So, the Reserve Bank of Australia, raised rates again, no surprise there. And in their statement that began and ended almost exactly the same as their last one, it was implied that they will be hiking them again in the future. They ended with the statement that they would be bringing interest rates back to their average levels and that this rate hike was “a further step in that process”.

There was some talk about the housing market in their statement, however at this point it doesn’t look like it will halt future rate hikes, but watch the housing data for a significant move toward weakness in the market. If this begins to falter then so do the odds of a rate increase.

Looking at the charts, AUDUSD has been pushing up on the high from March 17^th. If it can break past here it would face some considerable resistance around 0.9310. Despite pushing up on resistance, don’t forget that AUDUSD has been in a down trend since last November. So if the pair falters at the current level expect a return to support at 0.8600. The largest risk to AUDUSD strength is rate hikes out of the Federal Reserve, which are expected to come this year, as early as this summer.

In the yen pairs, AUDJPY has been the strongest pair. It bounced off of 86.18, which was the high from January 11^th. The benefit of trading AUDJPY over AUDUSD is that rate hikes in the US would be beneficial to AUDJPY. So, you can still play AUD strength without fearing an increase in dollar strength.

Last week EURJPY broke above resistance around 127.20, but failed to maintain that level and has since fallen back below it. The up trend that began on March 22nd has turned into consolidation in April, ranging between 127.90 and 126.75. If the pair can break below 126.75 the next support level is around 125.30, which was a previous resistance level. If we see a topside break and 127.20 forms support, look for resistance to form around 129 and 131.40 above that.

The movement in the yen pairs has been strange today, with respect to US equities. Typically EURJPY moves in lock step with the S&P. But today, positive movement in equities has been met with falling yen pairs. Read more about my longer term outlook on the carry trade.

Go ahead and open up your EURUSD chart and take a look. EURUSD has been constantly ignoring 1.3500. Look back to the beginning of February and you will notice that the bottom of the range is 1.3440 with the top at 1.3840. So will EURUSD be breaking out of this range? I don’t think so. There just hasn’t been a strong enough fundamental catalyst to break it out of its current range.

I would much rather be in a EURUSD buy than sell at this point. The movement within the range however has not been that smooth. I wouldn’t want to hang onto EURUSD past 1.3650. Lately EURUSD has not been following the equities market too well, mainly because of the issues with Greece. They have affected the Euro much more than the US markets so there has been a strong disconnect as of late.

There is little doubt that from a fundamental perspective the Australian dollar is much stronger than its New Zealand counterpart. For the last two weeks however AUD has been losing ground to NZD, but AUDNZD has begun to bounce off of former resistance at 1.2850. Will the pair begin to trekking upward again now? I don’t believe so. The problem is that New Zealand is set to raise interest rates in the next few months, and while rates in Australia will be rising as well, they have already started their rate hike cycle. Since New Zealand will just be starting theirs their currency has more to gain from the first initial rate hikes.

This will be putting a downward pressure on AUDNZD, the good news is that since both countries will be increasing interest rates their currency cross should follow a clearly defined range, until one of them ends their cycle. I looks like the top of the range will be 1.2900, just above the current price.

AUDUSD broke through resistance at 0.9200 today, which had held up to two tests over the last week. This break has been fueled by a weakening US dollar more than a strengthening Australian dollar. The FOMC statement was mildly better than recent ones, with hints that the Fed will begin to ease off the liquidity injections, but keep rates depressed. The implication is for improving financial markets, and a return to growth. This is the same sentiment that we have been getting for the last year and a half, but you shouldn’t be too concerned with the legitimacy of the statement, unless you are trading very long term.

For most of you, your concern is whether the market will believe this sentiment again. History has shown us that it will. Despite the lack of actual change in the underlying fundamentals, the markets have shown that they can look like recovery has taken hold. So the market looks like it is going to run with this bout of risk appetite once again.

AUDUSD has resistance at 0.9300, limiting the topside movement to 100 pips, which is still a good potential for profit. I expect the pair to begin to bounce between 0.9200 and 0.9300 like it did in January, good news for anyone who likes to trade a loose range.

Not likely.

One of the strongest long term trades available right now is long USDCAD. From both a technical and fundamental standpoint, this trade offers opportunity for profit.

