USDCAD – Can Range Highs Hold?

USDCAD – Can Range Highs Hold?

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It’s been a rollercoaster ride for loonie this week as Trump Administration put the Northern neighbor trough the wringer, first slapping tariffs on soft lumber, then threatening to pull out of NAFTA. Adding insult to injury has been the lackluster performance of oil as crude slipped below the $50/bbl level.

Tomorrow’s Canadian GDP report may be another hit to the pair if it misses rather modest expectations of 0.1% growth versus 0.6% the month prior. With Canadian real estate market in a massive bubble and the country’s banking sector in a credit crunch due to deteriorating loan quality, the loonie may be in for more pain.

Given the Trump Administration’s penchant for protectionism, it is not at all certain if further flare-ups will be in store and loonie remains vulnerable for the time being. USD/CAD has breached the top of its range and unless the pair comes back below the 1.3400 mark the near term trend suggests that the pair could push towards 1.4000 over the near term horizon.

USDCAD – Top  of the Range?

USDCAD – Top of the Range?

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The collapse in oil prices yesterday pushed USDCAD to the top of its recent range at 1.3500. With crude still stuck at the $50/bbl and further weakness likely the loonie could push through the key 1.3500 resistance level as traders begin to worry about the impact of lower oil prices on the Canadian economy. But push higher may not have much traction especially if oil finds support at the $45/bbl level.

The Canadian economy is no longer so dependent on resource prices and has shown remarkable resilience in the wake of lower oil prices. Tomorrow the market will get a look at Canadian CPI data and if inflation numbers come in hotter than the 0.4% projected rate, USD/CAD 1.3500 could prove to be the cap to this rally as the pair turns back off the highs of the range towards support at 1.3200

USDCAD – Can it Break The Range?

USDCAD – Can it Break The Range?

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For nearly a month USDCAD has been stuck in a 1.3000 -- 1.3200 range as the vol in the pair compressed despite the fact that oil prices have held steady above the $50/bbl level. Part of the problem is that Canadian data has been mixed capping any rally in the loonie. This week’s Retail Sales printed significantly worse than expected at -0.3% versus 0.8% eyed.

Tomorrow the market will get another key data point as the CPI report will be released. The market is anticipating a rebound after two straight months of negative readings, but given the poor final demand numbers, the prospect of another deflationary month could be quite real. If Canadian inflation is actually contracting that could weigh on the loonie and push USDCAD through key resistance at 1.3200.

For now, however, the pair remains highly contained in 200 point range and looks like will remained capped by the 1.3000 -- 1.3200 levels.

GBP/CAD – Top of the Range?

GBP/CAD – Top of the Range?

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The BoE meeting today ended with essentially a dud for sterling as the pair failed to hold its highs after the central bank admitted that economic conditions were better than anticipated after Brexit. The lingering sentiment in the market however, is that growth will become more problematic as the year progresses and UK becomes more serious in its negotiations to leave the European Union.

The loonie on the other hand may be at the end of it decline as oil appears to be bottoming near the $44/bbl level. Another run towards the $50/bbl level could push USD/CAD towards 1.2800 and that in turn should send GBP/CAD lower as well.

Technically GBP/CAD sees a triple top at the 1.7500 level that has been there most the year and as long as the pair respects that trendline the path of least resistance over the near term horizon is to the downside.

AUD/CAD Targets Top of Range

AUD/CAD Targets Top of Range

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AUD/CAD Targets Top of Range

For the past week we’ve seen AUD/CAD consolidate between a relatively tight 0.9435 and 0.9535 trading range. This type of performance tends to happen when commodity currencies move in the same direction and / or the U.S. dollar dictates trading. While further range trading is possible, we also think that AUD/CAD is prime for an upside breakout. Fundamentally, the smaller decline in Chinese imports, rise in Chinese steel demand and less dovish RBA is positive for AUD. In contrast, the deterioration in Canadian manufacturing and housing market activity along with USD/CAD nearing oversold levels means that even if CAD rises further, its gains should AUD.

Technically, AUD/CAD has done a great job of holding above the 20-day SMA at 0.9435. If this level is broken then a move to the May low near 0.9335 becomes likely. However if AUDCAD breaks above 0.9540, the 61.8% Fib retracement of the 2015 year end rally then 96 cents will be the target. Either way, we are at least looking for a move to the top of the range at 0.9535 before any of that happens.

Trading the USD/JPY Range

Trading the USD/JPY Range

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Trading the USD/JPY Range

USD/JPY ended the day in negative territory following the overnight slide in Asian equities and the mixed U.S. non-farm payrolls report. At first glance, job growth in the month of August was horrid with payrolls rising only 173K versus the forecast of 217K. However the details of the report was not nearly as weak with the unemployment rate falling to 5.1% and average hourly earnings rising to 0.3%. As a result, the losses in USD/JPY were limited and a rebound could occur in the coming week with no major U.S. economic reports scheduled for release. Yet the gains ahead of the September 17th FOMC meeting should be limited as Friday’s jobs number failed to revive rate hike expectations. At this stage, it will be very difficult for the Fed to pull the trigger this month. So the trade is to buy USD/JPY on dips between 118 and 119.50 and to take profit between 120 and 121.

