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Profitable Trade: Euro Rises On ECB Rate Hike Bets

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While it was a highly profitable ‘bullish’ trading day in the EUR/USD, the GBP/USD lagged behind and provided more fake-outs than break-outs.

The market has been overly-aggressive in terms of Bank of England rate forecasts which was evident in the cable’s latest upward move towards 1.3750. The BoE raised rates as expected while the central bank’s forecast suggests further hikes are now likely in March and May with the risk of a further move in August. This hawkish outlook was however nothing that the market has not already been priced in and thus, the GBP/USD failed to generate large market moves yesterday. Governor Andrew Bailey even cautioned against thinking “rates are now on an inevitable long march upwards.”

The situation was different and much more profitable in the EUR/USD. We went long at 1.1310 and took profit at 1.1410. The euro broke out of the technical rectangle (our analysis from 3/2/22) and started its run towards 1.1480. Reason for the bullish breakout were bets on an ECB rate hike in 2022 while ECB President Christine Lagarde spoke. She refused to repeat that a rate hike was very unlikely this year. This is interpreted as less dovish and pushed the euro upwards.

Today we will have the U.S. nonfarm payrolls report on tab at 13:30 UTC but we will stay on the sidelines ahead of the report and save our weekly profits.

Have a good weekend everyone!

 

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EUR/USD And GBP/USD: Bullish Bias To Persist?

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Bulls in both EUR/USD and GBP/USD were able to cash in profits ahead of today’s top event risk Thursday.

While this profitable week so far increases hope for more profitable moves to come, we advise some caution. Today’s central bank decisions may turn the tide since it will be difficult for policymakers to live up to the market’s extremely hawkish expectations. The market began to price in a 10bp ECB rate hike for July while the ECB’s expected policy path is further set to diverge to other central banks.

To sum up, if the ECB grows less dovish (as the market began to price in), we could see another upward movement in the EUR/USD.

Most attention will be paid to the ECB press conference at 13:30 UTC.

EUR/USD – ‘Escape the rectangle’

We will focus on prices either above 1.1390 (bullish) or below 1.12 (bearish). As long as the euro trades within the rectangle, we will maintain a neutral stance. A break above 1.1390 could open the door for another leg up towards 1.1480 and 1.1520. A break below 1.12 and further 1.1180 could send the euro tumbling towards 1.0950.

BoE decision due at 12:00 UTC

The Bank of England is expected to raise interest rates to 0.5 percent today which would complete the first back-to-back increase since 2004. The 0.5 % key rate is the threshold where policymakers can start paring back the 895-billion-pound asset portfolio. The question now is whether more rate hikes will follow. Some economists fear that maybe more hikes are needed and perhaps at a faster pace given the scale and persistence of inflation. Economists however are far more cautious than investors as they currently see the BoE key rate at 0.75 percent in December, while investors are betting the BoE will lift the key rate to 1 percent by June.

GBP/USD – Captured between 1.3690 and 1.3450?

With no surprises from the BoE, we expect the cable to remain trading between 1.3690 and 1.3450. A break above 1.3710 could increase bullish momentum towards 1.3830 but much of the BoE’s hawkishness is already priced in into the cable’s recent upward move. For bears to regain control it would need a break below 1.3350.

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Euro Roses Toward 1.17, Traders Await PCE Index

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The U.S. dollar dipped after data showed that U.S. growth slowed more than expected in the third quarter. The greenback’s weakness benefited other counterparts such as the euro which rose toward 1.17.

European Central Bank President Christine Lagarde pushed back on interest rate increases, saying markets are ahead of themselves. Lagarde acknowledged that inflation will last longer than originally anticipated. ECB policy makers expect inflation to exceed the 2 percent target next year but hold different views on whether inflation will persist in 2023.

The market, however, still sees faster rate increases with rate-hike bets being trimmed only slightly after the ECB’s press conference.

The euro rose to a high of 1.1692 and if euro bulls are able to overcome the 1.17-hurdle we will shift our focus to higher highs at 1.1730 and 1.1750. For bearish momentum to accelerate we must see a renewed drop below 1.1620 but more importantly below 1.1590.

Today we have the PCE Price Index scheduled for release at 12:30 UTC which could affect the dollar’s performance.

Have a beautiful weekend.

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Focus on ECB Decision And U.S. Economic Growth

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Market participants are awaiting the European Central Bank decision today as well as the U.S. GDP report which is likely to show a cooling recovery.

Today’s decision has been flagged only as a stepping stone toward a far more crucial ECB decision in December. Recently, rate-hike bets have kept surging in the market and ECB officials step in to calm down rate hike repricing. Chief Economists Philip Lane warned financial markets that they are wrong to anticipate a rate hike as early as at the end of next year.

The central bank relies on its non-standard tools to support the euro area and ECB President Christine Lagarde could remind the market that the ECB is serious enough about their forward guidance amid an unlikely persisting high-inflation scenario.

