CADCHF – Failure at 77 Cents

CADCHF – Failure at 77 Cents

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CADCHF -- Failure at 77 Cents

The Canadian dollar is under pressure today despite the turnaround in oil prices. The U.s. dollar is strong and investors are still worried about President Trump’s tweet about oil prices being too high last week. The unexpected drop in wholesale sales this morning put pressure on the loonie. This number isn’t closely followed but is a reflection of the overall demand. USD/CAD has broken above 1.2800 and is testing 1.2850. The next stop should be 1.29. At the end of last week, softer retail sales and consumer price growth reinforced the Bank of Canada’s caution. Although CAD policymakers sounded slightly less pessimistic this afternoon, they remain worried about NAFTA and feel that underlying issues are evolving well enough to send an unambiguously positive signal to the market.

Technically CAD/CHF is looking very ugly with the pair closing last week and opening today below the 200-day SMA and first standard deviation Bollinger Band. CAD/CHF should drop to 76 cents and if it falls below that, the next stop should be .7560, which is just above the 20 and 100-day SMA

NZD/CAD Back to 92 Cents?

NZD/CAD Back to 92 Cents?

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NZD/CAD Back to 92 Cents?

The New Zealand dollar was this week’s best performing currency thanks to higher dairy prices, stronger labor market data and the central bank’s nonchalant view on the rising currency. Economists expected the jobless rate to rise but instead, employment grew by 0.5% in the fourth quarter, driving the unemployment rate down to 4.5%. Although the Reserve Bank of New Zealand cut their GDP forecasts to 0.8% from 1.2% in the first quarter, Deputy Governor Spencer dismissed the rising currency by saying it hasn’t moved too much and they are not concerned about the level. Business PMI is only New Zealand economic report scheduled for release in the coming week and given the currency’s recent strength, it should continue to outperform other major currencies including the Canadian dollar. The loonie fell to its weakest level in 6 weeks on the back of falling oil prices and weaker economic data. Everything from Friday’s labor market report to the trade balance and IVEY PMI index missed expectations. A total of 88K jobs were lost in the month of January. Not only was this significantly worse than the consensus forecast for 10K job growth, but it was also the largest one month loss since 2009. The deterioration was so significant that it drove the unemployment rate back up to 5.9%. USD/CAD shot higher in response but failed to hold onto those gains as investors found some comfort in continued full time job growth. Although 137K part time jobs were lost, 49K full time jobs were added, which could be a sign of a healthy rotation in the labor market. Looking ahead, there are no major Canadian economic reports scheduled for release. USD/CAD has significant resistance near 1.26 so if there’s a time and place for a turn, it would be in the week ahead. A potentially slower rise in USD/CAD (due to resistance) and the outperformance of NZD suggests that we should see further gains in NZD/CAD.

Technically, NZD/CAD is trading back above its 20 and 200-day SMA. This paves the way for continued rally towards 92 cents especially following Thursday’s strong reversal. Should NZD/CAD fall back below Friday’s low of 0.9075, then a move back down to 90 cents becomes more likely.

EUR/GBP – Headed Below 88 Cents?

EUR/GBP – Headed Below 88 Cents?

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EUR/GBP – Headed Below 88 Cents?

The worst performing currency today was the euro, which fell sharply against all of the major currencies. Chancellor Merkel failed to secure a coalition after weeks of contentious negotiations and the talks collapsed over the weekend when the Free Democrats walked out. Investors interpreted the political uncertainty as euro negative and rightfully so because Merkel could lose power after serving as Chancellor for the past 12 years. As the largest country in the Eurozone however its troubles will have a direct impact on the currency.
The Chancellor has said she would prefer to hold new elections than form a minority government that could face its own set of troubles. Unfortunately calling new elections is a complicated process that will take months. Forming a minority government or convincing the FDP to return the negotiation table won’t be easy either, which is why we believe that Germany’s political troubles could send EUR/USD below 1.17. Meanwhile the only currency that outperformed the greenback today was sterling, which traded purely on the hope that there will be progress on Brexit talks this week. Prime Minister May is expected to officially increase Britain’s divorce payment. There’s been talk that they could double the initially proposed amount in an effort to unlock the talks but nothing official has been announced. The latest reports suggest that May would receive approval to increase her offer to about EUR40 billion. Although this falls short of the EUR60 billion bill and may not end up satisfying the European Union, the announcement could provide another boost to sterling.

Technically, EUR/GBP broke below the 50-day SMA but has found some temporary support at the 20-daySSMA. We don’t think this will last as the pair is likely to extend its losses down to the 200-day SMA at .8780.

AUD/USD – Headed for 77 Cents?

AUD/USD – Headed for 77 Cents?

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One of the weakest performing currencies on Monday was the Australian dollar. After selling off sharply at the end of last week, the selling continued despite the lack of US and Australian data. AUD spent most of the North American trading session in negative territory even though the USD struggled to rally. Tomorrow night we have Australian CPI numbers due or release and while the uptick in consumer inflation expectations suggest that price pressures increased, the forecast is very high. If CPI fails to rise by 0.8% or more and the year over year rate stays below 2%, we could see a correction in AUD/USD. Before then, we’re still looking for AUD to trade heavy. The USD on the other hand is holding strong as the market anticipates President Trump’s Fed pick and a House vote on the Budget Bill.

