Macroeconomic overview: The regional Fed’s Empire State index on current business conditions declined to -1.0 from +5.2 in April. It sank into negative territory for the first time since October, prior to the U.S. presidential election. The optimism on fiscal stimulus from Washington has diminished in recent weeks as the administration and leading Republican lawmakers have been slow in making progress on these major economic legislations.
The New York Fed survey’s component on new orders, a proxy on future business activity, also sagged into the red to -4.4, the weakest level since September from +7.0 in April.
Investors are now focusing on when and how the European Central Bank could scale back its quantitative easing given the recent strength in the euro zone economy.
Later on Tuesday, the EUR could take cues from the second reading of the euro zone’s January-March GDP growth, as well as a speeches by ECB Executive Board members Ewald Nowotny (15:30 GMT) and Benoit Coeure (17:00 GMT).
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Technical analysis: The rise extends above the May 8 1.1022 high. A close above this level would suggest further rally to 1.1127 (61.8% fibo of May 2016-January 2017 drop). The 7-day exponential moving average at 1.0946 is a support.
Short-term signal: We have raised the stop-loss to 1.0930 and stay long for 1.1130
Long-term outlook: Bullish
GBP/USD: British CPI rose more than expected
Macroeconomic overview: Consumer prices increased in April by 2.7% yoy. It is the highest inflation level since September 2013. The reading was slightly above market expectation for a 2.6% annual rise.
Inflation has accelerated in Britain in recent months, pushed up by a weakening of the pound since last year’s decision by voters to leave the European Union, and by the rise in oil prices which has fuelled inflation in other countries too.
Last week Bank of England Governor Mark Carney warned this year would be challenging for consumers, saying that wages are about to fall in real, inflation-adjusted terms.
But with little sign of an overheating domestic economy, all but one of the BoE’s eight policymakers voted last week to keep rates on hold. The latest inflation figures were boosted most of all by rising airfares during the Easter holidays, which were in March last year. Rising clothing prices, higher car tax and electricity also pushed up consumer prices.
Excluding oil prices and other volatile components such as food, core consumer price inflation rose to 2.4%, the strongest rate since March 2013 and above market expectations for it to rise to 2.2%.
Services prices – which the BoE view as a guide to domestic inflation pressures – rose by 3.0%, the biggest jump since September 2013, though this was affected by higher airfares.
Factory output prices – a guide to future consumer price pressures – increased 3.6%, unchanged from the previous month and above forecasts of a 3.4% annual increase.
The Office for National Statistics said house prices in March rose at their weakest rate since October 2013, up 4.1% on the year.
Technical analysis: The technical analysis suggests that the GBP/USD is continuing its rally after slight corrective move. Monday’s higher high and close confirmed Friday’s doji. Positively aligned moving averages supports the upward move. On the other hand, limited reaction to higher-than-expected British CPI data signals the pair would need more fuel to break above this-month high.
Short-term signal: The GBP/USD outlook is unclear. No position is justified from risk/reward perspective.
Long-term outlook: Bullish
AUD/USD is testing key resistance level now
Macroeconomic overview: The Reserve Bank of Australia’s minutes of its May meeting showed that housing and labour markets were at the centre of policymakers’ decision to leave rates unchanged at 1.50% for the ninth straight month.
Australia’s central bank was confident core inflation would pick up by early 2018, but worries about a subdued labour market amid soaring household debt forced it to stand pat on rates.
Board members felt there was “significant uncertainty” about how to measure the degree of spare capacity, given the high levels of underemployment in recent years.
The unemployment rate is at a 13-month high of 5.9% while measures of underemployment – which capture workers who want to work more hours – was near all-time highs.
Data out last month showed tentative signs of a turnaround in an otherwise uninspiring employment sector with 60.9k jobs added in March, all full-time. Besides, leading indicators of the economy have generally been more positive.
Yet board members also saw greater risks in the housing market as borrowing for investment fuelled breakneck price rises in Sydney and Melbourne with home values are racing at a blistering 16% and 15%, respectively.
The surge in home prices in the major cities skidded to a halt in April, but the RBA made no reference to the slowdown in its statement, repeating prices have been rising “briskly” in some markets.
Australian regulators announced measures earlier this year to restrain lending to speculative property investors in a bid to cool the sizzling market and tighten lending standards.
RBA Governor Philip Lowe has repeatedly argued that cutting rates further would only encourage more borrowing by households who are already heavily indebted, outweighing any economic benefits. With wages growing at record lows, debt was outpacing incomes and threatening to weigh on consumer spending. “Subdued growth in labour costs and strong competition in the retail sector had continued to have a dampening effect on aggregate inflation,” the minutes showed. “A fall in housing prices could also weigh on consumption growth.”
The central bank said the economy likely grew at a moderate pace in the first quarter and repeated its warning that a rise in the Australian dollar could complicate the outlook. Futures market imply scant chance of a change to interest rates this year.
The RBA said it was seeing signs of higher inflation in some components of non-tradables inflation such as electricity prices and dwelling construction costs.
Latest data showed Australia’s consumer price inflation tiptoed atop 2% last quarter for the first time since 2015 but the RBA’s favoured measures of underlying inflation stayed below its target band of 2-3%.
Technical analysis: Daily RSI is biased up, which suggest that the recent recovery has legs. The pair is currently testing 0.7428 resistance level (23.6% fibo of March-May drop) and a close above this level will open the way to the resistance area near 0.7540.
Short-term signal: Long at 0.7390 for 0.7540
Long-term outlook: Bullish
TRADING STRATEGIES SUMMARY:
FOREX – MAJOR PAIRS:
FOREX – MAJOR CROSSES:
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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By GrowthAces.com – Daily Forex Trading Strategies