AUD/NZD Approaching Key Support

AUD/NZD Approaching Key Support

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When it comes to currency strength neither the Aussie nor the Kiwi exactly take the top spot this year. Both high yielders have gotten decimated by the rout in commodities but between the two the Aussie is a bigger threat to fall further and that makes AUD/NZD a prime candidate to break its long term support level near the 1.1000 figure.

The market is becoming very concerned that the Australian economy is about to tip into a recession and the latest news on Glencore is not helping matters. Meanwhile in New Zealand the price of dairy goods appears to have bottomed and that means that NZ incomes will stabilize at worst and may rise in the best case scenario. That suggests that RBNZ will keep its rates steady while the RBA may be forced to cut once again. The moment the market becomes convinced that this is the case the AUD/NZD cross will begin to tumble through support

Where Will USD/JPY Find Support?

Where Will USD/JPY Find Support?

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USD/JPY is down nearly three big figures this week as the disappointment regarding Fed rate hike delay and the massive selloff in stocks has created a one two punch on the pair. The key question now is where is support?

The pair likely will find some bids against the 121.50 level and certainly well ahead of the key 120.00 level. Next week the market will get a look at US GDP figures which are expected to be rise to 3.2% which may boost investor enthusiasm and stem the selloff. For now the pair appears to have stabilized ahead of the 121.50 level and unless the selling in equities continues it may finally find support.

EUR/JPY – Testing Key Support

EUR/JPY – Testing Key Support

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The situation with Greece shows no signs of quick resolution and the situation on the ground is becoming increasingly tense.With payments systems essentially frozen the Greek economy could be facing food and medical shortages within a week which would turn this political stalemate into a humanitarian crisis.

Although the economic risks are evident, it is unclear if there is a political will in Europe to come to a rapid albeit temporary solution on the issue. At the very least the ECB must resume its ELA liquidity to the Greek banking system in order to unfreeze the payment mechanisms for the basic day to day transactions. That’s why the central bank remains the key player in this drama, but for now it has clearly decided to align itself with the Eurogroup and is acting as the biggest pressure point on the Greeks.

If there is no progress by tomorrow the capital markets are sure to react with more downside pressure and EUR/JPY could break the key support at 133.00 and tumble further possibly targeting the big figure at 130.00

CAD/JPY Breaks 3 Key Support Levels

CAD/JPY Breaks 3 Key Support Levels

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CAD/JPY Breaks 3 Key Support Levels

We are currently short CAD/JPY on the premise that the Greek No vote will drive more volatility and risk aversion in the financial markets. Oil prices were hit hard today, falling as much as 6% and when combined with the slower acceleration in Canadian manufacturing activity, the vulnerabilities of Canada’s economy become abundantly clear. Later this week, Canada’s employment report is scheduled for release and given the drop in the employment component of IVEY PMI, we are looking for a downside surprise. Back to back to weakness in Canadian data coupled with the sell-off in oil spells big trouble for Canada’s economy and in turn the Canadian dollar. At the same time, the one clear and unambiguous impact of the Greek crisis is reduced expectations for Fed tightening. Between the decline in oil prices and global market uncertainty, U.S. policymakers may opt to delay liftoff to December. We are still months away from the September FOMC but for the time being, the potential for a delayed rate hike could keep USD/JPY and in turn under pressure and minimize the impact of positive U.S. economic reports.

Technically today’s break in CAD/JPY has taken the currency pair below 3 significant support levels. The first was the 100-day SMA, the second was the 38.2% Fibonacci retracement of January low to June high and the third was probably the most significant -- the 50% Fibonacci retracement of 2007 to 2009 decline. While CAD/JPY could bounce off support at 96.50, the charts signal an eventual move down to 95.35 as long as the pair remains below 97.60, the level at which the 38.2% Fib and 100-day SMA converge.

USD/JPY – Have We Found Support at 118.00?

USD/JPY – Have We Found Support at 118.00?

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Fundamentals
USD/JPY went into swan dive today as tensions in the Middle East have increased risk aversion sentiment throughout the market. Although the pair did bounce as the US session came to a close, the worst may not be over for the greenback. As we noted earlier, “The conflict in Yemen is sectarian and multi sided with Al Queda ISIS Iranian and pre-Arab spring elements all jostling for control. The end result is that Yemen may turn into yet another hot spot of chaos in the Middle East that could suck in one of United States most important allies into a protracted guerilla war.”

