EUR/USD Price Forecast – Euro Continues to Chop Back and Forth With Positive Thursday

The Euro has rallied during the trading session on Thursday after the Federal Reserve has suggested that the central bank was going to come out and buy just about anything it could, including junk bonds. That being the case, the market is likely to continue punishing the US dollar, but at the same time the European Union is an absolute mess financially. Because of this, the market is likely to continue to see Euro weakness in general. The 1.10 level above is massive resistance, so I don’t think that the pair get above there. When we get closer to the 1.10 level I going to be selling on signs of weakness.

EUR/USD Video 10.04.20

To the downside, I see the 1.08 level as support, and the 1.06 level as the same. This pair will continue to chop around, thereby been very difficult to trade unless you can trade small or perhaps trade short-term charts. I favor the downside in this pair, despite the fact that the Federal Reserve is flooding the market with dollars. This will probably cause a short-term pop to the upside, but I suspect it will also be short-lived.

You can use this as a proxy for the US Dollar Index if your broker doesn’t offer it, because it is a major component to that indicator. Simply put, I use this chart as a gauge of US dollar strength or weakness in other trades, especially when it comes to emerging market currencies. For example, you can do something like use this chart to discern whether the US dollar is showing strength or weakness, and translate that against the Hungarian forint, Mexican peso, South African Rand, and so on.

Risk Rolls On as The Global Economy Prepares to Hit a Brick Wall.

Markets

It was another day of gains across Global equity marketsIn the US, the S&P500 gained a further 1.2% Wednesday with more substantial lifts through Europe and Asia after US leaders stopped tunelessly caterwauling to lay the foundations for the $2tn US stimulus package to be rubber-stamped some time in the Asia time zone. The full text of the bill has yet to be released. Still, the fine print is expected to include a massive expansion of unemployment insurance, loan facilities for small and large businesses, and additional healthcare resources. The Main Street parachute was initially received well by the markets, so hopefully, it will provide a sufficient safety net for the millions that are lining up at the unemployment window this week. With Senate Majority leader Mitch McConnell referring to the package as a “wartime level of investment into our nation.”

Wartime language is convenient for politicians, but wartime maximizes production. Lockdowns minimize production. A lockdown is the ultimate in demand shock. The risk is that companies fail as a result of this, creating a double demand drop. With the stimulus package stamped, the balance of risks must certainly shift back to the evolution of the pandemic. The question now is not how low Q2 GDP will be, but how long the global ‘lockdown’ will last.

Downside and Upside

On the downside, an increase in new cases in China and other countries that are returning to work is the main risk to monitor. But on the upside, (1) the adoption of large-scale testing for the virus and antibodies and (2) finding an effective medicine. And when combined, the risks are more balanced now, with the adoption of large-scale testing that should enable a partial return of economic activity once the epidemiological curve has been flattened. Ultimately all roads lead back to the fact investors need conclusive evidence of coronavirus infection curves flattening, bringing an end to lockdowns insight before pressing that buy button with some conviction.

Sure, the US Congress has agreed on a stimulus package worth more than $2 trillion, supporting oil prices and broader markets. While this is good news, but since it’s impossible to gauge the ultimate economic impact of the Covid-19 pandemic for weeks, possibly months, and until that point, the sustainability of any rally in oil or equity markets is questionable. And suggests the current high level of volatility will likely extend.

Government handouts ameliorate the US economy hitting a brick wall.

Any economy hitting a brick wall can be mitigated by unemployment benefits and other social transfers over short periods. Staying on that policy hamster wheel creates policy fatigue and opens so many different cans of worms that the markets hate. As I alluded to in one of yesterday’s notes, the market has a short memory and a short fuse. All the stimulus chatter will fade if the Covid 19 headcount curve goes vertical. The reality is the “Big Bazooka” sway is impossible to sustain, and not to mention the surprise effects greatly diminish. Ultimately policy is harder to maintain the more protracted virus outbreaks continue.

Quant side of things

From a quant side of the equation, it does appear systematic wanton selling has stopped removing one pillar of pressure from the market. Institutions have started to step in and put money to work, but flow dynamics suggest they continue to buy safety and names they already hold, essentially averaging in. This is not an actual risk-on behavior. But with little else working across a plethora of growth asset classes, anyone running multi-asset portfolios knows the quick returns are probably to be made in equities right now if you can catch the moves.

Investors wait for US jobless claims.

How will the markets survive the US initial claims going ballistic is probably on everyone’s minds this morning?

The problem is new jobless claims will measure the extent of US policy failure, and with the Congress dilly-dallying, it will not help the matters.

Now market participants are bracing themselves for a horrific peek into their future this week when US initial jobless claims are released. The high-frequency data will confirm we’re in a horrible vortex of the fastest and most substantial rise in the US unemployment in modern financial history.

In many ways, initial jobless claims will be the signpost that matters the most in the coming weeks as it will be a near real-time measure of whether fiscal policy worked.

Oil markets

Oil markets received a lift from the US stimulus chatter, but for the most part, activity remains rudderless awash in a sea of Oil.

Price action suggests that gauging the ultimate economic impact of the Covid-19 pandemic is a challenge but does skew lower. Still, one thing that will keep the canary in the product refineries chirping is that the demand collapse will accelerate product storage facility saturation, which could happen over the next few weeks. And at that tipping point, the producer surplus will become a massive logistical headache for oil storage consideration, which then opens up the trap door for oil prices to plummet below cash costs.

On US shale production sensitivity could react more quickly this time than they did in the previous downturns due to CAPEX concerns as with a few exceptions, the sector is now implying 2020 cash neutrality ~$45/bbl.

In addition to storage constraints, it remains challenging to call a floor in the oil price. I expect a high level of volatility as the market responds to news flow, both positive and negative. Still, we should probably continue to expect that an extended period of oil pricing in the $20s is possible with an occasional deep dive lower on storage constraints and inventory builds. Ultimately Oil prices will need some help from another compliance agreement to get out of the double whammy of negativity.

Gold markets 

Spreads are looking much better today after London Bullion Market Association alongside several banks asked the CME to allow gold bars in London to be used to settle futures contract deliveries. Physical gold could then remain in London with underlying ownership then transferred. Lower spreads are always welcome in any market, especially in gold, when physical is especially tight with refiners shut down around the world.

AS you can see, my relatively tight trading ranges over the 24 hours the market hated the EFP spread widening effect as participation fell off the cliff given the large execution cost market makers were forced to reluctantly pass on.

Gold markets like USD liquidity, and it is getting plenty of it, but seems to be getting held back possibly by oil prices and still the lingering crisis dynamics as its too early to rule out further distressed sales near term.

The considerable fall in the price of Oil is creating dollar shortages for oil-producing countries and emerging market (EM) economies alike. None more so than Russia as the massive Ruble decline in March matched by the oil price demise suggest Russia could shift from net buyer of gold to a possible net seller of gold to raise dollars. Even more so, if the US sanctions Russia to force them back to the bargaining table with Saudi Arabia,

Currency markets

Trader markets, so the Willey veterans play the weak hands.

In the meantime, traders are waiting for US claims, so I suspect more position jockeying today rather than a massive spec day, but eyes remain wide open for opportunities.

