CADJPY had been trading inside a descending triangle pattern on its 4-hour time frame before the pair made a break below support. This suggests that further losses are likely, possibly triggering a downtrend of around 400 pips or the same height as the chart pattern.
The 100 SMA is below the 200 SMA on the 4-hour chart, confirming that the path of least resistance is to the downside. However, stochastic is already indicating oversold conditions, which means that a bounce back to the former triangle support at 94.00 is possible or even a move until the resistance at 95.00. RSI is also in the oversold area, suggesting that a pullback is likely.
If the downside break proves to be a fakeout, the pair could head back inside the triangle and possibly go for an upside break. In that case, a 400-pip rally could bein the cards.
Data from the Canadian economy has been mostly weaker than expected, with the monthly GDP reading showing a 0.2% contraction and confirming that a recession is taking place. Later on this week, Canada will release its July jobs report and its Ivey PMI reading.
Hiring is expected to pick up by 5.7K in July, a rebound from the previous month’s 4.6K decline. The unemployment rate is slated to hold steady at 5.8% while the Ivey PMI could show an improvement from 55.9 to 56.2, reflecting a stronger pace of expansion in the industry. Weaker than expected data could spur more losses for the Loonie, especially if oil prices are also tumbling by then.
As for the Japanese yen, there have been no major reports out of the country so far this week, leaving risk sentiment in play. Risk-off moves could continue to favor the Japanese yen, depending on how global equities and commodities fare.
By Kate Curtis from Trader’s Way
AUDUSD recently surged past the .7350 minor psychological resistance, which has served as a barrier towards the end of last month. Price topped out around .7420 and is showing signs of a pullback to the broken resistance.
This potential area of interest lines up with the 38.2% Fibonacci retracement level, which might hold as support. A larger pullback could last until the 61.8% Fib, which coincides with the .7300 major psychological level and the moving averages. The 100 SMA is starting to cross above the longer-term 200 SMA, suggesting that further gains are likely.
In addition, stochastic is showing a bullish divergence since the oscillator made lower lows while price drew higher lows. RSI, on the other hand, is still on the move down and suggesting that a larger correction is set to take place.
Earlier this week, data from Australia came in better than expected, with retail sales and trade figures both beating forecasts. Consumer spending picked up by 0.7% versus the 0.5% consensus in June while the May figure was upgraded from 0.3% to 0.4%. Meanwhile, the trade balance showed a smaller than expected 2.93 billion AUD deficit, although this is larger compared to the previous month’s 2.68 billion AUD shortfall.
Other event risks for this setup include the release of the ADP non-farm employment change data today, which might show a slower pace of employment growth in the US. Analysts are expecting to see a 216K increase, down from the previous 237K gain.
A weaker than expected ADP report could set the tone for a disappointing NFP reading for July, which is up for release on Friday. If so, traders could start pricing in lower odds of a Fed rate hike in September, as FOMC officials said that they are waiting for further improvements in hiring to decide whether or not they should start tightening monetary policy.
By Kate Curtis from Trader’s Way
GBPUSD is consolidating inside an ascending triangle pattern on its 4-hour chart ahead of today’s event risks. Price just bounced off the bottom of the formation and may be due for another test of resistance around the 1.5650 minor psychological mark or even an upside break.
Stochastic is still on the move up, indicating that there’s enough bullish momentum to trigger an upside breakout. This could start a 300-pip rally, which is roughly the same height as the triangle pattern. On the other hand, a downside break below the triangle support around 1.5550-1.5600 could mean losses of at least 300 pips.
The moving averages look ready to make an upward crossover, which might confirm that further gains are possible. However, if the indicators keep moving back and forth, it could also be a signal for more consolidation.
The main event risks for this setup are the BOE interest rate statement, MPC minutes, and Inflation Report hearings. BOE Governor Carney is also set to make a testimony much later on, during which he could reiterate that they’re considering monetary policy tightening already.
Recall that Governor Carney said that they’re moving close to hiking interest rates during their previous Inflation Report hearings and a couple of monetary policy committee members probably voted to increase the benchmark rate by 0.25% in the previous policy meeting.
