*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

Where to Sell USD/CAD?

Where to Sell USD/CAD?

Chart Of The Day

Where to Sell USD/CAD?

After selling off aggressively in the front of the week, USD/CAD rebounded as it became clear that no deal will be made at the NAFTA summit in Peru. According to President Trump, a deal is close and the U.S. concession on regional auto content puts them one step closer to an agreement. Mexico thinks a deal will be made in May but a preliminary agreement could happen sooner. This means USD/CAD is still a sell on rallies especially between 1.2650 and 1.2700. The Canadian dollar will be in play next week with a Bank of Canada meeting on the calendar. No changes are expected but there could be a tinge of optimism. The last time they met, the monetary policy statement contained a more cautious tone with the BoC expressing concerns about lower wage and household credit growth. Since then, oil prices hit a 3 year high, retail sales rebounded and job growth accelerated. With a NAFTA imminent, the BoC has less to worry about which could foster optimism from the central bank.

Technically, although the 200-day SMA sits right above current levels (near 1.2625), we think that profit taking could drive USD/CAD up to the 100-day SMA near 1.2675. That would be the ideal level to sell as it also coincides with the 50% Fib retracement of the Jan to March rally. Meanwhile 1.2800 should hold as resistance and we view any move toward level as an opportunity to add to short positions. Should USD/CAD break 1.25, the next stop will be February’s spike low of 1.2450.

GBP/USD – Buy or Sell?

GBP/USD – Buy or Sell?

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GBP/USD – Buy or Sell?

From a fundamental perspective, GBP/USD should be trading lower. Consistently softer UK data casts doubt on the hawkish comments from the Bank of England. Service, manufacturing and construction sector activity slowed in the June while industrial and manufacturing production turned negative. This along with a stronger pound in May caused the trade deficit to increase. The U.S. dollar should rise into and after Janet Yellen’s semi-annual testimony but traders should not diminish the significance of BoE’s hawkishness. Since their last monetary policy meeting, we’ve seen Bank of England Governor Carney join McCafferty, Haldane, Saunders and Forbes in supporting less policy accommodation. That means 5 of the 8 members of the Monetary Policy Committee could vote for a rate hike this year. Three have already done so and it may not be long before Carney and Haldane follows suit. Bank of England members Haldane and Broadbent are scheduled to speak tomorrow. We know where Haldane stands but if Broadbent joins the chorus of central bankers supporting policy normalization we could see GBP/USD rise back to 1.30. Broadbent is the longest serving MPC member and has never dissented in the 6 years he’s been on the committee. The last we heard from him, he expressed caution about the weakening pound and Brexit although these latest comments are more than a month old. If he is dovish, it would be just the excuse sterling traders need to send the pair below support down to 1.28.

Technically, lower highs and lower lows signal losses for GBP/USD but Friday and today’s decline stopped right at the 50-day SMA, which holds for the time being. For the technical picture to turn negative, we would need to see GBP/USD drop below 1.2850, at which point a move down to 1.2780, the May low becomes probable. If GBP/USD holds above this level, then the pair could drift back up to 1.30.

Sell EUR/CAD Rally

Sell EUR/CAD Rally

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Sell EUR/CAD Rally

There were a number of big takeaways from central bankers today. The first is that the ECB is not happy with the latest jump in the euro. They came straight out and said the market misjudged Draghi’s comments – he is not talking about raising interest rates and probably won’t edge the currency higher by discussing taper until the euro eases lower. It should be no surprise that the central bank of an export dependent region with low inflation would try to prevent excessive strength in their currency. So while euro could hit 1.14, we think it will start to retreat from there. Meanwhile Bank of Canada Governor Poloz said nothing to refute the optimism of his peers at today’s central bank conference. In many ways this could be interpreted as Poloz giving his blessing to the rise in the currency. BoC Deputy Governor Patterson helped explain why the central bank is growing less dovish, because they feel that the economic shock from oil is largely behind them. For this reason, we think CAD will hold onto its gains against the Euro and we want to sell into a rally.

Technically, there’s a lot of resistance in EUR/CAD between 1.4930-1.4950. Not only does the 20-SMA cross down into the 50-day SMA near that zone but the 38.2% Fib retracement of the 2015 to 2016 rally and the 50% Fib retracement of the 2016 to 2017 decline also converge near those levels. As such we believe this resistance will hold, with EUR/CAD eventually making its way back down to its June lows.

