Will ECB Drive EUR to 1.25?

Will ECB Drive EUR to 1.25?

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Will ECB Drive EUR to 1.25?

After rising for 4 straight days, EUR/USD pared its gains ahead of Thursday’s European Central Bank monetary policy announcement. The ECB is widely expected to leave monetary policy unchanged but among all of this week’s rate decisions, theirs should be the most market moving. Policymakers have been very clear that sometime this year, their guidance will change and the only question is how quickly they will start talking about unwinding Quantitative Easing and raising interest rates. Although data has taken a turn for the worse since the last meeting, it is important to realize that many of these indicators are slowing from multi-month or year highs, which means they are retreating from very strong levels. The Eurozone economy is still performing well, stocks are off their highs, Italy’s election may have led to a political stalemate but in Germany, Angela Merkel has won the right to form a coalition government with the Social Democrats, ending months of political uncertainty. The euro is strong but it hasn’t appreciated further than its end of January levels. When the ECB last met, President Draghi acknowledged the euro’s rise by warning that euro volatility creates uncertainty but then spent the majority of his press conference talking about the solid and broad based momentum in the economy and the prospect of higher growth surprises that could lift core inflation over the medium term. We don’t expect these views to change at this week’s meeting and given the market’s desire to sell U.S. dollars, ECB optimism could be drive EUR/USD back to 1.25. Yet if Draghi suddenly sounds more cautious, we could see a nasty reversal in EUR/USD as speculators are clearly leaning towards optimism

USD/CAD Headed for 1.25?

USD/CAD Headed for 1.25?

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USD/CAD Headed for 1.25?

USD/CAD tested and rejected 1.2700 following stronger than expected consumer prices. Over the past month, we’ve seen mostly softer Canadian data including retail sales which dropped -0.8% at the end of the year. Economists were looking for softer demand but they did not anticipate sales falling by the largest amount in a one month period since March 2016. However like the Eurozone, Canada’s economy is coming from a strong base and the CPI report suggests that the healthy labor market is driving up price pressures. Core consumer prices, which are less volatile increased for the fourth month in a row and is now at its highest level since September 2016. This will keep pressure on the Bank of Canada to tighten. In the week ahead, Canada’s current account balance and GDP reports are scheduled for release.

Technically, 1.2700 is an important level as it’s where USD/CAD broke down from in December and where the 200-day SMA hovers. USD/CAD has some support at the 100-day SMA near 1.2620 and once that’s broken, we could see a deeper slide down to 1.25. If USD/CAD finds its way back above 1.2725, we could see a stronger rally to 1.28.

Will ECB Stop EURO from Hitting 1.25?

Will ECB Stop EURO from Hitting 1.25?

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Will ECB Stop EURO from Hitting 1.25?

Thursday’s European Central Bank monetary policy announcement is the most important event risk this week. The euro is trading strongly ahead of the rate decision despite the risk of ECB President Draghi jawboning the currency. Since their last meeting in December, EUR/USD is up close to 5% and while a number of ECB officials have come out speaking against the currency’s rise, investors are waiting on Draghi. The problem is that we’re not sure he’ll say enough to halt the currency’s gains. Its important to realize that the euro is rising under the backdrop of a weaker dollar, hope for early guidance change a and stronger Eurozone growth. In order for traders to stop buying euros and start selling, Draghi needs to unambiguously dovish. That means expressing currency concerns and downplaying the chance of a guidance change. He can accomplish that by saying rate hikes won’t come until after QE ends and that the market misinterpreted the ECB minutes. In this case, EUR/USD will fall with profit taking possibly driving the pair below 1.23. However if Draghi expresses concerns about the currency but focuses on the improvements in the economy and acknowledges the possibility of early guidance changes, buyers will sweep in quickly especially following knee jerk decline and we may find EUR/USD on its way towards 1.25 because the trend is on the side of the currency.

Technically, there are 2 key resistance levels about the current one, the 200-day SMA near 1.2430 and then 1.25.

USD/CAD – 1.20 or 1.25?

USD/CAD – 1.20 or 1.25?

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USD/CAD – 1.20 or 1.25?

The Bank of Canada caught everyone by surprise when they raised interest rates to 1% today. We knew there was a small chance of a hike but we didn’t really expect it to happen so quickly after the last one especially at a meeting with no press conference. But perhaps that was exactly what the BoC wanted, which is to tighten and then stay mum until they see how the markets and the economy absorbs the move. They may have also felt that they could not wait any longer with the economy running on all cylinders. The BoC did not provide much explanation outside of saying that removal of some of their considerable stimulus is warranted with growth becoming more broad based and self sustaining as business investment and exports strengthened. Their comment about excess labor capacity and subdued wage pressure along with geopolitical risks, trade uncertainties and a stronger currency suggests to us that this could be the BoC’s last rate hike of the year. As they said in the monetary policy statement, future decisions are not predetermined and they have to pay close attention to the economy’s sensitivity to higher rates. So fundamentally while USD/CAD tanked today after the central bank’s rate hike, we would not be surprised to see a near term bottom as the big event has now passed, giving investors a reason to cover their short positions.

Technically however today’s move has taken USD/CAD below the 200-week SMA and the 38.2% Fibonacci retracement of the November 2007 and January 2016 rally. So while we could see a further near term recovery that takes USD/CAD to 1.23, any move beyond that may be limited.

USDCAD to 1.25?

USDCAD to 1.25?

