Is EURJPY the True  FOMC Play?

Is EURJPY the True FOMC Play?

Chart Of The Day

For the past few weeks, EURJPY has been contained to a 132.00-133.00 zone as the push/pull tug of war between bulls and bears provided no clear winner. The market essentially remains in a “show me” mode as traders await the FOMC rate decision and more importantly its guidance about the growth and inflation in 2018.

While the chance of a rate hike tomorrow is 100%, the much more important question is whether the Fed has now moved unambiguously into a tightening mode as it tries to normalize policy. If the statement tomorrow looks past the weak inflation numbers and instead upgrades the growth forecast the dollar is likely to rally hard against the yen, but may not necessarily gain much ground against the euro as markets will assume that Fed’s upbeat outlook will spill over into global demand and will, therefore, force the ECB to become more hawkish as well. That’s why EURJPY may be the best yen cross for a bullish FOMC day especially if it breaks above the 135.00 resistance level clearing the way for a strong rally into the year-end.

USDCAD – A Reversal in Play?

USDCAD – A Reversal in Play?

Chart Of The Day

After several strong weeks of rallies that coincided with the rebound in oil USDCAD saw its first major reversal today as the pair popped off the 1.3400 figure to rally towards the key 1.3500 level. The move higher was no doubt driven by the collapse in crude. After OPEC agreed to another 9 months of production cuts, oil slipped below the $50/bbl level and traded as low as $48/bbl in a classic sell the news dynamic.

The reaction in crude does not bode well for loonie which may see more weakness in days ahead especially if oil decides to test the $47/bbl before the end of the week. Tomorrow US data may also play a part especially if inflation reports print hotter than expected. Low inflation has been the primary concern of US policy makers with respect to rates and any upside surprise could unleash a dollar rally that could take USDCAD towards the 1.3550 level.

GBP/AUD – Sell Signal in Play?

GBP/AUD – Sell Signal in Play?

Chart Of The Day

GBP/AUD posted a major signal on the charts today as profit taking came into cable while Aussie found support at the 7600 figure boosted by firming commodity prices. With Article 50 to be triggered tomorrow, the pound is feeling the full weight of the event as traders begin to pare their longs. Although Brexit has been well anticipated for months, the reality of the situation is beginning to sink in. There is plenty of uncertainty regarding how UK will be able to extract itself from the European Union which could translate into further selling pressure.

Meanwhile, in Australia, the better tone in commodity prices is supporting the pair which has only experienced a shallow correction off its recent highs. Another positive day could propel the unit towards a retest of the recent 7700 highs which could push GBPAUD even lower.

Technically the pair has carved out a major bearish engulfing candle at the 1.6500 figure and look ready to target support at the 1.6000 level as shorts press their trades.

GBP/USD In Play – Watch the Levels

GBP/USD In Play – Watch the Levels

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GBP/USD In Play – Watch the Levels

The focus will be on the British pound on Thursday for a number of reasons. There is a Bank of England monetary policy announcement on the calendar along with the Quarterly Inflation Report and a speech from Governor Carney. Additionally Prime Minister May will be publishing a White Paper containing her Brexit plan. We are not sure exactly what time her White Paper will be released but the monetary policy announcement and Quarterly report could be more positive than negative for sterling as the central bank is widely expected to increase its inflation forecast. Growth and inflation has been stronger than expected but the challenge for Carney is assessing how this could change in light of the government’s plans for a hard Brexit. The last time the BoE met, Carney said rates could go up or down in the months ahead. Brexit is quickly becoming reality as members of Parliament passed a bill today backing the trigger of Article 50. In May’s report tomorrow, she could outline a timeline for Britain’s exit from the European Union.

Its going to be a very volatile day for GBP/USD and the levels to watch will be 1.2775 on the upside and 1.2475 on the downside – if either of these levels give, we could see a much stronger move in the currency.

GBP/CHF in Play

GBP/CHF in Play

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GBP/CHF in Play

We have 2 monetary policy announcements on Thursday – one from the Swiss National Bank and another from the Bank of England. Of the two, the BoE rate decision will be more market moving and likely to determine the general path of GBP/CHF but both event risks are worth watching. Starting with the BoE, there’s been broad based improvement in the U.K. economy since their last meeting so chances are they will note the momentum in the economy. The door to additional will remain open of course as the central bank waits to see how the economy/markets respond to Article 50. No changes are expected from the Swiss National Bank but mixed data means they are likely to maintain an accommodative bias.

Technically, the recent decline in GBP/CHF found support at the 20-day / 50-day SMA cross. The fundamentals tell us this should hold and GBPCHF should make its way back towards 1.30. However if Wednesday’s low of 1.28 is taken out, we could see a steeper slide down to 1.27 and possibly even 1.26.

AUD/JPY in Play

AUD/JPY in Play

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AUD/JPY in Play

AUD/JPY is in play tonight with the Reserve Bank of Australia monetary policy meeting and Japanese Prime Minister Abe’s fiscal stimulus announcement on the docket. We’re not sure which will come first since there’s no set time for Abe’s announcement. The majority of economists surveyed expect the RBA to cut interest rates by 25bp but we feel that a rate cut is not a done deal. The last time we heard from the RBA they sounded open to the idea of easing if data supports it but since the last meeting in July, manufacturing activity accelerated, consumer prices increased, full time job growth rebounded, business confidence improved and the participation rate is up as shown in the table below. Granted consumer confidence is down and the unemployment rate ticked up, we’re not sure if this is enough for the RBA to pull the trigger on easing in August especially after today’s stronger than expected PMI manufacturing report. At the same time, Prime Minister Abe could disappoint. If his fiscal stimulus package is greater than 28 trillion yen or the supplementary budget receives significant allocation the yen will fall and the Nikkei will rise. However widespread reports have indicated that real spending will be a quarter of the headline number with a fraction allocated to the supplemental budget. After the big disappointment from the Bank of Japan last week investors have become extremely skeptical of the government’s ability and will to bolster the economy. If Abe disappoints, we cannot only expect USD/JPY to make a run for 100 but AUD/JPY to fall as well. Between these event risks, the greater market mover should be Japan.

