EUR/NZD – Upside Breakout, 1.72 Next?

EUR/NZD – Upside Breakout, 1.72 Next?

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EUR/NZD – Upside Breakout, 1.72 Next?

Euro is one of this week’s best performing currencies. Compared to others, its pullback on Friday was modest and even with the decline EUR/USD is flat for the week while up strongly versus the commodity currencies including the New Zealand dollar. The Eurozone’s economy is recovering and the effect of a strong euro on inflation has been limited. As a result, Eurozone policymakers have become more tolerant of the rising currency and more eager to end asset purchases. With very little Eurozone data in the coming week to threaten the currency’s positive outlook we see further gains in the currency. Meanwhile the New Zealand dollar is at risk of additional losses. On Friday, it experienced its largest one day decline since October and such a strong sell-off typically has continuation. The RBNZ meets next week and since the last meeting, the New Zealand dollar appreciated 5.5% versus the greenback and 2% versus the Australian dollar. Data has been softer with retail sales growth slowing materially, manufacturing activity easing, business confidence falling and inflation slowing. We believe the risk is to the downside as the central bank could opt to talk down the currency.

Technically, EUR/NZD broke out of its month long consolidation and ending the day above the 50-day SMA for the first time since mid-December. There’s some mild resistance near 1.7065 (the Oct 31, Dec 12, 20 high) but once that level is broken, there’s no major resistance until 1.72.

EURUSD – Breakout to New Highs?

EURUSD – Breakout to New Highs?

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The EURUSD is closing in on multi-month highs as the pair reaches for the 1.2100 figure amidst very bullish sentiment in the market. The market clearly wants to take the pair higher on the assumption the better growth in the region will force the ECB to taper QE sooner rather than later. ECB officials, meanwhile, are wary of the rising euro, fearing that it may reignite deflationary pressures in the region, but with growth at decade level highs, they may have no choice but to tighten policy over the near term horizon and the market is clearly anticipating the move.

Tomorrow the market will get a look at German Unemployment data which should confirm that labor demand in EZ powerhouse economy remains buoyant and could serve as a catalyst for move higher that could take the pair through the 1.2100 figure.

EURUSD – The Big Breakout

EURUSD – The Big Breakout

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EURUSD has been on a tear today challenging the long term resistance levels at the 1.1300 figure. The rally has been triggered by hawkish comments from ECB Chief Mario Draghi who sent euro soaring in early morning European trade when he indicated that ECB policy may soon move to neutral from accommodative and stated that the recovery in the Eurozone is in full bloom.

Speaking at an ECB Forum on banking Mr. Draghi painted a generally upbeat picture of economic conditions in the Eurozone noting that the central bank sees EZ growth above trend and that all signs are now pointing to a strengthening and broadening recovery in the region.

Mr. Draghi, however, added that inflation remains muted and that it not yet durable or self-sustaining. Still, he affirmed that policy is likely to change to a more neutral stance in the near future, suggesting that ECB may be making preparations for a taper.

All of this provides a very bullish foundation under the pair and could propel it towards the 1.1500 level over the near term horizon especially if EZ growth continues to accelerate while US growth remains sluggish.

EURUSD – Is this Breakout for Real?

EURUSD – Is this Breakout for Real?

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The euro blew through key resistance at 1.0800 level after a US official noted that Germany was using an unnaturally weak currency to compete in the world. This was the first time in decades that a US official used such interventionist language and the euro promptly verticalized as result.

Whether the pair can hold its gains remains to be seen, but the Trump administration appears to be serious about keeping the dollar competitive which means the upside pressure on the euro can continue for a while longer. The pair has massive resistance at the 1.0800-1.1100 level but is also at the same time vulnerable to a short squeeze. EZ data has been surprising to the upside while US data has missed its mark for the past month. If EUR/USD can clear the 1.0850 barrier -- 1.1000 could be in view.

AUD/NZD Breakout?

AUD/NZD Breakout?

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AUD/NZD Breakout?

We are looking for an upside breakout in AUD/NZD. Inflation reports are scheduled for release from Australia and New Zealand next week and we believe these reports will highlight the divergence between the 2 economies. In Australia we look for higher commodity prices and consumer inflation expectations to drive Australian CPI upwards but in New Zealand, lower dairy and food prices should keep NZ CPI under pressure. This means AUD/NZD, which had been trapped in a tight 1.0450-1.0560 trading range for the past 9 trading days could finally breakout to the upside.

