USD/CAD Fundamental Analysis, March 30, 2015 – Forecast

The USD/CAD added 11 points as the greenback gained a bit in today’s session. US GDP missed expectations while the GDP price index gained.  The Canadian dollar is down and U.S. index futures are negative ahead of the open of trading at the Toronto Stock Exchange. The loonie traded at 80.07 cents US, down 0.12 of a U.S. cent from Thursday’s close.

On the commodity markets, the May crude contract was down 66 cents at 50.77 a barrel and the April bullion contract was down $4.40 at $1,200.40 an ounce.

The dollar gave back earlier gains after U.S. economic growth cooled in the fourth quarter as previously estimated, with businesses throttling back on inventory and equipment investment but robust consumer spending limiting the slowdown in the pace of activity.

EUR/GBP Fundamental Analysis, March 30, 2015 – Forecast

The EUR/GBP tumbled 28 points as the euro eased and the pound traded on a positive note after comments from BoE Governor Carney as well as Mr. Broadbent supported the currency.  Britain is unlikely to suffer from protracted deflation, Bank of England Deputy Governor Ben Broadbent said on Friday, adding his voice to colleagues who have played down the sharp fall in inflation seen in recent months.

Broadbent said that outside Japan, there was next to no modern precedent for advanced economies with floating currencies such as Britain suffering deflation for more than a year.

“The likelihood of a broad and protracted deflation, afflicting wages as well as prices, is pretty low,” he said in a speech at Imperial College Business School in London. The Bank of England has joined a growing chorus of regulators and investors warning that global financial markets are becoming more “fragile” and prone to extreme convulsions.

Analysts said the euro remained on a downtrend while the dollar remained on an uptrend given the divergence between the European Central Bank’s bond-buying stimulus plan and the Fed’s inclination toward tightening policy.

Better-than-expected U.S. economic data on weekly jobless claims and March services sector growth bolstered confidence in the dollar, analysts said.

GBP/USD Fundamental Analysis, March 30, 2015 – Forecast

The GBP/USD continued to improve today adding 36 points after speeches from Bank of England members as well as a jump in the House Price Index. The pound is trading at 1.4886. The dollar gained bit of momentum today even though GDP missed expectations. U.S. economic growth cooled in the fourth quarter as previously reported and after-tax corporate profits recorded their biggest drop since early 2011, as a strong dollar dented the earnings of multinational corporations.

Gross domestic product expanded at a 2.2 percent annual rate last quarter, the Commerce Department said on Friday in its third estimate of GDP. That was unrevised from the forecast last month.

Bank of England member Broadbent said he expected inflation to bounce back in around a year’s time, saying that inflation was already running at more than 1 percent, once the effect of lower oil prices and some other factors were stripped out.

“Base effects will naturally give a big positive impetus to annual inflation in early 2016,” he said. “Barring another steep decline in food and energy prices over the next year, headline inflation is likely to rise quite steeply.”

In theory negative inflation can cause a downward spiral of prices and wages, as consumers delay spending because they expect goods to fall in price, causing the economy to contract.

EUR/USD Fundamental Analysis, March 30, 2015 – Forecast

The EUR/USD dipped 14 points to trade at 1.0870 as traders corrected from their overreaction this week pushing the euro to trade to high.  The U.S. dollar was on track for its biggest one-day gain against the euro in a week on Thursday after traders reestablished bullish bets on the dollar following recent weakness in the currency.

Analysts said traders stepped in to repurchase the greenback after the euro hit $1.10525 earlier in the session, its highest since it hit a nearly two-week high of $1.10625 on March 18 following the U.S. Federal Reserve’s latest policy statement.

Investors “have been looking for better levels to establish their dollar longs,” said a currency strategist at Barclays in New York. “This is probably a good level to do that.”

The greenback has given back some gains in the wake of the dovish Fed statement after rallying about 25 percent against a basket of major currencies from early May through March 17. The rally was largely on the view that the Fed could hike interest rates early as June.

Gross domestic product expanded at a 2.2 percent annual rate, unrevised from last month’s forecast, the Commerce Department said on Friday in its third estimate. The economy grew at a 5 percent rate in the third quarter.

The government also reported that after-tax corporate profits fell at a 1.6 percent rate in the fourth quarter, as a strong dollar dented the earnings of multinational corporations.

USD/JPY Fundamental Analysis, March 30, 2015 – Forecast

The USD/JPY gained 10 points as the Japanese yen eased after weak inflation and retail sales data. The pair is trading at 119.29. The dollar stood was at 119.29 yen after pulling back from a five-week trough of 118.33 struck overnight against the yen, a safe-haven currency that attracts bids in times of geopolitical tension.

The Saudi military operation against the Iran-backed Houthi rebels has not affected the oil facilities of major Gulf producers.  But fears the conflict could spread and disrupt Middle East shipments have put a floor under the price of oil, which slumped to a six-year low earlier this month.  Violence in Yemen firmly capped Asia-Pacific equity gains for now.

