GBP/USD Trends Lower But Prepare For Pullbacks

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Dear Traders,

U.S. President Donald Trump’s tax-plan announcement had little impact on the market as it foreshadows an uphill battle in U.S. Congress. While Trump said the tax-cut plan was aimed at helping working people and making the tax code fairer, there is concern about the budget deficit. The plan contained only few details on how to pay for the tax cuts without expanding the budget deficit and adding to the nation’s amount of debt. The plan must be turned into legislation and investors are still skeptical that Congress could approve a tax bill in the near future.

The U.S. dollar slightly extended its climb against the euro and British pound as market participants raised their expectations for one more Federal Reserve rate hike this year. The priced-in probability of a December rate hike is now 70 percent.

Traders should keep an eye on the U.S. GDP figures, due for release at 12:30 UTC. In case of a surprise we will see more volatile fluctuations in the USD crosses.

GBP/USD

The British pound extended its slide and fell below 1.3380. However, the dip below that support level was not sufficient to increase bearish momentum and we now expect the pair to find some support around 1.3350. Looking at the 4-hour chart we see the Relative Strength Index (RSI) approaching oversold territory. This situation may encourage buyers to take long positions above 1.3340. If the pound climbs back above 1.3430 we could see a run for 1.35.

Traders await a speech of Bank of England Governor Mark Carney at the BoE Independence conference at 8:15 UTC. If Carney raises rate hike expectations the pound could quickly recover from its lows.

The euro continued its short-term downtrend and fell towards 1.17. As stated in yesterday’s analysis we expect a stronger support coming in between 1.1710 and 1.1680. Buyers of the EUR/USD should now wait for prices above 1.1825 in order to buy euros towards 1.19.

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U.S. Dollar Strengthens, Trump Tax Plan Back In Focus

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Dear Traders,

The U.S. dollar strengthened against its major counterparts as comments from Federal Reserve Chair Yellen and President Trump bode well for some renewed upward momentum in the greenback. Yellen boosted expectations for a rate hike in December, saying the Fed “should be wary of moving too gradually” in its rate hike cycle. The Fed does not want to surprise markets when raising rates earlier than expected and while the probability of what the market is currently pricing in is still a little bit too low, Yellen seeks to prepare markets for another rate increase this year.

Moreover, the greenback received some boost from Trump’s comments on the long-awaited tax plan. Recent comments included lowering the corporate tax rate to 20 percent from 35 percent while the individual tax rate should be lowered to 35 percent. However, full details of the tax plan have yet to be revealed. Trump is expected to announce his tax overhaul plan today during a speech in Indiana.

Furthermore, U.S. Durable Goods Orders are scheduled for release at 12:30 UTC but this report is not expected to have a major impact on the USD.

From a fundamental perspective, the dollar trade might be preferable now but traders should also pay attention to the technical picture in order to confirm the current forecast.

EUR/USD

The euro dropped below an important support area at 1.1830-1.18. As long as the pair remains well below 1.1830, we expect further losses towards 1.1730 and possibly even 1.1680. For the euro to regain some strength it would need a renewed break above 1.1865 and further 1.19. A resistance is seen at around 1.1970.

The British pound was able to hold above 1.34. If GBP/USD breaks below 1.3380 we anticipate further losses. A current resistance is however seen at 1.3550.

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Euro Drops Below $1.18

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Dear Traders,

The euro weakened against the U.S. dollar in the aftermath of the German election results while the important support area around 1.1830-1.18 remained unbroken until this morning. As mentioned in our yesterday’s analysis, for the bullish bias to diminish the euro must break below 1.1830/20, the neckline of a head-shoulders pattern that was formatted since late August. Below 1.1820 we will focus on a lower target at 1.1775, from where potential pullbacks may occur. A current resistance is however seen at 1.1990.

Today’s focus shifts to comments from central bank policy makers with most attention being paid to Fed Chair Yellen who is scheduled to speak on inflation, uncertainty and monetary policy at 16:45 UTC.