Taking a look at the daily chart, if AUD/NZD breaks above this year’s high of 1.0572, it would represent a clean break above the 200-day SMA and opens the door to 1.0650. However if it drops below 1.0450, which takes the pair underneath the 20, 50 and 100-day SMA, we could see the year to date low near 1.0350 tested.

GBP/USD Breakout Coming

GBP/USD Breakout Coming

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GBP/USD Breakout Coming

After consolidating for the past week, GBP/USD is gunning for a breakout and we think the break could be to the upside. The U.S. dollar is extremely overbought and prime for profit taking ahead of this week’s U.S. non-farm payrolls report. Meanwhile UK Chancellor Hammond announced more borrowing and a new National Productivity Investment Fund of 23 billion pounds aimed at infrastructure spending. This announcement caught the market by surprise and sent sterling sharply higher versus the euro and if the dollar pulls back next week as well, it will benefit GBP/USD. U.K. PMI manufacturing numbers are scheduled for release next week and we think they will be strong providing support for our case that a GBP/USD breakout could be to the upside.

Technically, GBP/USD is trading in an extremely narrow range between the 20 and 50-day SMA. These moving averages along with the edges of the triangle that we have drawn are the references for a breakout. If GBP/USD rises above 1.2525, it should be headed above 1.26. If it breaks below 1.2350 maybe even 1.24, it is headed towards 1.22.

GBPUSD – 1.2500 Breakout?

GBPUSD – 1.2500 Breakout?

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After months of decidedly dour news, cable bulls finally git a shot in the arm today with news of a court ruling that will likely force the government of PM May to take the Brexit issue to a Parliamentary vote. A final appeal is scheduled on the first week of December but the ruling will likely be upheld.

It’s unclear whether in the end this will make much of a difference with regard to “hard Brexit” but at least for now it slows the process and puts enough of a doubt in the minds on investors to possibly go bargain hunting with cable.

On the economic front the news continues to be positive with latest PMI Services report showing steady improvement and the Bank of England no longer holding a very dovish posture towards monetary policy. All of this adds up to a possible rally in cable as the pair has now carved a strong level of support in the 1.2200-1.2400 zone and could break the key 1.2500 level to truly bust out to the upside targeting the 1.2700 pre flash crash level.

EURJPY Breakout or Fakeout?

EURJPY Breakout or Fakeout?

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EURJPY Breakout or Fakeout?

EUR/JPY registered gains for the sixth consecutive trading day as EUR/USD and USD/JPY powered higher. Today’s move was driven by the combination of stronger Eurozone and U.S. data. From Europe, Germany reported a service PMI revision of 50.9 beating the 50.6 expected. Composite PMI revisions also beat estimates, coming in at 52.8 vs. 52.7 expected. Eurozone retail sales also showed a smaller than expected decline, coming at -0.1% vs. -0.3% expected. Eurozone PMI Services PMI Revision data also beat estimates, reporting 52.2 vs. 52.1 expected. From the U.S., ADP and trade balance missed expectations but the only thing the market cared about was non-manufacturing ISM which hit its highest level in 11 months. The employment component of that report reached its highest since October 2015, paving the way for a solid non-farm payrolls report on Friday. So its no wonder that EUR/JPY is doing well and from a fundamental basis, the break above the 100-day SMA may be real.

On a technical basis the 100-day SMA in EUR/JPY sits at 116.03 and the currency pair ended the day right around this key level. It is too early to tell whether this is a clean break. For that to happen, we would need EUR/JPY to trade above the September high of 116.36. However the chance of today’s move becoming a real breakout is greater than a fakeout because the pair has also broken above the 61.8% Fib retracement of the 2012 to 2014 rally. But while fundamentals signal further gains, fading the rally with a stop just above the September high could be a low risk trade. Targets would need to be nimble since fading the rally would be counter to fundamentals. Another way to look at this is if EUR/JPY retraces back to 115.55/60,it may be worthy buy for another run above 116.

USD/CAD – Breakout or Fakeout?

USD/CAD – Breakout or Fakeout?

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USD/CAD – Breakout or Fakeout?

For the first time in the last 12 trading days USD/CAD closed above 1.3000. Oil prices help to drag the Loonie lower as hopes of a production freeze fade. Iran stated that it would only cooperate with a production freeze if other oil exporters recognized Iran’s right to regain market share. Iraqi Prime Minister Haidar Al-Abadi reached an agreement with KRG Premier Nechirvan Barzani during a meeting in Baghdad to start “technical talks” between the federal oil ministry and the KRG Ministry of Natural Resources. According to a report from Bloomberg, Saad Al-Hadithi, spokesman for Al-Abadi, said that Iraq’s prime minister stressed the necessity to boost oil output. Oil remains an important driver for CAD but Canada also reports its current account balance numbers tomorrow followed by GDP numbers later this week -- we expect these reports to be weaker, paving the way for a further rally in USD/CAD.

