EURUSD: To Buy Or To Sell Ahead Of FOMC?

EUR/USD: Dovish Hike Or Hawkish Hold?
(we plan to take profit on current long and switch to the short ahead of the FOMC decision)

• US CPI slipped 0.1% mom last month, the first decline since January, after edging up 0.1% mom in July. CPI rose 0.2% yoy after a similar gain in July. The so-called core CPI, which strips out food and energy costs, ticked up 0.1% last month after a similar gain in July. Core CPI increased 1.8% yoy. It was the fifth time in six months that the 12-month change was 1.8%. While solid data on consumer spending, housing and employment have been supportive of a rate hike, that has been undermined by recent global financial markets turmoil and still low inflation.
• A rate hike by the Fed today would take the majority of the market by surprise. If it happens, the immediate market reaction would therefore be USD-positive.At the moment, futures market discounts the first rate hike in December. However, in our opinion there is really substantial risk of a hike today. That is why we have locked in our profit on the EUR/USD long at 1.1295 and will move this stop-loss higher in case of further EUR/USD rise ahead of today’s FOMC decision. After initial reaction the market will focus on how steep the hiking path will be. The Fed will publish its updated macroeconomic forecasts today. Lower growth, jobless rate and inflation forecasts, on the other hand, would likely be seen as dovish by markets and this should weaken the USD.
• If there is no rate hike today, the initial reaction would be USD-negative. However, the rise in the EUR/USD will be limited by probably hawkish comments from Fed Chair Janet Yellen at the press conference.
• Our trading strategy for today is to keep stop-loss tight on our EUR/USD long. Even if the EUR/USD long does not reach our raised stop-loss, we will take profit on this position later today and we will switch to the EUR/USD short ahead of the FOMC decision, as we see a substantial risk of a hike. If there is a hike, we expect to take profit on our EUR/USD short and will be looking to get long again at lower levels. If there is no hike today, our EUR/USD will probably hit the stop-loss level and we will be looking to sell again at higher levels. The strategy is risky and the volatility may be high today.
  

Significant technical analysis' levels:
Resistance: 1.1373 (high Sep 14), 1.1401 (50% of 1.1715-1.1088), 1.1475 (61.8% of 1.1715-1.1088)
Support: 1.1221 (200-dma), 1.1214 (low Sep 16), 1.1147 (100-dma)

GBP/USD: A Fed Hike Will Make BoE Hike Sooner

• Bank of England Governor Mark Carney on Wednesday stuck to his view that a decision on whether to start raising interest rates will become clearer around the end of the year.
• BoE policymaker Kristin Forbes sounded a more urgent note, saying that rates would need to increase in the not-too-distant future and that there was already very little slack left in the British economy, if any.
• Martin Weale, who also sits on the Monetary Policy Committee, said that his views were very similar to those of the only MPC member to have voted for a rate hike this year, Ian McCafferty. But Weale added that he had held off because of developments in China, and that he was cautious about the chance of further economic shocks that could push down consumer price inflation.
• British retail sales volumes rose 0.2% mom to show 3.7% growth yoy. The reading was in line with market expectations. A pick-up in wage growth this year, combined with inflation hovering around zero, has helped restore some of consumer spending power.
• Financial market have priced in a hike in the second quarter of 2016, which in our opinion is too late. We expect BoE hike at the beginning of 2016, but much depends on today’s FOMC decision. A delay in Fed monetary tightening will result shifting expectations for a BoE move. Whenever the Fed moves, it seems unlikely the BoE will precede it.
• The GBP/USD jumped yesterday after British wages data. The GBP/USD extended gains after hawkish comments from Forbes and Weale. We took profit on our GBP/USD long at 1.5520 yesterday.
  

Significant technical analysis' levels:
Resistance: 1.5528 (high Sep 16), 1.5569 (61.8% of 1.5820-1.5164), 1.5719 (high Aug 26)
Support: 1.5445 (21-dma), 1.5330 (low Sep 16), 1.5319 (23.6% of 1.5820-1.5160)