If the conflict in the Middle East does flare up the buck could see further selling pressure as the Fed is sure to hold off on any normalization if geo-political tensions rise. With Yellen and Fischer talking tomorrow the markets may get a glimpse of their outlook which is likely to be cautious.

Technicals
For now the 118.00 level remains the key support for USD/JPY and the pair has bounced strongly off the lows indicating that it may consolidate above it for now. But a break of 118.00 would suggest the end of the bullish run for the pair with possible target of 115.00 as the long term longs are unwound.

EUR/GBP – No Support Until 70 Cents

EUR/GBP – No Support Until 70 Cents

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Five days have past without a rally in EUR/GBP and further losses are likely. The European Central Bank just started buying bonds today as part of its EUR 1.1 trillion program to stimulate the Eurozone economy at a time when the Bank of England is preparing to raise interest rates. This week we will hear from a number of U.K. policymakers including Bank of England Governor Carney, MPC members Fisher, McCafferty, Weale, Shafik and Haldane. Most of these members of the central bank believe that rates will need to rise and their views should have been hardened by last week’s economic reports. As we indicated on Friday, sterling had previously weakened on the belief that the Federal Reserve will raise interest rates before the Bank of England. While we agree with this wholeheartedly, the BoE should not be far behind and this view should lead to a further decline in EUR/GBP.

We have to turn to the monthly chart of EUR/GBP to find key levels since there is no major support until 70 cents. As for resistance, the currency pair just broke below the 61.8% Fibonacci retracement of the 2000 to 2008 rally at 0.7260. This former support is now resistance and its importance is reinforced by the fact that the currency pair also topped out at this level back in 2003.

EURGBP030915

AUD/CAD – 9700 is a Key Support

AUD/CAD – 9700 is a Key Support

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Fundamentals

The long and painful decline of the Aussie has been the story for the past three months, but lately the downtrend has stalled. Over the past week the declined in AUD have been far less violent and the pair has found support against many counterpairs including the CAD. For AUD/CAD the 9700 level has represented the Maginot line of support that the pair has not been able to breach for the past several weeks. This week the both currencies face important event risk that could determine whether this level holds or falls. In Australia the market will get a look at the latest RBA decision and the employment data. The RBA is unlikely to provide anything fresh to the market, but the labor data could be key especially because it will juxtapose against the Canadian data due at the end of the week. If Aussie numbers disappoint and Canadian numbers impress it could set up the the old North America vs. Asia trade and the 9700 level would give way.

Technicals

9700 remains the key level for AUD/CAD but a break there could open up a run all the way to 9500 while a break above 9800 would establish a near term bottom in the pair.

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.

EUR/JPY – Finding support ahead of 137.00?

EUR/JPY – Finding support ahead of 137.00?

Chart Of The Day

Fundamentals

EUR/JPY has been in a drift for the past several weeks as the pressure from euro and tepid price action in USD/JPY have pushed the pair well below the 140.00 figure. Today however the pair appears to have found a modicum of support as euro essentially stabilized at 1.3600 and USD/JPY found buyers at 101.50. Although the woes in the EZ are well known and the ECB is very likely to cut rates at the next meeting in June, most of the downside news in the euro appears to be priced. Meanwhile the relentless decline in US rates which has been the main culprit for USD/JPY’s decline has likely runs its course as well. US 10 year yields have slipped below the 2.50% barrier but now look like they have found some buyers ahead of the 2.40% level. The bonds are obsessed with US deflation that’s why tomorrow’s US Personal Income and Spending may be key to the markets. If the number print better than expected then they could signal that US economic growth is translating into gains in income which should help rally US yields and USD/JPY thus providing a lift to EUR/JPY back towards the 140.00 level.

Technicals

EUR/JPY has deep support around the 136.00 level but the buying ahead of the 138.00 figure suggest that the pair may be carving out a higher low which would be a bullish formation that could signal a turn back towards 140.00. A break of 137.00 however would suggest a test of the 136.00 support.

GBP/CAD Tests Major Neckline Support

GBP/CAD Tests Major Neckline Support

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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.