If so, GBPUSD could go for an upside break on hawkish expectations, especially if the US jobs report turns out to be a disappointment later this week. Keep in mind that the ADP report missed expectations while the employment component of the ISM manufacturing PMI showed a decline, increasing the odds for a downside NFP surprise. This could convince market watchers that the Fed might hold off any rate hikes this year as they wait for further improvements in the jobs market.
By Kate Curtis from Trader’s Way
GBPUSD broke below the ascending triangle support on its 4-hour chart, signaling that price is in for more declines. The chart pattern is around 300 pips in height so the resulting selloff could last by the same amount.
Stochastic is on the move down, confirming that sellers are in control of price action at the moment. RSI is also heading lower, which means that there’s enough bearish momentum left to push for more gains. At the same time, the 100 SMA is moving below the longer-term 200 SMA, although an upward crossover might be possible.
If so, GBPUSD might still pull up to the broken triangle support around 1.5550 before heading further south. A larger correction could last until the 1.5600 major psychological level or until the triangle resistance at 1.5650.
Economic events in the UK turned out to be disappointing for pound bulls, as the central bank indicated that it isn’t ready to hike interest rates just yet. This represents a less hawkish outlook compared to BOE Governor Carney’s statement in the previous Inflation Report hearings indicating that they’re moving closer to increasing rates.
Only one MPC member voted to hike interest rates this time, as Ian McCafferty wasn’t joined by his fellow dissenter Martin Weale in pushing for tightening this time around. Some forex analysts were also disappointed to find out that David Miles, who has reportedly been shifting to a more upbeat stance, decided to vote against hiking rates for now.
Event risks for this setup include the NFP release in today’s US trading session, with an upside surprise likely to spur more declines for GBPUSD and a downbeat figure possibly spurring a rally. Keep in mind that Fed officials said that they are waiting to see more improvements in jobs data before deciding to tighten monetary policy probably in September.
By Kate Curtis from Trader’s Way
AUDUSD could be in for a long-term reversal from the recent downtrend, as an inverse head and shoulders pattern can be seen on its 4-hour time frame. Price is on its way to test the neckline around the .7400 major psychological mark and the 200 SMA.
For now, the 100 SMA is below the 200 SMA, which means that the path of least resistance is still to the downside. However, a break past the neckline could mean that further gains are possible and that the moving averages might cross up later on. The chart pattern is approximately 150 pips in height so the resulting breakout could be of the same size.
Stochastic is nearing the overbought region, which means that sellers are ready to take over. RSI is on the move down, indicating a pickup in bearish momentum. If the .7400 mark holds as resistance, price could make another move towards the .7250-.7300 area.
Last week, economic data from Australia turned out bullish for the Aussie. Retail sales, employment, and trade balance data all came in better than expected while the RBA sounded less dovish in their monetary policy statement. The central bank also toned down their jawboning for the currency.
Meanwhile, data from the US suggests that there is still a lot of uncertainty surrounding the September Fed rate hike. The jobs report came in slightly weaker than expected at 215K versus the consensus at 225K. However, previous readings enjoyed upgrades amounting to 14K in jobs gains.
Chinese data this week could set the tone for Aussie price action, as the world’s second largest economy and Australia’s top trade partner is set to print its industrial production and retail sales data. As for the US, the retail sales report is lined up but this might have a muted reaction since traders are holding out for the August NFP and its implications for Fed policy.
By Kate Curtis from Trader’s Way
AUDCAD recently broke past a consolidation pattern on its long-term time frames and is currently making a pullback. Price is finding support around the 50% Fibonacci retracement level, which lines up with the former resistance around the .9550-.9600 area.
Stochastic is already indicating oversold conditions, which means that a bounce could take place soon. However, RSI is on the move down so there may be a bit of selling momentum left, possibly to trigger a test of the 61.8% Fib near the 200 SMA.
The 100 SMA is above the 200 SMA for now, confirming that the path of least resistance is to the upside. A bounce from the Fib levels could lead to a rally up to the previous highs near .9750 or higher. A break below the 61.8% Fib could lead to a move towards the next support near the .9400 major psychological level.
Earlier today, Australia reported a drop in its NAB business confidence index from 8 to 4, reflecting weaker optimism. Prior to this, China printed stronger than expected medium-tier data, suggesting that Australia’s top trade partner has seen improvements.
