Trade Of The Week: Can ECB Hawks Rescue Euro Bulls?

Our focus falls on the European Central Bank (ECB) which is expected to unleash a monetary bazooka in the form of a 75-basis point rate increase! Such a move will place the ECB among the ranks of 40+ central banks that have increased rates by 75bp or more in one go this year in the face of soaring inflation.

Before we take a deep dive into what to expect from the ECB meeting on Thursday, it is worth keeping in mind that the Eurozone economy remains vulnerable and faces the growing risk of recession. The unsavoury combination of ongoing geopolitical tensions, untamed inflation, and energy crisis continues to darken the outlook for Europe with the latest development revolving around Russia’s Gazprom dumping salt into the wound.

Interestingly the euro was able to hold its ground versus most G10 currencies in August excluding the dollar. However, things are not looking too pretty quarter-to-date with the euro down roughly 5.7% against the king of the currency space.

Since the EURUSD secured a solid daily close below parity back in late August, prices have struggled to push higher thanks to technical and fundamental factors.

The outlook for the EURUSD remains bearish on the daily, weekly, and monthly timeframe with prices wobbling above 0.9900 as of writing. Given how the ECB is expected to join the jumbo hike club, could this be enough to cushion the downside and rescue euro bulls?

The Low Down…

Eurozone inflation hit a new record high in August at 9.1%.

This was higher than the 8.9% witnessed in July and above the 9% market forecast. With inflation hitting such lofty and uncomfortable levels, market expectations intensified over the ECB adopting an aggressive approach toward rates in an effort to cap inflation. According to Bloomberg, traders and predicting a 66% probability of a 75 bp rate hike in September. It does not end here.

Last Friday, Gazprom made a last-minute decision to suspend natural gas flows through the Nord Stream 1 pipeline – ultimately worsening the squeeze on Europe’s energy supplies. This move is likely to expose the economy to downside shocks and create more uncertainty and fuel inflationary pressures as gas prices soar.

What to Expect From ECB?

Before thinking about what to expect from the ECB on Thursday, there are a couple of things to keep in mind before the big day. ECB hawks are certainly in the building but the question is how much resolve they have to tame inflation. It’s worth keeping in mind that the latest ECB economic forecasts could offer fresh insight into inflation expectations. It will be interesting to see what the central bank has to say about the energy crises and whether this will push the Eurozone into recession. Let’s not forget about the depreciating euro and how it could impact the central bank’s policy outlook.

Possible Outcomes on Thursday

  • ECB hikes rates by 75 basis points and strikes hawkish tone opening doors to further jumbo hikes. This move may inject euro bulls with fresh inspiration, pushing the EURUSD back above parity towards 1.0100. However, upside gains may be capped by the gloomy outlook for the Eurozone.
  • ECB hikes rates by 75 bp but expresses concern over the economic outlook, reducing bets of more aggressive hikes down the road. Euro pops higher but bears seize control – limiting gains below parity
  • ECB surprises markets with a 50 bp hike and strikes dovish tone, this could excite euro bears – triggering a selloff that breaches the 0.9900 floor.

EUR/USD: The Path of Least Resistance South…

As the subtitle says, the path of least resistance for the EURUSD points south.

Earlier we identified how the currency pair was bearish on the daily, weekly and monthly timeframe. Looking at the weekly timeframe, prices are respecting a bearish channel and trading well below the 50-, 100- and 200-week Simple Moving Average. Sustained weakness below parity could trigger a selloff towards 0.9700 and 0.9600, respectively. A strong weekly move back above 1.1000 may suggest an incline towards 1.0200.

Zooming in on the daily, prices remain bearish but there could be a period of consolidation if 0.9900 proves to be reliable support. A solid daily close below this level could trigger a selloff towards 0.9700. Should 0.9900 prove to be reliable support, a rebound towards parity and potentially higher could be on the cards before bears re-enter the scene.

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Trade of the Week: Bank of Canada Rate Hike May Boost Canadian Dollar

Notice how the CAD has a year-to-date climb versus most of its G10 peers, except for safe haven currencies such as the Japanese Yen and the Swiss Franc.

Go further back to the end of 2020 and you’ll also find that the CAD is the sole G10 currency that has advanced against the greenback since.

Why has CAD been outperforming?

