EUR/GBP Could Drop to .8800

EUR/GBP Could Drop to .8800

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EUR/GBP Could Drop to .8800

One of the biggest stories this past week was European Central Bank President Mario Draghi’s post monetary policy meeting comments. They sent the euro tumbling against the U.S. dollar because Draghi was not nearly as optimistic as the changes in the policy statement suggests. The central bank head emphasized the need for policy accommodation, the downside risks related to global factors, the strong euro and protectionist threats. The ECB lowered their 2019 inflation forecast as Draghi warned that underlying inflation remains subdued, “victory hasn’t been declared” and therefore “ECB policy will continue to be reactive.” Taking all of this into consideration, the ECB is telling us that while they are more confident in the economy, they don’t plan to taper quickly. For this reason, we believe that euro will underperform other major currencies in the coming week and we expect further losses against sterling. There’s absolutely nothing on the UK calendar and data hasn’t been that terrible – service sector activity accelerated and while the trade deficit expanded slightly, industrial production rebounded at the start of the year. If ris appetite improves we should see sterling outperform the euro.

Technically, we’ve seen 3 days of lower highs and lower lows in EUR/GBP. This move took the currency pair below the first standard deviation Bollinger Band. There’s a lot of support near .8845, but we believe that the sell-off could extend to .8800.

CADJPY – Ready to Drop?

CADJPY – Ready to Drop?

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Tomorrow the market will get a glimpse of Canadian GDP and inflation data as well US Personal Consumption Expenditure reading which is the Fed’s favorite measure of inflation. Both data points could disappoint leading to a steeper selloff on CADJPY.

The loonie has already been hurt by less than hawkish comments out of the BOC and if the growth data shows a further decline – or worse a negative reading – USDCAD could easily scale the 1.2500 level and beyond.

Meanwhile, USDJPY has run into serious resistance at the 113.00 figure and with US yields starting to back up any soft reading in US inflation data could sow doubt about Fed’s ability to hike rates in December. All of this leaves CADJPY very vulnerable to a selloff especially because the pair appears to have found distribution at the 90.00 level. If it breaks to the downside, 88.00 could be soon in view.

AUD/NZD – Will The Drop Continue?

AUD/NZD – Will The Drop Continue?

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In Asia this week, both New Zealand and Australia have important economic news on the docket. Australia has employment reports and New Zealand has its GDP numbers scheduled for release. NZ GDP is expected to be strong thanks to the improvement in trade activity. Australian employment, on the other hand, could soften with the manufacturing and service sectors reporting job losses.

The AUD/NZD pair is already in a major downtrend as the interest-rate differential between the two economies continues to widen.If the Australian employment data proves weaker than expected, the Reserve Bank of Australia may be forced to reconsider its neutral stance, and markets will begin to price in another rate cut. A decline could take AUD/NZD to 1.0300 with parity the ultimate target while 107.00 caps the upside.

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.

Is GBP/JPY Ready To Drop?

Is GBP/JPY Ready To Drop?

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After climbing more than 1200 pips over the past several months GBP/JPY may be finally running out of steam. The pair has been driven higher primarily by anti-dollar flows as the market realized that the Fed may need to stay on sideline longer before normalizing monetary policy Trader were also optimistic about the prospects of UK economy which has shown steady growth and raised hopes that the BoE may act before the end of this year.

But despite the decent growth in wages, BoE policymakers have dismissed any suggestion of rate hike in fact stating that inflation may fall to 0%. Tomorrow’s CPI data could prove them right and Wednesday’s BoE meeting could confirm that view with a 0-0-9 vote. All which is likely to take a toll on the pound and drag GBP/JPY off its recent swing highs.

