Daily Forex Analysis: EUR/USD: All Eyes On US GDP Data

GROWTHACES.COM Forex Trading Strategies

Taken Positions

EUR/USD: short at 1.1080, target 1.0750, stop-loss moved to 1.1055, risk factor *

USD/JPY: long at 123.70, target 125.80, stop-loss 122.90, risk factor *

USD/CHF: long at 0.9560, target 0.9810, stop-loss moved to 0.9600, risk factor *

USD/CAD: long at 1.2935, target 1.3095, stop-loss 1.2855, risk factor *

NZD/USD: short at 0.6660, target 0.6405, stop-loss 0.6740, risk factor *

EUR/GBP: short at 0.7145, target 0.6905, stop-loss moved to 0.7110, risk factor **

Pending Orders

AUD/USD: sell at 0.7340, target 0.7205, stop-loss 0.7390, risk factor *

EUR/CHF: buy at 1.0495, target 1.0795, stop-loss 1.0380, risk factor *

GBP/JPY: buy at 192.60, target 196.40, stop-loss 191.30, risk factor **

 

EUR/USD: All Eyes On US GDP Data

(short for 1.0750)

• The USD rose to its highest level this week after the Federal Reserve took another small step towards raising interest rates. As expected, the Fed gave no clear indication on timing in its statement, but what it did say was enough to convince us that a hike in September is very likely.
• Describing the job market, the Fed for the first time pointed to “solid” job gains and declining unemployment. In addition, the Fed said it needs to see only “some further” improvement in hiring, rather than the “further” improvement it said last time — a hint that interest rate hike is coming. With no meeting scheduled in August and two employment reports yet to come, the addition of the word “some” suggests to us that the FOMC should have more than enough information at its September meeting to effect a start to rate normalization then.
• The Fed’s policy statement also retained language saying that risks are “nearly balanced”, suggesting it is still more concerned about a new economic downturn rather than of rapidly rising inflation. The central bank said in its statement that inflation is expected to remain at low level in near term, but officials expected inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate.
• Second-quarter GDP data due later today (12:30 GMT) could spur bets that the Fed will move in September. The market expects GDP acceleration to 2.6% qoq annualized from 0.2% in the first quarter. In our opinion the data may be even better. The main growth driver was most likely consumer spending and net exports should have been slightly positive. Monday’s data showed that shipments of core capital goods, which are used to calculate equipment spending in the government’s GDP measurement, slipped 0.1% mom in June after a 0.3% mom fall in May. That suggests business spending was probably a drag on second-quarter GDP.
• The European Central Bank said today Europe’s tepid economic recovery is picking up pace, supported by falling oil prices and loose monetary policies but corporate lending growth, a key measure of economic health, remains weak. The bank said it was confident its policies are working and that it expects prices to start rising towards the end of the year, with a further pick up in both 2016 and 2017.
• We stay EUR/USD short. In our opinion strong US GDP should result in further drop in the EUR/USD. But we have lowered stop-loss on this position to 1.1055 to avoid losses in case of weaker GDP reading.

Significant technical analysis’ levels:

Resistance: 1.1000 (psychological level), 1.1084 (high Jul 29), 1.1099 (high Jul 28)

Support: 1.0922 (low Jul 23), 1.0869 (low Jul 22), 1.0812 (low Jul 21)

 

USD/JPY: Resistance At 124.57 May Be Broken After US Data Today

(long for 125.80)

• Bank of Japan board member Koji Ishida said: “The BOJ’s inflation target is a flexible one (…) and the bank should ultimately decide under its own responsibility whether the target has been met taking into account various factors.” The BOJ has repeatedly pushed back the timing for hitting its inflation target as price growth stalled due to the effect of last year’s oil rout and weak consumption. It now expects the target to be met by around September next year.
• Ishida said an improvement in real wages would be a key to bolster private consumption, as consumer prices are expected to start increasing in the fiscal second half as the effect of declining crude oil prices fades. He also warned of downside risks to Japan’s exports stemming from a possible downturn in the Chinese economy and its impact on emerging economies.
• Some investors still expect additional monetary easing from BOJ in October, but comments from Ishida on “flexible” inflation target suggest that the chances for such a move are low. A shift in market expectations may reduce potential for further USD/JPY rise in the fourth quarter this year, but the short-term outlook on the USD/JPY remains bullish.
• Japan’s industrial output rose 0.8% mom in June, bouncing modestly from the prior month’s 2.1% mom drop. The reading was above the market forecast for 0.3% mom gain. Manufacturers surveyed by the Ministry of Economy, Trade and Industry expect output to rise 0.5% in July and increase 2.7% in August.
• The USD/JPY is rising after yesterday’s FOMC statement, in line with our expectations. The USD/JPY is close to strong resistance level at 124.57 (76.4% retrace of the 125.86-120.41 June/July fall). In our opinion the USD/JPY is likely to break above this level in case of stronger US GDP release later today. Our target is at 125.80.

Significant technical analysis’ levels:

Resistance: 124.48 (high Jul 21), 124.57 (76.4% fibo 125.86-120.41), 124.63 (high Jun 10)

Support: 123.88 (session low Jul 30), 123.33 (low Jul 29), 123.07 (low Jul 28)