GROWTHACES.COM Trading Positions
USD/JPY: long at 115.00, target 117.70, stop-loss 115.90
USD/CHF: long at 0.9560, target 0.9760, stop-loss 0.9570
EUR/CHF: long at 1.2025, target 1.2095, stop-loss 1.1995
EUR/GBP: short at 0.7990, target 0.7840, stop-loss 0.8060
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EUR/USD: Consolidation Mode On
(small profit taken after EUR/USD reached the stop-loss at 1.2540, sell at 1.2580)
Monday brought some comments from the ECB and Fed central bankers. The attention was focused mainly on the ECB’s Draghi speech. ECB President Mario Draghi said that the ECB is ready to do more if it turn out that its current efforts are not sufficient to accelerate the euro zone recovery. Draghi said euro zone growth momentum had weakened over the summer, but the ECB's policy steps and euro zone countries' reforms should still lead to a moderate recovery next year and in 2016. He reiterated the ECB was ready for additional measures if inflation remained too low for too long, saying ECB staff was preparing the ground for further steps should they become necessary, and such new measures could include purchases of sovereign bonds.
Peter Praet, one of the ECB's six Executive Board members, said that, while the ECB would normally disregard oil price moves, fragile inflation expectations changed the situation. He said the ECB is ready to take further aggressive measures if the slump in oil pushes the Euro zone towards deflation.
On the other hand, ECB Executive Board member Yves Mersch warned: “Easing of monetary policy cannot work effectively when the European economy is structurally not in good shape.” He urged political leaders instead to reform their economies to boost growth.
Fed Governor Jerome Powell said the U.S. central bank would need to see progress toward its 2% inflation goal before tightening policy. Powell added he is cautiously optimistic on the U.S. economy's prospects because of good recent job growth. In his opinion the Federal Reserve is likely to hike interest rates in mid-2015 if the U.S. economy continues to grow, but monetary accommodation is needed for now because inflation is likely to remain low for some time.
The German ZEW index (analyst and investor sentiment ) for November has come in at a much stronger than expected 11.5. The median forecast was at 0.5 compared to -3.6 in the previous month. It was the first increase in sentiment since December last year.
The EUR/USD opened the Asian session at 1.2450 after selling off following dovish comments from Draghi. The EUR/USD jumped after the release of ZEW index to 1.2540. Our short position at 1.2560 reached the stop-loss level at 1.2540 and we took only a small profit. The EUR/USD is likely to consolidate at least until the Fed minutes on Wednesday. We have placed our sell order again at 1.2580.
Significant technical analysis’ levels:
Resistance: 1.2547 (21-dma), 1.2580 (high Nov 17), 1.2591 (hourly high Oct 31)
Support: 1.2457 (200-hma), 1.2445 (low Nov 17), 1.2398 (low Nov 14)
USD/JPY: Abe Delays Tax Hike And Calls A Snap Election
(we keep our target at 117.70)
Japanese Prime Minister Shinzo Abe said he would call a snap election to seek a fresh mandate and dissolve parliament on November 21. He would also delay a planned rise in the nation's sales tax to 10% till April 2017. He said the government would swiftly prepare measures to support economy, including small firms and regional economies.
Political insiders say Abe wants to lock in his mandate while his ratings are relatively high and before tackling unpopular policies next year.
Fitch Ratings said on Tuesday Prime Minister Shinzo Abe's decision to delay next year's sales tax hike by 18 months was a significant development for Japan's sovereign credit profile. Fitch Ratings will complete a review of Japan's ratings before the end of 2014, based on revised economic and fiscal projections and on an updated assessment of the country's broader fiscal consolidation strategy.
The USD/JPY rose near 107.04 (seven-year high on November 17) after the Abe’s speech but the JPY recovered soon to hit its strongest level on day of 116.39. We keep our long position on the USD/JPY with the target at 117.70.