1. Oil’s surge

Canada is the world’s fourth-largest oil producer and has the world’s third-largest crude reserves. The oil and gas sector accounts for about 5% of the economy, with the commodity being Canada’s largest export.

In short, Canada is reliant on oil. Hence, oil prices have a major impact on the loonie.

Considering oil’s rip-roaring 13% surge so far in 2022 (adding to last year’s 50% climb) that has helped boost CAD’s allure

2. Higher yields

Yields are the calculation of earnings from an investment. And Canadian bonds are now offering higher yields than their counterparts in the US, Europe, and Japan. These higher yields suggest that investors would be more inclined to park their money in Canadian assets over those in other developed markets.

Such heightened demand also implies greater demand for the Canadian dollar, which in turn is offering support for the loonie.

3. Hawkish BoC outlook

Markets are giving a 72% chance that the Bank of Canada will raise interest rates on January 27th, which would mark its first since the pandemic. Inflation in December hit 4.8% which was its highest reading since 1991. Raising interest rates is a primary way that a central bank can help subdue consumer prices.

Note that markets are also forecasting six rate hikes by the BoC before 2022 is over. That is more than the Fed and the Bank of England, who are both expected to hike 4 times respectively this year.

Overall, such ‘hawkish’ expectations have been fueling CAD’s strength in recent months, while also offering the rationale for those higher yields mentioned earlier.

However, not everyone agrees that a BoC hike this week is a foregone conclusion.

Two-thirds of economists surveyed by Bloomberg think that the Bank of Canada’s Overnight Lending Rate will remain at 0.25% this month. In fact, last Tuesday, markets had priced in an 82% chance of a January rate hike, only to pare back such bets down to 72% at the time of writing (hence the recent recovery in USDCAD).

USD/CAD daily chart

In short, the BoC has to deliver on a hike this week to give USDCAD a chance of revisiting its 200-day simple moving average (SMA) as a key support level. That support region is also strengthened by the presence of the currency pair’s 50% Fibonacci retracement level from its June-December 2021 advance.

However, if the BoC disappoints some segments of the markets and keeps rates lower for a while more, that could see USDCAD testing its 50-day SMA for immediate resistance, with stronger resistance set to arrive around the 23.6% retracement line.

BoC vs. ECB to keep EURCAD’s downtrend intact

Compared against the likes of the European Central Bank, which remains far from raising its own interest rates, the BoC appears to be much further ahead in the path towards restoring policy settings to pre-pandemic levels

This diverging outlook has been a key driver of EURCAD’s downtrend over the course of 2021, aided further by the stellar gains in oil prices.

The unwinding of hawkish BoC bets has translated into a slight pullback for EURCAD in recent sessions, even as the pair recovers from oversold conditions after having broken below its lower Bollinger band and touching its lowest levels since April 2017.

Still, EURCAD is not expected to see significant gains in the weeks and months ahead, barring a dovish surprise out of the Bank of Canada this week.

EUR/CAD daily chart

As long as hawkish BoC expectations remain intact, depending on the mid-week meeting’s outcome, and with oil prices set to explore further upside, then the Canadian dollar could still see more gains against most of its G10 peers in the near future.

By Han Tan Chief Market Analyst at Exinity Group

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

EUR/CAD Price Action is Suggesting the Range Bound Movement

1.5020 is the rejection level. The market looks bearish but watch for a possible bounce at the point B. Point B is M L3 and trend line confluence. 1.4770. If the price gets to the zone, we might see a move up. As long as the range 1.5020-1.4770 holds, the market is not having any trend. Trades might be placed around those levels until the breakout happens.

For a look at all of today’s economic events, check out our economic calendar.

Cheers and safe trading,



Canadian Dollar Reverses the Losses From the Last Week

Global indices continue the reversal. Asian stocks started the week off on the front foot and the rest of the world is about to follow.

SP500 is aiming for new all-time highs. Most probably, buyers will succeed.

DAX is defending the crucial horizontal support on the 15800 points.

Gold ends last week’s correction and breaks the upper line of the flag, aiming north.

The EURUSD is still inside of the wedge pattern with a negative sentiment.

The USDCAD is aiming lower after the bounce from the 38,2% Fibonacci. Sentiment is back to negative.

The GBPCAD is showing us the beauty of the false breakout pattern. The sentiment is bearish.

The EURCAD fails to break the neckline of the iH&S formation.