The euro may face headwinds if the ECB sticks to the same script as the one at the September meeting while no large currency moves are expected. In turn, if Lagarde hints on the ECB exit strategy, we may get some kind of bullish reaction in the EUR/USD.

However, as for profitable currency movements, we do not expect today’s meeting to serve as a major driver in the market.

 EUR/USD: Technically, we see a next support zone between 1.1570-60 which could limit losses. On the upside we would wait for a rise above 1.1630 in order to anticipate a leg up towards 1.1665 and possibly a run for 1.1720.

We wish you good trades!

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EUR/USD: On Its Way Toward 1.17?

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The U.S. dollar was virtually unchanged last Friday after Federal Reserve Chair Jerome Powell sounded a note of heightened concern over high inflation, while making clear that the Fed will begin tapering bond purchases shortly. While Powell said during Friday’s virtual panel discussion “the risks are clearly now to longer and more persistent bottlenecks, and thus to higher inflation,” he played down interest rate hikes. “I do think it’s time to taper and I don’t think it’s time to raise rates.” However, there is concern that faster tapering or more rate hikes will create the risk of a slowdown.

The Fed is expected to announce its taper at their policy meeting next week on Nov 3.

This week we will have the European Central Bank decision on Thursday, as well as the U.S. GDP (Thursday) and core PCE data (Friday). From a fundamental perspective, the U.S. dollar might be vulnerable to a larger correction going into the end of the month as Thursday’s U.S. GDP report is anticipated to show a slowing recovery.

As for the ECB meeting, no policy shifts are expected this month. The ECB is preparing for a major policy overhaul at the final ECB meeting in December. Policy makers are expected to start phasing out the emergency plan in December while it could be followed by a new program. This Thursday, the focus will be on the press conference and any hints from ECB President Christine Lagarde on faster interest rate increases amid a global surge in inflation. Current expectations see no ECB rate hike through at least 2023.

To sum up, Thursday’s decision could end with no movement in the EUR/USD.

EUR/USD: In short-term time frames, we will pay attention to a break above 1.1670 which could see a test of 1.17/1.1710. Bears on the other side, will wait for a significant break below 1.16 in order to shift the focus toward 1.15.

We wish you good trades!

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ECB Meeting Unlikely To Move Euro Exchange Rate

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Dear Traders,

It’s decision day at the European Central Bank today but whether this event risk carries much weight will depend on ECB President Mario Draghi’s comments at the ECB press conference. Traders are looking for hints on when interest rates will begin to rise but ECB policy makers suggested earlier that a rate hike won’t come at least until the end of summer 2019. If there is no change in guidance, the euro could give up some of its recent gains.

General speaking, it seems unlikely that Draghi intents to move the single currency at today’s meeting, so watch out for range-bound price action.

As for the dollar, the most interesting piece of data will be released tomorrow with the U.S. 2Q GDP.

EUR/USD: The next hurdle is now seen at 1.1750 before we turn our focus to the crucial resistance area between 1.18-1.1850. Looking however at larger time frames, the currency pair remains trading sideways between 1.1850 and 1.15.

 

Summer trading break: We are slowly preparing for our summer holiday break which means that we are reducing risk exposure while adopting a cautious approach.

Announcement: Shortly after the summer break our Chief Currency Strategist will commence her maternity leave, which is why daily analysis and signals will be paused until the end of her period of maternity leave.

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We wish you good trades and many pips!

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The Euro’s Fate Is In Draghi’s Hands

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Dear Traders,

What a trading day! The U.S. dollar extended its slide against other major currencies on the back of protectionism while the pound’s rally intensified the uptrend in GBP/USD.

Moreover, comments from U.S. Treasury Secretary Steve Mnuchin steepened the dollar’s dive. He said that” obviously a weaker dollar is good for us as it relates to trade and opportunities”, a departure from America’s traditional strong dollar policy.

Our yesterday’s long entry in the GBP/USD has proved highly profitable even though we have been on the lookout for corrections. Despite the cable’s strong uptrend which could persist over the medium-term, we may see some pullback tomorrow when both U.K. and U.S. GDP reports are due for release.

GBP/USD

The pair jumped to the highest level since June 23, 2016 – the day of the Brexit referendum. The reasons for the strong rally lie not only in the weakening dollar but also in good U.K. data and the progress in Brexit talks. On a weekly basis we got a bullish breakout suggesting that there could be accelerated bullish momentum on the way towards 1.46 – the next crucial resistance zone. As long as the pound remains above 1.40, the overall outlook remains constructive.

While the biggest story was the pound’s strong rise, the performance of the euro was not bad either. The euro broke above 1.2350 and headed towards 1.2450 ahead of the ECB meeting. Whether the euro can hold onto its high levels or can even extend its rally, will hinge on the rhetoric of Mr. Draghi at the ECB press conference at 13:30 UTC.

If ECB President Mario Draghi joins the chorus of policymakers speaking against the euro’s strength, the euro could quickly give up some of its gains. However, the devil is in the details and if Draghi fails to convince the market of the ECB’s concerns about the currency’s strength, the euro could further rise.

