EUR/CAD to Break 1.50, Head Towards 1.49

EUR/CAD to Break 1.50, Head Towards 1.49

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EUR/CAD to Break 1.50, Head Towards 1.49

For the Canadian dollar, all of the past week’s losses were recovered in one day on Friday on the back stronger than expected GDP and employment numbers. It was the best day for the loonie in more than 8 months and a large part of that has to do with how these reports will impact the Bank of Canada’s economic assessment next week. With more than 79K jobs added in the month of November, Canada experienced the strongest period of job growth in 4 years. Full time and part time work increased, driving the unemployment rate to its lowest level to its lowest level since February 2008. While GDP growth slowed in the third quarter, the robustness of the labor market and stronger than expected GDP growth in September completely overshadowed the report. The Bank of Canada has less to worry about in December than in October because everything from retail sales, to the labor market, housing market, manufacturing activity, trade and oil prices improved since the last meeting. The only area that deteriorated was inflation. While that is also a big focus for the BoC, we expect the Canadian dollar to trade higher into and possibly following the rate decision. We think its strength will be particularly pronounced against the euro which continues to struggle with political troubles. . German Chancellor Angela Merkel wants to form a coalition government with the Social Democrats but the leader of the SPD party denied talks.

Technically, EUR/CAD collapsed on Friday and such a strong move generally has continuation. At minimum we expect EUR/CAD to break 1.50 and hit 1.4960 but the sell-off could easily extend to the 50-day SMA near 1.4900.

EUR/CAD Back to 1.50?

EUR/CAD Back to 1.50?

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EUR/CAD Back to 1.50?

The euro maintained a bid throughout the North American session leading some traders to wonder if we’ve finally seen a bottom. Its difficult to say as ECB President Draghi could easily talk the currency down on Tuesday by highlighting all of the reasons why policy needs to remain extremely accommodative but if there weren’t a speech on the horizon, we would say that euro is poised for a move to 1.1700 and higher. Aside from Draghi’s speech, Q3 GDP reports are scheduled for release from Germany and the Eurozone along with the latest ZEW surveys and slightly firmer euro supportive numbers are expected all around. The loonie on the other hand appears poised for further losses as NAFTA concerns grow. The 5th round of talks are being held in Mexico City this week and if you recall, the talks were very contentious during the fourth round. On a fundamental and technical basis, we believe the Canadian dollar will trade lower this week.

Technically, after consolidating for 5 straight days, Monday’s rally in EURCAD has taken the pair right to the 20-day SMA. While this may be a potential area of resistance, EUR/CAD breakouts tend to have strong continuation. If the pair breaks above 1.4875, taking out today’s high, we could see the rally extend as high as 1.50. There’s firm support near 1.4730, as that’s where recent lows and the 100/200-day SMAs hover.

GBP/JPY to 150?

GBP/JPY to 150?

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GBP/JPY to 150?

The Bank of England’s monetary policy announcement is tomorrow and we believe the central bank will be hawkish. Although this morning’s U.K. labor market report was mixed with employment falling for the first time in more than a year for the three months to October, average hourly earnings rose strongly and the unemployment rate held steady at 4.8%. More importantly, the following table below highlights the widespread improvements in the U.K. economy since their last monetary policy meeting. Retail sales rose strongly in October, wage growth accelerated, consumer prices are on the rise and the PMI composite index increased, reflecting stronger economic activity. Stocks have also performed extremely well, which should give Governor Carney the confidence to tout the improvements in the U.K. economy and reiterate the central bank’s warning that they have only limited tolerance for an overshoot of inflation. At the same time, the U.S. dollar soared on the back of today’s FOMC rate decision. No one was surprised by the Fed’s 25bp rate hike but the dot plot forecast shows policymakers looking for 3 rate hikes in 2017. This view is more aggressive than the 50bp move they forecasted back in September and single handedly sent USD/JPY above 116. Fearing that Janet Yellen would downplay this forecast, traders refrained from driving the pair above 117 until after the Fed Chair began to speak and when she called the extra quarter point hike a “very modest adjustment” they realized that she was not going to refute this view. This very line along with her confidence in the economy sent the U.S. dollar and Treasury yields sharply higher. So from a technical and fundamental perspective, we believe GBP/JPY is headed much higher.

