Macroeconomic overview

U.S. retail sales rose more than expected in January and consumer prices recorded their biggest gain in nearly four years, boosting prospects of an interest rate increase from the Federal Reserve next month.

The Commerce Department said retail sales increased 0.4% last month, buoyed by purchases of electronics and appliances. Households also spent more on dining out, sporting goods and hobbies. December’s sales were revised up to show a 1.0% rise instead of the previously reported 0.6% advance.

Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.4% after a similar gain in December. The market had forecast a rise in so-called core retail sales by 0.1%.

In a separate report, the Labor Department said its CPI jumped 0.6% last month as households paid more for gasoline, new motor vehicles, airline fares and clothing. It was the largest increase since February 2013 and followed a 0.3% gain in December.

In the 12 months through January, the CPI increased 2.5%, the biggest year-on-year gain since March 2012. The CPI rose 2.1% in the year to December. Inflation is trending higher as prices for energy goods and other commodities rebound in response to a pick-up in global demand.

The so-called core CPI, which strips out food and energy costs, rose 0.3% last month after increasing 0.2% in December. That lifted the year-on-year core CPI increase to 2.3% in January from December’s 2.2% rise.

A third report from the Fed showed manufacturing production increased 0.2% in January after a similar rise in December. Output at mines shot up 2.8%, with oil and gas well drilling increasing further.

While the reports on Wednesday suggested the economy regained momentum early in the first quarter, rising inflation means households have less spending power. Average hourly earnings adjusted for inflation fell 0.5% in January and were unchanged from a year ago. Retail sales seemed to have been boosted by higher prices rather than an increase in the real consumption.

Testifying before lawmakers on Wednesday, Yellen reiterated that it would be “unwise” for the U.S. central bank to wait too long to raise interest rates.

Technical analysis

The dollar pulled back on Thursday after rising to one-month highs. Yesterday’s rejection of further downward move is an important short-term bullish signal. The EUR/USD is now at 7-day exponential moving average. A close above this average will be another sign of EUR/USD recovery.

Trading strategy

We opened a long EUR/USD position at 1.0600 in our yesterday’s Trading Strategies Summary as technical analysis showed a clear buy signal. We set the target slightly below February’s highs. The stop-loss on this position is below yesterday’s low.

AUD/USD: 0.7700 eventually broken

Macroeconomic overview

Australia’s seasonally adjusted unemployment rate fell to 5.7% in January of 2017 from 5.8% in December while markets expected 5.8%. The labor force participation rate dropped slightly while the number of unemployed decreased by 19.3k.

In January, the seasonally adjusted labour force participation rate came in at 64.6%, compared to 64.7% in the prior month and slightly less than estimates of 64.7%.

Employment increased by 13.5k, higher than markets consensus of 10k. Full-time employment decreased 44.8k and part-time employment increased by 58.3k.

Technical analysis

The AUD/USD eventually broke above the key resistance at 0.7700. It briefly popped to a three-month high of 0.7732 after data showed a surprise dip in Australia’s unemployment rate. The next resistance is November’s peak at 0.7777. The AUD/USD remains above 14-day exponential moving average, which is positively aligned. RSIs are biased up with a room to run. That is why we think the upward move will be continued.

Trading strategy

Our long positions are very close to their target, after the pair broke above the resistance at 0.7700. Our short-term trade is risk free now and we have locked profit on long-term position to 0.7590.

TRADING STRATEGIES SUMMARY:

FOREX – MAJOR PAIRS:

FOREX – MAJOR CROSSES:

PRECIOUS METALS:

It is usually reasonable to divide your portfolio into two parts: the core investment part and the satellite speculative part. The core part is the one you would want to make profit with in the long term thanks to the long-term trend in price changes. Such an approach is a clear investment as you are bound to keep your position opened for a considerable amount of time in order to realize the profit. The speculative part is quite the contrary. You would open a speculative position with short-term gains in your mind and with the awareness that even though potentially more profitable than investments, speculation is also way more risky. In typical circumstances investments should account for 60-90% of your portfolio, the rest being speculative positions. This way, you may enjoy a possibly higher rate of return than in the case of putting all of your money into investment positions and at the same time you may not have to be afraid of severe losses in the short-term.

How to read these tables?

1. Support/Resistance – three closest important support/resistance levels
2. Position/Trading Idea:
BUY/SELL – It means we are looking to open LONG/SHORT position at the Entry Price. If the order is filled we will set the suggested Target and Stop-loss level.
LONG/SHORT – It means we have already taken this position at the Entry Price and expect the rate to go up/down to the Target level.
3. Stop-Loss/Profit Locked In – Sometimes we move the stop-loss level above (in case of LONG) or below (in case of SHORT) the Entry price. This means that we have locked in profit on this position.
4. Risk Factor – green “*” means high level of confidence (low level of uncertainty), grey “**” means medium level of confidence, red “***” means low level of confidence (high level of uncertainty)
5. Position Size (forex)– position size suggested for a USD 10,000 trading account in mini lots. You can calculate your position size as follows: (your account size in USD / USD 10,000) * (our position size). You should always round the result down. For example, if the result was 2.671, your position size should be 2 mini lots. This would be a great tool for your risk management!
Position size (precious metals) – position size suggested for a USD 10,000 trading account in units. You can calculate your position size as follows: (your account size in USD / USD 10,000) * (our position size).
6. Profit/Loss on recently closed position (forex) – is the amount of pips we have earned/lost on recently closed position. The amount in USD is calculated on the assumption of suggested position size for USD 10,000 trading account.
Profit/Loss on recently closed position (precious metals) – is profit/loss we have earned/lost per unit on recently closed position. The amount in USD is calculated on the assumption of suggested position size for USD 10,000 trading account.