USDJPY to 105?

USDJPY to 105?

by Kathy Lien Chart Of The Day

USDJPY to 105?

The U.S. dollar extended its slide on Friday when Canada, the European Union and China blasted President Trump’s decision to impose tariffs on steel and aluminum imports. Canada called the tariffs unacceptable, but the EU and China threatened to take their own protective measures if the U.S. proceeds with their plans. The European Union has already called a meeting next week to discuss a response. The first step would be to appeal to the WTO – this happened under President George W Bush and it took a year and half before the tariffs were lifted. The WTO declared the steel tariffs under Bush as a violation of America’s WTO tariff-rate commitments and threatened $2B in penalty sanctions, Bush preserved the tariffs, the EU threatened to counter with tariffs on oranges and cars and he finally backed down. Foreign leaders may not be as patient with President Trump and could respond more quickly with specific tariff threats and actions. Either way, trade tensions will intensify before they improve which means further losses for USD/JPY.

The threat of a trade war should overshadow U.S. data including the upcoming non-farm payrolls report because regardless of whether payrolls are strong or weak, there’s no question that Fed Chair Jerome Powell will raise interest rates later this month. With FOMC voter Dudley calling 4 rate hikes gradual, the dot plot forecast will also be revised upwards. Based on data, USD/JPY should appreciate into the jobs report but politics easily overshadows economics. If China starts talking about their own tariffs or expresses less desire to buy U.S. Treasuries (again), USD/JPY can break 105 quickly and easily.

EUR – Headed for 1.05

EUR – Headed for 1.05

by Kathy Lien Chart Of The Day

EUR – Headed for 1.05

The main focus next week will be on the French Presidential election and the euro. Incoming polls will have a direct impact on how the euro trades and will overshadow the April PMI reports, which are normally the most important pieces of data released from the Eurozone each month. Even after Friday’s disappointing U.S. economic reports, the euro ended the day lower versus the U.S. dollar. We expect the currency to trade with a heavy bias going into the election as the recent terrorist attacks boost the popularity of far right leader Marine Le Pen. The polls have been tightening ahead of the first round vote. She is expected to do well but fall behind in the second round. If Le Pen gains more votes than Macron, the EUR/USD will make a run for 1.05. Even if she has fewer votes but strong support, investors will immediately worry about a Trump style victory by a candidate who is anti-immigration and has called for a EU referendum within 6 months of her victory. While the latest German ZEW survey showed an uptick in investor confidence, if taken today we believe sentiment will be weaker. The path of least resistance for the euro should be lower next week ahead of the French election with the single currency underperforming most of its peers.

Technically, the EUR/USD is very weak, having traded below the 100-day SMA. It is still holding below trendline support but we think that support will give, paving the way for EUR/USD to fall to 1.05. In order to negate the downtrend, the currency pair needs to bounce back above 1.07.

Will EUR/USD Hit 1.05?

Will EUR/USD Hit 1.05?

by Kathy Lien Chart Of The Day

Will EUR/USD Hit 1.05?

The European Central Bank’s monetary policy announcement will be the market’s primary focus tomorrow. The ECB is widely expected to keep policy unchanged but between their quarterly economic forecasts and Mario Draghi’s press conference, we can be assured that there will be wild swings in EUR/USD tomorrow. Since the last monetary policy meeting in January, inflation picked up significantly with widespread improvements in manufacturing and service sector activity. The German labor market also benefitted from healthier labor market conditions but the ECB said on a few occasions that they would look past temporary increases in inflation. More recent data such as the German IFO report, trade balance and industrial production showed pockets of weakness. This will worry a central bank who is not convinced that the rise in inflation and the general recovery is durable. So while EUR/USD could pop on upgraded economic forecasts, Mario Draghi will most likely talk down the currency and that could erase any earlier gains, making an eventual test of 1.05 feasible
\. At the end of the day, the ECB wants the euro to remain weak to support the economy and they will do everything in their power to prevent it from rising including downplaying or flat out dismissing upgraded inflation and GDP forecasts. Support in EUR/USD is at 1.05 and resistance is at 1.0640.

Technically lower highs and lower lows signal further losses in EUR/USD. However there’s significant support near 1.05. If EUR/USD holds that level, it could drift back up to 1.0650. However if it breaks it in a meaningful way then the next stop will be 1.04 and possibly even the 14 year low of 1.0340.

Is EUR/USD Headed for 1.05?

Is EUR/USD Headed for 1.05?

by Kathy Lien Chart Of The Day

Is EUR/USD Headed for 1.05?

