By GrowthAces.com

Macroeconomic overview:

• The Federal Reserve said industrial production increased 0.3% last month after a 0.7% drop in August that was smaller than initially reported. The U.S. central bank said the “continued effects of Hurricane Harvey and, to a lesser degree, the effects of Hurricane Irma combined to hold down the growth in total production in September by a quarter percentage point.”
• Despite the hurricane-related setback, manufacturing remains on solid ground amid a weakening dollar, firming global economy and inventory accumulation by businesses. Factory sentiment is also at multi-year highs. In September, mining production rose 0.4%, reflecting gains in oil and gas extraction. Utilities production rose 1.5% last month. With output tepid last month, industrial capacity use rose 0.2 percentage point to 76.0%, and is 3.9 percentage points below its long-run average.
• Officials at the Fed tend to look at capacity use as a signal of how much “slack” remains in the economy and how much room there is for growth to accelerate before it becomes inflationary.
• The dollar rose against a basket of currencies yesterday as investors focused on the Labor Department report showing a 0.7% jump in import prices in September.  Last month’s increase in import prices was the biggest since June 2016 and followed a 0.6% rise in August. In the 12 months through September, import prices climbed 2.7% after advancing 2.1% in August.
• The USD is strengthening on progress on U.S. tax reforms. U.S. Senate Republicans on Monday gained crucial support for a vote on a budget resolution that is vital to President Donald Trump’s hopes of signing tax reform legislation into law before January.
• With the Federal Reserve expected to raise interest rates for the third time this year in December, markets are looking to who will replace Janet Yellen as chair when her term expires in February. U.S. President Donald Trump has a pool of five candidates to choose from for the next chair of the Federal Reserve and is likely to announce his choice in early November. Trump has an interview scheduled on Thursday with current Fed Chair Janet Yellen. She is one of the five candidates. The others consist of his chief economic adviser, Gary Cohn, along with former Fed Governor Kevin Warsh, Fed Governor Jerome Powell and Stanford University economist John Taylor.
• Investors will focus on U.S. Beige Book data later in the day, with some likely to be wary of buying dollars aggressively after disappointing U.S. inflation data.

Technical analysis and trading signals:

• The EUR/USD is continuing its downward move and is likely to test the base of the cloud at 1.1703. The close under 7-day exponential moving average has increased bearish sentiment.
• Daily charts show a large head and shoulders top, beginning in August. Neckline line is at 1.1670. Another important support level is 50% fibo of June-September rise at 1.1605.
• We think that current fall in EUR/USD could be a good opportunity to open a long position. We estimate that EUR/USD fair value is 1.2400 now and this is our medium-term target.

GBP/USD: Only temporary boost from wages data

Macroeconomic overview:

• British pay growth has lagged behind inflation again, official data showed, but the figures are likely to cement expectations among investors that the Bank of England will soon raise interest rates for the first time in a decade.
• The data also showed the unemployment rate between June and August held at its 42-year low of 4.3%, one of the reasons why the BoE thinks pay is likely to pick up soon.
• Despite a slowdown in Britain’s economy this year, the central bank is widely expected to increase its Bank Rate to 0.50% from an all-time low of 0.25% on November 2, at the end of its next meeting.
• The BoE has said it expects pay growth to pick up speed soon because the unemployment rate is below the 4.5% level that it considers to be a trigger for inflation pressure in the economy. It also thinks Brexit will increase price growth in Britain.
• The Office for National Statistics said on Wednesday that workers’ total earnings, including bonuses, rose by an annual 2.2% in the three months to August and it slightly revised up growth in the three months to July to 2.2% as well. The reading was slightly above market expectations for 2.1% growth.
• Excluding bonuses, earnings rose by 2.1%, a touch stronger than the market forecast of 2.0%.
• Wages have steadily fallen behind inflation which hit 3% in September, its highest level in more than five years.
• In August alone, total wages picked up speed to grow by 2.2% after a slowdown in July to 1.7%.
• The steady loss of spending power for households is not just a headache for the BoE. Prime Minister Theresa May has promised help for households and has proposed a cap on power tariffs to ease the squeeze on their budgets. Finance minister Philip Hammond is under pressure to come up with further measures when he announces his budget plan in November. But he has little margin for error given the still weak state of Britain’s public finances.
• Sterling got only a temporary boost from data showing British wage growth edging above forecasts on Wednesday.
• Bank of England Governor Mark Carney said on Tuesday the central bank still had to balance the need to support job creation and growth with an inflation rate that is running above its target. “Inflation rising potentially above the 3% level in coming months is something that we have anticipated,” Carney told lawmakers in Britain’s parliament, saying the BoE had said before last year’s Brexit vote that a fall in sterling would push up prices. The BoE has said most of its rate-setters think they will need to raise interest rates “in the coming months” to head off a build-up of inflation pressure. Carney has previously said he is part of that majority.

Technical analysis and trading signals:

• Thin daily Ichi cloud, 1.3085-1.3052, could still help pull the GBP/USD lower. An important support level is 1.3027 low on October 6. Trend stays with the bulls on longer term charts, but we see risk of further downward move in the short term.
• We stay sideways.

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By GrowthAces.com – Daily Forex Trading Strategies