GBPJPY to 146?

GBPJPY to 146?

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Sterling was the day’s worst performer, losing nearly 1% of its value against the U.S. dollar. Brexit negotiations have taken a turn for the worse and could quickly turn into a political crisis for Prime Minister May. The EU released a draft of its Brexit agreement and in it they proposed a “common regulatory area for Ireland after Brexit. May responded by saying that “no UK prime minister could ever agree” to a separate customs agreement for Northern Ireland. This has been a serious area of contention and potential deal breaker, although the EU has invited the UK to come up with other solutions. The draft Brexit agreement also brings back the issues surrounding the European Court of Justice. The UK doesn’t want to be obligated to the ECJ’s decision but the EU wants disputes over Brexit to be settled by a joint committee. In a nutshell, the EU isn’t budging on their initial demands and therefore all of this is a setback for Brexit negotiations. Unfortunately Prime Minister May’s speech on Friday isn’t going to instill any confidence in her ability to get a deal done. UK negotiators will continue to work with the EU on reaching a deal and the main focus on Friday will be how amenable she is to their terms. With U.S. stocks ending the day at their lows, we expect further weakness in sterling, particularly against the Japanese Yen. Manufacturing PMI numbers are scheduled for release on Thursday and based on the drop in the CBI index, softer activity is expected.

Technically, GBP/JPY has broken below the 200-day SMA and has fallen back below the first standard deviation Bollinger Band. The next stop should be 146.00

EUR/CAD to 1.46?

EUR/CAD to 1.46?

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EUR/CAD to 1.46?

The best performing currency this past week was the Canadian dollar which shot higher on the back of hawkish comments from the central bank. Senior Deputy Governor Carolyn Wilkins questioned the need for less stimulus, sparking talk of a rate hike for the first time in 7 years. With oil prices also rising, we expect further gains in CAD. In particular, we think the loonie will outperform the euro not only because 1.13 is a significant resistance level but also because next week’s Eurozone PMI reports are expected to be softer. Technically as long as EURCAD holds below 1.4850, there’s no major support in EUR/CAD until 1.4600.

GBPJPY Through 146?

GBPJPY Through 146?

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Of all the major currencies the weakest today is the British pound. The Bank of England caught the market by surprise with their dovishness last week and the market believes that this week’s economic reports will reinforce their concerns. 1.3000 is a very important resistance level for GBP/USD and without a hawkish BoE, the currency pair may have a difficult time exceeding this rate. Although we believe most of this week’s U.K. economic reports will beat, investors could eye these reports with caution. We don’t expect to be in the GBP/JPY trade for long and will reevaluate before tomorrow’s UK inflation reports. We have chosen to sell GBP vs. USD/JPY because U.S. data continues to miss. Manufacturing activity in the NY region turned negative in the month of May and this follows Friday’s softer retail sales and inflation reports. Rate hike expectations have fallen to 93.8% form 100% as a result and this could lead to further weakness in USD/JPY.

Technically GBP/JPY has a lot of resistance at or underneath this month’s high near 148.00. The most significant is the 61.8% Fib retracement of the 2011 to 2015 rally at 147.30. The December high and this month’s high above 148 also signal a potential double top at a level that coincides with the 100-month SMA. We expect GBP/JPY to drop below 146.00 and test 145.00

EUR/CAD to 1.46?

EUR/CAD to 1.46?

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EUR/CAD to 1.46?

The euro also came under selling pressure today as investors realized that Deutsche Bank’s lower settlement deal with the U.S. Department of Justice is not real. There was a media report on Friday that said they reached an agreement to lower the penalty to $5.4 billion from $14 billion and while talks are underway investors there’s been no official deal. The problem now is that a lower number has now been thrown out there so if the actual settlement is higher and closer to $10 billion, the euro could still be punished and for this reason along with the ongoing banking crisis in Europe, we believe the euro will underperform. In contrast, the Canadian dollar extended its gains as oil prices pressed higher. Fundamentally, we believe that oil has bottomed and the CAD following the OPEC deal. It’s a busy week in Canada but we don’t have any major economic reports until Friday so fundamentally we could see further pressure on EUR/CAD.

Technically today’s high in EUR/CAD coincided with the 200-day SMA – an important indicator that has previously served as support and resistance for the pair. We believe this level should hold and EUR/CAD should find its way back down to the 50-day SMA at 1.4610. If EUR/CAD breaks above the 200-day SMA near 1.4750, the 50% Fibonacci retracement of the 2008 to 2012 sell-off should cap gains.

GBP/USD – Next Stop 1.46?

GBP/USD – Next Stop 1.46?

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GBP/USD – Next Stop 1.46?

Thanks to the improvement in risk appetite, sterling ends the week near its one month highs but we believe that the rally is beginning to lose momentum and next week’s Bank of England meeting should drive it lower. The BoE has a lot more to be worried about in March compared to January. While their trade deficit narrowed, the improvement in Jan came only because of a large downside revision to the December report. Their deficit with the European Union hit record levels with exports falling at the start the year. All 3 of the PMI reports showed weakness in the economy and as BoE Governor Carney mentioned at the start of the week, Brexit is the biggest domestic risk to financial stability. No changes are expected from the central bank but the minutes from the meeting should contain a more cautious tone that should negative for the currency.

Technically GBP/USD broke above the 50-day SMA at 1.4320 leaving the next important resistance level at 1.4400. This was tested and broken momentarily on Friday and if it is challenged again, the next stop for GBP/USD will be 1.46. However if it fails at 1.44 a decline should take the pair back down to support at 1.4175, a level where daily rallies have paused on numerous occasions.

EUR/CAD Prime for a Drop to 1.46

EUR/CAD Prime for a Drop to 1.46

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EUR/CAD Prime for a Drop to 1.46

EUR/CAD was the second worst performing currency today behind EUR/NZD and we believe that further losses are likely. The euro was hit hard by weaker economic data. In Germany retail sales dropped 0.4% against expectations for a 0.2% rise. German unemployment rolls increased 2k and consumer prices in the Eurozone dropped 0.1%. This was the first time that euro area inflation turned negative since March 2015 and despite Bundesbank President Weidmann’s recent comment that deflation has become less of a concern, the drop in inflation at a time when commodity prices are very low raises the risk of low inflation sticking which could revive the talk of additional ECB easing which would add pressure on the currency. CAD on the other hand traded higher for the first time in 9 days on the back of stronger GDP growth. Canada’s economy expanded by 0.3% in the month of July against expectations for a 0.2% rise. On an annualized basis, GDP growth in Canada accelerated to 0.8% from 0.5%. At the same time CAD has become deeply oversold and is due for a stronger recovery.

Technically EUR/CAD trading in a broad channel and it failed at the top of the channel on Tuesday. The bottom of the channel is below 1.48 and we believe that the currency pair will test that point. It could even move lower if Eurozone data continues to weaken and oil prices bottom out. We would not be surprised to see EUR/CAD trading at 1.46.