The CADJPY shows strength by bouncing from the neckline and the 38,2% Fibonacci.

For a look at all of today’s economic events, check out our economic calendar.

Canadian Dollar Crashes

The SP500 bounced off a crucial long-term up trendline but once again the new day starts with a drop. I guess that sellers won’t give up that easily.

The DAX stayed below the 15800 level. As long as it stays below, the sentiment is negative.

Gold is continuing the upswing but it would have been much easier if the USD wasn’t so strong.

WTI Oil keeps dropping. As long as it stays below the 66.8 USD/bbl, the sentiment is negative.

The EURUSD continued the downswing after the price broke the neckline of the big Head and Shoulders formation.

On the other hand, the GBPUSD is still above the neckline but it surely is aiming for it.

The USDCAD is aiming for the 38,2% Fibonacci, where we can expect at least a small pause.

The EURCAD broke the neckline of the inverted Head and Shoulders pattern. Sentiment is definitely positive

The AUDCAD is declining, locked inside the wedge pattern. A comeback above the 38,2% Fibonacci can be a great buy signal.

For a look at all of today’s economic events, check out our economic calendar.

Indices In a Correction Mode but Still Bullish in The Long-Term


American indices take a small break after the buying marathon which started the previous week.

DAX bounces from the 38,2% Fibo and the lower line of the flag. That is bullish but the false breakout from Monday can be a little bit worrying.

Gold breaks the upper line of the pennant and climbs higher to test the upper line of the channel up formation. The life of a gold bull seems ok at the moment.

The same with oil bulls. Today, we do have a small correction but the main sentiment is definitely positive.

The EURUSD extends loses after the double top formation.

The AUDCHF is still above a major support but it doesn’t look like a bounce, more like a correction and preparation for another leg down.

The NZDCAD climbs higher after the false bearish breakout.

The EURCAD makes a double top formation on the 38,2% Fibonacci. That is one of the best price action setups there is. A bearish setup of course

The GBPJPY is waiting for a breakout from the symmetric triangle pattern. That can turn into an awesome trade pretty soon.

For a look at all of today’s economic events, check out our economic calendar.

Indices and Gold Continue The Rise


So far saying “Sell in May and go away” is not much of a thing on global stock exchanges.

The SP500 made a nice V shape reversal from a major uptrend line.

The Dow Jones is seeing the same kind of movement.

The Nasdaq on the other hand is struggling a little bit but an inverse head and shoulders pattern could make the situation more positive.

The DAX just hit new intra-day all-time highs, so I guess that we have to admit that the sentiment is positive.

Gold broke the upper line of the wedge pattern, officially starting a new bullish wave.

Brent oil is surely aiming for the upper line of the channel up formation.

The EURUSD is moving very similarly to gold but it also escaped from the wedge to the upside.

The EURCAD is in an inverse head and shoulders pattern. For a buy signal, we need to see a breakout of the neckline.

For a look at all of today’s economic events, check out our economic calendar.

Indices Start a New Month With a Drop

Gold is still holding above the 1760 USD/oz support.

The Dow Jones bounced from the upper line of the symmetric triangle pattern.

The DAX is aiming for the lower line of the rectangle formation.

The EURUSD is back inside the wedge formation, sentiment is back to negative.

The USDCAD bounced from the lower line of the wedge formation.

The EURCAD bounced after Friday’s heavy drop.

The NZDCHF broke the lower line of the rectangle pattern and then tested it as a closest resistance.

The GBPNZD broke from the sideways trend to the upside. This perfectly shows the recent negative sentiment towards the New Zealand’s currency.

The USDHUF tested the broken supports as closest resistances. When the price stays below the resistance levels, a strong sell signal will emerge.

For a look at all of today’s economic events, check out our economic calendar.

Gold With a Bounce From a Crucial Support

Gold is bouncing from a crucial support with a hammer formation on the daily chart.

Silver is still in a a mid-term channel up formation.

The SP500 is at the all-time highs.

The Dow Jones and Dax are still inside a pennant, in both cases we’re waiting for a breakout.

The EURUSD is still moving upwards.

The USDCAD is moving lower after a false breakout from the down trend. The Bank of Canada (BoC) is helping the situation.

The EURCAD is also moving lower but the drop is slowed down by a stronger EUR.

The NZDCHF is inside a rectangle pattern, waiting for a decisive breakout.