Technically, the outlook for AUD is very weak. The daily charts show a break below the 20-day and 100-day SMA while the weekly chart included in this note shows AUD/USD starting the week below the 20-week SMA. The 20-week SMA also coincides with the 23.6% Fibonacci retracement of the 2016 and 2017 rally AND the 23.6% Fib retracement of the 2011 to 2015 decline. Both charts show a potential move down to 77 cents and the potential for a steeper decline towards .7635.

EUR/GBP – Still Headed for 88 Cents

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eurgbp101317
With the wild swings in EUR/USD came big moves for EUR/GBP on Friday but when the dust settled, sterling outperformed the euro and we think this move will last. The European Central Bank’s monetary policy announcement is less than 2 weeks away. Between now and then, the only thing that investors will be thinking about is whether it will be a hawkish or dovish taper. Based on last week’s mostly better than expected economic reports, the ECB should reduce asset purchases and pave the way for tighter policy. However between Spain’s political troubles (which are no closer to being resolved) and the high level of the exchange rate, ECB officials have stressed that policy will remain extremely accommodative which suggests that their preference for a dovish taper. The longer the market feels that way, the greater the pressure on the euro. In contrast, sterling was this past week’s best performing currency. Now that Prime Minister May’s troubles seem to be fading and the EU’s Chief Negotiator suggested that they could provide the 2 year Brexit transition that she’s been asking for, a soft Brexit and prospects of a year end rate hike have returned to take sterling higher. Next week is an important one for the U.K. because there are a number of key economic reports on the calendar that will play a major role in hardening or weakening the BoE’s case for tightening. Inflation, employment and consumer spending numbers are scheduled for release and we are mostly looking for stronger data that should drive GBP even higher.

On a technical basis, after breaking below the 100-day SMA, EUR/GBP spent the last 24 hours trading firmly below this key support turned resistance level. We now believe that the pair will fall to at least 0.8850, the 20-day SMA and more likely to the first standard deviation Bollinger Band at 0.8800.

NZD/CAD to 88 Cents?

NZD/CAD to 88 Cents?

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NZD/CAD to 88 Cents?

NZD/CAD has more room to fall. On a fundamental basis, the New Zealand dollar has recently fallen victim to election uncertainty, lower dairy prices and U.S. dollar strength. These issues will continue to plague the currency after the final votes are counted. The National Party led by Bill English lost 2 seats while the opposition Labour Party led by Jacinda Arden won 1. Both parties need to convince Winston Peters that it is in their interest to form a government which will be a difficult task in the days to come. Peters has said he will make a decision by October 12th but it still not clear whether that will happen. Meanwhile, USD/CAD is losing ground as CAD bulls remain in control. USD/CAD rejected 1.26 on Friday after relatively healthy Canadian data. Although net job growth in Sept was slightly less than anticipated (10K vs. 12K) and the participation rate fell slightly, full time jobs rose at its strongest pace on record. Canada has now experienced its 10th straight month of employment gains and its fastest pace of wage gains in 17 months.

On a technical basis, NZDCAD ended last week at its lows and appears poised for a move down to 88 cents. Gains should be limited by Friday’s high near 0.8950, which is well within our stop limits.

Will AUDUSD Break 78 Cents?

Will AUDUSD Break 78 Cents?

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Will AUDUSD Break 78 Cents?

The new week will also be an important one for the Australian dollar with a Reserve Bank monetary policy announcement on the calendar along with retail sales, the trade balance and PMIs. The Australian dollar has traded lower ahead of the rate decision as investors anticipate more cautiousness from the central bank. This would be a departure from RBA Governor Lowe’s view back in September when he said lower rates would add to risk in household balance sheets, sending AUD/USD sharply higher. However data has taken a turn for the worse over the past month with consumer and business confidence falling, GDP growth slowing, inflation expectations declining and service sector activity slowing. Copper and iron ore prices have also fallen sharply and China is slowing with Standard & Poor’s recent downgrade. There’s very little for the RBA to be excited about and for this reason they could emphasize the challenges that the economy faces over the prospects for growth. If that’s the case, AUD/USD will extend its losses but if they focus on their expectations for a gradual pickup in activity and rise in inflation, AUD/USD could find its way back towards 80 cents.

Technically, 78 cents is a very significant support level. Not only is there horizontal trendline support on the daily chart but the weekly chart shows the 20-period SMA and the 23.6% Fibonacci retracement of the 2011 to 2015 decline right around the same level. So if AUDUSD drops below 0.7780, we should see a much deeper correction down to 0.7650. However if it holds that level then the pair should find its way back above 79 cents.

NZD/USD Destined for 71 Cents?

NZD/USD Destined for 71 Cents?

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NZD/USD Destined for 71 Cents?

