USDJPY Rejects Key Resistance

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With the week drawing to a close, the rally that took USD/JPY above 110 is losing momentum. Investors are worried that President Trump will stir more trouble at the G7 meeting. He’s widely expected to stick with a hard line on trade, which would amplify criticism and retaliation by other foreign leaders. The pullback in USD/JPY today is driven by a decline in Treasury yields. Jobless claims and continuing claims also ticked higher. There are no U.S. economic reports scheduled for release tomorrow so there’s motivation for a further profit taking on long USD/JPY positions.

Technically, USD/JPY tested and rejected the 200-day SMA and the 61.8% Fib retracement of the December to March decline and is also struggling to hold above the 20-day SMA. The 1 hour, 4 hour and daily charts suggest a further pullback to 109.45 and possibly even a move down to 109.00

AUDUSD – Is that All There is

AUDUSD – Is that All There is

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At the start of the week, the Aussie got the bulls hearts racing as it barrelled through the .7600 level on much better than expected Retail Sales data. But the excitement didn’t last as the RBA quickly poured cold water over any expectations that the central bank would alter its neutral stance anytime soon.

The RBA kept rates on hold for 22nd consecutive month offering nothing new as far as future plans. It made a mildly positive remark about the trough in wage growth, but wages remain well below the RBA normal growth path of 3.5% and in the meantime the central bank remains concerned about the growing trade tensions between US and China, worried that Australia may bear the fallout of any trade war.

Today the market will get a look at the Aussie GDP data which is expected to rise by 0.9% versus 0.4% the month prior. A good print could put the pair back on track towards the .7650 level but the pair remains capped at .7700 for now. Still, the positive data this week should keep the pair supported and it looks like it made a clear longterm bottom at the .7500 level

GBP/CAD – Back to 1.74?

GBP/CAD – Back to 1.74?

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GBP/CAD – Back to 1.74?

Better than expected UK PMI numbers confirmed the bottom in GBP/USD that was days in the making. Manufacturing activity accelerated in the month of May thanks in part to the sharp decline in the currency. Looking ahead, we expect similar strength in the service and construction PMI reports especially given the improvement in consumer confidence. This should foster further gains for sterling, especially versus the Canadian dollar after President Trump killed the NAFTA deal with the request for a sunset clause
that would require NAFTA to be renegotiated in 5 years unless both parties agreed to renew – a term that the Canadians quickly rejected. What appeared to be a done deal is now very much up in the air and until there’s a positive resolution, the Canadian dollar will have a tough time rallying.

Technically, GBPCAD has found its way back to the 20-day SMA and given the strength of the past 2 day’s moves, we expect the pair to blow past this resistance level on its way up to 1.74.

USD/CAD Headed Below 1.28

USD/CAD Headed Below 1.28

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USD/CAD Headed Below 1.28

The Canadian dollar soared today on the back of the Bank of Canada’s monetary policy announcement. Although interest rates were left unchanged, the BoC made a u-turn in their statement by dropping the reference to being “cautious on rates” and removing the language that pertains to the need for “monetary policy accommodation.” With inflation “likely to be a bit higher in the near term,” and activity “a little stronger than projected,” the BoC expects “solid wage growth” to contribute “positively to housing and consumer demand.” We believe that the Canadian dollar will continue to benefit from this shift in sentiment, leading to further profit taking in USD/CAD.

On a technical basis, USD/CAD has fallen below the first standard deviation Bollinger Band. Although there’s some support at the 20-day SMA near 1.2850, we believe that USD/CAD will fall to at least 1.2790, the 38.2% Fibonacci retracement of the 2018 rally and the first standard deviation Bollinger Band and most likely to the May low near 1.2725.

USDJPY – Have We Hit Support?

USDJPY – Have We Hit Support?

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Its been a brutal day for risk as Dow dropped -500 points and Italian political drama upended the markets, but after vicious selloff markets are due for some reprieve. With Italian story now moving off to the sidelines as the country awaits new elections in a few months, the focus shifts to US data as the markets take a look at the first key report of the week -- the ADP employment release.

This week is unusual because all of the preliminary data actually follows the NFPs on Friday, so the ADP is the only clue to how strong the payrolls will be. If the job picture in the US continues to perform to expectation the 10Y yields should start to creep back towards 3.00% and USDJPY should follow in turn. The pair appears to have found some support in front of the 108.00 level and if it can hold the lows, a rally back towards 110.00 could be in store.

USDJPY- Back to 108.50?

USDJPY- Back to 108.50?

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Is the party over for USDJPY bulls? With North Korean summit canceled, a relatively dovish Fed and deteriorating housing market, the positive sentiment has been pummelled this week. Although geopolitical tensions can certainly be a sore, the true point of stress may be housing.

The halcyon days of 2006-2007 may be over, but housing along with the supporting services still represents 18% of US GDP and with mortgage rates at 7-year highs affordability has clearly become an issue. With price softening the wealth effect could start to work the other way consumer sentiment could quickly wither. Add to that rising gas prices and stagnant wages and you have the perfect recipe for an unexpected slowdown in Q2 of this year that could force the Fed to slow it rate hike process. With 10-year yield already below 3% USDJPY could see further slide over the next few days as support at 108.50 beckons

NZDCAD –  Back to the Lows?

