EUR/USD Should Fall to 1 Month Lows

EUR/USD Should Fall to 1 Month Lows

Chart Of The Day

EUR/USD Should Fall to 1 Month Lows

With the way things are going in Greece, the EUR/USD should not only fall to 1 month lows but even reach 1.08. By now it should surprise no one that at the time of publication we are STILL waiting on Greece. The deadline for the Greek Parliament’s vote on the reform proposals was supposed to be midnight and now there’s talk that it may not happen until tomorrow. We have long said that the risk of a no vote is a realistic one and even if they accept the proposals, it only allows new debt negotiations to begin. The debt negotiations could still turn sour especially after the IMF indicated that they cannot participate in a new bailout without debt relief for Greece – a point that the Germans have resisted aggressively. So the talks could break down again and for this reason we remain bearish euros. Tomorrow’s Eurozone trade and consumer price reports will take a backseat to the ECB meeting and Greek Parliament vote. If the Parliament votes yes, we expect EUR/USD to rally at which point we will sell into the rally looking for a pullback as the debt negotiations resume. With Europe still struggling to contain the Greek crisis, we expect cautious and dovish comments from the ECB.

Technically, there is near term support for EUR/USD at the July low of 1.0915 but the more significant support level is the May low of 1.0820. As long as the currency pair holds below the 50-da7 SMA at 1.1160 or 1.12, the downtrend remains intact.

USD/CAD Headed for Fresh 1 Month Lows

USD/CAD Headed for Fresh 1 Month Lows

Chart Of The Day

USD/CAD Headed for Fresh 1 Month Lows

After today’s Bank of Canada monetary policy announcement, USD/CAD is headed for fresh 1 month lows. Investors bought Canadian dollars aggressively after the Bank of Canada left interest rates unchanged. While back-to-back rate cuts was unlikely, most investors expected the BoC to maintain a dovish bias and leave the door open to additional easing. However, the central bank described inflation risks as more balance, called the current degree of stimulus appropriate and said that crude prices and Q4 growth are close to expectations. These comments indicate that the central bank has shifted to neutral and is no longer looking to lower interest rates. It is for this reason and not just their decision to keep rates steady today that has driven the Canadian dollar sharply higher. The rebound in oil prices also helped lift the currency. While USD/CAD has yet to break out of its 1.2350 to 1.2700 range, we believe that it should only be a matter time before support gives way.

Taking a look at the daily chart of USD/CAD, there is a clear descending triangle. A break below 1.2350 support would open the door for a move down to 1.2120, the 23.6% Fibonacci retracement of the 2007 to 2009 rally. If 1.2350 holds, the resistance is near 1.26.

BK Big Trades – Stopped out of NZD/CHF

Swing

BK Big Trades – Stopped out of NZD/CHF

NZD/CHF Big Trade – The Ultimate Carry Trade

The Trade:

NZD/CHF


Buy NZD/CHF at market (now 0.6715)

Stop for whole position at 0.6500

Targeting move to and above 70 cents

Risk on our BIG TRADES is large, so make sure your position is small.

We will manage the take profit dynamically and send out alerts on when to take profit and/or move your stop.

—–

We Like the New Zealand Dollar

A few weeks ago, we bought ourselves some NZD/CAD on the premise that dairy prices would bottom before oil. Today, oil prices are down 4% while dairy prices settled at higher levels for the third auction in a row. We traded the currency pair, taken money off the table and are now shifting our focus to the ultimate carry trade – NZD/CHF.

Lets start with the New Zealand dollar. NZD fell sharply today on the back of a more modest increase in dairy prices. While it would have been nice to see dairy prices rise by a larger amount, the fact that prices increased at the last 3 auctions is GREAT news for New Zealand. Earlier this month, dairy prices rose 3.6% the biggest increase in 12 months – matching that pace would have been unrealistic. Considering that dairy is New Zealand’s biggest export earner, accounting for approximately 30% by value, this increase will bolster the confidence of the RBNZ who meets next week.