The Euro dropped to its lowest level versus the U.S. dollar in more than 3 weeks today. With very little EZ data on the calendar, the slide was driven entirely by U.S. dollar strength. The corresponding rise in the U.S. dollar, U.S. stocks and increase in Treasury yields tell us that as a group, investors are looking for optimism. There haven’t been any dramatic changes in the U.S. economy since December – when we last heard from the Fed Chair. While earnings growth slowed and the unemployment rate ticked up, stocks are trading at record highs as both manufacturing and service sector activity remain steady. Based on comments made by other U.S. policymakers, the Fed is confident about the outlook for the economy and inflation. Just this morning, the Fed said inflation expectations are at their highest level since the summer of 2015. Yellen’s not speaking until Wednesday however so Eurozone data could determine EUR/USD flows over the next 24 hours. A number of important Eurozone economic reports are scheduled for release including Germany and the Eurozone’s fourth quarter GDP numbers along with the German ZEW survey of investor confidence and Eurozone industrial production.

Technically while 50-day SMA is currently limiting losses in EUR/USD, we expect further losses in EUR/USD but there’s no doubt that the currency pair needs to clear support at 1.0585 before that can happen. Otherwise it may rebound back up to the 38.2% Fibonacci retracement of this year’s move near 1.0650. If 1.0585 is broken in a meaningful way, we expect a smooth slide to 1.0525.

Is USD/JPY Headed for 105?

Is USD/JPY Headed for 105?

by Kathy Lien Chart Of The Day

Is USD/JPY Headed for 105?

It has been a terrible week for USD/JPY. In a span of 4 trading days the currency pair lost more than 450 pips and now everyone is asking if we’ll see 105 next. Friday’s extraordinarily weak non-farm payrolls report sent the U.S. dollar tumbling against all of the major currencies. We haven’t seen a move this strong for USD/JPY in more than a month. The 2 year Treasury yield dropped by the largest amount since March 2009 and Fed Fund futures are now only pricing in a 29% chance of tightening in July down from more than 50% pre-NFP. But a weaker dollar wasn’t the only reason for the currency pair’s terrible performance. Prime Minister Abe’s decision to delay the sales tax hike sent Japanese stocks and USD/JPY tumbling at the start of the week. The powerful combination of weak U.S. data and deteriorating Japanese fiscal finances could equate to greater losses for USD/JPY. Janet Yellen is speaking on Monday and the question now is how the terrible NFP report affects her bias. She was unabashedly hawkish last month when she said a rate hike might be appropriate in the coming months. If she repeats this view and she could because of the consistency of comments from U.S. policymakers and their overall view that the labor market is doing well, the dollar will rebound but don’t expect the greenback to recapture all of Friday’s moves.

Technically we have to turn to our monthly charts to get a sense of how significant the support levels in USD/JPY are. The currency pair has fallen hard but today’s move stopped right near the 38.2% Fibonacci retracement of the 2011 to 2015 rally. If this level is broken, the next area of support will be 105.55, which is the May low and 200-month SMA. On the upside, the key level of resistance is 108.20, a former support level.

USD/JPY Bottom at 108 or 105 Next?

USD/JPY Bottom at 108 or 105 Next?

by Kathy Lien Chart Of The Day

USD/JPY Bottom at 108 or 105 Next?

It took no more than 3 minutes for USD/JPY to fall 300 pips with the sell-off spilling over to the yen crosses. The meltdown in USD/JPY was driven by the Bank of Japan’s failure to add stimulus and indication to the market that they wanted to wait and see how negative interest rates affect the economy before easing again. While the BoJ maintained a dovish bias and lowered their GDP and inflation forecasts, the main takeaway from the BoJ meeting is the Japanese feel no immediate pressure to use monetary policy or currency intervention to turn around the economy. So if the BoJ did not intervene in April and passed on cutting rates last night, chances are traders will feel that they won’t intervene now unless USD/JPY drops to 105. They are clearly passing the baton to Prime Minister Abe and pressuring the government for more aggressive fiscal stimulus. So fundamentally we could see USD/JPY on the 106 handle and quite possibly even 105.

Technically the main support level for USD/JPY is the April low of 107.63. This is an 18 month low for the pair. If USD/JPY breaks this support level and we think it will, the next stop will be 106.65, the 38.2% Fibonacci retracement of the 2011 to 2015 rally.
If USD/JPY holds it, rallies will find resistance near 109.00

EUR/USD 1.05 Target

EUR/USD 1.05 Target

by Kathy Lien Chart Of The Day

EUR/USD 1.05 Target

In 2016 big names such as Goldman Sachs, Deutsche Bank and BNP Paribas still see EUR/USD falling to parity. While the prospect of even higher rates in the U.S. and continued ECB stimulus will keep the euro under pressure, parity is nothing more than a headline grabbing target. Experienced traders know that these overstretched goals are hard to reach. We agree that EUR/USD will move lower in the coming year and see 1.05 being tested but weaker currencies drive stronger economies and at 1.05, the Eurozone stands to benefit significantly from the combination of ECB stimulus and a lower euro. When the benefits start to be felt through more consistent improvements in Eurozone data, the ECB will feel more optimistic about the economy and less pressured to increase stimulus and that could mark the turning point for the euro. For now, lets focus on the next 4 to 5 cent opportunity in currency. We expect EUR/USD to test its 12 year low of 1.0459 and then bounce 1 to 2 cents before figuring out where it wants to head next.

