Daily -UK CPI Gives Sterling (short-lived?) Upward Momentum; NAFTA Talks Continues; European Summit Ahead

NEWS COMMENTARY

Trade war

Investors continue expectant on new developments over the U.S.-China trade war after the Trump administration said on Monday it will implement new tariffs of 10% on $200 billion of Chinese products on Sept. 24, with the tariffs to go up to 25% in January. China retaliated by threatening to implement duties on about $60 billion worth U.S. goods, as previously announced; which is lower than expected. Unless new information hits the wires, markets seem to have fully priced in the current status on the Trade War theme.

Housing Data Ahead

The focus on Wednesday’s economic calendar will be on home construction coming 12:30 GMT.

Housing starts are expected to risen by 5.8% to an annual rate of 1.235 million in August.

OIL

Oil traded slightly lower on Wednesday as stockpile data from the American Petroleum Institute showed a 1.25 million barrels increase in weekly crude inventories.

Traders are waiting for the weekly government data from the Energy Information Administration with expectations for a draw of 2.741 million barrels.

UK CPI

Meanwhile sterling increased after the consumer price index came in 2.7% higher than expected 2.4%, with core CPI 2.1% v. 1.8% forecasted, which is regarded by market participants as yet another reason for the BoE and its MPC peers to to expand their monetary policy normalization plan further with a new rate increase anytime soon.

Later on, according to Times, UK Prime Minister Theresa May is set to reject the improved offer by Chief EU Negotiator Michel Barnier for a solution on the Irish border. Maintaining an open border between the Republic of Ireland and Northern Ireland (part of the UK) has been one of the thorniest issues in the Brexit negotiations. This could make the recent Sterling rally fade.

The report from the times comes a short time before European leaders including May convene for an unofficial summit in Salzburg, Austria, with Brexit being high on the agenda.

NAFTA

U.S. Trade Representative Robert Lighthizer and Canadian Foreign Minister Chrystia Freeland will meet later today in Washington as the two countries remain at odds over some key details on a deal. President Donald Trump has warned he would impose tariffs on Canada in the event of no deal being reached, while Congress remains unwilling to approve a Mexico-only pact.

CHART ANALYSIS

OIL

Last week price continued its ranging move between support at 66.2-64.15 and resistance at 74.45-72.45. After having breached the ascending trend, price turned back to the support zone with a bounce from an ascending trend as shown on the daily chart below. Price is now “pin bar” retesting this zone, as we expect bullish momentum to build up towards the 72.45-74.45 level.

S&P 500

On the daily chart, the price has broken the key resistance level at 2875.58 and stayed above it to reinforce the bullish bias.

However, we should highlight significant reversal signs, including:

1. Elliot’s Wave 5 has formed;
2. AB=CD harmonic pattern in play.
3. A Wedge reversal pattern remains active.
4. RSI Divergence.

Thus, if price breaks through support at 2875.58 we should witness a correction towards 2797.82.

AUD/USD

On the daily chart, the Aussie is clearly reflecting a bearish bias as it descends down a channel that started forming since the beginning of this year; reaching support at 0.71 where some clear sign of reversal showed up.

We expect reversal/consolidation to develop further as:

1. Price has bounced from the support zone between 0.71-0.716.
2. An AB=CD harmonic pattern is rather suggestive.
3. A Wedge reversal pattern.
4. RSI divergence.

the price manages to stay above 0.7225,then it has the potential of reaching 0.733 and 0.745

USD/CAD

On the daily chart, we observe the Loonie to follow a descending channel since June this year, with a false 2 weeks reversal before continuing its way down.

We expect price to fall further to 1.289 and meet the ascending trend line from March’s Low, coupled with the 200 Exponential Moving Average (EMA)

USD/CHF

On the 4H chart, price is moving in a broadening wedge while breaking through the continuous Rectangle pattern at 0.9652. A correction has been already made to this level at the descending trend of the wedge. so, any reverse will take the price back to 0.956

USD/JPY

On the daily chart, price is moving upwards to the 113 target, leaving 112 as near-term support. We expect an extension towards the 113 area before resumption of the downside towards at least 109,75.