EURUSD – Triple Top?

EURUSD – Triple Top?

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Today’s ECB meeting faked traders out. The text of the statement was decidedly hawkish but the presser stressed the fact that ECB was concerned about low inflation, protectionist policies and only modestly bullish on growth.

The net takeaway from today’s event is that ECB is likely to taper in September, but will remain neutral for quite some time after that. The realization that ECB is still far away from normalization sent EURUSD tumbling more than 100 points off its session highs. The pair now finds itself carving out a clear triple top at the 1.2500 level and if tomorrow’s NFPs print to the upside could tumble towards 1.2200 over the next few sessions.

NZDUSD Triple Top

NZDUSD Triple Top

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NZDUSD Triple Top

The Reserve Bank of New Zealand cut interest rates today by 25bp. NZD/USD soared because the market hoped for a larger 50bp cut. However the RBNZ made it clear that they built in 60bp of easing into their projections which means they still have the intention to ease. For this reason we believe that NZD/USD gains will be limited to 73 cents.

Technically there is a very clear triple top in NZDUSD around 73 cents. Today’s move took the pair as high as 0.7340. A correction should take NZD/USD back down to 72 cents. A move beyond today’s high would pave the way for test of the 100-month SMA at 0.7450.

USD/JPY – Triple Bottom?

USD/JPY – Triple Bottom?

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USD/JPY – Triple Bottom?

On a technical basis, we see signs of a triple bottom in USD/JPY. The currency pair found support above 110.50 for the third time in 2 months and the long wicks on Thursday and Friday suggest decent support below current levels. 112 is the main near term resistance level for USD/JPY. If the currency pair manages to breach this level in a meaningful way, the next stop should be 113. A move above 113 would be needed for the pair to revert back into its former 112.25 to 114.50 trading range. 114 has a been a formidable barrier because it is where we have the 23.6% Fibonacci retracement of the 2011 to 2015 rally.

Fundamentally, we haven’t seen any signs of the Bank of Japan in the market since USD/JPY dipped to a low of 110.67 last week. The lack of verbal or physical intervention before and after the Federal Reserve meeting suggests that their new pain threshold could be 110.50. Janet Yellen’s dovish comments last week sent the dollar crashing and unless this week’s Fed speakers are hawkish investors may find very little reason to buy dollars. Unlike some other pairs, USD/JPY has the risk of BoJ intervention preventing a deeper slide but in order for the dollar to regain its dominance, the Federal Reserve would need to indicate that rates could still increase in June and while Yellen did say that every meeting including April remains a live one, the move in Fed fund futures reflect the skepticism of investors. U.S. data or Fed speak will be needed to turn sentiment around and at minimum, this week’s economic reports won’t do the trick because housing and durable goods reports are not game changers for the Fed. Friday’s GDP report is a third revision that by now is extremely dated. So in a nutshell, while we may have seen a triple bottom in USD/JPY, there’s still a risk of another dip to 111.25.

GBP/USD – Triple Top or Cup and Handle?

GBP/USD – Triple Top or Cup and Handle?

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GBP/USD – Triple Top or Cup and Handle?

The unexpected victory by Prime Minister David Cameron sent sterling soaring against the U.S. dollar. GBP/USD broke above 1.55 but failed to hold onto its gains. This means that the currency pair is now in the midst of forming a triple top below 1.56 or a cup and handle formation that could precede a major upside breakout. Which one of these 2 technical patterns take shape will be determined by the Bank of England’s Quarterly Inflation Report next week. If policymakers recognize the recent deterioration in data and remain cautious on the outlook for the economy, 1.5550 could prove to be a triple top for the currency. However if they are still looking to raise rates this year and this view is reinforced by stronger labor data, GBP/USD could experience a more significant rally. The Tories’ unexpected victory removed a major near term downside risk for GBP/USD but Cameron’s promise of a referendum on European Union membership and the Scottish National Party’s strong results means they could make another bid for independence. Convincing U.K. voters and the Scots to maintain status quo will be an uphill battle that could renew uncertainty for the currency.

Technically, 1.5600 is the key resistance level for GBP/USD. It is above the February high and the 38.2% Fibonnaci retracement of the 2014 to 2015 decline. If this level is broken, the next stop should be 1.5875. On the downside, there is support at 1.52 and if GBP/USD trades below that level, erasing the cup and handle formation, a move to 1.50 becomes likely.

EUR/GBP Triple Top at 7400?

EUR/GBP Triple Top at 7400?

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One of the most interesting trends today was the massive divergence between the euro and the pound. While the former soared almost 200 points in one day the later treaded water. This all happened despite lackluster data out of Europe and promising political news from UK where the Torries opened up a 5% lead on Labor. In short today was momentum day in euro driven by massive short covering and end of month settlement flows. Typically such moves do not last. Tomorrow the market is going to get a glimpse of UK PMI Manufacturing as the cycle of reports begins for the pound. If the data remains relatively buoyant it will show that UK economy continues to outperform the continent and with Torries now more likely to retain power, the markets could warm to the pound once again. All of which leads us to conclude that the 7400 level will likely be a triple top.

