*Good morning/afternoon everyone!* The U.S. dollar is trading lower against most of the major currencies this morning as risk appetite improves after yesterday’s brutal selling. Stock futures are up, helping to bolster pairs like EUR/USD and USD/JPY. However as we begin the NY session, the decline in Treasury yields could also tip the scale and push USD/JPY lower. Yen crosses on the other hand will take their cue from stocks today. The currency most vulnerable to weakness is the Canadian dollar because oil prices are down more than 2% after President Trump tweeted that he hopes Saudi Arabia and OPEC will not cut oil production because he thinks oil prices should be much lower based on supply. Despite a softer Eurozone ZEW survey, EUR/USD is trading above 1.1250 on the hope that progress could be made on the Italian budget front. the expectations component of the ZEW surely also increased. The best performing currency this morning is sterling which is up on higher wages (despite a higher unemployment rate) and continued Brexit optimism. On the Brexit front, we are getting closer to a deal but with some counterproductive headlines, traders are still reluctant to overload sterling positions but when an announcement is made, we can almost be assured that there will be a strong followup rally. AUD and NZD are also up from yesterday but having risen strongly in Asian trade, they are mostly consolidating and even weakening slightly. We also have our eyes on the Swiss Franc which appears to be topping below 1.0130. *The MAIN THEMES I see today are* +EUR +CHF -CAD -JPY *Trading Biases* +EUR, +CHF, +GBP, -CAD, -JPY mildly +AUD, +NZD, -USD *Today’s Initial Trades* Here’s the summary – 1. Buy EURCAD at 1.4885, Stop at 1.4857, Target 1.4912 2. Buy EURUSD at 1.1247, Stop at 1.1219, Target 1.1275 3. Buy AUDCAD at .9531, Stop at .9503, target .9559 4. Sell AUDCHF at .7270, Stop at .7298, Target .7242

Swing

*Good morning/afternoon everyone!*

The U.S. dollar is trading lower against most of the major currencies this morning as risk appetite improves after yesterday’s brutal selling. Stock futures are up, helping to bolster pairs like EUR/USD and USD/JPY. However as we begin the NY session, the decline in Treasury yields could also tip the scale and push USD/JPY lower. Yen crosses on the other hand will take their cue from stocks today. The currency most vulnerable to weakness is the Canadian dollar because oil prices are down more than 2% after President Trump tweeted that he hopes Saudi Arabia and OPEC will not cut oil production because he thinks oil prices should be much lower based on supply. Despite a softer Eurozone ZEW survey, EUR/USD is trading above 1.1250 on the hope that progress could be made on the Italian budget front. the expectations component of the ZEW surely also increased. The best performing currency this morning is sterling which is up on higher wages (despite a higher unemployment rate) and continued Brexit optimism. On the Brexit front, we are getting closer to a deal but with some counterproductive headlines, traders are still reluctant to overload sterling positions but when an announcement is made, we can almost be assured that there will be a strong followup rally. AUD and NZD are also up from yesterday but having risen strongly in Asian trade, they are mostly consolidating and even weakening slightly. We also have our eyes on the Swiss Franc which appears to be topping below 1.0130.

*The MAIN THEMES I see today are*

+EUR
+CHF
-CAD
-JPY

*Trading Biases*

+EUR, +CHF, +GBP,
-CAD, -JPY
mildly +AUD, +NZD, -USD

*Today’s Initial Trades*

Here’s the summary --

1. Buy EURCAD at 1.4885, Stop at 1.4857, Target 1.4912
2. Buy EURUSD at 1.1247, Stop at 1.1219, Target 1.1275
3. Buy AUDCAD at .9531, Stop at .9503, target .9559
4. Sell AUDCHF at .7270, Stop at .7298, Target .7242

Euro – Major Reverse Head and Shoulders

Euro – Major Reverse Head and Shoulders

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Euro – Major Reverse Head and Shoulders

On a technical basis, there is a major reverse head and shoulders pattern in the EUR/USD with 1.1485 (lets say 1.15) as the neckline. If the currency pair breaks and closes above this key level in a meaningful way, the next stop will be 1.1850. However as we all know, the outlook for EUR/USD hinges entirely on how the Greek debt negotiations go down. If there is a deal, the euro will soar and take out 1.15 easily. However if there is no deal, then 1.14 and change will once again mark the top for the currency pair. Until there is a deal, the neckline should continue to cap gains.