For a look at all of today’s economic events, check out our economic calendar.

Canadian Dollar is Coming Back From a Long Trip

April didn’t start out too well for the Canadian Dollar, but it’ll probably end up great for it. That’s thanks to the Bank of Canada, which decided to cut the stimulus yesterday and hinted about rising interest rates in the very near future. Rates are what really drive the sentiment on the market, so we didn’t have to wait long to see significant movements on pairs with the Canadian Dollar.

What’s amazing is that those movements didn’t happen in random places. Before the statement from the BOC, CAD was technically on a very slippery slope, particularly in pairs with USD and EUR.

Let me show you the situation on the USDCAD. Here, the price was in a long-term downtrend but yesterday, the price was breaking both important down trendlines! In theory that was very bullish for this pair, therefore negative for the Canadian Dollar, that is, until the BOC stepped in.

The Canadian dollar strengthened immediately and the price reversed creating a bearish engulfing pattern. What’s more is we saw a false bullish breakout, which almost always is a great opportunity to trade in the opposite direction. Now we’re back below downtrend lines, ready for another drop.

USD/CAD chart

A similar situation can be spotted on the EURCAD. Here, we also do have a bearish engulfing on a daily candlestick chart (green area). We also have a false breakout, which, in this case, is above the horizontal resistance on the 1.507 (yellow). In addition to this, we have a bounce from the mid-term down trendline (green) and also bounce from the 38,2% Fibonacci. Well, based on my understanding of price action, all that is pretty bearish. Sentiment is negative, as long as we stay below the green down trendline.


In the case of USDCAD, everything seems pretty clear, on the EURCAD too, but only from the technical point of view, because today we have ECB! We all know what can happen if ECB surprises the market; none of the technical analyses work and traders go bananas.

Will that be the case on the Euro today? Well, we are not expecting anything major, so maybe…

For a look at all of today’s economic events, check out our economic calendar.

Is That It for the Global Indices?

Gold is about to test the broken resistance at 1760 USD/oz as a closest support.

The DAX came back to the area of its previous consolidation.

The Dow Jones dropped to test the mid-term uptrend line.

The EURUSD rose and is aiming for the upper line of the wedge.

The GBPUSD broke the upper line of the flag and is aiming higher with a nice buy signal.

The AUDUSD rose after the price broke the neckline of the inverted head and shoulders pattern.

The USDCAD consolidated below a major long-term down trendline.

The NZDCHF finished a nice inverted head and shoulders pattern below the lower line of the flag.

The EURCAD broke the neckline of the inverted head and shoulders formation and then defended it as a closest support.

For a look at all of today’s economic events, check out our economic calendar.

Canadian Dollar Flexes Muscles

The GBPJPY is in a triple top formation and a divergence on MACD and RSI. There’s a very promising short but before that happens sellers need to break the neckline of this pattern.

The AUDCAD broke the neckline of the inverted head and shoulders formation and later tested it as a closest support.

The EURCAD bounced off a crucial horizontal resistance with two shooting stars. That’s usually very pessimistic.

The Canadian Dollar Index is in a false breakout from the head and shoulders formation. That is promising for the CAD.

The USDCAD bounced off long-term down trendlines and broke the lower line of the rectangle.

The USDJPY is possibly in a very dangerous bearish reversal.

The AUDUSD denied the long-term sell signal and is aiming lower.

For a look at all of today’s economic events, check out our economic calendar.

Weekly Forex Commentary March 14, 2021

EUR/USD ranges this week severely diminish due to problems within the EUR universe. EUR/JPY remains light years overbought while EUR/NZD and EUR/CAD maintain oversold conditions. EUR/CAD broke its 5 year average at 1.4955 and trades ranges from 1.4955 to 1.4547 then 1.4427. EUR/GBP is oversold however it trades between 0.8740 to 0.8414 to the 5 and 10 year average. EUR/USD cross pairs will determine EUR fate this week to direction. 

GBP/NZD from this week’s close at 1.9374  sits on supports at 1.9330 and 1.9246. Last week vitals from 1.9318 to 1.9188 and the week prior 1.9318 to 1.9176. GBP/AUD from its close at 1.7927 contains resistance at 1.7934 then 1.8134 and last week 1.8130 to 1.7905 then 1.7885 to 1.8130. Both are problem pairs entering into the new week.

