Can Kiwi Hold its Double Bottom?

Can Kiwi Hold its Double Bottom?

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Tomorrow the RBNZ will have its final rate decision meeting for the year, and while no one is expecting any action on the rate front, traders will watching carefully for any change of posture with respect to monetary policy.

Up to now the primary mandate of the RBNZ has been price stability. That means that it generally concentrated on inflation and left growth issues to fiscal policymakers. However, with the election of a new center-left Labor government, the RBNZ may now be tasked with the dual mandate of growth and inflation. This will be the first time that New Zealand monetary authorities will face the public and reveal their reactions to this proposed policy.

On balance that means the RBNZ should generally be more dovish in its outlook stressing the need for more growth, fretting about deflation and suggesting that the bank will follow a neutral path for the foreseeable future. However, recent data has actually been hawkish with both employment and inflation better than forecast. If the central bank bristles at any suggestion of a dual mandate and makes clear that it intends to maintain its independence than the kiwi could actually pop towards the .7000 barrier.

EUR/AUD Bottom?

EUR/AUD Bottom?

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EUR/AUD Bottom?

We have a number of reasons to believe that EUR/AUD could be near a bottom. Fundamentally we know that the European Central Bank is growing more optimistic about the outlook for the Eurozone economy after recently upgrading to their economic forecasts. In contrast, lower commodity prices and financial sector instability in Australia is making it difficult for AUD to sustain its gains. Technically, EUR/USD has found support above its 1 month low of 1.1110 while AUD/USD appears to have peaked below 0.7650. These 2 counteractive factors has already driven EUR/AUD above 1.4780 and could probably take the pair as high as the 20-day SMA near 1.49.

GBP/USD Bottom to 1.24?

GBP/USD Bottom to 1.24?

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GBP/USD Bottom to 1.24?

Sterling enjoyed its strongest one-day rise versus the U.S. dollar in more than 2 weeks. According to an article in the Independent newspaper and a spokesman for U.K. Prime Minister Theresa May, Article 50 will not be triggered this week. In today’s vote the House of Lords overwhelming opted to overturn the amendments to the Brexit bill. This sends the bill back to the House of Lords who are unlikely to reject the will of the people (although if they do we could see more back and forth). Once both Houses of Parliament agree on the language in the bill, it would be sent for Royal Assent and become law, whereby allowing May to trigger Article 50. So how quickly Article 50 is triggered will be partly determined by how quickly the House of Lords accepts the House of Commons’ decision. If Article 50 is not triggered until next week, we could see a further short squeeze in the oversold currency but uf Prime Minister May suddenly announces the trigger this week, traders can expect a knee jerk breakdown in GBP hat should not last for long as investors realize that it will be months before the terms of exit are agreed to with the E.U. and years before an official exit happens. So in the meantime, it appears that the risk is to the upside for sterling.

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Technically, now that GBP/USD has rallied, the next stop should the March highs near 1.2300. Support is at the March 9th low of 1.2134.

Finding a Bottom in USDJPY

Finding a Bottom in USDJPY

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Finding a Bottom in USDJPY

There was very little consistency in the performance of the U.S. dollar this past week with the greenback trading lower versus the Japanese Yen, steady against all of the other major currencies except for sterling. On a percentage basis, the changes were small but given how far the dollar had rallied at the start of the week, the pullback was significant. USD/JPY ran as high as 114.95, just a few pips shy of 115 before ending the week below 113. The most phenomenal part of the move was that it was counter to data and Fed speak. Nearly all of this past week’s most important U.S. economic reports beat expectations including consumer prices, retail sales, the Empire and Philadelphia manufacturing surveys, building permits and jobless claims. The only miss was in industrial production and housing starts. Most importantly, Fed Chair Janet Yellen made her intention to raise interest rates very clear but corrective forces emerged as the dollar took its cue from U.S. yields and this misalignment can’t last for long. Unfortunately aside from Fed speak there’s not much on next week’s shortened U.S. calendar to help the dollar. U.S. markets are closed on Monday for Presidents Day. So while we believe that it is only a matter of time before the dollar resumes its rise, the bulls could be hanging back until President Trump announces his “phenomenal tax plan.”

Technically it is premature to call this a bottom in USD/JPY as it has fallen below the 20-day SMA which could be indicative of a trend change. In fact the series of lower highs and lower lows signals the potential for further losses with 111.75 a possible target for the pair. USD/JPY needs to break back above Friday’s high of 113.50 to reverse the negative outlook for the pair.