Elsewhere, the war of words between the U.S. and North Korea continues to pose a threat to the markets. While the market shrugs off escalating tensions between America and North Korea, the recent escalation in rhetoric raises risk of tactical missteps.

The British pound extended its recent slide against the greenback and fell to a low near 1.3430. The latest weakness phase of the pound can still be considered as consolidation within the overall uptrend but if GBP/USD falls below 1.3380 we anticipate further losses towards 1.3330 and possibly even 1.32. On the topside, we will wait for a break above 1.36 in order to focus on higher targets at 1.37.

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All Eyes On Theresa May Speech

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Dear Traders,

The U.S. dollar’s recovery turned out to be only short-lived with the British pound and euro regaining some ground against the greenback Thursday. The British pound has proven to be the best performing currency in September so far but storm clouds could gather over the currency. The pound’s recent strength has been based on the hawkish shift in the Bank of England’s monetary policy stance. Consequently, the market has begun to price in a potential BoE rate hike later this year. However, even if a change in monetary policy is an important driver in the market, there is also another fundamental driver that can change everything: Brexit. The U.K.’s divorce from the EU could cloud the outlook for the country’s economy and its currency. In a nutshell, future monetary policy decisions will depend on the Brexit theme which still represents the biggest uncertainty factor for the United Kingdom.

U.K. Prime Minister Theresa May is scheduled to provide an update on the Brexit theme in her speech in Florence today at 19:00 UTC. So far, no breakthrough was reached after three rounds of negotiations between the UK and EU. May’s speech is, however, expected to strike a positive tone and this optimism is reflected in the pound’s upward movement. Theresa May is expected to offer up to 20 billion pounds to retain access to the single market. Should her speech reinforce confidence that Brexit will brighten for the UK, the pound will benefit and could further rise. If May, however, confirms that the troubles remain, the pound could crash.

We currently see GBP/USD trading within an upward trend channel between 1.3690 and 1.3470. While today’s price development could be oriented toward these barriers, the pound’s direction will depend on May’s speech. We expect higher volatility around that speech.

 

Investors may also keep an eye on speeches by Federal Reserve officials and ECB President Draghi today. While Draghi refrained from touching on the ECB’s monetary policy in his speech yesterday he may offer further clues about tapering today.

The EUR/USD traded with a tailwind and we now focus on higher targets at 1.20 and 1.2050. A current support is however seen at 1.1870.

On Sunday September 24, Germans go the polls and this German election could also matter for the rest of Europe and thus the euro. If big chances are taking place, the euro will respond on Monday morning when markets open. Let’s be surprised.

We wish good trades and a wonderful weekend!

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British Pound Takes Breather On Carney Comments

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Dear Traders,

Monday has been a quite challenging trading day for traders of the EUR/USD and GBP/USD. While the British pound declined against the U.S. dollar after Bank of England Governor Carney’s comments were interpreted as more dovish following last week’s MPC statement, we have shot all our powder and finally missed out on the profitable bearish movement in the GBP/USD.

Carney reinforced the BoE’s view that the rate hike cycle in the U.K. will be “limited and gradual” and acknowledged that there was still clear concern over the health of the economy amid Brexit. His comments weakened the pound in the short term. GBP/USD traded consolidated and fell towards 1.3460. We now see a lower support at 1.34/1.3380 and if the pound drops below that level we may see a correction towards 1.33. On the topside, the 1.3620-level remains unbroken and sterling bulls may focus on a bullish break of that resistance level in order to buy pounds towards 1.38.

The euro traded sideways between 1.1970 and 1.1915. We now focus on price breakouts either above 1.1990 or below 1.1935. The German and Eurozone ZEW Survey are both scheduled for release at 9:00 UTC today and may have a slight impact on the euro.

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Pound Rises As BoE Hints At Rate Hike

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Dear Traders,

What a trading day for Sterling traders! The pound jumped to 1.34 as the Bank of England hinted at a rate hike “in the coming months”. While the central bank’s Monetary Policy Committee voted 7-2 to keep interest rates on hold, it was talking in much stronger terms about tightening. The pound initially plunged to 1.3150 before jumping to fresh one-year highs. Sterling traders’ efforts paid off and we were able to gain a nice profit of more than 100 pips by trading our yesterday’s long entry.

