USDJPY Headed Back to 111?

USDJPY Headed Back to 111?

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USDJPY Headed Back to 111?

There was very little movement in currencies on Monday and this lack of volatility could be indicative of trading for the rest of the week. With no major U.S. economic reports scheduled for release and Fed Chair Janet Yellen not speaking again until after the markets close on Friday, political headlines are the only hope for volatility in the greenback. Traders should be watching for any news on the selection of a Fed chair, North Korea and any progress or setbacks on tax reform. Yellen, who has a 90% chance of losing her job in February spoke on Sunday and her comments were relatively hawkish. She said employment should bounce back after weak September and her best guess is that soft inflation readings won’t persist. Most importantly, she felt ongoing economic strength warranted gradual rate hikes, which suggests they are on track to raise interest rates one more time this year. These positive comments along with the stronger than expected Empire State manufacturing survey helped USD/JPY avoid further losses as manufacturing activity in the NY region grew at its strongest pace in more than 3 years. However looking ahead we believe USD/JPY is vulnerable to additional losses as U.S. and South Korea military exercises begin. A Fed chair announcement is also expected any day now and anyone but Yellen would be perceived as dollar negative and anyone but Powell or Warsh (the 2 leading contenders) could send USD/JPY below 111.00.

Technically while USD/JPY has bounced off the 200-day SMA, its finding resistance at the 20day SMA on the 4 hour charts. The weekly charts also show major resistance between the 50-week SMA at 112.14 and the 50% Fib retracement of the 2015-2016 decline near 112.60. If USD/JPY breaks the 200-day SMA at 111.75, the next stop should be 111.10.

EUR/GBP – Still Headed for 88 Cents

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With the wild swings in EUR/USD came big moves for EUR/GBP on Friday but when the dust settled, sterling outperformed the euro and we think this move will last. The European Central Bank’s monetary policy announcement is less than 2 weeks away. Between now and then, the only thing that investors will be thinking about is whether it will be a hawkish or dovish taper. Based on last week’s mostly better than expected economic reports, the ECB should reduce asset purchases and pave the way for tighter policy. However between Spain’s political troubles (which are no closer to being resolved) and the high level of the exchange rate, ECB officials have stressed that policy will remain extremely accommodative which suggests that their preference for a dovish taper. The longer the market feels that way, the greater the pressure on the euro. In contrast, sterling was this past week’s best performing currency. Now that Prime Minister May’s troubles seem to be fading and the EU’s Chief Negotiator suggested that they could provide the 2 year Brexit transition that she’s been asking for, a soft Brexit and prospects of a year end rate hike have returned to take sterling higher. Next week is an important one for the U.K. because there are a number of key economic reports on the calendar that will play a major role in hardening or weakening the BoE’s case for tightening. Inflation, employment and consumer spending numbers are scheduled for release and we are mostly looking for stronger data that should drive GBP even higher.

On a technical basis, after breaking below the 100-day SMA, EUR/GBP spent the last 24 hours trading firmly below this key support turned resistance level. We now believe that the pair will fall to at least 0.8850, the 20-day SMA and more likely to the first standard deviation Bollinger Band at 0.8800.

Is USDJPY Rolling Over?

Is USDJPY Rolling Over?

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Although US fundamentals remain firmly positive, USDJPY has failed to respond to the data, rejecting the 113.00 level and falling through the 112.00 figure in morning US dealing today. Aside from the usual geopolitical tensions between the US and North Korea, there seems to be something greater that is worrying the market and when there is a discrepancy between price action and news flow, it always pays to take notice.

The weakness in USDJPY may suggest that the markets are no longer convinced that a Fed rate hike is a done deal in December. Tomorrow’s FOMC minutes will reveal just how committed US policymakers are to a tightening regime. The market expects general hawkish consensus, but if the minutes show a wide array of opinions, with many FOMC members still undecided, then the buck could suffer more selling and test long-term support at the 111.50 level.

NZD/CAD to 88 Cents?

NZD/CAD to 88 Cents?

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NZD/CAD to 88 Cents?

NZD/CAD has more room to fall. On a fundamental basis, the New Zealand dollar has recently fallen victim to election uncertainty, lower dairy prices and U.S. dollar strength. These issues will continue to plague the currency after the final votes are counted. The National Party led by Bill English lost 2 seats while the opposition Labour Party led by Jacinda Arden won 1. Both parties need to convince Winston Peters that it is in their interest to form a government which will be a difficult task in the days to come. Peters has said he will make a decision by October 12th but it still not clear whether that will happen. Meanwhile, USD/CAD is losing ground as CAD bulls remain in control. USD/CAD rejected 1.26 on Friday after relatively healthy Canadian data. Although net job growth in Sept was slightly less than anticipated (10K vs. 12K) and the participation rate fell slightly, full time jobs rose at its strongest pace on record. Canada has now experienced its 10th straight month of employment gains and its fastest pace of wage gains in 17 months.