One such opportunity was USDMXN. The USDMXN is trading entirely in line with the risk on/off the sentiment of global markets. There has been more interest in selling USD overnight. The thought here is the amount of stimulus in the US will eventually benefit MXN.

The other good trade we hit on yesterday was the CNH. Traders had been talking about a possible deposit rate cut by the People’s Bank of China. So, CNH traded from 7.07-08 to just above 7.14 before the market reversed on the assumption 7.15 is a near term line in the sand for the PBoC.

The Malaysian Ringgit

Its an exciting dynamic that is evolving in Asia currency markets as inventors like the more draconian lockdown measures, which will see the virus pass quicker and life return to normal even faster. The improved Ringgit sentiment comes despite the Malaysian economy, which will pay the considerable upfront cost for extending the MCO. Still, with a robust policy backstop from the BNM and government support, the thought is the economy will return to standard form quicker.

USD/MXN: Tricky Fundamentals

Key indicators

Performance in 2020: -2%

Last day range: 18.5657 – 18.6048

52-week range: 18.5680 – 20.2528

Wait. Peso?

Yes, the Mexican peso. Unfortunately, time and intensity of global events, like the Coronavirus disturbing the world, do not let us pay as much attention to the exotic currencies as they deserve. However, we will try to correct this oversight now and give you more space for trading maneuvers and operate more exotics. Therefore, peso now.

So what’s happening with peso?

Banco de Mexico cut the rate to 7%, making it the fifth in a row rate reduction. Given the fact that its inflation is the highest among the G-20 member countries and goes ahead of the domestic economic growth, the Mexican financial authority has a lot of space for monetary easing. In fact, observers comment that the end of 2020 is likely to see the rate cut to 6%.

Wait. The bank goes dovish, and the currency gains?

Yes, you are right. Normally, if the central bank of a country applies monetary easing and expands the influx of national currency in the market, the value of the currency drops. Especially, against such strong counterparts like the USD.

But the case of the Mexican peso is a bit special, that’s why it doesn’t follow the general rule. Primarily, that’s for certain fundamental reasons.

What are these reasons?

First, the US-China trade war has ended. We have already forgotten about that, but this has been in place for two years – compare that to the Coronavirus which has been out there for merely a month. The proportion of the impact is relative to its duration. Peso is a risky asset against the US dollar, and even with the Coronavirus raging around, the markets do not take that as a reason to get depressed. The impression is mixed, at most. That’s why the liberation of the market from the risk-avoiding mood following the US-China trade agreement still has its lasting effect and supports the MXN.

Second, during his recent speech in Davos, US President Donald Trump has underlined the new trade agreements with other countries. He specifically stressed on the new Canada-US-Mexico agreement replacing NAFTA. For Mexico, which has been suffering from disappointing economic dynamics these years, that should sound optimistic in the promise of future investments and refreshed trade flows. Once again, that supports peso.

So the MXN will rise then?

Don’t get carried away too much. Yes, there are fundamentals supporting the Mexican peso now, but the same fundamentals speak against it in the long-term. The main one is: the Mexican economy is weak. Therefore, the question for the MXN is not where it reached, but how long it manages to stand against the USD and where it drops to once it’s exhausted.

Technical levels

Resistance 18.8240

Support 18.5040

This post is written and submitted by FBS Markets for informational purposes only. In no way shall it be interpreted or construed to create any warranties of any kind, including an offer to buy or sell any currencies or other instruments. 

The views and ideas shared in this article are deemed reliable and based on the most up-to-date and trustworthy sources. However, the company does not take any responsibility for accuracy and completeness of the information, and the views expressed in the article may be subject to change without prior notice. 

If History Repeats

If history repeats

No one can tell what’s going to happen in the market, not you, not I, and indeed not Wall Street; hence it’s essential to listen to the messages the market tells you daily.

The market is so finely tuned that, in a matter of 5 trading days, its self-correcting mechanism takes hold without the need for central bank policy. One of the more undervalued market mechanisms is how quickly financial conditions loosen. From Friday a week past highs to peak fear last Friday, the bond markets shaved off a whopping 30 basis points on ten-year US yields, which sent the dollar reeling, and it provides looser financial conditions in the US market.
Also, we know the Fed is a reactionary committee, and history reminds us of the disinflationary shock from SARS that pushed the Fed into a final insurance cut in 2003. And with the Fed struggling to ignite the inflation fires, a rate cut this spring or summer is becoming the base case in quick order

Monday Open

The markets continue to view the Wuhan virus through the lens of the SARS epidemic of 2002-03. Still, given the importance of China in the global supply chain 2020 vs. 2003, the risk might be that the market might not be alarmist enough. And by the looks of Friday’s New York session price action, where traders unanimously voted with their feet preferring to hold long volatility positions ahead of the Monday’s China post-Lunar New Year market open. The thinking is that there’s a chance Chinese “dà mà” traders hit the panic button out of the gates before the expected PBoC policy measures or the markets mean reversion algorithms kick in.

As far as China risk, it’s hard to predict if the catch-up trade trap door gap lower at the open will extend Monday, typically it does during big meltdowns. Still, history reminds us that we should be reasonably confident the Financial Stability and Development Commission, part of the People’s Bank of China, will offer support. Their new light-touch attitude, when it comes to the market’s intervention, will probably give way to the old guard heavy-handed approach, as well they will possibly instruct the so-called “national team “to hold the line of support on equity markets to ensure an orderly open.

At the time of writing, the PBoC has preannounced $170 billion in added liquidity for the Monday open. This is well beyond the band-aid fix, and if this deluge doesn’t hold risk-off at bay, we are in for a colossal beat down. In addition, the PBoC will likely intervene on the currency market, so I would expect them to layer the soothing market tiger balm on thick and heavy.

The Chinese government established the so-called “national team” of financial institutions to buy stocks with public funds directly. It also started a campaign to hunt down “financial crocodiles,” whose trading practices were blamed for numerous mainland market crashes.

So, try to ignore initial headlines around price fall at the open in China since the markets have been closed for a week as the drop is only reflecting a catching up with the broader proxy moves from last week. It’s not the earthquake at the open but rather the aftershocks that will drive risk sentiment on Monday

But and this is a big but.

It doesn’t seem like there is much rational thinking going on given the mortality rate remains low, while comparisons and extrapolations to SARS seem questionable. However, this is a market that appears to be reasonably fragile when it comes to confidence. And without the usual stock market rally to help paper over the cracks, I suspect investors will take few chances when it comes to running risk on Monday. And they’re probably only a step away from moving into sell first ask question later mode.

SARS vs. WARS

The biggest threat to the global economy is not just because the disease spreads quickly across countries through networks related to global travel. But also, because any economic shock to China’s colossal industrial and consumption engines will spread rapidly to other countries through the increased trade and financial linkages associated with globalization.

However, two reasons the coronavirus outbreak may hit the financial market harder than SARS did in 2003 are 1) consumption is now a more substantial part of China’s GDP and 2) China’s overall growth trajectory. In 2002, retail sales for 34% of nominal GDP; this share is now over 40%

While comparisons between the SARS and coronavirus are beyond tricky, for those looking to play the big rebound play, keep in mind that in 2003 the entire backdrop was completely different as most risky assets were already at the lows, not highs, after the tech bubble blow up and US recession. So, looking at the stream of rebound comparison is invalid on so many levels.

