EUR/USD: Will The 1.10-Barrier Withstand The Upward Pressure?

Dear Traders,

While U.S. nonfarm payrolls have surged to 292K jobs in December, beating all estimates, Friday’s dollar rally did not last long. The spoilsport was slower wage growth, which disappointed the market’s expectations and increased less than 2.7 percent.  The EUR/USD experienced a sharp dip towards 1.08 at the time when payrolls were released but the pair was able to quickly recover all losses. As noted in previous analysis, the 1.10-1.1050 area remains to be a key resistance zone. As long as the currency pair trades below that area, we will favor a bearish stance, targeting lower price levels at 1.0810 and 1.0720.

The British Pound fell to a five-year low against the dollar, dipping slightly below the 1.45-mark. A reason for GBP’s current weakness is a more pessimistic outlook for a first rate increase by the Bank of England. In the light of the current financial turmoil in China the BoE’s policy stance could be more dovish, waiting with a liftoff until well into 2017. In addition, the uncertainty surrounding the U.K.’s possible exit from the European Union threatens to weigh on the economy, which is why the BoE is expected to keep policy unchanged for a considerable time. The central bank will announce its latest monetary policy decision on Thursday. Aside from the BoE interest rate decision, Industrial and Manufacturing Production numbers, scheduled for release on Tuesday could be interesting to watch.

The most important piece of U.S. data will be Retail Sales, due for release on Friday. Furthermore, we will have some speeches of Federal Reserve officials throughout this week, which may impact on the dollar.

There are no major economic reports from the eurozone this week but the eurogroup meeting towards the end of the week could reveal interesting information for euro traders.

Let’s wait and see. We wish you a good start to this week and successful trading.

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Dollar Weakens On Ambiguity About The Fed’s Tightening Path

Dear Traders,

The FOMC minutes have revealed nothing fundamentally new. On the contrary, the overall picture of the minutes appeared somewhat dovish as the decision to raise interest rates was a “close call” among policymakers. While many Fed officials are confident that inflation would rise in the long-run, others expressed concerns about too-low inflation. Despite the committee’s unanimity to begin the policy normalization process, the expectations between Fed officials and the market regarding the future tightening path are diverging. Fed Vice Chairman Stanley Fischer said policymakers predict an estimated four interest increases throughout this year, while market participants believe that the Fed could disappoint with only two rate hikes.

Whatever the case, the U.S. dollar received no sustained support from U.S. economic data, whereupon the euro recovered some losses and climbed back above 1.08. Despite a strong uptick in ADP data, the greenback was not able to extend its gains against the euro. The British pound bounced off the 1.46-barrier but still remained below the 1.4650-hurdle this morning. We will therefore closely monitor the 1.4645-level. Once this level is breached on the upside, we could see sterling heading towards 1.4690 and 1.4725. Fresh bearish momentum may increase with a break below 1.46. A next support could be at 1.4565/55.

The euro might have difficulty breaking above 1.0840, where we see a next resistance. For euro bulls it might be smart to wait until prices exceed the 1.0860 level. On the bottom side, we see a current support at 1.0780/75, which should be significantly breached in order to sell EUR/USD towards 1.07.

There are no major important economic data releases today. Second-tier data such as Eurozone Retail Sales and U.S. Jobless Claims could only have a limited impact on the currencies.

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U.S. Dollar Benefits As A Safe-Haven But Gains Were Limited

Dear Traders,

The first trading day was characterized by a worldwide selloff sparked by slower growth in China. Slowing manufacturing in Asia’s largest economy fueled fears over the possible effects for global growth and led to safe-haven flows into U.S. dollar and Yen. While the euro initially traded higher against the greenback which was mainly driven by expectations of stronger German consumer prices, the common currency came under selling pressure when inflation data fell short of expectations.

The U.S. dollar benefited from safe-haven flows but downward moves in both pairs were only short-lived. GBP/USD broke below 1.4690 but quickly found a support at 1.4663. The EUR/USD dipped below its important support at 1.08 but ended the day comfortably above $1.08. We are still looking for a sustained break of 1.08/1.0780. A next lower target could be at 1.0735/30.