Australia’s Westpac consumer sentiment data and its quarterly wage price index are still lined up for tomorrow, along with China’s top-tier industrial production and retail sales figures. Strong data could trigger a bounce for AUDCAD during the release of these reports while weak results could keep the selloff going.
As for the Loonie, data from Canada has been slightly weaker these days, and traders are expecting to see more declines once the recent oil price drop kicks in. Canadian manufacturing sales data is due on Friday and analysts are expecting to see a 2.1% rebound, which might be enough to keep the Loonie afloat. However, a huge disappointment could mean another round of losses for the Canadian currency if traders start buzzing about a potential BOC rate cut.
By Kate Curtis from Trader’s Way
NZDUSD broke below the triangle support on its 1-hour forex time frame, indicating that further losses are possible. The pair broke below the .6500 major psychological level and could be in for a 300-pip drop, which is the same height as the chart formation.
Stochastic is pointing down, indicating that sellers are taking control of price action. RSI is also on the move down, confirming that bearish momentum is building up. However, the 100 SMA is moving close to the 200 SMA and attempting an upward crossover, which could mean that a bounce is still possible.
If the pair moves back above the .6500 support area, price could climb back up to the top of the triangle around the .6600 major psychological level. Sustained upward momentum could spur an upside break and a longer-term climb for NZDUSD.
The path of least resistance is to the downside though, as the PBOC recently decided to devalue their currency. Although central bank officials said that this is just a one-time move, their statements suggest that they’re open to more devaluation depending on market moves.
These PBOC efforts are suggesting that the Chinese central bank has gotten increasingly concerned about the country’s trade activity. Earlier in the week, China printed a trade balance that indicated a sharp decline in both imports and exports. By devaluing their currency, they could make their exports relatively cheaper and therefore increase demand. At the same time, this would make imports more expensive, driving up local price levels and consumer inflation.
These moves had some market watchers predicting that the RBNZ might also step in the forex market to devalue their currency as well in order to counteract the PBOC’s moves. As for the US dollar, traders are still trading the currency cautiously ahead of more top-tier data from the US economy but risk aversion could benefit the safe-haven.
By Kate Curtis from Trader’s Way
USDCHF is still trending higher on its 4-hour chart, as the price dropped to the bottom of the rising channel then bounced off support. This could take the pair back up to the top of the range near the 1.0000 major psychological resistance.
The bottom of the channel also lines up with the 100 SMA, which has acted as a dynamic support level in the past. In addition, the short-term SMA is above the long-term 200 SMA, confirming that the ongoing uptrend is likely to carry on.
Stochastic is indicating oversold conditions, which means that sellers are exhausted and that buyers are ready to take over. RSI is also starting to move up from the oversold region, indicating a potential pickup in buying momentum.
The US dollar sold off heavily yesterday as profit-taking from its recent rallies took place. The currency drew additional support from the Chinese central bank’s decision to devalue their local currency, prompting the Greenback to appreciate in the process.
However, the PBOC devaluation is also weighing on Fed rate hike prospects, as this could spur weaker demand for commodity imports. Apart from being a drag on commodity-driven nations, it could set off another global slump in inflation and deter the US central bank from tightening monetary policy this year.
As for the franc, its rallies could be limited owing to the fact that the Swiss National Bank is willing to intervene if the currency appreciates too much. After all, the central bank is inclined to keep the franc weak in order to keep Swiss exports and domestic price levels supported.
With that, the path of least resistance is still to the upside since the US dollar could enjoy more safe-haven demand in the event of a global economic slowdown. US retail sales data could serve as a catalyst for further gains if the actual readings come in strong.
By Kate Curtis from Trader’s Way
GBPCAD is currently on a strong uptrend and has just pulled back to the rising trend line support visible on the 4-hour time frame. The pair seems ready to bounce and resume the climb, as the 100 SMA and trend line are holding as support.
The pair could move back up to the previous highs around the 2.0600 levels or higher if the uptrend resumes. The 100 SMA is above the longer-term 200 SMA, confirming that the path of least resistance is to the upside.
Stochastic is also on the move up but is nearing the overbought zone, indicating that a potential selloff might take place. Meanwhile, RSI is still climbing, which means that bullish momentum is present. However, a break below the trend line support around the 2.0200 area of interest could mean more losses for GBPCAD.
