USD/CAD Headed Below 1.28

USD/CAD Headed Below 1.28

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USD/CAD Headed Below 1.28

The Canadian dollar soared today on the back of the Bank of Canada’s monetary policy announcement. Although interest rates were left unchanged, the BoC made a u-turn in their statement by dropping the reference to being “cautious on rates” and removing the language that pertains to the need for “monetary policy accommodation.” With inflation “likely to be a bit higher in the near term,” and activity “a little stronger than projected,” the BoC expects “solid wage growth” to contribute “positively to housing and consumer demand.” We believe that the Canadian dollar will continue to benefit from this shift in sentiment, leading to further profit taking in USD/CAD.

On a technical basis, USD/CAD has fallen below the first standard deviation Bollinger Band. Although there’s some support at the 20-day SMA near 1.2850, we believe that USD/CAD will fall to at least 1.2790, the 38.2% Fibonacci retracement of the 2018 rally and the first standard deviation Bollinger Band and most likely to the May low near 1.2725.

EUR/USD – Headed Below 1.22?

EUR/USD – Headed Below 1.22?

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EUR/USD – Headed Below 1.22?

Euro is trading lower ahead of next week’s European Central Bank’s monetary policy announcement. After consolidating for 8 trading days and failing to break above 1.24 throughout that time, the EUR/USD finally broke down on cautious comments from ECB member Weidmann. The head of Germany’s Bundesbank said there were recent indications that the first quarter in Germany was “not so brilliant.” However on Friday, ECB President Draghi also said growth momentum is expected to continue and their confidence in the inflation outlook increased but the euro-area growth cycle may have peaked. Euro will be the main focus in the week ahead with a central bank rate meeting, Eurozone PMIs, the German IFO report and German labor market numbers scheduled for release. Since the last monetary policy meeting we’ve seen more deterioration than improvement in the Eurozone’s economy. Therefore we don’t expect Mario Draghi’s outlook to improve materially this month as German sentiment and spending deteriorates. The ECB is not ready to signal the end of QE and they are not thinking about raising interest rates anytime soon. If the PMI and IFO reports, which will be released before the rate decision miss expectations, investors will position for renewed dovishness from the central bank. The risk is to the downside for euro and dovish comments from Draghi could drive EUR/USD to 1.22.

Technically, EUR/USD has fallen below the 20 and 50-day SMA. This breakdown after tight consolidation is significant and the next stop should be the 100-day SMA near 1.22 followed by 1.21. If EUR/USD manages to rebound and finds itself back above 1.2375, then a run above 1.24 becomes likely.
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GBP/CAD – Headed to 1.76?

GBP/CAD – Headed to 1.76?

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GBP/CAD – Headed to 1.76?

Although sterling traded higher against the greenback today, we believe that it is vulnerable to further weakness as U.K. data worsens. Industrial production rose only 0.1% in the month of February and manufacturing production fell -0.2%. Although the trade deficit narrowed, the decline in exports and imports reflects weakness rather than strength. All of this follows last week’s disappointing PMI reports.
The National Institute of Economic & Social Research also sees GDP growth accelerating to only 0.2% in the month of March, which was less than anticipated. Meanwhile the Canadian dollar rose to its strongest level in 7 weeks vs. the greenback. There was no Canadian data but the sell-off was supported by the price of crude, which hit its highest level since December 2014. Canadian 10 year bond yields are up sharply and with the prospect of a NAFTA deal, the loonie should extend its gains.

Technically, GBP/CAD has support at 1.7800 but if this level is broken, we should see the pair extend down to 1.76. The weekly chart shows the pair’s negative bias after having rejected the 200-week SMA.

GBP/USD Headed for 1.42?

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GBP/USD Headed for 1.42?

GBP/USD will be on the move with U.K. composite and service sector PMI numbers schedule for release on Thursday. So far we know that manufacturing activity remained stable but construction activity contracted in the month of March. Higher highs and higher lows over the past 4 trading days suggests that GBP/USD wants to rally but strong data will be needed to drive the currency pair upwards. The Bank of England is widely expected to be the next major central bank to raise interest rates but investors are looking for data to validate their hawkishness before buying the currency.

Technically, GBP/USD has strong support at 1.40. Not only is this a significant round number, but its also where the 20 and 50-day SMAs converge. If GBP/USD breaks above 1.41 on the back of stronger data, the next stop could be 1.42.

AUDCAD – Headed for 1.0000?