Technically, USD/JPY broke below the 200-day SMA earlier this week and this decline exposes the currency pair to move below 118. Near term support is at the August 25th low of 118.25 with more significant support at 116.20. Resistance on the other hand is at the 200-day SMA near 120.80.

GBP/JPY Back to the Bottom of the Range?

GBP/JPY Back to the Bottom of the Range?

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GBP/JPY Back to the Bottom of the Range?

With UK election only 2 days away the market appears to be remarkably calm at the prospect of hung Parliament. After countless polls the UK electorate appears to be split into thirds with a third voting for Labor a third for Conservatives and a third for a smattering of other parties. This can lead to a very unstable government that could spook investors especially if the economic situation in UK begins to deteriorate.

And signs of a slowdown are starting to pop up everywhere. The latest PMI data from both manufacturing and construction have missed their mark by a wide margin and if tomorrow’s PMI services report -- the most important of them all -- also comes under forecast it will constitute a trifecta of disappointment for the UK economy an could finally push cable through the 1.5000 mark as hopes for any type of BOE normalization evaporate. And that in turn could take GBP/JPY to the lower end of the range at 174.00

Technically the pair also looks vulnerable having made a lower triple top as well as a shooting star on the dailies suggesting that sellers are now in control. A break below 180.00 opens the test of the 174.00 level while only a break above the 185.00 relieves the downside pressure.

GBP/NZD – At the Top of the Range?

GBP/NZD – At the Top of the Range?

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Fundamentals

This week the focus falls on central banks and no two events are more important than the RBNZ decision and the BoE minutes which are due one after the other. In New Zealand the question is will they or won’t they? Most analysts expect the RBNZ to hike to 3.50% and if they were to do so the kiwi could attract a fresh round of buying especially from yield starved Japanese. However the latest data form New Zealand suggests that the economic growth may be slowing and the Chinese are looking at aggressively diversify from the country’s main export -- milk. That could lay the groundwork for RBNZ to halt its tightening for now which could hit the kiwi hard. Meanwhile in UK all eyes will be on the MPC minutes as traders will look for any sign that there is disagreement about the current state of accommodating monetary policy. If there is a hint that some members would like to tighten before 2014 is over, cable could get another boost in price. In short the GBP/NZD is prime for some volatility as the week proceeds.

Technicals

Technically GBP/NZD is nearing the top of its multi-month range with 1.9750 looking to cap the current move. A break higher could open a run to 1.9900 while a drop would target the lower end of the range as 1.9400

EUR/CHF – Back to the Bottom of the Range?

EUR/CHF – Back to the Bottom of the Range?

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Fundamentals

Today’s sudden reversal in the EUR/CHF suggests that the pair ma have run out momentum ahead of the next week’s ECB meeting as traders may be starting to price in the prospect of possibly lower ECB rates. Although we remain sceptically that the ECB will go “negative” as that could prove to be be both a political and financial challenge the EU governing council members may feel they have no choice but to lower rates perhaps another 15 basis points as US rate continue to tumble and euro rises against the dollar. The ECB is very adamant at keeping the rate below the 1.40 level and lower the benchmark rate may be the only way for them to do it. Therefore today’s downward pressure may be signaling that dynamic and the pair could probe the 1.2150 and possibly even the 1.2100 as a result.

Technicals

Technically the 1.2250 level remains the cap in the EUR/CHF range and the move lower now opens up the prospect of test of 1.2150 and possibly even a break towards the 1.2100 level as the downward pressure on the pair accelerates.

EUR/JPY Prime for a Break of 136-138 Range

EUR/JPY Prime for a Break of 136-138 Range

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Fundamentals

With the European Central Bank meeting tomorrow, EUR is in play. EUR/JPY in particular has been confined within a narrow 200 pip range for the past 3 days between 136 and 138, making the currency pair prime for a breakout. Central bank rate decisions are the perfect catalyst for big moves even if the ECB does not change interest rates. Every month the head of the ECB delivers a press conference where he provides his latest economic and monetary policy outlooks. Mario Draghi’s comments almost always move the euro as traders express their enthusiasm or disappointment with the central bank’s views. EUR/JPY’s reaction to Draghi will depend on whether he acknowledges the recent economic improvements in the economy or ignores them again. Having only strengthened their forward guidance last month, the central bank will be wary of sounding overly optimistic and risk driving rates higher. The odds favor EUR/JPY negative comments from the ECB but most market participants expect the central bank to be dovish so any hint of optimism could send EUR/JPY sharply higher.

Technicals

Based on our Double Bollinger Bands, EUR/JPY is deep in sell-zone territory. This means that further losses are likely as long as the currency pair holds below the first standard deviation Bollinger Band at 138.55. If this level is broken, EUR/JPY could extend to 140. On the downside, 136 is near term support for the currency and if breaks this level, there is no major support until 134.