Taking a look at the GBP/JPY chart, it is already trading near a 6 month high. There’s a little bit of Fib resistance right above current levels near 147.25 but the main resistance level is just under the 100-month SMA at 149.95.

Will GBP/USD Break 1.50?

Will GBP/USD Break 1.50?

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Will GBP/USD Break 1.50?

The latest rally in GBP/USD is nothing more than a dead cat bounce and while this week’s U.K. employment report could drive the pair higher, we will view this move as an opportunity to sell at a higher level. There have been more upside than downside surprises in U.K. data and given the strength in the employment component of the PMIs, Wednesday’s labor market numbers could also surprise to the upside. However the best trades are the ones where we go with the central bank and not against them. The Bank of England has made it clear that they are worried about the U.K.’s economy and are in no position to raise interest rates. At the same time, the latest U.S. jobs number satisfies the Fed’s preconditions for raising interest rates and the strong prospect of tightening next month should extend the greenback’s gains over the next few weeks. As such we look to sell any rallies in GBP/USD for a move to 1.50 and lower.

Technically, last week’s swing low of 1.5027 is near term support for GBP/USD but the key support level is 1.50. There’s nothing significant that will stop the currency pair from reaching that level. If 1.50 is breached the next stop for the pair should be the 76.4% Fib retracement of the April to June rally at 1.4880. Should GBP/USD rally, resistance for the pair is at the 50% Fib of the same move at 1.5242.

Will 1.50 GBP/USD Cap Hold?

Will 1.50 GBP/USD Cap Hold?

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Will 1.50 GBP/USD Cap Hold?

In each of the last 5 trading days GBP/USD either tested or came close to testing the 1.50 level. Its inability to break above this price indicates how significant this resistance level really is. Despite today’s increase in loans for house purchases, recent data disappointments and dovish comments from BOE officials have kept the currency under pressure. Now the retail sales report will decide whether the currency pair breaks below 1.48 or moves above 1.50. Consumer spending is extremely important especially since the Bank of England is obsessed with wage growth. The main reason why wages are important is because it is a leading indicator of retail sales. If wages are rising, the hope is that it will translate into stronger spending. So far wage growth in the U.K. has been muted and in January spending contracted 0.3%. In February however, spending is expected to bounce by 0.4% and a stronger number could reinvigorate sterling’s rally. Unfortunately even with the uptick in retail sales that was reported by the British Retail Consortium, more U.K. economic reports have surprised to the downside. A softer number would further delay rate hike expectations and reinforce the downtrend in the currency, leading to a break of 1.48 in GBP/USD.

Technically GBP/USD is in a downtrend with 1.50 serving as near term resistance and 1.4630 as key support.

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Will GBP/USD Hit 1.50?

Will GBP/USD Hit 1.50?

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Will GBP/USD Hit 1.50?

Fundamentals

Like many major currencies, sterling fell to fresh lows against the U.S. dollar today. While the move was driven largely by dollar strength, there’s reason to believe that the U.K. currency could experience further losses. Manufacturing and construction sector activity slowed in the month of December and chances are service sector activity also lost momentum. Sentiment is deteriorating, the government’s fiscal goals are unrealistic and the current account balance is weakening. The Bank of England meets this week but no changes are expected. Given the sharp decline in oil prices, the argument that a rate hike is needed to offset future inflation risk diminishes. The BoE may be the next central bank in line to raise interest rates behind the Federal Reserve but between weak Eurozone growth and their inflation mandate, the distance between these moves should widen. As the Fed continues to prepare the market for tightening we we expect GBP/USD to break 1.50. This week’s Non-Farm Payrolls report poses some risk for GBP/USD especially if could NFPs rise less than expected but unless there is a major downside surprise (which we do not anticipate), it will not take the Fed off its course of tightening and GBP/USD out of its downtrend.

