Fed December Rate Hike Has Been Almost Completely Priced In; Time For A Correction?

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Dear Traders,

After the dust settled around the U.S. Presidential elections, market participants returned to business as usual while risk appetite has been boosted by the Trump reflation trade. The focus now shifts back to Federal Reserve rate hike in December, while there was some concern that a Trump victory would give the Fed reason to delay further tightening. Instead the U.S. dollar and U.S. yields are running higher amid speculation Trump’s plans to boost infrastructure spending will spur rate hikes as inflation and economic growth pick up. Fed rate hike odds are currently holding above 80 percent and economic data this week may further support the Fed’s hawkish bias.

Most attention will be paid to Tuesday’s economic calendar with Eurozone GDP data, U.K. Consumer Prices and U.S. Retail Sales due for release. On Thursday, U.S. Consumer Prices are worth watching followed by Janet Yellen’s testimony before the Joint Economic Committee. CPI figures should be strong enough to keep the Fed on track to hike rates next month while Yellen is expected to maintain her bias towards higher rates. Last but not least, ECB President Mario Draghi is scheduled to speak at the Euro Finance Week in Frankfurt on Friday. The European Central Bank is expected to hold its course while analysts focus on a small alteration in the size and scope of the QE program in December rather than a rate cut.

Overall, economic conditions for the Eurozone remain stable and euro traders should bear in mind that the recent dip in EUR/USD can be attributed to the dollar’s rate expectations. Thus, the appetite for USD will continue to dominate the price action for the time being.The currency pair tested the support area around 1.0770 and it will now be interesting whether this support proves to be strong enough to withstand the downward pressure. If the euro drops below 1.0770 we expect further losses towards 1.07 and 1.0630. Near-term resistances are seen at 1.0850 and 1.0950.

The GBP/USD dropped back below 1.26 but the decline came to a halt slightly above 1.25. If the pound is able to climb back above 1.26, we expect further gains towards 1.2720. Sterling bears should however focus on a break below 1.2440, reinvigorating fresh bearish momentum towards 1.2350 and 1.2270. U.K. CPI data on Tuesday will receive most attention but Wednesday’s U.K. Employment Report may also be worth watching.

We wish you a good start to the new week and many profitable trades.

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The Unimaginable Became Reality

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Dear Traders,

What was feared is now official: Donald Trump was elected U.S. President.

What a thrilling election night! The results showed a much closer contest than expected while markets are even more nervous as Republicans maintained their control of both houses. It is perhaps a little like the Brexit vote in June when many analysts and market participants could not imagine that Britons would finally vote for an exit of the EU. And then it happened: Brexit. Today it is the same scenario and the unimaginable becomes real. Trump showed surprising strength over Clinton, shocking financial markets.

The impact of a Trump presidency on the U.S. economy is yet uncertain and it is precisely this uncertainty that worries the market. As a trader however, we are not influenced by political developments as long as there is some volatility to drive our trades. As a result, we are looking back at a profitable trading night with the euro rising towards 1.1270, providing euro bulls a good profit of 128 pips by our long-entry. The British pound lagged behind as the upward momentum of the currency was initially limited by the future Brexit outlook.

EUR/USD: The euro was showing an upward trend this morning and based on this initial trend we are now looking for higher targets at 1.1340, 1.1370 and 1.1420. If the euro breaks significantly above 1.1450, the next bullish target should be at 1.15. A trend reversal only occurs with a renewed break below 1.1040/20.

GBP/USD: The pound benefited from the sharp sell-off in the U.S. dollar. A next resistance is seen at 1.2550 while a break above that level may invigorate fresh bullish momentum towards 1.2670. Sterling bears should however wait for a break below 1.24 in order to sell the pound.

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US Election: A Fateful Day?

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Dear Traders,

It’s Election Day in the U.S. and no other event matters financial markets more than this historical presidential election. The U.S. dollar slightly strengthened amid speculation that a Clinton win is more likely and therefore will pave the way for the Federal Reserve to raise interest rates next month.

