EUR/USD pierced important support levels, further losses are likely Macroeconomic overview: ECB President Mario Draghi said the European Central Bank is growing increasingly confident that inflation will rise back to its target, but patience is still needed, not least to make sure the economic recovery lasts. Draghi singled out currency volatility as a source of uncertainty that required monitoring and argued that “ample” ECB accommodation was still needed, because a premature and hasty move could unravel its work.
The ECB is expected to wind down its stimulus efforts, starting next year, even if inflation looks to remain below the bank’s near 2% target for years to come. ECB policymakers said that the debate is now about the details of the policy shift, such as whether to keep its quantitative easing programme open-ended or whether to signal an intent to phase out bond purchases.
But any change is likely to be incremental. Many policymakers are arguing for a gradualist approach to stop the euro from gaining too much.
Launched two and a half years ago, the ECB’s 2.3 trillion- euro bond-purchase scheme has depressed borrowing costs and helped revive spending and growth. But inflation has been unexpectedly slow to respond, leaving the ECB with a dilemma. Keeping price growth just below 2% is its sole mandate. Inflation was last at 1.5%.
But much of its firepower has been exhausted, and the inflation shortfall is at least partly outside its control. That has led policymakers to call for giving inflation more time, accepting that lifting prices will take several years longer than initially hoped.
Today investors will focus on what views will be expressed by Fed Chair Janet Yellen, who is due to speak in Cleveland at 16:45 GMT on “inflation, uncertainty, and monetary policy.”
Technical analysis: Bear sentiment remains and the EUR/USD trades slightly below Monday’s base. The head and shoulders neckline was pierced yesterday and price did manage to close under 23.6% fibo of June-September 1.1119-1.2092 rise at 1.1862. Further losses are likely and the 38.2% fibo at 1.1720 is now the next port of call for the bears.
Short-term signal: We see no big hopes for our long position after key support levels were broken yesterday. If the position is closed with a loss, we will be looking to place another bid near 50% fibo of 1.1119-1.2092 rise at 1.1605. Long-term outlook: Bullish
USD/JPY goes down on North Korea worries Macroeconomic overview: The Japanese currency made sharp gains after North Korea’s foreign minister Ri Yong Ho said on Monday that President Donald Trump had declared war on the country and that Pyongyang reserved the right to take countermeasures, including shooting down U.S. bombers even if they are not in its air space.
Japan is the world’s largest creditor nation and traders tend to assume Japanese investors would repatriate funds at times of crisis, thus pushing up the yen. In our opinion stronger yen suggests markets do not really believe in an actual war in Asia.
Japan’s government needs to set a new time frame for achieving its budget-balancing goal, currently set at fiscal 2020/21, Finance Minister Taro Aso said on Tuesday.
He made the remarks a day after Prime Minister Shinzo Abe announced he would redirect some revenue from a planned sales tax hike in 2019 to child care and education rather than paying back public debt, in a bid to overhaul the social security system.
Abe admitted that would make it difficult to meet the government’s aim of balancing the budget – excluding debt-servicing costs and new bond sales – by the year ending in March 2021.
A primary budget balance is a key gauge of measuring how spending on policy measures is financed without relying on debt. Balancing the budget is seen as a crucial step to rein in the world’s heaviest public debt burden at twice the size of Japan’s economy.
Technical analysis: Despite recent falls the USD/JPY is still above 7-day exponential moving average and above 111.65 (38.2% fibo of December 2016-September 2017 fall), which is now a support level. Short-term momentum stays with the bears, but there is huge support in the form of daily cloud ahead, which currently spans 110.26-111.55 region.
Short-term signal: Short for 110.00 Long-term outlook: FlatSource: GrowthAces.com – your daily forex signals newsletter