USDCAD – Fresh Highs Ahead?

USDCAD – Fresh Highs Ahead?

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The loonie has been one of the weakest currencies against the buck this week. The pair has been affected by everything from risk aversion flows to NAFTA concerns to capital outflows. But the underlying reason for its weakness is the market’s appreciation of divergent monetary policies between the two neighbors. With the Fed clearly taking a more hawkish stance the interest rate differentials will begin to weigh on the pair as we move through the year.

That’s why tomorrow’s CAD GDP data could be of great interest to the market. The consensus view is for a decline to 0.1% versus 0.4% and if that numbers prints the pair could test the 1.2900 level in the aftermath of the release. Having now barely cleared the triple overhead resistance at the 1.2850 level USDCAD stands poised to test the key 1.3000 mark if the data does not go its way.

GBPUSD – Double Top or Fresh Highs?

GBPUSD – Double Top or Fresh Highs?

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Cable has stalled ahead of the 1.3600 figure since the start of the year failing to make fresh multi-month highs. The pair looks to be carving out a double top near the key 1.3500 figure, but the battle between bulls and bears is not over. A small retrace down to the 1.3300 level will still keep the uptrend intact.

In the meantime, however, a small correction appears to be due especially if US yields continue to rise and UK data starts to falter. Tomorrow’s Trade Balance is expected to miss and could be the catalyst for a move below the 1.3500 figure opening the way for a deeper correction to 1.3300. A break above 1.3600 however, will put a much more bullish structure on the chart paving the path to post Brexit highs above 1.3700

EURJPY – To Fresh Highs?

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Tomorrow the Fed is expected to give the dollar a boost but at the same time, the EURUSD hasn’t slowed a bit. The pair made fresh multi-month highs today as positive data out of Germany indicates that the rising currency is not hurting growth in the region.

Therefore, even if the Fed reaffirms its goal to hike rates once more before the end of the year, the rise in USDJPY won’t be accompanied by a fall in EURUSD which makes EURJPY such a compelling trade at the moment. The pair has held the 130.00 mark and could push to 132.00 if the FOMC meeting proves dollar positive as we believe it will be.

GBPUSD – Fresh Lows in View?

GBPUSD – Fresh Lows in View?

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Cable has been the big loser today after Governor Carney dismissed any notion of hiking rates anytime in the foreseeable future.

Speaking at the Mansion House, Mr. Carney stated that, “From my perspective, given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular, anaemic wage growth, now is not yet the time to begin that adjustment.

In the coming months, I would like to see the extent to which weaker consumption growth is offset by other components of demand, whether wages begin to firm, and more generally, how the economy reacts to the prospect of tighter financial conditions and the reality of Brexit negotiations.”

In addition to the dovish news from BoE, cable was hit by news that PM May is having trouble negotiating with the ultra-right DUP party and if those talks stall, the prospect of a Tory government could be in doubt which is sure to propel pound even lower.

Technically the pair would make a symmetrical bottom at the 1.2500 level, which was the breakout point at the time Ms. May called the snap election. With political and monetary news turning ever more negative cable is headed that way.

GBP/JPY – Fresh Lows Ahead?

GBP/JPY – Fresh Lows Ahead?

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GBP/JPY made yearly lows today dropping below the 150.00 level before recovering slightly ahead of the North American close. The pair is at the intersection of the perfect storm in the Brexit trade as it stands to either benefit or suffer the most from the results.

The Brexit story is not only a story about the UK economy but also about the stress on global capital markets. If UK were to leave EU it could start a trend that could unravel the current economic order and send markets into massive selloffs which is why along with the decline in GBP USD/JPY has been dropping as well. Of course if the risk passes the relief rally would trigger a swift short covering move in both pairs.

For now the GBP/JPY remains under pressure and another test of 150.00 could open the way towards 145.00 while the upside is capped at 155.00 until the referendum vote provides clarity.

Can USD/JPY Hit Fresh Highs?

Can USD/JPY Hit Fresh Highs?

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The market has turned decidedly dollar bullish as traders are now anticipating a December rate hike. But USD/JPY has stalled at the 123.00 level as doubts linger. One key factor that would tip the pair over the edge would be some positive news on the US consumption front.

The US consumer comprises more than 75% of the US GDP and tomorrow’s US Retail Sales as well as U o M consumer survey will provide some very important insight into the strength of the US economy. The market is anticipating a big jump with Core Retail Sales rising to 0.4% from -0.3% the month prior. If the news proves positive it could lift USD/JPY through the key 124.00 resistance level as expectations for a rate hike will rise. If on the other hand the number misses once again, USD/JPY could quickly retreat to the lower end of the recent range at 121.00 as doubts begin to creep in.

Will AUD/USD Hit Fresh Lows?

Will AUD/USD Hit Fresh Lows?

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It’s now obvious that China’s economy is in serious trouble. The latest move to devalue the yuan only underscores the notion that policymakers are becoming very concerned about the potential slowdown in world’s second biggest economy.

Since China acts almost like Jupiter, exerting its economic pull in all directions, but especially towards the neighboring economies in Asia, the Aussie has been one of the biggest victims of this process. Last night devaluation news reversed the nascent short covering rally and sent the pair towards its recent multi -year lows.

