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Renko Technical Analysis

The pre-election jitters engulfed the markets last week as equities and the US dollar fell sharply throughout the week. It was also a busy week with the RBA, BoJ, FOMC central bank meetings. Monetary policy was unchanged but the FOMC signaled that the odds for a December rate hike had increased significantly. On the economic front, US ISM manufacturing PMI signaled modest growth while non-manufacturing PMI fell sharply but was still above the 50-level of the index.

Friday’s jobs report was the main focus as far as economic data was concerned. The October jobs report saw the US economy adding 161k jobs, which was smaller than the forecasts. But this shortfall was made up by upward revisions to August and September payrolls while the US unemployment rate fell to 4.9%.

Most importantly, the average hourly earnings posted strong gains, rising 0.4% on the month which put the year over year growth in average hourly earnings to 2.8%. It was the highest level since June 2009.

In the UK, the British pound was supported as a UK high court ruled that the government must put the Brexit referendum to a parliamentary vote. The British government was quick to dismiss the ruling and appealed to the Supreme Court. The Bank of England’s meeting last week saw the central bank stating that interest rates could move either way with inflation rising sharply last month. The political and economic developments help lend support to the British pound.

Technical Outlook

EURUSD: Last week we noted that EURUSD would move higher which could see gains towards 1.1133. EURUSD pulled back in the early part of the week, just 10 pips shows or 1.0934 and then closed on Friday at 1.1138, reaching our target.

In the coming week, the price action is now likely to correct itself. Look for a reversal near 1.1133 – 1.1149 (or 1.1150) and then look for validation by a breakout from the rising price channel. The declines can be expected to 1.0939 or 1.0945 where EURUSD will correct to. Note that this is a counter trend trade idea.

GBPUSD: Last week, our trade call for GBPUSD was to watch for the upside towards 1.2441. Price closed above 1.2500 by Friday.

This week, GBPUSD could be looking to push lower to retest the recently breached resistance level of 1.2441 where support could be established. Look for a bullish reversal near this support as GBPUSD is likely to resume it gains to the upside. The previously broken support at 1.2953 – 1.2893 is the likely price level where GBPUSD will target for challenging the level for resistance.

XAUUSD: Gold prices tested $1300 an ounce this week but this gain is now nearing exhaustion. Resistance level sits at 1306 – 1302 region. Watch for a breakout from the rising price channel and a reversal near this resistance level as gold prices will drop back to 1275 – 1270 support level. This corrective move is validated by the bearish divergence on the Stochastics oscillator. Also note that the Renko chart below is based on a $2 fixed box with a 15-minute close.

NZDUSD: The kiwi has been in a strong uptrend last week mostly due to better than expected quarterly unemployment data and a weaker US dollar. Price action is showing signs of exhaustion to this rally with the Stochastics showing a bearish divergence. Resistance is identified near 0.7318 – 0.7308 region. A reversal and a close below this resistance level could signal a strong decline in NZDUSD towards 0.7160.

Fundamental Outlook

The week ahead will be overshadowed by the US elections due on November 8th. The market uncertainty heading into the election could keep volatility alive and the US dollar could behave erratically. It is also a short trading week with the US and Canadian markets closed on Friday. On the economic front, data next week is limited to second tier data. The only economic release that stands out is the RBNZ interest rate decision on Wednesday. The central bank is expected to cut interest rates by another 25bps bringing New Zealand interest rates to 1.75%.

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