Wuhan Virus Toolbox

It’s injudicious for anyone in the market to offer any strong views on how this virus will play out. But instead, you need to come up with a reactive game plan, which I’ve tried to simplify below to get you thinking in the correct direction.
Remain focused on the daily flow of confirmed cases and when they peak  

             2019-nCoV Global Cases by Johns Hopkins CSEE
In the unfortunate event that the virus’s spread is not contained, the impact on the global economy will likely be much more severe than it was during the time of SARS. China’s share in the global economy and in global trade is colossally more significant by multiples than what it was 17 years ago.

Bloomberg

The ‘starting points’ on global GDP and trade growth are much weaker. Although China has policy room to accommodate a short term shock, its ability to do so is limited by structural deficiencies that prevent policy markers getting the money into the hands of those that need it the most and are probably more limited now than at the time of the previous health scares, such as SARS

Bloomberg

Market positioning could be a concern, but I don’t want to be the alarmist. Still, according to most metrics, up until last week’s equity futures long positioning had continued to rise to new records, call volumes have surged to the highest since October 2018, and sentiment indicators are at the top of their historical band. Over the last three months, equity funds have also seen inflows of $75bn, the strongest since early 2018, with cyclical sectors being big beneficiaries, especially Tech, Financials, and Industrials. Indeed, the market’s fear factor has given way to greed, which could leave current positions precariously perched. Pullbacks of 3-5% in the S&P 500 have been typical every 2 to 3 months historically, but now we’ve stretched to about 3.5 months since October market knockdown. If a significant “Wu-Flu “risk wobble occurs, we could see more profound positioning unwinds as a pandemic panic ensues. That situation has become a real possibility.

IMM Data

 

There is nowhere that China’s economic influence is more on display than in Asia. The key driver of ASEAN’s steady growth over the past decade has been the rapid growth in bilateral trade with China. China has been ASEAN’s largest trading partner in the past ten years, with two-way trade reaching $292 billion in the first half of 2019. And thus, makes the rest of Asia extremely vulnerable to a China economic slowdown.

 

At some point this week, the market may begin to focus on a few rebound trades; however, ASEAN traders will also look at risk from two different perspectives. Economies that are tourist and service providing to China and that will not recoup lost spending – i.e., Thailand and Singapore. Both could continue to struggle for months ahead l. Whereas manufacturing and commodity exporters that could see pent-up demand rebound later in the year will probably see much of the initial rebound flow if virus fears deescalate and the transitory trade sets in

Currency Markets 

The greenback was under pressure across G10 into month-end rebalancing. USDJPY got hit the hardest, and it struggled to get back above 108.50 even on the short squeeze mini bounce into the weekend. Rebalancing isn’t solely to blame for this move – it’s a bit of a catch-up move with USTs and risk in general. Downside levels are at 107.90/107.65.

The weakest ASEAN links in the basket are the most obvious (THB and SGD), so despite paring back USD longs vs G-10 on Friday, interbank traders were flocking to those paths of least resistance.   ( buying USD vs THB and SGD)

If history repeats itself as was the case in 2003, Singapore MAS could let the doves fly while the Bank of Thailand will most certainly bring forward a rate cut to ward off the damaging effects on the tourism sector. Both of which could significantly weaken those two currencies.

On the IMM data, and after a short five weeks being short the US Dollar, the tape indicated investors flipping aggressively back into dollar longs, as a safe-haven hedge. At the same time, total open interest declined to a 2-1/2 year low. Investors increased EUR and AUD shorts while also reducing GBP, CAD, and MXN length.

USD long position shift on the IMM

IMM data

Oil markets

The Oil market has caught more than a case of the sniffles. China’s larger oil market footprint (5.7 MMB/d in 2003 vs. 13.9 MMB/d today) raises the potential for enormous demand devastation given Chinas current oil demand profile in comparison to the SARS epidemic era.

According to Deutsche Bank, “Early estimates of the impact on oil demand growth are around 100 kb/d, raising this year’s oversupply to 1 MMB/d. This assumes the disruption is limited to the first quarter and suggests Brent prices may remain USD 60/bbl. below.”

Although oil bulls are hoping on a wing and a prayer that an early OPEC meeting (February instead of 5 March) raises the prospect of greater supply discipline, but this is by no means certain given OPEC’s current low level of output and the general consensus among OPEC ministers who believe the market impact will be smaller than the current level of market fear priced into the equation.

Regardless of the outcome of the 2019-nCoV epidemic, oil prices may have further to fall and will generally remain under downside pressure due to the toxic combination of extreme demand destruction and excess non-OPEC supply.

Gold markets

Gold gains on massive demand as a hedge against coronavirus concerns; in a position build-up that is now expected to challenge USD1,600/oz near term. Gold continues to benefit from the need for risk-off positioning as investor sentiment tanks and the economic devastation reality check sets in as equity market traders have pivoted from buying the dip to selling the fact.

Gold propped up as US equities weakened, and yields fell, with the yield on the US 10-year Treasury easing to 1.502%. But just as significant of short term traders, as was the case for the disinflationary shock from SARS, that pushed the Fed to a final “insurance” cut in 2003, with the Fed struggling to ignite the inflationary flame, a rate cut this spring is quickly becoming the market base case and extremely bullish for gold.

For now, the weaker US dollar is factoring positively into the equation as the market brings forward a Fed interest rate cut, which should weaken the US dollar and provide a positive knock-on fillip for gold prices.

Gold has clearly benefited from the turmoil emanating from the coronavirus and the Iran conflict earlier in the month. However, if both tails fade gold positioning could be a bit of a problem, and with physical demand remaining weak, traders will need to be extremely alert to plateaus in virus headcount or mortality rates on a daily basis.

Gold positioning in ounce terms (ETF, Net Managed Money, Tocom non-commercial)

The week ahead

The other risk here is that all the bandwidth is being taken up by the virus, while there are plenty of other issues to consider.

A new NBC/WSJ poll puts Bernie Sanders in the lead, the first time he has been at the top of a national survey (even if statistically tied). Sanders leads on 27%, Joe Biden is on 26%, Elizabeth Warren is on 15%, and Michael Bloomberg has crept up into the fourth spot with 9%. This should be a significant risk for both the USD and US equities if this trend continues and Trump’s popularity wanes in the head to head polls with Sanders.

Buckle up for a US economic data deluge 

This week’s economic docket includes the granddaddy of data releases, the January employment report (Friday), which will take on a heightened level of importance given the at the markets are now in the process of pricing in Fed rates cuts sooner than later. As well, we have the January manufacturing ISM (49.8 vs. 47.8) along with Wednesday’s non-manufacturing ISM (55.5 vs. 54.9) and ADP employment survey (150k vs. 201k) will set the tone going into Friday’s employment report.

The anatomy of market sell-off through the lens of a trader

S&P 500 daily return, past 7 days, which is a very typical risk-off progression but nothing too crazy on the downside yet.

Friday 3:30 AM SGT (Yes real traders wake up at 3 AM when things look gnarly) Hmm WHO put there stamp of approval on China containment efforts. Traders quickly move to reduce over hedged USDCNH and Gold longs and buy back a chunk of those Oil shorts as WHO opposes restrictions on travel to China or trade with it. Everyone seems to agree, although they know things are going to get worse before better. It’s the herd mentality that also influences trading momentum when uncertainty is rampant.