The most important data from the eurozone will be Consumer Prices, scheduled for release at 10:00 GMT today. If CPI data shows any surprises to the upside the euro could be heading towards 1.09 and 1.0935. Before that we will keep an eye on the Labor Market report from Germany, due for release at 8:55 GMT. The British pound marked a short-term resistance at 1.4730/40. We will wait for a significant break above 1.4755 in order to buy sterling towards higher levels. The UK Construction PMI, scheduled for release at 9:30 GMT may help the currency to trade higher.

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Will 2016 Be A Year Of Further Dollar Strength?

Dear Traders,

Happy New Year! We hope you have had a good start into 2016 and wish you all the best for the New Year and, of course, many profitable trades.

At every beginning of the year many market participants wonder what they can expect from the new year. There has already been speculation as to whether the dollar rally will last another year or not. After three straight years of gains the odds are in favor of the U.S. dollar, even though the Federal Reserves’s monetary tightening cycle could weigh on U.S. growth. It will therefore be a challenge for the Fed to raise interest rates to an appropriate level which allows responding to economic setbacks. We generally expect the greenback to strengthen in the coming months as the Fed is forecast to continue raising interest rates. But as we all know, appearances can be deceptive and traders should bear in mind that both major currency pairs could be bottoming out if Fed officials begin to backtrack their hawkish views.

What is important for this week?

There are plenty of important data releases this week, but since the market participation may be slow in the first weeks of January, the impact of economic data could be limited. The focus will be on Consumer Prices from the Eurozone, scheduled for release on Monday and Tuesday. Furthermore, the Fed will release the FOMC minutes from its December meeting on Wednesday. The minutes are unlikely to have a significant impact on the dollar as the FOMC voting membership rotates every year, which is why some central bankers who voted for a rate hike last year are no longer voting members this year. Moreover, all eyes will be on the U.S. Employment data on Friday. If payrolls growth exceeds 200k alongside a strong rise in average hourly earnings, the dollar could be poised for further gains.

Let’s take a brief look at the technical side:

EUR/USD

The euro traded consolidated in a 1.10-1.08 trading range. We will need to wait for breakouts of this range in order to see fresh momentum. In the near-term we expect the euro being capped from 1.0950 and 1.10. A sustained break above 1.10 could invigorate bullish momentum towards 1.1050 and 1.11. On the bottom side the 1.08-level will be key and it would require unambiguous positive U.S. data to push the pair through this support.

Chart_EUR_USD_4 Hours_snapshot04.01.16

GBP/USD

Based on the recent bear trend we see a next important support area at 1.4635 and further 1.4560. However, given the latest strong downward move, chances are that sterling shows some corrections in the short-term. Current resistances are seen at 1.4850 and 1.4950.

 

Chart_GBP_USD_Daily_snapshot04.01.16

Important data for today:

8:55 EUR German Manufacturing PMI

9:30 UK Manufacturing PMI

13:00 EUR German Consumer Price Index

15:00 USA ISM Manufacturing

(Timezone GMT)

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Happy Holidays

Christmas break from December 23 until January 1

During this period we will not provide our signal service. We will resume our service on January 4.

We wish everyone Happy Holidays as well as a healthy, joyful and prosperous New Year 2016.

Corrections In The USD Are Likely To Be Short-Lived

Dear Traders,

The biggest story yesterday was the euro which rose against the U.S. dollar and traded well above 1.09. The reason for the correction can be attributed to positioning. Hedge funds reduced their dollar long positions on speculations the Federal Reserve will wait until at least April to raise interest rates again. However, we expect the dollar to resume its uptrend within the first months of the new year, but it might be difficult for dollar bulls to extend gains far beyond the 1.05-area in the EUR/USD. For the time being we expect the currency pair to remain range-bound between 1.0950/85 and 1.0810.