The Canadian government does not want its currency to return to parity with the dollar. They want to be able to return to the trading levels before the summer of 2008, and a strong Canadian dollar makes that difficult. The Canadian central bank is not the intervening type, when compared to countries like Switzerland and Japan, but they will keep their interest rates depressed longer than the US to push their currency down. Hopefully they will point to no rate hikes in the foreseeable future at their rate announcement this Tuesday, which would bring weakness to CAD.

It is at low technical levels, so there is little history for CAD to be stronger than it is against the dollar. USDCAD has found significant support over the last seven months around the 1.0300 level, and is currently hovering just above this important price. Of course, the pair does have some resistance above 1.0750 which could cause problems with the trade.

If there is a break below 1.0190, that would signal the dreaded return to parity. This would be a good place to set your stop loss. Since this is a longer term trade, don’t forget to lock in profit by 1.0750 at the latest.

I remember back before the summer of 2008, the EURGBP was a good pair to trade if you wanted a tight range that moved a slow pace. But of course the world of currencies was flipped on its head when interest rates around the world all began to head toward zero. This is still a good pair to trade, if you want a trade that is least correlated to the dollar.

Currently the situation in the UK is focused on inflation and growth. The current above target inflation is expected to only be temporary, by the central bank, so they will not be raising rates to combat it. In fact, they believe over the long term inflation will be under target and are more afraid of deflation. Also of concern in the UK is unemployment, which increased for the first time in ten months, making the central banks outlook for future growth seem a bit too optimistic.

Problems in the EU can be summed up into one word: Greece. The small Mediterranean country has been the bane of the EUR for the last few weeks, as their government’s apparent insolvency threatens all of the other members of the union. While, the UK’s unemployment looks to have started an uptrend, unemployment in the EU hasn’t had a respite since 2007, and currently stands at 10%. The good news is: their inflation had come in at around 1% year over year.

Inflation and insolvency is what separates these two currencies. While the Bank of England sees inflation as under control, the fact is that it is 1.5% above target and has yet to see any movement down as of late, no matter what rhetoric comes out of the BoE the data has not suggested that inflation will be letting off. Of course high inflation is hardly a worry when the threat of a bankrupt country hangs over your head, so much so that there are people speculating the end of the EUR. Fundamentally speaking, EURGBP has tremendous downward pressure, and as far as I know, no one is speaking about the demise of the pound.

From a technical perspective there is resistance for the pair at 0.8500. A break of this level would send the pair tumbling down to at least 0.8000 with the next lowest support levels residing near 0.7000. The pair has also been unable to break above any long term highs since the end of 2008.

The question that has to be asked before you short the pair is “Will the situation in Europe get worse faster than in the UK?” Of course no one can know this, but Europe definitely has much more potential for weakness than the UK does.

The In Focus series is a weekly long term compare and contrast of both economies in a currency pair and its technical levels.

What pair would you like to see In Focus next week? Tell us in the comments below.

GBPUSD has established a slightly down trending range over the last seven months, and it currently sits as the bottom of that range. The markets look to be increasing the risk that they are willing to take on, and recent economic data, particularly last week’s unemployment number, has been stronger than expected. For now the pair will at least return to the midpoint of the descending range.

This week GBPUSD has been in a loose range this week, in between 1.5570 and 1.5715. The bias has been to the upside so watch for a break above the range. On that break, or even before, look to buy the pair for a long term trade with a stop loss below this week’s lows. The minimum target is 1.60 so you are going for around 400 pips.  This is a long term trade so be loose with it but don’t forget to secure some profit.

The US retail sales data was postponed until tomorrow, which means that we get that on top of consumer sentiment on the Friday of a rather sideways week of trading with a bias toward the upside. Last week’s unemployment number was not as bad as the market made it seem, in fact they were actually very positive. So, look for opportunities to buy the risky currencies against the dollar and yen, especially around the US open.

AUDJPY poses a good opportunity to play this sentiment. There is some short terms support near 79.60 which present a good buying point, but be weary around the 80.40 level, as it could pose some resistance. Additionally, the pair now trades above its down trending highs that began in mid January.

Selected Excerpt:

USDCAD broke near the predicted price of 1.0695 five pips higher at 1.0700. After the break, it head up towards the resistance points near 1.0725 and 1.0745. USDCAD then bounced just above the zone near 1.0745 and started a downwards range. At the moment, the price is at the support zone that has been created around 1.0650. If it breaks this level, look for a move down to support at 1.0605.

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