EUR/JPY Fundamental Forecast – May 27, 2016

The EUR/JPY dipped 20 points to 122.71 as the yen continued to strengthen as the BoJ refrained from currency intervention to lower the yen. Traders were thinking that the BoJ would wait until after the G7 meeting to step into the markets but seem to have decided against it, which strengthened the yen.
The Japanese yen surged 0.4% for no apparent reason as currency traders try to decipher whether Japan will intervene in the currency market. Some traders pointed to an interview published on The Financial Times today with Masatsugu Asakawa, Japan’s vice minister of finance for international affairs, an influential figure that may also sway the yen. “Mr Asakawa is the senior official in charge of currency policy — and since Japan thinks yen intervention is a legitimate tool of public policy, he has formidable power,” wrote the FT.
Japan’s Finance Minister Taro Aso already told the media that the yen’s trading can be considered disorderly if it moves by 5 yen over two days in either direction; in other words, ground for yen intervention.
Reuter’s said that while Japanese officials have publicly railed against the yen's rapid appreciation to 18-month highs earlier this month, some economic policymakers have told Reuters they are not so worried that the yen will derail efforts to revive exports and the economy.
In addition to talk of currency intervention, investors have been eager for any developments about the timing of Japan's sales tax increase.
Japanese Finance Minister Taro Aso said on Wednesday that he told his G7 counterparts at a finance leaders' meeting last week that Japan will raise the tax as planned. But he did not say whether that meant Japan has officially pledged to the international community that it will go ahead with the increase.

AUD/USD Fundamental Forecast – May 27, 2016

The AUD/USD gained 10 points on the weakness in the US dollar but gains were limited after a report showed that Private New Capital Expenditure was lower than expected. The Aussie is trading at 0.7208. The Australian dollar was squeezed higher to US$0.7210, having recovered from a low of 0.7162 touched earlier in the session. Major resistance was found at 0.7228 with support at a three-month low of 0.7150 set on Wednesday.
The Aussie regained some ground after a mixed capital expenditure report included a slight upgrade to overall spending plans for the year ending June 2017. "Investment intentions are a little bit better than we had feared and in particular a pickup in services investment intentions is encouraging," said Westpac's Callow.
The dollar hit 95.616 at the dollar index in Wednesday’s session and was the highest point since late March.  The dollar earned a fresh momentum after upbeat housing numbers came out, backing the Fed’s April meeting’s minutes that said a rate hike is plausible if the economic conditions are fair, Reuters reported. The latest data showed that new US single-family home sales surged to a more than eight-year peak in April and prices hit a record high.
However, there are still skeptics, who are not convinced of a June rate hike with markets taking only 38 percent chance of a move, according to CME’s Fed watch. Now all eyes are on Fed chair Janet Yellen’s speech on Friday to draw up some rigid conclusions on the rate hike plan.

USD/JPY Fundamental Forecast – May 27, 2016

The USD/JPY was busy this morning as the pair dipped 47 points to 109.71 as traders were less worried about BoJ intervention after assurances from the government that it was not inclined to lower the currency.  The US dollar fell in the morning session as traders booked profits after the currency surged to its highest level in several weeks.  According to Bloomberg Japanese Finance Minister Taro Aso is letting the currency market know what he considers to be excessive moves that could push the government toward intervention for the first time since 2011.
A two-day move of 5 yen in either direction would be considered one-way and lopsided, Aso said in parliament on Tuesday, adding that the government has no intention of further lowering the currency to boost competitiveness and absolutely no intention of devaluing the yen in a sustained manner. The last time the yen strengthened about 5 yen versus the dollar in two days was after the Bank of Japan left policy unchanged April 28.
“The yen declined as far as 105, 106 per dollar and it’s now around 109 yen, so if I were to say it’d be good for it to settle around there that would immediately be news, so I need to tone down my remarks,” Aso told lawmakers in Tokyo.
The yen has weakened more than 3.5 percent since reaching an 18-month high of 105.55 on May 3. The yen surged on Thursday, taking some of the wind out of the sails of the recently buoyant dollar and leaving investors scrambling to cover positions.
The dollar earlier had stuck close to its recent ranges, as investors looked ahead to a speech by Federal Reserve chief Janet Yellen on whether a rate increase is imminent and on a pending decision on a planned sales tax hike in Japan.

NZD/USD Fundamental Forecast – May 27, 2016

The NZD/USD declined 19 points to 0.6721 diverging from the Aussie. Disappointing dairy prices and lower exports to China weighed heavily on the currency.  Fed Chair Yellen is due to speak on Friday, and could reinforce expectations that the central bank might raise interest rates as early as next month, or July. Hawkish minutes from the Fed's April policy meeting and comments by several policymakers hinted that a hike could be forthcoming.
The kiwi dollar skidded to a two-month trough on Thursday after dairy giant Fonterra's disappointing milk payout forecast, while the Australian dollar bounced off lows on a modest upgrade to overall spending plans.
The kiwi, which is sensitive to dairy, the nation's top export earner, has skidded more than 3 cents this month, largely on expectations of further easing from the Reserve Bank of New Zealand.
The kiwi found little relief from much better-than-forecast budget numbers in the year to June. The government expects to post a NZ$668 million  surplus in the year to June 2016 versus its prior forecast for a deficit of NZ$401 million.