The Bank of Japan’s key inflation gauge ground to a halt as consumer spending slumped, highlighting weakness in the nation’s recovery from recession.

Consumer prices excluding fresh food rose 2 percent in February from a year earlier, less than a median estimate of 2.1 percent. The central bank’s measure that strips out last year’s sales-tax increase showed inflation at zero.

Declines in household spending and retail sales, even as the labor market tightens and prospects for wage gains improve, indicate the lingering effect of an increase in the sales tax last year. While BOJ Governor Haruhiko Kuroda has said that any drop in prices will be temporary and won’t stop the bank reaching its 2 percent target, economists surveyed by Bloomberg expect an extra dose of monetary stimulus by October.

EUR/JPY Fundamental Analysis, March 30, 2015 – Forecast

The EUR/JPY added 7 points after a rash of important Japanese data missed expectations. Japanese retail sales and inflation continued to decline while household spending beat forecasts. The EURJPY is trading at 129.70.

The government raised its assessment of the economy for the first time in eight months on March 23, citing improvement in the corporate sector. Exports in February rose for the sixth consecutive month. Twenty-three of 34 economists said the BOJ will expand stimulus by the end of October, according to Bloomberg survey conducted March 5-12.

The nation’s core consumer prices rose 2 percent from a year earlier in February, data released by the statistics bureau Friday showed, and missing economist estimates for a 2.1 percent increase. Stripped of the effect of a sales-tax increase last April, core inflation — the Bank of Japan’s key measure — was zero.

Japanese retail sales grew less than anticipated in February, rising 0.7 per cent, against expectations for a 0.9 per cent rise. Worse, the 1.3 per cent decline in January was revised down to -1.9 per cent.

AUD/USD Fundamental Analysis, March 30, 2015 – Forecast

The AUD/USD tumbled 21 points to trade at 0.7808 after soaring over the past few days the Aussie gave back some of those gains as traders booked profits. The US dollar continued to recover in the morning session ahead of US GDP due later today.  The Australian dollar has bounced back from a morning low as uncertainty over the timing of US central bank interest rate hikes drives “puzzling” market moves.

Providing a welcome relief for dollar bulls, data on Thursday showed the number of Americans filing new claims for jobless benefits fell more than expected last week. A separate report showed activity in the services sector hit a six-month high in March.

Two Fed officials also said the central bank should remain on track to raise interest rates later this year despite the economy’s weak start to the year. Still, the dollar index is 0.5 percent lower on the week, extending last week’s 1.2 percent fall.

“We expect the current USD correction to be relatively short-lived,” analysts at ANZ wrote in their monthly FX outlook.

“The Fed’s recent more dovish shift shouldn’t have been that much of a surprise, vulnerabilities in emerging markets are likely to continue to surface as USD liquidity tightens. China is a source of downside economic and financial risks, and hedging activity remains dollar supportive.”

Commodity currencies have also been unsettled by volatile commodity prices and worries about slower growth in China.

The Australian dollar, for example, is back near 78 U.S. cents, down from a two-month high of $0.7939 set earlier in the week.

NZD/USD Fundamental Analysis, March 30, 2015 – Forecast

The NZD/USD dipped 13 points to trade at 0.7587 as the US dollar gained momentum.  The kiwi has been a bit weaker since warnings from the central bank on investment housing has weighed on the markets.  The New Zealand dollar fell as dairy futures weakened, raising concern about the outlook for the country’s largest export commodity.

The kiwi reversed its initial gain overnight as NZX whole milk powder futures declined when trading resumed at 2am this morning. Some 500 tonnes had traded in the first six hours this morning, with little buyer interest. The biggest declines are in June whole milk powder futures, which are down $230 a tonne to $2,400 a tonne, and July futures which are down $250 a tonne to $2,450 a tonne.

Traders are awaiting US Federal Reserve Chair Janet Yellen, who is scheduled to speak at the Federal Reserve Bank of San Francisco Conference on “The New Normal for Monetary Policy”. A sudden turnaround in the dollar’s fortunes overnight saw the currency trading broadly higher early in Asia on Friday, but still on track to end softer for a second straight week.

Since the U.S. Federal Reserve’s dovish steer last week, dollar bulls have been much more cautious. But a set of encouraging data on Thursday and a rise in U.S. Treasury yields helped the greenback stage a modest rebound.

Is a Bubble Brewing in Germany?

Eurozone confidence indicators are surging higher, led by marked improvements in German ZEW and Ifo readings, but also buoyant consumer confidence in the Eurozone’s largest economy. Data suggests Q1 growth will be robust and while the ECB sees the improving data as a sign that QE is working, the numbers confirm that growth was already set to pick up without the added stimulus from the central bank, which increases the risk of asset price bubbles.

