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Traders Brace For Heavy Docket Of Event Risks

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Last week ended with a fresh bout of risk aversion in the market, with the safe-haven U.S. dollar benefitting from fragile global risks factors and fears over Federal Reserve tightening including rising rate hike odds.

This week brings high-profile event risks such as the Federal Reserve rate decision (Wednesday), followed by the Bank of England decision (Thursday). While the BoE is expected to leave its stimulus package in place amid a slowing economy, the Fed will probably hint that it is moving towards tapering monthly asset purchases and may make a formal announcement in November. Most economists expect the Fed to start tapering in December. A first rate hike is expected in the second half of 2023, followed by three more in 2024 according to a survey. The much-watched “dot plot” of rate forecasts will include 2024 for the first time and will thus be the big story on Wednesday.

Elevated Fed rate hike odds have produced a more favorable trading environment for the greenback and if the Fed dots surprise to the upside, dollar bulls will have room to price in a more hawkish Fed.

EUR/USD

There is not much positive to report amid the euro’s clear bear trend. From a fundamental perspective, the common currency faces further downside risks in the coming days such as monetary policy decisions of its counterparts as well as Sunday’s German Federal Election. Technically, the risk is tilted to the downside but there is a crucial support zone ranging from 1.17 to 1.1660 which could halt the euro’s fall – at least in the short-term. Additionally, the pair approaches oversold territory, making small rebounds more likely. On the upside, we see a short-term resistance at 1.18. However, if 1.1650 breaks to the downside, lower supports come in at 1.16 and 1.1530.

DAX

The sell-off accelerates. Last Thursday we prepared traders for upcoming breakouts and we got what we have been looking for – much to the pleasure of the bears. This morning we see the index extending its slide towards 15300, while we penciled in a next potential support at around 15270. However, as long as 15000 remains unbroken, we could see some reversal towards 15700 but we bear in mind that political risk could weigh on the index.

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BoE Disappoints Sterling Bulls

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The Bank of England disappointed sterling bulls that have hoped for a far more hawkish outcome at yesterday’s BoE decision. Consequently, the pound corrected recent gains until a daily low of 1.3890. The BoE reiterated that it does not intend to tighten policy until there is clear evidence that the pickup in inflation will persist for a sustained period. As expected, Andy Haldane voted for a reduction in the stimulus while the other MPC members voted 8-1 to maintain the stimulus for now. Policy makers are due to revise inflation forecasts in August where we expect bigger market movements at the time of the policy decision.

Amid thin liquidity conditions we expect both EUR/USD and GBP/USD to fluctuate within relatively narrow trading ranges.

GBP/USD: We pencil in a short-term price range between 1.4070 and 1.3750.

EUR/USD: For bullish momentum to accelerate we will need to see a fresh break above 1.1960 with a next target at 1.20. Below 1.1910, the focus shifts to lower targets around 1.1870.

DAX: Chances increase in favor of a run for 15900 as long as 15400 holds on the downside.

Have a nice weekend.

We wish you good trades!

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BoE Decision: Is August Rate Hike Still In The Cards?

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Dear Traders,

The British pound ended the trading day little changed against the U.S. dollar after compromise has been reached between the U.K. government and Parliament on the progress of the EU Brexit bill. The pound’s rise to a high of 1.3217 proved short-lived and traders now wonder whether the 1.3140-level could give way to further bearish momentum. A lower target could be at 1.3080.

Today, all eyes will turn to the Bank of England rate decision at 11:00 UTC but there aren’t any actual expectations for a move at this meeting. The big question is rather whether the BoE begins to lay the groundwork for a possible rate hike in August. This is, however, not the most likely scenario.

After that rate decision, BoE Governor Mark Carney is due for his annual Mansion House speech and this may actually turn out to be a more proactive driver for the pound. Carney’s speech will be widely-watched for clues or hints around his expectations for the UK economy.

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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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Hawkish Fed Surprises

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Dear Traders,

Incredible but true: The U.S. dollar finally ended the trading day unchanged against the euro and British pound after it came under strong selling pressure following the weak U.S. inflation report. Market participants sold dollars ahead of the FOMC decision on speculation the Fed could forgo raising interest rates again this year. Weaker than anticipated inflation figures have led to the assumption the Fed may grow less hawkish but the opposite happened. The Fed statement was overly hawkish with Fed Chair Janet Yellen noting that the Fed continues to see conditions favorable in place for inflation to rise. Policy makers maintained their outlook for one more hike in 2017 and set out some details of the central bank’s plans to reduce its balance sheet. While U.S. economic data came in on the negative side most recently, it is difficult for the market to trust more the Fed’s rhetoric than the current data output. This fact limited the greenback’s strength and led to an almost unchanged picture.

