EUR/USD Reversal – Back to 1.1700?

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eurusd1115

EUR/USD staged a sharp intraday reversal today, ending the day at its lows after hitting a 3 week high of 1.1860. This morning’s Eurozone economic reports were better than expected with the region’s trade surplus growing. The dollar is strong despite mixed US data. If the House passes their version of the tax bill tomorrow, we could see a further lift in the greenback. Technically, EUR/USD is very weak and while today’s reversal still leaves the pair above the 50-day SMA, the next stop should be the 100-day SMA near 1.1740.

Ugly Reversal in EUR/USD

Ugly Reversal in EUR/USD

Swing

The Federal Reserve raised interest rates by 25bp today and Fed Chair Janet Yellen’s optimism plus hawkishness caught the market by complete surprise. Traders leaned heavily into short dollar positions after this morning’s weak consumer spending and inflation reports. Economists had been looking for retail sales growth to stagnate but instead they contracted by -0.3%, the largest decline since January 2016. Demand for products outside of auto and gas also fell short of expectations last month. Consumer prices turned negative, driving the year over year inflation rate down to 1.9% from 2.2%. After these reports, investors were sure that the Fed would drop its plans to raise interest rates again this year and we would hear mostly dovish comments from Janet Yellen. Instead the complete opposite happened. The Fed maintained its view for a third hike in 2017 and aside from acknowledging the drop in inflation, which she downplayed by attributing to one off factors, everything Yellen said was hawkish. She put on a brave face, talked up the improvements in the labor market and economy and shared the central bank’s plans to reduce its balance sheet by unwinding asset purchases. The dollar traded sharply higher in response. The Fed also raised its GDP forecasts, lowered its unemployment rate forecast and cut its projection for inflation. We have chosen to sell dollars versus the euro because there’s we believe tomorrow’s Eurozone trade balance report will be weak. Furthermore, GBP, AUD, NZD and CHF are not good options because of the upcoming Australian employment, New Zealand GDP, Bank of England and Swiss National Bank rate decisions.

Technically, today’s price action formed a very ugly reversal candle in EUR/USD that typically results in continuation. The currency pair has also broken below the 23.6% Fib retracement of the 2014 to 2016 sell-off near 1.1230 and is finding itself at the cusp of breaking below the 20-period SMA. We could easily see 1.1167, the June low and possibly 1.1110.

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.

EUR/AUD Reversal in Play

EUR/AUD Reversal in Play

Chart Of The Day

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.

USD/CAD – Is this Reversal Real?

USD/CAD – Is this Reversal Real?

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USD/CAD – Is the Reversal Real?

After rising strongly in the last 2 weeks of September, USD/CAD reversed fast and hard last week. The sell-off in the currency gained traction today and if this week’s Canadian economic reports are weak, we could see USD/CAD test 1.30. The change in trend was driven by a combination of weaker U.S. data and a rebound in oil prices. Canada’s trade balance and IVEY PMI numbers are scheduled for release tomorrow followed by the employment report on Friday. However we believe that USD/CAD will find support at 1.30 because economists are looking for a larger trade deficit and weaker manufacturing activity. Oil prices rebounded in late August but remain very low compared to June and July.

Technically, 1.30 is a psychologically significant support level. There’s no major support from current levels until that point but 1.30 is extremely important. If USD/CAD breaks below 1.2950, the August lows, it should be smooth sailing to 1.2860. On the upside if support is found at 1.30, resistance for USD/CAD becomes 1.31.

USD/CAD Reversal – Are We Worried?

USD/CAD Reversal – Are We Worried?

Chart Of The Day

USD/CAD Reversal – Are We Worried?

On Friday we reinitiated our USD/CAD short position. Our entry level was well off the day’s lows but the intraday recovery in USD/CAD took the currency pair above 1.32. Technically, the two long wicks in USD/CAD are extremely bullish for the currency pair and because of that, some members may be worried about the move. The rally in USD/CAD was driven by 3 main factors – lackluster CPI growth, U.S. dollar strength and the 4.73% decline in crude prices. On both a fundamental and technical basis, we could see further strength in USD/CAD but gains should be limited to the August high of 1.3352. If this move occurs, it would trigger our second entry and provide us with a more favorable average price. However Bank of Canada Governor Poloz is speaking on Monday and if he sounds optimistic (because the Fed did not raise interest rates), it could renew the decline in USD/CAD and we may not even need to worry about a retest of the highs. In the past few days, the currency pair has been extremely volatile and while the U.S. dollar rebounded sharply on Friday, we believe the gains will be limited in the coming week due to noncommittal Fed speak.

