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As detailed in this week’s ‘one to watch’, my preference is to sell rallies in the pair to 1.3750, although the way there pair has been trading this entry is looking quite optimistic. With this in mind I feel lowering the entry to 1.3715 could be the way to go, just under the 23.6% retracement of the May sell-off). From a pure momentum standpoint it could make a lot of sense selling a break of the 200-day moving average at 1.3634, with a view that the pair can gravitate down to 1.3520 (the 38.2% retracement of the July 2013 to May 2014 rally) over the short–term.
In terms of drivers, in European trade we get the German IFO survey and this should highlight the health of the German economy, so improvement here and we could see a modest short covering rally in the EUR. This survey looks at nearly 7,000 German businesses, from all areas of the economy, so it is fairly important for economists.
The German equity market looks primed to print a higher high on open today and as things stand our opening call of 9720 (at the time of writing) would be a new all-time high in the cash market.
USD/CAD looks like it could be shaping up for a move higher, with the pair breaking through the March downtrend yesterday. What’s more USD/CAD fell back to test the prior trend and found good support. At 22:30 AEDT we get Canadian inflation data and the market is expecting a solid increase of fifty basis points to 2%, while core inflation is expected to see a more modest gain of ten basis points to 1.4%. Given the trend break long positions are preferred, but tonight’s inflation report could be key here.
A daily close above 0.8953 would be very positive for the pair from a technical perspective. This level represents the double bottom neckline and thus a close above would target a more protracted move to 0.9250. One to keep on radar, but long positions are preferred here.
Like the Germany 30 index (DAX), the US 500 is ominously poised to print a new all-time high. The index is 0.5% away from breaking the May 13 high, with new homes sales the key release in US trade.