Mysticforex

Monetary easing by the ECB was the big market mover last week. How will a negative interest rate influence bank lending? Some are predicting the ECB stimulus plans will be a boon for the carry trade. Greater liquidity, combined with cheap interest and the possibility the euro will trade lower in the long term, makes this trade look attractive.

Since the beginning of the month, EUR/GBP has been on a one-way downtrend and with the currency pair seeing lower highs and lower lows, all signs point to further losses. On a fundamental basis, EUR/GBP should be trading lower. The ECB eased monetary policy while the BoE is very comfortable with its policy. The currency pair dropped to a fresh low today despite relatively healthy industrial production numbers. The big test for pound this week will be tomorrow’s employment report. For the most part, the labor market is expected to remain unchanged with jobless claims falling at a consistent pace. However based on the latest PMI numbers, we believe that the risk is to the upside, meaning EUR/GBP weakness. The service sector reported the strongest pace of employment growth in 17 years and in the manufacturing sector, jobs continue to be added. Stronger data could send sterling to new highs versus the euro. Technicals With EUR/GBP trading at 16-month lows, we have to turn to the weekly chart for support. The 23.6% Fibonacci retracement of the 2011 to 2012 decline sits right at the 2010 swing low at 0.8070. If EUR/GBP breaks through this level, there is no major support until 80 cents and even this level could give way as more significant support sits at 0.7750. As for resistance, rallies should be limited to 0.8265 for the time being.

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Some analysts including Morgan Stanley now forecast the possibility of Aussie reaching parity by year end as yields remain low in both US and Europe. While parity is certain to raise the ire of Australian monetary authorities who may even respond with a rate cut in such a scenario, the Aussie certainly looks strong on a relative basis. It has performed particularly well against the euro and could gain further strength this week if the labor data on Wednesday proves supportive. EUR/AUD flirted with the 1.4500 figure last week in the wake of the ECB announcement and could break that level this week if Australian labor data shows steady job growth.

From a fundamental and technical basis, it should only be a matter of time before EUR/JPY breaks above 140. Considering that the currency pair ended Friday’s session only 10 pips or so away from this level it won’t take a stretch of the imagination to believe that at bare minimum a test and most likely a break of this level will occur. However it is not just the proximity of this level that has us convinced that the currency pair will not only breach 140 but make a run for 141. First and foremost, EUR/JPY is traditionally the quintessential risk on trade, which means that when stocks do well, EUR/JPY should rally. However even though U.S. stocks have climbed to record highs, we have seen a very limited up move in EUR/JPY and a lot of that had to do with ECB uncertainty. Now that euro has survived negative rates, EUR/JPY should be able to trade higher. At the same time, Friday’s non-farm payrolls report supported the recent gains in USD/JPY. Technicals Taking a look at the daily chart of EUR/JPY, the currency pair has been in turn mode since the end of last month and with the latest rally, it has now entered the Buy Zone according to our Double Bollinger Bands. A break of 140 would take the currency pair well above the 38.2% Fibonacci retracement of the December to February decline and psychologically significant resistance level. If that occurs, there’s no major resistance until 141. However if EUR/JPY fails at current levels, a drop back down to its 3 month low of 138 becomes likely.

Cable has been in a funk lately as the slowdown in UK housing sector has dampened the expectations that the BOE will move on rates anytime before 2015. The UK economy continues to perform well, recording the best growth rates in the G7 universe but appetite for cable amongst traders has clearly declined as sentiment turns more cautious. Tonight UK will deliver its most important PMI readings of the month as the service sector reports its numbers. A strong reading could revive enthusiasm towards sterling, and at very least keep it steady. Meanwhile better news about the US economy and the possibility that ISM Services data could be strong as well could help fuel a move higher is USD/JPY which will help push GBP/JPY above 172.00 Technicals Technically GBP/JPY remains in relatively tight 170.00-172.00 range but the pair looks ready to break to the upside and a move through the 172.00 figure opens the prospect of a run all the way to 174.00 figure over the next few days.

The week of waiting for the numerous June economic reports is now over, and traders are longing for a pick-up in forex volatility. The market movers are the usual: on Thursday, the ECB will announce how and to what extent they will use monetary methods to stimulate the moribund EU economy. The other major report, to be released on Friday, is the US Non-Farm Payroll report.

