- The euro rose to a more than two-week high on Tuesday as investors resumed buying risky assets in Europe on growing expectations that economic growth will remain strong against a backdrop of record low interest rates.
- Eurostat confirmed that the Eurozone economy advanced 0.6% on quarter in the three months to September of 2017, in line with market expectations and following 0.7% growth in the previous period.
- The mood among German investors improved further in November, a survey showed on Tuesday, suggesting that markets expect Europe’s biggest economy to continue its solid upswing in coming months. The Mannheim-based ZEW research institute said its monthly survey showed its economic sentiment index rose to 18.7 from 17.6 in October. This undershot market consensus forecast for an increase to 20.0. A separate gauge measuring investors’ assessment of the economy’s current conditions shot up to 88.8 from 87.0 last month. This compared with the market consensus forecast predicting an increase to 88.0.
- Also in focus, European Central Bank chief Mario Draghi, Federal Reserve Chair Janet Yellen, Bank of Japan Governor Haruhiko Kuroda and Bank of England head Mark Carney will form a panel on central bank communication at an ECB-hosted conference in Frankfurt on Tuesday.
Technical analysis and trading signals:
- A drop below 50% fibo of June-September rise (1.1605) was not continued. The rejection of the downward move is a bullish signal. The EUR/USD remains supported above the daily cloud, spanning 1.1654/1.1633. A break of 21-dma at 1.1685 is encouraging for EUR/USD bulls. If it closes above this level today, the next target could be Ichi cloud base at 1.1816.
- Our short position was stopped today and we have switched to long, which is in line with our fundamental view. We see also technical arguments for continuation of upward move.
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EUR/GBP supported by lower-than-expected British CPI reading
- British inflation held at its highest level in five-and-a-half years in October, and wrong-footed expectations from the Bank of England that it would hit a new peak.
- Consumer price inflation held at an annual rate of 3.0% in October, the Office for National Statistics said, below market average expectation for a 3.1% annual rise.
- The BoE said this month, after it raised interest rates for the first time in a decade, that inflation would probably peak at 3.2% in October and then fall slowly to just above its 2% target in three years’ time.
- Tuesday’s figures are likely to reinforce doubts about the wisdom of the BoE’s decision to raise rates at a time when the economy is sluggish, especially as the effect of last year’s Brexit vote on import prices was already at its high point.
- BoE Governor Mark Carney has said the overshoot of the 2% target was due to the effect of the more than 10% fall in the pound after last year’s Brexit vote pushing up the price of imported goods.
- British inflation surged from a subdued 0.5% at the time of the Brexit vote in June 2016 to its highest since April 2012 in September.
- The Office for National Statistics said October’s steady reading reflected falls in fuel prices being offset by a higher cost of food.
- The alternative measure of retail price inflation, which is used to calculate payments on government bonds and many commercial contracts, rose to a near six-year high of 4.0% – bad news for finance minister Philip Hammond as he prepares an annual budget due on November 22.
- However, the failure of consumer price inflation to exceed 3% means Carney will be spared a legal duty of having to write a letter to Hammond alongside next month’s rate decision, explaining why inflation is more than a percentage point above target.
- Costs of manufacturers’ raw materials – much of them imported – were 4.6% higher than in October 2016, down from an inflation rate of 8.1% in September. The market had expected a fall to 4.8%.
- Sterling slipped to its lowest in almost three weeks against the euro on Tuesday, while Britain’s main FTSE 100 stock index jumped to a session high, after UK inflation data came in slightly weaker than expected.
Technical analysis and trading signals:
- The EUR/GBP broke above 55-dma at 0.8920 and the daily cloud base at 0.8928 today. A sustained move into the cloud targets the cloud top at 0.9027. Daily slow stochs are near OB territory but the bulls show no sign of letting up just yet.
- We have raised our bid to 0.8915.
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By GrowthAces.com – Daily Forex Trading Strategies