Technically, if USD/CAD can hold above Monday’s low of 1.2975, then a major breakout is in place. The latest move has taken the currency pair above the 20 and 50-day SMA along with the 23.6% Fibonacci retracement of this year’s decline. There’s no major resistance until 1.3140, where we have some spike highs. If USD/CAD drops below 1.2975 however, it may slip as low as 1.29.

EURJPY – Breakout on Yellen?

EURJPY – Breakout on Yellen?

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One the best summaries of this week came from a tweet we saw today. It said simply,” Who cares what happened today, Yellen speaks tomorrow.” Certainly this week’s price action has been akin to watching paint dry as currencies have essentially remained at a standstill as traders await the signal from Fed Chair Yellen.

No cross has exemplified this state of suspended animation more than the EUR/JPY pair which has been in a 100 point range for the past 10 trading days. Tomorrow’s speech however could change all that. If Ms. Yellen once again fails to convince the market that a rate hike is coming USD/JPY is likely to tumble hard taking EUR/JPY along with it. On the other hand, if she finally sounds like she is ready to commit to tightening EUR/JPY could rally 100 points in a heartbeat. A break to the upside would take EUR/JPY through 114.00 and higher while a breakdown could push the pair as low as 110.00 over the next few days.

AUD/NZD Breakout – Trade or Fade?

AUD/NZD Breakout – Trade or Fade?

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AUD/NZD Breakout – Trade or Fade?

The Australian dollar traded sharply higher today but the New Zealand dollar underperformed leading to a 1% rise in AUD/NZD. There was no news to explain the divergence outside of yesterday’s marginal drop in dairy prices. We still believe that if one of these central banks were to ease after Brexit, it would sooner be the RBA than the RBNZ. Both currencies represent great yield plays but Australia is still mired in political uncertainty and suffer greater from a weaker Chinese economy / currency. Australia provides hard commodities to China, which will be cut first when the economy slows whereas New Zealand provides soft commodities such as milk and meat that will see growing demand as the country shifts from an export to consumption based economy. For all of these reasons we don’t believe that AUD/NZD deserves today’s strong gains and would not be surprised to see a pullback before the end of the week.

Technically the July low of 1.0383 is support in AUD/NZD. The top of the recent range is at today’s high of 1.0550. If AUD/NZD breaks above this level in a meaningful way, it should squeeze to 1.0600 and find resistance below the 50-day SMA at 1.0630. That’s where we see this move stopping. A pullback should take the pair back to 1.0425 and possible even the July low.

EUR/USD – Breakout Levels

EUR/USD – Breakout Levels

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EUR/USD – Breakout Levels

The EUR/USD is in focus with the European Central Bank making a monetary policy announcement on Thursday. This morning the OECD raised its GDP forecasts for the Eurozone to 1.6% from 1.4% and if a similar move is made by ECB tomorrow we could see new highs in the euro. No one expects the ECB to change monetary policy and with the TLTRO and corporate bond-buying program still in queue, the central bank will want to give current stimulus measures more time to work. We’ve also seen mixed performance in the Eurozone economy since the last meeting in April. Consumer spending in Germany and the Eurozone as a whole weakened, price pressures fell, economic activity in the Eurozone slowed according to the Composite PMI index and market measures declined. Yet we see German confidence on the rise, German manufacturing and service sector activity accelerate and most importantly the German unemployment rate drop to its lowest level on record. This tells us that the Eurozone’s largest economy is performing well enough for the central bank to consider raising its GDP forecast. But ECB President Draghi’s tone is always important and if we are wrong and the ECB lowers their GDP forecast with Draghi expressing renewed concerns about the peripheral economy, EUR/USD will tank.

Technically, EUR/USD is prime for a breakout. The currency pair has been trapped between the 100 and 200 day SMAs as well as two major Fibonacci levels – the 38.2% and 50% Fib retracements of the 2015 to 2016 rally. The upside has more resistance with the 50% Fib of the 2000 to 2008 move sitting right above 1.1200. If EUR/USD breaks the May 23rd high of 1.1243, the next stop will be 1.1300. However if it drops below 1.1070, it will sink to 1.10.