4 Rate decisions this week. RBA ECB CAD GBP

Cable has been in a correction mode for the better part of the week as markets are beginning to question the prospect of early BOE rate hikes despite the booming UK economy. One nagging issue is the possibility of secession of Scotland which could wreak havoc with BoE's well laid plans. Another growing concern is the weakening UK housing market which reduces the need for BoE to act sooner rather than later. This week we get a slew of UK PMI data and although no one anticipates contractionary readings, the strong prospect of slowdown in activity could only reinforce the negative sentiment toward sterling. On the other hand the Aussie has been relatively robust holding bid above the 9200 level. This week the market will also get a glimpse of a smattering of Australian data and its provides steady results the sentiment towards Aussie will only strengthen setting up the prospect of further downside action on GBP/AUD. Technicals Technically GBP/AUD is approaching key support at the 1.7800 level as its corrective action accelerates. A move through 1.7800 opens the prospect of test of double bottom and a run through 1.7700 which would break the support and target the pair towards the 1.7500 figure

EUR/JPY has been in a drift for the past several weeks as the pressure from euro and tepid price action in USD/JPY have pushed the pair well below the 140.00 figure. Today however the pair appears to have found a modicum of support as euro essentially stabilized at 1.3600 and USD/JPY found buyers at 101.50. Although the woes in the EZ are well known and the ECB is very likely to cut rates at the next meeting in June, most of the downside news in the euro appears to be priced. Meanwhile the relentless decline in US rates which has been the main culprit for USD/JPY's decline has likely runs its course as well. US 10 year yields have slipped below the 2.50% barrier but now look like they have found some buyers ahead of the 2.40% level. The bonds are obsessed with US deflation that's why tomorrow's US Personal Income and Spending may be key to the markets. If the number print better than expected then they could signal that US economic growth is translating into gains in income which should help rally US yields and USD/JPY thus providing a lift to EUR/JPY back towards the 140.00 level. Technicals EUR/JPY has deep support around the 136.00 level but the buying ahead of the 138.00 figure suggest that the pair may be carving out a higher low which would be a bullish formation that could signal a turn back towards 140.00. A break of 137.00 however would suggest a test of the 136.00 support.

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A funny thing has happened to the AUD/NZD pair. What looked like the easiest one way trip to the downside has now turned into a reversal trade. Although interest rates in New Zealand are supposed to rise while rates in Australia will remain stationary at best, the pair has stubbornly climbed higher over the past week and is now on the verge of piercing the key 1.0900 level. What has turned the price action around has been a noticeable decline in business sentiment in New Zealand spurred by dropping prices for milk - the country's principal export. The latest ANZ Business sentiment survey printed at 53.5 a whopping decline of more than 10 points from the period prior when it recorded a value of 64.8. The markets are now worried that the sudden collapse in confidence may make the RBNZ hold off on any further rate hike for the time being. That sentiment has pushed the kiwi below the key 8500 level and may now send it lower towards 8400. Meanwhile in Australia the conditions appear to have stabilized and if tonight's Private Capital Expenditure numbers surprise to the upside the AUD/NZD cross could push through the 1.0900 figure.

The European Commission demand the British must pay an extra £500M more for the additional Brussels spending.The timing of the request is awkward, immediately following the British vote for the European Parliament. In this election the United Kingdom Independence Party (UKIP or Ukip) easily beat both Labor and the Tories. Ukip is a Euroskeptic political party founded in 1993. The anti EU vote and the outraged response was not confined to the UK.

Taking a look at the daily chart of AUD/JPY, the currency pair has risen out of the sell zone according to our Double Bollinger Bands. While this signals a potential turn in the currency pair, there is stiff resistance below 95.25. If AUD/JPY drops back below 94, the currency pair could take a stab at its 1 month low near 93.