On a technical basis, NZDCAD ended last week at its lows and appears poised for a move down to 88 cents. Gains should be limited by Friday’s high near 0.8950, which is well within our stop limits.

Where to Buy USDJPY

Where to Buy USDJPY

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Where to Buy USDJPY

The U.S. economy lost 40k jobs in the month of September but instead of falling, the greenback enjoyed strong broad based gains this past week. USD/JPY broke above 113 and hit its highest level in nearly 3 months. It gave up those gains on reports that North Korea could conduct a missile test this weekend but the fundamentals supporting the greenback have not changed. U.S. data was better than expected and Federal Reserve officials still plan to raise interest rates. While the impact of the hurricanes on payrolls was more significant than economists anticipated (they were looking for 80K job growth but instead saw -33K job losses), investors quickly discounted the headline number in favor of the upward revision in August, the strong 0.5% rise in average hourly earnings and the lowest unemployment rate since 2001. While the dollar retreated from its highs on reports that North Korea could test missiles this weekend, there’s no refuting the strength of Friday’s jobs report. These better than expected numbers reinforce the Fed’s hawkishness and helped drive up expectations for a year-end rate hike to 77% from 70% one week prior. Just like in 2005 after Hurricane Katrina, everyone is looking for payrolls to be revised higher and rebound next month. With manufacturing and service sector activity accelerating and wage growth rising, we expect the dollar to extend its gains in the coming week. The FOMC minutes scheduled for release on Wednesday should be hawkish and with gas prices rising and wage growth increasing, economists are also looking for a very sharp recovery in retail sales that should take USD/JPY back to its highs near 113.50.

Technically however we have to respect the reversal in USD/JPY. Friday’s candle was an ugly one that typically points to a deeper correction ahead. The only “good news” is that we’re still seeing higher highs and higher lows but at this point, we believe that its best to wait for USD/JPY to dip to the 200-day SMA near 112.

EURUSD – Can it Hold Support?

EURUSD – Can it Hold Support?

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After putting on a valiant fight for the past few days, the euro came under selling pressure again today testing the key 1.1700 support level. Although the market has tried to shrug off the issue of Catalan independence it continues to weigh heavy on the trader’s minds as the political situation in the region remains unresolved.

Meanwhile, the buck received a welcome boost from a rise in US yields today as fears that US labor markets would be severely impacted by the markets proved unfounded. Although the market is looking for drastically reduced payroll number tomorrow given the sweep of Irma and Harvey in September, the focus will be on the average hourly wages. If that data proves to be hotter than forecast the greenback is likely to rally further and EURUSD could fall below the key 1.1650 support

Why AUD May Not be a Buy Anymore

Why AUD May Not be a Buy Anymore

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Why AUD May Not be a Buy Anymore

AUD/USD traded sharply higher today despite stronger U.S. data and weaker Australian data. According to the latest report, service sector activity slowed in the month of September with the PMI index dropping to 52.1 from 53. Yet investors found relief in the World Bank’s upgraded GDP forecasts for China. The organization raised its China growth forecast by 0.2% from 6.5% to 6.7% in 2017 as they feel that the “economic outlook for the region remains positive and will benefit from an improved external environment as well as strong domestic demand.” The Australian dollar will remain in focus this evening with retail sales and the trade balance scheduled for release. The recent slowdown in manufacturing activity suggests that trade activity may have slowed and according to PMI services, retail sales contracted for the sixth consecutive month on growing competition from online and offshore sellers. They also felt that spending was being dampened from slow wage growth and rising housing/energy costs. None of this is good news for AUD/USD and could drive the currency pair lower once again.

Technically however, AUD/USD enjoyed its strongest one day rise in nearly 2 weeks but today’s rally stopped right at the 10-day SMA. With that in mind, the more significant resistance is near 0.7950. Support is at yesterday’s low of .7785, if this level is broken, AUD/USD will see a steeper slide down to 77 cents.

GBP/USD – Heading to 1.3000?

GBP/USD – Heading to 1.3000?

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After nothing but rallies in August and early September, cable has started to drift lower as UK economy appears to be on the verge of contraction. Today. UK Construction PMI printed at 48.1 versus 51.1 eyed as it plunged below the 50 boom/bust line for the first time since September of last year.

With 2 out of 3 UK PMI gauges missing their mark this week, the focus will turn to tomorrow’s UK PMI Services report which is the most important of them all. With services comprising nearly 80% of UK economic activity the market will watch for any large deviation from expectation. The forecast for Services PMI is 53.3 and any sharp decline towards 50 is sure to stoke worries that UK economy may be on the verge of tipping into a contraction.