Week 7 to massively overbought JPY cross pairs. For the month, NZD/JPY rose 100 pips, barely 200 for AUD/JPY and EUR/JPY, 400 for GBP/JPY and a rare day for 400 pips to CAD/JPY. CAD/JPY beat USD/CAD by 100 pips as USD/CAD traded 300 pips. traditionally, USD/CAD always trades wider ranges than CAD/JPY as CAD/JPY is the follow pair to USD/CAD.

USD/CHF and USD/JPY begin the week deeply overbought while USD/CAD is severely oversold. The strategy this week is long USD/CAD, short CAD/JPY and refrain from trading laggard currencies, USD/CHF and USD/JPY. For problem pair USD/JPY lower must break the 5 year average at 108.98 then 106.43. Above at 109.00’s and 110 is maximum to USD/JPY averages dating to 1999. 

While GBP/JPY and GBP/CHF are overbought, GBP/CAD matches EUR/CAD to oversold and GBP/NZD and GBP/AUD as problem pairs. GBP/USD like EUR/USD is hostage to its cross pairs for direction. 

AUD/CAD and NZD/CAD both broke below vital points at 0.9737 and 0.9073. With NZD/CAD’s break lower, NZD/USD’s close at 0.7173 sits 53 pips above its vital break at 0.7120. Overbought NZD/JPY and NZD/CHF will assist NZD/USD’s eventual break at 0.7120. Then AUD, GBP and EUR slide further. 

AUD/USD big break lower is located at 0.7641. AUD achieves this challenge by breaks lower at 0.7716 and 0.7679. 

Gold remain inside 1815 to 1642. DXY 91.43 Vs 92.78 and 89.95 below. The 2 year yield broke above reported 0.1511 to trade 2 points higher to 0.1711. The 10 year yield at its 1.625 close, trades inside its wide ranges from 1.3305 to 1.8448. 

Respectfully readers, I work extraordinarily hard consistently over 17 years to write the most accurate levels, entries and targets, to bring the most accurate data and market concepts. Don’t believe my words as all is documented here.

Weekly Round Up – February 21st, 2021

AUD/USD broke its long standing and much written line at 0.7821 and traded 57 pips to 0.7877. Above 0.7821, AUD/USD ranges between 0.7821 to the 10 year average at 0.8305 or 484 pips. Below 0.7821, AUD/USD trades 0.7821 to 0.7308 or 513 pips. Below 0.7821 exists 0.7605.

DXY last week maintained its 148 pip range between 89.95 to 91.43. Above 91.43 next targets 92.78 in a 135 pip range.

GBP as written in the last post maintains deep overbought status across all GBP pairs except GBP/NZD. Watch 1.9136 this week for best moves.

EUR/USD opens in fairly perfect neutrality however ranges continue to compress. Problem pair EUR/JPY and all JPY cross pairs maintain deeply overbought status for week 4. EUR/CAD, EUR/NZD and EUR/AUD open the week massive oversold. EUR/CAD and EUR/AUD will provide the best moves.

Stand clear EUR/CHF as AUD/CHF and NZD/CHF will provide better movements.

NZD/USD 0.7267 then 0.7356 Vs 0.7267 and 0.7990. NZD/CAD is overbought while NZD/JPY heading into week 4 maintains richter scale overbought status.

Overall, NZD/USD traded 200 pips from 0.7100’s to 0.7300’s for the past 2 months and provided support to GBP and AUD to allow both to move higher. Explains the divergence seen in EUR/NZD Vs GBP/NZD this week.

USD/JPY watch 104.97 and USD/CAD 1.2587 Vs 1.2826.



EUR/USD Vs USD/JPY, Close Prices and Next Week

EUR/USD most significant high/ low point is located at 1.2026. A break however at 1.2020 represent a wholesale trend change for a lower EUR/USD. Current EUR/USD trades above 1.2026.

USD/JPY on the other side trades above its significant high/ low point at 104.72. Both EUR/USD and USD/JPY are mis aligned. Either USD/JPY remains above 104.72 and trades higher or EUR/USD must break below 1.2026 and 1.2020 to trade much lower to 1.1700’s. In the interim, both pairs are in a standoff.

Noted from USD/JPY constituents, USD/CAD trades below its high / low point at 1.2867 and USD/CHF below 0.8980. USD/JPY remains the outlier USD pair for the past two weeks.