EUR/USD

We prepare for higher volatility today and expect larger market swings. On the topside, we will now focus on the 1.2460-barrier, which could act as a short-term resistance. For bearish momentum to accelerate, it would need a break below 1.23 and further 1.22. As long as the euro remains above 1.23 chances are in favor of the bulls.

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We wish you good trades and many pips!

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Markets To Enter Quiet Trading Period

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Dear Traders,

With all major risk events now behind us, there was little movement in the market Thursday as many market participants around the globe are gradually leaving for the Christmas holidays. Given the seasonal liquidity drain we recommend taking profits at smaller targets now or staying on the sidelines, considering a trading break around this period.

The euro weakened against the U.S. dollar after ECB President Mario Draghi sounded cautious about the prospect of higher inflation in the coming months even though the economic outlook remains positive. The ECB unveiled updated economic projections that showed continued growth over the next three years but despite that positive outlook, the central bank is not planning to raise rates anytime soon. In a nutshell, with the ECB still being far from raising rates, euro bulls did not see a reason to push the euro higher -at least not for the time being.

The pound was little changed following the Bank of England’s monetary policy announcement. As expected, the BoE left interest rates unchanged and following the latest BoE rate hike in November, the central is not expected to raise rates in the coming months.

GBP/USD: In short-term time frames we expect the currency pair to trade between 1.35 and 1.33.

EUR/USD: The 1.17-support remains in focus and if the euro drops below that important barrier, we expect further losses towards 1.16. Above 1.1930 however, the euro could head for 1.2050.

We wish you a beautiful and peaceful pre-Christmas period.

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ECB Decision Day: Hawkish Or Dovish Taper Mr Draghi?

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Dear Traders,

It’s decision day at the European Central Bank and traders in all EUR crosses brace for heightened volatility at this highly anticipated event that will bring forth news on the pace of the ECB’s quantitative easing program (QE). The euro traded higher against the U.S. dollar ahead of today’s announcement since the ECB is expected to announce a reduction in the size of its monthly bond buying. While this expectation alone is considered euro-positive, the devil is in the details. There are a number of possible scenarios while the best (but most unlikely) scenario for the euro would be a reduction of EUR40 billion bonds buys until September 2018. The most likely scenario is however a taper of 30 billion euros with a nine-month extension of the QE program. Since the latter scenario is already largely priced in the euro’s price development, the risk is tilted to the downside if the ECB fails to surprise the market. Bearing in mind that ECB policy makers want to avoid a too strong euro they need to be careful in their statement. If the market senses a more cautious approach towards monetary policy normalization or in the case of a reduction of only EUR20 billion bond buys per month, the euro could fall.

Whatever the case, the good news is that ECB President Mario Draghi can be expected to emphasize that the Eurozone economy is in a good shape and probably capable to withstand tighter monetary policy over the medium-term.

The ECB’s decision will be announced at 11:45 UTC and Draghi will speak 45 minutes later.

EUR/USD

The euro currently trades around the resistance line of its recent downtrend channel near 1.1840. If the euro breaks above this barrier, the focus will shift to the 1.19-level. A sustained break above 1.1915 is needed to encourage euro bulls for a run for 1.20 or 1.21. If 1.19 however holds, particular focus remains on the 1.17-support. A renewed break below 1.1680 and 1.1650 could send the euro towards 1.1580.

The British pound rose on upbeat U.K. GDP data that bolstered the case for a Bank of England rate hike next week.

From a technical point of view, the primary uptrend channel finally proved correct and suggests that we may see further gains towards 1.33 and 1.3350. A break above 1.3365 would brighten the bullish outlook. A current support is however seen at 1.3150.

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We wish you good trades and many pips!

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All Eyes On Draghi: Will He Talk Down The Euro?

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Dear Traders,

The British pound finally broke above 1.2865 this morning and a next hurdle could now be at 1.29. If the pound rises above 1.2910 we may see a run for 1.30. Let’s us wait and see.

The much anticipated U.S. tax plan disappointed investors as it left too many unanswered questions and did not reveal anything new. The U.S. dollar weakened against the euro and pound as a result. The “phenomenal” tax plan came in as a one-page list of bullet points and was largely devoid of detail.

Euro traders will shift their focus to the European Central Bank meeting while no changes are expected from the central bank. ECB President Mario Draghi will most likely maintain a dovish monetary policy stance since a strong euro is the biggest problem for policy makers and makes it more difficult for the ECB to achieve its inflation target. In a nutshell, we doubt that Draghi is debating an exit from its extraordinary stimulus. With no fresh insights, the ECB meeting could thus be a non-event for traders but let us be surprised.

Daily Forex signals:

Additional daily and long-term entries are available for subscribers.

View our daily signal alerts https://www.maimar.co/category/daily-signals/

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We wish you good trades and many pips!

Any and all liability of the author is excluded.

Copyright © All Rights Reserved 2017 Maimar-FX.

www.maimar.co