EUR/USD: Narrowing Bond Spread Supports EUR Bulls
Growth Aces | May 06, 2015 07:15AM ET
GROWTHACES.COM Forex Trading Strategies
Taken Positions
EUR/USD: long at 1.1150, target 1.1350, stop-loss moved to 1.1150, risk factor **
GBP/USD: long at 1.5160, target 1.5540, stop-loss 1.5060, risk factor **
USD/CHF: short at 0.9400, target 0.9150, stop-loss moved to 0.9300, risk factor ***
USD/CAD: short at 1.2110, target 1.1930, stop-loss moved to 1.2090, risk factor ***
AUD/USD: long at 0.7870, target 0.8230, stop-loss moved to 0.7900, risk factor ***
NZD/USD: long at 0.7560, target 0.7740, stop-loss 0.7450, risk factor ***
EUR/GBP: long at 0.7320, target 0.7590, stop-loss moved to 0.7340, risk factor **
GBP/JPY: long at 181.70, target 184.90, stop-loss 180.60, risk factor **
AUD/JPY: long at 93.80, target 97.00, stop-loss moved to 94.50, risk factor ***
Pending Orders
EUR/JPY: buy at 133.70, if filled – target 136.10, stop-loss 132.40, risk factor **
EUR/CAD: buy at 1.3440, if filled – target 1.3730, stop-loss 1.3340, risk factor **
CHF/JPY: buy at 128.50, if filled – target 131.00, stop-loss 127.40, risk factor ***
EUR/USD: Narrowing Bond Spread Supports EUR Bulls
(stay long for 1.1350)
- Greece has made a EUR 200 million interest payment to the International Monetary Fund that fell due on Wednesday. Today’s payment was not expected to be a problem for the country, but a EUR 750 million payment to the IMF that falls due on May 12 is expected to be a bigger struggle.
- The EUR was also helped by Eurozone business surveys. Final composite PMI amounted to 53.9 in April, ahead of an earlier flash reading of 53.5 but just behind March's 11-month high of 54.0. The PMIs suggest qoq growth of 0.4% for the second quarter, similar to that indicated by the PMI in the first quarter.
- Spain was again a stand-out performer, with its rate of output expansion accelerating to the fastest since November 2006 and growth of new business at a near 15-year high. Germany also reported a solid increase in economic activity in April, albeit a moderately slower pace of expansion than in the prior month. French output expanded for the third consecutive month in April. However, the rate of increase eased to near-stagnation.
- PMI showed that average selling prices continued to fall in April, but the rate of decline was the weakest since June of last year. Input prices increased for the third straight month in April, with the rate of inflation little-changed from March’s eight-month high.
- Eurozone retail sales fell 0.8% mom and rose 1.6% yoy in March vs. a 3.0% yoy rise in February. The reading was slightly weaker than the median forecast for a 0.7% mom drop. The monthly drop in sales was led by a whopping 2.3% mom contraction in Germany. Despite March’s decline, retail sales still expanded by 0.7% in the first quarter, only a touch slower than 0.8% gain in the fourth quarter.
- The USD was on the defensive after disappointing U.S. trade data for March painted an even bleaker picture of the economy in the first quarter. The trade deficit jumped to USD 51.4 billion in March, the largest since October 2008. The trade report showed imports jumping 7.7% in March. Exports increased 0.9%.
- March's trade gap was far larger than the USD 45.2 billion deficit the government assumed in its snapshot of first-quarter GDP last week. In that report, the government estimated trade sliced off 1.25 percentage points from GDP.
- U.S. ISM services index rose to 57.8 last month, the highest since November, from 56.5 in March.
- The EUR/USD did not break below key support level of 1.1051 and recovered after weak U.S. trade data yesterday. The EUR/USD is again above the entry level of our long position, buoyed by rising German 10-Year Bund yields that hit their highest this year and narrowed the gap over U.S. Treasuries.
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- We maintain our long position with the target of 1.1350.
Significant technical analysis' levels:
Resistance: 1.1290 (high May 1), 1.1380 (high Feb 26), 1.1389 (high Feb 25)
Support: 1.1067 (low May 5), 1.1051 (high Mar 26), 1.1000 (psychological level)
GBP/USD: PMI Services Helped GBP, Eyes On Election
(long at 1.5160)
- PMI services climbed to an 8-month high of 59.5 in April from 58.9 in March and beating the median forecast for a fall to 58.5. Similar surveys showed Britain's manufacturing and construction sectors slowed in April.
- PMI showed that the underlying strength of business conditions in the UK service sector was shown by a further marked rise in employment in April. Service providers remained strongly optimistic about output expectations over the next 12 months.
- What is important April data indicated another solid increase in average input costs, mainly attributed by firms to wage pressures. Meanwhile, prices charged by service providers fell for the first time since last October and at the fastest rate in over three years, generating pressure on margins.
- The PMI surveys suggest the economy is showing robust growth momentum, expanding at a rate of 0.8% at the start of the second quarter. It looks like the economy has rebounded from the weakness seen at the start of the year, when GDP growth slowed to just 0.3% qoq.
- The GBP/USD was falling in the morning of the European session today. The rate reached a day’s low of 1.5148 and we went long at 1.5160, in line with our trading strategy. A better-than-expected PMI services reading helped steady pre-election nerves around the GBP, pushing it marginally higher in morning trade.
- Opinion polls suggest Thursday's vote to elect a new government in Britain will produce an inconclusive result. If so, the GBP could come under pressure. That is why we expect further rises in the EUR/GBP. The target of our long EUR/GBP position is 0.7590.
Significant technical analysis' levels:
Resistance: 1.5240 (session high May 6), 1.5397 (high May 1), 1.5490 (high Apr 30)
Support: 1.5088 (low May 5), 1.5033 (50% of 1.4567-1.5498), 1.5000 (psychological level)
NZD/USD Hit By Low Wages Data
(long under threat, target lowered to 0.7740)
- New Zealand's jobless rate was unchanged at 5.8% in the first quarter as the number of jobs created kept pace with growth in the labour force vs. the median forecast for a fall in unemployment rate to 5.5%. The participation rate rose to a record 69.6%.
- Wages data showed a 0.3% lift in private sector wages over the quarter, with the annual rate holding steady at 1.8% vs. expected growth of 2.0%. Economy created 16k jobs in the first quarter, which is an increase by 0.7% qoq vs. the median forecast for a 0.8% qoq rise.
- Weak labor market data add to the case for the Reserve Bank to cut rates. It is not our baseline scenario now, but we should expect dovish rhetoric from the central bank. Moreover, yesterday’s rate cut in Australia may have fueled expectations for monetary easing in New Zealand. Last week the RBNZ said rate rises were not being contemplated, and it opened the door to rate cuts if demand weakens and low inflation feeds into wage and price behavior.
- The NZD/USD opened today’s session at 0.7560, but it crashed to session’s low at 0.7458 on the soft jobs report. We have lowered our NZD/USD long target to 0.7740.
- The AUD/NZD jumped above 1.0600, but our buy order at AUD/NZD was not filled. We are still looking to buy AUD/NZD on dips.
Significant technical analysis' levels:
Resistance: 0.7569 (session high May 6), 0.7625 (high May 1), 0.7635 (hourly high Apr 30)
Support: 0.7458 (session low May 6), 0.7440 (low Apr 14), 0.7423 (low Apr 13)
Source: Growth Aces Forex Trading Strategies
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