GBPCAD Breaks Down, More Losses Ahead?

GBPCAD Breaks Down, More Losses Ahead?

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GBPCAD Breaks Down, More Losses Ahead?

We believe that the Canadian dollar will experience further gains in the week ahead. Although USD/CAD hit a high of 1.29 this week, it rejected that level on the prospect of a NAFTA deal and less dovish comments from the Bank of Canada. At their last policy meeting, BoC Governor Poloz and Deputy Governor Wilkins outlined their dovish bias but their tone seems to have changed this past week. In a speech to the Financial Committee, Poloz said inflation is on target and the economy is close to potential. With a NAFTA deal imminent, we expect the Canadian dollar to outperform in the week ahead as long as GDP, the trade balance and IVEY PMI reports don’t disappoint in a significant way. Although USD/CAD itself looks bearish, we particularly like selling GBP/CAD given the back to back weakness in U.K. data including Friday’s GDP report.

Technically GBP/CAD rejected the 50-day SMA at 1.7950 and now appears poised for a move down to 1.7580, which is where the 20-week and 100-day SMA converge.

EURGBP Breaks Key Support

EURGBP Breaks Key Support

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After more than a year EURGBP broke below the key.8600 support level which more of an indication of market’s disappointment in the ECB policy than its an overall bullish call on cable. Recent data from the region has consistently hinted that economic growth may have peaked and as we noted today, “EZ IP contracted by -0.8% versus 0.1% eyed in further evidence that growth in the region may have peaked. This puts the ECB in a precarious position as the central bank prepares for a taper of QE just as economic conditions may have deteriorated. This is likely to prevent the ECB from considering any normalization process for the foreseeable future regardless of how much the hawks on the council press for it.”

This view was borne out by the dovish ECB minutes which suggested that the council intends to keep rates at zero for the foreseeable future even as it proceeds with the taper. All of this dovish news helped push EURGBP to its lowest level in more than a year, but whether the pair remains below .8700 will be contingent on UK politics and monetary policy. If anything UK economy is in worse shape the EU’s and any rate hike by the BoE could only exacerbate the slowdown. Combine that with the fact that Brexit negotiations are still stuck on the Irish border issue and the EURGBP break could well be a fakeout that traps eager shorts trying to ride the momentum.

NZD/USD Breaks 50-SMA, More Losses Likely

NZD/USD Breaks 50-SMA, More Losses Likely

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NZD/USD Breaks 50-SMA, More Losses Likely

NZD/USD was one of the day’s worst performing currencies and now 5 trading days have past without a rally. This weekend’s disappointing Chinese trade numbers impacted both Australia and New Zealand but last week, AUD fell more sharply than NZD and this week the New Zealand dollar is catching up as investors bet that the RBNZ will need to ease again soon. Although China reported a larger than expected trade surplus, the improvement was driven by a staggeringly large decline in imports. China is New Zealand’s second most important trading partner behind Australia and the cutback in demand points to ongoing weakness for the world’s second largest economy. That combined with the recent slowdown in Chinese manufacturing activity and decline in dairy prices highlights the challenges ahead for New Zealand’s economy. As such we are looking for additional losses in the currency.

Technically, the recent break below the 50-day SMA and the 23.6% Fibonacci retracement of the 2015 to 2016 uptrend signals a deeper slide for NZD/USD. At minimum, we see a move down to support near 0.6725, a level where the 38.2% Fib retracement and the 100-day SMA converge. If that is broken, then it should be smooth sailing to 66 cents. However if NZD/USD rises back above 69 cents, the downtrend will have broken.

EUR/USD Breaks Down

EUR/USD Breaks Down

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EUR/USD Breaks Down

After consolidating above 1.13 for the past 10 trading days, euro ended the North American trading session sharply lower against the U.S. dollar and a move to 1.1260 would confirm a near term top. Weak Eurozone industrial production sparked the sell-off but it was the recovery in the dollar that drove the pair to fresh 2 week lows. If 1.1260 is cleared, the next stop for EUR/USD will be at least 1.12 and possibly even 1.1150. Eurozone consumer prices are scheduled for release tomorrow – the recent rise in German CPI points to a stronger release but the market’s appetite for U.S. dollars will dictate the performance of the currency.

Technically, how EUR/USD trades near 1.1270 is key. If it extends to 1.1260, then the 23.6% Fib retracement of the 2014 to 2015 will officially be broken and in that case a stronger correction to 1.1150 is likely.

CAD/JPY Breaks 3 Key Support Levels

CAD/JPY Breaks 3 Key Support Levels

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CAD/JPY Breaks 3 Key Support Levels

We are currently short CAD/JPY on the premise that the Greek No vote will drive more volatility and risk aversion in the financial markets. Oil prices were hit hard today, falling as much as 6% and when combined with the slower acceleration in Canadian manufacturing activity, the vulnerabilities of Canada’s economy become abundantly clear. Later this week, Canada’s employment report is scheduled for release and given the drop in the employment component of IVEY PMI, we are looking for a downside surprise. Back to back to weakness in Canadian data coupled with the sell-off in oil spells big trouble for Canada’s economy and in turn the Canadian dollar. At the same time, the one clear and unambiguous impact of the Greek crisis is reduced expectations for Fed tightening. Between the decline in oil prices and global market uncertainty, U.S. policymakers may opt to delay liftoff to December. We are still months away from the September FOMC but for the time being, the potential for a delayed rate hike could keep USD/JPY and in turn under pressure and minimize the impact of positive U.S. economic reports.

