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.

Will AUD Extend Losses on RBA?

Will AUD Extend Losses on RBA?

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Will AUD Extend Losses on RBA?

Tonight is a busy one in Australia with retail sales, the trade balance and a Reserve Bank rate decision on the calendar. The latest consolidation in the Australian dollar reflects the market’s hope that the RBA will remain optimistic. Data hasn’t been terrible as evidenced by last night’s economic reports. Service sector activity expanded at its fastest pace in 6 months, inflation ticked up according to the Melbourne Institute Inflation index and job advertisements increased a whooping 6.2% at the start of the year, which is the largest one-month rise since 2010. All of these reports along with the improvements seen in the table below suggest that a 2018 rate hike remains in play but the currency is strong (up 4.5% since the last meeting) and the RBA may not want to drive it higher by talking about tightening just quite yet. Nonetheless, the Australian economy continued its recovery since their last meeting and China is performing better than expected. If the RBA talks rate hikes or emphasizes the upside risks to growth and inflation, AUD/USD will bounce back to .7980-.8000. However if they express greater concerns about the level of currency and its impact on the economy, AUD/USD could slip down to .7850.

Technically, AUD/USD is in a downtrend but 79 cents is a former resistance turned support level (from Oct 13 high). If it drops back below 79 cents, the next stop should be 7850, the 23.6% Fib retracement of the 2011 to 2016 decline. On the upside, if 79 cents hold, the 20-day SMA just under 80 cents could cap gains.

NZD/USD – More Losses Likely

NZD/USD – More Losses Likely

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NZD/USD – More Losses Likely

The biggest loser of the week was the New Zealand Dollar, which continued to feel the sting of the Reserve Bank’s decision to provide an update on the economy on July 21st. The last RBNZ meeting was in June and the next meeting will be in August but the central bank’s unusual decision to provide an economic update makes us worried that they may have concerns about the economy. There’s no question that the New Zealand dollar is strong and the central bank does not want to see it rise further over the next month especially since low inflation is a problem according to RBNZ Assistant Governor McDermott who spoke this week. At the same time, house prices are too high in New Zealand, which keeps the central bank’s hands bounded for the time being. New Zealand consumer prices and service sector PMI are scheduled for release on Sunday – two pieces of data that could have a meaningful impact on the currency.

Technically support for NZD/USD is at 0.7080. If this level is broken, the next stop should be 0.7000. If NZD/USD holds 0.7300 cents, near term resistance is at 0.7200 with more significant resistance at 0.7300.

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.

USD/JPY – More Losses Ahead

USD/JPY – More Losses Ahead

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USD/JPY – More Losses Ahead

After a relatively shallow 3 day rally, USD/JPY resumed its slide and we believe more losses are ahead. Fundamentally, this week’s U.S. economic reports have been mostly weaker. Between the surprise drop in retail sales, tepid CPI growth, contraction in industrial production and deterioration in consumer sentiment, the Federal Reserve has zero reasons to raise interest rates in April OR June. The only way that a rate hike would occur in June would be if retail sales rose 0.5% or more in each of the next 2 months AND wage growth accelerates AND inflation rises. But before investors even start considering tightening in June, they will likely need to contend with a dovish April FOMC statement that addresses the recent deterioration in the U.S. economy. So we expect the dollar to extend its slide in the coming days with USD/JPY looking particularly vulnerable after the recent earthquakes in Southern Japan.

Technically, USD/JPY has fallen back below its first standard deviation Bollinger Band which is a sign of the downtrend resuming. Resistance is at the psychologically significant 110 level and as long as USD/JPY remains below this level, a test of the April lows near 107.65 is likely.

GBP/USD – Losses Should be Limited

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GBP/USD – Losses Should be Limited

It has been a tough week for GBP/USD. After rejecting 1.55 sterling reversed course to trade sharply lower against the greenback. The decline was driven by the combination of U.S. dollar strength and the belief that easier monetary policy in China and the Eurozone will cause the Bank of England to delay tightening. However the BoE was never expected to raise interest rates in 2015 and at the earliest we’ll see a rate hike in the first half of next year. So what should matter the most to the pound is U.K. data. Yesterday’s retail sales number was hot. This was the strongest month for spending in 2 years, setting a sound foundation for next week’s UK GDP report. Retail sales is the most important contributor to growth. While the dollar is bid today we believe it will trade lower ahead of and after FOMC. The uncertainty in Fed policy should lead to profit taking on long dollar trades and with zero chance of a rate hike, the FOMC statement will probably disappoint.

