Higher Eurozone Inflation Supported EUR/USD Long Trade

EUR/USD: Eurozone inflation jumped more than expected in May Macroeconomic overview:

  • Euro zone inflation jumped by far more than expected in May on higher energy costs, bringing relief to the European Central Bank after market turbulence that has jeopardised its planned exit from a lavish stimulus programme.
  • Inflation in the euro zone rose to 1.9% from 1.2% in April, EU statistics office Eurostat said on Thursday, well above expectations for a 1.6% increase, as surging oil prices quickly fed through to consumers.
  • Excluding volatile energy and unprocessed food prices, inflation was 1.3%, from 1.1% in April. Another core inflation measure, also excluding alcohol and tobacco prices, was 1.1% in May, from 0.7% in April.
  • The ECB has a mandate to keep inflation below but close to 2%, a task that has proven challenging, even with economic growth on its best run in a decade.
  • In a separate release, Eurostat said unemployment in the euro zone fell to 8.5% in April from an upwardly revised 8.6% in March.
  • In Italy, negotiations concerning the formation of a new government, in order to avoid early elections, reopened yesterday. Five Star Movement (M5S) leader Luigi Di Maio met President Mattarella yesterday afternoon to evaluate the possibility of forming a government with the League through a slight reshuffle of the cabinet of ministers. In particular, M5S now seems to be open to the possibility that Professor Paolo Savona might not necessarily be appointed to the post of finance minister. During the day yesterday, the League put a stop to this new option, but in the evening some new openings started to emerge. Therefore, President Mattarella has decided to allow additional time for a negotiation between the M5S and the League, and this means that the formation of a government with the designate Prime Minister Cottarelli will also be put on hold today.

Technical analysis and trading signals:

  • EUR/USD registered the second biggest one-day rise of 2018 on Wednesday. A daily close above the falling 10-DMA, which is now at 1.1690, will confirm the shift risk back to the upside. In line with our expectations, today’s inflation data supported the bullish shift. We remain long.

EUR/USD Daily Forex Signals Chart

USD/CAD: Bank of Canada dropped cautious language, signals rate hike in July Macroeconomic overview:

  • The Bank of Canada held interest rates steady on Wednesday but dropped cautious language about future rate moves in a signal that higher borrowing costs could come as soon as its next meeting in July.
  • While the central bank noted uncertainty about trade policy and stresses in emerging market economies, it dropped oft-repeated language pledging a cautious approach to setting monetary policy, suggesting gradual rate hikes will soon resume.
  • “Overall, developments since April further reinforce Governing Council’s view that higher interest rates will be warranted to keep inflation near target,” the bank said as it held rates at 1.25%, as expected.
  • Still, it said it will “take a gradual approach to policy adjustments, guided by incoming data.”
  • The bank dropped previous references to rate increases being warranted “over time” and removed a phrase about “some monetary policy accommodation” still being needed to keep inflation on target.
  • The bank has raised rates three times since July 2017, most recently in January. But it has been on hold since amid uncertainty about the renegotiation of the North American Free Trade Agreement and concern about how indebted consumers will handle higher rates.
  • The bank said inflation will likely be a bit higher in the near term than forecast in April, largely because of increases in gasoline prices, though it noted it will look through the transitory impact of gas price fluctuations.
  • The bank said data since April support its outlook for economic growth around 2% in the first half of 2018, with exports of goods more robust than forecast, while housing remained soft into the second quarter.
  • The bank also said there is some upside to the outlook for the U.S. economy, while the price of oil, a key Canadian export, has been higher than assumed in April.

Technical analysis and trading signals:

  • The USD/CAD is falling after less dovish statement from the Bank of Canada. The pair broke below 10-DMA (1.2890). We placed a sell order at 1.2890 and the order was filled today. Our short target is 1.2590.

USDCAD Daily Forex Signals Chart

TRADING STRATEGIES SUMMARY: FOREX – MAJOR PAIRS:

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FOREX – MAJOR CROSSES:

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PRECIOUS METALS: How to read these tables? 1. Support/Resistance – three closest important support/resistance levels2. 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.

Source: GrowthAces.com – your daily forex trading strategies

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