Technicals

GBP/USD dropped to a fresh 1 year low on the first official trading day of January. There’s significant downside momentum in the currency pair, which experienced 6 consecutive months of losses. The break below the 23.6% Fibonacci retracement of the 2007 to 2008 decline leaves 1.50 as the next significant support level for GBP/USD. If that gives way, the next point of support will be at 1.48, the 2013 low. If GBP/USD reverses course and starts to recover, it should find resistance above 1.53.

Will EUR/AUD Break 1.50?

Will EUR/AUD Break 1.50?

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Will EUR/AUD Break 1.50?

Fundamentals

Between the Australian employment report and the ECB’s next TLTRO auction, EUR/AUD is in play for the next 24 hours. What makes the currency pair even more interesting is that it is hovering right below the key 1.50 level. For EUR/AUD to blow past this level, all we need is an abysmal employment report or strong uptake for the European Central Bank’s targeted long term refinancing operation. Judging from the PMIs however, there should have been decent job growth in Australia last month and chances are, banks will still be leery of participating in the TLTRO program. This means the odds favor a top at 1.50 rather than a break. Back in September, the ECB was hoping that the uptake would be between EUR100B to 300B but instead it was a pathetic EUR82.6B, eventually pushing the ECB to introduce its ABS program. EUR/USD rallied that day but dropped more than 3% in the 2 weeks that followed. Weak uptake combined with falling inflation pretty much guarantees that the ECB will buy sovereign bonds next year so of the two, the TLTRO should be the bigger mover of EUR/AUD. However we are looking to BUY EUR/AUD if it breaks 1.50 in a meaningful way because the larger surprise would be if the uptake is strong because EUR/USD is deeply oversold.

Technicals

While 1.50 is an important psychological level, taking a look at the monthly chart of EUR/AUD, the 1.5030 level is really key. Smart investors will put their stops slightly above 1.50 and not exactly at that rate so if EUR/AUD clears 1.5030, there is no major resistance until 1.5270, the 38.2% Fibonacci retracement of the 2008 to 2012 decline. If it fails at 1.50, there will be support at 1.4800.

Will EUR/AUD Break 1.50?

Will EUR/AUD Break 1.50?

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Fundamentals

1.50 is a psychologically significant resistance level in EUR/AUD and over the past week the currency pair has quietly tested this level. So far it has struggled to break through due to the lack of market moving Eurozone and Australian data but that could change in the coming week with the ECB and RBA rate decisions. The euro has been performing well due in part to the weakness of the U.S. dollar but data has also been good, reducing the possibility of unconventional stimulus from the ECB. The increase in Eurozone consumer prices this week should ease the central bank’s concerns about low inflation while healthier economic reports from Spain and Germany will fuel expectations for a stronger recovery. At the same time, softer manufacturing data and lower oil prices is putting downside pressure on the Australian dollar. The big question in the coming week is how uncomfortable the ECB is with the level of the currency. We know that they are not happy with its recent ascent but will Mario Draghi say point blank at next week’s press conference that the euro is too strong and he wants to see it lower? If he does, it would prevent EUR/AUD from sustaining a break above 1.50. However if he doesn’t then it could clear sailing for the currency. Tonight we have Australia producer prices scheduled for release. If PPI growth falls short of expectations like CPI, EUR/AUD could test 1.50 but PPI is not significant enough for EUR/AUD to sustain a move above this key level.

Technicals

While 1.50 is a psychologically significant resistance level in EUR/AUD, the real level for the currency pair to break is the April high of 1.5022. Above this point there is no major resistance until 1.52. Should the upside momentum in EUR/AUD fade and the currency starts to trend lower, support will be found at the April low of 1.4655.

EUR/AUD Breaks 1.50 Further Losses In Store?

EUR/AUD Breaks 1.50 Further Losses In Store?

