AUDJPY – Can it Break Through 87.00?

AUDJPY – Can it Break Through 87.00?

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Australian employment shocked the market with yet another stunning gain yesterday. Australia generated 61K new jobs versus 19K eyed as the unemployment rate remained steady at 5.4% while participation rate climbed to 65.5% from 65.1% the month prior. The news caps an incredibly strong year for jobs in the Australian economy which saw employment expand at 3.2% pace in 2017. Furthermore fully 80% of the jobs have been full-time jobs suggesting that broader GDP growth should remain sound for the foreseeable future.

Over the past few months, the Australian economy has been dogged by weak Retail Sales, muted inflation, and sagging housing prices all of which have weighed on demand and have kept the RBA firmly in neutral territory. But the solid pace of job growth stands as a strong counterpoint to the recent soft data and should translate into better demand into the start of 2018.

At the same time, US data is also showing strong gains as US Retail Sale blew past expectations today rising 1%. Although that has not translated into strength in USDJPY just yet, the market will have to respond sooner rather than later especially if US data continues to improve. That puts AUDJPY on pace to target 87.00 over the next several days.

Is EURJPY the True  FOMC Play?

Is EURJPY the True FOMC Play?

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For the past few weeks, EURJPY has been contained to a 132.00-133.00 zone as the push/pull tug of war between bulls and bears provided no clear winner. The market essentially remains in a “show me” mode as traders await the FOMC rate decision and more importantly its guidance about the growth and inflation in 2018.

While the chance of a rate hike tomorrow is 100%, the much more important question is whether the Fed has now moved unambiguously into a tightening mode as it tries to normalize policy. If the statement tomorrow looks past the weak inflation numbers and instead upgrades the growth forecast the dollar is likely to rally hard against the yen, but may not necessarily gain much ground against the euro as markets will assume that Fed’s upbeat outlook will spill over into global demand and will, therefore, force the ECB to become more hawkish as well. That’s why EURJPY may be the best yen cross for a bullish FOMC day especially if it breaks above the 135.00 resistance level clearing the way for a strong rally into the year-end.

Will EURUSD Break 1.17?

Will EURUSD Break 1.17?

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Will EURUSD Break 1.17?

The EUR/USD fell every day this past week despite generally healthy data. Although part of this could be attributed to the rise in the U.S. dollar, the single currency is also pressured by Germany’s political troubles and a dovish central bank. The last time the ECB met, they cut their asset purchase program but said rates would remain at current levels well past end of QE, which means October 2018. Despite improvements in the labor market, manufacturing and service sector activity, we don’t expect the central bank to change their views and a reminder of their dovish stance could extend the slide in EUR/USD below 1.17, or have little impact on the currency. Either way, we don’t expect the euro to rally on the back of the rate decision.

Technically, the weekly charts show that the next level of support for EUR/USD below 1.1750 is 1.1660 followed by the November low of 1.1550. If EUR/USD rises back above the 20-week SMA, then its probably headed back to 1.19

GBPJPY – Headed to 153.00?

GBPJPY – Headed to 153.00?

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GBPJPY finds itself at the intersection of the two biggest stories this week -- the US payrolls data tomorrow and the Brexit negotiations with EU. The pair was extremely volatile today jumping up and down at every positive or negative headline and could remain so until the end of week’s trade, but should developments follow the scripts of the bulls, the pair could skyrocket through key resistance at the 153.00 level taking out the yearly highs.

If UK and Ireland can come to terms the prospect of a soft Brexit is sure to increase sending cable to a test of post-Brexit highs above the 1.3600 level, that in turn could lift GBPJPY towards 155.00 especially if tomorrow’s NFP show strong wage growth. The one-two confluence of positive factors could send the pair to fresh yearly highs. Of course, headline risk works both ways and the pair could tumble hard below 150.00 if both stories disappoint.

USD/CAD to 1.29?

USD/CAD to 1.29?

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USD/CAD to 1.29?

To everyone’s surprise, the Bank of Canada completely dismissed the recent improvements in data, choosing instead to focus on moderating growth, considerable trade and geopolitical uncertainty and the ongoing slack in the labor market. For all of these reasons they felt the need for continued cautiousness on rate moves. Investors were hoping for a hint of optimism and unfortunately they got none of that from the BoC and now there could be further CAD weakness. Considering that the market was reluctant to take USD/CAD lower before the rate decision, the validation of their fears should drive USD/CAD higher. We also believe that tomorrow’s IVEY PMI report could see some weakness after the big jump last month.