Earlier this week, the UK printed a stronger than expected increase in hiring, although wage growth was slower than expected. Nonetheless, traders still seem to be counting on a potential BOE rate hike sometime next year since policymakers sounded relatively upbeat on growth prospects.
On the contrary, the Loonie could continue to be weighed down by falling prices since WTI crude oil hit a six-year low yesterday. The OPEC oil cartel has no plans of reducing production while Iran has even pledged to increase its supply, weighing further on price levels. In addition, the Chinese central bank’s decision to devalue their currency could mean weaker import demand, also weighing on prices.
Canadian manufacturing sales data is up for release today and a 2.3% rebound is eyed. Stronger than expected results could mean gains for the Canadian currency while a weaker than expected figure could spur further losses. Only the low-tier construction output report is lined up from the UK and a 2.4% increase is expected.
By Kate Curtis from Trader’s Way
NZDUSD got rejected in its test of the descending triangle resistance and is now moving back to the bottom around the .6500 major psychological level. Whether a bounce or a break takes place depends on the outcome of the economic reports from New Zealand in the next few days.
If support holds, the pair could make another test of the triangle resistance near the .6600 major psychological level. But if it breaks, price could fall by around 200 pips or the same height as the chart pattern.
The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside. However, stochastic is starting to move out of the oversold zone, signaling that a bounce might take place. RSI is on middle ground, barely offering good signals at the moment.
New Zealand will be having another dairy trade auction within the week and a drop in dairy prices is expected. In that case, NZDUSD could be in for a sharp selloff, depending on the magnitude of the decline. Aside from that, data on quarterly producer prices is also lined up.
As for the US, CPI figures are due later on in the week and both headline and core readings are expected to show 0.2% gains. Stronger than expected data could support the odds of a Fed rate hike in September while weak readings could prompt traders to push back their expectations to December or early 2016.
Commodity trends could continue to dictate price action for this pair in the next few days, with a slight bias to the downside since gold and oil prices have been tumbling. However, the lower odds of a Fed rate hike due to the Chinese central bank’s efforts to devalue their currency might also keep the dollar’s gains limited.
By Kate Curtis from Trader’s Way
EURNZD recently surged past the resistance around the 1.6800 major psychological level then zoomed up to a high of 1.7100. From there, the pair made a pullback to the broken resistance, which lines up with the 38.2% Fibonacci retracement level on the 4-hour chart.
At the same time, stochastic is indicating oversold conditions, suggesting that a bounce might take place. RSI is also showing that the selloff is overdone, which means that the area of interest might now hold as support. If so, the pair could climb back to the previous highs and beyond.
For now, the 100 SMA is safely above the 200 SMA so the uptrend can carry on. In addition, the 100 SMA lines up with the 50% Fib, which might hold as support in a larger pullback. However, a break below the 61.8% level and 200 SMA might be an early signal that a reversal is taking place.
The euro could stage a rally now that Greece is just a few steps away from receiving its bailout package and meeting its loan obligation to the ECB on Thursday. If the IMF and Germany get on board, the shared currency might find enough momentum to surge past its previous highs.
New Zealand has its global dairy trade auction scheduled mid-week and this could show another decline in prices, sending the Kiwi lower against its forex rivals. Aside from that, the quarterly PPI might also reflect declines in input prices and set the tone for another RBNZ rate cut sometime this year.
There are no economic reports lined up from the euro zone today, as the main event risks are set for Friday. These are in the form of the flash PMI readings from the manufacturing and services sectors of Germany and France, the region’s largest economies. Strong data could provide more fuel to the euro’s rallies while weak data could lead to losses.
By Kate Curtis from Trader’s Way
EURJPY recently broke past the resistance at the 137.00 major psychological level then moved close to the 139.00 mark. From there, the pair retreated to test the broken resistance near the 50% Fibonacci retracement level.
Stochastic is already indicating oversold conditions and is starting to climb, suggesting that a bounce is in order. RSI is also pulling up from the oversold region and reflecting a pickup in bullish momentum.
The 100 SMA also appears to be holding as support, although a larger pullback to the 61.8% Fib or 136.50 level near the 200 SMA might still be possible. With the short-term SMA above the long-term SMA, the path of least resistance is to the upside so the pair might move back to test the previous highs at the 138.90 level.