We went long in both currency pairs EUR/USD and GBP/USD ahead of the Fed statement but gains were limited to smaller targets with the upward trend failing to be sustained.

The euro reversed shy of 1.13 and preferred trending around 1.12. As long as there is no sustained breakout either above 1.1285 or below 1.11, the technical picture in the EUR/USD remains unchanged favoring a sideways trend.

The cable took a glimpse above 1.28 but was unable to hold onto this high level. Sterling traders will watch today’s Bank of England policy decision at 11:00 UTC. While the BoE is unlikely to change its policy, attention will be paid to the central bank’s future guidance. A neutral stance might be considered as positive for the pound whereas a dovish stance could increase the pressure on the pound.

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Copyright © All Rights Reserved 2017 Maimar-FX.

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U.S. Dollar Weakens On Unchanged Fed Forecasts

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Dear Traders,

The market’s response to the FOMC announcement was as expected. The Federal Open Market Committee raised its benchmark interest rate to a range of 0.75-1.00 percent and continued to project two more hikes in 2017. In a nutshell, since the Fed’s rate hike path remained unchanged from December 2016 there was no new hawkish guidance which would have helped to boost the U.S. dollar. Thus, yesterday’s rate hike is interpreted as a ‘dovish hike’.

The U.S. dollar slipped on the unsurprising decision as well as unchanged forecasts and both euro and pound climbed toward higher targets in return. The euro touched a high of 1.0746 while euro bulls were able to pocket a good profit. The euro received an additional boost after a large majority of Dutch voters have rejected anti-European populists. Conservative Dutch Prime Minister Mark Rutte has beaten his far-right rival Geert Wilders in the Dutch elections.

On balance, that’s good news for the euro but what can we expect from a technical perspective? There could still be some room for further upward momentum toward 1.08. If the euro climbs above 1.0750 it may head for a test of 1.08 but gains could be limited until that level. For the euro to continue to rally, it may require a break above 1.0830. If the 1.08-level remains unbroken we expect some corrections towards 1.0650 and 1.0550.

Eurozone Consumer Prices are scheduled for release at 10:00 UTC but those figures are not expected to surprise the market.

The British pound slightly strengthened on a weakening greenback but gains have been limited until the 1.23-resistance area. In case the pound will be able to overcome that hurdle we anticipate a run for 1.24.  On the downside, we will wait for a significant break below 1.22 in order to favor a bearish bias. The 1.2230/10-area could act as a current support-zone for the pound.

Today’s major risk event will be the Bank of England’s monetary policy announcement at 12:00 UTC. While no changes are expected, the BoE’s statement could trigger large market moves in the GBP/USD. Let us be surprised.

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Traders Prepare For High Volatility Today

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Dear Traders,

The British pound has recovered some losses after it tested the lower bound of its current downtrend channel. Based on that channel we now see a current resistance at 1.3290 while any bearish moves could be limited until 1.3130. Today will be an interesting trading day for sterling traders as the Bank of England is scheduled to announce its rate decision alongside the release of the MPC meeting minutes.

The BoE is expected to hold its benchmark interest rate steady at today’s meeting but the minutes of officials’ deliberations may offer fresh clues to their thinking on Britain’s post-Brexit economy, particularly on whether another rate cut is still in the cards later this year given that growth appears to be holding up better than expected. Yesterday’s U.K. labour data showed resilience following the Brexit vote while the U.K. unemployment rate stayed steady at an 11-year low.

The BoE rate decision and MPC meeting minutes are scheduled for release at 11:00 UTC and traders should prepare for volatile swings in the GBP/USD. Before the important event, U.K. Retail Sales are due for release at 8:30 UTC.

Apart from the British pound the focus will be on the U.S. dollar today with the U.S. Retail Sales report and Philadelphia Fed Survey scheduled for release at 12:30 UTC. Stronger U.S. data will fuel speculations that the Fed could tighten monetary policy at their FOMC meeting next week.

EUR/USD

The euro finally showed some larger swings yesterday, testing its current resistance zone around 1.1270. In the 4-hour chart we see a symmetrical triangle, which may predict increased momentum after the euro broke above or, respectively, below that pattern. Above 1.1275 we see chances of a rise towards 1.1310, the resistance line of the recent downtrend channel. If the euro breaks above that resistance line we watch out for pullbacks around the 1.1330-level as it could act as a crucial resistance. On the bottom side a break below 1.1220 could send the euro lower towards 1.1170 and 1.1130.

chart_eur_usd_4hours_snapshot15-9-16

From the eurozone we have Consumer Prices scheduled for release at 9:00 UTC but no changes are expected. How the euro will trade today will mainly hinge on the performance of the greenback.

We wish you many profitable trades for today.

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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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