GBP/USD: Waiting For Thursday’s BOE Inflation Report

GROWTHACES.COM Forex Trading Strategies

Trading Postions

EUR/USD trading strategy: long at 1.1285, target 1.1500, stop-loss 1.1180

GBP/USD trading strategy: long at 1.5280, target 1.5480, stop-loss 1.5185

AUD/USD trading strategy: long at 0.7780, target 0.7930, stop-loss 0.7710

EUR/JPY trading strategy: long at 134.10, target 137.00, stop-loss 133.10

AUD/NZD trading strategy: short at 1.0610, target 1.0440, stop-loss 1.0570

Pending Orders

EUR/CHF trading strategy: buy at 1.0400, target 1.0700, stop-loss 1.0345, risk factor *

EUR/USD: Investors Are Watching Greek Soap Opera

(we stay long)

  • The Fed’s hikes in the middle of the year are still highly uncertain especially given strong USD and more dovish FOMC composition this year than it was in 2014.
  • Federal Reserve Governor Jerome Powell said on Monday the U.S. labor market remains slack despite strong job growth and falling unemployment. Powell said he felt the current 5.7% rate of unemployment did not accurately capture the numbers of discouraged workers and others who may be willing to rejoin the labor force if market conditions improve. In his opinion inflation is too low and the Federal Reserve is looking for evidence that inflation will return to a 2% target. He added  the stronger USD would weigh a little bit on U.S. exports.
  • Dallas Fed President Richard Fisher (a hawk, non-voting this year) repeated he expects the Fed to raise interest rates some time this year. He said the Fed will consider the rising USD in its decision only to the extent that it influences exports.
  • Investors are also watching “Greek soap opera”.  European Commission President Jean-Claude Juncker warned Greeks not to expect the euro zone to bow to leftist Prime Minister Alexis Tsipras’ demands in a growing confrontation over Athens’ debt crisis. Greek Finance Minister Yanis Varoufakis angered some euro zone partners by saying on Sunday the Euro zone would ultimately collapse if Greece were forced out. The German chancellor, Angela Merkel, said she would wait for a sustainable proposal from Greece on repaying its debt and other reform.
  • The volatility on the EUR/USD has lowered recently. The effect of the hawkish shift  in Fed expectations following the strong payroll report on Friday is diminishing, especially after dovish comments of Jerome Powell. On the other hand, the EUR/USD bulls are still afraid of Grexit.
  • We do not change our trading position on the EUR/USD.

EUR/USD Forex Daily Chart

Significant technical analysis’ levels:

  • Resistance: 1.1351 (10-dma), 1.1359 (high Feb 9), 1.1439 (21-dma)
  • Support: 1.1270 (daily low Feb 7), 1.1262 (low Jan 29), 1.1224 (low Jan 27)

GBP/USD: Waiting For Thursday’s BOE Inflation Report

(our long is under threat)

  • Industrial output fell by 0.2% mom in December, compared with average forecast of a 0.1% rise, after no change in November. Manufacturing output rose 0.1% mom after growth of 0.8% mom in November. Compared with a year earlier, factory output was 2.4% higher vs. growth of 3.0% in November. Oil and gas extraction fell by 9.3% yoy, the biggest fall since August 2013. Some of December’s weakness was due to extra maintenance in the Huntington field, which had been scheduled to be completed in November.
  • We should notice, however, that for the fourth quarter as a whole, industrial output was up 0.1%, stronger than the 0.1% decline the Office for National Statistics had pencilled into its preliminary estimate of fourth-quarter GDP growth. But the ONS said that the revision was not big enough to point towards an upward revision to GDP growth of 0.5% when a second estimate of fourth-quarter GDP is published on February 26.
  • In the opinion of the Bank of England Governor Mark Carney wages in the United Kingdom are helping sustained recovery. He underlined importance of transparency in showing how the Bank of England intends to bring inflation back up to target.
  • The GBP/USD is fluctuating near 1.5200 and our long position taken at 1.5280 is under threat. If  our position reaches its stop-loss we will be looking to get long again near 21-dma at 1.5150.
  • Attention will now shift to Thursday’s Bank of England inflation report, which is likely to update growth and inflation prospects and could prompt investors to revise their expectations of when a first post-crisis rate hike will come. The BOE had to add many additional factors to its forecasts – plunge in oil prices, ECB’s QE and signs of economic recovery in the Euro zone. There is no doubt that the BOE will lower its near-term inflation forecast as a result of the oil price fall, but the medium-term forecast could be raised slightly. In our opinion this would be a factor supporting the GBP, because the market may reassess its expectations for a rate hike. In our opinion current expectations for a hike in the middle of 2016 are too far in the future.

GBP/USD Forex Daily Chart

Significant technical analysis’ levels:

  • Resistance: 1.5267 (high Feb 9), 1.5353 (high Feb 6), 1.5355 (high Jan 5)
  • Support: 1.5170 (low Feb 5), 1.5149 (21-dma), 1.5141 (low Feb 4)

EUR/CHF: Swiss Deflation Deepens As Expected

(get long again at 1.0400)

  • Consumer prices fell in Switzerland by 0.5% yoy in January, in line with our forecast. That compared with declines of 0.3% in December and 0.1% in November.
  • In the middle of January, the Swiss National Bank surprised markets by dropping its cap of 1.20 for the CHF against the EUR. The CHF has since strengthened sharply, increasing deflationary pressures in the Swiss economy.
  • Switzerland’s unemployment rate (adjusted for seasonal factors) was unchanged at 3.1% in January.
  • Swiss CPI will probably go deeper into negative area in the coming months. The SNB is still likely to intervene on foreign exchange market or even cut rates further.
  • The EUR/CHF did not react significantly to the Swiss macro data. Our previous long EUR/CHF position reached its stop-loss level at 1.0460, but we are looking to go long again at 1.0400.

Significant technical analysis’ levels:

  • Resistance: 1.0532 (high Feb 9), 1.0599 (high Feb 6), 1.0642 (high Feb 5)
  • Support: 1.0416 (low Feb 9) , 1.0407 (low Feb 2), 1.0360 (low Jan 30)

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