Let’s briefly summarize the main points:

  • Final polls show a small but not insurmountable lead for Clinton
  • Results will start to come in after polls begin closing at 23:00 UTC (6 p.m. Eastern time)
  • Voting across the country will finish at 6:00 UTC (1 a.m. EST)
  • 4:00 UTC (11 p.m. EST) Earliest possible time to announce the winner.
  • Trump win would send the USD lower, at least initially. In the long-run, the dollar may strengthen on tax cuts and spending increases. The markets will face increased volatility and uncertainty. Risk-aversion will dominate.
  • Clinton win would send the USD higher as the focus shifts to Fed rate hike in December. Her victory could reinvigorate a fresh dollar rally while investors would become less risk-averse.
  • A tight race between Clinton and Trump would add uncertainty, which would be dollar-negative in the hours after the election.

As the price action will be determined by the latest polls, traders should prepare for both scenarios. In case of a Trump win, both of our major currency pairs will trade higher. Thus the euro could rise towards 1.12-1.1250 and even towards 1.14. The British pound could rise towards 1.2670/1.27. In case of a Clinton win however, the euro could fall towards 1.08 whereas the British pound might drop back towards 1.21. Let’s be surprised.

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U.S. Payrolls To Take Back Seat To Election Uncertainty

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Dear Traders,

It is payrolls-day again but this time, U.S. employment data is however not the market’s main concern. Market participants are bracing for election volatility and severe turbulence with only few days to go before the Nov. 8 presidential election between Hillary Clinton and Donald Trump. Traders are adjusting dollar positions to avoid risks ahead of the historical U.S. vote. The market became more nervous since Clinton’s lead over Trump has shrunk in the past days while a Trump victory has not yet been priced in. The dollar recently weakened against its counterparts in the light of that increasing uncertainty about the outcome.

Economists are looking for U.S. nonfarm payrolls to climb by 175k last month whereas a healthy report would reinforce the assumption that the Federal Reserve will raise interest rates next month. If the report falls however short of expectations, the greenback could face another round of weakness. The payrolls report is scheduled for release at 12:30 UTC.

Technically, the euro finds itself in a current trading range between 1.1125 and 1.1050. Looking at the daily chart we see that the downward channel is still unbroken, which could predict upcoming bearish momentum in the EUR/USD. As long as the euro remains below 1.1150 we see a higher likelihood for a downward movement.

chart_eur_usd_daily_snapshot4-11-16

However, we do not expect today’s NFP report to change the sentiment in the euro as big market players remain risk-averse ahead of next Tuesday/Wednesday – and that’s what we are doing.

The GBP/USD broke above the falling trend line of its recent downward channel and further gains might be possible but let’s be surprised and prepare for both bullish and bearish scenario. A new support could be at 1.2340 whereas a next major resistance is only seen around 1.2670.

chart_gbp_usd_4hours_snapshot4-11-16

Have a nice weekend!

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Risk-Aversion Dominates The Market Ahead Of Major Risk Events

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Dear Traders,

The U.S. dollar received less attention as investors turned risk-averse in the light of the latest twist in the U.S. election, causing uncertainty about the outcome of the looming vote. The euro still remained within a narrow trading range and none of our entries was triggered Monday. In order to expect an increase in momentum we now wait for an upside break above 1.0980 or, on the other side, a downside break below 1.0935.

Unlike the non-moving euro, the British pound rose to a high of 1.2249 as Bank of England Governor Mark Carney announced that he will remain in the role until 2019. Carney’s decision to stay at the BoE was seen as a positive for the U.K. even though the pound remains vulnerable to further losses in the medium term. The GBP/USD trades sideways between 1.2275 and 1.21 ans as long as there is no breakout of this range we will have to wait.

The U.K. PMI Manufacturing is scheduled for release at 9:30 UTC but this report is unlikely to have a dramatic impact on the pound.

More important will be the ISM Manufacturing index, due for release at 14:00 UTC which should affect the performance of the U.S. dollar provided that the report surprises to the upside.