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Fundamentals

Today’s sharp rally in the Australian dollar led EUR/AUD to close below 1.50 for the first time since early December. The catalyst for the move in AUD was RBA Governor Glenn Steven’s nonchalant attitude about the current level of the currency. This is significant because it was only a few months ago that Stevens said he wants to see currency pair trading closer to 85 cents, which is significantly lower than current levels. The central bank has clearly become more tolerant of AUD strength, which should lead to more short covering. If China fast tracks its stimulus we could see a further rally in EUR/AUD. At the same time, euro is pressured by weaker data and talk of negative rates. However the region’s record current account surplus has limited the sell-off in the pair. From a fundamental basis, we believe EUR/AUD is headed lower but a catalyst may be needed for the momentum to accelerate.

Technicals

Taking a look at the daily chart of EUR/AUD, after breaking through the 38.2% Fibonacci retracement of November to January’s rally, EUR/AUD slipped quickly and aggressively. It pierced through the 50% Fib of the same move but has since stalled above that level. How the currency pair trades around the 1.4950 level is key. If it finds support at this level, it could rebound as high as 1.52 but if it continues lower the next stop should be 1.4735.

Will EUR/AUD Break 1.50?

Will EUR/AUD Break 1.50?

Chart Of The Day

Fundamentals

Better than expected Australian economic reports and the overall improvement in risk appetite has driven the Australian dollar higher against all of the major currencies including the euro. EUR/AUD is headed towards a key support level that could break if this week’s Chinese trade numbers or Australian employment report surprises to the upside. Since the Reserve Bank of Australia dropped its bias to ease, speculators have been unwinding their short positions and each piece of positive Australian data increased their motivation to do so. We are watching this level carefully for a potential break this week. In contrast to the other high beta currencies, the euro has been a key underperformer. The prospect of weak Eurozone industrial production and Q4 GDP numbers later this week should keep the currency under pressure, increasing the chance of EUR/AUD breaking 1.50.

Technicals

Taking a look at the daily chart of EUR/AUD, the currency pair is in the sell-zone. 1.50 is a clear level of support that if broken could precipitate a quick move down to 1.48. As long as the currency pair holds below the 38.2% Fibonacci retracement of the 2008 to 2012 sell-off near 1.5240, the downtrend remains intact.

EUR/AUD 01.23.14 +150

Swing

2 New Orders. If one triggers, cancel other. We STILL have EUR/JPY orders in


1. Place EUR/AUD Buy Order at 1.5627


Stop @ 1.5527

Close ½ @ 1.5677, move stop to 1.5627

Close rest @ 1.5727


2.Place GBP/AUD Buy Order at 1.9027


Stop @ 1.8927

Close ½ @ 1.9077, move stop to 1.9027

Close rest @ 1.9127

Currencies are on the move this morning and closing in on key levels. Thanks to better than expected EZ Flash PMI and UK employment, the best performing currencies this morning are the European currencies. We think there will be continuation especially versus the AUD which is still being pressured by weaker Chinese PMI. The divergence between Europe and Australia is growing and this should cause EUR/AUD to break its December high and GBP/AUD to break 1.90. We only want to be in ONE of these trades so if one triggers, cancel ALL OTHER ORDERS.


Update

BKSWING -- EUR/AUD Buy TRIGGERED at 1.5627 Stop @ 1.5527 Close ½ @ 1.5677, move stop to 1.5627 Close rest @ 1.5727. CANCEL GBPAUD & EURJPY

Update

EUR/AUD T1 and T2 hit +150

GBP/AUD 1.22.14 +150

Swing

Place GBP/AUD Buy Order TRIGGERED at 1.8775

Stop @ 1.8675

Close ½ @ 1.8825, move stop to 1.8775

Close rest @ 1.8875

GBP/AUD is on the move today and we want to revive our orders for a potential breakout. We are keeping the sell orders as well in case there is sudden profit taking in AUD, leading to a reversal in GBP/AUD

Update

BKSWING GBPAUD T1 hit at 1.8825 +50 on trade move stop to b/e at 1.8775

Update

BKSWING out of rest GBP/AUD at 1.8875 +150 on trade