Event risks for this trade include the Greek bailout talks, as Germany recently said that they are willing to give debt relief as long as the IMF is on board. Note that Greece has a loan obligation to the ECB this week and failing to meet this payment could mean more losses for the euro.
However, if all goes well and the IMF decides to give more cash to Greece, the euro could be in for a strong rally. There have been no major reports out of Japan yesterday but previous releases have reflected weaknesses in exports, investment, and consumer spending. Earlier today, the medium-tier trade balance release indicated a wider than expected trade deficit of 0.37T JPY versus the projected 0.16T JPY shortfall.
The FOMC minutes could have a material impact on overall market sentiment today, as increased risk appetite could spur gains for EURJPY as well. On the other hand, downbeat remarks on the global economy could spark a flight to safety and lead to gains for the lower-yielding Japanese yen.
By Kate Curtis from Trader’s Way
AUDJPY has been consolidating inside an ascending triangle for a while and is currently testing the bottom of the pattern. A bounce off support might take place since stochastic is moving up from the oversold area and reflecting a pickup in buying momentum.
In that case, AUDJPY could head back to the top of the triangle around the 92.00 major psychological resistance. The moving averages are making an upward crossover, signaling that a longer-term climb is in order and that an upside breakout might take place.
RSI is on middle ground and barely offering any strong clues on price action. This could also mean that consolidation could carry on before the pair picks a clearer direction eventually. Note that the chart pattern is approximately 300 pips tall so the resulting breakout could last by the same amount.
There are no major reports lined up from both Australia and Japan for the rest of the week, leaving risk sentiment as a major driver of price action. Commodity price trends could also push this pair around, with another potential decline in gold prices likely to trigger a downside break.
Traders seem to be favoring the Japanese yen at the moment, as the US FOMC minutes showed that policymakers aren’t too eager to hike interest rates just yet. This could leave the Japanese yen as the preferred safe-haven currency in times of risk aversion.
Other risks for this trade include any surprise announcements from the Chinese government or central bank. Keep in mind that they’ve been trying to shore up the economy through stock market stimulus or yuan devaluation recently, which might wind up supporting demand for Australia’s raw material exports later on. For now, any signs that the Chinese officials are pre-empting a slowdown in the economy might be negative for the Aussie.
By Kate Curtis from Trader’s Way
NZDUSD has been moving sideways for quite some time and is currently testing the top of its range on the 1-hour time frame. Price is finding resistance around the .6600-.6650 levels and might head back to support at the .6500 major psychological mark.
However, stochastic is moving up from the oversold area, suggesting that further gains are possible. RSI is on the move down though, which means that there’s selling pressure present.
On the other hand, the moving averages are hinting at further gains since the 100 SMA crossed up from the 200 SMA. A break past the range resistance could lead to a rally of at least 150 pips or the same size as the rectangle pattern.
Economic data from New Zealand this week wasn’t as bad as expected, as the dairy auction even recorded an increase in prices. This was probably spurred in part by Russia’s removal of its ban on milk imports from the country. Apart from that, the PPI readings weren’t so far below expectations.
As for the US, the CPI readings were weaker than expected while the FOMC minutes showed hesitation regarding a Fed rate hike. As it turns out, Fed officials are seeing improvements in the labor market but are not so sure about inflationary trends. Some pointed out that commodity prices could fall again and that the impact of the dollar’s depreciation is fading.
Only the flash manufacturing PMI is due today and it is expected to tick up from 53.8 to 53.9. Weaker than expected data could mean more losses for the US dollar, as it might suggest that tightening would take place much later this year or possibly early next year. On the other hand, a stronger than expected figure could result to a dollar rally before the end of the trading week.
By Kate Curtis from Trader’s Way
NZDUSD is forming a descending triangle on its 4-hour time frame, making lower highs and finding support around the .6500 major psychological level. Price just got rejected on its latest test of the triangle resistance and is making its way back towards the bottom of the triangle.
The 100 SMA is below the 200 SMA, confirming that the path of least resistance is to the downside. At the same time, RSI and stochastic are on their way down, also suggesting that further losses are possible.
Increased selling momentum could even lead to a break below the triangle support and around 250 pips in losses for NZDUSD, as the chart pattern is approximately of the same size. On the other hand, a bounce off the triangle support could mean a move back to the resistance around .6660-.6700.