AUDCAD – Headed for 1.0000?

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AUDCAD – Headed for 1.0000?

After selling off aggressively on Friday, AUD/CAD extended its losses for the third consecutive trading day. There was no data out of Australia but AUD lagged behind as investors expect continued caution in this week’s RBA minutes. The Canadian dollar on the other hand benefitted from Prime Minster Trudeau’s comment that Trump seems enthusiastic about getting a NAFTA deal. USD/CAD experienced strong gains over the past month and while the Bank of Canada is in no rush to raise interest rates, we could see USD/CAD pullback to 1.30 as oil prices rise and NAFTA concerns ease

Technically, AUD/CAD has fallen below the first standard deviation and the next support level isn’t until the March 9th low of 1.0010.

GBP/USD Headed to 1.38?

GBP/USD Headed to 1.38?

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GBP/USD Headed to 1.38?

It should also be a busy week for sterling with a Bank of England monetary policy announcement, retail sales, consumer prices and labor market reports scheduled for release. After numerous tests, GBP/USD rejected 1.40 and appears on its way back down to 1.3800. Whether this key level is broken or not will be determined by the BoE and FOMC rate decisions. American policymakers meet before the Brits and they are widely expected to raise interest rates for the first time this year. Yet what’s important is not the rate hike but their guidance on future tightening. If the dot plot shows policymakers leaning towards 3 instead of 4 hikes, the dollar should fall, driving GBP/USD higher. If it shows 4 instead of 3, GBP/USD could fall aggressively. As for the BoE, at the last meeting sterling shot higher after the central bank raised their 2018 and 2019 GDP forecasts adding rates may need to rise faster and earlier than previously expected. This hawkishness caught the market by complete surprise. Although here’s been more weakness than strength in the U.K. economy since the last meeting (manufacturing activity slowed, retail sales growth barely turned positive) and consumer price pressures eased, its unlikely that the central bank will walk back their positive outlook so quickly. This is not a monetary policy announcement that is accompanied by a press conference by Mark Carney (like the last one) so the statement is likely to be unchanged.

Technically, after a series of lower highs and lower lows, GBP/USD has broken below the 20 and 50-day SMA. This move is not only bearish but signals a potential move below 1.3800.

EUR/AUD – Headed for 1.55?

EUR/AUD – Headed for 1.55?

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EUR/AUD – Headed for 1.55?

The euro traded lower against the U.S. dollar today on the back of cautious comments from the ECB and weaker industrial production. Everyone from ECB President Draghi to members Praet, Coeure and Villeroy all felt that inflation is low and therefore policy needs to patient and persistent because the currency’s strength could drive prices even lower. The uniformity of the central bank’s comments make it clear that they are in no rush to change their forward guidance. Meanwhile the Australian dollar traded higher on the back of stronger consumer confidence, faster Chinese industrial production growth and positive comments from the Reserve Bank of Australia sent the currency sharply higher. According to RBA Assistant Governor Kent, the “good growth we’re seeing, the low levels of spare capacity….raise the risk that inflation pressures will pick up.” He also felt that “markets may be underpricing the risk of faster growth.” As these are the most hawkish comments that we’ve heard from an RBA official, it was no surprise to see the big reaction in the Australian dollar. Fundamentally, the dovishness of the ECB should cause the euro to underperform AUD further.

Technically, EUR/AUD has found itself back below the 20-day SMA. Although there’s quite a bit of support above 1.56, we believe that the pair could start to move lower with a break of 1.56 paving the way for a steep decline to the 100-day SMA near 1.5485.

USD/CAD Headed for 1.25?

USD/CAD Headed for 1.25?

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USD/CAD Headed for 1.25?

USD/CAD tested and rejected 1.2700 following stronger than expected consumer prices. Over the past month, we’ve seen mostly softer Canadian data including retail sales which dropped -0.8% at the end of the year. Economists were looking for softer demand but they did not anticipate sales falling by the largest amount in a one month period since March 2016. However like the Eurozone, Canada’s economy is coming from a strong base and the CPI report suggests that the healthy labor market is driving up price pressures. Core consumer prices, which are less volatile increased for the fourth month in a row and is now at its highest level since September 2016. This will keep pressure on the Bank of Canada to tighten. In the week ahead, Canada’s current account balance and GDP reports are scheduled for release.

Technically, 1.2700 is an important level as it’s where USD/CAD broke down from in December and where the 200-day SMA hovers. USD/CAD has some support at the 100-day SMA near 1.2620 and once that’s broken, we could see a deeper slide down to 1.25. If USD/CAD finds its way back above 1.2725, we could see a stronger rally to 1.28.