Next week is important. We are 10 days away from the June 30th deadline when Greece owes the IMF more than a billion dollars and without a new bailout package, they will be in default. The action starts with an emergency summit on Monday evening. Both Tsipras and Merkel will be in attendance so the decision makers are in place but whether either side concedes remains an open question. If an agreement is not made at the time, the next key event risk is the special summit planned for June 25-26. These two meetings are the last official opportunities for a deal to be reached but if it becomes necessary we are certain that emergency meetings will be held on a daily basis into the weekend and the June 30th deadline. The ECB has already extended a lifeline to Greek banks by raising its emergency funding and we are optimistic that in the eleventh hour an agreement will be reached but if we are wrong and Greece defaults, EUR/USD could drop more than 5%.

GBP/USD – Major Monthly H&S Pattern

GBP/USD – Major Monthly H&S Pattern

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GBP/USD – Major Monthly H&S Pattern

We have been looking for sterling to break the bottom of its recent range against the U.S. dollar but we did not anticipate the move happening this week. However now that a new 4.5 almost 5 year low has been set, bounces in the currency pair could be shallower. We still believe that traders should have the opportunity to sell sterling between 1.47 and 1.48 in the coming week for an eventual move below 1.45 on the back of the U.K. election. Aside from U.S. data, U.K. inflation and employment numbers are also scheduled for release next week. While the PMIs reported mixed labor market activity with the rate of job creation accelerating in the service sector and slowing in manufacturing, inflationary pressures should remain weak.

Taking a look at the monthly chart of GBP/USD, there is a major head and shoulders pattern with a neckline around 1.45. If 1.45 breaks, there is no major support until the 2010 low of 1.4225. Near term resistance is at 1.48, the former breakdown zone. This can be seen more clearly on the daily chart.

EUR/GBP – Approaching Major Long Term Support

EUR/GBP – Approaching Major Long Term Support

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Fundamentals

The EUR/GBP is on the verge approaching lows it hasn’t seen since 2008. The reasons for the decline have been startlingly clear for many months. UK is on the verge of coming off the zero rate standard while the ECB is likely to compound their negative rate policy with additional QE increasing the gulf between the two monetary policies. Tonight’s EZ CPI could be key as to whether the ECB will actually take the plunge sooner rather than later. Another negative read which would suggest that deflation remains persistent could push the ECB policymakers over the edge and Mr. Draghi may announce new measures at this weeks presser. On the other hand any slghtly positive news could delay action and provide the EUR/GBP with a modicum of selling relief.

Technicals

The EUR/GBP pair now finds itself on the 7700’s as it approaches very long term support at the 7700 level that has not been seen since 2008. A break there would open a run to 7500 while only a retake of the 7900 figure alleviates the bearish bias.

Major Reversal in GBP/USD

Major Reversal in GBP/USD

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Fundamentals

GBP/USD experienced a major intraday reversal on Tuesday that erased all of last week’s gains and put the currency pair at its lowest level since March. The sell-off was driven by the combination of weaker U.K. data, stronger U.S. data and concerns about Scottish independence. At the end of last week, we said that sterling could rally if this week’s PMI reports surprise to the upside, reflecting a turnaround in the U.K. economy. Unfortunately while construction sector activity accelerated significantly, manufacturing activity, which is far more important slowed. The service sector PMI index is scheduled for release tomorrow and if it also falls short of expectations, then there is no data to support the call for earlier tightening by U.K. policymakers. In that case, the Scottish referendum and the inconsistency between data and policy should drive sterling even lower. At the same time, the U.S. dollar traded higher against most of the major currencies with the trade weighted dollar index climbing to its strongest level since July 2013. While a pick up in manufacturing activity, construction spending and economic optimism contributed to the move, the primary catalyst for the strong performance of the dollar was the sharp rise in U.S. yields. Ten year Treasury rates rose 8bp today, the last time we saw a move of this magnitude was in April, on a day when many Fed officials including Janet Yellen spoke on the economy and monetary policy. Investors are hoping that today’s sharp rise in U.S. yields will mark a bottom for U.S. rates. As economic and monetary policy divergence between the U.S. and the rest of the world widens, the dollar will become more attractive to foreign investors, providing room for further gains. As we noted in the past, the voracious demand for dollars stems not from the impressiveness of the U.S. economy but from the lack of better alternatives. However at bare minimum the prospect of a stronger non-farm payrolls report on Friday should keep the dollar bid and GBP/USD in a downtrend.

