Mysticforex

From a fundamental and technical perspective, EUR/CAD is headed back down to 1.40. The euro was hit hard today by the talk of corporate bond buying by the European Central Bank. If true it would be another step by the ECB to increase stimulus. Corporate bond buying is complex and difficult to implement but the mere fact that this is a possibility reinforces the central bank’s bias to ease. The euro is in play this week with the PMI reports scheduled for release on Thursday and the bank stress tests results due on October 26. Given the recent deterioration in Eurozone data, I expect the PMI reports to show a further slowdown in economic activity that should keep pressure on the euro. At the same time, tomorrow’s retail sales report and Bank of Canada rate decision should be positive for the CAD. The loonie has become deeply oversold due to the decline in oil prices but based on the uptick in job growth, increase in core prices and weakness of the exchange rate, the statement could be less dovish, leading to a much needed reversal in USD/CAD. Canada is widely expected to raise rates after the Fed and before the BoE, which makes the CAD a bargain against the euro.

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Technically the spike bottom at 92.00 is the key support for the pair and a break there opens the floodgates for a run to 90.00 but a move above 94.50 would confirm that the bottom is in and that the pair is likely headed to 95.00

Taking a look at the daily chart of EUR/AUD, there is a clear inverse head and shoulder pattern with a neckline at 1.45. EUR/AUD is trading above this level, which means the neckline has been broken. While the break is shallow and not strong, we still believe that this bullish technical pattern will pave the way for a stronger move up to 1.48. However if EUR/AUD drops back below 1.44, then the pattern will be negated and the outlook for the currency pair turns bearish.

All it takes is some hints from insiders that the Fed's taper has gone far enough, and presto, we get a rally. The president of the St. Louis Fed, James Bullard, suggested Thursday, after the equity markets recent swoon, that it might be advisable to continue QE. His concern was fear the US is headed for deflation. Considering lower food and energy costs, a stronger USD, plus a global economy that lacks vigor, this possibility is real.

North America: CAD CPI 08:30 USD Building Permits 08:30 USD Housing Starts 08:30 USD U o M 9:55

The sudden break and then recovery above the 135.00 level looks to be a classic climax low in the pair and as long as it can hold the lows at 134.15 it is likely to base for the time being. A break above 137.00 would alleviate much of the bearish bias, while a break below the 134.00 level would open the possibility of a move to 132.00

The 106.50-107.00 represents a key support level for USD/JPY and the pair needs to stop its decline in this area if it is to maintain its long term bullish bias. A break below opens the prospect of a move to 105.00 and a full unwind of USD/JPY rally from the summer.

How the mighty have fallen! Just a few weeks ago USD/JPY was racing towards 110.00 and the market was convinced that Fed rate hikes were on the way. But with US yields having fallen more than 30bps in the past month and with risk aversion running rampant, the pair has seen a swift decline and today broke below its former breakout point at 107.00. Tomorrow the market will get a glimpse at the US Retail Sales data which could prove to be the key event of the week. If the numbers surprise to the upside them the theme of lower oil prices and resurgent US consumer could put the bid back into the buck. But if the data once again misses to the downside the market is going to unwind the USD/JPY longs even more and the pair could test the 106.00 level next.

In UK the much cooler than expected inflation data sent the pound reeling with the unit plunging below the key 1.6000 support level in morning London dealing. UK CPI printed at 1.2% versus 1.4% eyed, pushed lower by food and transportation costs. This was the twelfth straight month that food prices have declined helping to put downward pressure on the overall index.

Technical analysis on EUR/CHF is not very reliable because of the distortion created by the threat of SNB intervention. Nonetheless, the September low, which also happens to be the 2-year low at 1.2045 is the key level to watch. I believe that this level will hold. If EUR/CHF moves higher 1.2140 will be resistance.

The sharp drop in the EURUSD was finally interrupted this past week. From an early week low around 1.2500, the euro rallied to 1.2790 before settling back toward the middle of the weekly range, and closing at 1.2626. Considering the hefty presence of speculative shorts in this market, the latest COT report issued Friday afternoon showed specs to be short almost 200K contracts of futures and delta adjusted options, it is perplexing the rally was so feeble. Unless you consider the bleak EU economic forecasts.

There rapid fall of the yen to the 110 level is now causing concern. In the Nikkei Asia Review it was reported: Discord emerges in Japan over yen's accelerated slide......The rapid depreciation of the yen in recent weeks has sparked concerns that the currency's slide against the dollar has gone too far. It now appears the weak yen is creating more problems, rather than benefits for the economy.