Technically today’s break in CAD/JPY has taken the currency pair below 3 significant support levels. The first was the 100-day SMA, the second was the 38.2% Fibonacci retracement of January low to June high and the third was probably the most significant – the 50% Fibonacci retracement of 2007 to 2009 decline. While CAD/JPY could bounce off support at 96.50, the charts signal an eventual move down to 95.35 as long as the pair remains below 97.60, the level at which the 38.2% Fib and 100-day SMA converge.

AUD/USD Breaks 100-day SMA

AUD/USD Breaks 100-day SMA

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Fundamentals

For the first time since March, AUD/USD closed below its 100-day SMA, which suggests that the currency is prime for further losses. Of course whether that happens or not hinges on fundamentals. Weaker Australian data and a steep slide in global equities sent the currency pair tumbling on Friday and tonight, AUD remains in play with Australian and Chinese manufacturing PMI reports scheduled for release along with Australian Producer Prices. We know that price pressures down under are falling but the Chinese economy is stabilizing and that may lend support to Australia’s manufacturing sector. If Australian manufacturing activity accelerated in the month of July, it could halt the slide in AUD/USD but if it slows, the currency pair could drop to a fresh 7 week low. Friday’s U.S. non-farm payrolls report is also important because a large part of the AUD/USD’s gains can be attributed to the market’s demand for U.S. dollars. If payrolls growth beats expectations and the unemployment rate holds steady, it will accelerate losses for AUD/USD but if payrolls rise by less than 200k or the unemployment rate increases, it would be significant enough to drive the currency pair back above the 100-day SMA.

Technicals

While fundamentals may be less clear, on a technical basis, the break of the 100-day SMA signals the beginning of a more significant downtrend for AUD/USD. Having consolidated above 0.9320 for the past 7 weeks, today’s move also takes the currency pair below a significant support level. At this stage, technicals point to a continued sell-off that should drive AUD/USD to at least 92 cents and possibly even 91 cents. If the currency pair finds a reason to rally, a break back above the SMA at 0.9320 would be needed to negate the downside momentum.

AUD/JPY Breaks 95, Moves into Downtrend

AUD/JPY Breaks 95, Moves into Downtrend

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Fundamentals

Between the sell-off in the Australian dollar this week and the rally in the Japanese Yen, AUD/JPY has broken below 95, a key support level for the pair. AUD took hit from lower consumer prices will the JPY benefitted from risk aversion and weakness in the U.S. dollar. It is no secret that the Yen crosses oftentimes take their cue from the majors and in the case of AUD/JPY the slide in U.S. Treasury yields drove USD/JPY and hence AUD/JPY lower. The dollar is in play in the week ahead with first quarter GDP numbers, a FOMC rate decision and non-farm payrolls scheduled for release. However no surprises are expected and there’s very little reason for the central bank to accelerate or slow the unwinding of Quantitative Easing meaning that the chance of a surprise is slim. As a result, Treasury yields could continue their downward course even if the central bank reduces monthly bond buying, which would add pressure on AUD/JPY. At the same time, if Russia decides to embark on a full military invasion of Eastern Ukraine, we could see a deep sell-off in all the Yen crosses. We don’t expect much upside momentum in the Australian dollar with only manufacturing PMI and producer prices scheduled for release.

Technicals

On a technical basis, the break below 95 has taken AUD/JPY into the sell zone according to our Double Bollinger Bands. This has been a key support level for the currency pair for the past month and now that it is broken, there’s no support until 94.00. Near term resistance is at 95.33. If AUD/JPY breaks above this level, then there is a chance for the currency pair to rise back to its April high of 96.50.

EUR/AUD Breaks 1.50 Further Losses In Store?

EUR/AUD Breaks 1.50 Further Losses In Store?

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Fundamentals

Today’s sharp rally in the Australian dollar led EUR/AUD to close below 1.50 for the first time since early December. The catalyst for the move in AUD was RBA Governor Glenn Steven’s nonchalant attitude about the current level of the currency. This is significant because it was only a few months ago that Stevens said he wants to see currency pair trading closer to 85 cents, which is significantly lower than current levels. The central bank has clearly become more tolerant of AUD strength, which should lead to more short covering. If China fast tracks its stimulus we could see a further rally in EUR/AUD. At the same time, euro is pressured by weaker data and talk of negative rates. However the region’s record current account surplus has limited the sell-off in the pair. From a fundamental basis, we believe EUR/AUD is headed lower but a catalyst may be needed for the momentum to accelerate.

Technicals

Taking a look at the daily chart of EUR/AUD, after breaking through the 38.2% Fibonacci retracement of November to January’s rally, EUR/AUD slipped quickly and aggressively. It pierced through the 50% Fib of the same move but has since stalled above that level. How the currency pair trades around the 1.4950 level is key. If it finds support at this level, it could rebound as high as 1.52 but if it continues lower the next stop should be 1.4735.

AUD/USD Breaks Support Forex Daily Technicals 05.07.13

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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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