Friday 9:20 AM SGT Social media goes frantic when close to 10,000 total confirmed cases of the virus were reported, which means its spreading at a faster pace than during SARS. (however, during SARS, the data was arguably underreported, partly as it coincided with the war in Iraq.) The market pared risk, but the WHO decree was too fresh in trader minds to trigger a more prominent sell-off.

Friday Asia Noon SGT: Now traders think its time to square the books and add some defensives hedges against a possible Monday market meltdown. Still, no significant market moves as big Asia traders are mostly hedged via proxy or in cash now looking for the transitory reversion play this week.

Friday London opens Asia is hedged but probably not over hedged, which begets a more prominent tail risk on Monday, none the less the London market continues to de-risk and gingerly buys more bonds underscoring the bid for gold. However, the big guns in London were somewhat complacent to the downside, which could contribute to a more significant Monday open tail risk.

Friday New York: Proprietary and discretionary traders get into the office early after following the proceedings in Asia the night before. And are now thinking that they need some defensive hedge as the markets are looking a bit ugly.

Friday New York Opening Bell: Splat!! Cross asset traders unanimously move in to buy more US bonds and to sell the Spooz. On the currency market, FX traders cover USD longs as rates markets are starting to price in a summer Fed rate cut and opt for the path of least resistance and buy USD vs. (SGD, THB, and CNH) to hedge weekend risk and probably add a bit of over hedge for a punt against the China Monday open

Friday New York 2:00 PM: Now traders think they are too short as the market has only sold off <2 %, so they now think it’s wise to cover some of that over hedged risk and the usual 2 PM to 4 PM EST short squeeze ensues.

Saturday: Everyone reads the Armageddon prophecies, the worst-case scenarios, and just how bad Fridays beat down was. But more importantly, the fear factor sets in due to a deluge of insane amounts of negative coverage.

A New Week Dawns

Monday Open: Market gap lower as expected selling initially builds, and then it would usually cascade into Europe and then New York. This is what typically happens but not sure how much of a force the “national team ” will be and how effective the PBoC massive liquidity injection remains the question mark. But its a lot of cash and could keep the market on an even keel.

Monday New York: Normally the lows would hit around 1- 4 PM EST, and then markets start to revert

Tuesday Asia: Yup another Turnaround Tuesday and the shorts get painfully squeezed

Wednesday: The teeter tooter battle of the bulls and the bears

Thursday: Unless there a slow down in the virus spread, traders get nervous again and put on the hedges they took off the day before.

Friday: Rinse and Repeat

Twitter Follow

Finally, after 8 years, I’m starting to get more active on Twitter, where I’m sharing interbank views from an assortment of Top tier global banks I’m in contact with , so follow me and I will be sure to follow you back.

Also, I will provide a weekly follow recommendation. This week it’s a heads up to Kevin Muir, who runs his own fund out of Toronto Canada . Also, in a former life and like me, he cut his trading chops on Bay Street Toronto Canada, where he was an equity derivates trader for Royal Banks of Canada. Kevin offeres up excellent market insights and great retweets.

FOMC With No History, Back To Normal

Yesterday’s FOMC did not bring much to the global trading activity. That should not surprise us as FED didn’t change anything and met the traders’ expectations. With the FOMC being uneventful, traders focused again on the Coronavirus and the rising number of cases. Yesterday’s gains on Stocks, were largely wiped out during the Asian session. On the side note, in the shadow of the global health crisis, President Donald Trump signed a Trade Agreement between US, Canada and Mexico (USMCA) and on this, we will focus on today’s analysis.

Information was positive for both: Mexican Peso and the Canadian Dollar but both currencies have their own problems. USDMXN seems relatively strong though. Most of the EM currencies are currently under pressure due to the risk off mode coming from the Coronavirus outbreak but the USDMXN is relatively low. Actually, we are currently on a major long-term dynamic support and a breakout here can trigger a major sell signal, positive for the Peso. For now, this seems less likely but once the world will switch again towards the risk, this instrument will be the one to look at.

USDCAD looks a bit different. Here, CAD is suffering from the false breakout that happened at the end of the year. Breakout below major dynamic and horizontal supports was fake and the price reversed sharply. False breakouts are usually very strong trading signals and this is precisely, what we can see here. USDCAD is now much closer to the breakout of the down trendline than to the bearish movement. Sentiment here is definitely positive.

Small update of the EURUSD, which we mentioned few days ago and we were bearish. The price indeed declined and met a crucial mid-term support from November– 1.099. This is were the buyers try to initiate a correction and are drawing a triple bottom formation, with a nice divergence on the MACD. All is needed here for a short-term buy signal is the breakout of the neckline of this formation.

U.S. Senate Approves New North American Free Trade Deal

On Wednesday, all eyes were on the signing of the “Phase One”accord between the United States and China on Wednesday. This important event overshadowed the ratification of another trade deal, as the U.S. Senate ratified a new free-trade agreement between the U.S., Canada and Mexico.

The Senate voted on Thursday to overwhelmingly approve the deal, by a vote of 89-10. The accord now goes to President Trump, who is expected to sign it into law next week. The United States-Mexico-Canada Agreement (USMCA), revises the North American Free Trade Agreement (NAFTA), which the three countries signed back in 1993.

The NAFTA agreement has worked quite well, boosting the economies of all three nations. The USMCA leaves much of NAFTA intact, but there are some changes, which appear to benefit the United States. President Trump attacked NAFTA as being responsible for millions of manufacturing jobs to low-wage factories in Mexico. Although USMCA will not restore millions of jobs, it contains provisions that will reduce the incentive for American companies to relocate south of the border into Mexico. First, more vehicles will be produced in plants where workers are earning a minimum of $16 per hour. Further, Mexico has committed to enacting legislation which makes it easier for workers to form unions, which should improve the wages and conditions of Mexican employees.

The North American market is the biggest in the world, and the freshly minted USMCA should lead to economic gains for all three partners. In an era when global trade wars have intensified and countries have resorted to punishing tariffs, such as in the case of the U.S. and China, free-trade zones are especially important – for the players involved, as well as the global economy.

COT: Accelerated Dollar Selling Into 2020

Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

For the full Forex Report and Financials Report.

Five weeks of selling has driven the speculative dollar long against ten IMM currency futures and the Dollar Index down to just $5.6 billion, the lowest bets on a stronger dollar in 18 months. The first week of trading was particularly brutal with the dollar being sold against all the major currencies.

The carry supported MXN reached a nine-month high last week and is now challenging the dollar as the most popular long. The GBP long meanwhile reached 16.5k lots, the most bullish since May 2018 while EUR net shorts were trimmed to the least since November.

Leveraged fund positions in bonds, stocks and VIX
What is the Commitments of Traders report?

The Commitments of Traders (COT) report is issued by the US Commodity Futures Trading Commission (CFTC) every Friday at 15:30 EST with data from the week ending the previous Tuesday. The report breaks down the open interest across major futures markets from bonds, stock index, currencies and commodities. The ICE Futures Europe Exchange issues a similar report, also on Fridays, covering Brent crude oil and gas oil.

In commodities, the open interest is broken into the following categories: Producer/Merchant/Processor/User; Swap Dealers; Managed Money and other.

