Thanks to the dovish BOE rate statement, GBP/USD suffered a sharp selloff last week. The pair plummeted more than 400 pips, as it fell from the 1.5300 handle to below 1.4900 towards the end of the week.
This sudden drop could mean that a large correction might take place before the downtrend resumes. The pair could pull up to the 1.5000 area first, which is close to the 38.2% Fibonacci retracement level. A larger retracement could mean a pullback all the way to the 61.8% Fib, which is close to the 1.5150 minor psychological resistance.
There are no major reports from the US today but the UK has its manufacturing production due. A rebound of 0.5% is expected and this might be enough to take GBP/USD a little higher for the day.
USD/CAD is trending higher on its 1-hour time frame after it found support around the 1.0500 area. The Loonie is currently being supported by the rise in oil prices, which was spurred by the conflict in Egypt, but this could change once the FOMC meeting minutes are released.
In their latest statement, the Fed talked about their plan to reduce bond purchases by the end of the year and possibly end their stimulus program in the middle of 2014. This sparked a huge dollar rally, especially since this was followed by strong U.S. economic figures.
The minutes should shed light on how strongly the policymakers feel about reducing bond purchases. Strong support from most Fed officials could boost the dollar during the release at 7:00 pm GMT.
USD/CAD could bounce from the bottom of the channel at 1.0500 and climb back to the top and even break higher. Stochastic is already in the oversold region, suggesting a potential bounce could take place soon.
USD/JPY suffered heavy selling pressure in yesterday’s trading when the FOMC meeting minutes revealed that not all Fed officials are in agreement with Bernanke’s tapering schedule. The minutes showed that some policymakers are still waiting to see significant improvements in the labor market before considering a reduction of bond purchases.
On its 4-hour time frame, USD/JPY appears to be finding support at the 98.50 minor psychological level. This is in line with the 38.2% Fibonacci retracement level.
Stochastic is in the oversold region, suggesting a potential bounce could take place soon. At the same time, a bullish divergence has formed when you connect the previous low from the middle of June.
The disappointing FOMC meeting minutes triggered a sharp selloff for USD/CAD, pushing it below the 1.0500 handle and down to the 1.0350 area. Stochastic is already in the oversold region, suggesting that a potential bounce could take place soon.
The pair is currently stalling around the 50% Fibonacci retracement level, which is in line with a former resistance area.
There are no reports due from Canada today, but the US is set to print its PPI data and UoM consumer sentiment report. Stronger than expected figures could remind traders that the Fed is still relatively one of the more hawkish central banks, which could renew demand for the US dollar.
GBP/USD is making a tight consolidation pattern on its shorter-term time frames (1-hour and 15-minute charts), as traders await the release of the UK CPI data.
Annual inflation is expected to reach 3.0% in June, after climbing from 2.4% to 2.7% in May. This would imply that inflation is way beyond the central bank’s 2.0% target, which would mean that the Bank of England has very limited options when it comes to loosening monetary policy.
A reading in line with expectations or higher might trigger pound buying, as it would imply that the BOE will be less inclined to lower interest rates or increase asset purchases in the near future. A lower reading could be bearish for the pound.
A straddle trade for the release might be a good strategy, as the pair found resistance at 1.5115 and support around 1.5085. Going long at around 1.5125 or going short at 1.5075 could work for a day trade. Aiming for the previous lows around 1.5000 or the previous highs at 1.5200 with tight stops could yield a decent reward-to-risk for a day trade.
AUD/USD’s rally might soon be over as the pair is finding resistance at the top of the falling channel on the 1-hour time frame. Stochastic just crossed down from the overbought region and is pointing down, suggesting heavy selling pressure up ahead.
Those needing more confirmation could wait for momentum to push the pair below the .9200 major psychological level. Bernanke is set to make a speech in today’s US session and possibly boost the dollar if he maintains that the Fed is ready to reduce bond purchases by the end of this year.
The pair could fall back to the .9000 major psychological support level, which is also around the bottom of the channel. A stop above the .9300 handle could yield a 2:1 trade while a stop right above the channel test would give a larger reward to risk potential.
USD/CAD seems ready to bounce back from its recent selloffs, as the pair formed a reversal pattern on its 1-hour time frame.
Recall that USD/CAD is already finding support at a retracement level and former resistance around 1.0375. The pair made a couple of attempts to break below this barrier recently but failed.
With that, a double bottom has formed with support at the 1.0350-1.0375 area and a neckline near 1.0450. A breakout above the neckline would confirm that the short-term downtrend is over and that a rally might take place.
The pattern is around 100 pips tall so the breakout could go as high as 1.0550. Aiming for this level with a stop below 1.0400 would yield a 2:1 trade.
The uptrend for Cable is still going on the 1-hour time frame, as the pair is trading inside a channel with higher lows and higher highs. The pair is currently sitting around the middle of the channel, picking a direction to go.
In addition, a symmetrical triangle has formed, and an upside breakout could continue into an upside break from the top of the channel. Otherwise, the pair could keep edging lower and eventually find support at the bottom of the channel.
Stochastic is pointing down, suggesting that pound bears could be in control at the moment.
EUR/USD is still stuck in consolidation for now, with an ascending triangle pattern forming on its 1-hour time frame.
An upside breakout could signal that the pair is headed all the way up to the previous high around 1.3400 while a downside break could mean that EUR/USD will be on its way to test the former lows around 1.2750 again.
Stochastic is in the overbought region, suggesting that a downward move might be more likely as euro bulls are running out of steam. However, the oscillator has yet to cross down before the sell signal is confirmed.
There are no major reports on deck from the euro zone today but the US will be releasing its existing home sales report. A strong figure could trigger enough dollar buying to push EUR/USD below the bottom of the triangle, but the upcoming reports for the week could be more crucial in sustaining momentum.
USD/CAD Canadian Retail Sales Setup (July 23, 2013)
USD/CAD has been selling off aggressively but the pair could take a break from its recent dives, as it approaches the 1.0300 major psychological level. This is in line with a former resistance level and area of interest, as well as the rising trend line connecting the pair’s lows.
Canada is set to print its core and headline retail sales figures and possibly show a recovery in both. Core retail sales could rebound by 0.1% after falling by 0.3% last month while the headline figure could print a 0.4% uptick, higher than the previous 0.1% growth. However, weaker than expected data could trigger a selloff for the Canadian dollar.
Stochastic is already in the oversold region, suggesting that a potential bounce is in the cards.