Technically, lower highs and lower lows is bearish for GBP/USD and the currency pair is trading slightly under the July low of 1.5330. While today’s move doesn’t constitute a clean break, we could see a brief dip below 1.5300. However GBPUSD should find support above 1.52, and the 23.6% Fibonacci retracement of the 2014 to 2015 decline. If GBP/USD turns around, resistance is back up at 1.55

EUR/GBP In Play, Beware of Losses

EUR/GBP In Play, Beware of Losses

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Two of the most important event risks for EUR and GBP this month are happening on the same day, within hours of each other. U.K. retail sales will be released first during the early European trading session and ECB President Mario Draghi’s press conference follows shortly after the North American open. The ECB is not expected to change monetary policy so the most important part of tomorrow’s ECB meting will be Draghi’s presser. Starting with the ECB, today’s relatively tight range in EUR/USD suggests that investors are not positioned for dovishness even though data and rhetoric from other ECB members suggests that the central bank is warming up to the idea of more QE. If Super Mario suggests that he is willing to become Santa Mario this December, we could see sharp losses in EUR/GBP. Of course the initial move in EUR/GBP would be determined by the earlier retail sales report. Although sterling traded lower on Wednesday, the recent increase in wage growth and rise in the BRC retail sales monitor points to the greater possibility of a stronger number. We could be wrong and ECB member Draghi could be less dovish but the odds certainly favor a return to losses for EUR/GBP in the next 24 hours.

Technically, resistance in EUR/GBP is at the October high of 75 cents and while the bottom of the triangle pattern is at 0.7350, the more significant support is at 73 cents.

Expect Further Losses in AUD/NZD

Expect Further Losses in AUD/NZD

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Fundamentals

The Australian dollar has now weakened against the New Zealand dollar for the sixth consecutive trading session and we believe that further losses are likely. The RBA minutes revealed more uncertainty in the outlook for the Australian economy, which contrasts sharply with the RBNZ’s confidence in the momentum of New Zealand’s economy. According to the minutes, it is becoming “difficult to judge the extent to which (low interest rates) would offset the expected substantial decline in mining investment and the effect of planned fiscal consolidation.” This uncertainty is going to be bearish for AUD because it reflects increased downside risks. Meanwhile for the first time in 4 months, dairy prices finished higher at the global dairy trade auction. While it is too early declare this a bottom, the stabilization in prices is great news for the New Zealand dollar. Current account numbers are scheduled for release this evening and the deficit is expected to have returned to surplus in the first quarter, validating the RBNZ’s hawkish monetary policy bias. From both a short and medium perspective, we expect further losses in AUD/NZD.

Technicals

Taking a look at the daily chart of AUD/NZD, the latest decline has taken the currency pair below the 38.2% Fibonacci retracement of the January to June rally. The next level of support is at 1.0767 and if this level along with the swing low of 1.0750 is broken, there is no support until 1.07. If AUD/NZD rallies break back above 1.0835, there is a chance of a stronger recovery up to the February high of 1.0945.

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.

Will AUD/JPY Extend its Losses?

Will AUD/JPY Extend its Losses?

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Fundamentals

AUD/JPY is vulnerable to further losses in the new trading week if Australian and Chinese data surprises to the downside. On Sunday, we have service sector data from Australia and China along with the final HSBC Chinese Manufacturing PMI index scheduled for release. Recent economic reports from Australia have been uneven while Chinese economic reports have been mostly disappointing. In the front of the week, the health and outlook of both countries will be focus because in addition to these reports, the RBA also has a monetary policy meeting and China convenes for their annual National People’s Congress on Wednesday. At this meeting, the Premier announces the country’s 2014 growth targets. The Yen is not in play but USD/JPY will be affected by the U.S. personal income, spending and manufacturing ISM reports due on Monday. As a result, we could see some interesting moves in AUD/JPY.

Technicals

Friday marked the fourth consecutive day of losses for AUD/JPY. From a technical perspective, AUD/JPY is closing in on the first standard deviation Bollinger Band which hovers right below this week’s low. This area could be a near term support level for AUD/JPY but if it is broken, then the February low of 88.25 is support. If AUD/JPY recovers – 92, an area where the 50 and 200-day SMA converge should be resistance.