Technically the 96.00 level in CAD/JPY is a key support level and a break there opens a run towards 94.00. A turn higher however would alleviate the selling pressure and a break above 97.50 would put the stance back to neutral,

The euro traded sharply higher against the U.S. dollar on the back of dovish FOMC minutes. In addition to expressing specific concerns about the global slowdown, policymakers also said the rising dollar may dampen inflation and pose a risk to exports and growth. This is the first time that we have heard the central bank single out the exchange rate as a source of concern and in doing so, they send the greenback sharply lower. Given the strong gains in the currency over the past few weeks, the dovish tone of the FOMC minutes could be enough to trigger a deeper correction in the dollar, leading to a stronger recovery for euro. Economic data from the Eurozone leaves a lot to be desired and tomorrow’s German trade report is expected to highlight the ongoing strains in the region’s largest economy. However, as we have seen all week, overstretched positions could overshadow data flow. Technicals Having closed above the first standard deviation Bollinger Band, EUR/USD is now in “turn” mode. The latest rally should extend to 1.28, the 61.8% Fibonacci retracement of the 2012 to 2014 rally. A break above this level would open the door for a stronger move towards 1.30. If EUR/USD drops back below 1.26, new lows are likely.

One of the more interesting trades since last Friday's NFPs has been to go long Aussie against the European currencies. After having been brutally sold for the past several months the pair is starting to base around the 8600 level and showing relative out performance against the dollar. Last night's neutral RBA announcement only boosted the unit since it reaffirmed the fact that AU rates will remain stationary for the time being. The 1.8200 level is now the key support in the pair and a break there opens up the possibility of a run to 1.8000 while only a close above 1.8400 relieves the bearish bias.

On a technical basis, we are particularly interested in AUD/NZD because a key cup and handle pattern is forming. This pattern is usually indicative of a new leg higher for the currency pair but only if 1.13 is broken. If this price level is cleared, the next major resistance is at 1.15. However if AUD/NZD breaks below 1.11, the pattern would be negated, leaving the pair vulnerable for a decline towards 1.09.

October 7, 2014 1. RBA Rate Decision (11:30PM ET) No Trade - Not expected to be a huge market mover for AUD but I do not trade rate decisions 2. BoJ Rate Decision (12AM ET) No Trade - Not expected to be a huge market mover for JPY . 3. German Industrial Production (2AM ET) Bearish EUR - Potential downside surprise given drop in factory orders 4. UK Industrial Production (4:30AM ET) Bearish GBP - Potential downside surprise given manufacturing PMI index hits 17 month low. New and export orders growth also slows significantly

9700 remains the key level for AUD/CAD but a break there could open up a run all the way to 9500 while a break above 9800 would establish a near term bottom in the pair.

For GBP/JPY the 174.00 represents the last level of support ahead of the key 170 figure and a break there could open a run to that downside. A break and hold of the 177.00 however would reestablish a more bullish stance and could put it on path to test 180.00 again.

Crude oil remains Canada's biggest dollar export, and this will continue, but the dollar amount may be reduced because of the global oil glut. The Canadian economy is much more than oil or commodities, but the energy sector has the biggest impact on the price of the loonie. The question is where might the loonie be trading if WTI crude were tp sell down into the seventies.

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EUR/CHF remains stuck in a 1.2050-1.2100 range as it tries to consolidate its downmove. A break below 1.2000 could prove cataclysmic triggering massive stops ahead of that level while a break of 1.2100 to the upside would signal a potential upside breakout

The pair remains in strong downtrend as the shift out of the carry trade continues, but it has now become grossly oversold and with its 2.5% yield unlikely to be reduced any further, the Aussie is slowly starting to attract some income investors. The economic situation in Australia remains moribund as demand from China has clearly slowed, but the overall economy is not contracting and that dynamic is likely to keep the RBA in a neutral policy stance for quite some time.

In North America today is the last quiet calendar day of the week before the market gets hit with a deluge of US data including the NFPs on Friday. Today the docket contains Chicago PMI readings and Consumer confidence numbers. Neither report promises to be market moving, but traders will nevertheless keep a sharp eye on USD/JPY 110.00 level. The pair has climbed within 25 points of that key barrier over the past few days and if it can push through that handle it could trigger massive stops given the fact that it has not been at 110.00 since 2008.