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Will U.K. GDP Numbers Drive The Pound To 1.21?

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Dear Traders,

The U.S. dollar weakened slightly against the euro and British pound Wednesday. After peaking at a daily high of 1.0946 the euro, however, shied away from its resistance at 1.0950 and dropped back below 1.09. If the EUR/USD remains unable to take the hurdle at 1.0950 we expect further losses towards 1.08. In case of a rise above 1.0965 it may head for a test of 1.10. The greenback will be back in focus within the next 48 hours with Durable Goods Orders scheduled for release today at 12:30 UTC and Gross Domestic Product data due tomorrow. GDP data and the nonfarm payrolls report next week will offer further clues on the health of the U.S. economy.

The pound sterling still remained within its current trading range between 1.2250 and 1.2150. Above 1.2250 it may head for a test of 1.2320 but be careful, the risks are currently rather still geared to the downside and it only takes one negative impulse to reinvigorate fresh bearish momentum in the GBP/USD. This impulse might come from important U.K. data such as today’s Gross Domestic Product figures, due at 8:30 UTC. If GDP numbers come in below expectations we could see sterling tumbling towards 1.2150 and further 1.21. Below .2130 we are looking for a steeper fall towards 1.20.

chart_gbp_usd_4hours_snapshot27-10-16

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U.S. Dollar Takes A Breather While Euro And Pound Recover Slightly

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Dear Traders,

We got what we have been looking for: A breakout of the cable’s narrow trading range. While an initial attempt to buy sterling above 1.2235 proved unsuccessful, breakout traders were later able to profit from the pound’s sharp drop towards 1.2080. Sterling tumbled before BoE Governor Carney’s testimony to the House of Lords Tuesday but bounced back from its fresh low of 1.2082 as Carney said there were limits to the Monetary Policy Committee’s (MPC) willingness to look beyond an overshoot of their inflation target. In other words, his comments on inflation mean that further easing is unlikely in the near term, highlighting policy makers’ concerns about the risk of stagflation, which arises from the depreciation of the pound.

Carney’s recent comments suggest the MPC will stick to the sidelines at the next ‘super Thursday’ event on November 3.

Technically the pound remains confined to a recent 100-pips trading range between 1.2250 and 1.2150. Above 1.2250 it could head for a test of 1.2320 whereas a break below 1.2130 may drive the GBP/USD to fresh lows around 1.2050.

The EUR/USD however, failed to show larger movements yesterday and remained stuck between 1.09 and 1.0850. It was the second consecutive trading day on which none of our signal entries was triggered. European Central Bank President Mario Draghi defended the ECB’s easy monetary policy but conceded that low interest rates are not ‘costless’ for the eurozone and policy makers “certainly prefer not to have to keep interest rates at such low levels for an excessively long time”. Draghi’s ‘neutral position’ drove the euro higher but gains were capped at 1.09 for the time being. We are still looking for a significant break above 1.09 but any upward movements could be on a shaky footing as a next resistance is seen at 1.0950.

There are no major economic reports scheduled for release today. The only reports come from the U.S. and will be Advance Goods Trade Balance at 12:30 UTC, Services PMI at 13:45 UTC and New Home Sales at 16:00 but none of these reports is expected to have a major impact on the greenback.

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Is The Cable Poised For A Breakout?

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Dear Traders,

Both of our major currency pairs ended the trading day virtually unchanged as there was not much consistency in the dollar’s performance Monday. The euro tested the 1.09-level on better than-expected Eurozone data. Manufacturing and Services PMI reports showed the fastest pace of economic momentum this year but this uptick was not sufficient to alter the sentiment in the EUR/USD. The euro trades on the increasing divergence in monetary policy between the U.S. and Europe and that is precisely the driver for the euro’s weakness. ECB President Mario Draghi is scheduled to speak in Berlin today at 15:30 UTC and any comments on extending the QE program beyond March could put further pressure on the euro. Before his speech the German IFO index is due for release at 8:00 UTC but this report is not expected to have a significant impact on the currency pair. Technically, we wait for a significant break above 1.0910 in order to buy euros towards 1.0950. On the downside the 1.0860-level remains in focus whereas a break below that level may drive the euro as low as 1.0830.

