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Renko Technical Analysis

The markets last week continued to focus on the Fed rate hike expectations. Despite a rather slow but volatile start to the week on Monday which saw US and Canadian markets being closed, the markets gapped on the open after the second US presidential debate. It was another victory for Democratic presidential candidate Hillary Clinton. This helped to support the US dollar.

Later in the week, on Wednesday the FOMC meeting minutes were released. The minutes showed that it was a close call to keep the fed funds rate unchanged at the meeting but offered ample clues that the Fed is very likely to hike rates by December.

On Friday, US retail sales and PPI data were positive with producer prices rising and indicating that consumer price inflation was around the corner. Retail sales rose just enough to match expectations but overall it was positive as consumer spending was seen increasing in September after contracting in August.

With most of the data supportive of the US dollar, the euro and the yen weakened considerably over the week.

Technical Outlook

EURUSD: In last week’s analysis we noted that EURUSD could be looking to move towards 1.1200 for a potential reversal. Price action rallied to just a few pips below this level before falling sharply. Eventually, price broke down the descending triangle pattern’s support at 1.1144 and is now just a few pips shy from testing the 1.0950 target. From here, we can expect a reversal back to retest the broken descending triangle pattern’s support level near 1.1140 (rounded off).

USDJPY: USDJPY has been very bullish and prices broke above 104.130 resistance. Price action is however showing an inclined head and shoulders pattern which could indicate near term downside on a reversal. Based on the measured move of the H&S pattern, a break below 103.50 could signal near term declines in USDJPY towards 102.50. The bearish bias could be invalidated if prices rally back towards 104.50.

EURAUD: The 25pip Renko chart for EURAUD shows the head and shoulders pattern that has been validated with the neckline support at 1.4600 being breached. The downside target is aiming for 1.4150. Watch for any short term reversal and look to sell the rallies. The median line shows a possible reversal near the current levels indicating a correction back to retest the neckline support near 1.4575 – 1.4600 region.

XAGUSD: Silver prices are looking to end the decline subject to the double bottom pattern if it is validated. However, at the same time, price action has also formed a short term double top pattern that could signal the downside weakness. Further declines can be expected if silver falls below 17.16, while to the upside, the resistance at 17.76 needs to be cleared for further upside in prices. Initial target is towards 18.36 followed by a longer term rally back towards 18.96 region.

Fundamental Outlook

The week ahead will be busy for the US dollar with the third US presidential debate coming up on October 19th. Also, watch out for US consumer price index data and housing related data coming out over the week. In Europe, the ECB meeting will be the key event although no changes to interest rates or QE is expected this time around. Similarly, the Bank of Canada’s monetary policy meeting is also due this week. No changes are expected with the BoC seen keeping interest rates unchanged at 0.50%. It will also be a busy week for the Canadian dollar with retail sales and inflation data being released during the week.

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