The risk-off market environment favors further losses for the commodity-driven and higher-yielding Kiwi, especially since the slowdown in China could weigh on global demand and growth. Last week, global equity markets suffered their worst declines in years, as fears of a meltdown weighed on risk appetite.
In China, the Caixin manufacturing PMI for August showed a sharper contraction in the industry, prompting speculations of lower order volumes from its trade partners, such as New Zealand. Dairy prices showed a bit of a rebound in the country, thanks to Russia’s decision to lift its ban on milk exports.
Event risks for this trade include the Jackson Hole Symposium later in the week, as this could confirm whether or not the Fed can be able to hike interest rates within the year. Investors are already projecting that a September rate hike has lower odds, after the FOMC minutes revealed that policymakers are still not sure about the pick up in inflation.
By Kate Curtis from Trader’s Way
GBPAUD made a strong break past the key resistance around the 2.1400-2.1500 levels, before zooming up to the 2.2300 area. From there, the pair showed signs of pulling back and using the Fibonacci tool on the latest swing high and low on the 4-hour time frame shows that the 61.8% level lines up with the former resistance.
Stochastic and RSI are moving down from the overbought zones, both indicating that a correction is underway. However, the 100 SMA is still above the longer-term 200 SMA, confirming that the path of least resistance is to the upside and that the rallies are likely to carry on.
A bounce off the 61.8% Fib or any of the retracement levels could lead to a move back to the previous highs and beyond. On the other hand, a strong break below the 61.8% Fib might indicate that a reversal is taking place.
Commodity currencies such as the Australian dollar are suffering the brunt of the declines in the recent global market rout, as the selloff has been mostly blamed on China. The country has been trying to devalue its currency to spur export activity and has been implementing stimulus to shore up the equity market, but these are sending a signal that authorities are starting to panic.
With that, consumer and business confidence has significantly weakened in the country, potentially leading to a downturn in demand for raw materials from Australia, its top trading partner. This could mean more declines in commodity prices, possibly spurring more losses for the Aussie.
On the other hand, the pound has managed to retain its gains from the relatively hawkish BOE stance. Although the minutes of their latest meeting revealed that most policymakers are still feeling cautious, European currencies don’t seem to be so affected by the stock market selloff and are continuing to trade on improving fundamentals.
By Kate Curtis from Trader’s Way
GBPUSD recently broke past the resistance at the 1.5650-.1.5700 psychological levels and is showing signs of a pullback from the rally. The Fib tool appliced on the swing low and high on the 4-hour chart shows that the 38.2% to 50% retracement levels line up with the broken resistance, which might now hold as support.
Stochastic is still on the way down, which means that sellers are in control of price action and that a large retracement might be possible. Note that the moving averages are closer to the 50% to 61.8% retracement levels, which might be the line in the sand for any correction. RSI is also indicating bearish pressure.
A bounce off the Fibonacci retracement levels could allow the uptrend to resume, possibly allowing GBPUSD to test the previous highs around the 1.5830 area or move beyond that level. On the other hand, a break below the 61.8% Fib and a downward SMA crossover could suggest that a reversal is in order.
There have been no reports released from the UK economy yesterday while the US printed mixed data. CB consumer confidence came in better than expected, as the index jumped from 91.0 to 101.5 while new home sales fell short of expectations but still indicated a gain from 481K to 507K.
UK BBA mortgage approvals and CBI realized sales data are due today and the former is expected to show an improvement while the latter could show a decline from 21 to 19. As for the US, durable goods orders data are due, with the headline figure slated to show a 0.4% decline and the core figure likely to show a 0.3% uptick.
Stronger than expected data from the UK and weak figures from the US could set the stage for a strong GBPUSD rally, as this might remind traders that the Fed isn’t likely to hike interest rates by September. FOMC member Dudley is also set to give a testimony today.
By Kate Curtis from Trader’s Way
GBPCAD is currently making a correction to the broken resistance around the 2.0600 major psychological support, which lines up with the 200 SMA on the 1-hour time frame. The short-term 100 SMA is still above the 200 SMA so it’s likely that the uptrend could carry on.