The pound sterling remained within a tight trading range between 1.2250 and 1.2190. We see chances of an upcoming breakout of that narrow range provided that sterling breaks above 1.2235 on the upside or respectively below 1.2190 on the downside.

chart_gbp_usd_4hours_snapshot25-10-16

Bank of England Governor Carney appears at the House of Lords economic committee today at 14:35 UTC and any comments on future monetary policy changes could have an impact on the pound.

From the U.S. we Consumer Confidence scheduled for release at 14:00 UTC, a report which could influence the dollar’s performance.

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No Clarity On The ECB’s QE Program, Next Decision To Be Made In December

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Dear Traders,

Mario Draghi refused to provide any clear information on what the ECB plans to do in the coming months, leaving investors suitably disappointed. Neither did he refer to tapering nor to extending the ECB’s QE program. The only takeaway that we got from yesterday’s ECB meeting is to wait and to come back in December and see what the central bank thinks then. Nonetheless, Draghi’s stance could be described as somewhat more “dovish”, noting that there is no “convincing upward trend” in underlying inflation, suggesting that the ECB might announce an extension of its bond buying program, rather than a taper at their policy meeting December 8.

Market participants sent the euro on a roller coaster ride before it ended the trading day significantly lower against the greenback. During the Asian session the euro slightly broke below 1.09 and we now wait for a significant break below 1.0880 in order to sell euros towards the next support level at 1.0820/1.08. Current resistance levels are seen at 1.10 and 1.1050.

There was little consistency in the performance of the British pound yesterday. While the currency remains vulnerable to further losses given the troubled picture of the eventual Brexit negotiations at the EU summit, it remains a sell on rallies. We now focus on a downside break below 1.22 or on the other hand, an upside break above 1.23.

Apart from the EU summit there are no major economic reports scheduled for release today. We recommend not investing your weekly profits today and wish you a wonderful weekend.

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Market Listens To Draghi: Tapering Or Expanding Stimulus Plan?

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Dear Traders,

Top event risk for the upcoming session is the European Central Bank meeting and ECB President Draghi‘s comments on tapering. While recent ECB meetings have rendered little market reaction, there has been speculation recently that the central bank will begin tapering its bond purchase program at one of its next meetings. While Draghi was optimistic about the outlook for the Eurozone economy, most economists predict the ECB won’t start tapering before the second half of 2017. Quantitative easing is currently scheduled to end in March and with consumer prices still hovering close to zero, policymakers should at least be comfortable with the current level of stimulus or even extend the program before gradually phasing it out once inflation approaches the ECB’s goal of 2 percent.

The ECB will announce its policy decision at 11:45 UTC but no changes are expected. The main focus will be on the press conference 45 minutes later and Draghi’s comments. If he pushes back aggressively against recent talk of tapering, the euro could be vulnerable to further losses. Any signal that the ECB plans to reduce bond purchases will provide a strong boost to the euro. If the central bank however refrains from providing any signals and defers any changes until December, today’s announcement could turn out to be a non-event for euro traders.

To cut it short, let us have a look at the technical chart and prepare for both possible scenarios.

EUR/USD

The euro recently weakened against the U.S. dollar but found some halt around the 1.0950-level, the descending trend line of the euro’s recent downward channel. If the pair breaks below 1.0940 we see a higher likelihood of further losses towards 1.09 and 1.0830. On the upside, the euro would need to break above 1.1060 in order to spark some bullish momentum towards 1.1170.

chart_eur_usd_daily_snapshot20-10-16

Apart from the ECB meeting we have U.K. Retail Sales at 8:30 UTC, the Philly Fed index at 12:30 UTC as well as U.S. Existing Home Sales at 14:00 UTC scheduled for release but all these reports could take a backseat to the ECB.

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We wish you good trades and many pips!

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Copyright © All Rights Reserved 2016 Maimar-FX.

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