Sell EURUSD Pre-ECB

Sell EURUSD Pre-ECB

Chart Of The Day

The EUR/USD’s inability to sustain its gains above 1.0930 bad news for the currency. The ECB meets tomorrow and chances are Mario Draghi will take the opportunity to emphasize the central bank’s dovishness. Although most of the recent economic reports from the Eurozone have been positive, the central bank’s hands are tied because inflation is low with consumer price pressures easing further in the month of March. At some point, the improvements in the economy will drive up prices but for the time being, subdued price growth allows the ECB to keep monetary policy easy. The biggest problem for the ECB is the rising euro. Inflation is low and the recent strength of the currency only drives price pressures lower. Draghi made it clear last week that policy remains accommodative, a stance that he is like to reinforce on Thursday.

Technically, the hourly charts show a potential head and shoulders pattern in formation with 1.0950 as the main resistance for EUR/USD. The “neckline” is at 1.0850 and should that break, it would be smooth sailing for the currency pair down to 1.0750/60, the gap low.

GBP/AUD – Sell Signal in Play?

GBP/AUD – Sell Signal in Play?

Chart Of The Day

GBP/AUD posted a major signal on the charts today as profit taking came into cable while Aussie found support at the 7600 figure boosted by firming commodity prices. With Article 50 to be triggered tomorrow, the pound is feeling the full weight of the event as traders begin to pare their longs. Although Brexit has been well anticipated for months, the reality of the situation is beginning to sink in. There is plenty of uncertainty regarding how UK will be able to extract itself from the European Union which could translate into further selling pressure.

Meanwhile, in Australia, the better tone in commodity prices is supporting the pair which has only experienced a shallow correction off its recent highs. Another positive day could propel the unit towards a retest of the recent 7700 highs which could push GBPAUD even lower.

Technically the pair has carved out a major bearish engulfing candle at the 1.6500 figure and look ready to target support at the 1.6000 level as shorts press their trades.

USDJPY Buy or Sell?

USDJPY Buy or Sell?

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USDJPY Buy or Sell?

Despite a rise in U.S. yields, USD/JPY traded sharply lower today on the back of the largest one day drop in stocks since the election. With that in mind, the Dow fell only 122 points which is only 0.6%. This morning’s U.S. economic reports were mixed with personal spending beating expectations but incomes rising less than expected. We believe this decline in the dollar will temporary as the Federal Reserve is likely to reassure the market that 3 rate hikes are coming this year. Economic data has been relatively good with inflation rising. The market may be concerned about Trump’s desire to incorporate currency values into bilateral trade talks but we doubt that other countries who rely on a weak currency for growth will be willing to concede on these terms.

Technically the current trend of USDJPY is negative but there is quite a bit of support below current levels. 112.50 would be a great level to buy USDJPY with a stop below 112 because if the breaches that level there is no major support until 110. On the upside, 115 is resistance.

EURO – Where to Sell?

EURO – Where to Sell?

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EURO – Where to Sell?

While EUR/USD rebounded just a few pips shy of 1.05 the last week of December the New Year starts with investors still wondering if the currency pair will hit parity. In a broader context, we are actually pretty close to that level and a move down to that rate hinges less on European developments than U.S. ones. If the U.S. dollar continues to strengthen, the euro will continue to weaken. The Eurozone has its own troubles but as weak as the euro may be, the slide in the currency is changing the outlook for inflation and growth. In the recent ECB economic bulletin, the central bank said they see inflation picking up strongly at the turn of the year, a view that the Bank of England shares. We’ll likely see this view repeated in the ECB’s account of their last monetary policy meeting, which is due for release next week. Data should also be relatively healthy with sentiment up and job growth growing, albeit at a slightly slower pace. The ECB’s easy monetary policy is paying dividends but Europe’s problems extend beyond day to day business activity. The greatest risk for the Eurozone and the euro next year are politics, terrorism, elections and a banking crisis in Italy. Many of these events are difficult to handicap but each of these scenarios could have a dramatic impact on the currency overshadowing positive improvements in the economy. Looking ahead we hope to sell rallies in the EUR/USD between 1.06 and 1.07 targeting a move to 1.01 or lower.

Technically now that the 1.05 level has been broken the next “main area” to sell EUR/USD will be at the 50-day SMA below 1.07. EUR/USD may not get that high so anywhere on the 1.06 handle may be a good place to scale in shorts. The focus however remains on 1.05. If the currency pair falls back below 1.0500, we should see the pair drop back to its December low which coincides with the 1997 low near 1.0350. If EUR/USD breaks above 1.07, then the next stop will be 1.09.