From the January 3rd long term forecasts, the next major USD/JPY inflection point is located at 106.00 exactly and USD/JPY traded to 105.75 then dropped. While 106.00 above represents the next break, below is located the 10 year average at 103.33 and a 267 pip range.

EUR/USD however must break below its 10 year average at 1.2107 to target the vital breaks at 1.2026 and 1.2020. Above is located the 14 year average at 1.2625. As EUR/USD trades above 1.2107 then the wide range becomes 1.2625 to 1.2107 and a 518 pip range. EUR/USD overall hasn’t changed its 518 pip range since January 8 as important MA’s are dropping simultaneously.

Most important point at 1.2625 however is dropping ever so slowly week to week as is 1.2107. A much lower EUR/USD is ahead in weeks to come.

Between 1.2107 and 1.2624 exists minor daily and weekly trade points.

USD/JPY however above 106.00 exists a vital average every 100 pips until the 5 year average at 109.09. USD/JPY’s counterpart due to the exact same pair is CHF/JPY and it trades above 116.20.

For USD/JPY today, best shorts are located at 105.37 and 105.30 to target 104.90. Longs are located at 104.31 and 104.37 to target 104.64. The break at 104.72 however represents a lower USD/JPY next week.

EUR/USD close price today is forecast at 1.2109 and below 1.2137. This places EUR/USD next week between 1.2082 to 1.2137 for next week.

USD/JPY above 104.72 represents a problem for AUD/JPY as it trades above its 5 year average at 79.70 and NZD/JPY trades above its 10 year average at 75.42. Both are mandatory breaks for AUD/USD to trade lower and break its vital MA at its rising line at 0.7557 and NZD/USD 0.7070.

Any price today for AUD/JPY ar 81.57 is a good short to target 81.17 and today’s close price is forecast at 80.96.

Not only are all JPY cross pairs richter scale overbought but most trade near vital inflection points. EUR/JPY 128.24 is next above Vs below at 125.93 or a 231 pip range. Close price forecast today for EUR/JPY at 126.83 places EUR/JPY at perfect neutral to begin next week.

GBP/JPY trades deeply overbought between vital 5 and 10 year averages at 142.47 and 148.27. Good short today is found at 145.26 to target the close price forecast at 144.08. Quite a distance for a Friday. Above 144.08 then GBP/JPY remains deeply overbought heading into next week.

Overbought GBP/USD forecast close price is located at 1.3741. Shorts today are located at 1,.3866 and 1.3857 to target 1.3772 then 1.3741.

For oversold EUR/CAD, next week 1.5471 high/ low point we’re watching closely.

For high flyer and wide ranger GBP/AUD net week 1.7900 represents the big break. 1.7900 broke this week and traded to 1.7785. EUR/AUD and GBP/AUD’s counterpart must break 1.5923 to trade higher. GBP/AUD break at 1.7900 represents an alignment to EUR/AUD as both now trade below respective MA’s.

For oversold USD/CAD, close price today is forecast 1.2753. Shorts today are located at 1.2787 and 1.2773 to target 1.2731 then 1.2696.

Oversold EUR/GBP trades just above its 5 year average at 0.8725.

S&P bottom and long entry is located at 3896.71 and just ahead of 3861.36. Long target is located at 3906.58 for a quick 10 point trade today.

DAX today must trade back to at least 13970.70. Note most vital today at 13926.28 then 14029.00, 14084.78 then 14156.47. Above 13970.70 targets 14029.00.


Great Setups with Canadian Dollar

Tuesday brings us significant weakness of the Canadian Dollar, which is quite surprising as this movement has no clear fundamental background. Usually technical analysis cooperates with fundamentals but this time, the movement is almost entirely technical, at least from my point of view.

Let’s start with the EURCAD, where the common currency is moving higher, testing an absolutely crucial horizontal resistance level. I mentioned this resistance in one of my previous short videos. The 1.544 level on the EURCAD was an upper border of the sideways trend, present here since April. The price closing the day above the yellow line will be a super strong, long-term buy signal.

Next up is the CADCHF, which we also mentioned recently. The price here is in a full pessimistic mode after the bearish breakout from the flag and bearish breakout from the descending triangle pattern. The CADCHF closing the day below the lower line of the triangle will bring us a proper sell signal.

