Europe strength, UK inflation

We had a lot of data today. Early in the morning, we have seen an outstanding German GDP. The next big announcement was the UK CPI that surprisingly has shown the same reading as the previous one. Followed by this, the German ZEW economic sentiment and the European GDP.At the same time, the central bank governors from the Fed, BCE, BoE, and BoJ were in a communication event hosted by the European Central Bank. Let’s check more in detail what happened with the British Pound and the Euro.

UK inflation data

As I said before, the UK CPI has been released at 9:30. The reading was 3,00%, the same as the September figure. This makes pressure to the Bank of England. Will they raise rates in December? On the other hand, the uncertainty about getting a Brexit deal is growing. If the policymakers don´t reach a deal focused on trade, the British economy will suffer due to the contingency plans from the private companies. In this theoretical scenario, the BoE will be in trouble because the inflation will peak and they have a limited margin to raise the overnight rate due to the high level of debt held by the households. This scenario has a low probability in my opinion.

GBPUSD December 2017 future

     Source: TradingView, GBPUSD Dec 17 futures, daily

Here we can see a bearish trend in the British Pound vs the US Dollar that seems that it’s consolidating and creating a strong resistance around 1.3070. This trend signals the disappointment of the rate rise in the current situation and the uncertainty of Brexit.

     Source: TradingView, GBPUSD Dec 17 futures, 30 min

The reaction of the strong UK CPI has been negative for the GBP in the first two hours after the release. After that, it has recovered. 

    Source: TradingView, GBPUSD Dec 17 futures, daily

The Pound has broken higher while I was writing this post. Head and shoulders confirmed.

European data

Europe has shown its strength with the macroeconomic data today. This morning Germany has released a strong Gross Domestic Product. The GDP (YoY) was in line with the expectations, but the GBP (QoQ) was better than the forecast.

      Source: ZeroHedge, chart taken from Bloomberg

The Geman ZEW economic sentiment was slightly worse than expected, 18.7 vs 20 expected by the analysts. The European GDP growth was in 2.5% and the industrial production 3.3%. These figures confirm the good moment of the European economy.

EURUSD December 2017 future

     Source: TradingView, EURUSD Dec 17, daily

The USD has been raising vs the Euro since September. The European Central Bank has shown its conservative side while the Fed is clearly hawkish. Today the central banks' governors agreed that the economic policy will take part only if the improvement of the economies continues. 

Source: TradingView, EURUSD Dec 17, 30 min

The Euro has rocketed today with the positive data. The strange thing is that we haven’t seen any retracement.

Conclusion

It’s been a good day for the euro but there are some issues to resolve. The main concern is the European inflation is not as high as the BCE would like it. The strengthening of the euro can lead to keeping the inflation low and Draghi knows about it. In the other side, the Bank of England is raising rates in order to fight the inflation.  This is not well seen by the market participants due to the Brexit uncertainty. In the other side of the Atlantic, Janet Yellen confirmed that the Fed will raise rates according to the economic improvement. Working nowadays in a central bank is not easy, considering that they need to be careful with their language, prepare the markets to avoid repercussions on the real economy and guide consumers about the expected outlook. All of these things shouldn't affect your trading but I think macroeconomics is helpful at least to understand the big movements.
Have a good trading!

Disclaimer

I wrote this article myself, and it expresses my own opinions that shouldn't be used as a trading advice. Trading carries considerable risk due to the high leverage involved

Most important moves of the week

Introduction

We have seen interesting moves this week in the financial markets. The most important was the ECB decision to cut the monthly asset purchases but extend them until September 2019. The market considered this decision very supportive and dovish by the ECB. The euro was hit by this decision and the problems in Spain. The UK released a better than expected product that helped the British Pound to hold its value versus other currencies. On the other hand, the energy markets have moved a lot. The Crude Oil Brent closed the week at 60.44, the 2 year high.

Crude Oil Brent

    Source: TradingView, Crude Oil Brent Dec17 future, daily

The Crude Oil Brent has broken key levels and has risen like a rocket in the last two days. I fell on Monday and I questioned my bullish idea as it could keep raising and break the 58.20 level. On Tuesday it closed at 58.33, above the key level formed the week before.  The selling pressure wasn’t strong enough on Wednesday at this contract closed flat at 58.45. The big movement was in Thursday and Friday. After Wednesday support, it tested the 59.54 on Thursday. It continued the bullish trend on Friday. It closed at 60.44, which represents the 2 year high.

