The British CPI and PPI indices came in way better than expected yesterday and that release caused a strong rally in the two most important European currencies. The U.S. Dollar declined across the board as the Great British Pound gained more than 1% compared to it while the Euro also finished significantly higher against its most important peer. The Japanese Yen also finished strong, but the safe haven currency got weaker today in early trading after breaking the all important 100 level on Tuesday.
Oil rallied strongly after the correction on Monday, and the commodity is getting close to $50 once again, helping the Canadian Dollar and the Australian Dollar in remaining strong against the majors. The Aussie broke above 0.77 once again, as the New Zealand Dollar hit 0.73, but both currencies fell back below the key levels once again this morning, despite the positive international sentiment. Precious metals lost a bit of ground following the bullish British announcement as well, after the bullish Asian session on Tuesday.
GBP/JPY (current price: 131.72)
The Pound had a very strong day yesterday together with the Yen, but the Japanese currency got sharply lower against all of its major counterparts this morning, and the pair rallied off the crucial 128.75 level to trade as high as 131.75. The most volatile pair recently seems to be completing a bullish double bottom pattern, as it failed to hit a new low below the post-Brexit levels. The cross trades exactly at the lower boundary of the declining long-term channel with strong resistance ahead at 133.50 and near 139.
Our assessment: GBP/JPY might be ready for further consolidation after yesterday bullish reversal back above the crucial 130 level.
EUR/USD (current price: 1.1260)
The U.S. Dollar remains relatively weak since the release of the U.S. Employment report two weeks ago, as traders now think that the bullish labor market data won’t be enough for the FED to raise interest rates this year, despite the easing international tensions. The pair held above the 200-day MA and broke above the 1.11875 resistance as we expected, with further upside possible up to the resistance lines near 1.1375 and 1.1450 in the coming days, especially if global stocks markets remain positive.
Our assessment: EUR/USD rallied more than 200 pips since hitting the 200-day MA two weeks ago, and the short-term uptrend seems intact despite the neutral long-term picture.
USD/CAD (current price: 1.3015)
The Canadian Dollar rallied for 7-days in a row now, pushing the pair below the 1.29 level for the first time in more than one month, following the re-test of the 1.32 level in late July. The pair closely tracks the movements of oil and the recent strong rally put pressure on it again following the 3-month correction in the currency. The cross could re-test the lows near 1.2450 in the coming weeks, but on the short-term a bounce is possible as the momentum indicators are turning oversold thanks to the relentless rally.
Our assessment: USD/CAD fell way below the crucial 1.30 level that has dominated trading for the last several months, and a re-test of that line is likely before a bearish continuation.
WTI Crude Oil (current price: $47.01)
Oil continued its strong rebound, despite the negative U.S. Crude Inventories data that showed rising inventories for the second week in a row. The crucial commodity hit $47 despite the release after trading as low as $39.50 at the end of July. The 20% rally since the bottom has reached another strong resistance zone yesterday and further important lines are above the current price near $50 and $51.50. The $47 level might trigger a correction in the rally in the coming days.
Our assessment: Oil seems to be resuming the strong rally that took it from $28.50 to $52, but the prior highs will probably cause volatility if the commodity reaches them in the near future.
The Great British Pound will likely be in focus once again today, as the British Employment Report will be released during the morning session, providing further crucial information regarding the effects of the Brexit vote on the economy. The FOMC Meeting Minutes will also be closely watched by traders, as the U.S. Dollar remains under pressure since the bearish GDP release 3 weeks ago. The Australian Employment Report will also come out during the evening session, together with the Japanese Trade Balance.