Technically, the pair has hit a serious resistance point at the 189.00 level and only a move through the 190.00 figure would resume the bullish bias, while a correction could take it to 185.00

BK Hot Chart – NZD/USD Could Drop to 71 Cents

BK Hot Chart – NZD/USD Could Drop to 71 Cents

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BK Hot Chart – NZD/USD Could Drop to 71 Cents

The New Zealand dollar fell hard on the back of surprisingly dovish tweaks to the Reserve Bank of New Zealand’s monetary policy statement with NZD/USD dropping to its lowest level in 3 years. According to the statement, the decline in oil prices was too much for the RBNZ to bear. The central bank felt that “falling oil prices is causing tradable goods inflation to be very weak.” They also fear that headline annual inflation could turn negative for a period before moving back towards 2%. Combined with an unjustifiably high exchange rate, fiscal consolidation, reduced dairy payout and the risk of draught, the outlook for growth has now changed. Most importantly, they removed the statement about expecting more tightening and replaced it with the comment that rates could move up OR down depending on data. In other words, the RBNZ has shifted from a tightening to neutral monetary policy bias and the New Zealand dollar collapsed in response.

At this point, there is no major support in NZD/USD until the 2011 low of 0.7118. Resistance remains at 75 cents.

USD/CAD to 1.15 on Big Drop in Oil

USD/CAD to 1.15 on Big Drop in Oil

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Fundamentals

Oil prices collapsed in relatively thin trading on Friday, sending USD/CAD sharply higher. Crude prices fell more than 10%, to its lowest level since September 2009. On Thursday, OPEC decided against an output cut that could have carved out a bottom for oil but instead, it led to a deep sell-off. Their decision suggests that they no longer wants to bear the burden of lower prices alone and want other producers to adjust their production as well. Considering that most traders have not returned from their Thanksgiving Day holidays, we fear that oil prices will move even lower next week, closing in on $60 a barrel. If traders continue to drive oil prices lower on Monday, USD/CAD should hit a fresh 5-year high.

Technicals

Taking a look at the monthly chart of USD/CAD if the currency pair breaks its current 5 year high of 1.1467 1.15 will serve as near term resistance but 1.1540, the 38.2% Fibonacci retracement of the 2007 to 2009 rally will be the key level to watch. On the downside, 1.12 remains support for USD/CAD.

EUR/CAD Could Drop to 1.4600

EUR/CAD Could Drop to 1.4600

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Fundamentals

EUR/CAD has been slowly drifting lower as a result of EUR weakness and CAD strength. This past week’s decline stopped right at an important support level that if broken is significant. From a fundamental perspective, it should only be a matter of time before 1.48 gives way in EUR/CAD. The ECB is gearing up to increase stimulus next month and we expect euro to slowly drift lower ahead of the meeting. Friday’s weaker German IFO report will only make the central bank’s decision easier. One strong possibility is that the ECB will drop its deposit rate to negative levels and the last time this was done by a central (Denmark and Sweden), it coincided with a 3 to 4% decline in the currency. So while investors have priced in easing, there’s still scope for additional euro weakness. The Canadian dollar on the other hand has been surprisingly resilient due in part to the latest CPI report. For the first time in 2 years, on an annualized basis CPI growth hit the central bank’s 2% target, up from 1.5%. The acceleration in inflation was driven by higher energy prices and while Bank of Canada Governor Poloz said he will dismiss the increase as transitory, faster price growth will make it more difficult for the central bank to justify easing even though retail sales and labor market conditions have weakened significantly. The Canadian dollar also received support from the recovery in oil prices and if the upcoming GDP and current account reports surprise to the upside or oil extends higher, it could accelerate the gains in CAD, taking EUR/CAD lower.

Technicals

Taking a look at the daily chart of EUR/CAD, the currency pair has just broken below the 50% Fibonacci retracement of the massive 2008 to 2012 decline. While this level is significant, if EUR/CAD also clears its Jan 20th swing low at 1.4788, then there is no support for the currency pair until 1.4600. Resistance is up at 1.50 so EUR/CAD would need to rise back above this level to negate the downtrend. There is also a fairly clear head and shoulders pattern that point to further losses for EUR/CAD