Will GBP/USD Break 1.30 on BoE?

Will GBP/USD Break 1.30 on BoE?

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Will GBP/USD Break 1.30 on BoE?

Expectations are also running high for Thursday’s Bank of England monetary policy announcement. GBP/USD has its eye on 1.3000 and the BoE’s outlook will decide whether that level holds or breaks. Judging from the resilience of sterling, investors are optimistic and there’s even talk of the central bank unwinding stimulus in the fall. Typically when the BoE changes their views, they like to coordinate it with the release of the Quarterly Inflation Report as it includes their latest economic forecasts. Although we recognize the improvements in the economy, we’re not sure enough has changed for the BoE to start talking rate hikes. August when the next report is released may be a better time to change their bias. With that in mind, there’s no doubt that Kristin Forbes, the lone dissenter at the last meeting will vote to raise interest rates again. However it is unlikely that she convinced other policymakers to do the same. Since March, there’s been more improvements than deterioration in the U.K. economy. Inflation and wages are up along with economic activity (per the PMIs) but consumer spending remains very weak and housing activity is slowing. We know that BoE Governor Carney is worried about how the economy will perform under Brexit but so far, the slowdown that he anticipated is not happening. So BoE hawkishness is not a given tomorrow which is why it is best to wait and see what the central bank emphasizes before taking a trade. Technically, if BoE is hawkish, we’ll see 1.3000 tested and probably broken at which point it should be a quick ride up to 1.3050. If they are cautious then GBP/USD will fall and could slip back down to the 20-day SMA near 1.2830.

USD/CAD to 1.30?

USD/CAD to 1.30?

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USD/CAD to 1.30?

USD/CAD traded sharply lower on Friday following stronger than expected Canadian GDP growth and weaker U.S. data. Looking ahead many investors are wondering if USD/CAD will fall further and extend its losses to 1.30. Fundamentally, we believe that oil has bottomed and the CAD should strengthen but we prefer selling USD/CAD at the top of its range rather than the bottom. There are no major Canadian economic reports until next Friday when labor and manufacturing data will be released. Canada reported strong job growth in August with a particularly healthy increase in full time work so we would not be surprised by some payback in September. As for oil, while OPEC’s decision to cut production is a significant one, some investors expressed skepticism about the actual execution and the subsequent effect the deal would have on the supply. The issue at hand is that output levels have not been strictly defined for OPEC countries and even when the levels are defined, the effectiveness of OPEC comes into question.

Technically there’s quite a bit of support below current levels. Friday’s decline took the pair right to the 20-day SMA but below there we have the 50-day SMA at 1.3050 and then 1.3000 sits right at the 100-day SMA. However as long as USD/CAD holds below the September high and 200-day SMA at 1.2370.

GBP/USD Headed Below 1.30

GBP/USD Headed Below 1.30

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GBP/USD Headed Below 1.30

Sterling was the only currency to end the week stronger versus the U.S. dollar but we believe there will be a deeper correction in the coming week. After Britain decided to leave the European Union, investors around the world braced for economic Armageddon in U.K. and while the flash PMIs surprised to the downside, the rest of the data hasn’t been terrible. According to the British Bankers’ Association consumer credit rose at its strongest pace in nearly 10 years as shoppers hit the stores and took advantage of low interest rate loans. This shows that while Brexit may have hurt the housing market it hasn’t had a major impact on consumption. Given how far sterling has fallen post Brexit this past week’s price action is mostly indicative of profit taking. In the coming week U.K. manufacturing and construction sector PMIs are scheduled for release. While construction sector activity may have slowed, the recent improvements reported by the Confederation of British Industry tell us that manufacturing activity remains healthy. With that in mind, sterling will continue to find resistance below 1.33. So far the economic impact of Brexit has been limited but if there are more headlines about Prime Minister May invoking Article 50 early next year, GBP/USD could extend its losses quickly.

Technically, GBP/USD rejected the 50-day SMA and is now on its way to the August 19 & 22 low near 1.3025. We don’t see anything stopping a move that could take the pair below 1.30. As long as GBP/USD holds below the 23.6% Fib retracement of the June to July decline, a deeper correction appears very likely.

USD/CAD Back to 1.30?

USD/CAD Back to 1.30?

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USD/CAD Back to 1.30?

We have been trading USD/CAD throughout the day. Although Friday’s employment report and trade balance were significantly weaker than expected and building permits turned lower this morning, the primary driver for CAD is oil. Crude prices rose 2.5% today after OPEC said they would hold informal talks at next month’s energy summit to find ways to stabilize oil prices. Now that $42 a barrel has been reached in a meaningful way, the charts show a potential extension to $44.50, which would be consistent with USD/CAD at 1.3100.

Technically today is the first retrace after Friday’s strong gains. There’s short-term resistance at 1.32 with more significant resistance at the July high of 1.3253. If USD/CAD fails here, it should at minimum test the 20-day SMA near 1.3080 and then make a run for 1.30.

Will Oil Drive USD/CAD to 1.30?

Will Oil Drive USD/CAD to 1.30?

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Will Oil Drive USD/CAD to 1.30?

