GBP/USD: Long In Good Shape

GROWTHACES.COM Forex Trading Strategies
Taken Positions

GBP/USD: long at 1.5330, target 1.5520, profit locked in at 1.5370, risk factor ***
USD/CAD: short at 1.3310, target 1.3100, profit locked in at 1.3300, risk factor **
AUD/JPY: long at 83.40, target 87.00, profit locked in at 85.60, risk factor ***
Pending Orders

EUR/USD: Rising Fed Hike Risk

• US retail sales rose 0.2% last month as strong gains in auto sales were offset by a 1.8% drop in the value of sales at service stations due to a decline in gasoline prices. Retail sales increased by an upwardly revised 0.7 percent in July. The data were in line with our expectations and slightly below the market forecast of 0.3% gain.
• Retail sales excluding automobiles, gasoline, building materials and food services increased 0.4% mom after an upwardly revised 0.6% increase in July.
• US consumer spending grew at a fairly healthy pace over the past two months. The data suggested the recent stock market sell-off had little impact on consumer spending.
• The generally bright news on spending was tempered by the soft factory data. A separate report from the Fed showed manufacturing output fell 0.5% in August, hurt by a 6.4% drop in auto production, after increasing 0.9% in July. Excluding autos, factory output was unchanged last month.
• A third report on Tuesday showed factory activity in New York state contracted in September for a second straight month. The New York Fed's Empire State general business conditions index came in at -14.7 for September, barely changed from -14.92 in August, which had been its lowest since April 2009.
• Looking at the data alone a hike in September is justified and in our opinion the US economy is ready for a gradual normalization of monetary policy.
• The Fed gave up on a June lift-off due to a sharp economic slowdown in the first quarter, mainly blamed on harsh winter weather and a rallying USD. What will it do tomorrow?
• Janet Yellen, Stanley Fischer and William Dudley as well as potential swing voters San Francisco Fed President John Williams and Dennis Lockhart of the Atlanta Fed are likely to hold the key to this week's vote. There were many dovish comments from Fed policymakers in late August - Fed Vice Chair William Dudley, Atlanta Fed President Dennis Lockhart and San Francisco Fed President John Williams seemed to have backed away from a September rate hike. FedChair Yellen has not commented on the monetary policy outlook since mid-July. Let us remind that in July Yellen appeared to make the case for a September move, telling a congressional hearing that waiting longer could mean the need to hike more rapidly later.
• No clear signal from the Fed is perhaps a signal that it is not ready to take action just yet. On the other hand, Fed Vice Chair Stanley Fischer said market volatility could pass and it was too early to judge its significance.
• US economic growth was back at a respectable 3.7% level in the second quarter and unemployment just over 5%, half of the crisis-era high, but falling commodity prices and an overseas slowdown are pushing inflation further away from the Fed's 2% goal.
• Retail sales data prompted some investors to increase their bets that the Fed would raise interest rates on Thursday. US interest rates futures implied that the market placed a 27% chance of an increase on Thursday, up from 23% late on Monday.
• In our opinion the market is underpricing the chance of a Fed move tomorrow. We do not expect a hike in our baseline scenario, but the risk for such a move is quite significant. Even if there is no hike tomorrow, we expect hawkish comments from Janet Yellen at the press conference, signaling a hike even as soon as in October.
• Along with the statement, the Fed will release the updated summary of economic projections, which newly introduces the 2018 forecasts. We probably will see some downward revision to 2016 GDP growth, reflecting the lagged impacts of the stronger USD and international headwinds. The impact of the stronger USD and low oil prices on inflation rates (core and headline) may also be seen as more persistent, which would be reflected in lower inflation forecasts for 2016. Lowered economic projections would be not be a good justification for a rate hike and that is a strong argument why the Fed will rather not raise rates tomorrow.
• Eurozone inflation amounted to 0.1% yoy in August, below the flash estimate of 0.2% yoy.
• Investors will be eyeing today’s US CPI data (12:30 GMT). Our forecast for the headline figure is slightly above the market expectations (0.3% yoy vs. 0.2% yoy). Our forecast for core inflation, which is probably more important for the policymakers, is in line with the market consensus (1.9% yoy).
  

Significant technical analysis' levels:
Resistance: 1.1329 (high Sep 15), 1.1373 (high Sep 14), 1.1401 (50% of 1.1715-1.1088)
Support: 1.1173 (low Sep 10), 1.1146 (100-dma), 1.1132 (low Sep 9)

GBP/USD Long In Good Shape
(long for 1.5520)

• Growth in average weekly earnings, not including bonuses, rose by 2.9% in the May-July period, edging up slightly from the three months to June and in line with a median market forecast. It was the fastest pace of growth in regular earnings since the three months to February 2009. Unemployment rate held steady at 5.5%, matching a record low since before the financial crisis.
• Inflation, as measured by the consumer prices index, fell back to 0% in August. That is why the real growth in pay is boosting the spending power of households.
• The number of people in employment rose by 42k in the three months to July but the number of unemployed people also rose by 10k.
• The Bank of England is watching closely for signs of a further pickup in pay as it debates when to start raising interest rates. Wages have picked up faster than the BoE expected earlier this year but a long-awaited improvement in productivity could take some of the inflationary heat out of higher pay.
• BoE Governor Mark Carney is due to address British lawmakers on the economic outlook at 13:15 GMT today.
• We got long on the GBP/USD yesterday at 1.5330, in line with our trading strategy. After strong wages growth, our long position is in a good shape. However, there are some strong resistance levels ahead of us, which are unlikely to be broken before the FOMC decision, even in case of hawkish Carney today. We stay long, but we have locked in small profit at 1.5370, as the risk ahead of FOMC decision is elevated.

Significant technical analysis' levels:
Resistance: 1.5438 (21-dma), 1.5456 (high Sep 15), 1.5471 (high Sep 14).
Support: 1.5330 (session low Sep 16), 1.5320 (50% of 1.5164-1.5476), 1.5270 (low Sep 8)
Source: Growth Aces Forex Trading Strategies