Technically the pair has made a nice W double bottom, but now faces stiff resistance at the 7400 level and further resistance at 7500 and is likely to consolidate the move for now

AUD/NZD – Breakout or Triple Top?

AUD/NZD – Breakout or Triple Top?

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Fundamentals

For the third time this year, AUD/NZD attempted to break 1.1050. Back in early June and late July, the currency pair topped out right below this key level and now many traders are wondering if the third time is the charm. With Australian employment numbers scheduled for release tonight and Chinese trade data due Thursday evening, there are enough fundamental catalysts on the calendar for AUD/NZD to break 1.1050 once and for all. Of course, in order for AUD/NZD to trade significantly above this level both Australian employment and Chinese trade numbers need to be strong. According to the PMIs, the labor market improved in the month of July and if there’s a decent amount of full time job growth, it should be enough to drive AUD/NZD to fresh 7-month highs. However if job growth falls short of expectations, then 1.1050 could very well become a triple top. Even with today’s recovery in NZD, the path of least resistance is lower for the currency. While the country’s unemployment rate dropped to 5.6% from 5.9%, employment rose by a mere 0.4% in the second quarter versus 0.9% in the first quarter. The participation rate also dropped to 68.9% from 69.2% and average hourly earnings growth slowed to 0.5% from 0.7%. This means the main reason for the improvement in the unemployment rate is the drop in participation, which is negative for New Zealand’s economy. Between the drop in dairy prices and softer labor market conditions, we are almost certain that the RBNZ will leave rates unchanged for the rest of the year and this dynamic could provide underlying support for AUD/NZD.

Technicals

On a technical basis, the cup and handle pattern in AUD/NZD is a bullish pattern that suggests 1.1050 will be broken. If this level is breached on a closing basis in a meaningful way, there is no major resistance until the December high of 1.1215. However if the currency pair fails at 1.1050, the reversal could drive AUD/NZD back down to 1.09.

EUR/GBP – Triple Bottom or Breakdown?

EUR/GBP – Triple Bottom or Breakdown?

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Fundamentals

The EUR/GBP pair now finds itself at a critical juncture. The ECB is in the midst of battling creeping deflation and has threatened to use QE if economic conditions in the EZ decelerate further. Tonight’s EZ PMI reports which provide the most recent reading of conditions on the ground could be key to their decision making process. If the news disappoints the ECB many have no choice but to initiate some sort of easing program – a move that could push euro lower. Meanwhile the UK economy continues to perform well and the country is enjoying the best growth of anyone in the G-7 universe. That has led many traders to conclude that the BoE will be the first major central bank to hike rates and the pound has rallied to trade near yearly highs as a result. If this dynamic continues EUR/GBP which has strong support at .8150 level could breakdown and head towards the 8000 mark as the summer progresses.

Technicals

Technically EUR/GBP enjoys triple bottom support at the 8150 level and further support at 8100, but a break through those levels opens up the prospect of a move towards the key 8000 figure, while only a move above 8250 relives the downside bias.

CAD/JPY – Triple Bottom or Fresh 1 Year Lows

CAD/JPY – Triple Bottom or Fresh 1 Year Lows

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Fundamentals

The worst performer today was the Canadian dollar, which lost value against all of the major currencies. The loonie started the North American trading session strong thanks to a larger than expected increase in manufacturing sales but dovish comments from Bank of Canada Governor Carney caused the CAD to tumble quickly and aggressively. Due to slower than expected first quarter GDP growth and low inflation, Poloz said he may have to reconsider the central bank’s neutral monetary policy stance. More specifically he said they can’t rule out further rate cuts if the downside risks to inflation increases. The BoC’s fresh concerns about the economy and consideration of additional easing sets them far apart from other central banks who are tightening monetary policy or beginning to remove stimulus. The CAD has reacted accordingly and we believe there could be further losses. However CAD/JPY is trading at a very important juncture that can either turn into a triple bottom or a sell-off that drives the pair to fresh 1 month lows. Given that USD/JPY is hovering right above support going into the FOMC meeting, we caution traders against selling CAD/JPY into the lows ahead of such an important event risk. The sustainability of any move in CAD/JPY hinges on USD/JPY’s reaction to FOMC. If USD/JPY drops below 101, then CAD/JPY is bound to fall to fresh lows but if it rises back above 102, then we have a potential triple bottom near 91.

Technicals

From a technical perspective, CAD/JPY is obviously weak. The previous 1 year low of 90.78 was set in February and tested in early March. If this level is broken in a meaningful way, there is no major support until 90. Should CAD/JPY recover, the first level of resistance will be around 92.25 with a more significant resistance level at 94.