Double Bottom for Cable?

Double Bottom for Cable?

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The woes of Brexit are well known. UK is in danger of precipitating a “hard” Brexit which would result in its expulsion from the single European market. Yet despite the fears of experts, the economic knock-on effects have yet to materialize. This week the UK economy showed its resilience by posting better than expected data in all three PMI reports. This suggests that UK economy may be stronger than the market thought and that the latest GDP figures could come in at 17-month highs.

Technically the pair has tested the 1.2200 level twice and today’s move back through the 1.2400 figure indicates that the double bottom is in. With 1.2500 now squarely in-view cable may be ready for a short squeeze as late shorts begin to scramble and cover. Topside the pair has no resistance until 1.2700 so there is plenty of scope for upside

EURUSD – Bottom in Place?

EURUSD – Bottom in Place?

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The EUR/USD which made a near 300 pip round trip in post Italian referendum trade yesterday, first dropping to a low 1.0504 and the spiking to 1.0798, was much calmer today but remained near the two day highs and within striking distance of the 1.0800 figure.

yesterday’s price action suggests that the pair may have made a near term bottom and could continue to squeeze higher even possibly towards the 1.1000 figure especially if ECB President Mario Draghi offers no definitive calendar extensions to the QE program.

Ultimately the euro may be headed to parity as the policy divergence between the Fed and the ECB begins to kick in. But for now the market is still looking for the Fed to affirm its intention to tighten continuously in 2017 rather than the one-and-done December hike that is already priced into the market. Meanwhile, if the ECB simply sticks to its current QE targets and doesn’t extend or expand the program, the short squeeze in the EURUSD could continue as expectations are adjusted on both sides of the trade.

For now the 1.0500-1.0550 level is a firm bottom while 1.0900 is the nearest term top for the pair.

EUR – Bottom or Consolidation?

EUR – Bottom or Consolidation?

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EURUSD found a bid in late New York trade today rising well above the 1.0600 level as the pair continued to find support at the 1.0550 zone. The EUR/USD has now held that ground for more than two weeks but the next 72 hours could prove to be challenging to the pair as it faces two keys tests.

Of course tomorrow the market will be glued to US Non-Farm Payrolls report and if it is as good as we think it will be the euro should sell off strongly in the wake of good US job gains. The market will only become more convinced that the Fed rate hike cycle is now upon us.

Yet even if the NFP prove to be a snoozer, the Italian referendum over the weekend could prove to be the death knell of the single currency. We think than In the near term, the Italian referendum on Senate reform scheduled for December 4th poses the greatest near term risk for EUR/USD. No polls are permitted 15 days ahead of the vote and the last survey showed the No vote firmly ahead. The referendum is aimed at streamlining Italy’s government decisions by reducing the role of the Senate and regional governments. But is now seen as just another policy prescription rammed down the throat of populace by the “elite”. Prime Minister Renzi pledged to quit if the vote is rejected which would create another political crisis in Italy especially as the vote has been viewed as a referendum on EU membership. Italy’s political uncertainty should deter investors from buying euros, because this is no Greece. It’s the third-largest economy in the Eurozone and that means wrenching body blow to the whole EU project.

A break of 1.0550 would be critical for the pair as it would suggest that it could dip below the key 1.0500 support and open the way for ultimate move towards parity.

EURGBP is 8900 a Near Term Bottom?

EURGBP is 8900 a Near Term Bottom?

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The euro was shellacked last week post ECB presser while cable managed to hold its own causing EURGBP to drop 2 big figures off the highs. This week the price dynamics may reverse as UK eco data could sour the market on any recovery while the news out of the Eurozone could surprise to the upside.

With no progress on the political front the Brexit issues hangs over the pound like the sword of Damocles while the upcoming UK GDP figures could underscore the difficulty of the new economic regime as business sentiment turns very cautious. Meanwhile, in EZ we have already seen a strong rebound in PMI data and the IFO report that suggests growth in the core region is picking up pace. That should provide some support for the euro and ease any concerns about further accommodation from the ECB.

Technically the pair has strong support at .8880 on the hourly with deeper support at .8800 while the upside does not offer any serious resistance until .9200

EUR/USD – Is a Bottom Near?

EUR/USD – Is a Bottom Near?

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EUR/USD – Is a Bottom Near?