US Dollar Index

      Source: TradingView, US Dollar Index futures, daily

As you can see it’s been a tough year for the USD. In June, and due to the interest rate hike by the Fed, seemed that the US Dollar Index could go up. But it didn’t. The weakness in the energy markets and the geopolitical problems didn’t allow the USD to rise. The market expected more hikes in 2017, unfortunately, with the hurricanes, the Fed officials were obliged to delay this decision. We have seen good economic data this week in the US:

Macroeconomic indicator	Reading	Expected
Core durable goods orders (MoM)	0.7%	0.5%
New home sales	667K	557K
GDP	3.0%	2.5%

The Fed is showing confidence and a hawkish approach because they have confirmed that the interest rate hikes will continue in the next year and they will reduce the asset purchases. 

     Likelihood of December Rate Hike, CNBC, https://www.cnbc.com/2017/09/18/traders-are-getting-ready-for-another-fed-hike.html

       December FED rate hike probability, Bloomberg, http://uk.businessinsider.com/markets-almost-certain-fed-hiking-interest-rates-in-december-2016-11?r=US&IR=T

These charts show how the likelihood of a rate hike in December is increasing, and the dollar has done the same movement since September. Is anyone building a big position?

All of these facts were the key to help the USD. Technically the most important thing is that the downtrend was broken 1 month ago. The most important levels for me are 92.63 (as a key support) and 96.585 (as a resistance)

Another interesting fact is that Janet Yellen won´t continue as a Fed president.

Euro

    Source: TradingView, EURUSD Dec17 future, daily

The Euro has fallen this week due to the dovish speech by the ECB this week and the USD strength. This is always the same if you don’t deliver what the market participants expect, the value of your assets decline. As I said in my last article, I understand that the ECB prefers to be cautious with the QE cuts. Having a weak currency in a growing environment can help the inflation to peak. It has broken 2 key levels this week as you can see in the chart. I think it can keep going down and test the 1.1530 level. In part, the last decrease was due to the issues in Spain.

British Pound

    Source: TradingView, GBPUSD Dec17 future, daily

Surprisingly for me, the GBP is holding its value vs the dollar. We have seen a better than expected GBP in the UK. It’s difficult to know what will happen in the Brexit negotiations. There are a lot of doubts and speculation about what will happen. The biggest investment banks confirmed that thousands of employees will be relocated to Europe. 

    Source: TradingView, GBPUSD Dec17 future, daily

We have seen the same down movement than in the EURUSD. We can see a double top that indicates that the GBP will rise vs the Euro. The 0.8733 level is a very important support that has been tested several times.

I hope you like it.

Have a good trading!

Disclaimer

I wrote this article myself, and it expresses my own opinions that shouldn't be used as a trading advice. Trading carries considerable risk due to the high leverage involved

#Trading #fx #euro #gbp #USD #energy markets #brent #macroeconomics #UK #US #Europe #fundamentals, #Bloomberg #FED #interestRate #qe #Assetpurchases #ECB

Headlines of the week, British pound, Brent and Economic calendar for the next week

United States

The most important economic releases this week were the US Core CPI (MoM and YoY) and the US retail sales. As you know both were lower than the market expected and the treasury yields and the USD closed lower yesterday. The US inflation data offset the higher gasoline prices.  Robert Kaplan, Dallas Federal Reserve Bank President said that that the Fed should periodically review its inflation target and other frameworks. I think this is interesting but I don´t know how they can apply it. The economic policy takes time to affect the real economy.

UK

In the meantime, crossing the Atlantic, Mark Carney said on Friday that he expects that the BoE will raise interest rates but he declined to comment when. The biggest headline was that there are rumors that Britain is to be offered a two-year Brexit transition deal. The British Pound jumped as soon as this news was published in the media.

Europe

There is a controversy between  Jens Weidmann (Bundesbank president) and the European Central Bank. He said that there is no need for the ECB to continue providing monetary stimulus through bond purchases.  Mario Draghi doesn´t see enough inflation progress. According to Reuters, the ECB is likely to reduce support but continue to buy the asset purchases.

China

Apparently, China´s economy has shown signs of stabilizing and growing more strongly. If it continues in the second half of the year, the commodities will rise.

