EUR/USD gains on Catalonia relief

October 11, 2017


Macroeconomic overview:

  • In a much-anticipated speech to the Catalan parliament late on Tuesday, regional leader Carles Puigdemont made only a symbolic declaration of independence, calling for talks with Madrid in a gesture that eased fears of immediate unrest in the heart of the euro zone. Spanish Foreign Minister Alfonso Dastis said today that there was room for negotiations within the framework the country’s existing constitution.
  • Dallas Federal Reserve Bank President Robert Kaplan said he wants to see more signs of upward inflation before raising interest rates again, but that low long-term borrowing costs may limit how far and fast rates can be raised. Kaplan, who votes this year on Fed policy, appeared to be wrestling with how to balance the costs of leaving rates low against the potential dangers of raising rates too fast. He repeated his concern that globalization and technology are keeping inflation muted, despite unemployment that sank in September to 4.2%. While near-full employment is putting some upward pressure on inflation, he said on Wednesday, those secular forces are acting as headwinds.
  • Investors were awaiting the release of minutes of the September Federal Reserve policy meeting later in the session. The Fed had signalled at the meeting that it may raise interest rates for a third time this year even with inflation staying below its 2% goal, so we should expect minute to be hawkish. But with the Fed funds futures almost fully pricing in the likelihood of a rate hike in December and the recent spike in Treasury yields losing momentum, hawkish minutes could be not enough for the dollar to renew its advance. We think that U.S. CPI data on Friday will play more important role.

Technical analysis and trading signals:

  • The EUR/USD continues to rise and broke above 14-day exponential moving average today. The Ichi cloud top at 1.1894 is the nearest EUR/USD bulls’ target. The pair will have to break above 23.6% fibo of June-September rise, which is a resistance level now at 1.1862.
  • We stay long for 1.2400.
  • We are waiting for Friday’s U.S. CPI data – if we do not see renewed USD strength we will raise our trailing stop-loss and recommend increasing the position size.

EURUSD Daily Forex Signals Chart


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AUD/USD: Australian consumers optimism jumped in October survey

Macroeconomic overview:

  • A measure of Australian consumer sentiment jumped to its highest this year in October as an outbreak of optimism about the economic outlook and family finances overcame months of caution. The index reading of 101.4 meant optimists outnumbered pessimists for the first time since November last year. The pick-up will be a relief to policy makers after a shock slide in retail sales for August sparked concerns that consumers were going on strike.
  • While employment growth has accelerated markedly this year, it was not accompanied by a revival in wages, clouding the outlook for household incomes.
  • The better mood could be positive for the struggling retail sector, with the survey’s index of whether it was a good time to buy a major household item rising 3.7% in October.
  • The outlook on the economy improved markedly with the index for the next 12 months up 7.1%, and that for the next five years rising 1.4%.
  • The survey’s measure of family finances compared to a year ago edged up 1.0% in the month, but was still down 6.1% on October last year. Still, the measure of finances over the next 12 months fared better with an increase of 4.2% from September.
  • The improved numbers reinforced market expectations the next move in interest rates would be upward, albeit not for some time yet. A hike in the 1.5% cash rate is not fully priced in until October next year. Still, local bond yields seemed attractive enough to investors at home and abroad. A new issue of AUD 3.5 billion in government 2022 bonds sold on Wednesday was well subscribed, drawing bids worth AUD 12.9 billion. Australian 10-year bonds pay 2.84%, a premium of 48 basis points over comparable U.S. debt.

Technical analysis and trading signals:

  • Daily RSI is biased up and the AUD/USD broke above 7-day exponential moving average today. We are waiting for a close above that level now.
  • We keep our bid at 0.7730 and will consider raising it if we see a close above 7-day ema at the end of the day.

AUDUSD Daily Forex Signals Chart


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By – Daily Forex Trading Strategies