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Renko Technical Analysis

The markets kept up with the Trump rally last week with bond yields rising and the dollar index seen breaking the 100 psychological resistance level. Janet Yellen’s testimony last week confirmed that view that the Fed is ready to hike rates in December FOMC meeting. Save for a disastrous upset in November jobs report or a market crash, the chances for a rate hike in December 2016 is almost a done deal.

US economic data has been strong last week as retail sales and inflation figures continued to show that the US economy was picking up steam into the fourth quarter. The markets are also warming up to a Trump administration as seen by the gains recorded in the US equity markets.

Although the dollar has posted strong gains it is very likely that ahead of the December FOMC meeting we could see a pullback in the US dollar. This could basically be a counter trend trade set up to sell the dollar, but it offers some good reward nonetheless. The markets so far are rallying on the fact that Trump’s policies such as infrastructure spending will help boost inflation. No official announcement has been made about this, so there is chance for the markets to be disappointed.

Technical Outlook

EURUSD has been facing one of the worst selling sessions. Price has been steadily declining for the past 10 days without any pullbacks. For traders this represents an opportunity to position for a counter trend set up that is likely to come soon. On the 5 pip Renko chart based on the counter trend price channel strategy, we see that price has been moving within the falling price channel. An early indication of a reversal comes with the falling wedge pattern as well. Look for EURUSD to slide back to 1.0574 region where a reversal can take place. Following a bounce off this level, look to buy EURUSD on a breakout of the channel targeting 1.0674 – 1.0689.

USDJPY has been in one of the sharpest rallies ever, but with no proper support level being established it is hard to expect the sustainability of this rally. On the USDJPY Renko chart, price action is currently forming a broadening wedge pattern. Look for a reversal near 110.70 which could confirm a near term decline. Major support sits at 105.00 which could be tested if price fails to push any higher. Adding to this bearish view is the Stochastics oscillator which is currently forming a bearish divergence as well.

GBPJPY is another currency pair worth looking into as the gains here have been sharp with little to no pullback. Similar to USDJPY, the charts show the potential for a correction in the near term. Currently, we have what looks like a head and shoulders pattern in the making. The right shoulder could see a reversal at 137.02 – 136.77 region. A reversal here followed by a break down below 136.00 could confirm the move to the downside. Support at 130.00 remains in focus if this scenario plays out. The trade set up would be invalidated of course if price pushes above the previous high for 137.27.

Gold prices remain a strong sell and there is a very good chance that the precious metal will be testing the $1200 support level very soon. Price bounced off after posting a low near 1205.11 but the bounce to the previously broken support level at 1215 saw resistance being established. In the near term, look for a breakdown below 1205.11 which could confirm the move to $1200. Gold remains a counter-trend buy signal only on a close above 1215.11. In this case, gold prices could be seen rising to 1270.11.

Fundamental Outlook

The week ahead is a quiet one with no major releases of impact. In the US, it is going to be short trading week as the markets are closed on Thursday on account of Thanksgiving holiday and Friday is a short trading day. FOMC meeting minutes from November and US durable goods orders will be economic releases coming out this week. After Yellen and other FOMC member speeches last week where many spoke in favor of rate hikes, the FOMC meeting minutes might not have that big of an impact. But still it could serve as a catalyst for prices to push lower and make that much needed correction.

In the Eurozone data is quiet with only flash PMI’s coming out. UK’s second GDP revision is due on Friday with markets expecting a 0.5% increase in GDP during the third quarter, which is an unchanged print from the preliminary estimate.

Finally, Japan’s inflation data will be coming out on Thursday/Friday but don’t expect the report to influence the yen much.

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