EUR/USD – Levels to Watch Post ECB

EUR/USD – Levels to Watch Post ECB

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EUR/USD -- Levels to Watch Post ECB

EUR/USD is trading sharply lower ahead of the European Central Bank’s monetary policy announcement. Over the past 6 weeks there’s been widespread deterioration in business activity prompting investors to position for a dovish outlook. Even Germany’s Bundesbank head said recent indications for Germany in the first quarter were “not so brilliant.” However we can’t assume overwhelming dovishness from Draghi because last Friday he also said their confidence in the inflation outlook increased as the growth momentum is expected to continue. Inflation has also been on the rise so underneath the weakness there are positive developments. The question for Thursday is whether recent deterioration overshadows the uptick in inflation and positive growth momentum. We know that the ECB is not ready to raise interest rates and they certainly don’t want to see EUR/USD back above 1.24 because that would offset the improvements in prices. Yet they also want to end QE purchases this year -- so Mario Draghi has quite the balancing act to do on Thursday.

If ECB is dovish and the EUR/USD falls, the next stop should be 1.2100, which was resistance in early January and then 1.20, the 200-day SMA. EUR/USD has already broken below the 100-day SMA so the path of least resistance is lower. If they are not as dovish as investors anticipate and EURUSD finds itself back above 1.2250, the rally should extend to at least 1.2320.

AUD/USD Pre RBA Levels

AUD/USD Pre RBA Levels

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AUD/USD Pre RBA Levels

The Australian dollar will be in focus tonight with PMIs, retail sales and the Reserve Bank of Australia’s monetary policy announcement on the calendar. We are looking for slightly stronger data and unchanged policy guidance but that may not do much for the currency. Taking a look at how Australia’s economy performed since the last meeting, first and foremost, there were fewer than usual economic reports released between monetary policy announcements. Retail sales, the trade balance and Q3 GDP for example won’t be shared until the day of or after the RBA rate decision. Since the November meeting, consumer confidence has fallen, inflation expectations declined and housing activity slowed. Labor market indicators were mixed but for the most part the RBA is happy with the jobs market. Business confidence and manufacturing activity also improved as iron ore prices rocketed higher. These improvements will encourage the RBA to maintain their neutral policy stance while preserving their view that inflation will remain low for some time. Since we don’t expect anything new from the central bank, the impact on AUD should be limited. AUD/USD is still in a downtrend but we don’t believe that the RBA announcement will take the pair out of its .7532 to .7660 range – the catalyst will either be Australian data (retail sales and GDP) or U.S. data.

Technically AUD/USD needs to close firmly above .7650 in order to shake off the downtrend. Even then, there’s resistance between .7680 and .7720. However by the same token, there’s also significant support at .7530. A break below that level could precipitate a stronger move lower down to 74 cents.

GBP/USD In Play – Watch the Levels

GBP/USD In Play – Watch the Levels

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GBP/USD In Play – Watch the Levels

The focus will be on the British pound on Thursday for a number of reasons. There is a Bank of England monetary policy announcement on the calendar along with the Quarterly Inflation Report and a speech from Governor Carney. Additionally Prime Minister May will be publishing a White Paper containing her Brexit plan. We are not sure exactly what time her White Paper will be released but the monetary policy announcement and Quarterly report could be more positive than negative for sterling as the central bank is widely expected to increase its inflation forecast. Growth and inflation has been stronger than expected but the challenge for Carney is assessing how this could change in light of the government’s plans for a hard Brexit. The last time the BoE met, Carney said rates could go up or down in the months ahead. Brexit is quickly becoming reality as members of Parliament passed a bill today backing the trigger of Article 50. In May’s report tomorrow, she could outline a timeline for Britain’s exit from the European Union.

Its going to be a very volatile day for GBP/USD and the levels to watch will be 1.2775 on the upside and 1.2475 on the downside – if either of these levels give, we could see a much stronger move in the currency.