Technically, there is quite a bit of resistance right above 1.33 but 1.3352 is the main level to watch. We believe that it will hold but if it doesn’t the door would open for a move to 1.35. On the downside, the sell-off on Friday stopped short of 1.30, the main key support level.

EUR/USD Reversal?

EUR/USD Reversal?

Chart Of The Day

EUR/USD Reversal?

Fundamentals

The euro traded sharply higher against the U.S. dollar on the back of dovish FOMC minutes. In addition to expressing specific concerns about the global slowdown, policymakers also said the rising dollar may dampen inflation and pose a risk to exports and growth. This is the first time that we have heard the central bank single out the exchange rate as a source of concern and in doing so, they send the greenback sharply lower. Given the strong gains in the currency over the past few weeks, the dovish tone of the FOMC minutes could be enough to trigger a deeper correction in the dollar, leading to a stronger recovery for euro. Economic data from the Eurozone leaves a lot to be desired and tomorrow’s German trade report is expected to highlight the ongoing strains in the region’s largest economy. However, as we have seen all week, overstretched positions could overshadow data flow.

Technicals

Having closed above the first standard deviation Bollinger Band, EUR/USD is now in “turn” mode. The latest rally should extend to 1.28, the 61.8% Fibonacci retracement of the 2012 to 2014 rally. A break above this level would open the door for a stronger move towards 1.30. If EUR/USD drops back below 1.26, new lows are likely.

Major Reversal in GBP/USD

Major Reversal in GBP/USD

Chart Of The Day

Fundamentals

GBP/USD experienced a major intraday reversal on Tuesday that erased all of last week’s gains and put the currency pair at its lowest level since March. The sell-off was driven by the combination of weaker U.K. data, stronger U.S. data and concerns about Scottish independence. At the end of last week, we said that sterling could rally if this week’s PMI reports surprise to the upside, reflecting a turnaround in the U.K. economy. Unfortunately while construction sector activity accelerated significantly, manufacturing activity, which is far more important slowed. The service sector PMI index is scheduled for release tomorrow and if it also falls short of expectations, then there is no data to support the call for earlier tightening by U.K. policymakers. In that case, the Scottish referendum and the inconsistency between data and policy should drive sterling even lower. At the same time, the U.S. dollar traded higher against most of the major currencies with the trade weighted dollar index climbing to its strongest level since July 2013. While a pick up in manufacturing activity, construction spending and economic optimism contributed to the move, the primary catalyst for the strong performance of the dollar was the sharp rise in U.S. yields. Ten year Treasury rates rose 8bp today, the last time we saw a move of this magnitude was in April, on a day when many Fed officials including Janet Yellen spoke on the economy and monetary policy. Investors are hoping that today’s sharp rise in U.S. yields will mark a bottom for U.S. rates. As economic and monetary policy divergence between the U.S. and the rest of the world widens, the dollar will become more attractive to foreign investors, providing room for further gains. As we noted in the past, the voracious demand for dollars stems not from the impressiveness of the U.S. economy but from the lack of better alternatives. However at bare minimum the prospect of a stronger non-farm payrolls report on Friday should keep the dollar bid and GBP/USD in a downtrend.

Technicals

Having broken below the August swing low, the next level of support for GBP/USD is the March low of 1.6462 and below that there is no major support until the 38.2% Fibonacci retracement of the 2013 to 2014 rally at 1.6285. A break back above 1.6645 would be needed to negate the downtrend.

AUD/NZD Double Bottom Reversal

AUD/NZD Double Bottom Reversal

Chart Of The Day

AUD/NZD’s Double Bottom Reversal

Fundamentals

Over the past month, the Australian dollar has been quietly rising in value against the New Zealand dollar. To some investors, this move may be confusing because the RBNZ is the only central bank that is raising interest rates but many market participants had anticipated another rate cut by the RBA and when they shifted to neutral in February, it kicked off a strong recovery in AUD. Now, AUD/NZD is rising not just because Chinese growth is stronger and the RBA has no additional plans to ease but also because the RBNZ could slow tightening. Over the past 2 months, we have seen a significant decline in milk prices. Considering that milk represents 30% of the country’s merchandise exports, the 20% drop in milk prices over the past 2 months could force the Reserve Bank to hold rates steady next week or to tighten and then shift to neutral. Either way, if the recent decline in the price of milk worries the RBNZ, it could lead to further losses in NZD and in turn a stronger gains for AUD/NZD.

Technicals

Taking a look at the daily chart of AUD/NZD, there is a major reversal underway. There’s also a clear double bottom and if AUD/NZD breaks above 1.10, there is no major resistance until 1.12 and possibly not until 1.15. However if AUD/NZD drops back below 1.0730, the currency pair would be vulnerable for another test of its previous lows.

AUD/USD Bullish Reversal Forex Daily Technicals 4.11.13

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