Will EUR/USD Break 1.20?

Will EUR/USD Break 1.20?

Swing

One of the best performing currencies today was the EUR/USD. The euro found support from the ECB economic bulletin that described the “euro area economic expansion to be solid and broad-based across countries and sectors.” They also said “underlying inflation is expected to rise gradually over the medium term.” U.S. data was weaker with the trade deficit rising rather than narrowing as economists predicted, putting pressure on the greenback. Although manufacturing activity in the Chicago region accelerated jobless claims ticked higher. All of these factors helped to drive EUR/USD above 1.1950, capping a year of solid gains.

On a technical basis, 1.20 is the next level to watch. There’s a very good chance EUR/USD will make it to that target rate and possibly even settle between 1.20 and 1.21. Momentum is certainly on the side of euro bulls and after a period of consolidation, we usually see a 3 to 5 day rally.

EUR/USD – Back to 1.20?

EUR/USD – Back to 1.20?

Kathy Lien

EUR/USD – Back to 1.20?

EUR/USD will be the main focus for the next 48 hours with November PMIs scheduled for Thursday release followed by the German IFO report on Friday. Marginally firmer data is expected for Germany and softer numbers are expected for France but with industrial production and factory orders falling over the past month, we believe the risk is to the downside for the German and Eurozone reports. EUR/USD raced above 1.18 today on the back of a weakening U.S. dollar, less hawkish FOMC minutes and a small uptick in Eurozone confidence. According to Reuters, the ECB has no plans to change its guidance until late 2018, which is consistent with what we’ve heard all along from the central bank. That mattered little however to a currency pair that was driven entirely by the market’s appetite for U.S. dollars. While that will change tomorrow, there’s no doubt that the technical outlook for EUR/USD shifted with today’s break above the 50 and 100-day SMAs though low liquidity and holiday position adjustments make the move questionable. Until EUR/USD breaks above the November 17th high of 1.1822 in a more meaningful way, the bears still have a chance especially with fundamentals on their side.

Technically, the EUR/USD broke out today but its found resistance at the 2nd standard deviation Bollinger Band. Further more, in order for the downtrend to be erased, EUR/USD needs to break the November high of 1.1860.

USD/CAD – 1.20 or 1.25?

USD/CAD – 1.20 or 1.25?

Chart Of The Day

USD/CAD – 1.20 or 1.25?

The Bank of Canada caught everyone by surprise when they raised interest rates to 1% today. We knew there was a small chance of a hike but we didn’t really expect it to happen so quickly after the last one especially at a meeting with no press conference. But perhaps that was exactly what the BoC wanted, which is to tighten and then stay mum until they see how the markets and the economy absorbs the move. They may have also felt that they could not wait any longer with the economy running on all cylinders. The BoC did not provide much explanation outside of saying that removal of some of their considerable stimulus is warranted with growth becoming more broad based and self sustaining as business investment and exports strengthened. Their comment about excess labor capacity and subdued wage pressure along with geopolitical risks, trade uncertainties and a stronger currency suggests to us that this could be the BoC’s last rate hike of the year. As they said in the monetary policy statement, future decisions are not predetermined and they have to pay close attention to the economy’s sensitivity to higher rates. So fundamentally while USD/CAD tanked today after the central bank’s rate hike, we would not be surprised to see a near term bottom as the big event has now passed, giving investors a reason to cover their short positions.

Technically however today’s move has taken USD/CAD below the 200-week SMA and the 38.2% Fibonacci retracement of the November 2007 and January 2016 rally. So while we could see a further near term recovery that takes USD/CAD to 1.23, any move beyond that may be limited.

Is USD/CAD Headed for 1.20?

Is USD/CAD Headed for 1.20?

Chart Of The Day

Is USD/CAD Headed for 1.20?

After 4 weeks of persistent strength, the Canadian dollar continued to extend its gains against the U.S. dollar. On Thursday it seemed as if a bottom could be in place for USD/CAD but stronger than expected GDP growth in the month of May renewed the uptrend. The economy expanded by 0.6%, 3 times more than expected. This acceleration drove the year over year rate from 3.3% to 4.6%, the strongest in almost 17 years. So while it may be tempting to pick a bottom in USD/CAD, this pace of growth indicates that there is room to raise interest rates. Earlier in the week, there were reports that Prime Minister Trudeau is unhappy about the central bank’s latest rate hike. Whether its true or not the uptrend in oil prices and Canadian fundamentals justifies the central bank’s decision. However for an export dependent nation like Canada the 10% rise in the currency over the past 2 months will eventually catch up to the economy and in turn the loonie. At some point the data improvements will turn into data disappointments and that could start with next week’s Canadian employment report as a slowdown in the labor market is expected after 2 very strong months of job growth.