The slowdown in growth comes at a particularly difficult time for BOE which is grappling with higher than target inflation and the uncertainty of Brexit. If UK economy does begin to show serious signs of a slowdown, the BOE will be hard pressed to raise the rate in such an environment putting further downside pressure on cable.

For now, the upside is capped by the 1.3450 level while on the downside 1.3200 looks vulnerable. If that level goes the shorts will move their target towards the key 1.3000 support.

USDJPY Headed Back Above 113

USDJPY Headed Back Above 113

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USDJPY Headed Back Above 113

The fourth quarter begins with a mild rally in the U.S. dollar. Today’s U.S. economic reports were very strong with the ISM manufacturing index hitting a 13 year high. The data shows that factories are booming and prices are rising. Although part of this strength can be attributed to hurricane related supply chain disruptions and energy costs, there is still underlying strength in the manufacturing sector as we’ve seen similar improvements in the Philadelphia and Chicago regions – two areas not affected by the recent hurricanes. Construction spending also increased 0.5% in August and is likely to rise further on rebuilding efforts. These positive reports along with new record highs in stocks should have driven USD/JPY to 113 and while the pair got very close to that level post data, the gains were given back quickly as bond traders struggle to keep yields up. The beginning and end of the month/quarter are always tricky to trade but this week could be a challenging one for the greenback with non-farm payrolls expected to come in much lower. However between now and then, the market clearly prefers dollars over other currencies and as long as yields and stocks continue to rise, so will USD/JPY.

Technically, USD/JPY is in an uptrend with the 200-day SMA at 112 serving as clear support. As long as that level holds, the pair should make its way back above 113, targeting the Sept highs near 113.25. The 20 and 100-day SMAs are also crossing to the upside which is positive for USD/JPY.

Will AUDUSD Break 78 Cents?

Will AUDUSD Break 78 Cents?

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Will AUDUSD Break 78 Cents?

The new week will also be an important one for the Australian dollar with a Reserve Bank monetary policy announcement on the calendar along with retail sales, the trade balance and PMIs. The Australian dollar has traded lower ahead of the rate decision as investors anticipate more cautiousness from the central bank. This would be a departure from RBA Governor Lowe’s view back in September when he said lower rates would add to risk in household balance sheets, sending AUD/USD sharply higher. However data has taken a turn for the worse over the past month with consumer and business confidence falling, GDP growth slowing, inflation expectations declining and service sector activity slowing. Copper and iron ore prices have also fallen sharply and China is slowing with Standard & Poor’s recent downgrade. There’s very little for the RBA to be excited about and for this reason they could emphasize the challenges that the economy faces over the prospects for growth. If that’s the case, AUD/USD will extend its losses but if they focus on their expectations for a gradual pickup in activity and rise in inflation, AUD/USD could find its way back towards 80 cents.

Technically, 78 cents is a very significant support level. Not only is there horizontal trendline support on the daily chart but the weekly chart shows the 20-period SMA and the 23.6% Fibonacci retracement of the 2011 to 2015 decline right around the same level. So if AUDUSD drops below 0.7780, we should see a much deeper correction down to 0.7650. However if it holds that level then the pair should find its way back above 79 cents.

CADJPY – Ready to Drop?

CADJPY – Ready to Drop?

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Tomorrow the market will get a glimpse of Canadian GDP and inflation data as well US Personal Consumption Expenditure reading which is the Fed’s favorite measure of inflation. Both data points could disappoint leading to a steeper selloff on CADJPY.

The loonie has already been hurt by less than hawkish comments out of the BOC and if the growth data shows a further decline -- or worse a negative reading -- USDCAD could easily scale the 1.2500 level and beyond.

Meanwhile, USDJPY has run into serious resistance at the 113.00 figure and with US yields starting to back up any soft reading in US inflation data could sow doubt about Fed’s ability to hike rates in December. All of this leaves CADJPY very vulnerable to a selloff especially because the pair appears to have found distribution at the 90.00 level. If it breaks to the downside, 88.00 could be soon in view.

EUR/USD Back above 1.18?

EUR/USD Back above 1.18?

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EUR/USD sold off for the third consecutive trading day but buyers are swooping in above 1.1720. This level is significant because it is where the 200-week SMA converges with the 23.6% Fibonacci retracement of the 2008 to 2016 sell-off as well as the 38.2% Fib retracement of the 2014 to 2016 decline. The point is that this is a very important support level and the prime place for EUR/USD to bounce. On a fundamental basis, the outlook for the Eurozone economy is positive and should only be a matter of time before Germany announces a coalition government. With the Federal Reserve meeting and Trump’s tax speech behind us, investors will be able to shift their focus to the European Central Bank who have made it very clear that balance sheet changes are coming next month. For this reason, we like buying euros and believe that the EUR/USD will find its way back above 1.18. German consumer prices and Eurozone confidence numbers are scheduled for release on Thursday. Improvements are expected in both reports.