EUR/AUD – Headed for 1.55?

EUR/AUD – Headed for 1.55?

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EUR/AUD – Headed for 1.55?

The euro traded lower against the U.S. dollar today on the back of cautious comments from the ECB and weaker industrial production. Everyone from ECB President Draghi to members Praet, Coeure and Villeroy all felt that inflation is low and therefore policy needs to patient and persistent because the currency’s strength could drive prices even lower. The uniformity of the central bank’s comments make it clear that they are in no rush to change their forward guidance. Meanwhile the Australian dollar traded higher on the back of stronger consumer confidence, faster Chinese industrial production growth and positive comments from the Reserve Bank of Australia sent the currency sharply higher. According to RBA Assistant Governor Kent, the “good growth we’re seeing, the low levels of spare capacity….raise the risk that inflation pressures will pick up.” He also felt that “markets may be underpricing the risk of faster growth.” As these are the most hawkish comments that we’ve heard from an RBA official, it was no surprise to see the big reaction in the Australian dollar. Fundamentally, the dovishness of the ECB should cause the euro to underperform AUD further.

Technically, EUR/AUD has found itself back below the 20-day SMA. Although there’s quite a bit of support above 1.56, we believe that the pair could start to move lower with a break of 1.56 paving the way for a steep decline to the 100-day SMA near 1.5485.

GBP/CHF – Next Stop 1.55?

GBP/CHF – Next Stop 1.55?

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Fundamentals

Talk of an earlier rate hike by Bank of England Governor Carney drove GBP/CHF to its strongest level since November 2012. We believe that the renewed clarity in U.K. monetary policy will drive the currency pair even higher towards 1.55. Thursday afternoon Carney surprised the market by saying the central bank could raise rates sooner than the markets expect and the start of rate increases from the BoE is getting nearer. Previously the central bank refused to give into rate hike expectations, leading to a correction in the pound but now they feel that the strength of the housing market warrants vigilance because growth has been stronger and unemployment has fallen faster than they anticipated. The prospect of accelerated BoE easing should lead to further gains in GBP/CHF. There are no shortages of U.K. event risk next week and given Carney’s recent comments, traders will be looking for the BoE minutes to contain a more optimistic tone. The Swiss National Bank meets in the coming week and for the most part with EUR/CHF trading near the lower end of its recent range, the central bank will most likely remind investors that they are committed to avoiding excessive CHF strength.

Technicals

Taking a look at the weekly chart of GBP/CHF, now that 1.52 has been broken, there is no major resistance in the currency pair until the July high of 1.5485. Support on the other hand will be at 1.50, a break of which would put an end to the entire uptrend.

EUR/NZD – Bumpy Ride to 1.55

EUR/NZD – Bumpy Ride to 1.55

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Fundamentals

One of the strongest trends in the forex market these days is the decline in EUR/NZD. Over the past 6 trading sessions, the currency pair has lost approximately 600 pips or 3.5%. When it comes to fundamentals, there’s no stronger driver than changes in monetary policy. In the past month, the ECB eased and the RBNZ tighten, kicking off the deep sell-off in the currency. However the main reason why EUR/NZD weakened significantly and could be poised for additional losses is because not only did these 2 central banks move in opposite directions but they both plan to do more, widening the gap between interest rates in the Eurozone and New Zealand. This morning, ECB member Jazbec said the central bank will act again if necessary and last night the RBNZ made it clear that they see enough momentum in the economy to continue tightening. Therefore from a fundamental perspective EUR/NZD should drop below 1.55. Yet the move going forward may not be as smooth as the one so far because Jazbec also suggested that the central bank will wait to see how the economy responds to easing before deciding on QE. Euro rebounded today and could find footing above 1.35. At the same time, NZD is closing on 0.8730, a level that it has struggled to break in the past. There have been only 2 days this past year that the currency pair managed to break through this level and on both occasions it failed. So while we expect EUR/NZD should break 1.55 the currency pair could bounce to 1.5750 before that happens.

Technicals

Taking a look at the weekly chart of EUR/NZD, the latest decline has taken the currency pair below the 61.8% Fibonacci retracement of the 2012 to 2013 rally. While 1.55 could serve as psychological resistance, the more significant technical resistance is at 1.5450, a level that the currency pair bottomed at in December 2012 and again in March 2013. Below that is the November swing low at 1.5393. Resistance is up at 1.5850.