EUR/USD Fundamental Forecast – May 27, 2016

The EUR/USD is up 27 points on weakness in the US dollar. There is very little data due until later in the US session as traders prepare for a speech by Janet Yellen on Friday as they hope for clues of what the Fed will do at its June meeting. The euro is trading at 1.1181. Members of the Federal Open Market Committee (FOMC) have continued to take a hawkish view on monetary policy this week, with policymakers expressing the opinion that interest rates could rise two or three times before the end of the year. Even though doubts remain over the odds of the Fed opting to hike rates in June, markets have continued to price in a higher likelihood of imminent action, boosting the US Dollar.
However, the appeal of the ‘Greenback’ was muted on Wednesday by weaker-than-expected US Services and Composite PMIs. These suggested that the world’s largest economy was not in such a robust state as might necessitate monetary tightening, also lowering the odds of a June rate hike given the stressed data-dependence of the Fed’s decision.
Safe-haven demand was also lower today as Brent crude broke back above the psychologically important $50 per barrel mark, leading to a surge in risk appetite. This saw the US Dollar easing ground against many of the majors, with the possibility of further weakness on the back of the afternoon’s Durable Goods Order report. Should demand have slowed on the month in April, the case for imminent Fed tightening is likely to diminish further.

EUR/GBP Fundamental Forecast – May 27, 2016

The EUR/GBP is up 13 points as the euro recovered a bit on little data while the pound fell after mortgage and housing data came in below forecast. The pair is trading at 0.7604. While supportive UK data has been generally lacking this week that did not prevent Pound Sterling from maintaining a bullish run against rivals. Demand for the currency was boosted by the latest developments in the ‘Brexit’ debate, as fresh cautions from Bank of England (BoE) Governor Mark Carney and the Institute for Fiscal Studies (IFS) were seen to raise the likelihood of the UK voting to remain in the EU. Investors lowered their odds for a potential ‘Brexit’ as a result, although referendum volatility is likely to exert additional downwards pressure on the Pound ahead of the June vote.
Data from the Office for National Statistics also showed that annual growth for the UK economy has been revised down 0.1% to 2%. The quarterly figures represent the slowest pace of growth since the third quarter of last year.
Chris Williamson, chief economist at Markit, said: "The data show an economy reliant on consumer spending to sustain growth, with business investment, construction, manufacturing and exports all in decline."
Confidence in the Euro was muted in the wake of the Eurogroup’s latest meeting with regards to the Greek bailout. Although markets had initially reacted with optimism to the news that the next tranche of bailout funds had been unlocked there was some disappointment that a substantial agreement had not been reached on debt relief. With the International Monetary Fund (IMF) still expressing some reservations over the deal, and a possible return to crisis merely kicked further down the road, this offered limited support for the single currency.

GBP/USD Fundamental Forecast – May 27, 2016

The GBP/USD gave back some of its US dollar inspired gains to trade at 1.4704 holding on to a few points after housing and mortgage data disappointed today. UK GDP missed expectations today along with mortgage approval but had very little effect on the pound as traders remain more focused on the June 23rd referendum. UK growth slowed to 0.4% in the first quarter of 2016, down from 0.6%, the Office for National Statistics reports. That’s in line with the first estimate, released last month. But the annual growth rate has been revised down to 2%, from 2.1% initially.
Business investment fell by 0.5% during the quarter, driven by “falls in non-residential building”, the ONS says. That may show that companies are more cautious about economic prospects and have been cutting back. That could be due to the recent turmoil in the financial markets, or the EU referendum.
However, gross fixed capital formation growth (another measure of corporate investment) did rise by 0.5% in January-March after shrinking in the previous three months.
The figures also show deterioration in Britain’s trade with the rest of the world.
Britain’s EU referendum is just four weeks away, and traders are getting nervous. The cost of hedging against wild swings in the value of the pound over the next month has jumped this morning. It hit its highest level since March 2009, in the aftermath of the financial crisis.

USD/CAD Fundamental Forecast – May 27, 2016

The USD/CAD dipped 37 points to 1.2983 as the greenback gave up some of yesterday’s gains. The CAD was supported by Bank of Canada decision to hold rates. In North America today the calendar is light with only Durable Goods and Pending Homes on the calendar, so trading will likely be driven by risk flows from both equity and credit markets, but given the generally quiet state of affairs, the majors should remain tightly range bound for the rest of the day.
Comments from Governor Jerome Powell mirroring the recent hawkish pivot in Fed rhetoric would probably encourage this dynamic, particularly considering that members of the Governing Board have tended to be more dovish than regional branch presidents. The greenback is likely to stage a broad-based advance in this scenario.
The BoC as expected did not change its benchmark interest rate from 0.50 percent. Also anticipated was the addition of comments around the not fully quantified Alberta wild fires impact on the economy. The central bank was optimistic in saying the economy would bounce back in the third quarter of the year, with the first one coming in line with previous forecasts. The second quarter is being forecasted as a contraction as the economy remains too dependent on natural resources.
The statement from the BoC makes it clear that a change in monetary policy is not forthcoming this year. At least until things change dramatically from the central bank’s forecast with both a journey into negative rates and a rate hike on the table depending on the performance of the Canadian economy.