In financials the categories are Dealer/Intermediary; Asset Manager/Institutional; Managed Money and other.

Our focus is primarily on the behaviour of Managed Money traders such as commodity trading advisors (CTA), commodity pool operators (CPO), and unregistered funds.

They are likely to have tight stops and no underlying exposure that is being hedged. This makes them most reactive to changes in fundamental or technical price developments. It provides views about major trends but also helps to decipher when a reversal is looming.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

North American Trade Deal on Track Despite Last Minute Hiccups

The headlines across financial pages blared ‘Trade Deal Reached’, as the U.S .and China concluded a limited trade agreement. There is another trade deal, however, which has lurked in the shadows, namely, the US-Mexico-Canada Agreement (USMCA). This agreement, which replaces the 26-year old NAFTA deal, is on the verge of becoming a reality, after months of acrimonious negotiations. There was a last-minute snag on the weekend, as congressional Democrats introduced a provision to allow for U.S. labor inspectors to be stationed in Mexico. The Mexican government protested that it wasn’t consulted about this addition, and the U.S. government quickly clarified that the U.S. personnel would not act as labor inspectors and would be subject to Mexican law.

The USMCA trade bloc is the largest trade bloc in the world, based on the combined GDP totals of the U.S, Canada and Mexico. Trilateral trade between the three nations hit $1.2 trillion in 2017. President Trump insisted on renegotiating the NAFTA accord, and the new USMCA was signed by the three parties in 2018. The agreement has already been ratified by the Canadian and Mexican governments but has yet to be ratified into law in the U.S. The House of Representatives will vote on the deal later this week, with the Senate expected to follow in January. The USMCA is similar to NAFTA, with two key differences – it provides U.S. farmers with greater access to Canadian dairy markets and requires a greater percentage of a car’s parts to be manufactured in North America in order to be tariff-free.

The USMCA marks a major victory for President Trump and the timing couldn’t be better, with less than a year to the 2020 election. Investors are also pleased that the U.S. is about to ratify the deal – the Mexican peso continues to gain ground, and is currently below 19, its highest level against the U.S. dollar since July.

FOMC Brought Us Few Great Trading Occasions

For majority of the traders it was not a surprise. First of all, that was the recent trend for Dollar and what is more, the first reaction after the FOMC was not too volatile. Despite the limited response for the FOMC in terms of the pips, we still got few nice, significant trading signals.

We start with the main pair – EUR/USD, where the technical situation finally looks really promising. Yesterday, the pair managed to break two important resistances. The first one was the neckline (blue) of the nice inverse head and shoulders pattern and the second one was the long-term down trendline (red). First step towards a major buy signal was made, now it is time for the buyers to hold above those lines and testing them as valid supports. Once the price will establish a strong position above those two, the buy signal will be created.

Second one is the USD/MXN, which we also mentioned yesterday. We pointed out at a rising bearish pressure and the willingness for a breakout of the lower line of the symmetric triangle pattern. We did not have to wait a long time for that. FOMC driven movement managed to break the crucial support, giving us a major sell signal.

Last one is the NZD/USD, which finally reached the crucial long-term resistance (red), that we mentioned in one of our previous analysis. Back then, we anticipated that the price will get there and Kiwi did not disappoint us in this case. Red line is a great place to start a proper downswing but price action traders do not take that for granted. Price action traders wait for the situation to develop. Price closing a day above the red line will be a major buy signal and the price creating a bearish reversal pattern and closing a day below the Wednesday’s lows will be a signal to go short.

This article is written by Tomasz Wisniewski, Director of Research and Education at Axiory

American Dollar Tries A Small Reversal

In this analysis, we have three interesting technical setups on the forex market, all of them involve the USD.

First one is the Cable, which is going down quite sharply. First signs of this possibility showed up on Monday, when the price created a shooting star candle on the daily chart. This pattern was later repeated on Tuesday. When you see two shooting stars in a row, especially on the daily chart, you need to expect something big. As for now, the price is respecting those two bearish formations and is going down. Natural target for this drop is the upper line of the recent rectangle. It looks like a decent mid-term support, which can be used to take bearish profits. Keep in mind though that the dominant sentiment here right now is a bullish one.

Second instrument is the USD/CHF, where we also have a shooting star in play. This formation was created on the last trading day of November on the crucial long-term horizontal resistance. December is so far a month of bullish suffering. Yesterday, we managed to break the important dynamic support. Today we are trying to test it as a resistance and as long as we stay below, we do have a proper sell signal.

Last one here is the USD/MXN, where last week finished with a very ugly bearish candle. We are still in the long-term symmetric triangle pattern but this kind of a price action is indicating a willingness to a bearish breakout.

This article is written by Tomasz Wisniewski, Director of Research and Education at Axiory

Promising Setup on the AUDUSD

There is an instrument, which is strongly supported by the positive comments from Trade Wars, most recent comments from the local central bank and own technical situation. This instrument is the AUDUSD.

First of all, AUD is affected by the condition in the Chinese Economy. Big Dragon doing well is supporting the Aussie, simple is that. Second of all, we just got a rate decision and statement from the RBA. Although comments were not so hawkish “Prepared to ease monetary policy further if needed, reasonable to expect an extended period of low rates”, traders decided to eventually buy the AUD. That leads us to the technical situation, where we do have a beautiful inverse head and shoulders pattern, which I mentioned in one of our previous videos. The price broke the neckline and then defended that as a support, which is giving us a green light to go long. What is more, we are currently breaking the major down trendline and price closing a day above the red line, should be a bullish game changer.

Similar setup can be found on the USDJPY. Yen is weakening across the globe. Here, the price also defended the neckline and went higher. For the legitimate buy signal, we need to break the resistance on the 109.

Last one is the USDMXN, Dollar to Peso, where I showed you the symmetric triangle pattern. We are still inside but the buyers are not using the lower line of this formation as a trigger to go higher. This may indicate the willingness to break this support, which should bring us a sell signal. As for now, we wait but once the price will close below the green line, technical analysis will ring the bell to go short.

This article is written by Tomasz Wisniewski, Director of Research and Education at Axiory

Waiting for FOMC. Nice Occasions on DAX, USDMXN and USDTRY

Yesterday, we talked about SP500, today, I will show You the situation on DAX. We will focus on the long-term as this is the best timeframe to trade shares. For the past two years, DAX was creating an inverse head and shoulder pattern, which bounced from the major up trendline. In the middle of October, the price broke the neckline of this formation, creating a buy signal. With this, the movement towards the highs from 2017 and 2018 seems very probable.

Now, two emerging markets currencies. First one will be a Mexican Peso with the USD. Here, we do have a positive sentiment towards the MXN, mostly thanks to the trade deal between Mexico, US and Canada, which is signed but not yet ratified. Typical market behavior – as for now, we are buying the rumors. Selling the facts can come afterwards. Technically, we are inside of the symmetric triangle pattern. The price is bouncing from its lower line, which can be a good buy signal. On the other hand, the bearish breakout here, will bring as a negative sentiment.

Last is Turkish Lira also in a pair with the USD. Few weeks ago, situation here wasn’t looking good for the TRY. Recent agreement helped a bit but it seems that we are coming back to the weakness of Lira. After the bullish breakout from the symmetric triangle pattern, the price is now breaking the upper line of the wedge. Wedge, in this case, can be considered as a trend continuation pattern and is promoting a further rise.