The British pound was accompanied by a slight bearish bias but remained firm above the 1.4875-area. In a next step, the pair will need to break the 1.4860-mark to the downside in order to gain further downward momentum. A reason for the GBP’s recent weakness is the Bank of England’s dovish monetary policy outlook. The BoE signaled the need for tighter policy is less immediate. Moreover, the U.K. Referendum on Britain’s European Union membership, which may take place as early as June, is weighing on the pound. The referendum could damp oversees investment into the U.K.. Consequently, the risk is to the downside. GBP may find a next support at around 1.4810/20. Below 1.4780 lower targets will be at 1.47, 1.4640 and 1.4590.

Today’s focus will be on U.S. data such as Personal Consumption, GDP revisions and Existing Home Sales. If data disappoints to the downside, we could see a slump in the USD.

9:30 UK Public Sector Borrowing

13:30 USA GDP & Personal Consumption

15:00 USA Existing Home Sales

(Timezone: GMT)

This is our last trading day of this year. We look forward to a successful year in 2016 and will continue to share many more profitable strategies with our subscribers.

We wish you all a very happy, healthy and prosperous New Year!

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Quiet Trading

Dear Traders,

These are the very last days of the year and many institutional investors have already closed their books. Despite some important economic reports scheduled for release within the next 3 days, this shortened trading week is expected to be very quiet.

The most important reports coming from the U.S. will be Q3 Gross Domestic Product figures, Existing Home Sales due for release on Tuesday and Personal Income scheduled for release alongside Durable Goods Orders on Wednesday. Most of these reports are expected to show softer numbers, which may lead to a minor weakness in the U.S. dollar’s uptrend. However, going into 2016, monetary policy remains the dominant theme. With the Federal Reserve remaining on track for tighter monetary policy while other central banks are tending towards an accommodative policy stance, the dollar should receive attraction throughout 2016.

Sterling traders should keep an eye on the U.K. GDP numbers, due for release on Wednesday. If data will be in line with expectations, the impact on the currency pair will be limited.

Let’s have a look at the technical side:

EUR/USD

As previously noted, the 1.08-level remains important to pay close attention to. Prices formatted a head-shoulders pattern, predicting upcoming bearish momentum once the 1.08-mark is significantly breached to the downside. Lower targets could be at 1.0708 and 1.0640. We see an important support area at 1.0550. Below 1.0520, the currency pair could free-fall towards 1.0465 and 1.04. However, current resistances could be at 1.0930 and 1.10. With sustained prices above 1.10 we consider the head-shoulders pattern as void.

Chart_EUR_USD_4Hours_snapshot21.12.15

GBP/USD

Sterling is currently trading around the support line of its downward channel. A break below 1.4850 could reinvigorate fresh bearish potential, whereas a break above 1.4965 may drive the pair towards 1.50 and 1.5050.

Chart_GBP_USD_Daily_snapshot21.12.15

We wish traders profitable trades just before the Christmas holidays and recommend not to invest too much during these days and take profits at smaller targets.

Please note that we will take a Christmas break from December 23 until January 1. During this period we will not provide our signal service. We will be back on January 4.

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Much Ado About Nothing

Dear Traders,

In the end there was ‘much ado about nothing’. Market participants who had hoped for immediate sustainable moves after the Fed’s decision, were disappointed. The price action was relatively muted with only small fluctuations to both sides. In the end the U.S. dollar was the winner and accelerated against the euro and British pound.

Federal Reserve policy makers unanimously voted to raise interest rates up to 0.5 percent. This alone was the most hawkish scenario as there were no dissenters. Moreover, policy makers forecast an appropriate rate of 1.375 percent at the end of 2016, indicating four rate increases next year. This is unambiguously less dovish than the market anticipated. The FOMC is confident that inflation will rise and highlighted that the risks to the outlook for economic activity and the labor market are now “balanced”.  On the bottom line the Fed statement encouraged dollar bulls not to give up on the dollar rally in the long-run. Nonetheless, we expected more momentum on that historic day. Investors are likely to begin their holiday season now, a reason for smaller movements and a decline in volume.

Important data for today (timezone GMT):

9:00 EUR German IFO Report

9:30 UK Retail Sales

13:30 USA Philly Fed Index 

The reports could have a short-term impact on the currency pairs, but market participants are likely to digest the new Fed era and could be looking to buy dollars at lower levels. We therefore generally expect a bearish bias.

