EUR/USD to 1.15

EUR/USD to 1.15

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We continue to have our eye on EUR/USD which is vulnerable to a deeper correction. Its been trading in a very narrow range over the past week and has been relatively immune to the rising dollar. That should change in the near future as progress on U.S. tax reform lifts the greenback. The House Ways & Means committee plans to finish marking up the tax bill on Thursday and send it to a vote next week. At the same time, the Federal Reserve is preparing to raise interest rates while the European Central Bank maintains a dovish policy stance with no plans to raise rates until October of next year at the earliest. The GE-US 10 year yield spread has also fallen sharply, pointing to a steeper decline in the currency.

Technically, EUR/USD the daily charts show the 20-day SMA crossing below the 100-day SMA which is a bearish signal with prices capped below the 23.6% Fib retracement of the 2017 rally. It should only be a matter of time before EUR/USD tests 1.15.

USD/JPY to 115?

USD/JPY to 115?

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USD/JPY to 115?

Tomorrow we have the Federal Reserve’s second to last monetary policy announcement of the year and while no changes are expected, they are widely expected to set the stage for a year-end rate hike. The U.S. dollar is trading firmly against most of the major currencies ahead of this key event and if the Fed is sufficiently hawkish, we will see USD/JPY above 114 and possibly even near 115. Fed fund futures show the market pricing in 0% chance of tightening in November and 85% chance of a hike in December. Therefore the Fed needs to be unambiguously hawkish in order to avoid a sell-off in the dollar. If anyone dissents and favors an immediate tightening, the dollar will rise with USD/JPY taking aim at 115 if there are 2 or more dissents. There has been widespread improvements in the U.S. economy since the last Fed meeting and with the progress being made on tax reform and stocks hovering at or near record highs, there’s plenty of reasons to justify a hike. Consumer spending and consumer confidence is up, average hourly earnings increased significantly in September, inflation increased with improvements seen in manufacturing and service sector activity.

For all of these reasons we believe that the dollar will rise into and on the back of the FOMC rate decision. Unlike last month’s meeting when a press conference followed the rate decision this time we only have the FOMC statement. But that can still be enough to excite dollar bulls. We’re looking for a move up to 114.50 on the back of FOMC but if there are a number of hawkish dissents, we may even see the pair break 115. There’s no question that investors are bullish dollars ahead of this event so in the unlikely chance that the Fed raises fresh concerns, giving investors reason to believe that next month’s hike will be a dovish one, USD/JPY will fall quickly and aggressively and the unwind could take the pair as low as 112 in the hours to follow.

Technically, USDJPY bounced off the 20-day SMA yesterday and with the 50-day and 100-day crossing upwards, a move to the triple top near 114.50 appears likely. There’s pretty stiff support right above 112 as that’s where we have the 200-week SMA and the 50% Fibonacci retracement of the 1998 to 2011 decline.

EUR/USD to Break 1.15

EUR/USD to Break 1.15

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EUR/USD to Break 1.15

With Janet Yellen’s testimony behind us, the next big focus for the forex market will be the European Central Bank’s monetary policy meeting. After rising to a 1 year high of 1.1490, EUR/USD struggled to extend its gains above 1.15. Investors worry that Mario Draghi will disappoint in the same way as Janet Yellen. Draghi’s comments last month took euro to a 1 year high versus the U.S. dollar and now everyone will be tuning into the ECB press conference to see whether his hawkishness is repeated or downplayed. We believe that the European Central Bank has already set the course for their next policy change. Its no secret that they prefer to prepare the market for major changes and that is exactly what they are doing now. The ECB is getting ready to taper, or reduce bond buying and Draghi will most likely use next week’s meeting as a platform to reinforce those plans. Eurozone data has been healthy with retail sales, manufacturing and service sector activity improving across the region. Inflation is a bit of a problem but stronger economic activity should naturally lead to higher prices. The only problem is the currency, which is up 8.5% year to date and the appreciation over the past month hurts inflation and export activity. With that in mind, we expect EUR/USD to test and possibly break 1.15 on Draghi’s optimism.

On a technical basis, a break of this key level also appears very likely especially given the strength of Friday’s move. 1.15 is a significant level but above there, the next stop should be the May 2016 high of 1.1616. On the downside, EUR/USD has support at 1.1370, this past week’s low followed by the 20-day SMA near 1.1330

EUR/USD to 1.15

EUR/USD to 1.15

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EUR/USD to 1.15

Meanwhile the resilience of euro signals a potential move to 1.1500. For the past 9 trading days, EUR/USD held its break above 1.1300 and the lack of market moving economic data means a move to 1.15 this week will be determined by risk appetite. Last week ECB President Draghi avoided talking down the currency because they want more time to see how their latest stimulus program affects the economy so for the time being, there will be no changes in policy. No news is good news for the euro because it means there shouldn’t be any significantly negative euro news flow to drive down the currency. Eurozone industrial production is scheduled for release on Tuesday but this a second tier report. The greatest risk for EUR/USD is the dollar and U.S. earnings. If there is a major upside surprise in U.S retail sales, we could see EUR/USD drop to 1.1300 but probably not much beyond that. Earnings on the other hand will affect stocks and in turn in the euro.