BoE Governor Carney said that the majority of the MPC see that “the balancing act is beginning to shift” and that “some adjustment of interest rates may be needed in the coming months”. The market is now looking to the November meeting as a possible time for a BoE rate hike. The Bank of England meeting in November is a Super Thursday on which the central bank releases its inflation report, along with the economic outlook and its rate decision. However, there is some doubt about the BoE’s strong rhetoric: If MPC officials have deliberately taken a hawkish tone to support the market’s appetite for sterling in order to slow inflation it may be some time before they are going to raise rates.

We currently see GBP/USD trading around 1.34. Next hurdles will be at 1.3450 and 1.3480 before the focus shifts to a potential bullish breakout beyond 1.35. Looking at larger time frames, a break of the 1.35-level will be crucial for a long-term bullish trend.

The U.S. dollar in contrast benefitted from the U.S. CPI which fueled hopes for a Federal Reserve rate hike in December. Furthermore, the Trump reflation trade came back into focus, providing some relief for the greenback.

U.S. Retail Sales are due for release at 12:30 UTC but today’s report is not expected to help the USD strengthening.

EUR/USD: The support around 1.1830 is still unbroken but this could change in the near-term – provided that the euro remains below 1.1950. We now expect the pair to trade between 1.1950 and 1.18. Any breakouts above or below that range could accelerate the respective momentum.

We wish everyone a relaxing weekend.

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Sterling Traders Focus On U.K. CPI Data

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Dear Traders,

We have seen a bit of a bearish reversal in EUR/USD Monday with the U.S. dollar recovering against the euro. Although yesterday’s slide in EUR/USD does not automatically mean that there will be a trend reversal, it should be noted that the technical picture may promise more downside momentum to come. If the euro falls below 1.1920 and further 1.1885 we could see a slide towards 1.1830. On the topside, buyers in the EUR/USD would first need to push the pair above 1.2030 in order to focus on higher targets at 1.21 and 1.2170.

The British pound ended the trading day virtually unchanged against the greenback with GBP/USD remaining confined to a narrow trading range between 1.3225 and 1.3160. Traders await the U.K. CPI report, due for release at 8:30 UTC today and if inflation data shows an uptick in August, the Bank of England may feel pressure to turn away from its dovish monetary policy stance. This would be positive for the pound but most volatility is expected on Thursday when the BoE announces its rate decision and outlook on policy.

If the pound rises above 1.3225 we may see a run for 1.3265. We bear in mind that the August high is at 1.3268, so sellers may sweep in to sell pounds around that resistance level. On the downside, we expect a support to be at around 1.3050.

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Profitable Trading For Euro Bulls, Now What?

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Dear Traders,

There was nothing stopping euro bulls from pushing the euro beyond 1.20 despite the absence of changes in the ECB’s monetary policy. The euro owes its recent appreciation in large part to the further improved outlook for economic growth in the Eurozone. The European Central Bank upgraded its forecast for growth this year to 2.2 percent, which is the fastest pace in a decade. While the ECB refrained from reducing asset purchases this time, Mario Draghi did suggest that decision on the quantitative easing program (QE) could be made next month. The strength of the EU economy has prompted the market to discount a policy shift, which is most obvious in the strong uptrend of the EUR/USD. While the currency pair has already charged remarkably high, the level of intervention rhetoric from the ECB was too mild to prevent euro bulls from pushing the single currency higher. Moreover, when coming to the currency’s sharp appreciation, Draghi didn’t seem overly concerned.

In other words, there was nothing in the way of further euro strength since the ECB will start tapering and if not today, then certainly next time.

Furthermore, the U.S. dollar continues its downtrend. Market participants are concerned that the impact from Hurricane Harvey and now Irma are causing data distortions, and thus, undermine the chances of a year-end Federal Reserve rate hike.

