EUR/USD: Profit taken at 1.0810, long-term outlook remains bulli
Macroeconomic overview
A senior trade adviser to the president Donald Trump, Peter Navarro, said the euro was "grossly undervalued". Navarro's comments were followed by Trump himself, who complained that "every other country lives on devaluation" while the United States "sit(s) there like a bunch of dummies". As we expected and highlighted many times in our publications - it looks like investors betting on the USD appreciation under Trump presidency were wrong.
The monetary policy implications of the latest macro data can be best assessed by comparing the actual growth and inflation outcomes to the ECB forecasts published on 8 December. GDP growth in the fourth quarter 2016 seems to have been much in line with the ECB’s fan chart, while, at face value, survey-based information available for January suggests some slight upside risks to the central bank’s growth forecast for the first quarter 2017. Some upward revisions to previous GDP data strengthen the carryover entering 2017. Therefore, the growth picture is developing better than the ECB predicted in December. On the inflation front, the latest data have clearly exceeded the central bank’s expectations. The ECB will almost certainly clearly revise up its CPI projection for this year. If it leaves the trajectory for the remaining part of the forecast horizon, it will imply a humped-shaped inflation path with a relatively strong 2017 and slowdown in inflation in 2018. We do not believe in such a scenario, as we do not see any macroeconomic factors hampering inflation, unless there is a significant rise in EUR value.
Today the FOMC will release the statement after its firs meeting of the year.
After the Fed raised its target rate by another 25bp at the previous meeting, in mid-December, it will this time leave its policy stance unchanged. And with no post-meeting press conference, the focus will be on the FOMC statement. We think that the tone and overall message will be similar to the one given by Chair Yellen in her speeches last week:
1) As the economy is close to the Fed’s goals of maximum employment and price stability (2% inflation), the Committee will continue to normalize its policy stance.
2) But economic conditions will evolve in a manner that will warrant only gradual increases.
In fact, that is basically the same message that was already provided by the previous statement, which means that we are not looking for a lot of changes. We do not expect a strong hint for the timing of the next rate hike. Investors looking for hawkish signals in today’s statement may be disappointed.
Technical analysis
A rejection of downward move on Monday and a long white candlestick yesterday suggest that the EUR/USD remains in bullish trend. The nearest resistance levels are 50% fibo of November-December fall at 1.0815 and December high at 1.0872. These levels are likely to be broken in case of less hawkish than expected FOMC statement today.
Trading strategy
We took profit on EUR/USD long at 1.0810 in the short-term part of our portfolio yesterday, but we also opened a long-term strategy with the target at 1.1090. Short-term moves depend on today’s FOMC statement, which in our opinion is likely to be less hawkish than expected. Long-term outlook is bullish because of accelerating economic growth and inflation in the Eurozone. What is more, recent comments from Donald Trump on the USD strength suggest that betting on further USD appreciation would not be a winning strategy.
GrowthAces.com - Daily Forex Trading Strategies
A senior trade adviser to the president Donald Trump, Peter Navarro, said the euro was "grossly undervalued". Navarro's comments were followed by Trump himself, who complained that "every other country lives on devaluation" while the United States "sit(s) there like a bunch of dummies". As we expected and highlighted many times in our publications - it looks like investors betting on the USD appreciation under Trump presidency were wrong.
The monetary policy implications of the latest macro data can be best assessed by comparing the actual growth and inflation outcomes to the ECB forecasts published on 8 December. GDP growth in the fourth quarter 2016 seems to have been much in line with the ECB’s fan chart, while, at face value, survey-based information available for January suggests some slight upside risks to the central bank’s growth forecast for the first quarter 2017. Some upward revisions to previous GDP data strengthen the carryover entering 2017. Therefore, the growth picture is developing better than the ECB predicted in December. On the inflation front, the latest data have clearly exceeded the central bank’s expectations. The ECB will almost certainly clearly revise up its CPI projection for this year. If it leaves the trajectory for the remaining part of the forecast horizon, it will imply a humped-shaped inflation path with a relatively strong 2017 and slowdown in inflation in 2018. We do not believe in such a scenario, as we do not see any macroeconomic factors hampering inflation, unless there is a significant rise in EUR value.
Today the FOMC will release the statement after its firs meeting of the year.
After the Fed raised its target rate by another 25bp at the previous meeting, in mid-December, it will this time leave its policy stance unchanged. And with no post-meeting press conference, the focus will be on the FOMC statement. We think that the tone and overall message will be similar to the one given by Chair Yellen in her speeches last week:
1) As the economy is close to the Fed’s goals of maximum employment and price stability (2% inflation), the Committee will continue to normalize its policy stance.
2) But economic conditions will evolve in a manner that will warrant only gradual increases.
In fact, that is basically the same message that was already provided by the previous statement, which means that we are not looking for a lot of changes. We do not expect a strong hint for the timing of the next rate hike. Investors looking for hawkish signals in today’s statement may be disappointed.
Technical analysis
A rejection of downward move on Monday and a long white candlestick yesterday suggest that the EUR/USD remains in bullish trend. The nearest resistance levels are 50% fibo of November-December fall at 1.0815 and December high at 1.0872. These levels are likely to be broken in case of less hawkish than expected FOMC statement today.
Trading strategy
We took profit on EUR/USD long at 1.0810 in the short-term part of our portfolio yesterday, but we also opened a long-term strategy with the target at 1.1090. Short-term moves depend on today’s FOMC statement, which in our opinion is likely to be less hawkish than expected. Long-term outlook is bullish because of accelerating economic growth and inflation in the Eurozone. What is more, recent comments from Donald Trump on the USD strength suggest that betting on further USD appreciation would not be a winning strategy.
GrowthAces.com - Daily Forex Trading Strategies