Tonight China will report a slew of economic data including Industrial Production and Retail Sales both of which could be key to Aussie near term direction. If the economic reports show yet another disappointment the 7250 lows put in a few weeks ago could fall by the wayside.

NZD/CAD – Fresh Highs Ahead?

NZD/CAD – Fresh Highs Ahead?

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Fundamentals
We talked about the kiwi strength earlier today when we noted that,”The New Zealand dollar was propelled by comments from the country’s Prime Minister John Key, a former currency trader himself, who stated in CNBC interview that in his opinion intervention would not work. Mr. Key was referring to the kiwi’s strength especially against the Australian dollar as the cross continues to hover near parity.

In Mr. Key’s view intervention only works at the points of extreme, but is ineffective against a long sustained trend. With RBNZ resolutely set against lowering rates in the foreseeable future the kiwi remains the preeminent carry trade in the industrialized world and that factor continues to prop the unit against G-10 currencies.”

With tomorrow’s CAD employment data due at 12:30 GMT the prospect of big miss and a therefore the possibility of yet another rate cut by the BOC looms large. Therefore, we could have a trigger that could push the pair to fresh yearly highs as rate differentials continue to widen out.

Technicals
Having made a series of higher lows the uptrend in the pair remains in tact and the 9600 figure is the next target of the longs which if broken opens up the way to a run towards .9800

USD/CAD Headed for Fresh 1 Month Lows

USD/CAD Headed for Fresh 1 Month Lows

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USD/CAD Headed for Fresh 1 Month Lows

After today’s Bank of Canada monetary policy announcement, USD/CAD is headed for fresh 1 month lows. Investors bought Canadian dollars aggressively after the Bank of Canada left interest rates unchanged. While back-to-back rate cuts was unlikely, most investors expected the BoC to maintain a dovish bias and leave the door open to additional easing. However, the central bank described inflation risks as more balance, called the current degree of stimulus appropriate and said that crude prices and Q4 growth are close to expectations. These comments indicate that the central bank has shifted to neutral and is no longer looking to lower interest rates. It is for this reason and not just their decision to keep rates steady today that has driven the Canadian dollar sharply higher. The rebound in oil prices also helped lift the currency. While USD/CAD has yet to break out of its 1.2350 to 1.2700 range, we believe that it should only be a matter time before support gives way.

Taking a look at the daily chart of USD/CAD, there is a clear descending triangle. A break below 1.2350 support would open the door for a move down to 1.2120, the 23.6% Fibonacci retracement of the 2007 to 2009 rally. If 1.2350 holds, the resistance is near 1.26.

USD/JPY Headed for Fresh 7 Year Highs

USD/JPY Headed for Fresh 7 Year Highs

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USD/JPY Headed for Fresh 7 Year Highs

USD/JPY took out the 120 level with ease today despite a lack of U.S. data. Talk of tighter monetary policy drove the U.S. dollar higher against most of the major currencies. This morning Dallas Fed President Fisher said that early and gentle rate increases would be wise. This follows yesterday’s comments from Fed President Lacker who believed that June was an attractive time to raise rates. Based on these comments and our general outlook for US monetary policy, we believe that USD/JPY will hit and exceed last year’s high of 121.85. U.S. rates are on the rise and stocks are performing well, making U.S. assets even more attractive. A softer retail sales report on Friday could sap some of the gains but we view any pullback in USD/JPY as an opportunity to buy at lower levels.

Taking a look at the daily chart of USD/JPY, the break above 120 puts the currency pair on track for further gains. However there are a 2 main resistance levels to be mindful of – 120.80 and 121.85. These levels halted previous rallies in the pair. Support is at 120.

Why EURO Could Hit Fresh Lows Before Year End

Why EURO Could Hit Fresh Lows Before Year End

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Why EURO Could Hit Fresh Lows Before Year End

Fundamentals

Typically investors expect the last 2 weeks of the year to be the quietest periods in the foreign exchange market and rightfully so because of the lack of participation and thin liquidity. However it is in this very environment that currencies could see big moves that can drive them to new highs and lows. In 2013 for example, EUR/USD climbed to a fresh 2 year high on December 27th and in 2012 it revisited its 1 year high on January 2nd. In both cases, this was an extension of a trend that began in early December. So if history can be a guide, euro could drop to fresh lows before trading kicks into high gear at the beginning of the year. Fundamentally, we believe that the decline in EUR/USD is far from over. Just as the market is growing more confident in Fed tightening, they are also feeling more certain that the ECB will announce a broader asset purchase program. QE for the Eurozone is coming and as monetary policy drifts further apart, the pressure on the euro will intensify. From a fundamental and technical basis, we expect the EUR/USD to drop to 1.20 in beginning of the year.

Technicals

1.20 is a very important technical and psychological support level for EUR/USD but the sell-off could also stall near 1.2150, the 50% Fibonacci retracement of the rally that lasted from 2000 to 2008. In the short term resistance is at 1.24 but the main resistance level for EUR/USD is 1.26, the November/December range high.