EUR/GBP – .8350 in View? (Click to Enlarge)

EUR/GBP – .8350 in View? (Click to Enlarge)

Chart Of The Day

Fundamentals

The recent trade in EuR/GBP has been the battle of the losers as both currencies have given way and the only question facing the market was which one was going to fall further. The euro has come under selling pressure as investors worry about the prospect of further stimulus from ECB due to persistent deflationary pressures. Cable has declined because its G-7 leading economic statistics have slipped a bit from their torrid pace of Q4 of last year. Although UK economy is a clearly doing better than the EZ, the currency market is a relative bet and looking forward if tonight’s UK Services PMI misses its mark, cable could come under renewed selling pressure while euro is likely to remain steady given the decent PPI numbers that will keep ECB policy stationary for now. Therefore EUR/GBP could push higher to 8350.

Technicals

Technically EUR/GBP is now consolidating and basing after a steep selloff with support coming in at 8160 while resistance is at 8350. If the pair can push higher then the next upside level is 8500 while a break below the year’s lows opens a run towards 8000.

EUR/CAD Ready To Crumble? (Click Chart to Enlarge)

EUR/CAD Ready To Crumble? (Click Chart to Enlarge)

Chart Of The Day

Fundamentals

The euro was hammered today on concerns that the disinflationary pressures in the EZ are going to force the ECB to ease further and perhaps even to consider the possibility of negative interest rates at its next meeting this week. With the exception of Germany the EZ continues to remain in funk with growth in the periphery essentially nonexistent. Even in Germany, the regions largest economy, consumer demand remains tepid as Friday’s Retail sales showed. With German Retail sales declining by -2.4% versus 0.2% eyed, the market is concerned that final demand in the region could slow markedly in Q1 of this year. Meanwhile in Canada the economic news may finally show a ray of sunshine. Canadian GDP grew at 2.6% as forecast alleviating fears of a further slowdown and news that the Keystone pipeline may get approved suggests that the country’s energy sector may get a much needed boost. After hitting a high of 1.1200 USD/CAD may be finally ready to correct. All of this suggests that EUR/CAD which just broke below the key 1.5000 level could be headed lower over the next week.

Technicals

Technically, EUR/CAD broke the key 1.5000 level which suggests that the near term bias is now negative. The pair is capped by recent highs above the 1.5300 level and could target 1.4800 as the week proceeds.

A Bottom for AUD/NZD? (Click Chart to Enlarge)

A Bottom for AUD/NZD? (Click Chart to Enlarge)

Chart Of The Day

Fundamentals

Of all the major currencies, the biggest mover today was AUD/NZD. After consolidating for the past 2 weeks, the currency pair surged 1.3%. This was the strongest one-day rally since October and has many traders are wondering whether we are finally seeing a bottom in the pair. Yet what we find interesting about the move is that it is not supported by fundamentals. China reported weaker manufacturing activity in January, which is bearish for Australia while house prices in Australia declined. In contrast, the Reserve Bank of New Zealand’s comments on Wednesday led many economists to believe that the central bank is gearing up for a rate hike in March, which should be positive for the currency. Therefore from a fundamental perspective, AUD/NZD should be trading lower and not higher. However we have to respect the price action. A massive short squeeze lifted AUD while investors are selling NZD despite the prospect of a rate hike. Therefore we would only look to sell AUD/NZD if it drops below 1.06.

Technicals

Technically, today’s rally in AUD/NZD has taken the currency pair to the first standard deviation Bollinger Band, a potential level of resistance. If AUD/NZD breaks above this point, the next resistance will be at 1.0920. On the downside, there is some support at 1.07 but the more significant support is at the 8 year low near 1.05.

NZD/CAD – In Play Ahead of RBNZ (Click Chart to Enlarge)

NZD/CAD – In Play Ahead of RBNZ (Click Chart to Enlarge)

Chart Of The Day

Fundamentals

With a Reserve Bank of New Zealand meeting scheduled for tomorrow, the New Zealand dollar is in play. The RBNZ is not expected to change interest rates but they will be preparing the markets for a rate hike in very near future. Since the last monetary policy meeting, there have been more improvements than deterioration in New Zealand’s economy. Inflation is on the rise, along with manufacturing activity, business confidence and housing. The drop in consumer confidence, job advertisements and service sector activity has been nominal and even though the Chinese and Australian economies have weakened, New Zealand remains buoyant. We expect hawkish comments from the central bank that should drive NZD higher and are watching the currency’s pairs movement against the CAD. There’s a significant contrast between the outlook for Canada and New Zealand. When they last met, Bank of Canada Governor Poloz said he preferred to see a weaker currency. Low inflation and weak growth in Canada means the BoC could consider lowering rates if the economy weakens further. Hawkish comments from the RBNZ should drive NZD/CAD to multiyear highs.

Technicals

Taking a look at the daily chart of NZD/CAD, the currency pair is closing in on a year to date high. Above 0.9284, there is no major resistance in NZD/CAD until its record high of 0.9383. Support is at the big round number of 90 cents. If this level is broken, NZD/CAD could fall as low as 87 cents.