Technically, USD/CAD has broken through multiple support levels. This includes the psychologically significant 1.25 level. The next stop should be the 200-week SMA near 1.2375 but below that as shown in the monthly chart, the main resistance is 1.2050/60, an area where the 200-month and 50% Fib retracement of the 2011 to 2016 rally converge. If USD/CAD rises above 1.26, there could be chance of a stronger recovery to 1.28.

Is EUR/JPY Headed for 120?

Chart Of The Day

Is EUR/JPY Headed for 120?

The 2 best performing currencies today were the EUR/USD and USD/JPY so naturally, EUR/JPY traded sharply higher, enjoying its best day in more than 2 weeks. Between stronger U.S. data, hawkish Fed speak and the sharp recovery in U.S. yields, USD/JPY should continue to trade higher. While dollar strength could drag EUR/USD down, better than expected and Macron’s growing lead over Le Pen should lend support to the currency.

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Technically, today’s rally in EUR/JPY has taken the pair above the 23.6% Fibonacci retracement of the 2014 to 2016 sell-off to the 100-day SMA, a potential level of resistance. If the currency pair breaks above 119.40, we should see a smooth ride to 120. However if it fails below this indicator, support will be at the recent low of 118.25.

USD/JPY Should Stabilize Above 120

USD/JPY Should Stabilize Above 120

Chart Of The Day

USD/JPY Should Stabilize Above 120

The deep slide in USD/JPY today triggered our first long entry and since then the currency pair has fallen further. The sell-off was driven by the meltdown in Chinese stocks and Greek uncertainty. While Chinese equities are vulnerable to additional weakness, we believe that the losses in USD/JPY will be limited. First and foremost if Greece and its creditors reach a deal this weekend it will be positive for risk and in turn USD/JPY. Secondly, Fed President and 2015 FOMC voter Williams said he still sees rates rising in 2015. It may not happen in September but there’s a good chance that it will happen before the end of the year. The U.S. economic outlook is brighter than many other countries. The labor market is improving, housing market is recovering and consumers are shopping. U.S. assets won’t be sheltered from the global market volatility but before long, investors should see its growth and yield advantage.

Technically the long term uptrend in USD/JPY remains intact. 120 is a technically and psychologically significant support level. If 120 is broken there is support near 119. Today’s slide has stopped short of this key level and if it probes below it slightly, our second entry will be triggered providing us with a better average price. On the upside, the first area of resistance will be at 122 followed by 123.

USD/JPY Above 120 – More Gains Ahead?

USD/JPY Above 120 – More Gains Ahead?

Chart Of The Day

USD/JPY Above 120 – More Gains Ahead?

With most of continental Europe closed for trading, USD/JPY broke through 120 to hit its strongest level in more than 2 weeks. What’s interesting about the move is that it occurred on a day with softer U.S. data. We had an unexpected decline in construction spending, softer than anticipated manufacturing ISM and University of Michigan consumer sentiment reports. However on Thursday jobless claims dropped to its lowest level in 15 years which bodes very well for next week’s labor market report. We will be focused on non-dollar drivers in the front of the week with the RBA rate decision, U.K. election, New Zealand and Australian employment reports scheduled for release. The uncertainty and risk posed by these reports could make the U.S. dollar more attractive. Towards the end of the week, the focus will turn to non-farm payrolls. Given last month’s surprisingly anemic job growth and the big improvement in jobless claims, everyone expects a significant rebound in payroll growth. The unemployment rate is also expected to drop to 5.4%, which would represent a big improvement that should breathe new life into the U.S. dollar. At the same time, Japan’s Global Pension Investment Fund, who widened their investment mandate will lend support to USD/JPY as they expand their purchases of foreign assets.

Technically, although 120 is an important psychological level for USD/JPY, there are many layers of resistance in the currency pair above current levels. First we have the 61.8% Fibonacci retracement of the 1998 to 2011 decline at 120.16, followed by the Feb high of 120.50 and the April high of 120.85. If the currency pair breaks above all of these levels, it would then face stiff resistance at the March high of 122. On the downside losses should be limited to the March low at 118.33.

USD/CAD – High Probability Move to 1.20

USD/CAD – High Probability Move to 1.20

Chart Of The Day

USD/CAD – High Probability Move to 1.20

From a fundamental and technical perspective, we have strong reasons to believe that USD/CAD will fall to 1.20. The Canadian dollar was the day’s best performer, rising to its strongest level against the U.S. dollar in over 3 months. What is interesting about the move was that no economic data was released from Canada and oil prices declined. However, last week’s positive news flow continued to boost the currency. The price of crude increased 20% this month, leading the Bank of Canada to drop its bias to lower rates. In fact, on Friday, Bank of Canada Governor Poloz said he is also very optimistic about the U.S. economy and believes that the adverse effect of lower oil prices will be gone by the second half of the year. The pickup in consumer spending and trade activity should lead to a stronger GDP report and it is one of the main reasons why we are looking for USD/CAD to hit 1.20.