This article is written by Tomasz Wisniewski, Director of Research and Education at Axiory

GBP/USD, USD/CAD, USD/MXN – North American Session Daily Forecast

GBP/USD is trading sideways on Wednesday. In the North American session, the pair is trading at 1.2877, down 0.05% on the day.

Brexit – Extension, No Deal or Election?

The drama continued in the British parliament on Tuesday, as lawmakers voted down a bill which provided a tight timetable to pass a withdrawal deal by October 31, the date the U.K. is scheduled to leave the European Union. Prime Minister Boris Johnson has threatened to call an election, but he would need a majority in parliament for such a move. The EU appears willing to grant yet another 3-month extension, so the Brexit saga is by no means over.

Technical Analysis

GBP/USD has been tough to predict this week, as the pair has been swinging in both directions. The pair tested the symbolic 1.30 line early in the week, but has retraced. Earlier on Wednesday, GBP/USD tested support at 1.2870. Will the pair be able to sustain the current downtrend? The pound-to-dollar ratio has climbed in October, with GBP/USD gaining an impressive 5.1%.

GBPUSD 1-Day Chart

USD/CAD

USD/CAD is flat in Wednesday’s North American session. Currently, the pair is trading at 1.3093, down 0.01%.

Canadian Wholesales Sales Slide

It has been a disappointing week for Canadian indicators. Retail sales for August were released on Tuesday, and both the headline and core readings showed declines. On Wednesday, Wholesale sales declined by 1.2%, down from a gain of 1.7% in the previous release. Despite the soft numbers, the Canadian dollar has managed to hold its own against the greenback.

Technical Analysis

After posting losses at the start of the week, USD/CAD has leveled off and is range-bound. The pair is putting pressure on support at 1.3070, and this line could break before the end of the week. Below, we find support at 1.3020, which has held since mid-July.

USDCAD 4-Hour Chart

USD/MXN

USD/MXN has posted small losses on Wednesday. In the North American session, the pair is trading at 19.12, down 0.11% on the day.

Technical Analysis

USD/MXN has remained range-bound for a fourth successive day. The pair continues to put pressure on support at 19.10, but has been unable to sustain a downward move below this level. Below, there is support at the round number of 19.00, which has psychological significance. It has held firm since July 31.

GBP/USD, USD/CAD, USD/MXN – North American Session Daily Forecast

GBP/USD has posted slight losses on Tuesday. In the North American session, the pair is trading at 1.2945, down 0.11% on the day.

Brexit Drama Continues

After climbing 2.1% last week, the pound has leveled this week. With parliament debating a withdrawal bill over the next few days, Brexit fever remains high and we could see further volatility from the pound. The government is adamant that the U.K will leave the EU on October 31, so it promises to be a dramatic week.

Technical Analysis

The pound tested the symbolic line of 1.300 on Monday and I expect this line to be further tested this week. The pound-to-dollar ratio has increased significantly in the month of October, as GBP/USD has jumped 5.1%. Above, there is resistance at 1.3060, which has not been tested since May. On the downside, there is resistance at 1.2870.

GBPUSD 4-Hour Chart

USD/CAD

USD/CAD is flat in Tuesday’s North American session. Currently, the pair is trading at 1.3090, up 0.01%.

Canadian Retail Sales Slip

Canada posted soft retail sales in August. Retail Sales declined by 0.1%, compared to a gain of 0.4% a month earlier. The core reading declined by 0.2%, its third decline in four months. Despite the soft data, the Canadian dollar has managed to hold its own against the weak U.S. dollar.

Technical Analysis

USD/CAD posted gains on Monday, and the pair is putting pressure on the support line of 1.3070. The trend is down, so I expect the pair to break below this level during the week. Below, we find support at 1.3020, which has held since mid-July.

USDCAD 1-Day Chart

USD/MXN

USD/MXN has posted slight losses on Tuesday. In the North American session, the pair is trading at 19.09, down 0.15% on the day.

Technical Analysis

USD/MXN pushed below support at 19.10 on Tuesday, for the first time since the end of July. The pair has recorded three straight losing weeks, so the trend is down. We could see USD/MXN break below this line later in the week. Below, there is support at the round number of 19.00, which has psychological significance. It has held firm since July 31.

GBP/USD, USD/CAD, USD/MXN – North American Session Daily Forecast

GBP/USD has posted slight gains on Friday. In the European session, the pair is trading at 1.2882, up 0.14% on the day.

Crunch Time For Brexit

The spotlight is again on the British parliament, which has already rejected previous Brexit bills. On Saturday, parliament votes on the latest Brexit deal that has been hammered out between Prime Minister Johnson and the European Union. The vote is expected to be tight, but if lawmakers pass the bill, traders can expect further gains from the British pound early next week. The pound has shot up 2.1% this week and is currently sitting on a 21-week high.

Technical Analysis

The trend for GBP/USD is up and the pair continues to test resistance at 1.2870. Above, there is resistance at 1.2940. On Thursday, The pair put pressure on the symbolic level of 1.3000, and this line could be vulnerable next week if the pound-to-dollar ratio continues to increase.

GBP/USD 4-Hour Chart

USD/CAD

USD/CAD is flat in Friday’s North American session. Currently, the pair is trading at 1.3138, up 0.01%.

C$ Climbs on Strong Manufacturing Data

Canadian Manufacturing Sales rebounded in August, with a solid gain of 0.8%. This followed two successive declines. In the U.S., the Philly Fed Manufacturing Index fell to 5.6 in September, down sharply from 12.0 in the previous release. The Canadian dollar took advantage and gained 0.50%, climbing to a 4-week high.

Technical Analysis

After spending most of the week close to the 1.32 level, the pair broke below this line on Thursday and also tested support at 1.3150. This line had not seen action since September 10. With the trend clearly downwards, support at 1.3120 is vulnerable and could be tested as early as the North American session on Friday.

USD/CAD 4-Hour Chart

USD/MXN

USD/MXN is trading sideways on Friday. In the European session, the pair is trading at 19.20, up 0.04% on the day. The Mexican peso is poised to post gains for a third straight week, and on dropped to 19.13 on Thursday, the pair’s lowest level since the end of July.

Technical Analysis

USD/MXN tested support at 19.20 earlier this week but has not been able to consolidate below this key support level. Below, we find support at 19.10. The trend for USD/MXN remains down. If this continues, this line could find itself under pressure as early as next week.

CURRENCIES SHOW A SHIFT TO SAFETY AND MATURITY – WHAT DOES IT MEAN?

Now that a few of the world’s most mature economies, and some that may surprise you, are starting to change directions, we may be beginning a new stage of the “capital shift” process that may open up multiple new opportunities for skilled technical traders.  As the old saying goes, “follow the money”.  At this point, if our research team is correct about these price trend changes, following the money may mean opening our eyes to new investment opportunities across the Pacific and Atlantic – as well as very near to the US.

Before we continue, we suggest reading the following research post to understand a bit about the history of our research and be sure to opt-in to our free market trend signals newsletter.

September 10, 2019: METALS & THE US DOLLAR: HOW IT ALL RELATES – PART I

The first thing we want to highlight is our belief that the US Dollar and US stock market should continue to provide price strength and upward price opportunity – even throughout any price correction or contraction that our researchers may identify.  Our predictive modeling systems have shown us what we believe to be an incredibly accurate prediction of future price activity over the next 3 to 5+ years.