For the second day in a row, the New Zealand dollar was the worst performing currency. Unlike yesterday when the decline was drive by U.S. dollar strength the latest move was driven by local factors. Last night, the New Zealand government provided its latest economic update ahead of next month’s election and while they forecast a significantly larger budget surplus this year, they expect growth for the year to June to be 2.6%, down from a previous estimate of 3.2% and for fiscal year 2018, they now expect 3.5% growth instead of 3.7%. These lower growth projections combined with the Reserve Bank’s unease about the currency and talk of intervention puts NZDUSD on track to test 71 and possibly even 70 cents.

Technically, today’s decline has taken NZD/USD below the 38.2% Fibonacci retracement of the 2014 to 2015 decline but a late day bounce leaves the pair settling right above the Fib level. If NZD/USD breaches 72 cents, there will be some support at the 100-day near 0.7165 but the main support level should be 71 cents. There’s also a clear head and shoulders pattern that confirms our view that the path of least resistance for NZD/USD should be lower.

NZDUSD Aims to Break 73 Cents

NZDUSD Aims to Break 73 Cents

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The worst performing currency today was the New Zealand dollars but all 3 of the commodity currencies traded lower versus the greenback which should not be a surprise to our readers as we’ve been looking for corrections this week. The New Zealand dollar was hit the hardest as traders took profits on long positions ahead of the RBNZ’s rate decision. The RBNZ is widely expected to leave rates unchanged but the recent trend of softer data suggests that the central bank could be less hawkish. Last night’s lower 2 year inflation expectation index gave NZD/USD traders even more reason to cut their longs.

Technically, NZD/USD ended the day below 20-day SMA for the first time in nearly 4 weeks and is poised for a deeper correction down to the 50-day SMA near 73 cents. On a weekly basis, the pair also rejected the 50-month SMA. However there is an important Fib support right under 0.7350. This level stretches from the 2009 to 2011 rally so it could serve as a stopping point for NZD/USD but chances are, it will break and the pair will sink below 73 cents.

AUD/USD to 78 Cents

AUD/USD to 78 Cents

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AUD/USD to 78 Cents

The Australian dollar is prime for a deeper correction this coming week. The RBA hasn’t been shy about expressing their concerns about the strong currency, which poses significant risks for the currency at a time when the U.S. dollar is rebounding and commodity currencies are losing momentum. Although this week’s Australian economic reports were mostly better than expected with retail sales, building approvals, service and manufacturing PMI either increasing from the month prior or beating expectations, the Reserve Bank’s cautiousness and their lowered 2017 GDP forecast tells us exactly how the central bank feels about the economy. RBA Governor Lowe warned that a continued rise in the Australian dollar would depress prices and limit growth and employment. Their warning turned into action as the central bank cut their 2017 GDP forecast by 0.5% to a range of 2-3% due to the Australian dollar’s “modest dampening effect on the forecast for growth.” Looking ahead, we anticipate a deeper correction that could take AUD/USD as low as 78 cents. August is typically a challenging month for the currency, which dropped 10 of the past 12 Augusts.

Technically we have every reason to believe that AUD/USD peaked. While there’s some support at the 20-day SMA near 0.7880, once that is broken, it should be clear sailing down to July 17 & 18 low near 0.7790. AUD/USD has already fallen below the 61.8% Fibonacci retracement of 2008 to 2011 rally near 0.7950 so the risk is definitely to the downside for the pair. Only a move back above 80 cents would negate that.

EUR/GBP to 90 Cents?

EUR/GBP to 90 Cents?

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EUR/GBP to 90 Cents?

Of all the major events this past week, the only one with a lasting impact on the market was the UK election. The “smart strategic move” by Theresa May turned into a nightmare for the Conservative Party and the British pound. Sterling dropped more than 2% on Thursday evening to its weakest level in 6 weeks and the worst may be yet to come. May is putting on a brave face by confirming Brexit talks will begin in 10 days but the country is divided and her Brexit strategy is in tatters. Unfortunately the EU is aware of her defeat and are likely to use it to their advantage. This is bad news for the British pound. Sterling consolidated its losses on Friday but this is strictly a relief rally on the hope for some sort of compromise solution. The government is weakened and the economy is in flux. Recent data hasn’t been terrible but with inflation at a 3 year high and wages falling the U.K. is headed for trouble. Foreign investment and net migration will fall in the coming months/years negatively affecting tax revenues and growth. Next week is a busy one for the U.K. with inflation, consumer spending and retail sales scheduled for release along with a Bank of England monetary policy announcement. However politics could overshadow economics as no changes are expected from the central bank and that means sterling should fall further.

We like selling GBP vs. EUR because the Eurozone economy is doing quite well. This past week the ECB upgraded their GDP forecasts, altered their risk assessment and dropped the word “lower rates” from their forward guidance. The latest economic reports were also better than expected with first quarter GDP revised up to 0.6% from 0.5%. Next week’s ZEW survey is likely be strong as well as investors respond positively to the data.

Technically, EUR/GBP is in an uptrend and the next stop above 88 cents is 90 cents. As long as EUR/GBP holds above -.8550, the uptrend is intact. If it breaks below it the trend will have reversed with further losses likely.