Lastly, I will mention the USDCAD, which was about to create the right shoulder of the head and shoulders pattern but the weakness of the CAD delayed those plans. Currently, the right shoulder is being transferred into a small inverse head and shoulder with the price testing the neckline as we speak. The price closing above the 1.362 level, can give us a 90-pips-buy-signal.

For a look at all of today’s economic events, check out our economic calendar.

Euro Can Soon Be Much Higher Than Now

Another bearish chance for a bigger drop has been wasted. Yesterday, sellers were hoping for a bigger slide on global indices, coming from the bearish breakout from the good-looking symmetric triangle pattern. Hopes faded at the end of the European session and the beginning of the American one, when the DAX and SP500 surged back inside the triangle. In theory, that leaves us with a false bearish breakout, which is usually considered a strong signal in the opposite direction, so in our case – north.

Let’s start with the SP500. You can clearly see the false breakout here and then a nice pullback above the lower line of the triangle. The European session however, didn’t start well and it’s negatively affecting futures on the SP500. The price is correcting the bullish movement from yesterday and is testing the lower line of the triangle again but this time from above. Long story short, as long as the price stays above the lower line of the triangle, sentiment is positive.

Short update about the EURUSD, which is currently forming a flag formation. The flag is a trend continuation pattern, which in this case promotes further rise. In the past few days, the price was making higher lows, supported by the blue up trendline. This may indicate a willingness for a bigger upswing. In the mid-term, as long as the price stays inside the flag, buyers can still have hope for a bigger upswing.

When mentioning the Euro, we have to talk about the EURCAD, which is ahead of a bigger movement. The thing is we don’t know the direction yet. After the flag patten, the price created a rectangle formation. So, simply speaking, the price is currently in a tight range. The way price action enthusiast trade this is by buying when the price breaks the upper line of this pattern and selling when the price breaks its lower line.

For a look at all of today’s economic events, check out our economic calendar.

Bears Strike Back

The new week begins with a complete risk-off mode in the market. Stock bears have finally caught their breath and their short positions are no longer negative. What’s the reason behind this sharp reversal? It may be the last week’s Federal Open Market Committee (FOMC) meeting. It could also be growing fears about a new COVID wave in China, or it may be the fear of a bursting bubble as 10-year-olds become day traders on the Robin Hood app. There are always factors behind every movement.

But in our analysis the focus isn’t about analyzing the ‘why’ instead we focus on analyzing the ‘what’, as in, what’s happening to the price and where is it heading.

So, with the ‘what’ in mind, let’s take a look at the DAX which started to drop with a head and shoulders pattern. The broken neckline gave the green light for the drop while the broken mid-term up trendline increased the bearish momentum. From that, we can see that 23.6% of the post-corona-reversal has been retraced. In my opinion, as long as the price stays above the 38.2% Fibonacci level, sentiment is bullish. What about a breakout? Well, that can get ugly.

The NZDUSD, which we mentioned last week, referring to its weekly chart, was creating a shooting star on the long-term down trendline. The shooting star pattern developed into a slightly bigger, but also bearish candlestick pattern. The price did indeed bounce from the downtrend line, giving us a very handsome sell signal.

Today we’re finishing up with an update on the EURCAD, which we mentioned at the beginning of June. We’d said that the 1.505 support level looked strong and should help buyers initiate a proper upswing, breaking the upper line of the flag. That’s why I’m not surprised by the fact that the price did exactly that! As long as the price stays above the upper line of the flag, sentiment remains positive.

For a look at all of today’s economic events, check out our economic calendar.

Playing the FX Cross in the Wake of the FOMC

The Fed aren’t going anywhere

There is little doubt the Fed was dovish, and the gravy train is going nowhere with future asset purchases continuing at the current pace of $80b p/m and MBS $60b p/m, which should underpin risk for some time. Judging by the bank’s economic projections (and dot plot) interest rates are not going up well past 2023, and the conversation on yield curve control (YCC) was certainly explored a few times, something Powell said was still “an open question”.

One suspects if they are going to announce YCC it will take place in the September meeting, and that meeting will be a biggy as it will give them a decent stretch to see how their many programs, not to mention economics, are evolving and the impact they are having on getting them towards its mandate.

When we consider YCC, I would expect the Fed to focus on the 3-5-year Treasury curve, more akin to what the RBA is doing than the BoJ, although there are a ton of questions around its commitment and of course what level (of yield) would they target.