USD/JPY: Profit Locked In At 120.50

• Japan’s trade deficit amounted to JPY 569.7 billion in August. The reading was slightly higher than the market consensus of JPY 541.3 billion deficit.
• Exports grew 3.1% to JPY 5,881.5 billion yen for the 12th straight monthly increase due largely to the yen's depreciation and increased vehicle exports to the United States. Exports to China, a major destination for Japanese products, dropped 4.6% to JPY 1,064.1 billion for the first decline in six months. Meanwhile, the value of overall imports decreased 3.1% to JPY 6,451.1 billion, down for the eighth consecutive month, as energy-related imports such as crude oil and liquefied natural gas from the Middle East continued to fall. In August, imports of crude oil dropped 32.9% for the 13th straight monthly fall, as average oil prices shed 46.6% from a year earlier.
• Ratings agency Standard & Poor's downgraded Japan's credit rating by one notch from AA- to A+, which is four notches below its top rating of AAA. The agency raised its outlook from negative to stable. The downgrade brings its Japan rating into line with rival Moody's Investors Service, which downgraded Japan to A1 in December last year. Fitch Ratings cut its rating on Japan by one notch to A in April.
• Bank of Japan Governor Haruhiko Kuroda said that Japan’s economy continues to expand moderately despite the slowdown in emerging economies and volatile financial markets. In his opinion Japan’s inflation will accelerate to 2% as effect of energy price falls dissipate.
  

Significant technical analysis' levels:
Resistance: 121.00 (psychological level), 121.32 (high Sep 10), 121.74 (high Aug 31)
Support: 120.35 (session low Sep 17), 120.10 (low Sep 16), 119.40 (low Sep 15)

EUR/CHF: The SNB Left Rates Unchanged

• The Swiss National Bank kept its target range for the three-month Libor at -1.25 to -0.25% and said it will remain active if necessary in the currency market to weaken the “significantly overvalued” CHF.
• The central bank lowered its inflation projection to -1.2% yoy in 2015 (from -1.0% forecast previously), -0.5% yoy in 2015 (from -0.4% yoy) and raised its forecast for 2017 to 0.4% yoy from 0.3% yoy. The forecast assumes that the three-month Libor will remain at –0.75% over the entire forecast horizon and that the Swiss franc will weaken further.
• The SNB expects economic activity to pick up gradually in the second half of the year. Domestic demand is likely to further support the economy. If the international environment continues to improve and the overvaluation of the Swiss franc eases, exports should once again make a greater contribution to economic growth. For the current year, the SNB still expects real GDP growth of close to 1%.
• Switzerland's export-reliant economy has had to adjust to a surge in the CHF value this year after the SNB abruptly abandoned its 1.20 CHF per EUR cap on January 15. Its current measures, coupled with a brightening outlook for the Eurozone and speculation the US central bank might soon raise rates, helped the EUR/CHF rise weaken to more than 1.10 last week for the first time since the SNB lifted the cap.
• The lack of any direct hints of imminent policy loosening might explain the slight appreciation of the CHF immediately after the SNB’s decision. However, such inflation rates are still dangerously low, particularly given that almost five years of very low or negative inflation have made the risk of a deflationary spiral particularly intense in Switzerland.
• The SNB still calls the CHF overvalued and there is no outlook for prompt interest rate hikes in Switzerland because of deep deflation. Moreover, SNB President Thomas Jordan said earlier this month that the deposit rate had not necessarily reached “the absolute bottom” despite being the joint lowest in the world, at -0.75%. A rate cut in Switzerland is likely if the ECB signals a pickup in the pace of its asset purchases and the Fed does not raise rates this year. But this is not our baseline scenario.
  

Significant technical analysis' levels:
Resistance: 1.1014 (high Sep 14), 1.1050 (high Sep 11), 1.1121 (161.8% of April-Jun rise)
Support: 1.0875 (low Sep 8), 1.0860 (21-dma), 1.0802 (low Sep 4)

NZD/USD: New Zealand’s GDP Slightly Below Market Expectations

• New Zealand’s economy grew a seasonally adjusted 0.4% qoq in the second quarter, in line with expectations of our economists, but slightly below the market consensus of 0.5%. The annual growth rate eased to 2.4% from 2.7%.
• Agriculture and mining supported the economy's growth in the second quarter with agriculture up 3%, while mining rose 2.5%. Agriculture rose on increased dairy production, as well as beef and lamb farming, as the sector recovered from a drought earlier in the year. Mining rose on an increase in oil and gas extraction as the Tui Oilfield returned to full production after a partial shutdown in the first quarter. Services growth was mixed with business services up 2.3%, but transport falling 1.8%, its largest quarterly fall in six years. Construction increased 0.8%, led by infrastructure building, while residential building declined.
• The Reserve Bank of New Zealand last week downgraded its forecast for GDP to 2.1% in March 2016 from 3.2% in its previous monetary policy statement in June.
  

Significant technical analysis' levels:
Resistance: 0.6380 (high Sep 16), 0.6396 (high Sep 10), 0.6424 (high Sep 9)
Support: 0.6295 (low Sep 15), 0.6256 (low Sep 10), 0.6244 (low Sep 7)
Source: Growth Aces Forex Trading Strategies