The last time we heard from the central bank, they were surprisingly comfortable with the current level of monetary policy and while they felt that the New Zealand dollar value was unjustified and unsustainable, they also believed that further policy adjustment will be necessary after a period of assessment. In other words, they are still looking to raise interest rates – eventually. Their hawkish monetary policy bias and 3.5% interest rate will prevent NZD from falling much further and instead lead to a recovery in the very near future especially if the ECB rolls out Quantitative Easing, forcing investors to look elsewhere for yield.

NZD/CHF – The Ultimate Carry Trade

Buying the New Zealand dollar against the Swiss Franc is the ultimate carry trade. In addition to abandoning their 1.20 peg, the Swiss National Bank also deepened the negative rate environment by cutting rates 50 basis points to negative 0.75%. Last week, the SNB made the conscious decision to shift from exchange rate to interest rate driven monetary policy. If the recent appreciation in the Franc poses a major threat to the Swiss economy, they could lower interest rates further – increasing the attractiveness of selling Francs. Even if they don’t and other central banks lower rates, NZD will become more attractive as a result. We also believe that most if not all of the long EUR/CHF trades have been flushed out with all stops already triggered.

Chart – NZD/CHF Headed for 70 cents.

We think NZD/CAD is eventually headed for 0.70 or higher and our stop of 0.6500 is well below pre-SNB levels. Here’s the trade:

NZD/CHF

Buy NZD/CHF at market (now 0.6715)

Stop for whole position at 0.6500

Risk on our BIG TRADES is large, so make sure your position is small.

We will manage the take profit dynamically and send out alerts on when to take profit and/or move your stop.

AUD/JPY Headed for 1 Month Lows?

AUD/JPY Headed for 1 Month Lows?

Chart Of The Day

Fundamentals

Despite the lack of Australian or U.S. data, the biggest mover today was AUD/JPY, which declined approximately 0.5%. The warning that Australia’s massive budget deficit could trigger a downgrade by a lead analyst at S&P put pressure on the currency. The decline in USD/JPY, which hit its lowest level in 3 months today contributed to the sell-off in AUD. While we think S&P is far away from formally downgrading Australia, tonight’s RBA minutes puts AUD in focus. We are not looking for any surprises in tonight’s release because the monetary policy statement was virtually unchanged from the previous meeting and was a nonevent for the Australian dollar when it was released. At the time, nothing new was said by the central bank who maintained a neutral monetary policy stance and called the value of currency high by historical standards, a comment that investors interpreted to represent only mild concern about the level of the currency. However if the central bank is even slightly less optimistic, it could be enough to accelerate the decline in AUD/JPY.

Technicals

Taking a look at the daily chart of AUD/JPY, the currency pair is closing in on its 1 month low of 94.25. If this level is broken, there is no major support until the 38.2% Fib retracement of the 2011 to 2013 rally near 92.65. If AUD/JPY holds 94.25 and rises back above 95.35, the next stop could be its May high of 96.

AUD/CAD Hits 11 Month Highs

AUD/CAD Hits 11 Month Highs

Chart Of The Day

Fundamentals

The Australian and Canadian dollars are commodity currencies that have been performing very differently in recent weeks. In fact, the divergence has been so significant that AUD climbed to its strongest level versus the CAD in 11 months. Both countries reported solid employment reports in March but the RBA’s neutral monetary policy bias and higher yield makes AUD more attractive than the CAD. The Bank of Canada meets next week and they are likely to remind us that they are worried about the economy’s outlook because of underperformance in exports and business investment. Meanwhile the RBA statement, which is due on Tuesday will most likely highlight the Reserve Bank’s comfort with monetary policy. As long as neither central bank shifts their stance, this difference in sentiment should drive AUD/CAD higher.

Technicals

We have to turn to the weekly chart to find resistance in AUD/CAD. This past week’s rally took the currency pair right to its March high of 1.0315. The next resistance above this level is 1.04 and beyond that there is no major resistance until 1.06. On the downside, support is at 1.0150.