GBPJPY – Back to the Upside

GBPJPY – Back to the Upside

Chart Of The Day

Cable received a dose of good news today when it was revealed that the EU Parliament may consider “special status” for the UK -- a massive change from European’s original position that would make Brexit much more palatable for UK economy. While all of this remains speculation, the news helped lift sterling towards the 1.4000 level and if tomorrow’s UK Labor data proves supportive, the pair could challenge the 1.4100 figure by day’s end.

Meanwhile, tomorrow will also see the release of Feb minutes which are likely to maintain a hawkish bias and provide further support to the nascent rally in USDJPY.

All of this could prove especially positive for GBPJPY which took out the 150.00 figure in today’s trade and looks to be at the start of multi-day rally that could take it to 155.00

EUR/NZD – Upside Breakout, 1.72 Next?

EUR/NZD – Upside Breakout, 1.72 Next?

Chart Of The Day

EUR/NZD – Upside Breakout, 1.72 Next?

Euro is one of this week’s best performing currencies. Compared to others, its pullback on Friday was modest and even with the decline EUR/USD is flat for the week while up strongly versus the commodity currencies including the New Zealand dollar. The Eurozone’s economy is recovering and the effect of a strong euro on inflation has been limited. As a result, Eurozone policymakers have become more tolerant of the rising currency and more eager to end asset purchases. With very little Eurozone data in the coming week to threaten the currency’s positive outlook we see further gains in the currency. Meanwhile the New Zealand dollar is at risk of additional losses. On Friday, it experienced its largest one day decline since October and such a strong sell-off typically has continuation. The RBNZ meets next week and since the last meeting, the New Zealand dollar appreciated 5.5% versus the greenback and 2% versus the Australian dollar. Data has been softer with retail sales growth slowing materially, manufacturing activity easing, business confidence falling and inflation slowing. We believe the risk is to the downside as the central bank could opt to talk down the currency.

Technically, EUR/NZD broke out of its month long consolidation and ending the day above the 50-day SMA for the first time since mid-December. There’s some mild resistance near 1.7065 (the Oct 31, Dec 12, 20 high) but once that level is broken, there’s no major resistance until 1.72.

NZDCAD – More Upside Left?

NZDCAD – More Upside Left?

Chart Of The Day

Kiwi has been on a tear lately, hitting the .7100 figure in late US trade today. The move has been driven by lower US rates which make the New Zealand currency an attractive carry trade.

In the meantime, the loonie is again under pressure as oil continues to struggle with $50/bbl level. As long as crude cannot break through the $50/bbl resistance layer the loonie will continue to underperform and NZDCAD should inch towards the .9600 mark. The calendar is generally barren for either country for the next few days, but Canada does have it GDP tomorrow and if that number misses the forecast, the pair could extend its gains as the week proceeds.

USD/CAD – Any Upside Left?

USD/CAD – Any Upside Left?

Chart Of The Day

USDCAD went on a wild ride today as risk on/risk off flows spilled over from both equity and oil markets with commodities first getting crushed then bought on a very turbulent day full of macro and political news.

Tomorrow attention of the market will turn to more mundane matters as the Canadian CPI data is due to be released and given the jump in IVEY PMI prices there is a good chance that the numbers could hotter than expected. That could provide further fuel to the loonie which already say a major turnaround in North American trade.

Technically today’s flame out candle suggest that there is more downside in the pair as 1.3100 clearly caps the rally for now.

BK Hot Chart – USD/JPY Upside

BK Hot Chart – USD/JPY Upside

Chart Of The Day

BK Hot Chart – USD/JPY Upside

For the time being USD/JPY appears to be stuck within a narrow 117.20 to 118.85 range but from a fundamental and technical perspective, the uptrend remains intact. As the Northeast hunkers down for a major snowstorm, forex traders around the world are turning their eyes to the upcoming Federal Reserve monetary policy announcement. While recent stimulus from the ECB and other central banks gives the Fed more leeway, we do not believe they will alter their forward guidance having just changed it in mid-December. If you recall, last month, the Fed replaced its vow to keep rates near zero for a “considerable time” with a pledge to be “patient” on the timing of the first rate hike. At the time, this was viewed as such a hawkish shift that it drove USD/JPY from a low of 116.30 to a high of 120.80 in a matter of days. There has been a few weak data points since the last Fed meeting, most notably retail sales and average hourly earnings but this follows many months of positive economic surprises. The Fed also believes that the decline in oil prices will pick up the slack. If they dialed back their hawkishness, it would risk undermining credibility. The next big meeting is in March so there’s no need to rush any changes. If we are right and the Fed provides no fresh insight at this week’s meeting, their tightening bias will make the dollar more attractive and drive USD/JPY higher.

Technically, there is short-term support at 117.15 and more significant support at 115.57. The 61.8% Fibonacci retracement of the 1998 to 2011 decline at 120.18 will cap gains for the time being.

GBP/CHF – Potential for Upside Break

GBP/CHF – Potential for Upside Break

Chart Of The Day

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.