Daily Forex Signals 11.08.2017
USD/JPY: Korean tensions keep yen high
Macroeconomic overview: The dollar was close to an eight-week low against the yen on Friday as escalating tension over North Korea dominated currency markets thinned out by the summer holidays in Europe and the United States.
U.S. President Donald Trump warned North Korea again on Thursday not to strike Guam or U.S. allies, saying his earlier threat to unleash "fire and fury" on Pyongyang if it launched an attack may not have been tough enough.
After North Korea disclosed plans to fire missiles over Japan to land near the U.S. Pacific territory of Guam, Trump said the move would prompt "an event the likes of which nobody's seen before."
The Federal Reserve expects sluggish U.S. inflation to rise over the next several months while the hot labor market gets yet hotter, New York Fed President William Dudley said on Thursday in comments that reinforce its gradual policy-tightening plan.
He suggested the central bank was on track to raise interest rates once more and begin shedding some bond holdings this year. "Our outlook anticipates a continued moderate growth trend, with some further strengthening in the labor market and an increase in inflation over the medium term toward our objective of 2%".
Dudley, a close ally of Fed Chair Janet Yellen and permanent voter on U.S. monetary policy, said "sluggish" productivity growth is behind persistently "modest" wage growth.
Unemployment has fallen to a 16-year low of 4.3%, yet wages have risen only at a disappointing 2-to-2.5% rate annually. That reflects overall U.S. price readings of about 1.5% in recent months, below the Fed's 2% goal.
The declining dollar, which pushes up import prices, and the tightening labor market, which raises wages, "should combine to eventually push inflation up," Dudley said. "We have had these very weak inflation readings for a number of months in a row" and that won't "drop out" of annual readings for six to ten months, he added. "It will take some time."
Technical analysis: The USD/JPY is on the way to full retracement of June-July rise. A close below 108.83, low on June 14 will be crucial for the resumption of the bear run.
Short-term signal: We are flat on USD/JPY, but we have opened JPY bearish positions on EUR/JPY, GBP/JPY and CHF/JPY pairs.
Long-term outlook: We believe that rising divergence in interest rates should support the USD over the medium-term
AUD/NZD: Upbeat comments from RBA did not help the Aussie
Macroeconomic overview: Australia's central bank aims to keep interest rates at record lows for a while yet, governor Philip Lowe said today, with any tightening "quite some time away" and likely to be gradual as households try to whittle down a mountain of debt. "It was a reasonable assumption that the next move in interest rates was up rather than down but it is quite some time away," Lowe said at the RBA's semi-annual testimony to parliament's economics committee in Melbourne.
Futures market implies steady rates until early 2018 with a hike fully priced in only by next Christmas.
But the tightening cycle, when it begins, will be slow as policymakers are aware of the impact higher interest rates would have on households saddled with a mountain of debt, Lowe said. The household debt-to-income ratio is at a record high 190% and rising faster than incomes. Annual wage growth is inching at its slowest ever pace of 1.9%. Together, that has weighed on consumer confidence and spending in recent months. Lowe said he would like to see annual wages growth of 3.5% or more as economic growth picks up.
Lowe also expects inflation to edge higher over time, as utility prices in the country are surging - another reason households are fretting over their finances. A risk to its forecasts is a further appreciation in the AUD, Lowe added.
When asked if the RBA would intervene in the forex market to tame the Aussie, Lowe said "we have the tools" but would deploy them only in an extreme scenario.
The sabre-rattling over North Korea overshadowed another upbeat outlook from RBA Governor Philip Lowe. With stocks and equities falling across Asia and volatility on the rise, funds pared back riskier positions in carry trades which typically favour the higher-yielding Antipodeans. The Australian and New Zealand dollars slipped for a third straight session on Friday. But we think that stronger economic fundamentals and less dovish central bank in Australia would support the AUD against the NZD.
Technical analysis: The situation has not changed a lot since yesterday. The AUD/NZD remains above short-term moving averages and the upward trend stays intact.
Short-term signal: Stay long for 1.0950
Long-term outlook: A break above 1.0950/1.1000 area will make us change our long-term outlook to 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.