Confidence indicators surged in the first quarter of the year. The German ZEW reading jumped to 54.8 in March, the highest reading since January last year, which brought the average for the first quarter to 52.1 from just 14.3 in the last quarter of 2014. Similarly, the Ifo reading jumped to 107.9 in March, the highest since July last year and lifting the average to 107.1, from 104.5 in Q4 last year. The German composite PMI also rose to the highest in 8 months, amid a marked rise in exports, also helped by the weak EUR.

Deflation concerns, which according to official comments was the main reason for the QE announcement, are clearly unfounded, at least for the German economy, and after the oil price induced decline in headline rates, the risks to the inflation outlook are now tilted to the upside. Indeed, there are already warnings of an overheating of the German economy and a built up of asset price bubbles, especially on the real estate market. The ECB has admitted that this could be an unintended side effect of the QE program, but has referred back to national supervisors to address the problem. So far the Bundesbank doesn’t see a general risk, even if house prices are overvalued in key property hotspots.

So growth is picking up in the Eurozone, and the ECB’s QE program risks creating asset price bubbles at least in some economies. It seems after a rebalancing of the Eurozone via a structural strengthening of the weaker economies failed, the ECB is now aiding a process that undermines German competitiveness in the medium term. That may lead to a rebalancing of sort within the Eurozone, but after the initial stimulus effect of a weaker currency has run out, it undermines the medium term growth potential of the currency union as a whole.

AUD/USD Forecast March 27, 2015, Technical Analysis

The AUD/USD pair tried to break higher during the course of the session on Thursday, but as you can see gave back most of the gains. By doing so, the market looks as if it is basically ready to break down a bit, but we do see that there is a bit of support at the 0.78 handle. In other words, this is a very messy market, and we can’t be bothered to mess with it. Ultimately, we feel that the pair is probably best left alone today as we wait to see what the next momentum-based move will be.

EUR/CHF Forecast March 27, 2015, Technical Analysis

The EUR/CHF pair fell during the course of the session on Thursday, as the market continues to drift a little bit lower. With this being said, if we can break down below the 1.0450 level, we feel that the market will then start falling. Until then, we are on the sidelines as is market continues to show quite a bit of indecision and that we more than likely will continue to just drift sideways. Ultimately though, we are bearish and we believe eventually there will be a nice selling opportunity in this pair.

EUR/GBP Forecast March 27, 2015, Technical Analysis

The EUR/GBP pair fell hard during the course of the session on Thursday, breaking below the bottom of the range for Tuesday. Because of this, we feel that this pair is getting ready to drift lower, and we are sellers on a break below the bottom of the range for the session on Thursday. We believe that the market will then head to the 0.70 handle given enough time, as the Euro continues to have trouble in general. With that being said, we are bearish and we are sellers on a move lower.

EUR/JPY Forecast March 27, 2015, Technical Analysis

The EUR/JPY pair broke down during the course of the session on Thursday, closing below the 130 level. Because of this, it appears of the market is in fact going to continue to start selling from here, and as a result we feel that the market then goes to the 126 handle given enough time. Member, the Euro of course is one of the softest currencies in the world right now, and as a result it makes sense of this pair continues to sell off. Ultimately, we believe that rallies on short-term charts will offer selling opportunities just as a break below the bottom of the daily range for Thursday will be. It should just be a continued flight from Europe, as bond markets are simply not offering any type of return.

Even if we rally from here, we anticipate that the 131 level will continue to offer selling opportunities, based upon short-term charts. In fact, we see quite a bit of resistance all the way up to the 135 handle, so therefore we have absolutely no interest in buying this pair anytime soon. Ultimately, we feel that the market will break down to fresh, new lows, probably heading to the 125 level.

On top of everything else, we had formed to shooting stars in a row which of course is very bearish. With that, we look for this pair to continue to offer plenty of selling opportunities given enough time. Ultimately, we think that it is not until we break well above the 135 level that you can even consider buying this pair for any real length of time, so therefore it is essentially going to be a “sell only” type of situation as the only people making money to the upside will be scalpers, something that we don’t advocate.

With all that being said, we believe that the problems in the European Union will contribute to this pair falling much farther. On top of that, keep in mind that the European Central Bank continues to drive down the value of the Euro by keeping the markets very liquid.

USD/JPY Forecast March 27, 2015, Technical Analysis

The USD/JPY pair initially fell during the course of the day on Thursday, but found enough support near the 118 level that we popped back over the 119 level, forming a massive hammer. This hammer of course is a good, strong, positive signal, so we feel that this market should continue to go much higher. We believe that if we get above the 120 level, the market will then head to the 122 handle. We have no interest in selling this market right now, as the Bank of Japan continues to offer liquidity.

USD/CHF Forecast March 27, 2015, Technical Analysis

The USD/CHF pair fell during the course of the session on Thursday, testing the 0.95 level. This area of course offered support, as it was once resistance. The fact that we bounced and formed a hammer is a very good sign, and as a result we feel that this market will continue to the upside. We feel that the pair is heading to the parity level, and then perhaps above there and to the 1.02 level which of course would be a complete reversal of the massive selloff that we had seen based upon the actions of the Swiss National Bank.