GBP/NZD – Gunning for 1.8000?

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This morning’s UK inflation report was hot, fueling expectations for more hawkishness from the Bank of England. The UK government could trigger Article 50 any day now, but until they do, rate hike expectations could drive GBP to 1.25. UK CPI printed at 2.3% versus 2.1% eyed while core reading rose to the key 2.0% level from 1.8% forecast. The core reading is now above the BoE’s target rate and was the real reason for the pound rally, as currency markets begin to price in the possibility of a rate hike.

The New Zealand dollar, on the other hand, could come under selling pressure on the back of the RBNZ rate decision. Since their last meeting in February, consumer spending has fallen, GDP growth slowed, the trade deficit widened while dairy prices declined. There was some strength in the services and manufacturing sectors but with the currency so strong, we don’t think that will be enough to ease the central bank’s concerns.

Therefore GBP/NZD has scope to rise further. The pair has no significant resistance until 1.7800-1.8000 corridor while support comes in at 1.7400

GBPJPY – Looking Better Bid

GBPJPY – Looking Better Bid

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Cable completely reversed course today on a much more hawkish than expected BOE rate decision which included a single vote for a rate hike. Despite some clear slowdown in UK economic growth monetary policy officials are clearly eager to move back to normalization and that helped to put bid underneath sterling for the whole day.

Meanwhile, USD/JPY drifted lower today but appeared to have found a bottom the 113.00 figure leaving GBPJPY in a consolidative position. Although GBP/JPY has been in highly compressed low volatility zone for more than a month, there is a discernable upward pattern to the pair as evidenced by the slightly rising RSI slope. A break above the 141.00 level could signal a major move up.

Part of the reticence in USD/JPY has been due to relatively muted consumer confidence readings, so tomorrow’s U of M data looms large and if it beats, could provide the fuel for a move up in the pair.

USD/JPY – The Point of Truth is Here

USD/JPY – The Point of Truth is Here

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We have been arguing for a long time that the 115.00 level remains the separating line between dollar rally and dollar failure. Tomorrow the market will get to test that thesis as the market get ready for FOMC day.

Last Friday’s Non-Farm Payrolls confirmed the US growth continues unabated. The economy generated 235,000 jobs versus forecasts of 196,000. Even the unemployment rate declined for the right reasons as more individuals sought jobs rather than abandon the workforce. Although wage growth was slightly tepid at 0.2% versus 0.3%, it still remains on pace to grow at more than 2% this year.

All of this data should make traders confident about US yields and the prospects for the buck going forward. Yet despite the robust economic numbers, the greenback quickly gave back its gains and managed to close below the key 115.00 level against the Japanese yen on Friday.

That has been the story since the start of this year. No matter how good US data appears to be, no matter how hawkish the Fed, the dollar rally fizzles out very quickly.

Tomorrow that may change if Janet Yellen signals that the Fed is prepared to make 4 rate hikes rather than 3. It’s difficult to see how the greenback would not rally off that news. One hundred basis points of yield would give the buck a huge premium on the yen and would attract carry traders looking to finally make some return. Technically the breakout above the 116.00 level will be key and could be spark of a fresh dollar rally.

EURJPY – Gunning for 124.00?

EURJPY – Gunning for 124.00?

Boris Schlossberg

The EURJPY trade is starting to show signs of life as the pair makes a sharp bottom off the 118.00. The bounce may be reflecting the “reflation” trade as all the major central banks are now moving away from QE mode into a more normal monetary policy regime.

Today’s ECB presser highlighted the fact that the central bank looking to taper eventually, although Mr. Draghi was quick to note that the ECB saw no signs of any serious inflation in the system just yet and therefore ready to maintain the status quo. Still, the market took his words a tilt to the hawkish side and the euro has remained supported throughout the day.

Meanwhile, USDJPY continues to probe the 115.00 barrier which has acted as cement ceiling for the pair since the start of the year. If tomorrow’s NFPs prove to be as good as forecast the 115.00 figure will likely fall by the wayside and EURJPY could explode towards the 124.00 target.

USD/JPY – Can it Hit 115.00?

USD/JPY – Can it Hit 115.00?

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After weeks of listless trade, USDJPY is showing some signs of life as it continues to hold on to the 114.00 figure. Although today trading was decidedly muted the recent price action has all the marks of a dollar breakout.

The benchmark 10-year rate inched above the key 2.50% level helping to fuel pro-dollar flows after several days of very lackluster action. The currency market may be finally responding to a more hawkish Fed that has consistently signaled that it is on a path to hike rates 3 rather than 2 times this year.

Expectations for a Fed hike in March have ratcheted up considerably with Fed funds futures now assigning a higher that 50% chance of an increase. Still, the dollar rally remained within the recent boundaries of the range. If the US labor data, starting with ADP tomorrow proves to be supportive the greenback will still need to take out the key levels at 115.00 USDJPY to confirm that this breakout is real.

USDCAD – Can it Break The Range?

USDCAD – Can it Break The Range?