One of the biggest stories today was the sharp decline in oil prices. WTI Crude dropped 2.25% to $43.83, its lowest level since March 2009. Canada is a major oil producer and extremely sensitive to the price of crude. The last time we heard from the central bank, they signaled that rates would not be lowered again this year but if crude prices fall below $40 a barrel, they may have to reconsider their position. We will learn more about Canada’s inflation situation later this week but lower prices will drive down inflation expectations across the globe so even if CPI increases in February like economists expect, it could fall again in the coming months. This possibility could weigh heavily on the loonie, especially if oil continues to fall and that dynamic could drive USD/CAD to 1.30.

Taking a look at the monthly chart of USD/CAD there is resistance at Friday’s high of 1.2824 but above that, there is no major resistance until 1.30. Near term support is at 1.26 with more significant support at 1.2350.

USDCAD031615

BK Hot Chart – USD/CAD to 1.30?

BK Hot Chart – USD/CAD to 1.30?

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BK Hot Chart – USD/CAD to 1.30?

USD/CAD raced to a high of 1.28 on the back of weaker than expected GDP numbers and while the loonie recovered part of its losses by the end of the North American session, the uptrend remains intact. Over the past month, the currency pair soared over 1000 pips or 8% to its strongest level in 5 years. The initial slide was triggered by a decline in oil prices with the move extending on the back of the Bank of Canada’s surprise rate cut and the move is now exacerbated by weaker economic reports. Each of these goes hand in hand of course because the BoC would not have lowered rates if oil prices had not fallen and the economy had not weakened. Nonetheless, the 0.2% contraction in the month of November drove annualized GDP down to 1.9%, the slowest growth since March. The problem was manufacturing and oil production – which saw its biggest drop in 6 years. Unfortunately next week’s IVEY PMI and employment reports could highlight the same areas of vulnerability in Canada’s economy. If the data is soft like we anticipate, USD/CAD could make a run for 1.30. The only wrinkle is oil. If it finds long term support above $40 a barrel and starts to rise, breaking above $50 a barrel, a top would be on the way for USD/CAD.

Near term support in the currency pair is at 1.25 with more significant support at 1.2380. Taking a look at the monthly chart of USD/CAD the next main area of resistance is at 1.30.

EUR/USD Aiming for 1.30?

EUR/USD Aiming for 1.30?

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Fundamentals

The EUR/USD raced to a high of 1.2886 today on the back of the steep decline in U.S. yields. Eurozone rates also fell but their moves paled in comparison. Both the U.S and Eurozone have their respective troubles but risk aversion has driven investors back into Treasuries. U.S. stocks collapsed today and while softer U.S. data can be blamed for part of the move, the sell-off was also triggered by concerns about global growth and growing fears about Ebola. Unfortunately these fears could intensify before they ease which could lead to further near term weakness in the dollar. Based on the chart above, which compares the performance of the EUR/USD (white line) and the spread between German and U.S. 10 year yields (yellow line), a move towards 1.30 appears likely.

Technicals

While the initial break of 1.28 failed to broken in a meaningful way, we believe that another probe above that level is likely. As the 61.8% Fibonacci retracement of the 2012 to 2014 rise, 1.2800 is a very significant technical level. If the currency pair closes above that level, there is no major resistance until 1.30, although 1.29 could be a temporary stopping point. However if EUR/USD fails to recapture the 1.2800, a drop back towards 1.26 is likely.

EURO Headed for 1.30?

EURO Headed for 1.30?

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Fundamentals

The euro continued to trade lower against the U.S. dollar today, dropping to the weakest level since September 2013. While the currency pair had been trickling lower throughout the European trading session, it was driven to 11-month lows on the back of the less dovish FOMC minutes. The widening divergence between Eurozone and U.S. data and EZ/US monetary policy has put significant pressure on the EUR/USD. The decline in German producer prices in the month of July only builds the case for additional ECB easing while today’s FOMC minutes reminds us that the Fed is thinking about raising rates at a time when the ECB is thinking about lowering them. Whether this support level is held or broken hinges on Thursday’s Eurozone PMI reports. Based on the market’s forecasts, manufacturing and service sector activity is expected to slow and given the recent decline in industrial production and factory orders, this seems likely. We certainly favor another weak release that will add pressure on the EUR/USD but given overstretched short positions in an environment where the EUR/USD is deeply oversold, a surprise increase in Eurozone PMI will trigger a quick and aggressive relief rally in the currency pair.

Technicals

Taking a look at the charts the next significant support level for EUR/USD is near 1.3250, the 38.2% Fibonacci retracement of the July 2012 to May 2014 rally. If this level is broken, there is minor support at 1.32 followed by more significant support at 1.30. EUR/USD needs to rise back above 1.34 to negate the downtrend.

Is EUR/USD Headed to 1.30? Forex Daily Technicals 05.03.13

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Will EUR/USD Give Up 1.30? Weekly Forex Techs 4.29-5.03.13

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EUR/USD Breaks 1.30 Forex Daily Technicals 4.23.13

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Like to trade the EUR/USD? So do we!

At BKForex, a large part of our trading is short term and the EUR/USD is one our favorite currency pairs to trade.

The EUR/USD is the world’s most actively traded currency pair and for many forex traders, this activity provides opportunity.

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