Technically, there’s only 2 important support levels in EUR/USD – the 12 year low of 1.0459 and parity. If the recent low is broken, it should kick off a quick slide to 1.0000. Taking a look at the longer term chart of the currency, a major top formation can be clearly seen. When EUR/USD broke its 2010 low of 1.1877, there was a quick drop to the 61.8% Fibonacci retracement of the 2000 to 2008 rally. This Fib level at 1.1215 is now resistance and a strong close above this level is needed to reverse the negative sentiment in the currency.

USD/CHF – Headed for 1.05

USD/CHF – Headed for 1.05

by Kathy Lien Chart Of The Day

USD/CHF – Headed for 1.05

The U.S. dollar climbed to its strongest level in 5 years versus the Swiss Franc. The greenback has been performing extremely well ahead of next month’s monetary policy meeting and with 3 weeks to go before the Fed meeting we expect the dollar to extend its gains. The Swiss Franc on the other hand is benefitting from the SNB’s continued attempts to talk down the currency. With the ECB expected to increase stimulus next week, the SNB is worried that declines in EUR will drive the CHF lower through EUR/CHF flows. The Eurozone is Switzerland’s number one trading partner and a stronger Franc would be detrimental to trade activity. So with actions from the Fed and SNB expected to drive USD/CHF higher, we expect the currency pair to test 1.05.

Technically, 1.05 is also the next major resistance level for USD/CHF. Taking a look at the monthly chart the currency pair has broken above parity (1.0), which is not only a psychological significant level but is also not far from where the 100-month SMA and 61.8% Fibonacci retracement of the 2010 to 2011 decline converge. This level is now support. There is some short term resistance at Friday’s high of 1.0260 but once that level is cleared, 1.05 should be the next target for the pair.

EUR/USD to 1.05?

EUR/USD to 1.05?

by Kathy Lien Chart Of The Day

EUR/USD to 1.05?

EUR/USD broke through its 1.08 support level to trade at its lowest level since April 2015. Today’s move was driven by the growing divergence between Eurozone and U.S. monetary policy. The ECB is poised to increase stimulus the same month that the Fed is expected to increase interest rates for the first time in 9 years. The rush from NFP will be felt for some time as investors place their bets for December liftoff. Fed fund futures went from pricing a 56% chance of a rate hike next month pre-NFP to more than 72% chance after today’s report. Not only did job growth exceed expectations by 86k but at 271k, this was the strongest monthly increase in payrolls this year. The unemployment rate also dropped to 5%, the lowest level since 2008 while average hourly earnings rose 0.4%, the largest increase since July 2009. This unambiguously positive U.S. report gives the Fed the green light to raise interest rates in December and from now until then the path of least resistance for the dollar will be higher. Unless ECB officials start backing away from their call for more stimulus EUR/USD could test 1.05 in the coming weeks as traders position for easing from the ECB and tightening from the Fed. So if you are looking to ride the NFP rush further, selling EUR/USD on any bounce could be a smart trade.

There are no significant Fibonacci or moving average support below current levels so the main levels to focus on are some spike lows near 1.0660 and then 1.05.

AUD/NZD – Pause or Bottom at 1.05?

AUD/NZD – Pause or Bottom at 1.05?

by Kathy Lien Chart Of The Day

AUD/NZD – Pause or Bottom at 1.05?

Fundamentals

We recently received a lot of questions about AUD/NZD. The currency pair is trading at its lowest levels ever. In the past 30 years, AUD/NZD rarely dropped below 1.05 and on the rare occasions that it did, it marked a bottom in the currency pair. Currently it is hovering below 1.05 but having a difficult time moving far past that rate. Traditionally, Australia is the dominant economy with the fate of New Zealand tied to its Western neighbor. However in recent years, New Zealand earned its own international standing through demand from China. In November, AUD/NZD began a deep slide that took the currency pair down more than 7% as the monetary policy intentions of each central bank began to diverge. Despite sharp and successive declines in dairy prices, the Reserve Bank of New Zealand is still talking about raising interest rates. The Reserve Bank of Australia on the other hand expressed concern about the high level of the AUD, indicating that they maintain a dovish monetary policy. A divergence in policy direction is the type of fundamental driver that could sustain the current downtrend in AUD/NZD and drive the currency pair to fresh record lows.

Technicals

In the past 3 decades, AUD/NZD has found buyers between 1.04 and 1.05. The current record low for the pair is 1.0475. If this level is broken, every big round number could be potential support starting at 1.04. Resistance is at 1.06.