Currency Outlook: Euro Breaks Through 1.36, Pound Hits Dramatic Highs

EUR/USD
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The Euro jumped before closing last week to end the week higher than anyone in the markets anticipated, as it broke through the 1.36 level that Mario Draghi warned could adversely affect the European economic recovery. Traders will now look to see if the ECB will act against the recent moves in the currency, or if it will wait to see if it is a temporary spike like the last high in February, which was followed by a dramatic drop.

Markets will be heavily focused on this Tuesday night’s Non-farm payroll data, which could be the catalyst to help push the Euro through its current resistance level. While other data from Germany and the Euro-zone as a whole is expected to show a light recovery.

The main resistance level is currently set at 1.3710, any major move and close above that mark would spell a continuation of the recent bullish run we have seen. Current support levels sit at 1.3618 and 1.3525, the current RSI supports a drop in the coming week, as markets look to push away from the current high and selling pressure could be about to pile on. The trend line though will be key as markets will look to bounce on it if there is a rapid fall.

GBP/USD
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The Pound has climbed to dramatic highs in recent weeks, touching on resistance levels not seen since December last year. It dropped back slightly despite recent assurances that the economy was growing strongly from retail data. The strength now is coming from traders betting that US will delay tapering further, leading to a decline in the value of the USD. The pound has benefited from this but markets are now waiting to see if it has the ability to break through its current resistance levels.

Data is quiet this week for the pound, however with non-farm payroll this Tuesday night expect a large move from the pound. Also expect movement before markets close this week as GDP data is due out for the UK economy which is expected to show further strengthening of the economy.

Current resistance levels are sitting at 1.6180 and 1.6249; with 1.6249 acting as hard support in the market. While support levels are currently at 1.6107 and 1.6029 – and market movement down to them would break through the current trend line and signal a bearish run. RSI is currently showing a very flat trend, however buying for the pound is still stronger overall than the US dollar.

AUD/USD
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The Aussie dollar, supposedly the big loser of the commodity currencies is looking very strong after the recent Australian election. This strength is being driven from offshore activity as markets look to buy up the Aussie dollar after recent weakness in the US dollar, and as global risk appetite starts to creep back up. Chinese GDP data has also been positive for the most part last week, and despite its recent fall it looks likely to help benefit the AUD, as China acts as its largest trading partner.

Looking forward, the CPI data is due out and expected to show a lift in inflation for the Australian economy; markets will pay careful attention to his key data. Additionally the Reserve Bank Deputy Governor is expected to speak and markets will be looking for any indication of a change in monetary policy which could change the current economic climate.

Current resistance levels can be found on the Fib level 50.0 at 0.9714 and 0.9764. While the current RSI shows the pair overbought on the charts, as markets are looking to exit the USD. There is also a strong bullish uptrend, which looks set to continue until touching the hard resistance level at 0.9764. Support levels are also at 0.9610 and 0.9564 and are possible if there is a pullback, as they sit in the current trend line.

NZD/USD
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The New Zealand Dollar has climbed heavily against its major counterpart the USD over the weekend, after the recent government shutdown weighed heavily, and then traders bet heavily against the USD on the back of tapering; as markets expect tapering to be now not till next year.

The strong NZD is looking to break some current levels as it looks to push higher and touch highs not seen since April. However, with a quiet week from the NZD, as economic data will be will be light, expect the US to be able to claw back some ground.

Currently the resistance levels on the daily chart are sitting at 0.8534, 0.8526. While Support levels can be located at 0.8466 and 0.8421. Support levels are likely to be tested in the coming days as traders look to pull back from recent highs on the RSI. If a pullback does happen I would watch carefully for a head and shoulders pattern to form in the coming weeks.

USD/JPY
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The Yen seems to be running out of time and space in the markets. Recent remarks last week from the BoJ look to further prompt the Yen into falling further as the battle for inflation is set to take another strong turn. Markets are currently expecting Kuroda and Shinzo to act further with more strong stimulus to encourage inflation as markets start to think the Japanese prospect for inflation might be cooling off. Overall though market moves are about to happen as a triangle has formed and the market is looking to break out.

Markets will be eagerly awaiting Industrial production due out in Japan, as one of the main benefactors of Japan’s fall in the Yen is the export sector. Additionally CPI data is expected out and traders should be looking to see if there is a gain as this would be a positive for the Yen.

Current resistance level’s are 98.962 and 100.00, with current support levels at 97.108 and 96.252. Support and resistance levels will come heavily into play when the current triangle breakout occurs, in the coming week or next. Do note that Bollinger bands have been playing a prominent role, with many trading opportunities coming of the tight bands as it ranges.

USD/CHF
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The Swiss Franc has been punching in lower high and lower lows. We see a recent lower high reject strongly off the 23.6 fib level indicating a bearish bias. Price is currently sitting on a strong support level of 0.9010 that has been tested several times in late March and early April last year. More recently price has tested and rejected it strongly this February. This is the zone to watch in the week ahead and with 2 resistance levels to keep in mind of at 0.9150 and 0.9075.

Markets will wait to see if the 0.9010 level breaks to the downside with the US Non-Farm Payrolls this week providing a possible catalyst.

Do exercise caution regarding potential breaks of 0.9010 as there have been 2 false breaks of this level. Once in Feb 2012 which resulted in a 300 pip bounce up, trapping many bears. The false break earlier this month resulted in a 200 pip bounce up.