In addition, price is finding support at the 50% Fibonacci retracement level while stochastic is moving up from the oversold area. RSI has formed a bullish divergence, creating lower lows while price made higher lows.
A bounce off the 2.0600 handle could lead to a move up to the previous highs around the 2.0950 minor psychological resistance and beyond. However, a break below the 61.8% Fib could mean that a longer-term correction is taking place and that price could head to the next area of interest around 2.0200-2.0300.
Event risks for this trade setup include the release of the UK second GDP estimate and quarterly business investment data tomorrow. No revisions are expected for the initial 0.7% growth estimate, although any surprise upgrades or downgrades could push the pound around. Business investment could show 1.6% growth for Q2, lower than the previous 2.0% increase.
As for the Canadian dollar, oil price movements are likely to be the biggest influence for Loonie forex direction in the next few days. Crude oil saw a slight rebound yesterday due to the US inventories report which showed a 5.5 million reduction in barrels instead of the projected gain of 1 million.
So far, the risk-off market environment isn’t doing the Loonie any favors for now, as traders continue to price in further contraction in Canada’s energy sector due to the downturn in commodity demand. Both the OPEC and US shale oil producers have declined to reduce production, leading to a supply glut that could push prices much lower.
By Kate Curtis from Trader’s Way
Despite its recent sharp selloff, EURUSD is still on an uptrend on its longer-term time frames. The pair is moving inside a rising channel on its 4-hour chart and may be ready to test the channel support at the 1.1000 major psychological level.
Stochastic is already indicating oversold conditions and is turning higher, suggesting that euro bulls are ready to come back. RSI is also turning higher even though it hasn’t reached the oversold area yet. Price could make an early bounce off the current levels and head back to the resistance around the 1.1600 handle.
Note that the 100 SMA made an upward crossover from the 200 SMA, confirming that the path of least resistance is to the upside. However, if a larger pullback takes place, EURUSD might still have a chance at testing the actual channel support. A breakdown below 1.1000 might indicate that a reversal is underway.
The US printed a stronger than expected preliminary GDP reading for Q2 2015, reflecting an upgrade from 2.3% to 3.7% and outpacing the consensus at 3.2%. Initial jobless claims was slightly lower than expected at 271K versus the projected 275K figure.
Event risks for this trade setup today include the preliminary CPI readings from Germany and Spain. This might reflect the recent downturn in commodity prices, with both economies slated to show 0.1% declines. Weaker than expected data could bring talks of deflation back on the table, which might spur more euro weakness.
In the US, the core PCE price index or the Fed’s preferred inflation measure is lined up for release. The report could show a 0.1% uptick in price levels, same as in the previous month. Both personal spending and income are expected to show 0.4% gains while the UoM consumer sentiment index might see an upgrade from 92.9 to 93.2, reflecting stronger optimism.
By Kate Curtis from Trader’s Way
EURGBP has been climbing higher on its 1-hour time frame, recently breaking past the resistance around the .7150 minor psychological mark. From there, the pair zoomed up to the .7400 major psychological resistance before pulling back.
Using the Fib tool on the latest swing low and high shows that the 61.8% Fibonacci retracement level is just above the broken resistance. Meanwhile, the 50% Fib lines up with the 200 SMA, which is currently below the 100 SMA so the uptrend is likely to carry on.
Stochastic is on the move up but is almost in the overbought zone, which means that buying pressure might fade soon. On the other hand, RSI has enough room to rise, indicating that buyers are just gaining traction. Further rallies for EURGBP could take it up to .7400 and beyond while a larger correction could last until the .7100 mark.
Event risks for this trade today include the release of euro zone CPI estimates and German retail sales report. Stronger than expected data could allow the euro to regain ground against its forex counterparts, especially since the positive sentiment following the Greek bailout is still present.
As for the pound, there are no reports lined up for today but tomorrow has the manufacturing PMI on tap and it is expected to hold steady at 51.9 for August. Wednesday has the construction PMI due while Thursday has the services PMI lined up, and this might be a bigger catalyst for pound movement.
Also on Thursday, the ECB is set to make its interest rate statement. No actual policy changes are expected for now but Governor Draghi is likely to provide more insight on the central bank’s bias, given the recent slump in global equities. Reassuring comments could give support for the shared currency while cautious remarks could spur declines.
By Kate Curtis from Trader’s Way