Even though we are not going to share that research with you today, the one thing we want all of our followers to understand is that the US stock market, and likely the US Dollar, are poised to continue to see longer-term upward price growth over the next 3+ years.  Yes, there may be a few price rotations/declines throughout this process and we need to be aware that price naturally attempts these types of rotations in an effort to provide future price support, price exploration and future price trends.  The price must always attempt to establish new highs or lows throughout a trending process.

US DOLLAR

The US Dollar has been trending higher since early 2018.  We believe the US Dollar will continue to push higher within the price channels we’ve drawn on this chart and, eventually, attempt to move to levels above 100 near the end of 2020 (or slightly after this date).  We don’t believe anything will disrupt the continued strength of the US Dollar unless some major economic/credit crisis completely destroys the support of the global economic markets and takes everything down with it.

Our researchers believe the new shift in the “capital shift” process of global investing is centered around the concept that certain global currencies, as well as their associated stock markets and strategic stock sectors, may have reached a point where price is exceedingly below fair value and when one considers the fundamental economic strengths related to maturity, economic capabilities, geopolitical or proximity economic factors and future leadership/opportunity factors – investors are suddenly viewing these currencies and stock markets as “uniquely positioned for potential upside growth”.  Thus, this change in perspective could drive a new upside price trend throughout a number of undervalued currencies as well as present a very real possibility that skilled technical traders may find real value and real opportunity by expanding their search criteria into assets related to these currencies.

One of the most basic elements of investing is understanding how supply-demand economic functions work and where the current “equilibrium” is at.  The easiest way for us to try to explain this concept is to think of a very sought-after product (let us assume one ounce of gold) and the price of that gold as a measure of the price level in relation to demand.  When the price of gold is very low, buyers rush into the market to buy up as much as they can afford because the perception is that gold prices should be higher (thus gold is undervalued).  This means the equilibrium level is higher than the current price level of gold.  When the price of gold is very high, buyers stay away from purchasing (or can’t purchase because it is too high) and the price will eventually begin to fall lower because demand is very low.  This means the equilibrium level is lower than the current high price of gold.

Price always moves from above or below the equilibrium level to price levels on the opposite side of the equilibrium level.  Think of the equilibrium level as the optimal price level where demand meets supply and where future expectations of price are minimized.  This equilibrium level is where the price would be if we removed all the hype, fear, greed and speculation out of the market.  The equilibrium level fluctuates as true fundamentals and true price exploration takes place across the supply-demand curve.  Almost like the average temperature fluctuates throughout the seasons of the year.

When a shift in investor sentiment happens, much like a shift in seasons, price changes direction begins to rally of decline and this shift in trend changes the supply-demand equilibrium level as investors pile into or pull out of a market.  Thus, if our researchers are correct and this change in the longer-term opportunity for selected currencies is a true longer-term capital shift, it may be a very early opportunity for investors to begin focusing on the opportunities that will become present in the near future.

AUSTRALIAN DOLLAR

The first currency we want to focus on is the Australian Dollar.  Historically, the Australian Dollar has continued to trend lower over the past 18+ months and currently shows very little strength or opportunity to form a bottom.  The lows near 0.67 may prove to become a future bottom in price, but the trend has not confirmed this yet and because of that, we believe weakness is still prevalent in price.

CANADIAN DOLLAR

The Canadian Dollar, on the other hand, has set up an intermediate price bottom in early 2019 and has continued to strengthen moderately over the past 10+ months.  One thing that we want to point out about our research is that we believe currencies and nations that have strong economic ties and proximity advantages (being close to the US and having strong economic ties with the US) are very likely to perform well or begin to strengthen in the near future.  Canada has a number of factors that may prove to be advantageous going forward.  Strong economic ties with the US, a booming cannabis and resource market, strong agriculture exports and a very mature economy compared to other nations.

EURO

The Euro price chart continues to illustrate price weakness as future expectations of economic strength is very far off.  The interesting facet related to the Euro is that a weakening Euro will eventually present a very clear opportunity for investors the instant the European-union enters any type of economic recovery or strength.  Until that happens, we believe the continued price weakness will potentially drive the Euro lower – eventually attempting true parity with the US Dollar.

BRITISH POUND

The British Pound has recently rebounded to the upside with some level of ferocity.  Of course, this 6+ week upside price rally does not make a new longer-term price trend yet – but we believe this upside price move may be related to the future BREXIT deal and renewed economic ties/trade with the US.  In other words, investors may be shifting expectations and price levels into acceptance that the British Pound may become a very solid future investment assuming the BREXIT deal creates a renewed economic cooperation between Great Britain and the US.

MEXICAN PESO

Lastly, the Mexican Peso has recently started to base near 0.049 and may possibly attempt to move above longer-term resistance near 0.053 on renewed expectations of a stronger economy, stronger economic ties with the US and a post-US 2020 Presidential election rally.  Currently, the bottom in the Peso occurred in 2017 near 0.04785.  We believe the Peso could rally above 0.061 over the next 18+ months – resulting in an 18%+ upside price rally related to stronger US economic growth and stronger economic ties between the US and Mexico.

CONCLUDING THOUGHTS:

These changed in direction in the Mexican Peso, Canadian Dollar and British Pound suggest that global investors may begin shifting capital into the strongest sectors and/or the value sectors of these countries attempting to capture a late 2020 price rally that may carry forward into the 2021 and beyond economic recovery that we expect to take place after the 2020 US Presidential elections.

Please keep in mind that quite a bit hinges of the outcome of the US Presidential elections in 2020.  Just like we saw on election night in November 2016, global investors and global corporate leaders will react to any fear or opportunity related to who is expected to win the US elections in 2020.  More taxes, more regulation, more uncertainty will immediately derail any attempted economic recovery that sets up over the next 10+ months.  We need to watch how these currencies strengthen before the election, then become very cautious 2 to 3 weeks before the election takes place in 2020.

Chris Vermeulen
www.TheTechnicalTraders.com

GBP/USD, USD/CAD, USD/MXN – North American Session Daily Forecast

GBP/USD continues to post strong gains. In Wednesday’s North American session. Currently, the pair is trading at 1.2830, up 0.55% on the day.

Cable Surges on Brexit Optimism

The British pound surged on Tuesday, climbing an impressive 1.2%. The pound has enjoyed an excellent October, gaining 4.0%. The catalyst for this run has been the Brexit withdrawal date of October 31 and whether a deal can be made in time. The pound has soared as the markets are clearly of the opinion that an agreement can be reached and a nightmarish no-deal scenario avoided.

Technical Analysis

GBP/USD easily broke through 1.2653 on Tuesday and proceeded to test resistance at 1.2750. The trend for the pound to dollar ratio is up, and if the pair continues to move higher, it could soon set its sights on resistance at 1.2870. On the downside, there is support at 1.2585.

GBP/USD 4-Hour Chart

USD/CAD

USD/CAD is trading sideways in Wednesday’s North American session. Currently, the pair is trading at 1.3214, up 0.07%.

