GBP/CAD to 1.60?

GBP/CAD to 1.60?

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GBP/CAD to 1.60?

GBP/CAD broke down significantly on Friday and this normally trending currency pair should be poised for further losses. Fundamentally, sterling should remain under pressure. Despite stronger than expected PMI numbers and the rise in U.K. rates, sterling has been unable to rise and in the coming weeks and now the focus will turn to the risk of Brexit. In contrast, the Canadian dollar has responded well to stronger data and should continue to outperform. Oil prices have been on the rise and Canada’s trade deficit turned into a surplus the month of November. This was significantly better than expected because economists were actually looking for a bigger deficit. More than 53K jobs were also created in December (all full time) and manufacturing activity expanded at its fastest pace since January according to the IVEY PMI report. This leads us to continue to expect further gains in the Canadian dollar, particularly against sterling.

Technically there is no major support in GBP/CAD until 1.62 and if that breaks, the currency pair should hit 1.60. The downtrend remains intact as long as the currency pair remains below 1.65.

Will GBP/USD Hit 1.60?

Will GBP/USD Hit 1.60?

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Will GBP/USD Hit 1.60?

In the course of 8 trading days, GBP/USD has moved from a low of 1.52 to a high of 1.5756. There was very little retracement during this staggeringly strong 550 pip rally. This has now become the longest stretch of gains for GBP/USD since April 2012. While the currency pair’s move screams of exhaustion, today’s rally was supported by sound fundamentals. Previously we had seen mostly mixed U.K. data but between the sharp rise in average weekly earnings and the Bank of England’s admission that wages may be rising at a faster pace than they anticipated, policymakers are warming to the idea of tightening. They also believe that inflation could accelerate “notably” later this year. Two members of the monetary policy committee (Weale and McCafferty) said their decision to keep rates unchanged was finely balanced. While we continue to believe that the first rate hike from the BoE will be in 2016, today’s report widens the policy divergence between the U.K. and countries such as Australia, New Zealand and even the Eurozone. Retail sales are scheduled for release tomorrow and economists are looking for a decline. If they are right, it would be the perfect catalyst for a move back down to 1.55. However given the jump in earnings and rise in the BRC retail sales report, the odds favor an upside surprise. If the data is good, it should be clear sailing to 1.60.

Technically, GBP/USD has already broken above the 2015 high of 1.5814. It has also cleared the 38.2% Fibonacci retracement of the 2009 to 2014 rally at 1.5800. There is no resistance now until 1.60 and we believe that the currency pair is on its way to test this level. However should GBP/USD sink below 1.5750, we could see a deeper correction down to 1.55.

Will GBPUSD Break 1.60?

Will GBPUSD Break 1.60?

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Will GBP Break 1.60?

Fundamentals

Dovish Bank of England minutes, a surprise decline in retail sales and a larger than anticipated drop in industrial orders should have taken GBP/USD below 1.60 and while the currency pair made a brief foray below this level today to 1.5995, it rebounded to end the day above this key level. Given the softness of retail sales and the deterioration in trade activity, Friday’s third quarter GDP numbers are not expected to be kind to sterling. Nonetheless the currency pair’s resilience should not be underestimated because 1.60 could still hold (after a brief break) if growth falls short of expectations. Not only is the GDP report backwards looking but economists expect a slowdown in growth so a softer number would not be a major shock. At the same time, with 2 members voting in favor of an earlier rate rise, the Bank of England will still be one of the first countries to raise interest rates. We also believe that sterling is receiving some support from euro outflows ahead of the Eurozone’s bank stress test results, which are scheduled for release on Sunday.

Technicals

Taking a look at the weekly chart of GBP/USD, 1.60 is not only a psychologically significant level but also the 50% Fibonacci retracement of the 2013 to 2014 rally. Once this level is broken, the next support is the 2014 low of 1.5875. If it holds, meaning GBP/USD does not close below this level then it is likely to retest 1.62.

Is EUR/NZD Headed for 1.60?

Is EUR/NZD Headed for 1.60?

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Fundamentals

Both the euro and New Zealand dollar have performed poorly this week but over the past 5 trading days NZD has lost more than 2.5% of its value against the U.S. dollar while the euro lost only 0.6%. The decline in NZD was driven by a lower payout forecast from Fonterra, which has a direct impact on the country’s terms of trade and GDP as well any chance of additional tightening by the RBNZ this year. The slide in the euro on the other hand was driven by concerns that fresh sanctions on Russia could slow the Eurozone recovery. So in other words, one move is based on immediate economic implications and the other is based on the expectations of a future slowdown that may not transpire since the impact on trade will be limited. However this does not mean that we believe that EUR/NZD will not make it to 1.60. Further adjustment is expected in NZD and on Thursday, Eurozone consumer prices, German retail sales and unemployment are scheduled for release. If these reports surprise to the upside, EUR/NZD could extend its gains towards 1.60.

Technicals

On a technical basis, 1.5800 is a very significant resistance level for EUR/NZD. Not only did the pair find support near this level in March and May, but it is also the 23.6% Fibonacci retracement of the sell-off that began on December 27th. If EUR/NZD closes above this level on the daily chart, the next stop for the currency pair should be the 100-day SMA at 1.5865 and then 1.60. However if it fails at 1.58, there is no major support until 1.56.

EUR/AUD – Headed for 1.60? (Click on Chart to Zoom In)

EUR/AUD – Headed for 1.60? (Click on Chart to Zoom In)

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EUR/AUD – Headed for 1.60? (Click on Chart to Zoom In)

Fundamentals


The best performing currency pair today was EUR/AUD. Thanks to better than expected Eurozone flash PMIs and weaker than expected Chinese data, the pair rose to its strongest level since February 2010. The 2% breakout is one of the biggest moves that we have seen in EUR/AUD in months. There is nothing more important for a currency pair’s outlook than economic divergence and in the case of EUR/AUD the gap is growing between the Eurozone and Australia. Manufacturing activity in China, Australia’s largest trading partner contracted for the first time since August while manufacturing activity in the Eurozone grew at its fastest pace since May 2011. This trend is expected to continue with Australia feeling the pain of slower Chinese growth and Europe benefitting from low expectations. Fundamentally, EUR/AUD should head higher with 1.60 being a reasonable medium term target.

Technicals


Technically, we have to turn to the monthly chart to find resistance in EUR/AUD. 1.56 was an important breakout point for the currency pair. It is now the first level of support and below that, the level to watch is 1.55. As for resistance, 1.60 is the next key level. Not only is it a psychologically significant round number, but it is also the point at which the sell-off stalled in February 2010. The next level above that would be the 50% Fibonacci retracement of the 2008 to 2012 sell-off at 1.6390.