Is GBPUSD Headed for 1.40?

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Sterling rose to its strongest level since June on the back of U.S. dollar weakness and the prospect of a soft Brexit. On Friday, there were reports that the Spanish and Dutch support a soft Brexit that keeps Britain more closely tied with the rest of the region. The EU Parliament is also looking to soften proposals on the forced relocation of clearing houses, reducing the risk that the UK might lose such lucrative business. We’ve said it before – 2018 will be the year that a Brexit deal gets done and these are all signs that progress is being made. With that in mind, next week, Parliament will debate Brexit on January 16 and 17th, so keep an eye out for market moving headlines. Sterling will be in play with UK inflation and retail sales data scheduled for release.

Although we are looking for both reports to surprise to the downside, on a technical basis, there’s no major resistance in GBP/USD until the 38.2% Fibonacci retracement of the 2014 to 2016 decline near 1.3975. The trend is strong and further GBP/USD gains are likely.

NZD/CAD Headed Lower

NZD/CAD Headed Lower

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NZD/CAD Headed Lower

The next 24 hours will be a busy one for the commodity currencies with New Zealand and Canadian data scheduled for release. The New Zealand dollar has been incredibly resilient in the face of weakening data. Last night’s trade balance report came in significantly lower than expected with the deficit expanding in the month of November instead of contracting like economists anticipated. This does not bode well for tonight’s GDP report as trade activity and consumer spending turned lower in the third quarter. The only thing holding NZD/USD up is risk appetite but if GDP misses like we expect, NZD fundamentals could finally catch up to the currency. In particular, we are looking for against the Canadian dollar ahead of and on the back of tomorrow’s retail sales and consumer price reports. Technically USD/CAD is just beginning to turn and at risk of a deeper decline towards 1.2750. Fundamentally, today’s jump in wholesale sales signals is a sign of healthy demand while the sharp uptick in the price component of the latest IVEY PMI report points to growing price pressures. For these reasons we believe that CPI and retail sales will surprise to the upside. Technically, NZD/CAD’s failed attempt to take out 90 cents puts the pair on course for a move down to 89 cents and possibly even to the 20-SMA near .8850. This month’s high coincides with the 23.6% Fib retracement 2009 to 2016 rally.

EUR/USD – Headed Back Down to 1.17?

EUR/USD – Headed Back Down to 1.17?

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EUR/USD – Headed Back Down to 1.17?

Despite stronger economic data and upgraded economic projections, the euro failed to extend higher after breaking out of Wednesday. The latest reports show service and manufacturing activity accelerating, leading to greater investor confidence. Next week’s German IFO report is expected to reinforce the improvement, giving euro a fresh catalyst to trade higher. Unfortunately on a technical basis the currency looks weak and poised for a retest of 1.1700. Fundamentally, the economy is strong -- the ECB left interest rates unchanged and substantially upgraded their growth forecasts. They now see the economy expanding by 2.4% this year up from 2.2% and raised their 2018 GDP forecast to 2.3% from 1.8%. Their inflation forecasts were left unchanged. Although the euro did not respond to these changes and Mario Draghi’s optimistic comments about the economy’s momentum due to his concerns about low inflation, we still think EUR/USD losses will be limited. The central bank’s plans to keep rates steady until QE ends is not new and between now and then if inflation rises, they could adjust their views.

On a technical basis, the rejection of the 20 and 200-day SMA puts EUR/USD on track for a move to and possible below 1.17.

GBPJPY – Headed to 153.00?

GBPJPY – Headed to 153.00?

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GBPJPY finds itself at the intersection of the two biggest stories this week -- the US payrolls data tomorrow and the Brexit negotiations with EU. The pair was extremely volatile today jumping up and down at every positive or negative headline and could remain so until the end of week’s trade, but should developments follow the scripts of the bulls, the pair could skyrocket through key resistance at the 153.00 level taking out the yearly highs.

If UK and Ireland can come to terms the prospect of a soft Brexit is sure to increase sending cable to a test of post-Brexit highs above the 1.3600 level, that in turn could lift GBPJPY towards 155.00 especially if tomorrow’s NFP show strong wage growth. The one-two confluence of positive factors could send the pair to fresh yearly highs. Of course, headline risk works both ways and the pair could tumble hard below 150.00 if both stories disappoint.