Technically, USD/CAD is now trading back above the 20-day SMA, having held the 50-day SMA support. The pair could extend as high as 1.2900 with the 50-day SMA and 23.6% Fibonacci retracement of 2016 to 2017 sell-off serving as strong support.

More Seesaw for Cable?

More Seesaw for Cable?

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Sterling continued to seesaw in Asia and early London trade dropping to a low of 1.3360 on disappointment that there was no announcement of a deal yesterday, only to pop back on comments from Philip Hammond that talks were progressing well. Behind the scenes, the key issue is the status of Northern Ireland and the unfettered movement of goods services across all of the Irish isles. PM May appears ready to concede those points to the Irish, but the carve out of these rights could open up pandora’s box of problems for Ms. May as the Scotts and even the city of London -- both hot spots of Remain sentiment may seek the very same privileges. In addition, Ms. May’s junior coalition partners the hard right DUP party could withdraw from the government on any such deal. For now the markets are in a wait and see mode, but volatility in cable is sure to explode on any tangible news one way or the other.

Any positive news could send the GBPUSD pair to fresh yearly highs above 1.3600, but if the deal falls through the decline could take the pair all the way to 1.3000

AUD/USD Pre RBA Levels

AUD/USD Pre RBA Levels

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AUD/USD Pre RBA Levels

The Australian dollar will be in focus tonight with PMIs, retail sales and the Reserve Bank of Australia’s monetary policy announcement on the calendar. We are looking for slightly stronger data and unchanged policy guidance but that may not do much for the currency. Taking a look at how Australia’s economy performed since the last meeting, first and foremost, there were fewer than usual economic reports released between monetary policy announcements. Retail sales, the trade balance and Q3 GDP for example won’t be shared until the day of or after the RBA rate decision. Since the November meeting, consumer confidence has fallen, inflation expectations declined and housing activity slowed. Labor market indicators were mixed but for the most part the RBA is happy with the jobs market. Business confidence and manufacturing activity also improved as iron ore prices rocketed higher. These improvements will encourage the RBA to maintain their neutral policy stance while preserving their view that inflation will remain low for some time. Since we don’t expect anything new from the central bank, the impact on AUD should be limited. AUD/USD is still in a downtrend but we don’t believe that the RBA announcement will take the pair out of its .7532 to .7660 range – the catalyst will either be Australian data (retail sales and GDP) or U.S. data.

Technically AUD/USD needs to close firmly above .7650 in order to shake off the downtrend. Even then, there’s resistance between .7680 and .7720. However by the same token, there’s also significant support at .7530. A break below that level could precipitate a stronger move lower down to 74 cents.

USDJPY – Will the Gap Hold?

USDJPY – Will the Gap Hold?

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The dollar was better bid today with USDJPY gapping higher on the week’s open in Asia as currency markets breathed a sigh of relief that the Flynn indictment may not have been as politically damaging to Donald Trump as initially reported. The passage of the tax cut bill by Senate was also viewed as bullish for US growth with benchmark 10-year yield popping to 2.40% in morning European dealing.

But tomorrow we get an insight into how well the US economy is doing. ISM Non-Manufacturing report covers more than 70% of the US economy and is the 2nd most important data point for investors after the NFPs.

The market is looking for a modest pullback on the headline, but the true interest of traders will the employment component which tends to be the single best forecaster of the job report and the price paid component which could an early hint that inflationary pressures are finally making their way through the economy.

If ISM beats to the upside it could unleash a rally in rates, and USDJPY could head towards 114.00 as all systems will signal go for US growth.