AUD/USD Forecast May 26, 2016, Technical Analysis

The Australian dollar initially tried to rally during the day on Wednesday, but turned around back around to form a bit of a shooting star. It looks as if we are trying to bring ourselves lower, but the hammer from the previous session on Tuesday could offer a bit of support. If we can break down below the hammer though, that would be a very negative sign. Quite frankly, we believe that we will probably rally and then show quite a bit of resistance. On the chart, you can see the 50, 100, and 200 day exponential moving averages are getting ready to roll over to a negative trend. In other words, it’s likely that the longer-term downward pressure will continue. This makes a lot of sense as there seems to be a general running from risk at the moment, and of course the Australian dollar highly represents risk as it tends to follow commodity markets, as the Australians export so much gold, copper, and various other minerals.
Ultimately, rallies will have to deal with the shooting star from a couple of days ago, and then of course the 0.73 level, and the moving averages above which could start offering dynamic resistance as well. With that being the case, we have no interest in buying the Australian dollar less the gold market suddenly explodes to the upside, or if the Federal Reserve finally admits that it is not going to raise interest rates, something that is still very much in debate at the moment.
At this point in time, we believe that the Australian dollar will try to target the 0.70 level, mainly because of the psychological significance of that number. There should be support down there, so a drive down to that level will more than likely coincide with a nice bounce. As far as buying is concerned, we would have to move back above all of the moving averages, and quite frankly the 0.74 level before it seems possible as is market has seen so much in the way of selling pressure recently.

EUR/GBP Forecast May 26, 2016, Technical Analysis

The EUR/GBP pair fell slightly during the course of the day on Wednesday, but turned around to form something akin to a hammer. What frankly though, we believe that any bounce at this point in time will face a significant amount of resistance above, so this bounce should just simply end up being another selling opportunity above. A resistive candle is exactly what we look for, but we would also be sellers of a break down below the bottom of a hammer as it could drive this market towards the 0.75 level.

EUR/JPY Forecast May 26, 2016, Technical Analysis

The EUR/JPY pair broke higher during the day on Wednesday, breaking above the top of the hammer from the Tuesday session. This is a bullish sign, but there is so much in the way of noise just above, but we think this is a simple bounce that only short-term traders will be interested in. We think that the 124 region begins a significant amount of resistance, and with that being the case it’s likely that the market will be a market that’s attractive to scalpers only. We will continue to look for a little bit more reliable trading action to base a decision on.

EUR/USD Forecast May 26, 2016, Technical Analysis

The EUR/USD pair rallied slightly during the course of the day on Wednesday, but at this point in time the pair certainly looks very negative. With this being the case, we are looking for shorter-term resistive candles to continue to start selling. The market could then reach towards the 1.10 level below, where we would anticipate that a significant amount of support must be waiting. We don’t trust rallies until we break above the 1.1250 level, and on a daily close at that. We remain bearish, but recognize that there is going to be a lot of noise.

GBP/JPY Forecast May 26, 2016, Technical Analysis

The GBP/JPY pair had a slightly positive session on Wednesday, as we tested the 162 handle. If we can break above there, the market could go much higher, but at this point in time we would not be surprised to see a slight pullback in order to build up enough momentum to do so. That should be a buying opportunity on signs of support, just as a break out above the top of the range for the day on Wednesday would be as well. We have no interest in selling this market currently, as it certainly looks as if the buyers are starting to take control yet again.

GBP/USD Forecast May 26, 2016, Technical Analysis

The GBP/USD pair rose during the day on Wednesday, as we tested the 1.47 handle. We did pullback slightly, but at the end of the day we think there is more than enough buying pressure underneath to continue to push this market higher. Once we clear the 1.48 handle, we would then target the 1.50 level which has been important on longer-term charts historically. Pullbacks should find plenty of buyers all the way down to the 1.45 handle, so quite frankly we have no interest in selling this pair at the moment.

NZD/USD Forecast May 26, 2016, Technical Analysis

The NZD/USD pair went back and forth during the day on Wednesday, as we continue to bounce around the 0.6750 level. There is a significant amount of resistance all the way up to the 0.6850 level, so at this point in time we don’t really have any interest in buying, but quite frankly we don’t have the interest in selling either as there seems to be a significant amount of support just below. Keep in mind that the New Zealand dollar is highly sensitive to risk appetite, so until the commodity markets pick up momentum, this pair could very well be stagnant.