Real Treasury yields promoting a bid in gold

For now, though we see a solid move lower in nominal yields, with the Fed importantly managing to generate a positive move higher in inflation expectations, with 5-yr Breakeven rates moving +3bp and above 1% for the first time since 9 March. This has resulted in US 5-year real Treasury yields collapsing 11bp to -70bp. For gold traders, this is all that matters and for gold bulls, it is the perfect storm, especially when married with such as the bearish trend in the USD.

Gold has been happy to track the 1750 to 1650 range since mid-April, and I have argued many times, the answer lies in the bond market and it appears to be playing out – Is this the time we finally see a solid break of the range?

Daily gold chart

The move in bond yields has propelled the NAS100, which will feed off lower yields every day, with the Fed keeping the punchbowl in the mix for as long as it takes. On the other hand, the dour economic projections have really made it clear that the Fed sees the prospect of a V-shaped recovery as incredibly low, so we’ve seen the Russell 2000 lower by 2.6%, while the S&P500 fell 0.5%, held back by financials (thanks to the flatter yield curve), and energy (crude fell 2.2%). Asia is feeding off these leads and risk is under pressure, with traders taking a bit off the top.

The USD is heading lower longer-term

If we consider the Russell 2000 is more reflective of inward factors and the US economy, it perhaps tells us why the USD is also being further shunned. The US is no longer the standout and almost isolated destination for global savings that it has been in recent years, and investors now have a choice and have redistributed capital accordingly. Lower yields are certainly incentivising an offer in the USD too, especially with raised prospects of YCC the months ahead. Why? Because if the Fed is going to add an extra measure to further increase its balance sheet through unlimited bond purchases, to fix a specific parts of the Treasury curve at a given yield, then it just increases the prospect of deeper negative real yields and an ever bigger balance sheet.

After a big move in the USD – Trading FX from a tactical standpoint

From a tactical perspective, the USD may still in the doghouse, but if the S&P500 is looking at the Fed’s dour economic projections, the index could find a few headwinds in the near-term. Despite liquidity, if the S&P500 tracks lower then global growth proxies such as AUD, CAD and MXN may also struggle near-term. It makes the currency crosses become a more attractive trading vehicle.

I am watching EURCAD. After some messy price action, the buyers are starting to get a better say here and should crude come off further and we start to see a few more sellers in the S&P500 then the funding currencies (EUR, JPY, CHF) will outperform. Whether this starts to trend is questionable, but the battle lines are drawn.

If playing the USD, AUDUSD is looking more vulnerable, but EURUSD is still strong and would be a preference if keeping the USD in play.

We see price still holding the 5-day EMA and there are few reasons to be short with any genuine conviction on current price action – happy to stay bullish here, where a close above 1.1383 would open up 1.1500. Will turn more neutral on a break of 1.1321.

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Chris Weston, Head of Global Research at Pepperstone.

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Monday Starts With More Optimism

New week starts without any excessive fireworks. Risk ON mode continues, so safe havens are trading lower and global indices are flirting with the new mid-term highs. Optimism can be widely seen across the globe. If we could name a one reason why it is all happening, we would say: NFP. The Friday’s number shocked and probably killed all the remaining bears (if they were still any left).

SP500 starts this week on the front foot. We have a small sideways movement but it should not concern the buyers. Bears probably can see a head and shoulders pattern here but we had so many of them on this chart that I guess, that no one believes in them anymore. In general, they are great, trustworthy formations but in order to trade them, one should wait for the breakout of the neckline, which was not happening here.

Quick update about the EURCAD, which we mentioned few days ago. We were above crucial support on the 1.505 and we said, that from this point, the upswing should start. It did but unfortunately it did not last long. Buyers managed only to test the upper line of the flag and that was it. Currently, the price is about to test the 1.505 again and for the range traders, this can be an interesting mid-term buying opportunity, again.

Interesting situation can be seen on our very own Swiss Franc index, which perfectly shows you the sentiment towards the CHF. Last few weeks are terrible but it seems that Franc has found a place to rest. This is the long-term up trendline connecting higher lows since the April 2019. We have also one horizontal support, which worked for some time but was eventually broken on Friday. Comeback above the orange area can be an interesting buying opportunity.

For a look at all of today’s economic events, check out our economic calendar.