EUR/CAD to Break 1.50, Head Towards 1.49

EUR/CAD to Break 1.50, Head Towards 1.49

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EUR/CAD to Break 1.50, Head Towards 1.49

For the Canadian dollar, all of the past week’s losses were recovered in one day on Friday on the back stronger than expected GDP and employment numbers. It was the best day for the loonie in more than 8 months and a large part of that has to do with how these reports will impact the Bank of Canada’s economic assessment next week. With more than 79K jobs added in the month of November, Canada experienced the strongest period of job growth in 4 years. Full time and part time work increased, driving the unemployment rate to its lowest level to its lowest level since February 2008. While GDP growth slowed in the third quarter, the robustness of the labor market and stronger than expected GDP growth in September completely overshadowed the report. The Bank of Canada has less to worry about in December than in October because everything from retail sales, to the labor market, housing market, manufacturing activity, trade and oil prices improved since the last meeting. The only area that deteriorated was inflation. While that is also a big focus for the BoC, we expect the Canadian dollar to trade higher into and possibly following the rate decision. We think its strength will be particularly pronounced against the euro which continues to struggle with political troubles. . German Chancellor Angela Merkel wants to form a coalition government with the Social Democrats but the leader of the SPD party denied talks.

Technically, EUR/CAD collapsed on Friday and such a strong move generally has continuation. At minimum we expect EUR/CAD to break 1.50 and hit 1.4960 but the sell-off could easily extend to the 50-day SMA near 1.4900.

EUR/USD Back to 1.19?

EUR/USD Back to 1.19?

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EUR/USD Back to 1.19?

The euro on the other hand bounced off its lows of 1.1817 to end the day in positive territory. The latest economic reports were mixed with German consumer prices rising in November, Eurozone business confidence ticking upwards but industrial and services confidence fell short of expectations. Even so, all of these represented improvements in the Eurozone economy. The latest comments from ECB officials were also relatively positive with Bundesbank President Weidmann saying the central bank’s growth outlook could be raised given strong data. He also expressed his skepticism over the need for QE. Vice President Constancio felt that the euro area is much more resilient to possible shocks. German retail sales and labor market numbers are due for release on Thursday. Given the sharp rise in the employment component of the PMIs, we believe tomorrow’s report will show a material improvement in labor market conditions. If we are right, EUR/USD could squeeze up to 1.19.

Technically, the EUR/USD has found support above the 100 and 50-day SMA. It is too early to tell whether 1.1817 marks a bottom because there’s still scope for a move back to 1.1750/60 but if EZ data is good, we could see a rally above 1.19

GBPUSD – Test of 1.3600 Coming?

GBPUSD – Test of 1.3600 Coming?

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Cable popped in late London trade on reports from the Independent that EU and UK have agreed to a Brexit divorce bill. While no details were given, the news if confirmed is the first bright spot in Brexit negotiations for PM Theresa May and suggests that two parties may be finally reaching some key compromises on the issues.

Still, Brexit talks face an uphill test, especially given the key negotiating deadline of December 4th next week, and unless UK can offer palatable solutions on both the Northern Ireland border issue and on freedom of movement concerns, today enthusiasm may evaporate and GBPUSD could tumble towards 1.3000 once again.

On the other hand, if this is the first step to a serious Brexit agreement, the upsurge in cable could continue unabated for much longer than anyone imagines and the pair could challenge 1.3600 before year end.

EURJPY to 131.20

EURJPY to 131.20

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EURJPY to 131.20

The EUR/USD ended the day at its lows after hitting a high of 1.1961. A reversal as strong as today’s is generally a precursor to further weakness. While it is difficult to say what caused the currency’s underperformance, 1.1975 was about the level where ECB President Draghi described currency moves as volatile. Back in September when EUR/USD was trading near 1.1975, he said “the recent volatility in the exchange rate represents a source of uncertainty which requires monitoring.” We doubt this view has changed given Germany’s political troubles and the low level of inflation but that along with the weakness of German yields are the main reasons for the euro’s underperformance. The technical structure of the pair now signals a deeper correction to at least 1.1850, which is why we like selling euros. However we have chosen to sell EUR vs. the Japanese Yen because we believe that tomorrow’s economic reports will add additional pressure to USD/JPY. We also expect more pushback on tax reform before an agreement that leads to a floor vote. Jerome Powell also faces a nominee hearing on Tuesday and while he has never dissented from a Fed decision, he has a reputation of being dovish on monetary policy.

Technically, EUR/JPY sold off sharply on Monday but it is the abundance of moving average resistance on the 4 hour chart that makes it a particularly attractive sell. There’s no major support until the November 19th low of 131.14.