EUR/USD: Short Target Lowered To 1.1045

EUR/USD: Short target lowered to 1.1045 Macroeconomic overview: New York Fed President William Dudley, a close ally of Fed Chair Janet Yellen, said U.S. inflation is a bit low but should rebound alongside wages as the labor market continues to improve. Asked about a so-called flattening of yields in the bond market, which suggest investors are skeptical that this Fed policy-tightening cycle will last much longer, Dudley said pausing policy now could raise the risk of inflation surging and hurting the economy. He said he did not read the market move as a negative signal for the U.S. economy, but rather one that reflects low overseas inflation and borrowing costs.

Separately, Chicago Fed President Charles Evans said on Monday it may be worthwhile for the U.S. central bank to wait until year-end to decide whether to raise interest rates again.

Investors are now pricing in around a 50% chance that rates will be raised again by the end of the year.

Dudley comments supported the USD. The greenback has edged higher since the Fed on June 14 raised interest rates for a second time in 2017 and announced it would begin cutting its holdings of bonds and other securities later this year, while indicating that a recent softening in inflation was seen as transitory.

Technical analysis: The 7/14-day exponential moving average negative crossover yesterday was a bearish signal. Slow stochs head lower and price is nearing the 23.6% fibo of April-June rise.

EUR/USD Chart

Short-term signal: Short remains in play. A break below the 23.6% fibo would open the way to stronger drop. We have lowered the target to 1.1045. Long-term outlook: Despite current corrective move, the long-term outlook remains bullish.

GBP/USD: Carney says not time for rate rise Macroeconomic overview: Bank of England Governor Mark Carney is the opinion that now is not the time to raise interest rates. He warned of weak wage growth and a likely hit to incomes as Britain prepares to leave the European Union.

Last week, three BoE policymakers of the eight on the Monetary Policy Committee unexpectedly voted to raise interest rates. Carney voted to keep them at a record low 0.25% and gave no sign he was in a rush to change his view.

Sterling fell by almost a full cent against the dollar after Carney’s speech.

Technical analysis: Failure to break above the 14-day exponential moving average increased the downside sentiment. The next support level is 61.8% fibo of April-May rise at 1.2625.

GBP/USD Chart

Short-term signal: We stay sideways on GBP pairs due to increased political uncertainty. Long-term outlook: Flat

AUD/USD: Buy at 0.7550 Macroeconomic overview: Australia’s central bank has stuck to its upbeat tune on economic growth, but heightened concerns about financial stability suggest interest rates will remain at record lows even as policy makers abroad turn hawkish. Minutes of the Reserve Bank of Australia’s June meeting showed soaring household debt in the country’s red-hot property market and weak wages growth were at the forefront of policy makers’ minds.

The Reserve Bank of Australia last cut interest rates in August 2016. It has since stood pat, juggling the risks of record household debt, tepid inflation and weak consumer spending.

Australia’s household sector is under severe strain with debt-to-income at a record high 189% while wages are crawling at the slowest pace ever. The share of national income going to households has shrunk to its smallest since 1964 while the savings rate has fallen to a 10-year low. That is one reason the RBA is unlikely to hike official rates in coming months because to do so would push up mortgage costs for already indebted Australian families.

Yet it fears easing further might only encourage more borrowing by investors to speculate in the housing market. Australia’s super-easy policy stance contrasts with global central banks in the mood to nudge interest rates higher.

Late on Monday, Moody’s Investors Service cited “elevated risks” within the household sector when lowering its ratings on 12 Australian banks. Australia’s ‘Big Four’ banks are heavily reliant on mortgages for earnings growth. A sharp correction in property prices would certainly hit them, although the Moody’s downgrade alone is not expected to lift their funding costs.

Australian economy expanded by a disappointing 0.3% in the first quarter of the year, while annual growth was the slowest since 2009 at 1.7%. However, a stabilisation in mining investment after years of steep falls, better commodity prices, and the country’s biggest-ever home building boom will likely boost future growth. The labour market is also strengthening with the unemployment rate at a 4-year low of 5.5%. Forward-looking indicators of labour demand have also been positive.

Technical analysis: The AUD/USD consolidation persists and we are looking for the dip to get long. Monthly RSI is biased up with room to run and a bull pennant is forming on daily charts.

AUD/USD Chart

Short-term signal: Buy at 0.7550 Long-term outlook: Bullish

Source: GrowthAces.com – daily forex signals service

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