EUR/AUD Potential Top?

EUR/AUD Potential Top?

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EUR/AUD Potential Top?

There’s a potential top forming in EUR/AUD that could be confirmed by tonight’s Reserve Bank of Australia monetary policy announcement. The RBA is not expected to change interest rates but if they wanted to, they acknowledge the recent improvements in Australian data which would be exceedingly positive for the currency. Last night we learned that manufacturing activity accelerated and last month we saw improvements in the labor market, inflation and business conditions. The RBA is skeptical of the strength in the labor market (they think the data is volatile) but there’s no question that they have less to worry about in April compared to March. The last time the RBA met they expressed caution about the economy and the labor market but part of those concerns should be alleviated by recent reports. So if the central bank were to change their views it would be to include a tinge of optimism. The euro on the other hand doesn’t have much going on Tuesday. Emmanuel Macron is a shoe in at this stage to be the next French President so the uncertainty is removed which allows EURO traders to focus on the underlying performance of the region’s economy.

Technically, the daily charts clearly show a reversal in process in EUR/AUD. The recent rally stopped short of the 38.2% Fibonacci retracement of the 2012 to 2015 rally and we now expect the currency pair to make a run for the 200-day SMA at 1.4350.

Potential Top in AUD/USD? Not Yet.

Potential Top in AUD/USD? Not Yet.

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Potential Top in AUD/USD? Not Yet.

The main focus tonight will be on the Australian dollar, which experienced its largest decline in more than a week. Softer retail sales numbers are to blame even though they were offset by a rise in job ads and building approvals. Aside from the trade balance and PMI services report, the Reserve Bank delivers its latest monetary policy decision this evening. No one expects the RBA to cut interest rates but there’s uncertainty around their comfort with recent moves in the currency. In the past, the RBA has said they prefer to see AUD/USD trading closer to 65 cents and has described it as overvalued near current levels but more recently we haven’t heard any specific concerns. Based on the table below, there’s been slightly more improvement than deterioration in Australian’s economy since the last monetary policy meeting with notable upticks in Australian and Chinese manufacturing activity that signal limited damage from a strong AUD. If the RBA makes no specific mention of wanting to see the Australian dollar lower, AUD will most likely recover its losses but if they express renewed concern about currency fluctuations, it could mark a top for the high flying currency.

Technically the uptrend in AUD/USD remains intact as long as the currency pair holds above 74 cents. However a drop below 76 opens the door for a smooth slide to 75 cents. If AUD/USD holds 76 cents, then a retest of the 9 month high of 0.7722 is likely.

USD/CAD – Potential Failure at 1.20

USD/CAD – Potential Failure at 1.20

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USD/CAD – Potential Failure at 1.20

Taking a look at the monthly chart of USD/CAD the currency pair has obviously had a very nice run. The 1.20 level is a psychologically significant level for the pair and one that was a former support turned resistance in 2005/2006. If you take a look at the daily charts you will also see that in 2008 when USD/CAD first made a run for 1.20 it’s rally fizzled at that level. We think the same will occur this time around especially since oil is oversold and approaching its own trendline support. While 1.20 is a psychologically significant level, 1.2120 is a key Fib level that should contain gains. This explains why our stop on the USD/CAD Big Short Trade is above this resistance. Should the currency pair pullback, there is no support until 1.18.

GBP/CHF – Potential for Upside Break

GBP/CHF – Potential for Upside Break

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Fundamentals

Despite the weakness in U.K. data, policymakers are rallying behind the idea of an earlier rate rise and even with the disappointments the U.K. has an economic lead against other major economies. Next week the PMI reports are scheduled for release and if the indicators stabilize or improve and they eventually will, it could be just what sterling traders need to see to reinitiate their long trades. At the same time, the Swiss Franc is getting dangerously close to intervention territory. The Swiss National Bank is committed to maintaining a minimum exchange rate of 1.20 in EUR/CHF and on Monday, the currency pair dropped to a 20 month low of 1.2072. We haven’t heard a peep from the SNB but if the Franc continues to rise in value, at minimum we expect verbal intervention. So with the upside in the Franc limited and sterling poised for a stronger recovery, we believe that GBP/CHF will break above 1.52 and head towards it monthly highs.

Technicals

Technically, there is a small ascending triangle forming in the currency pair that reinforces its upward bias and the importance of a 1.52 break. If this level clears, the next level of resistance is above 1.53. On the downside, the break below 1.51 would expose the currency pair for a move down to 1.50.

GBP/JPY – Potential Drop to 161.30

GBP/JPY – Potential Drop to 161.30

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Fundamentals

In the past 24 hours, GBP/JPY experienced the steepest losses. Due to a more than 0.75% decline in the GBP/USD and 0.9% decline in USD/JPY, GBP/JPY dropped approximately 1.75% to its lowest level since November. The pressure created by the weaker than expected manufacturing data from U.S. and U.K. was exacerbated by risk aversion. When the markets open in Asia and investors in that part of the world see that U.S. stocks fell more than 2%, we expect further weakness in GBP/JPY. Although there were pockets of strength in both the U.S. and U.K. manufacturing reports, GBP/JPY will have a very difficult time recovering without a turnaround in risk appetite. Unfortunately there’s no major U.K. or U.S. economic reports scheduled for release tomorrow that could help. As a result, we expect further losses in GBP/JPY and if this week’s data releases continue to miss their mark, the currency pair could drop below 161 and head towards 160.

Technicals

Taking a look at the weekly chart of GBP/JPY, there is some minor support at the November low of 163.69 but the more significant support level is at 161.30, the 23.6% Fibonacci retracement of the September 2011 to December 2013 rally. As long as GBP/JPY holds below 166, a move towards this level is likely. If it breaks above this former support turned resistance level, we could see a stronger recovery to 168.