Technically, as long as EUR/USD holds above 1.13, which is where we have the 23.6% Fib retracement of the 2014 to 2015 decline converging with the 20-day SMA the uptrend remains intact and a move to 1.15 is likely. If this level is broken however, we could have a deeper slide to the March 24th swing low of 1.1145.

EUR/USD Headed for 1.15

EUR/USD Headed for 1.15

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EUR/USD Headed for 1.15

EUR/USD came within a few pips of its 2016 high thanks to better than expected Eurozone data and a weaker dollar. Eurozone business and industrial confidence improved in the month of March but most importantly consumer prices rose 0.8% this month in Germany, which was double the previous month and higher than expected. Prices are beginning to rise, a sign that the ECB’s efforts could finally be paying off. Whether new year to date highs are made will now hinge on tomorrow’s German retail sales and unemployment report along with Friday’s non-farm payrolls report. We believe most of these releases, especially the European ones should be positive for euro, contributing to a rise towards 1.15. Yellen has been telling the market that they are slowing down shortly after Draghi said they are done with lowering rates so a further adjustment in EUR/USD could be necessary.

Technically, today’s rally has taken EUR/USD above the 23.6% Fibonacci retracement of the 2014 to 2015 decline. This leaves the February high of 1.1376 as resistance. If this level is broken, there’s no stopping the pair until 1.15. There’s a cup and handle pattern forming in the EUR/USD and this bullish pattern would also be in play if the currency pair breaks above its year to date high at the same level mentioned earlier. If EUR/USD drops below 1.2990, the next stop should be 1.12 followed by 1.1050.

EURO – Is 1.15 the Next Stop?

EURO – Is 1.15 the Next Stop?

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EUR/USD continued to power higher, closing firmly above 1.1215, the 61.8% Fibonacci retracement of the 2000 to 2008 rally and EUR/USD bulls have the ECB to thank for today’s move. Even though Central Bank President Mario Draghi expressed his disappointment with growth, laughed at the idea that they are nearing their inflation target and said if anything, they will actually add to policy, the euro jumped after he said the central bank would look through the recent volatility. This is important because it suggests that they will not be front loading their bond purchases. Last month, the central bank suggested that that the bulk of QE would happen in the summer and this notion put pressure on yields. Today however, German 10 year rates jumped approximately 15bp on the idea that bond purchases would be spread out more evenly, providing ongoing stimulus to the economy. This led to a significant adjustment in expectations that has translated into a steep decline in bond prices, sharp rise in yields and move higher for EUR/USD. Stronger Eurozone data and weaker US data also contributed to the move and on a fundamental basis unless there is a very big upside surprise in Friday’s U.S. labor market report, the EUR/USD should make its way towards 1.15.

Technically, the EUR/USD’s break above 1.12 is significant because there is no major resistance until 1.15. More specifically the key resistance level to watch is the May high of 1.1466. In the past four months, EUR/USD has come close to testing 1.15 but failed to do so in May and Feb. However a clean break of 1.15 is needed to open the door for a move to 1.1650, the next resistance level. If the EUR/USD drops back below the 61.8% Fib mentioned earlier, the currency pair could slip as far down as 1.1050, the former support level especially if it is a driven by a hot NFP report.

USD/CAD to 1.15 on Big Drop in Oil

USD/CAD to 1.15 on Big Drop in Oil

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Fundamentals

Oil prices collapsed in relatively thin trading on Friday, sending USD/CAD sharply higher. Crude prices fell more than 10%, to its lowest level since September 2009. On Thursday, OPEC decided against an output cut that could have carved out a bottom for oil but instead, it led to a deep sell-off. Their decision suggests that they no longer wants to bear the burden of lower prices alone and want other producers to adjust their production as well. Considering that most traders have not returned from their Thanksgiving Day holidays, we fear that oil prices will move even lower next week, closing in on $60 a barrel. If traders continue to drive oil prices lower on Monday, USD/CAD should hit a fresh 5-year high.

Technicals

Taking a look at the monthly chart of USD/CAD if the currency pair breaks its current 5 year high of 1.1467 1.15 will serve as near term resistance but 1.1540, the 38.2% Fibonacci retracement of the 2007 to 2009 rally will be the key level to watch. On the downside, 1.12 remains support for USD/CAD.