AUD/NZD – Near Term Support Levels

AUD/NZD – Near Term Support Levels

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AUD/NZD – Near Term Support Levels

We’re currently long AUD/NZD and thought it would be worthwhile to look at the chart from a shorter term basis. For the first time since mid-December AUD/NZD broke above the 20-day SMA. While there’s overhand resistance at 1.0480 (created by the 50 and 100-day SMA cross) the MACD is crossing to the upside and the 4 hour charts show support between 1.0400 and 1.0430.

Fundamentally AUD was the day’s best performing currency thanks to the rebound in gold prices and the slide in the U.S. dollar. The AU-NZ yield spread also moved significantly in favor of +AUD/NZD. Tonight Australia’s PMI services report is scheduled for release and if the PMI manufacturing index is a guide, the data should be stronger.

USDJPY – FOMC Levels

USDJPY – FOMC Levels

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Tomorrow the marquee event of the month finally arrives. The Fed meeting could set the tone for USDJPY trade for weeks to come. The issues are well known. If the Fed hints that it is open to more than 2 rate hikes in 2017, the greenback will soar as US yields surge. If on the other hand the Fed remains non-committal and keeps the dot plot at the current level, the dollar is likely to sell off. So instead of speculating about direction, it may be worthwhile to consider the key levels in USDJPY should either scenario pan out.

The dollar bullish trade could quickly take USDJPY towards the 117.00 level but beyond that the pair runs into much more chunky resistance at the 118.00 level from the start of this year. Beyond that, the 120.00 figure will act as massive resistance for the rest of the year.

In dollar bearish scenario the first level of support is 113.00 but given the very overbought nature of the pair USDJPY could easily slip towards 111.00 and even possibly 110.00 on paring of positions into the year end.

EUR/USD to Break on ECB, Key Levels to Watch

EUR/USD to Break on ECB, Key Levels to Watch

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EUR/USD to Break on ECB, Key Levels to Watch

The European Central Bank’s monetary policy announcement is the most important event risk on the calendar next week. While no immediate changes in monetary policy is expected, ECB President Draghi is expected to remind investors that inflation is low, the economy is weak and easier monetary policy may be needed. Consumer spending has been particularly soft, manufacturing and trade activity took a hit after Brexit and most importantly, inflation remains well below target with year over year core CPI growth slipping to 0.8% from 0.9% in August. Aside from the decision on rates and Draghi’s press conference, the central bank will also release its economic projections and if changes are made, they will likely be euro negative given the deterioration in manufacturing and inflation data over the past week.

Like many of the major currency pairs, EUR/USD went on a rollercoaster ride post NFPs but the currency pair ended the week below the 100 and 20-day moving averages which puts it on track for a move down to 1.1125, where we have the 50 and 200-day SMAs. If this support is broken and EUR/USD also breaches 1.11, 1.1050 will be next. If 1.1125 holds, EUR/USD could drift up to 1.1215 with the “breakout” of these moving averages determined the level of ECB dovishness.

CADJPY – Challenging Key Resistance Levels

CADJPY – Challenging Key Resistance Levels

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CADJPY – Challenging Key Resistance Levels

After last week’s strong gains, Yen pairs are due for a correction. They have run up too far too fast and with no major U.S. economic reports on the calendar, a correction is likely. We’ve decided to buy the Yen against the Canadian dollar because the overall strength of the U.S. dollar should keep oil prices under pressure. There are also no major Canadian economic reports until the end of the week.

Technically, there’s significant resistance above current levels. The 50-day SMA sits right above 82.00 and that coincides with the 23.6% Fibonacci retracement of the 2007 to 2009 decline. Beyond that is 61.8% Fib retracement of the 2009 to 2014 rally at 82.55. Support is at 80.

GBP – Brexit/Bremain Levels

GBP – Brexit/Bremain Levels

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Well with 48 hours to go it all comes down to this. The polls show a slight edge to the Remain side but with BBC debate tonight momentum can swing either way.

