Here are two short-term trading strategies that draw their inspiration on technical factors.
The first one is selling the euro against sterling. For something like the tenth time since May 22, the euro has tested resistance near GBP0.8600. This has given the area technical significance. Stops can be placed tightly above there. On the downside, a band of support is found between GBP0.8480 and GBP0.8520. The lower end of the euro's 3-month trading range comes in close to GBP0.8400.
Though inspired by technicals, a dovish ECB on Thursday while the BOE says nothing and does nothing at a meeting in which the new governor is in position less than a week, would also support the position. While the euro zone PMI show the pace of contraction of contraction slowing, the U.K. appears to be experiencing an outright expansion, albeit, quite mild.
The second trade idea is to buy the Australian dollar against the Canadian dollar. It too is offers an interesting technical picture. There appears to be a head and shoulders bottoming pattern being carved out. It does not seem quite as ready as euro-sterling to enter the trade, as the pattern has not been confirmed.
The pattern itself consists of a left shoulder (June 11 just below CAD0.9550), a head (June 20 near CAD0.9485), and right shoulder (June 28 and July 1 in the CAD0.9580-CAD-0.9600). The neckline is found by connecting the June 14 and June 26 highs and that is found near CAD0.9775 today.
It is about a three cent pattern, which projects then three cents from the break out, or a bit above parity. If one wanted to anticipate the pattern, an preliminary signal could be a close of the North American session above CAD0.9700 today.
Fundamentally, a rate cut by the RBA in August has been largely discounted. Canada's reports employment data this week and is likely to demonstrate that last month's 95k increase was a statistical fluke. Canada had benefited from a similar positive terms of trade shock as Australia, and the tide hast turned there too, but the Canadian dollar has fared considerably better. Time for catch-up?