NZDCAD – Back to the Lows?

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In a rather butchered syntax, the RBNZ came out on the wires stating that it currently had no plans for unconventional policy (ie QE) anytime in the foreseeable future. The comment was more telling for what it denied rather than what it stated s it revealed that RBNZ is clearly much more preoccupied with easing policy initiatives rather than having any plans to tighten.

On the other hand, BOC meets on May 30th and although the market is only assigning 27% probability to rate hike in May, the bank may offer forward guidance that is more hawkish. Taken together with promising signals on NAFTA deal from President Trump, the loonie looks like a relative bid against the kiwi which suggests that NZDCAD can be headed back towards .8800 in the next several days.

GBPUSD – Will 1.3400 Hold?

GBPUSD – Will 1.3400 Hold?

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Today almost all the BoE members were cautious in their Parliamentary testimony. They all suggested that monetary policy will move towards normalization sooner rather than later. This indicates that the much expected BoE rate hikes will simply be postponed to end of summer rather than 2019.

UK data is the most important economic report in G-7 calendar this week and tomorrow’s UK CPI data, as well as Thursday’s Retail Sales, will go a long way to determining if cable can move through 1.3500 and stage a sustained rally.

In the meantime, the pair continues to hold around the 1.3400 having failed in its breakout of 1.3500. If the numbers miss their mark, the pair could be on its way towards 1.3300 by week’s end.

Is Euro Ready for a Bounce?

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After a near 800 point decline from yearly highs, the euro appears ready for a bounce. The pair has suffered everything from concerns over the slowdown of growth in the region to the upstart government in Italy that seems hellbent on challenging the norms of sovereign debt to the ever-tense relationship with the Trump administration.

But after so much selling most of the bad news has already been priced in and the pair found support today ahead of the 1.1700 level and bounced impressively. Wednesday’s EZ Flash PMI’s could show that activity in the region has stabilized providing a fundamental catalyst for more short covering. Meanwhile, the hammer forming on today’s chart shows that buyers have regained control and could squeeze the pair higher as the week proceeds.

AUDNZD Stalling Ahead of 1.0900?

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AUDNZD put in quite a run over the past week gaining nearly 200 pips during that time. The rally has been driven by dovish RBNZ stance which suggested that it may actually lower rates in the near future. Meanwhile, the RBA remains resolutely neutral and the eco data has been steady, indicating that after nearly two years of inaction the central bank may want to reconsider its posture.

Tonight’s AU employment data could provide a strong clue to the strength of AU economy. If labor conditions continue to tighten further the gap between AU and NZ yields on the long part of the curve will widen out further and the pair could push towards the key 110.00 barrier. However, if the numbers miss, so rebalancing is due and the pair could retrace back to 108.00 by end of the week.

USDJPY – Once More to 110.00?

USDJPY – Once More to 110.00?

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Last week’s tepid US CPI readings and the weak NFP readings the week before that have cooled traders expectations of Fed rate hikes going forward with the market essentially pricing in the prospect of only 3 hikes this year.

Fed officials, however, continue to assume a hawkish stance with Cleveland President Mester reaffirming the view that inflation may go above the 2% range. So far the Fed analysis has been far too optimistic core CPI readings did push through the 2% ceiling last month – but only just – marking only the second time this year that the core readings have risen above the 2% level.

Part of the reason for muted inflation readings is the woefully slow gains in average hourly earnings. Given the tax cut, the stimulatory aspect of fiscal policy and the relative tightness of the labor market, economists expected nominal wages to rise between 3.5%-4.0% by now, yet the gains have only been 2.6% creating very little real wage growth for the US consumer.

Tomorrow’s US Retail Sales will provide the most important view of the state of US final demand. The market is anticipating a rebound in US Retail Sales of 0.5% from 0.2% the month prior. If Retail Sales improve USDJPY will make another run at 110.00, but if the number misses its mark once again and shows a paltry growth of 0.2% or worse, the Fed futures market will start to pare its bets regardless of what the Fed officials will say as evidence will continue to mount that case for further tightening is simply not there.

USDCAD – On the way to 1.2600?

USDCAD – On the way to 1.2600?

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One of the strongest currencies over the past few days has been the loonie. It’s up more than 230 pips against the buck since the start of the week after having failed to take out the upside at 1.3000 level. Higher oil prices. strong funda data and creeping doubt that the Fed will not hike rates more than 2 more times this year have all helped the currency to rally over the past 48 hours.

If the labor data tomorrow surprises to the upside, the markets will begin to price the prospect of BOC rate hikes before the end of summer. Right now the BOC is the only G-7 central bank to seriously consider additional tightening and with the Canadian economy doing better than expected chances are good that BOC may resume its normalization policy soon.

With 1.3000 firmly rejected, the path of least resistance in the loonie is towards 1.2600 and a strong labor number tomorrow could send the pair in that direction before the week is over.