Will EUR/AUD Hit Fresh Yearly Lows?

Will EUR/AUD Hit Fresh Yearly Lows?

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Fundamentals

We are particularly attracted to relative value trades this week because we think FOMC and NFP will be uneventful given the lack of uncertainty in Fed policy and U.S. data. This is not just a busy week for the U.S. but also for euro, which is having a very difficult time recovering. Inflation is the European Central Bank’s top priority but despite all of stimulus provided last month, CPI growth is expected to be anemic. According to the economists surveyed by Bloomberg, annualized CPI growth is expected to hold steady at 0.5% with core price growth also remaining unchanged at 0.8% in the month of July. Considering that the ECB has a 2% inflation target, these numbers indicate that price pressures are far short of desirable levels. Based on CPI alone, the ECB should be actively discussing ways to increase stimulus further. Traders are clearly anticipating further weakness in the currency pair and if this week’s economic reports reinforce everyone’s concerns about Eurozone growth, euro could extend its slide, driving EUR/AUD to fresh 7 month lows. Aside from the CPI report, Eurozone confidence, German retail sales, unemployment and final EZ PMIs are also scheduled for release. The Australian dollar on the other hand traded higher today on the back of stronger Chinese industrial profits. These figures confirm that China’s economy has bottomed and is in the process of recovering. If the Chinese PMI manufacturing index due later this week also surprises to the upside, we could see a further decline in EUR/AUD.

Technicals

Taking a look at the weekly chart of EUR/AUD, support in the currency is at 1.4225, the 38.2% Fibonnaci retracement of 2012 to 2014 rally. If this level is broken, the next stop for the currency pair should be the November swing low of 1.4050. A break 1.46 would be needed to negate the downtrend in the pair.

AUD/JPY – Will It Challenge the Yearly Highs?

AUD/JPY – Will It Challenge the Yearly Highs?

Chart Of The Day

Fundamentals

After today’s FOMC minutes the dollar got hammered as markets were disappointed with the wish-washy tone the meeting. However, despite the wonkish nature of the FOMC debate it appears the Fed is moving slowly but surely towards tightening and that suggests that USD/JPY will likely find some support at the current levels. Tonight, the focus shifts to Australia where the marquee event of the week will take place. The Aussie labor data will be eagerly awaited as the market will try to assess if the economy Down Under is managing to survive the transition away from mining and investment towards more consumer oriented growth or it is indeed in trouble. Last month the weaker than expected data knocked Aussie for a loop, but the pair recovered. However if the data shows job losses for two months in a row then AUD/USD could see a serious selloff towards 9300. On the other hand if the news is positive that could propel the pair towards 9500 and help lift AUD/JPY towards a test of the yearly highs.

Technicals

Looking at the technical picture, AUD/JPY is clearly meeting resistance at the 96.00 level where the pair has massive overhang from yearly highs, but a break above that figure could propel the pair towards 97.00. Meanwhile immediate support comes in at 94.50 with deeper support at 93.50

USD/CAD Headed to Yearly Lows?

USD/CAD Headed to Yearly Lows?

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Fundamentals

One of the more surprising rallies in the currency market has been the stealth move in USD/CAD. While attention has been elsewhere the loonie has slowly pushed to within a whisker of yearly highs against the buck as better than expected Canadian Retails Sales, hotter inflation data and the overall rally in commdollars has helped to push the unit higher. The fact that oil prices have spiked up by 20% over the past month in response to the tensions in Iraq has also helped the little dollar gain advantage on it big neighbor down south. However, perhaps the biggest reason for the USD/CAD rally has been the decline in US yields. With US 10 year benchmark at 2.50% the spread between Canadian and US yields has narrowed providing the foundational support for the short USD/CAD trade. If this weeks US NFPs disappoint they could push the pair through the yearly lows at 1.0600.

Technicals

From a technical perspective, USD/CAD is approaching the key support level at 1.0600 and a break there could push the pair to a test of the 1.0500 level. A hold however could spur a short covering rally back to 1.0800.

GBP/CAD – Retest of Yearly Highs?

GBP/CAD – Retest of Yearly Highs?

Chart Of The Day

Fundamentals

Slowly but surely GBP/CAD is making its way to retest of the yearly highs as loonie weakness once again reasserts itself. Last week the USD/CAD tested the yearly highs at 1.1200 and only a slightly hotter CPI number kept the loonie from collapsing as traders worried that inflation would keep the BOC from easing policy further. However, the data from the ground has been horrid as Canadian economy remains in a funk. Tomorrow’s GDP which is already expected to print at -0.2% could miss the downside given the very severe weather conditions last month. If the data does print weaker than expected the loonie could take out the 1.1200 highs and send GBP/CAD to fresh yearly highs as well, especially if cable, which continues to find good support at the 1.6600 level remains well bid into the week’s end.

Technicals

The yearly high of 1.8669 looms large of the GBP/CAD pair and a move to 1.6700 could be in the offing if the highs are broken. On the other hand a break below the 1.8500 level could signal an exhaustion move and a possible double top in the pair