USD/CAD to 1.27?

USD/CAD to 1.27?

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USD/CAD rose above 1.26 following the Bank of Canada’s monetary policy announcement. The pair probably would have extended its rally to 1.27 if not for the price of oil, which climbed to a fresh 3.5 year high after crude stocks took an unexpected tumble. Despite all of the improvements in Canada’s economy, Bank of Canada Governor Poloz and Deputy Governor Wilkins did not feel that underlying issues are evolving well enough to send an unambiguously positive signal to the market. The tone of their press conference was cautious with Poloz saying the economy is not yet able to stay at full capacity on its own and therefore interest rates may need to remain below the neutral range. They also see companies hesitant to invest because of NAFTA risks. As a result, the BoC feels they need to be data dependent and the pace of rate hikes is a considerable question mark as headwinds prevent a full recovery. Trade protectionism remains the biggest risk for Canada and they expressed no excitement about the recent progress in NAFTA talks.

Given how much USD/CAD has fallen ahead of the rate decision, we believe their lack of optimism will lead to additional short covering that should take USD/CAD to at least 1.2680 if not all the way to 1.2750. Technically, the next key resistance for USD/CAD is between 1.2685-1.2700, where the February 9th swing high meets the 50% Fibonacci retracement of the January to March rally and the next big figure.

USD/CAD Eyes 1.27 Break

USD/CAD Eyes 1.27 Break

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USD/CAD Eyes 1.27 Break

The Canadian dollar is in focus tomorrow with retail sales scheduled for release. USD/CAD has been trending higher for the past few days, hitting 1.2685 in the process. Although it failed to extend its gains to 1.27, that target could be breached if retail sales turn negative. Economists are looking for zero growth but according to the wholesale sales, demand weakened significantly towards the end of the year. Like the Eurozone, Canada’s economy isn’t doing terrible but the strength that we saw for most of 2017 began to fade towards the end of the year. Softer retail sales would take USD/CAD to its next resistance level of 1.2725 (the 200-day SMA). Beyond that, the next stop should be the 50-week SMA near 1.2840. If USD/CAD rejects 1.27 or the 200-day SMA, a pullback should take the pair below 1.26.

GBPCHF to 1.27?

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Sterling is trading strongly ahead of Thursday’s Bank of England meeting which suggests investors are positioning for optimism but before the BoE meets, we’ll have to get past a few key economic reports that will shape policy expectations. Although the central bank recently downgraded their inflation outlook a smaller decline in shop prices and faster price growth in the manufacturing and service sectors in August point to a recovery. We also expect employment report to be strong as the service sector reports the strongest job creation in 19 months. Manufacturing reported the strongest since June 2014. We like buying GBP versus the Swiss Franc because the Swiss National Bank who meets this week will continue to call for Franc weakness.

Technically, GBP/CHF has broken above the 20, 50, 100 and 200-day SMA. This signals the potential for a much stronger rally that tests the August 15th and July 17th high near 1.2640. If that resistance level is broken, the next stop should be 1.2700
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EUR/JPY – Headed Back to 127?

EUR/JPY – Headed Back to 127?

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EUR/JPY – Headed Back to 127?

Between the ECB’s views on the currency, the terrorist attack in Spain and arrests in Finland, the euro should be trading below 1.17. The tragedy in Barcelona is a harsh reminder of the ongoing geopolitical risks facing the region. From an economic perspective, these attacks increase allocations to anti-terrorism efforts, discourage tourism and deter consumers from frequenting restaurants and other establishments. ECB President Mario Draghi will be speaking at Jackson Hole next week and there are reports that he may not talk taper. The central bank is also worried about the high level of the currency so if they may be reluctant to say anything that could reinvigorate the rally. As for the U.S. dollar, we’ve seen how positive data and hawkish Fed speak can be overshadowed by a deteriorating political environment. For many people, this past week’s stronger than expected retail sales report has become a distant memory. The U.S. and South Korea are scheduled to hold military games on Monday, if they move forward (and we think they will), reigniting North Korea’s fire, USD/JPY will extend its losses towards 108.00 before rebounding ahead of Jackson Hole.

For all of these reasons we believe EUR/JPY is headed back to 127. On a technical basis, EURJPY has crossed above the 50-day SMA but if it gets anywhere close to 129, we think it’s an attractive sell with a stop above the 20-day SMA near 129.80.