The GBPUSD looks vulnerable but it is difficult to short without a point of reference to place a stop. It is best to wait for a top to form and then short a bounce.
The Cable continues to move higher and is flirting with a resistance level that was last touched in May.
Yesterday the GBP/USD rose as high as the resistance line of 1.5520 (R1) before falling back to close up at 1.5494. Today in early morning hours of the European trading session the price briefly breached the resistance line but failed to hold onto the gains.
Momentum appears to be behind the price move higher as the 14-day Momentum indicator is sloping higher, indicating further appreciation may be in store for the GBP/USD. The next significant resistance level comes in at 1.5820 (R2), the high from the middle of February. Support for the pair rests at the previous resistance levels of 1.5380 (S1), 1.5050 (S2), and a long term support at 1.4775 (S3).
USD/CAD chart with support and resistance lines on it. Click to enlarge:
The initial reaction to the rate hike was weak, as the BOC also lowered the economic forecasts. But all in all, the loonie made gains, enjoying good fundamentals. Will the overall activity also be positive?
- RMPI: Published on Thursday at 12:30 GMT. The Raw Materials Price Index is significant for Canada, with its export oriented economy. Last months number was for the month of May, which saw prices plunge due the economic turmoil 7.2%. A correction is expected now, with a 1.1% rise.
- GDP: Published on Friday at 12:30 GMT. Canada is unique by publishing its GDP once per month. After a strong first quarter, the economy slightly slowed down, with an unchanged GDP last month, for the first time in 8 months. The economy is expected to return to growth now, but probably only 0.1%.
USD/CAD Technical Analysis
The loonie flirted with the 1.0550 line at the beginning of the week, following the rise on the previous Friday. But it then dropped and struggled with 1.04, before closing slightly lower, at 1.0360.
Most lines havent changed since last weeks outlook. If the break below 1.04 will hold, the pair will aim for the next target 1.0280. This was a strong line of support during the previous week, and also way back in October.
Below, the 2009 low of 1.02 is the next line of support, and its quite strong. It also worked as a resistance line after the pair went to parity. And parity is indeed the next support line. A break below 1.0000 which will probably not be seen this week, will send the pair towards 0.98, followed by 0.97.
Looking up above 1.04, the 1.0550 line remains an important hurdle for the pair. A convincing break above it will send the pair towards 1.0680, which capped the pair at the beginning of the month.
Higher, 1.0750 was the top border of a long term range, and also worked as a resistance line in May. Its followed by 1.0850, which stopped the pair in the autumn of 2009 and also in May.
I remain bearish on USD/CAD.
The second rate hike, and the strong Canadian job market, should continue sending the pair south.
Further reading:
- For a broad view of all the weeks major events worldwide, read the USD outlook.
- For EUR/USD, check out the Euro/Dollar Forecast.
- For GBP/USD (cable), look into the British Pound forecast.
- For the Australian dollar (Aussie), check out the AUD/USD forecast.
- For the New Zealand dollar (kiwi), read the NZD/USD forecast.
- For USD/CAD (loonie), check out the Canadian dollar forecast.
It looks like markets are gearing up for a move higher. Most risky assets jumped yesterday despite negative news. The S&P 500 is testing the big round number of 1100, the EUR/USD is approaching a key Fibonacci retracement level, and crude oil is pushing towards the $80 level. Today’s stress tests release is the key event. Wisdom says that it’s not how what the news says; it’s how the market reacts to the news.
Financial markets the past two weeks have been choppy, with risk going on and off again. Much of the movements have been tied to recent economic data releases. Yesterday’s economic data was mixed across the board, divided between the two continents. European industrial orders and British retail sales were stronger, along with U.S. housing data and strong earnings from U.S. corporations which helped to increase trader’s risk appetite. But higher U.S. weekly employment claims, and a warning from Ben Bernanke on the U.S. economy, countered this positive attitude.
But yesterday’s trading struck a chord: despite the negative outlook for the U.S., risky assets were trading higher. This shows a convergence and a red flag; when risky assets rise in spite of negative news, a shift is occurring in the markets.
Despite the uncertain outlook the Fed has regarding the U.S. economy, the S&P 500 was up 2.25% yesterday. The index made a close above the recent downward sloping trend line, indicating a potential reversal of the bearish trend to a bullish trend. Now the index has the big round number of 1100 in its sights.
Spot crude oil was significantly stronger with the price of the commodity rising 3.5%. This breakout was enough to propel the commodity out of its trading range that has contained the price for the past two months. Now spot crude oil is targeting the $80 resistance line. A breach of this level could take the price of the commodity higher in the long term towards the range between $87 and $90.
The euro will be in the spotlight today with the release of the European bank stress tests later this afternoon. This could be a turning point for the EUR/USD as a positive outcome could push the recent bullish run for the pair higher with a first target the 38.2% Fibonacci retracement level at 1.3110. A negative outcome could have traders sending the pair lower and potentially continuing the long term bearish trend that the pair has experienced since last December. The first support would come in near the low of yesterday and Wednesday’s trading at 1.2720.
All eyes will be on the outcome of the stress tests. Those who remember, when the U.S. banking stress tests were released, it was considered a turning point in the U.S. economic recovery. Today’s event could be of a similar magnitude.
But yesterday’s trading struck a chord: Despite the negative outlook for the U.S., risky assets were trading higher. This shows a convergence and a red flag; when risky assets rise in spite of negative news, a shift is occurring in the markets. Traders may begin to favor higher yielding assets and shun those that are considered safe havens, such as the dollar, yen, and gold.
Early expectations stood on a growth rate of 0.6%, double the growth rate of Q1. The actual result, 1.1%, is almost double the early forecasts and almost 4 times the growth rate in Q1. Lets see the lines:
Read the rest of the article about the British growth.