Canadian CPI Beats Forecast

Canadian CPI moved closer to the Bank of Canada target of 2.0%. On an annualized basis, CPI showed a 1.9% gain, above the forecast of 1.7%. Trimmed CPI, which excludes the most volatile items which are covered in CPI, remained steady at 2.1%, on an annualized basis.

Technical Analysis

1.3240 remains an immediate resistance line and has been under pressure during the week. On the downside, the pair has tested support at 1.3200, but has not been able to push sustain downward movement below this level. I do not expect any significant movement for the remainder of the Wednesday session.

USD/CAD 4-Hour Chart

USD/MXN

USD/MXN has recorded slight gains on Wednesday. In the North American session, the pair is trading at 19.26, up 0.11% on the day.

Technical Analysis

USD/MXN broke through support at 19.30 early in the week and is putting pressure on 19.20, which is a major support level. This line, which has remained intact since early August, could be tested during the week. On the upside, there is resistance at 19.45.

GBP/USD, USD/CAD, USD/MXN – North American Session Daily Forecast

After an impressive late-week rally, GBP/USD has settled down early this week and is range-bound. In the North American session on Tuesday, the pair is trading at 1.2646, up 0.29% on the day.

Brexit Negotiations Continue

Negotiations continue at a feverish pace, as London and Brussels and continue to try and hammer out a withdrawal agreement, with only two weeks to go before the U.K. is scheduled to depart the EU. The main sticking point continues to be the Irish border, with the EU insisting on a customs border between Ireland and Northern Ireland, which would be a problematic arrangement for the U.K. Can the sides come up with a creative solution? The pound soared last week on news that the sides were close to an agreement, and traders can expect further volatility this week, as the sides rush to reach an agreement before the October 31 deadline.

Technical Analysis

GBP/USD has been range-bound since Friday. The pair tested resistance at 1.2653 earlier on Tuesday. Above, there is resistance at 1.2750. On the downside, there is support at 1.2585.

GBP/USD 4-Hour Chart

USD/CAD

USD/CAD recorded sharp losses to end the week, but has leveled off this week. In Tuesday’s North American session, the pair is trading at 1.3234, up 0.06%.

Investors Brace for Soft Cdn. CPI

Canadian consumer inflation contracted in August, marking the second decline in three months. The September data will be published on Wednesday. The markets are expecting another decline, with an estimate of -0.3%. Traders can expect pressure on the Canadian dollar is inflation declines for a second straight month.

Technical Analysis

USD/CAD remains range-bound this week. The pair is putting strong pressure on resistance at 1.3240 and could test this line later on Tuesday. On the downside, there is immediate support at the round number of 1.3200. The pair tested this line on Friday but has since retraced upwards.

USD/CAD 4-Hour Chart

USD/MXN

USD/MXN is flat in Tuesday trade. In the North American session, the pair is trading at 19.26, down 0.03% on the day.

Technical Analysis

After gains of above 1.0% last week, the Mexican peso continued its downward movement and tested support at 19.30. This level had remained intact since early August. The pair is within striking distance of support at 19.20 and with the trend pointing down, this level could be tested during the week. Above, there is resistance at 19.45.

GBP/USD, USD/CAD, USD/MXN – North American Session Daily Forecast

GBP/USD has posted sharp gains in Thursday’s North American session. Currently, the pair is trading at 1.2338, up 1.04% on the day.

British GDP, Mfg. Production Slip

It was a rough day for British indicators, as GDP and manufacturing production both missed their estimates. The monthly GDP report declined by 0.1%, and manufacturing production declined by 0.7%, its second decline in three months. The weak numbers come just a few weeks before the U.K. is scheduled to leave the EU, with investors increasingly nervous that no deal will be reached between London and Brussels. Still, the pound has managed to post gains in the North American session, after disappointing U.S. inflation data.

Technical Analysis

GBP/USD has posted sharp gains in the North American session, blasting past resistance at 1.2255 and 1.2320. The pair has tested a third resistance level at 1.2366. Above, there is resistance at 1.2420, which has held since September 25. We’ll have to wait to see if the pair retraces and gives up some of these gains, or will the upward movement continue.

GBP/USD 4-Hour Chart

USD/CAD

USD/CAD is showing its strongest movement in a week and has posted considerable losses on Thursday. In the North American session, the pair is trading at 1.3274, down 0.46% on the day.

The Canadian dollar took advantage of soft U.S. inflation, which lost ground in September. The headline release dropped to a flat 0.0%, while Core CPI dipped to 0.1%. Both readings missed their estimates.

Technical Analysis

USD/CAD is showing sustained downward movement on Thursday and has broken below support lines at 1.3320 and 1.3280. If the pair can close the day below this last line, it could continue to move lower. We find the next support line at 1.3240, which has held since October 2.

USD/CAD 4-Hour Chart

USD/MXN

USD/MXN has sustained losses Thursday’s North American session. Currently, the pair is trading at 19.46, down 0.69% on the day. The catalyst for the dollar’s weakness was weak inflation data, as CPI and Core CPI weakened in September, with readings of 0.0% and 0.1%, respectively. Both indicators missed their estimates.

Technical Analysis

The pair has taken advantage of dollar weakness in the North American session.  The support level of 19.46, which has held since September 25, is under strong pressure. If USD/MXN can consolidate below this line, it could make a move towards support at 19.30, which has remained intact since early August. Above, the resistance line at 19.70 has some breathing room as USD/MXN trades at lower levels.

USD/MXN 4-Hour Chart

GBP/USD, USD/CAD, USD/MXN – North American Session Daily Forecast

GBP/USD is under pressure, as the pair has lost close to 1.0% so far this week. In Tuesday’s North American session, the pair is trading at 1.2221, down 0.54% on the day. U.S. inflation levels have been weak, and the Producer Price Index reports for September were dismal. Both the headline and core releases posted declines of 0.3%, missing expectations.

Technical Analysis

GBP/USD pushed below support at 1.2320 on Monday. The downward movement has continued on Tuesday, with the pair testing support at 1.2255. The main trend is down, with the next line of support at 1.2180.

GBP/USD 4-Hour Chart

USD/CAD

USD/CAD continues to show little movement this week. In the North American session, the pair is trading at 1.3313, up 0.06% on the day.

Loonie Yawns on Mixed Construction Numbers

Canada released mixed construction numbers on Tuesday. Housing starts fell to 221 thousand in September, down from 227 thousand a month earlier. There was more positive news from building permits, which jumped 6.1% in August, crushing the estimate of 2.3%. The Canadian dollar showed little reaction to the mixed releases.

Technical Analysis

USD/CAD remains range-bound this week. The pair tested resistance at 1.3320 earlier in the day. Above, we find resistance at 1.3360, which was last tested in early September. On the downside, there is support at 1.3280 – this line was relevant in the second half of September.

USD/CAD 4-Hour Chart

USD/MXN

USD/MXN is trading sideways in Tuesday trade. In the North American session, the pair is trading at 19.55, down 0.07% on the day.

Technical Analysis

After a strong downward push on Friday from USD/MXN, the downward movement has stalled this week. There is immediate resistance at the 19.70 line. On the upside, there is resistance at 19.90, which is protecting the symbolic 20.00 level. If the peso can continue to strengthen, it could put pressure on support at 19.45. This line was relevant in mid-September, when the peso tested this line but was unable to consolidate below it.

USD/MXN 4-Hour Chart