Technicals

Having broken below the August swing low, the next level of support for GBP/USD is the March low of 1.6462 and below that there is no major support until the 38.2% Fibonacci retracement of the 2013 to 2014 rally at 1.6285. A break back above 1.6645 would be needed to negate the downtrend.

EUR/CAD – Major Downside Opportunity

EUR/CAD – Major Downside Opportunity

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EUR/CAD – Major Downside Opportunity

Fundamentals

Between the weakness of the euro and strength of the Canadian dollar on Friday, EUR/CAD experienced a major downside break that opens up the opportunity for a deeper slide in the currency. While the Euro has been drifting lower, the Canadian dollar did not soar until the end of the week on the back game changing CPI figures. The annualized pace of consumer price growth in Canada hit 2.3%, its strongest level in 2 years. This was also the very first time in 2 years that CPI exceeded the Bank of Canada’s target. Considering that the BoC did not anticipate CPI reaching this target until the first quarter of 2015, this is big news that should cause the central bank to upgrade its economic forecasts and reconsider their monetary policy bias. The BoC does not meet for a few weeks but the prospect of a less dovish bias could drive the Canadian dollar higher. At the same time, euro is in play in the coming week with a heavy economic calendar that includes Tier 1 economic reports such as Flash PMIs and the German IFO report. If these releases surprise to the downside reinforcing the need for the ECB to ease, it could drive EUR/USD to 1.3500 / 1.3475, which would in turn drive EUR/CAD lower.

Technicals

From a technical perspective, the next wave in EUR/CAD’s downtrend has already begun with the break of the 200-day SMA at 1.4735. The currency pair has been hovering around this moving average for the past week and finally broke through it with Friday’s reports. There has also been a major head and shoulders pattern forming that broke earlier this month but the move did not really gain momentum. Now that the 200-day SMA has broken, we believe it creates a major downside opportunity. There is no support at this stage until the 2014 low near 1.4400 and more significantly the 38.2% Fibonnaci retracement of the August 2012 to March 2014 rally at 1.4230. The downtrend would be negated if EUR/CAD rises back above 1.48.

GBP/CAD Tests Major Neckline Support

GBP/CAD Tests Major Neckline Support

Chart Of The Day

Fundamentals

Since the beginning of the month, GBP/CAD has been slowly dribbling lower and today, the decline in the currency pair stopped short of a major support level. Although the pair ended the day well of its lows, a sign that support could be holding, from a fundamental perspective, the currency pair is vulnerable to additional losses which means that this support could be re-tested and broken. Today’s rebound was caused by U.S. dollar weakness, which drove GBP/USD higher as USD/CAD held steady. After the Bank of England’s decision to keep their 2014 GDP and CPI forecasts unchanged and their reluctance to signal plans to tighten monetary policy, we believe that there will be further profit taking on long GBP/USD positions which will be negative for GBP/CAD.

Technicals

Taking a look at the daily chart of GBP/CAD, the neckline of the broad head and shoulders pattern is somewhere between 1.8230 and the April swing low of 1.8167. If this support zone is broken, it will be clear sailing for the currency pair down to 1.80 and if 1.80 is broken, the next target for the move will be 1.7800. On the upside, if GBP/CAD rises back above 1.8425, the downward bias for the pair will be negated.