EUR/USD: Limited potential for further USD gains

By GrowthAces.com

Macroeconomic overview:

• The pace of growth in the U.S. economy’s service sector accelerated in September to fastest in 12 years, led by stronger new orders and employment, according to an industry report released on Wednesday.
• The Institute for Supply Management said its index of non-manufacturing activity rose to 59.8, which was the highest since the August 2005 reading of 61.3. The index was 55.3 the month before.
• U.S. private employers added 135k jobs in September, topping market’ expectations even as Hurricane Harvey and Irma “significantly impacted smaller retailers,” a report by a payrolls processor showed on Wednesday. The September reading was smallest increase since October 2016.
• Private payroll gains in the month earlier were revised down to 228k from an originally reported 237k increase.
• The ADP figures come ahead of the U.S. Labor Department’s more comprehensive non-farm payrolls report on Friday, which includes both public and private-sector employment. The market is looking for U.S. private payroll employment to have grown by 83k jobs in September, down from a gain of 165k the month before. Total non-farm employment is expected to have increased by 90k. Our forecast assumes growth by 120k.
• The unemployment rate is forecast to stay steady at the 4.4% recorded a month earlier.
• The USD weakened on Wednesday as investors repositioned ahead of Friday’s highly anticipated jobs report, but pared losses on a strong non-manufacturing report. Improving U.S. data along with the prospect of U.S. tax cuts and the likelihood that the Federal Reserve will raise interest rates in December have boosted the U.S. currency in recent weeks. Traders have been cautious this week on the greenback, however, on concerns that recent hurricanes may hurt last month’s hiring report.
• Interest rate futures traders are now pricing in an 83% likelihood of a December rate increase, up from 78% on Tuesday.  Investors are also adjusting for the likelihood that U.S. President Donald Trump will appoint a less hawkish head of the Federal Reserve than previously expected.
• That is why we think that the potential for further USD appreciation is limited and think long EUR/USD could be a good trading idea.

Technical analysis: The technical situation has not changed a lot since yesterday. Investors remain cautious ahead of Friday’s U.S. non-farm payrolls. A breakout above short-term moving averages could signal a stronger upward move.

Short-term signal: Long for 1.2400 with stop-loss at 1.1585

Long-term outlook: Bullish

 

AUD/USD: Not all is doom and gloom in Australian retail sales data

Macroeconomic overview:

• Thursday’s data from the Australian Bureau of Statistics showed retail sales dropped 0.6% in August, confounding expectations for a 0.3% increase. July was also revised down to show a 0.2% fall.
• The 0.8% slump in July and August is the biggest back-to-back fall since October 2010. The AUD/USD fell from a one-week high of 0.7875 set on Wednesday.
• Australia’s retail sector had shown some signs of life earlier in the year, but that recovery was short-lived as sluggish wages and household incomes sapped spending power. The data casts a shadow on the Reserve Bank of Australia’s forecasts for the economy to accelerate at 3% over the next two years.
• The RBA has long feared ballooning debt in Australia’s red-hot property sector was limiting consumers’ ability to spend elsewhere in the economy, one reason it has held rates at an all-time low 1.50% since August 2016.
• The ABS figures showed falls across every single state, a rare occurrence, with food, eating out and household goods leading the losses. Department stores did gain 0.7%, but that followed a sharp drop of 2.6% in July.
• Not all is doom and gloom. The ABS’s experimental estimates of online retail turnover jumped 6.3% in August from the previous month and were rapidly catching up to last year’s Christmas sales.
• The online numbers are not yet part of the headline retail series and are not seasonally adjusted. The ABS estimates the sector is worth around AUD 13 billion a year, compared to AUD 300 billion in traditional sales. Online activity is, however, expanding much more rapidly.
• A separate ABS survey of household spending this week showed Australians are shelling out more money on holidays, health insurance and school fees – none of which are reflected in the retail sales numbers.
• There was slightly better news on Australia’s trade surplus which widened to AUD 989 million in August, topping market forecasts of AUD 875 million. Yet the weakness in retail was mirrored in the numbers with imports of consumer goods dropping 4% in the month.

Technical analysis: The AUD/USD is testing 38.2% fibo of May-September rise again. A break below that level could open the way to 50% fibo of the above-mentioned move. In our opinion the likelihood of further fall below 0.7720 is low, and we are looking to buy this pair near that level.

Short-term signal: Buy at 0.7730, target 0.8120, stop-loss 0.7550

Long-term outlook: Bullish

 

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By GrowthAces.com – Daily Forex Trading Strategies