EUR/USD Long At 1.1150 In Good Shape Ahead Of ECB Decision

EUR/USD Rises Ahead Of ECB Decision

  • The ECB Governing Council meeting is scheduled for today. The new set of macroeconomic projections will reveal, for the first time, the ECB’s assessment of the Brexit impact on the Eurozone economy, although Draghi may want to be on the safe side and stress the preliminary nature of the estimates as well as higher-than-usual uncertainty surrounding the numbers. Given the generally good resilience of survey indicators after the UK referendum, we only expect slight downward revisions to the growth outlook with most of the hit felt next year, with the GDP forecast lowered towards 1.5% from 1.7%. The softer growth trajectory implies a bias for a marginally weaker CPI path, mainly for core prices, but we doubt that any revision will exceed a decimal per year. Moreover, oil prices have recovered some ground after the cut-off date of mid August and the Governing Council may try to factor this into its broader assessment. Overall, we think that the new projections are unlikely to be a clear trigger for the announcement of new stimulus today.
  • Other factors argue against immediate action. First, there are some important risk events scheduled in the fourth quarter 2016, namely the Italian referendum and the US election. Although we expect none of these events to materially damage the macro and financial outlook, the ECB may find it wise to keep some powder dry. Second, there are still six months to go before the end of QE and a good dose of stimulus from previously announced measures is still in the pipeline. Third, the ECB is not willing to make it any harder for the Fed to normalize its monetary policy. If the EUR were to resume a depreciating trend in response to immediate ECB easing, the FOMC might have second thoughts about the timing of its next rate hike, with obvious consequences for the USD and, maybe, also for investors’ mood. This is a risk the ECB does not want to take.
  • In our opinion the bar for a further step-up in the monthly pace of purchase seems to be fairly high, mainly due to the intensification of scarcity problems that this would cause and the thorny countermeasures the ECB may have to take. We remain convinced there will be no change to policy rates, as the side effects of an even more negative deposit rate would outweigh the benefits.
  • No action today is likely to support the EUR/USD. We stay long and raised the target to 1.1390 on our short-term position.

GBP/USD: Carney Keeps Easing Option

  • Governor Mark Carney fended off criticism from some lawmakers that the Bank moved too aggressively to help Britain’s economy through the Brexit shock in early August when it cut interest rates, expanded its bond-buying programme and took other measures to ease lending. But he said the damage to the economy looked a bit less severe than the BoE had forecast when it announced its stimulus plan on August 4.
  • Carney said growth seemed to be slowing to about half its pace of before the referendum, which would equate to around 0.3% in qoq terms. The BoE said last month it expected growth of 0.1% in the July-September period.
  • The BoE said in August that most of its policymakers expected to cut interest rates further below their new record low level of 0.25% later this year if the economy slowed as it expected.
  • Carney, in a written report to the Treasury Committee in parliament, reiterated his view the BoE remained ready to take “whatever action is needed” to help Britain’s economy.
  • Deputy Governor Jon Cunliffe said he expected to vote for another rate cut in 2016 if the economy evolves as the Bank forecast last month.
  • In our opinion the likelihood of further monetary easing is low after a series of very good macroeconomic figures from the UK. We used yesterday’s drop in the GBP/USD to get long at 1.3320. The GBP/USD is still above the 7-day exponential moving average, which highlights the bullish outlook.

USD/CAD: Loonie Retreats On More-Dovish-Than-Expected BOC

  • The Bank of Canada warned that the economy could be weaker than it anticipated just two months ago as exports disappointed, but the central bank held rates steady as it stuck to a forecast that growth will bounce back in the second half.
  • In a statement that was bleaker than the market had expected, the bank also said the U.S. outlook for business investment has become less certain, despite a healthy labor market and solid consumption. Canada is counting on U.S. demand to boost exports and lift Canada’s economy out of the malaise as slumping commodity prices hurt the key resource sector. The Canadian economy shrank at an annual rate of 1.6% in the second quarter.
  • The bank said risks to the profile for inflation have tilted “somewhat to the downside” since its last statement in July.
  • The bank also said while there are preliminary signs of a possible moderation in Vancouver’s housing market, Canada’s most expensive, financial vulnerabilities linked to household debt remained elevated and continued to rise.
  • The Bank of Canada’s more dovish stance will raise expectations for some that the central bank will cut interest rates. The implied probability of a rate cut by the end of the year edged slightly higher to 12% from 10% before the rate decision, overnight index swaps data showed. In our opinion there will be no further rate cuts in Canada.
  • The CAD fell against the USD on Wednesday, retreating from a nearly three-week high after a more dovish than expected statement from the Bank of Canada. A weaker Ivey PMI helped to soften the loonie. The seasonally adjusted Ivey PMI fell to 52.3 in August from 57.0 in July.
  • The USD/CAD rose to 1.2913 yesterday, slightly below our sell order at 1.2920. We keep our strategy unchanged and still look to sell the USD/CAD near 7-day exponential moving average (currently at 1.2922).

FOREX – MAJOR PAIRS:

Daily Forex Trading Strategies – Major Pairs

FOREX – MAJOR CROSSES:

Daily Forex Trading Strategies – Major Crosses

PRECIOUS METALS:

Daily Trading Strategies – Precious Metals

It is usually reasonable to pide your portfolio into two parts: the core investment part and the satellite speculative part. The core part is the one you would want to make profit with in the long term thanks to the long-term trend in price changes. Such an approach is a clear investment as you are bound to keep your position opened for a considerable amount of time in order to realize the profit. The speculative part is quite the contrary. You would open a speculative position with short-term gains in your mind and with the awareness that even though potentially more profitable than investments, speculation is also way more risky. In typical circumstances investments should account for 60-90% of your portfolio, the rest being speculative positions. This way, you may enjoy a possibly higher rate of return than in the case of putting all of your money into investment positions and at the same time you may not have to be afraid of severe losses in the short-term.

How to read these tables? 1. Support/Resistance – three closest important support/resistance levels 2. Position/Trading Idea:BUY/SELL – It means we are looking to open LONG/SHORT position at the Entry Price. If the order is filled we will set the suggested Target and Stop-loss level.LONG/SHORT – It means we have already taken this position at the Entry Price and expect the rate to go up/down to the Target level.3. Stop-Loss/Profit Locked In – Sometimes we move the stop-loss level above (in case of LONG) or below (in case of SHORT) the Entry price. This means that we have locked in profit on this position.4. Risk Factor – green “*” means high level of confidence (low level of uncertainty), grey “**” means medium level of confidence, red “***” means low level of confidence (high level of uncertainty)5. Position Size (forex)- position size suggested for a USD 10,000 trading account in mini lots. You can calculate your position size as follows: (your account size in USD / USD 10,000) * (our position size). You should always round the result down. For example, if the result was 2.671, your position size should be 2 mini lots. This would be a great tool for your risk management!Position size (precious metals) – position size suggested for a USD 10,000 trading account in units. You can calculate your position size as follows: (your account size in USD / USD 10,000) * (our position size).6. Profit/Loss on recently closed position (forex) – is the amount of pips we have earned/lost on recently closed position. The amount in USD is calculated on the assumption of suggested position size for USD 10,000 trading account.Profit/Loss on recently closed position (precious metals) – is profit/loss we have earned/lost per unit on recently closed position. The amount in USD is calculated on the assumption of suggested position size for USD 10,000 trading account.

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