The vote is highly asymmetrical with the Brexit side creating far more risk for the pair. The upside should be capped by the 1.4800-1.5000 zone as relief should bring only a modest rally.

A vote for Brexit however could create unprecedented volatility and could send the pound plunging to 1.4000 and then quickly to multi year support at 1.3500. With brokers raising margins trading small is going to be critical as spreads and vol could explode.

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.

AUD/USD Failing at Key Technical Levels

AUD/USD Failing at Key Technical Levels

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AUD/USD Failing at Key Technical Levels

Beware of renewed losses in AUD/USD. The Australian dollar off this weekend’s softer industrial production and retail sales reports but it may not be able to ignore tonight’s dovish RBA minutes. When the Reserve Bank last met this month, they surprised the market with a quarter point rate cut that sent AUD to its lowest level in 5 weeks. The central bank’s frustration with the low level of inflation and subdued labor cost growth should make an appearance in the minutes but investors will be combing the report for hints on additional easing. However considering that the rate cut was not discounted by the market a generally dovish tone could be enough to drive AUD back to the day’s lows.

Technically, there’s major resistance above current levels -- the 50% Fib of this year’s rally sits at 0.7350, where we also have the 100-day SMA. The 50-week SMA is at 0.7300 and the 20-week SMA at 0.7330. If resistance at 0.7330 holds, we expect AUD/USD to make a run for support at today’s low of 0.7240, right under the 200-day SMA.

EUR/USD in Play – Chart and Levels

EUR/USD in Play – Chart and Levels

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EUR/USD in Play -- Chart and Levels

Thursday’s ECB meeting is one of the most important event risks this week. EURO has been biding its time trading between 1.1235 and 1.1465 pre-ECB. Which end of this range breaks hinges upon Mario Draghi’s tone. If he’s concerned about the strong euro and talks about the possibility of more stimulus, then 1.1235 could give. If he simply says they need more time to see the effects of stimulus and points to recent data improvements as a sign of their easing measures working, euro could make a run for 1.1400. From a data perspective, there’s less for the central bank to worry about in April vs. March when there was significantly more deterioration than improvement in the economy. So the question now is whether the 3 to 6 cent rise (depending where you’re measuring from) in EURO since March rings alarm bells for the central bank.

Technically, the EUR/USD is trading right around its 50-day SMA. A break of the 38.2% Fibonacci retracement would be needed for a near term top and pullback to 1.1150. Otherwise the uptrend remains intact. Resistance is at the April high near 1.1465.

USD/CAD at Critical Levels

USD/CAD at Critical Levels

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USD/CAD at Critical Levels

On a fundamental basis, it has been extraordinarily difficult to trade USD/CAD. The correlation between CAD and oil appears to be wavering and even if it doesn’t fall apart completely, there’s been significant intraday volatility in oil leading to unusually large swings in the currency pair. The recent recovery in oil prices takes some of the pressure off the Canadian economy but given how much prices have fallen in recent months, the lingering effects of oil below $30 a barrel will still be felt. Consumer spending has been very weak and labor market conditions are expected to worsen as energy companies continue to tighten their belts. However the underlying performance of the Canadian economy appears to matter little to USD/CAD traders who are still watching oil. It is difficult to buy USD/CAD if oil is bouncing particularly as strongly as it has in the second half of this week. While oil has its own problems (inventories are at record highs), it is also ignoring fundamentals.

Technically USD/CAD is trading near very critical levels. The latest sell-off has taken the pair below the 100-day SMA for the first time since October. However for the time being, the 61.8% Fibonacci retracement of 2001 to 2007 at 1.3500 continues to hold. This is also a psychologically significant level, increasing the importance of a break. Should USD/CAD close below 1.3500, 1.3400 is the next level to watch and beyond that 1.3200. If USD/CAD bounces, the 100-day SMA at 1.3640 will be resistance.