Wednesday

A key test lies ahead for EUR/USD buyers

Price now trades to a high of 1.1483 on the day and looks towards extending its recovery following a double-bottom bounce off support near the 1.1300 handle. The 38.2 retracement level @ 1.1498 is also another resistance level to look out for but it's all about offers at the 1.1500 handle.

There is also swing region resistance to come from the May and June lows at around 1.1510 so that will be an area where sellers can lean on too. In short, watch out for key resistance around 1.1500-10.

In terms of significance, the 1.1500 level is more psychological in my view. Break above that and buyers will have more conviction to move towards a test of the 100-day MA (red line) again and it will shift the thinking away from moving back to 1.1300 in the short-term.

I'm still not entirely convinced by the offers seen in the dollar here until US traders confirm it but you can't ignore what's on the charts. The midterm election results have gone as expected so there shouldn't be any real surprises for markets but traders so far are reacting towards the uncertainty of what a Democrat House may offer.

They are still holding a 26 seats majority over Republicans at this stage, and that's still the median outcome which will lead to political gridlock in Congress. There's still 23 seats to be declared so if that number drops, it could limit how much gridlock we could be seeing.

But as I've mentioned before, all this does is help to prevent fiscal stimulus that will be pushed forward by Trump, but it doesn't derail the other factors that have been a driving force for markets this year i.e. trade and the Fed.

Sellers have good reason to hold the 1.1500 level for now but if that gives way, it's going to be a good squeeze towards the upside for the pair.

EUR/GBP touches a low of 0.8720 on the day

Price touched a low of 0.8720 before bouncing off it now a little. That coincides with the key support region seen from 16 June 2017 low, a level which has helped to limit downside moves in the past on several occasions.

The low today is a five-month low for the pair and breaks the October low of 0.8723. But it's all about the support level mentioned. Right now, it's a tough ask for sellers to push through to break below that as there is also support to come from the 61.8 retracement level @ 0.8693. That is another level that has proven to be a key area for buyers to lean on.

However, if there is any catalyst for the pound to rally further against the euro, a Brexit deal optimism is one that can surely provide the breakthrough. Optimism is back up again on the day following Raab's thumbs up earlier and further backing of a consensus being struck among parliament members will no doubt unleash further gains in the pound.

If that scenario pans out, the year's low @ 0.8621 will also be under threat surely. But let's not get too carried away, there has been plenty of false dawns before on a Brexit deal. Cautious optimism is the still right approach. It's all about headlines now and things can get pretty dicey when we're at this stage of the trading game. Be careful out there.

GBP/USD touches a low of 1.3021 on the session

Cable falls by about 40 pips on the headline here. The pound has been dragged to lows for the session but in my view, the move here speaks a lot more about market sentiment than it does about the headline itself.

It's not the first time we've seen the DUP flaunt such words as they have been at odds with the EU on the backstop since forever now. And the comments by lawmaker Donaldson is not any different. But with sensitivity heightened this week, talks of a no-deal outcome will start to breed fear and fear breeds selling, which breeds more fear.

The real issue I see here is that it makes it more challenging for Theresa May to find a proposal to present to the EU by the end of the week. Not only does she need to convince her own Cabinet members later today, she also has to contend with satisfying her DUP counterparts on the backstop - in which they don't see eye to eye with European officials, as evident by the headline above.

It feels like she's being stretched too thin and markets will start to feel a little jittery on that. The pound has effectively erased all gains against the dollar today and cable now sits between the swing regions of 1.3000 and 1.3035.

The near-term bias is still more bullish as price sits above the two key hourly moving averages, but if price starts to threaten a move below 1.3000, expect the downside move to pick up traction rather quickly.

It's all headlines now for the pound. Be safe out there.

GBP/USD touches a low of 1.3021 on the session

Cable falls by about 40 pips on the headline here. The pound has been dragged to lows for the session but in my view, the move here speaks a lot more about market sentiment than it does about the headline itself.

It's not the first time we've seen the DUP flaunt such words as they have been at odds with the EU on the backstop since forever now. And the comments by lawmaker Donaldson is not any different. But with sensitivity heightened this week, talks of a no-deal outcome will start to breed fear and fear breeds selling, which breeds more fear.

The real issue I see here is that it makes it more challenging for Theresa May to find a proposal to present to the EU by the end of the week. Not only does she need to convince her own Cabinet members later today, she also has to contend with satisfying her DUP counterparts on the backstop - in which they don't see eye to eye with European officials, as evident by the headline above.

It feels like she's being stretched too thin and markets will start to feel a little jittery on that. The pound has effectively erased all gains against the dollar today and cable now sits between the swing regions of 1.3000 and 1.3035.

The near-term bias is still more bullish as price sits above the two key hourly moving averages, but if price starts to threaten a move below 1.3000, expect the downside move to pick up traction rather quickly.

It's all headlines now for the pound. Be safe out there.

AUD/JPY touches a one-month high and closes in on the 200-day MA

The aussie continues to perk up after a slight setback on Friday on hopes of a US-China trade resolution being dashed. But the currency is continuing its good run and today we're seeing potentially a key technical breakout in AUD/JPY.

The pair has rebounded after a double-bottom pattern being formed at the end of last month and has now broken above yesterday's high of 81.94 and also threatens a break of the trendline resistance since July.

What's more interesting in the chart is a potential test of the 200-day MA (blue line). That currently sits at 82.17 and if tested, it will be the first time since February since buyers have been able to trade at that key technical level.

While all is looking good for risk now, there's still a tricky day to navigate through. The US midterm elections promises to be a defining near-term landmine for risk assets and AUD/JPY - the epitome of risk in the currencies space - will be a part of that.

But as mentioned earlier, any result that doesn't end up in a 50-50 or the Democrats winning both the House and Senate will eventually bode well for equities and risk in my view. In getting election risks out of the way, it paves the way for a potential break higher in AUD/JPY once buyers are able to clear the 200-day MA as well.