Technically, USD/CAD is trading comfortably below its 100-day SMA and with the 23.6% Fibonacci retracement of the 2007 to 2009 rally broken at 1.2120, there is no major support in the currency pair until 1.20. In fact, we have strong reasons to believe that if 1.20 breaks, next stop for USD/CAD will be 1.18.

USD/CAD Big Trade +40

Swing

***USD/CAD Closed for +40

***BK BIG TRADE ALERT -- Move stop on short USDCAD to 1.2250 to lock in +40 points

Riding USD/CAD Towards 1.20

Place Order to Sell 1 Lot USD/CAD at market (now 1.2290)

Place Order to Sell 1 More Lot at 1.2415

Stop at 1.2575

Having traded within a wide 1.2385 to 1.2835 range for the past 11 weeks, USD/CAD sold off hard last week on the back of the Bank of Canada’s monetary policy announcement, rising oil prices and weaker U.S. data. After leaving interest rates unchanged, the BoC adopted a more optimistic tone that ruled out the chance of another rate cut this year. USD/CAD climbed to a 6 year high last month of the belief that Canada would lower interest rates shortly before the Federal Reserve raised rates. At the time, WTI crude was trading at $43 a barrel with many market participants calling for $30 oil. However a lot has changed since then. Oil prices increased $14 or 30% and the Bank of Canada now expect the economy to improve in the second half of the year. Stronger consumer spending and higher inflationary pressures reinforces the central bank’s shift in stance. Last week we learned that Consumer prices rose 0.7% in the month of March, which was not a big deviation from the 0.6% forecast but core prices doubled expectations, rising 0.6% in March. The big surprise was in retail sales, which rose 1.7% in February, more than 3 times stronger than economists had anticipated. International securities transactions also increased, signaling more investment into Canadian dollar denominated assets. This provides the fundamental basis for a real bottom in the Canadian dollar and an official top in USD/CAD. Technically, we are looking for USD/CAD to drop to 1.20.

To take advantage of this view, we are laying out the following orders

Place Order to Sell 1 Lot USD/CAD at market (now 1.2290)

Place Order to Sell 1 More Lot at 1.2415

Stop at 1.2575

USDCAD042115

Will USD/JPY Hold 120?

Will USD/JPY Hold 120?

Chart Of The Day

Will USD/JPY Hold 120?

Given that USD/JPY is trading at 120.00 right now, the chance of it holding this level is slim. However a few days or maybe one week from now we confidently feel that USD/JPY will be trading well above this rate and we also believe that USD/JPY will hold 119.00. Today’s FOMC statement was clearly less hawkish that investors had anticipated but nothing has changed – the Federal Reserve is still on track to raise interest rates this year. Policymakers may have lowered their growth and inflation forecast and changed the “dots” that measure individual expectations for rate rises but we never believed that the Fed would raise rates in June. A September hike on the other hand is almost assured. Everything that Yellen said in her press conference points to tightening this year. In fact she said that while a rate rise in April is unlikely but a hike any meeting after that including June is possible. With 3 months to go before this key summer meeting, the central bank has plenty of time to see how data fares before making their decision, which explains why Yellen said no patience is not the same as impatience. The Fed is in no rush to raise interest rates but if data starts to improve they won’t hesitate to do so and today’s change in forward guidance provides them with maximum flexibility to make changes when necessary.
We believe that there is a fire sale in the U.S. dollar right now and if you don’t buy in the next few days or weeks, you may regret it.
The Fed may not move as quickly as some dollar bulls had hoped and the dollar is adjusting as a result but within the next few months, we are looking for USD/JPY to break its 7 year high

Technically, USD/JPY has fallen out of the buy zone which we measure using our Bollinger Bands. 120 is still a key potential support level but below that the levels to watch are 119 and 118.15. Resistance is at the 7 year high of 122.02.

USDJPY031816

USD/CAD – Potential Failure at 1.20

USD/CAD – Potential Failure at 1.20

Chart Of The Day

USD/CAD – Potential Failure at 1.20

Taking a look at the monthly chart of USD/CAD the currency pair has obviously had a very nice run. The 1.20 level is a psychologically significant level for the pair and one that was a former support turned resistance in 2005/2006. If you take a look at the daily charts you will also see that in 2008 when USD/CAD first made a run for 1.20 it’s rally fizzled at that level. We think the same will occur this time around especially since oil is oversold and approaching its own trendline support. While 1.20 is a psychologically significant level, 1.2120 is a key Fib level that should contain gains. This explains why our stop on the USD/CAD Big Short Trade is above this resistance. Should the currency pair pullback, there is no support until 1.18.