On a technical basis, AUD/JPY looks terrible. Having broken below the 20 and 50-day SMA, the next stop for AUD/JPY appears to be 75.25, the 38.2% Fibonacci retracement of the 2007 to 2008 decline. There’s some support at 77 cents but once that is broken, look out below! However if the RBA holds and Abe surprises in a very big way, a break above 78.50 would completely alter the technical picture and set the stage for a stronger AUD/JPY rally.

EUR/USD in Play – Chart and Levels

EUR/USD in Play – Chart and Levels

Chart Of The Day

EUR/USD in Play – Chart and Levels

Thursday’s ECB meeting is one of the most important event risks this week. EURO has been biding its time trading between 1.1235 and 1.1465 pre-ECB. Which end of this range breaks hinges upon Mario Draghi’s tone. If he’s concerned about the strong euro and talks about the possibility of more stimulus, then 1.1235 could give. If he simply says they need more time to see the effects of stimulus and points to recent data improvements as a sign of their easing measures working, euro could make a run for 1.1400. From a data perspective, there’s less for the central bank to worry about in April vs. March when there was significantly more deterioration than improvement in the economy. So the question now is whether the 3 to 6 cent rise (depending where you’re measuring from) in EURO since March rings alarm bells for the central bank.

Technically, the EUR/USD is trading right around its 50-day SMA. A break of the 38.2% Fibonacci retracement would be needed for a near term top and pullback to 1.1150. Otherwise the uptrend remains intact. Resistance is at the April high near 1.1465.

EUR/AUD Reversal in Play

EUR/AUD Reversal in Play

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EUR/AUD Reversal in Play

The greatest risk for the euro this week will be tomorrow’s ECB minutes and the speech by Mario Draghi. The central bank unleashed a bold round of easing at their last monetary policy meeting and the minutes could outline all of the reasons why they felt that it was necessary. At the same time, euro has risen 6 cents since that meeting and Draghi may want to use tomorrow’s speech as an opportunity to talk down the currency by reminding investors that they stand ready to add more stimulus if needed. For the time being euro is holding onto its gains thanks in part to the smaller decline in German industrial production but against the AUD it is already struggling. The Australian dollar traded higher today on the back of the rise in stocks and stronger Chinese data. Service activity accelerated in the month of March, driving the PMI composite index back into expansionary territory. Between the manufacturing and service sector report, there are growing signs of stabilization in China’s economy and that is positive for Australia economy. On a fundamental basis, we believe that the latest turn in EUR/AUD marks a near term top for the pair.

Technically this week’s rally in EUR/AUD took the pair right to the convergence of the 50 and 100-day SMA. It has since pulled back from this level. The next stop should be 1.4800. If EUR/AUD breaks above resistance at 1.5165, there’s a more significant barrier to break at 1.5250, where the 200-day SMA and 38.2% Fib retracement of 2008 to 2012 move converge.

EUR/GBP In Play, Beware of Losses

EUR/GBP In Play, Beware of Losses

Chart Of The Day

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.

USD/JPY – Where are the Next Levels in Play?

USD/JPY – Where are the Next Levels in Play?

Chart Of The Day

USD/JPY has been stuck in a narrow range for more than a week as the market tries to assess the probability of September Fed rate hike. Tomorrow’s minutes may give us a clue as to which way the FOMC is leaning and that mat finally nudge the pair into one direction or another.

Although its doubtful that Fed officials will provide a crystal clear message, USD/JPY could pop through the 125.00 figure on any markedly hawkish commentary but it would still need to take out the recent 125.50 highs in order to establish a fresh uptrend.

The downside meanwhile is contained by the 122.50-123.00 level, although a break there would be much more serious sign of decline and could open a test of the 120.00 long term support, indicative of the notion that Fed may not hike at all in 2015.

EUR/AUD – The Pair in Play

EUR/AUD – The Pair in Play

Chart Of The Day

Fundamentals

Tonight promises to be a pivotal night for both Aussie and euro as the two currencies face major economic event risk. The Aussie has been battered relentlessly by capital flows into the greenback as speculators try to position for the upcoming dollar rate hike cycle. However it has also been sold hard on the assumption that Chinese demand will slow materially. That’s why tonights HSBC PMI numbers loom large on the horizon. If the reports dips below the 50 boom/bust level it could confirm the bear’s worst fears and send Aussie to fresh lows. Meanwhile in Europe the market will get a look a the most recent measure of economic activity in the EZ when the flash PMI readings are released. The data could be crucial to the policy cosiderations of the ECB if it comes in weaker then expected as calls for QE will rise. On the other hand if there is some improvement the euro could see a sort covering rally as relief sweeps the markets. Either way EUR/AUD could prove to be volatile as it reacts to each event.

Technicals

Technically EUR/AUD faces resistance at the 1.4600 level but a break there could open a run all the way to 1.4800. On the other hand only a break below 1.4200 puts the negative bias back in play as for the time being the pair remains in the Bollinger band buy zone.