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Taking a look at the daily chart of EUR/CAD, the currency pair has just broken below the 50% Fibonacci retracement of the massive 2008 to 2012 decline. While this level is significant, if EUR/CAD also clears its Jan 20th swing low at 1.4788, then there is no support for the currency pair until 1.4600. Resistance is up at 1.50 so EUR/CAD would need to rise back above this level to negate the downtrend. There is also a fairly clear head and shoulders pattern that point to further losses for EUR/CAD

The forex market unlike the equity market is a dealer rather than a exchange based market. That means that the broker you deal with is not acting as an agent but as a counterparty. In short in the forex market the broker often takes the opposite side of your trade. Even in cases where the brokers act as pure agents they pass your order to the greater interbank market where the bigger dealers often assume the risk of holding the position against your order. So let's imagine a scenario like this. A customer decides to sell one billion euros at 1.3660. A dealer decides that the customers assessment of the market is wrong and takes the opposite side of that position by buying the billion euros from the customer. Instead syndicating the risk across the interbank market by selling off chunks of that order to other banks, the dealer decides to inventory the whole position. The euro now rises as the day proceeds and is within 10 pips of the 1.3700 level. The customer, being a typical trader knows that the yearly high for the euro is near the 1.3700 level so he places his stop there. The dealer knows the customer's stop and he decides to spend 20-30M of capital to move the market towards the 1.3700 figure and stop the customer out. Note, it is only AFTER the customer is stopped out that the profit on trade can be booked. Otherwise it simply floats in the market and may eventually go against the dealer. This is a very simplistic illustration of what happens in a stop hunt and it doesn't account for any possible news event that could suddenly move prices lower or for any other market participant that may have a very strong financial interest in keeping prices below the 1.3700 level. Forex being a highly speculative market nothing is ever 100% certain. Dealers, like all traders sometime make mistakes or get run over by unexpected news. Nevertheless all things being equal this little drama plays itself out almost every day in the currency market and even more so when the levels hold monthly or yearly significance. It is also the reason why currency movements often stall at the round number figures. As human beings we almost unconsciously strive for order and many traders will leave their stops at the round number figures such as 1.3700. Seasoned market participants of course know this and exploit this very common weakness to run stops. I want to emphasize that this is an academic example of how stop hunts happen in the currency market and the reality is never that simple or easy. But if you understand the underlying dynamic you will be better prepared to manage your trades and avoid the stop hunts.

Breakout in the GBPUSD began at the beginning of September 2013. It was then the daily price, around the 1.55 handle, bolted through the 200 day SMA, and commenced the 1500 pip trek to the cusp of 1.70. It should be noted the OI in the CME futures market was about 150K in early September 2013, 90K less than the current OI.

With EUR/GBP trading at 16-month lows, we have to turn to the monthly chart for support. The 23.6% Fibonacci retracement of the 2011 to 2012 decline sits right at the 2010 swing low at 0.8068. If EUR/GBP breaks through this level, there is no major support until 80 cents and even this level could give way as more significant support sits at 0.7750. As for resistance, rallies should be limited to 0.8265 for the time being.

In the currency market, it doesn't matter where the interest rates are, only where they are heading. GBP/AUD offers a perfect example. Although Aussie rates are considerably higher than those in the UK, they have been compressing, whereas the market expects the BoE to become the first G-7 central bank since the Great Recession to actually begin hiking up rates. The latest threat by S&P to lower Australia's rating from AAA is also not helping as it may force many real money accounts such as insurance companies and pension funds to sell Australian bonds and push the currency lower. GBP/AUD therefore has exploded today as traders reposition their capital. Tomorrow's UK Retail Sales could be the key to further rally in the pair. If the number prints better than expected the prospect of further gains in likely with the pair racing towards the 1.8300 figure as it targets 1.8500 over the medium term horizon.

The GBP/AUD posted a major move today but must overcome the resistance in the 1.8200-18250 region before it can tackle the the key 1.8500 target. Meanwhile 1.8000 offers strong support to the

Taking a look at the daily chart of AUD/JPY, the currency pair is closing in on its 1 month low of 94.25. If this level is broken, there is no major support until the 38.2% Fib retracement of the 2011 to 2013 rally near 92.65. If AUD/JPY holds 94.25 and rises back above 95.35, the next stop could be its May high of 96.

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After the previous week's sharp losses in the EURUSD following a key reversal, we had felt the euro might be able to stage a modest recovery. Such was not the case. The weekly high was about 25 pips above last week's close - a feeble performance - and working toward the end of last week's trade, we are slightly under the 1.37 handle.