GBPUSD Dec 17 Futures

    Source: TradingView, GBPUSD Dec17 futures, daily

As I comment before, the last move has been driven by the possibility of the two year transition period between Europe and UK. We can see the bounce back on Thursday when it was published on the news. Apart from that, it's the second time it closes above the 1.3285 resistance I signaled in one of my old posts. 

Brent Dec17 Futures

    Source: TradingView, Brent Dec17 futures, daily

The Brent rose yesterday and tested the resistance at 57.21. I think it can keep rising the next week due to the demand increase. 

Economic Calendar

Own elaboration                                                                           

It´s going to be a busy week for the UK traders as they have CPI, Average Earnings + Bonus, Claimant Count Change and Retail Sales. In the US, we should look forward to seeing Industrial Production, Building Permits and Existing Home Sales. Tuesday is the most important day of the week if you trade European products.

Sum up

This is a little review about the most relevant things of the week. For now, the markets are moving as I expected and shared in other posts. Let's see what happens next week.

Have a good trading!

Disclaimer

I wrote this article myself, and it expresses my own opinions that shouldn't be used as a trading advice. Trading carries considerable risk due to the high leverages involved

FOMC, currencies review

As you know, today is the FOMC meeting minutes. This is one of the most important events if you trade fx, US government bonds or US indexes. And even if you don’t trade them, be aware, because the most part of assets will be moving later today.

Let´s start with the interest rate decision.  You can think that this decision doesn’t affect you in your day to day, but this is wrong. It affects to rate that the borrowers need to pay back (mortgages, personal loans, student loans, car financing…), your investments, the asset valuation, the money flow

.

Second, all the economic performance and events that affect the economy are reviewed by the FOMC committee and president of the Fed makes public the economic policy that will be implemented in the coming months.

These are simple explanations to clarify why it’s an important event in the financial markets. If you know how to interpret the words of the FED president, you can make good medium-term investments. For example: if the FED raises the interest rate and they expect the economy to keep growing, one of the most successful strategies is investing in financials (banks, insurance companies…) This is not the purpose of this post.

Euro

    Source: TradingView, EURUSD Dec17 futures, daily

This contract was analyzed the other day. It broke the first resistance at 1.18020. The bullish move in the euro is due to the strong German Industrial Production and the deferral of the independence declaration in Catalonia.  If the Fed sends a bullish speech, we can see this contract going down to around 1.1750.

These are the levels  I published in the weekend:

Resistance 3	1.20965
Resistance 2	1.19550
Resistance 1	1.18020
Support 1	1.17235
Support 2	1.15460
Support 3	1.14435

GBP

    Source: TradingView, GBPUSD Dec17 futures, daily

The British Pound has recovered a little bit this week. If we see the news around the UK, we can think that the pound is really high and it should fall. Europe is putting pressure on the UK. There is a substantial probability of a Non-deal Brexit, which would be bad for the GBP. In the other side, we have a strong US economy. I think Yellen will clarify the effects of the hurricanes to the US growth. I think we can see the GBPUSD between 1.3100 and 1.3066 in the coming days.

Important levels:

Resistance 3	1.3615
Resistance 2	1.3283
Resistance 1	1.3153
Support 1	1.3066
Support 2	1.2952
Support 3	1.2848

JPY

    Source: TradingView, JPYUSD Dec17 futures, daily

We can see a bullish trend in the dollar. The shade highlighted in the chart show how significant is the 1.1257 level. I don´t see strength in the JPY movement this week.  A hawkish message can help to consolidate the price between 1.1343 and 1.1257 (0.88160 and 0.88160 in the chart). 

Resistance 2	0.88160	1.1343
Resistance 1	0.88835	1.1257
Support 1	0.89905	1.1123
Support 2	0.90945	1.0996
Support 3	0.92225	1.0843

Trading the FOMC meeting minutes is really difficult. You shouldn´t only consider the interest rate decision. The FOMC minutes can provide you an idea of the path to follow in the coming months. If you do intraday trading, you will see the liquidity disappear and big swings in the prices due to how the traders or algos interpret the message provided by the Fed president.

Have a good trading!

Disclaimer

I wrote this article myself, and it expresses my own opinions that shouldn't be used as a trading advice. Trading carries considerable risk due to the high leverages involved