EUR/CAD Back to 1.45?

EUR/CAD Back to 1.45?

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EUR/CAD Back to 1.45?

There are 3 monetary policy announcements next week and only 2 are expected to be big market movers -- the European Central Bank and Bank of Canada rate decisions. EUR/CAD will be in play and a strong trend could emerge if these central banks surprise. For the past few weeks, investors have been positioning for balance sheet changes by the ECB and hawkish sentiment from the BoC but on Friday, there was talk the ECB may delay making changes until December and if that proves to be true, it would be exceptionally negative for the euro. If the Bank of Canada surprises with another rate hike after this past week’s strong GDP numbers, the Canadian dollar will soar and these cross dynamics could send EUR/CAD down to 1.45.

Technically, EUR/CAD ended the week with two very strong days of selling and this move has taken the pair to 2 month lows. The break below 1.4725, a previous support level opens the door to a move down to 1.46 and possibly even 1.45. EUR/CAD would need to rise back above 1.4850 to negate the downtrend in the pair.

EUR/CAD to Break 1.45?

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EUR/CAD to Break 1.45?

The euro rally came to a halt today on the back of softer Eurozone data and the recovery in the greenback. Manufacturing activity in the Eurozone slowed in the month of July, causing the PMI composite index to drop to 55.8 from 56.3. Service sector activity remained steady but that was not due to strength in the region’s 2 largest economies (France and Germany). Germany experienced slower growth all around and while service sector activity in France slowed, manufacturing activity accelerated. These are the first signs of the strains caused by a strong currency. With the PMIs falling short of expectation and investor confidence weakening (ZEW), we believe tomorrow’s German IFO report will add further pressure on the euro as businesses are the most sensitive to the exchange rate and the prospect of higher interest rates. In contrast, we believe the Canadian dollar could hold onto its gains and take another trip below 1.25. The loonie hit a fresh 14 month high on the back of stronger wholesale sales and the more than 1% increase in oil prices. While USD/CAD ended the NY trading session above the key 1.25 level, the 2016 low of 1.2461 is more significant support and we would not be surprised if USD/CAD drifted to that level before Friday’s Canadian GDP report.

Technically, EUR/CAD failed to break above 1.4700 last week, despite multiple attempts. This rejection of the 20 and 100-day SMA cross near 1.4680 puts the currency pair on track to test its 2 month low right above the 200-day SMA at 1.4450.

EUR/AUD Headed to 1.45

EUR/AUD Headed to 1.45

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EUR/AUD Headed to 1.45

Both the ECB and the RBA have monetary policy announcements this week. The Euro has fallen sharply but given the uncertainty surrounding exactly what actions the central bank will take (from extended asset purchases to deposit rate cuts to two-tiered rates and more), there’s still plenty of room to the downside for euro. At bare minimum we believe 1.05 will be tested and likely broken which will take all of the euro pairs lower. In contrast, RBA officials have been surprisingly optimistic and chances are, these views will be reinforced by the monetary policy statement and this week’s GDP report. For these reasons, we like being short EUR/AUD ahead of these 2 monetary policy announcements.

Technically EUR/AUD is trading below its 50, 100 and 200-day SMA with the 2 former moving averages about to cross to the downside a negative signal for the currency. Today’s move has taken EUR/AUD below the 38.2% Fibonacci retracement of the 2012 to 2015 rally. At this stage there is no major support for EUR/AUD until 1.45, a psychologically significant level. Resistance is at the Fib level but more importantly the 200-day SMA near 1.48.

Will GBP/USD Hit 1.45?

Will GBP/USD Hit 1.45?

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Will GBP/USD Hit 1.45?

Investors sold sterlings aggressively this past week, driving the currency to its weakest level against the U.S. dollar since May 2010. We are continually surprised by the sell-off in the currency because economic data and BoE speak still point to tightening by the central bank this year. However yields have fallen and sterling is being hit almost just as hard as the euro. U.S. dollar strength played a role in the currency’s weakness but the losses should not have been so severe. Next week’s BoE minutes will determine whether the market is right in dismissing the chance of 2015 tightening by the central bank or if they are underestimating the possibility. We believe that it is the latter because while BoE Governor Carney warned about the strong currency, he also said their outlook is consistent with gentle rate rises.

Technically GBP/USD broke below the 2013 low of 1.4815 and now the focus will turn to the 61.8% Fibonacci retracement of the 1985 to 2007 rally near 1.4600. Near term resistance is at the 2013 low with more significant resistance at 1.50.

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EUR/JPY to 145?

EUR/JPY to 145?

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Fundamentals

There are no major European economic reports scheduled for release tomorrow but EUR/JPY is in play because it is the quintessential risk on / risk off trade. The main focus tomorrow will be the U.S. non-farm payrolls report and depending on which direction payrolls surprise, we can expect a big move in EUR/JPY. If payrolls rise by more than 115k, the combination of less optimism from ECB President Draghi today and better than expected U.S. data will drive EUR/JPY sharply higher, putting the currency pair on track for a move to 145. If payrolls rise by less than 100k, EUR/JPY will slide quickly as traders sell everything from USD/JPY to risk currencies. Based on other labor market reports like ADP, non-manufacturing and manufacturing ISM, the odds favor another month of disappointing job growth.

Technicals

EUR/JPY rose to its strongest level in more than a month today, breaking through 142, a former support level turned resistance. There’s some overhand created by consolidative highs near 143.30, which should be the next level of contention for EUR/JPY but beyond that there’s nothing until 145. If EUR/JPY drops back below 142, the selloff could extend to the February high of 141.25.