EUR/USD

We got what we have been looking for: A breakout of the euro’s narrow trading range. Our yesterday’s long entry has proven to be sustainably profitable. We now focus on a next target at 1.2135, from where we may see some pullback. On the downside, we expect the 1.20-area to lend a support for the time being. However, bear in mind that the pair approaches overbought territory, a fact that increases the chances of a reversal.

GBP/USD: The pound sterling headed for 1.3150 on the back of broad-based dollar weakness. Sterling bulls were able to gain a good profit by using our long entry at 1.3061. Once the cable breaks above 1.3165 we will shift our focus to the August high near 1.3270. Important supports are seen at 1.3050 and 1.30. Traders should keep an eye on the U.K. data (Industrial Production, Trade Balance) at 8:30 UTC.

We wish you good trades and a nice weekend!

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Will The Euro Rise Or Fall? Waiting For Draghi

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Dear Traders,

It’s decision day at the European Central Bank and traders are eagerly awaiting ECB President Draghi’s comments. Today’s ECB meeting is a very important event as it is expected to provide clarity on the withdrawal of stimulus. The majority of analysts expect Mario Draghi to delay announcing a timetable for cutting its monthly bond purchases at this meeting. The reason is the strength of the euro which may prevent the central bank from announcing a big change in monetary policy. Moreover, improving economic conditions in the Eurozone are likely to balance out near-term concerns over the euro’s strength. Ongoing EU improvements thus give room for the ECB to forego an announcement of a QE taper. If the ECB downplays tapering, the euro could fall. In the bullish case of a surprise announcement particularly a reduction of 30 billion or more, the euro will further rise. Whatever the case, the central bank has little choice but to cut asset purchases by next year, simply because it has no more bonds to purchase. In a first step, the ECB could reduce its monthly purchases to 40 billion from 60 billion which could happen at the start of 2018.

It all depends on Draghi’s rhetoric but even in the case of a dovish announcement, the medium-term trend is towards euro strength.

The U.S. dollar, in contrast, has become incredibly oversold. So any disappointments on the Eurozone front would be sufficient to trigger a correction in the EUR/USD, even though a setback may not last very long. Let’s be surprised.

The European Central Bank decision is scheduled for 11:45 UTC, followed by the highly anticipated ECB press conference 45 minutes later.

The euro traded virtually unchanged against the U.S. dollar while the price action of the EUR/USD was limited to a tight range between 1.1950 and 1.1910. We are still waiting for breakouts of that narrow range and prepare for larger swings today. Above 1.1960 the euro could head for 1.2120. Below 1.1890 it could fall back towards 1.18 and possibly even 1.17.

We wish you good trades!

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Forex Market Unfazed By North Korea Provocations

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Dear Traders,

There was not much to gain for daytraders yesterday or, more explicitly, the Forex market was unfazed by the developments on the North Korea front. Following North Korea’s nuclear test and latest provocative actions, there was an increasing demand for safe havens such as Gold but on the currency front, there was no clear trend on Monday. In recent times, markets generally tend to ignore large risks, rather, they are betting against them. Whether this behavior is an underestimation or the right preparation remains to be seen.

EUR/USD hovered around 1.19 but with US markets closed for a holiday, insufficient liquidity hindered the currency pair to rally. We now focus on the short-term resistance at 1.1920. If the pair is able to break through that barrier, we expect higher targets at 1.1960 and possibly even another run for 1.20. On the bottom side, traders should pay attention to a break below 1.1860. A lower target could then be at 1.1825, followed by 1.1785.

GBP/USD trended lower but remained well above 1.29. As noted in yesterday’s analysis, the cable would need to break significantly below 1.29 in order to invigorate fresh bearish momentum. As long as 1.29 remains unbroken we favor a neutral stance in this pair. A break above 1.2960 could encourage buyers for another test of 1.30.

The U.K. Services PMI is scheduled for release at 8:30 UTC.

From the U.S., we have Durable Goods Orders due for release at 14:00 UTC but this report is not expected to have a significant impact on the greenback.

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We wish you good trades and many pips!

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