Daily Forex Analysis: EUR/USD: Fed Hike Coming Soon?

GROWTHACES.COM Forex Trading Strategies

Taken Positions

EUR/USD: short at 1.1080, target 1.0750, stop-loss 1.1180, 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 0.9490, 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 0.7135, risk factor **

Pending Orders

AUD/USD: sell at 0.7350, target 0.7205, stop-loss 0.7410, risk factor *

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

 

EUR/USD: Fed Hike Coming Soon?

(short for 1.0750)

• The Conference Board said US consumer confidence weakened in July. Its index of consumer attitudes fell to 90.9 and was lower than a downwardly revised 99.8 in June. The reading marked its lowest level since September 2014 and was much worse than the median forecast of 100.0. Weaker reading was a consequence of a less optimistic outlook on the labor market. The report’s hard-to-get jobs index rose to 26.7 last month from June’s upwardly adjusted 26.1.
• The Fed’s policy statement is due at 18:00 GMT and will be the main event today. It is widely expected that there will be no changes in monetary policy today.
• Fed Chair Janet Yellen has stressed Fed policymakers will decide when to increase its benchmark rate in response to the most recent economic data. However, Janet Yellen, who over the past several months tended to emphasize the benefit of waiting longer with the first rate hike, highlighted animportant advantage of moving sooner rather than later also in her recent congressional testimony.
• What shall we expect in today’s statement? We do not expect any heavy hints that a hike will take place in September, but a surprise on the hawkish side is possible. The opening paragraph of the statement, which describes economic and labor market developments, should be upgraded somewhat, mirroring the solid data improvement seen over the past several weeks.
• The activity on the EUR/USD is light ahead of the FOMC statement later today. We remain short at 1.1080 in anticipation for a move to at least 1.0810, or even lower – near 1.0750 in case of USD-supportive data in the next few days.
• In the coming days the market attention will shift to Thursday’s US GDP data and Friday’s Eurozone inflation estimate. We expect a solid rebound in US economic growth and stabilization in Eurozone CPI figures – such a configuration should support the USD bulls.
• But we do not expect the EUR/USD to drop also in the medium and long term or reach the parity soon. If our forecast realizes and the EUR/USD falls in the short term on rising expectations for a Fed hike in September, it may be a good opportunity to get long on the EUR/USD at lower levels. We expect the EUR/USD to rise in the fourth quarter this year on improving economic activity driven by higher exports and accelerating inflation in the Eurozone.

Significant technical analysis’ levels:

Resistance: 1.1084 (session high Jul 29), 1.1099 (high Jul 28), 1.1129 (high Jul 27)

Support: 1.1022 (low Jul 28), 1.1000 (psychological level), 1.0969 (low Jul 27)

 

NZD/USD: RBNZ: More Cuts Likely, NZD Needs To Fall

(short for 0.6405)

• Reserve Bank of New Zealand Governor Graeme Wheeler said the economy was growing below its potential in the face of falling commodity prices, and low inflation.
• He said the economy was growing at around 2.5% a year, below its potential, but was being supported by high migration, strong employment, construction and services sectors. Inflation was 0.3% in the second quarter, but Wheeler said the RBNZ saw a gradual return over the next nine to 12 months as an “appropriate” time frame to reach the midpoint of the RBNZ’s 1-3% target range.
• Wheeler said: “Some further monetary policy easing is likely to be required to maintain New Zealand’s economic growth around its potential, and return CPI inflation to its medium-term target level.” He added: “Further exchange-rate depreciation is necessary given the weakness in export commodity prices and the projected deterioration in the country’s net external liabilities over the next two years.”
• Last week the RBNZ cut its official cash rate to 3% because of a slowing economy and weak inflation and said further cuts was likely. We expect further 25 bps rate cut in September.
• The NZD/USD pushed to a two-week high of 0.6739 after the speech, just below the stop-loss of our short position, but is easing back now. There are some strong support levels ahead of us – 20-dma at 0.6645 and 10-dma at 0.6595, but in our opinion hawkish FOMC statement today together with strong US GDP data tomorrow should be enough to break below these levels. We keep our target at 0.6405.

Significant technical analysis’ levels:

Resistance: 0.6739 (session high July 29), 0.6743 (high Jul 14), 0.6772 (high Jul 10)

Support: 0.6645 (20-dma), 0.6601 (low Jul 28), 0.6595 (10-dma)