Daily Forex Signals 04.08.2017
EUR/USD: All eyes on U.S. non-farm payrolls
Macroeconomic overview: The number of Americans filing for unemployment benefits fell last week, pointing to a tightening labor market that likely keeps the Federal Reserve on course to announce plans next month to start reducing its massive bond portfolio.
Labor market strength was also underscored by another report on Thursday showing U.S.-based employers last month announced the fewest job cuts in eight months. But a moderation in services sector activity to an 11-month low in July put a wrinkle in the brightening economic outlook.
Initial claims for state unemployment benefits decreased 5k to a seasonally adjusted 240k for the week ended July 29, the Labor Department said. The claims data has no bearing on July's employment report, which is scheduled to be released today (12:30 GMT), as it falls outside the survey period. The market expects nonfarm payrolls probably increased by 183k jobs last month after surging by 222k in June. The unemployment rate is seen falling one-tenth of a percentage point to 4.3%.
In a separate report on Thursday, global outplacement consultancy Challenger, Gray & Christmas said U.S.-based employers announced 28,307 job cuts last month, down 9% from June and the fewest number since November 2016.
A third report from the Institute for Supply Management (ISM) showed its non-manufacturing index fell to a reading of 53.9 last month, the lowest since August 2016, from 57.4 in June. Last month, a gauge of new orders received by services industries fell to 55.1 from 60.5 in June. A measure of services sector employment dropped 2.2 points to 53.6.
Despite weaker ISM reading, we expect the U.S. economy will continue its recovery in the third quarter supported by current USD weakness. The U.S. economy is on track to expand at a 4.0% annualized pace in the third quarter with inventory investment contributing 1.12 percentage points to growth, the Atlanta Federal Reserve's GDP Now forecast model showed on Thursday. Last Friday, the government said its first reading on the gross domestic product in the second quarter was a 2.6% growth pace, which was 0.2 point below Atlanta Fed's final estimate.
Technical analysis: EUR/USD bulls continue to target 1.2167 – 50% fibo of the 1.3995 to 1.0340 drop (2014-2017). Gain consolidation is seen after making a new 2017 high at 1.1910 on Wednesday, but the bias remains up on the charts.
Short-term signal: Buy at 1.1740
Long-term outlook: Bullish
GBP/USD: BoE leaves rates on hold, cuts growth forecast
Macroeconomic overview: The Bank of England’s MPC voted by a majority of 6-2 to keep the stance of monetary policy unchanged at its meeting ending on 2 August. The two dissenters, Ian McCafferty and Michael Saunders, continued to favour an immediate 25bp hike in the bank rate. The vote was in line with our expectations.
The BoE revised down its growth forecasts for this year and next. It now expects GDP growth of 1.7% in 2017 (previously 1.9%), 1.6% in 2018 (previously 1.7%), and 1.8% in 2019 (unchanged). The weaker near-term growth outlook largely reflects the judgment that the economy has slightly less momentum than the BoE had expected there months ago, which follows a weak first half of 2017. Business investment in particular was revised down over the next two years, as the MPC now judges that uncertainty will be more of a drag. The minutes reported that, for a majority of Committee members, “increased domestic uncertainty was likely to act as a drag on investment, and there was a risk that this effect would be larger than had been assumed in the forecast”. The downward revisions to growth gave the August Inflation Report an overall “dovish” flavor.
The small downward revision to GDP growth was both to demand and supply (with the downward revision to business investment weighing on supply), leaving spare capacity and inflation little changed over the forecast period. The BoE expects inflation of 2.7% yoy in the third quarter 2017 (previously 2.6%), 2.6% yoy in the third quarter 2018 (unchanged), and 2.2% yoy in the third quarter 2019 (unchanged). The MPC judges that inflation will move higher over the next few months, peaking at 3% in October. The 0.2pp overshoot of inflation at the end of the three-year forecast period was broadly unchanged from the May Inflation Report forecast. Coupled with the MPC’s forecast for spare capacity to close by then, it is the reason why the MPC continues to caution that the bank rate may need to be raised a touch more than the very gentle, upward-sloping market implied path for the bank rate.
Compared to three months ago, the BoE forecasts were conditioned on a higher yield curve (around 20bp higher) and a lower effective sterling index (around 2% lower). These had broadly offsetting effects for inflation and growth.
Bank of England Deputy Governor Ben Broadbent said today that Britain is "a little bit" better placed to cope with possible interest rate increases. The BoE faces the extra challenge of Britain's leaving the European Union, and its uncertain impact on Britain's economy. Broadbent added that uncertainties about Brexit appeared to be putting companies off new investment, despite an increase in profits for exporters following the fall in the value of the pound since the vote in June last year to exit the European Union.
Investors saw no sign that the BoE was in a hurry to raise rates, a contrast to the outcome of its June meeting. The pound hit a nine-month low against the EUR and fell by more than a cent against the USD. Shares rose and British government bond prices jumped. Bets on interest rate futures suggested investors had pushed back their expectation for the first BoE rate hike by four months to December next year.
Technical analysis: The GBP/USD hit a new 2017 high on Thursday at 1.3264, before BoE decision, vaulting a major fibo level 1.3256 – 50% of the 1.5022-1.1491 fall. The pair dropped near 7-day exponential moving average, but it did not reject continuation of bullish trend.
Short-term signal: We used yesterday’s fall to open a long position at 1.3120. Our target is
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.