October has been a very challenging month for the euro. The single currency came under aggressive selling pressure, falling from a high above 1.12 to a low below 1.10. What’s interesting about the move is that it had very little to do with Europe’s troubles. A larger part of the weakness was driven by rising U.S. rates that took the 2 year German – U.S. yield spread to a decade low. But Treasury yields have since peaked and the yield spread is pointing sharply higher. EUR/USD barely budged as it becomes clear that investors are holding out for the ECB. In order for the euro to rally, we need ECB President Draghi to suggest that he’s comfortable with the current level of monetary policy. There’s been significantly more improvement than deterioration since the last ECB meeting – so optimism is warranted. The lower euro also goes a long way in supporting the economy through trade and inflation. The last time the ECB met, President Draghi expressed more confidence about the outlook for the Eurozone economy, using the word resilience on numerous occasions but the EUR/USD ended the day lower because they cut their growth forecasts and announced Eurosystem committees to further evaluate stimulus options. If Mario Draghi puts greater emphasis on the need for more stimulus tomorrow, EUR/USD could hit 1.09 but if he’s optimistic and emphasizes resilience and we think he will given recent data, EUR/USD could find its way back to 1.11.

Technically, the first line of support in the EUR/USD is 1.0950. If this level is broken, it should be a quick move to 1.09. Below there, the next area to level to watch is 1.0825. On the upside, EUR/USD needs to take out its October 18 high of 1.1025 to see a stronger move to 1.11. Even a mild degree of optimism by the ECB could take it there after which EUR/USD needs to break 1.1050 to confirm a bottom.

GBPUSD – Any Bottom in  Sight?

GBPUSD – Any Bottom in Sight?

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Cable continues to get hammered on fears over Brexit and today it made yet another multi- year low coming within a pip of the 1.2600 barrier. The decline has been driven by market concerns that the government of Theresa May is focusing on the political aspects of the Brexit issues -- namely immigration -- rather than the economic matters such as market access.

The pair is now grossly oversold, and could certainly find a modicum of support at the 1.2500 level which is sure to attract some bargain hunters. But unless sentiment improves on speculation that the the Brits and the EU will come to some workable solution on market access, any rally is likely to be short lived. For now the near term 1.2500 could be the washout support level and the 1.3000 handle is now firm resistance.

USDJPY – Consolidation or Bottom?

USDJPY – Consolidation or Bottom?

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USDJPY – Consolidation or Bottom?

After slowly grinding lower throughout the week, USD/JPY finally rebounded on Friday. Unfortunately the recovery was shallow with the pair ending the week below 100.50. In the week ahead there’s not much in the way of market moving U.S. data which means we should see sideways to weaker price action in USD/JPY. The selling pressure in the dollar is strong and for sentiment to change, we need Yellen to say that a rate hike is coming and we need to another unambiguously strong non-farm payrolls report. Even then, there’s zero chance of a rate hike in September or November. December though is open for discussion especially since it is a meeting where the Fed releases its latest economic projections and Janet Yellen delivers a press conference. Unfortunately there’s still 4 months before the December meeting and there’s zero chance the Fed will raise rates in September or November. So in order for the dollar to bottom we need overwhelmingly positive data so until then dollar will continue to fall, consolidate for the next week or experience shallow bounces. There’s been evidence of the Bank of Japan checking rates on the 99 handle but they seem to be more worried about the pace of decline than the absolute level of the currency.

Technically the downtrend in USD/JPY is still very strong. 100 may be an important psychological support level, the main area of support is the June low of 99 (there’s also some support at 99.50). If the pair holds this level then a move back to 102 is possible. There’s still a chance of a bottom near current levels. Taking a look at a longer term monthly chart, if 99 is broken, then the next stop will be the 100-month SMA. 100.20, the area where USD/JPY is hovering at the end of the week is also a key Fibonacci retracement level of the 2011 to 2015 rally.

USDJPY – Bottom Confirmed?

USDJPY – Bottom Confirmed?

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Has there been anything more trying in the FX market over the past month than finding a bottom in the USD/JPY pair? Just as it looks that the pair has finally stabilized and ready to rally, it quickly turns and flushes out the longs.

This week, however, the pair made a few forays into the 101.00 level and managed to hold support at that level. If that figure holds it would form a higher low triple bottom off the Brexit lows and could finally set the stage for a sustainable rally.

For now, the focus will turn to tomorrow’s US Retail Sales numbers which could confirm the strength of the US recovery and bolster the case for a Fed rate hike before the end of the year. Technically, the pair would need to break above the 102.50 resistance to establish that a bottom has been put in place and could then target the 105.00 level over the near term horizon.