Macroeconomic overview

Philadelphia Federal Reserve Bank President Patrick Harker said he would be open to raising interest rates again at the U.S. central bank’s March meeting if growth in jobs and wages continues.

Harker, one of ten voters this year on the Fed’s rate-setting panel, said that to support a rate hike he would need to see further GDP growth and continued strengthening of the labor market, “not just in terms of the job numbers but also seeing continued wage growth and income growth because that will ultimately feed into inflation.”

U.S. employers added more jobs last month than expected, but hourly wages increased by only three cents, suggesting there is still room for the job market to improve before there is much upward pressure on prices.

Harker tread carefully when it came to questions about how policies under President Donald Trump might affect the economy. He said he had not seen enough details of the new administration’s tax or infrastructure plans to make any judgment about how they would impact growth.

Technical analysis

The EUR/USD broke below the 14-day exponential moving average and the support at 38.2% fibo of November-December rise. This is an important short-term bearish signal. We think that a further fall to at least 1.0620 (January 30 low) is likely in the near term. The next support would be the area between 1.0590 (January 19 low) and 1.0581 (50% fibo of January-February rise).

Trading strategy

The negative scenario realized for our EUR/USD long position. The short-term position was stopped at 1.0690. Our long-term view is unchanged. We will be looking for an opportunity to buy this pair again at 1.0595.

AUD/USD falls despite upbeat RBA tone

Macroeconomic overview

The Reserve Bank of Australia held rates steady at its first policy meeting of the year on Tuesday, playing down a recent soft patch in economic growth as a temporary hiccup that would not prevent a pick up to a healthy 3% pace over time.

RBA Governor Philip Lowe said the economy looked to have bounced back to “reasonable growth” after a surprise contraction in the third quarter of last year. He also reiterated the bank’s forecasts for a gradual pick up in underlying inflation, which is currently pinned at a record low of 1.5%.

The RBA will release its latest forecasts for the economy in a quarterly policy statement due on Friday.

Lowe again noted that prices for Australia’s key commodity exports had risen sharply in past months, which blessed the country with its largest trade surplus on record in December.

With Lowe accentuating the positive, investors trimmed bets on another rate cut for the near term with interbank futures implying around a 16% of a move by June.

Adding to the case against stimulus has been an acceleration in house prices in Australia’s two largest cities, Sydney and Melbourne, driven by an unwelcome revival in borrowing for investment properties.

The RBA statement and comments from Lowe were less dovish than we expected, which

Technical analysis

Long-term charts remain bullish, but recent price action suggests a corrective move. The nearest support levels are 14-day exponential moving average at .7581 and 0.7578 low on February 2. We think that the downward move is likely to stop in the area of 0.7545/0.7580.

Trading strategy

As we had anticipated, the AUD/USD has dropped in recent days despite less-dovish-than-expected RBA statement. But our long-term view remains bullish – we stay long for 0.7750 in the long-term part of our portfolio with profit locked in at 0.7480. Our short-term strategy is to buy this pair on dips – we keep our bid at 0.7575.

TRADING STRATEGIES SUMMARY:

(Detailed trading strategies are available only for VIP subscribers)