EUR/USD: Traders should pay close attention to the 1.08-level. If the euro falls below 1.0780, we see chances that it drops 100-200 pips towards the south.

GBP/USD: The focus is on the 1.49-barrier. Once this level is significantly breached, GBP could find a next support at 1.4820/15.

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UP Or DOWN For The USD?

Dear Traders,

Today is going to be an historic day, as the Federal Reserve is expected to normalize monetary policy and end seven years of near-zero interest rates. The following guidance is expected to be dovish, implementing less than three increases of 0.25 percentage points in 2016. Market participants will turn their focus to the FOMC Press Conference, led by Fed Chair Janet Yellen. It might be a communicative challenge for Ms. Yellen, as the Fed neither want to cause turbulence with any hawkish comments nor want to lose their credibility. Anything can happen today, so traders should prepare for big moves in either side. If Yellen signals a clear guidance regarding the Fed’s tightening cycle, the USD could rally. However, the risk is to the downside for the greenback, as any cautious comments could trigger a sharp selloff.

The U.S. dollar advanced against its major peers going into the Fed’s decision. The British pound dropped like a stone on the Bank of England’s dovish monetary policy outlook. BoE Governor Carney said in an interview that economic conditions for a U.K. rate hike are not yet in place. The U.K. central bank has signaled it is in no rush to follow the Fed which is forecast to begin policy tightening.

The U.K. Employment Report is scheduled for release today at 9:30 GMT and the focus will be on Average Weekly Earnings. If wage growth comes in softer than expected, sterling could be vulnerable to further losses.

Eurozone Consumer Prices are due for release at 10:00 GMT, but as long as data meets expectations, the impact on the euro could be limited.

The Federal Reserve decides on monetary policy at 19:00 GMT, followed by the press conference at 19:30 GMT.

Let’s have a look at the technical side:

EUR/USD

Looking at the daily chart, we see the pair still trading within a downward channel. Depending upon the Fed speak, we see some chances that dollar bulls may drive the EUR/USD to lower levels. Lower targets could be at 1.0840 and 1.08. In case the pair falls significantly below 1.0780, the focus turns to 1.0690 and 1.0635. The support line is at 1.0450 but an unambiguously hawkish statement would be needed in order to send the pair towards such levels.

A bullish scenario could gain attraction with prices above 1.11.A sustained break above this key resistance could lead the EUR/USD towards 1.13.

Chart_EUR_USD_Daily_snapshot16.12.15

GBP/USD

We see an upward channel within a primary downward channel. While the primary trend is downwards, the pound sterling formatted a recent upward channel, which is still intact this morning. If GBP breaks below 1.5020 and further 1.50, we expect the pair to decline towards lower targets at 1.49 and 1.4850. Based on the recent upward channel, it is also possible that sterling rebounds, heading for 1.5130 and 1.5290.

Chart_GBP_USD_Daily_snapshot16.12.15

 

Everything will depend on the Fed. So,we will wait and see. We wish all traders profitable trades for today.

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Will U.S. Consumer Prices Spur Dollar Bulls?

Dear Traders,

The U.S. dollar weakened against the euro on speculation the greenback could be vulnerable to a post-Fed selloff. Investors are either taking profits before year-end or adjusting their positions ahead of the big event tomorrow. The Fed is widely expected to increase its benchmark but the focus will be on the overall monetary policy path following a first hike. The British Pound, however, was forced to test its 1.5110-support before it followed the current upward trend.

Today’s focus will be on Consumer Price Reports from the U.S.and U.K. As recently noticed, the market only shows a strong reaction when reports are falling short of expectations. We will therefore be looking for any surprises in CPI figures. Moreover, the German and Eurozone ZEW Survey is scheduled for release at 10:00 GMT.

9:30 UK CPI

10:00 EUR German & Eurozone ZEW Index

13:30 USA CPI

Here is where we see short-term resistances and supports:

  Resistances Supports
EUR/USD 1.1040

1.1060

1.11

 

1.0965

1.0935

1.09

 

  Resistances Supports
GBP/USD 1.5187

1.52

1.5260

1.5110

1.5075

1.5045

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