Significant technical analysis’ levels:
Resistance: 117.06 (high Nov 17), 117.20 (high Oct 17, 2007), 117.95 (high Oct 17, 2007)
Support: 116.00 (psychological level), 115.65 (hourly low Nov 17), 115.45 (low Nov 17)
GBP/USD: Focus On Tomorrow’s BOE Minutes
(we stay sideways, outlook is bearish)
The Office for National Statistics released CPI data today. Britain’s consumer prices rose by 1.3% yoy in October, compared with 1.2% in September and in line with economists' forecasts. Core inflation, which excludes much of the effect of volatile food and energy costs, held steady at 1.5% yoy.
The Bank of England said last week that inflation might fall to below 1% over the next six months and it expected annual price growth to hit its target of 2% only towards the end of a three-year outlook period. Financial markets expect the BoE to start raising rates only in late 2015 or even later.
The ONS said output prices at the factory gate fell 0.5% yoy. Input prices for factories fell by 8.4% yoy, the biggest decline since September 2009.
Separate data from the ONS on Tuesday showed house prices in Britain rose 12.1% yoy in September, compared with an increase of 11.7% yoy in August.
The GBP/USD went up after data showed UK inflation picking up slightly in October. Investors are focused on the minutes of the November BoE MPC meeting released tomorrow. The median forecast is for a 7-2 vote with Weale and McCafferty supporting a rate hike. In our opinion there is a high risk that one or both of the hawks will now shift their view and support the majority (no change in rates). Such a scenario would be good news for the GBP bears.
Significant technical analysis’ levels:
Resistance: 1.5737 (high Nov 17), 1.5780 (high Nov 13), 1.5791 (low Nov 7)
Support: 1.5620 (low Nov 17), 1.5593 (low Nov 13), 1.5563 (low Sep 6, 2013)
AUD/USD: RBA: Monetary Policy Should Be Accommodative
(we stay sideways)
Minutes of the Reserve Bank of Australia’s November 4 meeting said: “The Board judged that the current accommodative stance of monetary policy continued to be appropriate to foster sustainable growth in demand and inflation outcomes consistent with the target over the period ahead.”
RBA’s board members judged the risks for the global economy was roughly balanced. They felt, however, there was considerable uncertainty about the outlook for the China’s property market and its impact on the Chinese economy. Members observed that housing prices in China had fallen further in September and that the authorities had introduced targeted policies to ease financing conditions for home purchases and property development.
The RBA repeated that the currency, despite its recent drop against the USD, remained above most estimates of its fundamental value, especially given further declines in key commodity prices this year.
The RBA Governor Glenn Stevens said there was plenty of spare capacity in the economy and a boom in mining investment was winding down, which in turn should keep inflation well contained. He said: “Monetary policy should be accommodative and, on present indications, is likely to be that way for some time yet.”
Financial markets imply no chance of a rate hike for at least the next twelve months now.
Summing up, the minutes contained nothing new for the AUD traders and the AUD/USD traded in a range of 0.8699-0.8733 in Asia. After a fall in the AUD/USD on Monday, the AUD received some support as the outlook for sustained monetary policy support from the European Central Bank and Bank of Japan favored carry trades. Moreover, Australia and India said they will push for a free trade pact. The news came a day after the finalization of a trade agreement between China and Australia. The news were also positive for the AUD.
In the opinion of GrowthAces.com no positions on the AUD/USD are justified from the risk/reward perspective at the moment. Our long position AUD/NZD reached its stop-loss at 1.0960 today. In our opinion the NZD/USD is unlikely to go far above 0.8000 due to possible pressure from the Reserve Bank of New Zealand to keep the currency low.
Significant technical analysis’ levels:
Resistance: 0.8796 (high Nov 17), 0.8798 (50-dma), 0.8854 (high Oct 31)
Support: 0.8648 (low Nov 13), 0.8591 (low Nov 11), 0.8542 (low Nov 7)