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For nearly a month USDCAD has been stuck in a 1.3000 -- 1.3200 range as the vol in the pair compressed despite the fact that oil prices have held steady above the $50/bbl level. Part of the problem is that Canadian data has been mixed capping any rally in the loonie. This week’s Retail Sales printed significantly worse than expected at -0.3% versus 0.8% eyed.

Tomorrow the market will get another key data point as the CPI report will be released. The market is anticipating a rebound after two straight months of negative readings, but given the poor final demand numbers, the prospect of another deflationary month could be quite real. If Canadian inflation is actually contracting that could weigh on the loonie and push USDCAD through key resistance at 1.3200.

For now, however, the pair remains highly contained in 200 point range and looks like will remained capped by the 1.3000 -- 1.3200 levels.

EURUSD – How Low Can it Go?

EURUSD – How Low Can it Go?

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Last night EUR/USD broke through the 1.0600 barrier and kept falling all the way through 1.0550 level in essentially one way trade today despite relatively upbeat economic data as the flash PMI readings from the region came in better than expected.

PMI data provides some of the best, most timely readings of the economic activity in the region, yet despite the better than expected readings, the EUR/USD remained under pressure all night long as rates in the region continued to decline. German 2-year yields dipped to an all-time low of -84bp as investors continued to seek safety.

Why such angst amidst what is the best growth data in years? Because the single currency is now trading on political rather than economic concerns as populist parties in both Netherlands and France show rock solid foundation of support.

For now, the 1.0500 remains key, but the true support lies at the 1.0400 figure. If tomorrow’s German IFO report surprises to the upside, but the data is ignored as well, that would suggest that the downward momentum is so dominant that the pair could revisit the 1.0400 figure this week.

Is GBP Rolling Over?

Is GBP Rolling Over?

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Over the past few weeks, UK data has not been encouraging. Although growth continues to maintain its pace, it clear that inflation is rising threat and the full impact of Brexit exodus has not yet hit the country.

For now, the UK consumer is trapped in a nasty vice between higher inflation and tepid wage growth, creating a troubling increase in credit growth. That’s why tomorrow’s UK Retail Sales could prove key as they shed light on the state of the consumer.

Meanwhile, cable has held up relatively well, mainly as a result of dollar’s recent weakness, but on a relative basis, it’s clearly struggling and having a hard time at the 1.2500 level, a failure there could prompt another selloff by the bears and push it towards the 1.2300 figure.

USDJPY – Can it Climb to 115.00?

USDJPY – Can it Climb to 115.00?

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Janet Yellen shocked the currency market today by remaining resolutely hawkish in her view, suggesting that 3 rate hikes this year will be a distinct possibility. This, despite a clear deceleration of momentum in recent economic data. Both the currency markets and the bond markets took her sanguine views with a dose of skepticism as USD/JPY rallied but failed to take out the 114.50 level much less the much more important 115.00 barrier.

Tomorrow, however, the bulls may get their chance. US Retail Sales data is due and it will shed light on the state of the consumer. If the Retail Sales pick up pace as they are expected to rising by 0.4% from 0.2% the month prior, the case for a March rate hike will strengthen. Yet if the number is tepid -- and worse even negative, USDJPY could quickly trade back towards 113.00 irrespective of what Ms. Yellen will say.

USDCAD – Back to 1.3300?

USDCAD – Back to 1.3300?

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The loonie has been a very resilient performer as of late, benefiting from both the rally in commdollars and the fact that oil has held the $50/bbl level so far. But the pair may be ready for a move back up to 1.3300 especially if the dollar maintains its bid and tomorrow’s Canadian labor data disappoints.

Canadian employment is expected to decline by -10K after last month’s monster 50K gain. However, there is a chance that the number could miss as it tends to be mean reverting. If the labor data disappoints, it could spur fresh speculation of BOC easing and could quickly push USD/CAD towards the 1.3200 figure.

Technically, the pair has found strong support at the 1.3000 level and has no serious resistance until the 1.3300 figure.

NZD – Double Top at .7400?

NZD – Double Top at .7400?

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The kiwi has been a stealth rally since the start of the year but it may be finding tough resistance at the .7400 level. Last night the pair was pushed to a high of .7376 on the back of hotter than expected inflation data, but the days’ reversal should make bulls cautious ahead of the RBNZ announcement tomorrow.

The RBNZ is expected to keep rates on hold, but the market will look for any signs the central bank may be willing to cut rates further. Although inflation is picking up, the recent labor data was disappointing with wage growth particularly weak. On the other hand, the latest Dairy auction saw prices rise suggesting that demand for country’s principal export remains strong.

If the RBNZ is relatively sanguine, the kiwi could make another foray to the .7400 figure, but any move above that level would require further weakness in the buck.

Cable Double Top?

Cable Double Top?

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Cable saw a sharp reversal today after BOE Chief Mark Carney stated that the central bank will likely ignore any budding inflation and will keep the policy accomodative for the foreseeable future.

After several weeks of strong performance, cable is showing clear signs of relative weakness as traders are beginning to become concerned that the UK economy may have peaked. Tomorrow’s UK PMI Services will provide a clear clue as to the state of the UK economy. The market is looking for a small dip lower, but if the drop is more severe the pair could easily give up the 1.2500 figure and may even test 1.2400 if US NFPs print above 200K.