Sell Euros Near 1.0950

Sell Euros Near 1.0950

Chart Of The Day

Sell Euros Near 1.0950

EUR/USD dropped to its lowest level since January on Friday. There was no specific news to justify the move but with the U.S. dollar continuing to power higher, the University of Michigan Index surprising to the upside and 1.0850 too close for comfort, traders took the currency pair through this support level easily near the end of the European trading session. EUR/USD had not seen a positive day this past week and now investors are worried that nationalism will escalate in Europe. Italy has a referendum on Senate reform on December 4th. If voters vote yes, it would allow for continued progress on an ambitious reform package but if they vote no, it could lead to political and social turmoil. Prime Minister Renzi said he would resign if the reforms were not passed. Austria also has a Presidential election 3 weeks from now and the fear that the populist far-right candidate could win in the closely fought race is growing. Most of next week’s Eurozone economic reports are second tier except for Q3 GDP and EZ inflation numbers, Mario Draghi speaks at the end of the week and as usual, his views will be market moving.

From a technical and fundamental perspective, the euro is a sell on rallies. The currency pair should bounce back to the 1.09 handle but if it retraces to the 20-day SMA near 1.0970, it would be a great opportunity to sell for a move down to this year’s low of 1.0780.

GBP/USD – Sell at 1.2300

GBP/USD – Sell at 1.2300

Chart Of The Day

GBP/USD – Sell at 1.2300

This is a big week for the British pound and the recent strength in sterling could fade quickly given the right circumstances. Today’s rally was driven by a mild pullback in the U.S. dollar and relief that Bank of England Governor Carney won’t be stepping down anytime soon. Sterling has been vulnerable to a short squeeze and today’s news on Carney provided the catalyst. Unfortunately fundamentals will return to play in the next 24 hours. The U.K.’s PMI manufacturing report is scheduled for release tomorrow and we are looking for a softer reading given the sharp drop in the CBI industrial trends survey. The Bank of England monetary policy statement and Quarterly Inflation Report are also likely to reflect the central bank’s ongoing concerns about Brexit.

Technically GBP/USD could hit rise a bit more to the 20-day SMA near 1.2300 before finding resistance although the October 27th high of 1.2272 will be the first barrier. Either way, we expect the rally in sterling to run out of steam given this week’s event risks. However if GBP/USD breaks above 1.2335, the currency pair could shoot for 1.2450.

USD/CAD  – Buy or Sell?

USD/CAD – Buy or Sell?

Chart Of The Day

USD/CAD -- Buy or Sell?

Fundamentally, USD/CAD should be near a bottom. Oil prices have had a strong run and the move has taken the commodity to the 100-day SMA. This means oil is near a peak. Considering that crude prices has been the primary driver of CAD flows, a reversal in oil would mean a rally in USD/CAD. Canadian data has also been terrible with employment and trade conditions weakening. Chances are next week’s retail sales report will be soft as well.

However technically, the recent decline in USD/CAD has taken prices below the 50-day SMA and the 23.6% Fibonacci retracement of this year’s decline which signals the possibility of a steeper drop towards 1.28. A close below the 100-day at 1.2940 would be needed to confirm the renewed downtrend.

So how do we trade USD/CAD? The best tactic is to wait for confirmation because when USD/CAD turns it is typically a multi-day affair, so there’s no need to “pick” the ultimate bottom. If USD/CAD closes below 1.2940 in a meaningful way, then its headed for 1.28. If it rises back above 1.30 however, then the next target will be 1.32.

NZD/USD – Sell the Pop?

NZD/USD – Sell the Pop?

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The kiwi dollar has topped out forming a double top at the 7000 figure and is now in a clear distribution channel. Although the pair sports the best yield in the industrialized world the yield is very likely to but cut sooner rather than later.

The pair popped a bit on talk from the RBNZ that they may focus on macroprudential tools to manage the slowdown in housing and the dairy sectors leading the market to believe that the yield will stay in place for a bit longer, but whatever actions RBNZ takes, they will likely be forced to cut rates at the next meeting as the slowdown from China is clearly starting to weigh on the New Zealand economy.

The kiwi could rebound a bit on a short covering rally, but the pair faces stiff resistance at the 6900 figure and even greater selling pressure at 7000 level so any pop is likely to be a good opportunity to reestablish shorts for another run at the 6500 handle.