far exceeded the rise in non-farm payrolls of 162k, so it’s by no means certain that this is a good forecaster of the NFP. Over the last four months the average difference between the ADP and the NFP has been 42k or 26% of the size of the latest change, which is a pretty big discrepancy. The NFP has been higher than the ADP 81 times since Jan. 2001 and lower 70 times, so there doesn’t seem to be a strong bias either way. Nonetheless, it’s the best independent forecast of the NFP around so people watch it carefully.

Finally, the two-day G20 meeting begins in St. Petersburg today and will mainly focus on the slowdown of the growth in the world’s leading economies and how to find new sources of long term growth. An initiative on regulating derivatives will be presented. But the meeting is likely to be overshadowed by the debate over Syria.

The Market

• EUR/USD moved higher, after finding support at the 1.3152 (S1) level and remained between the 1.3152 (S1) and 1.3231 (R1) levels. At the time of writing the pair is making minor moves to the downside towards the 1.3152 (S1) support. A clear downward break of that level would aim for the next support at 1.3077 (S2). We expect EUR/USD to move in that direction as the 20-period moving average lies below the 200-period moving average and alongside with MACD’s reading remaining in a bearish territory, they confirm the pair’s bearish attitude.

• Support is found at the 1.3152 (S1) level, followed by 1.3077 (S2) and the psychological level of 1.3000 (S3) respectively.
• Resistance levels are 1.3231(R1), followed by the psychological levels of 1.3300 (R2) and 1.3400 (R3).

• USD/JPY moved slightly higher following the slope of the channel’s upper boundary. The price is currently below the psychological round number of 100.00 (R1) and if the long holders manage to overcome that hurdle, they should target the resistance of 100.84 (R2). However, since both the RSI and Stochastic oscillator lie near their overbought levels, we should not be surprised if we observe a pullback in the near future (although in recent months USD/JPY has occasionally remained in technically overbought territory for significant lengths of time). On the longer time frame (daily chart), the price remains above the upper boundary of a triangle formation, adding significance to the pair’s bullish picture.

• Support levels are at 99.13(S1), followed by 98.09 (S2) and the psychological level of 97.00 (S3).
• Resistance levels are the round number of 100.00 (R1), followed by the 100.84 (R2) and the 101.52 (R3) levels respectively.

• EUR/GBP continued falling but yesterday found support at the 0.8437(S1) level. If the rate’s downward bias continues, we expect it to break below that support, driving the battle towards new short term lows. Furthermore, the MACD oscillator remains in a bearish territory, indicating negative momentum for the price action. On the longer time frame (daily chart) a head and shoulders reversal formation has been completed adding significance to our expectations for the continuation of the downtrend.

• Support: The only support level identified on the short term horizon is at 0.8437 (S1), followed by 0.8410 (S2) and 0.8363 (S3), both found from the daily chart
• Resistance is identified at 0.8480 (R1) followed by 0.8503 (R2) and 0.8545(R3).

• Gold moved lower, forming a lower high and returning slightly below the 1394 level (R1). As a result, we consider that the price is still correcting its uptrend. If the precious metal moves further down, we expect it to challenge the next support levels of 1376 (S1) and 1347 (S2). On the other hand, if it manages to re-cross above the 1394 (R1) level, we should wait for a higher top in order to apply scenarios about the end of the correction and the uptrend’s continuation.

• Support levels are at 1376 (S1), followed by 1347 (S2) and 1320 (S3).
• Resistance is identified at the1394 (R1) level, followed by 1422 (R2) and 1440 (R3).

• WTI found resistance at the upper boundary of the trading range and returned lower. At the time of writing the price is testing the 107.53 (R1) level, but since it remains in a sideways action, we should be patient until the exit and the establishment of a new trending phase occur. Both RSI’s and MACD’s readings are lying at their neutral levels, confirming the sideways movement and giving no indications of what might be the next price action.

• Support levels are at 105.50(S1), 103.44(S2) and 102.62 (S3).
• Resistance levels are at 107.53 (R1), followed by 108.85 (R2) and 112.14 (R3), found from the weekly chart.