ON AIR with Benzinga’s #PreMarket Prep Show

While the market awaits 2 interest rate decisions today, first from the Federal Reserve and later from the Reserve Bank of New Zealand, I talked about the central banks last week on Benzinga’s #PreMarket Prep Show. Take a listen to why I believe the rally in the Canadian dollar is just getting started and my conflicting thoughts about the U.S. dollar. I come on at the 1:05:00 mark.

Canadian Dollar Looks for the Rally

The Canadian dollar is starting to decouple from the crude oil markets. As crude oil markets plunge, the Canadian dollar also moves lower but not particularly against the pound sterling. The $GBPCAD reached multi-year highs just below the 2.1000 major resistance and psychological level twice in 2015. But despite crude oil prices crashing lower in 2016, the $GBPCAD has been unable to break above the 2.1000 level to new multi-year highs. The oil glut that caused the oil markets to accelerate its decline in the past seven months continues to persist. There is an oversupply of oil in the markets. Oil producers remain in denial to decreased demand for fossil fuels and refuse to cut production. Or perhaps some oil-producing nations are conducting economic warfare as they continue to pump oil. Regardless of the reason, this supply glut will keep crude oil prices low in 2016. Oil markets open the new trading week moving lower still even after the multi-year low Friday close. The crude oil markets continue to lead all commodity markets lower as the new trading week gets underway. However, while last week we believed that any strength in oil would present a buying opportunity in the $GBPCAD (Volume 45), this week that perspective has changed. Any rally in the $GBPCAD this week will be seen as a selling opportunity. Only a close above the 2.1000 resistance level will keep the bullish trend intact.

GBPCAD 4 HOUR CHART

With the weak pound sterling, it is difficult for the $GBPCAD to rally even with the weak oil market. The moves have become biased to the downside this week as price continues to print lower highs and decreasing bullish momentum. Signaled by the Friday close, the new trading week opens with sellers stepping in at the gap-open highs. As price moves higher, the 2.1000 resistance level will be the signal for future price action. A confirmed close above the 2.1000 level will allow buyers to gain position and base for a move higher. However, if price rallies again and holds below the 2.1000 resistance level, the $GBPCAD will move to the 61.8% Fibonacci level on the daily chart. A rally in price back to the highs will be an opportunity for buyers to cover long positions. The failed high at 2.0949 continues to signal a deeper correction to the 1.9800 support level.

Premium trade setups with targets and stops are published in the GBP/CAD Outlook for the Week in Volume 46, this week’s Quid Report. This is an excerpt from Quid Report.

Euro Exuberance

This week, the $EURGBP broke above the 0.7500 resistance level for the first in 12 months. Given the context of the break lower back in January last year, the break higher this week holds real implications for price action in 2016. In the face of QE and rate cuts, the euro has rallied over 500 pips. This is a complete break from its fundamentals. Or is it?

EURGBP daily chart

Premium trade setups with targets and stops are published in the EUR/GBP Outlook for the Week in Volume 45, this week’s Quid Report.

Strong Yen Implications

The $GBPJPY continues to slide. The Japanese yen rally has become sustainable as the Bank of Japan (BoJ) continues to give indications that it is considering a shift away from its quantitative and qualitative easing (QQE) program. This is a very subtle shift in BoJ sentiment that is not getting much media attention. Less QQE means that the BoJ erodes at the divergence gap in monetary policy that it has had with other major central banks for several years. Manufacturing PMI released last week was higher than expected, helping to confirm the BoJ’s optimistic economic outlooks for Japan. This hawkish tone is helping to strengthen the Japanese yen now at a time when risk aversion flows may be re-entering capital markets. The geopolitical wars and diplomacy tensions around the globe are starting to wear on investor sentiment. As U.S. equities weaken, the Japanese yen continues to be the largest beneficiary of increases in risk aversion flows. The new trading week opens with the $GBPJPY trading at extremely oversold levels. Despite its bearish sentiment in the medium term, the $GBPJPY may consolidate the new lows below the major 170.00 psychological level.

GBPJPY WEEKLY CHART

The $GBPJPY has not staged a correction since breaking below the 184.00 support level back in early December. The break below the 175.00 support level with the extremely shallow rallies is a major signal of bear strength as the $GBPJPY continues to grind lower. The $GBPJPY breaks nominally below the 170.00 psychological level as the new trading week begins, subtly indicating that the staunch support level is being met with more bearish psychology than last year. Perhaps with the RSI at extremely oversold levels, the $GBPJPY will bounce higher as sellers exhaust. A “healthy” correction off the new 169.30 lows moves the $GBPJPY back toward the 175.00 level to the sell zone starting at the 173.45, 38.2% Fibonacci level. Sellers are lined up to the 176.00 resistance level. Given the importance of the 170.00 support level on a bearish move that has seen very little retracement, a strong bounce is highly likely. More aggressive traders will look to take advantage of any move higher to establish a short position in the $GBPJPY. Continued strength in the Japanese yen is likely especially as crude oil prices remain so low, which is an aide to the Japanese economy.

Premium trade setups with targets and stops are published in the $GBPJPY Outlook for the Week in Volume 45, this week’s Quid Report.

Harmony in the Fed

The new year opens with a very significant start for the pound against the U.S. dollar. The only other time in recent history that the $GBPUSD opened the new year at lows was back in January 2002. At that time, the $GBPUSD bottomed as buying momentum picked up with the RSI finding support at the 40.0 level on the monthly chart. This time, however, is actually a bit different. Momentum is sliding to lows on the RSI. The $GBPUSD has gapped lower as the first trading week of 2016 gets underway. This gap down has cleared the zone of support between the 1.4750 level and the 1.4800 level. This zone has been an area of supply for the $GBPUSD eight times in the past sixteen years. It supported price last week as sellers took profits and established new positions against the support zone. Now this gap and subsequent move lower is a strong indication of further selling in the $GBPUSD. Strong economic reports from the UK may give sellers a reprieve. But the calendar is dominated by economic news out of the United States this week. Risk aversion is already entering markets as U.S. equities open 2016 with pronounced weakness. Any strong news about the U.S. economy is likely to rally the U.S. dollar further. Having broken below the 1.4680 level, the $GBPUSD is poised to test lows at 1.4565.

GBPUSD DAILY CHART

Premium trade setups with targets and stops are published in the $GBPUSD Outlook for the Week in Volume 44, this week’s Quid Report.