EUR/USD: Life After Quantitative Easing
Growth Aces | Oct 30, 2014 07:59AM ET
GROWTHACES.COM Trading Positions
USD/CAD: long at 1.1170, target 1.1290, stop-loss 1.1110
NZD/USD: short at 0.7920, target 0.7760, stop-loss 0.7860
EUR/CHF: long at 1.2085, target 1.2160, stop-loss 1.2045
GBP/JPY: long at 172.00, target 175.00, stop-loss 172.30
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EUR/USD: Life after quantitative easing
(profit taken on the short position 1.2760-1.2620)
- The Federal Reserve ended its monthly bond purchase program and dropped a characterization of U.S. labor market slack as "significant" in a show of confidence in the economy's prospects.
- The U.S. central bank largely dismissed recent financial market volatility, dimming growth in Europe and a weak inflation outlook as unlikely to undercut progress toward its unemployment and inflation goals. The Fed acknowledged only that lower energy prices were holding inflation down. But it said risks to the economy were balanced and the likelihood of inflation undershooting its target had diminished since earlier this year.
- The Fed also added broad, flexible language that ties the timing and pace of any future rate hike to incoming economic data. The statement said: “If incoming information indicates faster progress toward the committee's employment and inflation objective than the committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated.”
- After the statement rate futures shifted to show a rate increase in September 2015. Previously, they had pointed to a hike in October.
- Today’s data showed that Euro zone economic sentiment unexpectedly rose in October, picking up from a near one-year low in September. Data from the European Commission showed that economic sentiment rose to 100.7 in October from 99.9 in September. The improvement was due to all business sectors becoming more optimistic, especially the retail, services and construction sector.
- The EUR/USD fell after the FOMC statement, in line with expectations of GrowthAces.com. The EUR/USD remained under pressure through the Asian session. We have taken profit on our short position (1.2760-1.2620) and stay flat now.
- The market will be focused on U.S. GDP growth reading and German preliminary inflation data later today. Our forecast for the U.S. GDP is slightly lower than the median forecast (2.9% vs. 3.0%). Another important event scheduled for today is the speech of Fed Chair Janet Yellen (13:00 GMT). Investors will be eyeing also tomorrow’s preliminary inflation data in the Euro zone (our forecast and the market consensus are both 0.4% yoy).
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Significant technical analysis' levels:
Resistance: 1.2765 (high Oct 28), 1.2784 (hourly high Oct 21), 1.2841 (high Oct 21)
Support: 1.2722 (10-dma), 1.2698 (21-dma), 1.2635 (low Oct 24)
USD/JPY: Ahead of BoJ meeting
(profit taken on the long position 107.60-109.00, looking to get long again on dips)
- The USD/JPY rose to 109.30 in Asia after hawkish FOMC statement. More profit-taking by longs and sales from Japanese exporters pushed the rate back below 109.00 but only for a while. The rate stabilized near 109.00. Investors are waiting for the BoJ’s outcome now.
- The Bank of Japan meets on Friday (GMT), but we think it is highly unlikely that additional easing will be decided. Traders should focus on the language of the statement. In recent months, there has been a shift towards more dovishness in the BoJ’s communications. The BoJ pointed to slower export growth and declines in housing investment. In its latest meeting the BoJ said industrial production had increased “moderately as a trend”. There is a risk that the central bank will drop its upbeat assessment of the economy and open the door to additional easing in the future. However, we do not expect a significant change in the statement in our baseline scenario.
- We have taken profit at 109.00 on our long USD/JPY position yesterday. In our opinion the outlook is still bullish and GrowthAces.com is looking to get long again on dips ahead of 108.12 hourly low from Wednesday, October 29.
Significant technical analysis' levels:
Resistance: 109.85 (high Oct 6), 109.91 (high Oct 3), 109.97 (hourly high Oct 1)
Support: 108.75 (session low Oct 30), 108.12 (hourly low Oct 29), 107.94 (Oct 29)
USD/CAD: Risks for currency bulls are rising
(bullish potential is weakening)
- Canadian producer prices fell by 0.4% mom in September as higher crude oil supplies in North America cut prices for refined energy and petroleum products. Prices rose 2.5% yoy, down from 2.6% yoy gain in August. Crude energy product prices fell by 1.9% mom and 5.4% yoy, the largest yoy decline since the 5.9% plunge seen in January 2013.
- Bank of Canada governor Stephen Poloz is the opinion that if the low price of oil persists, it will knock a quarter-point off the growth of Canada's GDP in 2015. He said: “a quarter point matters a lot” when the bank is predicting moderate growth in the 2-2.5% range. He added, however, that cheaper oil is not “serious in a macroeconomic sense”. He is the opinion that cheaper oil will not change the bank's projection that the economy will return to full capacity in the second half of 2016.
- Poloz defended the central bank's last-week decision to end its practice of explicitly committing to future changes in its key interest rate. He warned that forward guidance had become like an addiction to financial markets.
- The USD/CAD fell yesterday below 1.1120 ahead of the Fed’s statement showing that bullish potential for the USD/CAD is weakening. The rate rose in the reaction to the announcement of the FOMC bud did not manage to come back to the levels seen last week.
- We see risks for our long USD/CAD position are rising. The nearest strong support level is below our stop-loss level, at 1.1093 (38.2% of 1.0620-1.1385). However, an important level is 1.1184 (the bottom of the recent range and the hourly low of yesterday’s session after the Fed’s statement). The close above this level will restore our confidence in the currency bulls.
Significant technical analysis' levels:
Resistance: 1.1255 (high Oct 27), 1.1263 (high Oct 23), 1.1297 (high Oct 21)
Support: 1.1093 (38.2% of 1.0620-1.1385), 1.1082 (low Oct 9), 1.1071 (low Oct 2)
NZD/USD: Dovish RBNZ, in line with our forecast
(we’ve lowered stop-loss on our short-position to save profits)
- The Reserve Bank of New Zealand held rates steady, as widely expected. The official cash rate is still at 3.50%.
- The RBNZ Governor Graeme Wheeler said in a statement: “A period of assessment remains appropriate before considering further policy adjustment.” He noted that New Zealand's economy was adjusting to past rate hikes.
- The RBNZ dropped its explicit tightening bias contained in the September monetary statement, when it spoke of further rate rises being needed to return the cash rate to a more neutral level. The RBNZ repeated the currency's level was unjustified and unsustainable, and said it expected a further "significant depreciation".
- The NZD/USD fell strongly yesterday in the wake of divergent Fed and RBNZ outcomes. The NZD/USD traded as low as 0.7769 but then recovered above 0.7800. The RBNZ reaffirmed its belief that the current level of the NZD was unjustified. The currency bulls stay sidelines due to a fear of further RBNZ intervention.
Significant technical analysis' levels:
Resistance: 0.7959 (high Oct 28), 0.8000 (psychological level), 0.8036 (high Oct 21)
Support: 0.7884 (low Oct 28), 0.7795 (low Oct 24), 0.7708 (low Sep 29)
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