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It was also a good day for the Canadian dollar, which soared against the greenback. USD/CAD’s 1% decline was the strongest one day decline in 2 months. Despite lower oil prices and Canadian bond yields, the loonie benefitted significantly from U.S. dollar weakness. These 2 factors should have driven CAD lower but at the end of the day, the Bank of Canada has been more eager to raise interest rates than the Fed thanks to consistent improvements in Canadian data. CPI is scheduled for release on Friday and given the rise in the price component of IVEY PMI and the central bank’s hawkishness, inflation should have recovered. Technically, strong days like the one we’ve seen today in USD/CAD tend to have continuation. At minimum we are looking for a move down to 1.26 with the possibility of a stronger sell-off down to 1.25.usdcad081617

USD/CAD – Back to 1.25?

USD/CAD – Back to 1.25?

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USD/CAD – Back to 1.25?

After 9 straight days of steady to positive performance, we’ve finally experienced a down day in USD/CAD that could mark the beginning of a deeper correction down to 1.2550/1.2500. No major Canadian economic reports were released this past week but the pair was lifted by short covering, the sell-off in risk currencies and $50 resistance in oil. Fundamentals still support a stronger currency and with US CPI surprising to the downside, there could be a stronger recovery in the Canadian dollar and in turn a sell-off in USD/CAD this coming week. The only piece of Canadian data worth watching is CPI which we expect to be positive for the currency as the price component of latest IVEY PMI report increased sharply over the previous month. If inflation and employment conditions strengthen, loonie traders will start to argue for another Bank of Canada rate hike this year.

Technically, the latest rally in USD/CAD stopped right at the 23.6% Fibonacci retracement of the May to July sell-off. This puts the pair at risk of falling to at least the 20-day SMA near 1.26. If USD/CAD rises to 1.2800, then the next stop should be the 38.2% Fib near 1.2950.

Will USD/CAD Break 1.25?

Will USD/CAD Break 1.25?

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Will USD/CAD Break 1.25?

The Canadian dollar has been on a relentless uptrend since the Bank of Canada started to talk rate hikes. The rally gained momentum after the BoC raised interest rates last week and suggested it is the beginning of a new monetary policy cycle. Rising oil prices and stronger data validated the central bank’s optimism sending USD/CAD below 1.26. Retail sales also rose doubled expectations in May although consumer prices grew at a slightly slower pace. Friday’s Canadian economic reports left a lot to be desired with CPI and retail sales ex autos falling -0.1%. Technically, the pair seems bound for more losses and while 1.25 is an important psychological level, the main technical level to watch for USD/CAD is the 2016 low of 1.2461.

USD/CAD to 1.25

USD/CAD to 1.25

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USD/CAD to 1.25

USDCAD dropped through 3 big figures as the Canadian dollar rose to its strongest in nearly a year versus the U.S. dollar. As expected the Bank of Canada raised interest rates by 25bp and upgraded their 2017 and 2018 GDP forecasts. They attributed the slowdown In inflation to temporary factors and while Governor Poloz said they need to carefully gauge the impact of higher rates, he also there is “no doubt interest rates will be higher over time.” With the recent improvements in data, the “economy no longer needs as much stimulus” and the upward revisions in GDP showed the output gap closing sooner than they previously anticipated according to Deputy Governor Wilkins. Poloz now sees inflation returning to their target level within a year. These unambiguously positive comments created a second wave of CAD buying that should take USD/CAD down to 1.25.

We have to turn to the monthly charts to find support for USD/CAD. Although there will be some retraces, the next stop for USD/CAD should be 1.2550, the 38.2% Fib retracement of the 2007 low to 2016 high. On the upside, expect sellers to come in between 1.2800 and 1.2850.

Will GBP/USD Hit 1.25?

Will GBP/USD Hit 1.25?

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Will GBP/USD Hit 1.25?

Over the past week we have seen consistent gains in GBP/USD – part of it was driven by U.S. dollar weakness but the Bank of England’s unexpected hawkishness also contributed to the move. As we start the new week, GBP/USD traded above 1.24 and many investors are wondering if the currency pair will extend to 1.25. If the U.K. government doesn’t trigger Article 50 and this week’s inflation and retail sales reports surprise to the upside, GBP/USD could reach that level. However if Article 50 is triggered and/or Federal Reserve officials suggest that they could tighten in June, the currency pair could give up its gains quickly and aggressively. Sterling traders should be vigilant as this could be a big week for GBP/USD.

Technically GBP/USD is still struggling to break 1.24. It has weaved above and below this key level but has yet to break above it in a meaningful way. If GBP/USD breaks above 1.2440 we should see 1.2500 and possibly even 1.2550. However it if fails at 1.2400, a move back down to 1.23 in the near term and 1.22 if Article 50 is triggered this week

Will USD/JPY Hold 125?

Will USD/JPY Hold 125?

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Will USD/JPY Hold 125?

From a psychological and technical perspective, 125 is an important support level for USD/JPY. The decline in the currency pair today stopped just short of that level, which coincided with the June 2nd high. At the end of the North American trading session, USD/JPY was still trying to decide whether or not it wants to trade below this level. If USD/JPY drops below 124.70, there’s no major support until the June low of 123.75. We are short with an average entry of 124.93 and will be taking profits on half of our position well above this rate. Resistance is at the 12 year high of 125.85.

Fundamentally, there are no major U.S. economic reports scheduled for release until retail sales on Thursday. There’s no question that the dollar is in an uptrend and will remain so until the June rate decision but between now and Thursday consolidation and profit taking in the dollar is likely. Expectations are extremely high for retail sales and while job growth was strong, Johnson Redbook reported a decline in spending that signals the potential for a downside surprise.