EURJPY Breakout or Fakeout?

EURJPY Breakout or Fakeout?

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EURJPY Breakout or Fakeout?

EUR/JPY registered gains for the sixth consecutive trading day as EUR/USD and USD/JPY powered higher. Today’s move was driven by the combination of stronger Eurozone and U.S. data. From Europe, Germany reported a service PMI revision of 50.9 beating the 50.6 expected. Composite PMI revisions also beat estimates, coming in at 52.8 vs. 52.7 expected. Eurozone retail sales also showed a smaller than expected decline, coming at -0.1% vs. -0.3% expected. Eurozone PMI Services PMI Revision data also beat estimates, reporting 52.2 vs. 52.1 expected. From the U.S., ADP and trade balance missed expectations but the only thing the market cared about was non-manufacturing ISM which hit its highest level in 11 months. The employment component of that report reached its highest since October 2015, paving the way for a solid non-farm payrolls report on Friday. So its no wonder that EUR/JPY is doing well and from a fundamental basis, the break above the 100-day SMA may be real.

On a technical basis the 100-day SMA in EUR/JPY sits at 116.03 and the currency pair ended the day right around this key level. It is too early to tell whether this is a clean break. For that to happen, we would need EUR/JPY to trade above the September high of 116.36. However the chance of today’s move becoming a real breakout is greater than a fakeout because the pair has also broken above the 61.8% Fib retracement of the 2012 to 2014 rally. But while fundamentals signal further gains, fading the rally with a stop just above the September high could be a low risk trade. Targets would need to be nimble since fading the rally would be counter to fundamentals. Another way to look at this is if EUR/JPY retraces back to 115.55/60,it may be worthy buy for another run above 116.

USD/CAD – Breakout or Fakeout?

USD/CAD – Breakout or Fakeout?

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USD/CAD – Breakout or Fakeout?

For the first time in the last 12 trading days USD/CAD closed above 1.3000. Oil prices help to drag the Loonie lower as hopes of a production freeze fade. Iran stated that it would only cooperate with a production freeze if other oil exporters recognized Iran’s right to regain market share. Iraqi Prime Minister Haidar Al-Abadi reached an agreement with KRG Premier Nechirvan Barzani during a meeting in Baghdad to start “technical talks” between the federal oil ministry and the KRG Ministry of Natural Resources. According to a report from Bloomberg, Saad Al-Hadithi, spokesman for Al-Abadi, said that Iraq’s prime minister stressed the necessity to boost oil output. Oil remains an important driver for CAD but Canada also reports its current account balance numbers tomorrow followed by GDP numbers later this week -- we expect these reports to be weaker, paving the way for a further rally in USD/CAD.

Technically, if USD/CAD can hold above Monday’s low of 1.2975, then a major breakout is in place. The latest move has taken the currency pair above the 20 and 50-day SMA along with the 23.6% Fibonacci retracement of this year’s decline. There’s no major resistance until 1.3140, where we have some spike highs. If USD/CAD drops below 1.2975 however, it may slip as low as 1.29.

Forex Trading Tip – #1 Driver of FX Flows this Week

forex blog Forex News Kathy Lien

Between an emergency Fed meeting, the Bank of England and Bank of Canada monetary policy announcements, US retail sales, Chinese GDP, Australian employment, UK consumer prices and a host of other tier 1 event risks, there are no shortages of events that could drive big moves in currencies.

However, the #1 driver of FX flows this week will be risk appetite. That could be driven by the swings in commodity prices, the volatility in equities, Chinese and/or US data. At the end of this week on Sunday there’s a production freeze meeting in Doha and we are already beginning to see headlines about some producers refusing to cut production. One of the main reasons why commodity prices are performing so well this morning is because crude oil is above $40 a barrel.

Chinese data will also be important. Consumer prices were released last night and the stronger report propelled AUD/USD above 76 cents. Tuesday evening, Wednesday morning local time Chinese trade numbers are scheduled for release and on Thursday evening / Friday morning, Chinese industrial production, retail sales and Q1 GDP numbers are due. We are beginning to see signs of stabilization in the world’s 2nd largest economy but according to China Premier Li, the downside pressure on the economy remains.

And of course there’s Wednesday’s U.S. retail sales report – the market detests dollars but a blowout report could help to turn things around.

Keep an eye on the VIX:

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AUD/USD – A Fakeout Bounce?

AUD/USD – A Fakeout Bounce?

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Fundamentals

The Aussie staged a strong recovery off the recent multi year lows set over the holiday laden week and raced all the way towards 8500 before running out of gas. However, the sharp rebound may be nothing more that a short covering bounce as the fundamentals against the unit remains substantial. The recent drop in iron ore prices to below $60/ton is likely to have a massive negative impact on the AU economy which receives 1 out of 5 export dollars from that sector. If the slump in commodity prices does not correct soon, the RBA may be forced to consider another rate hike in order to ease the economic pain. Tonight’s meeting ma be key as the RBA could signal a change of posture from its current neutral stance that could bring another round of selling for the Aussie.

Technicals

Looking at the techs the 8400 level remains the key support and a break there could open a run towards 8250 over the next several sessions. Meanwhile only a break above 8650 alleviates the bearish bias in the pair.

AUD/NZD Breakout or Fakeout?

AUD/NZD Breakout or Fakeout?

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Fundamentals

Since the beginning of the month, AUD/NZD has been stuck between a 1.09 and 1.1050 trading range. Over the next 24 hours, the upper bound of this range could be tested if the Reserve Bank of Australia’s monetary policy minutes sound less dovish or if dairy prices continue to fall at tomorrow’s dairy auction. Starting with the RBA minutes, the Reserve bank left their monetary policy statement virtually unchanged earlier this month. However, stronger economic data from China could lead to a bit of optimism and if the RBA minutes sound more positive, it could promote gains in the Australian dollar. Yet barring any big surprises, AUD/NZD should have a smaller reaction to the RBA minutes than New Zealand’s twice a month dairy auction, which has become a big market mover for the currency. NZD/USD fell to 7 week lows after the last auction after prices dropped 8.4%, adding to a decline of 8.9% at the previous auction. Since February dairy prices are down 41%, which is disastrous for the country’s terms of trade, GDP and monetary policy outlook because dairy accounts for approximately a third of New Zealand’s exports by value. Unless we have a big rebound in prices tomorrow, there’s a good chance Fonterra will lower its payout further this year, putting further strain on the economy. Lower dairy prices could be just what AUD/NZD needs to test 1.1050. However whether or not a test of 1.1050 becomes a breakout or a fake-out all depends on the magnitude of tomorrow’s surprises as well as the tone of the RBA Governor Glenn Steven’s speech later this week.

Technicals

Technically there is a potential cup and handle technical pattern forming in AUD/NZD. This bullish pattern indicates that if 1.1050 is broken in a meaningful way, AUD/NZD should soar to 1.12. However if it fails at 1.1050, it could be back to 1.0900 for the currency pair.