GBP/USD: Long For 1.5460

GROWTHACES.COM Forex Trading Strategies
GBP/USD: long at 1.5240, target 1.5460, stop-loss 1.5140

EUR/USD: Reaction To Draghi Shows The Scale Of EUR Bearishness

• European Central Bank governor Mario Draghi said the bank needs more time to assess whether to beef up its asset-buying programme. In his opinion slowing emerging market growth, a stronger euro and the fall in commodity prices dampen the outlook, but more evidence was needed to determine if these factors would have a lasting impact. Although economic data, particularly September PMI data showed that European economies remained relatively resilient to the turbulence, Draghi warned that growth in the second half would be “slightly” slower than in the first half.
• Today’s data showed German business morale unexpectedly improved in September. Ifo economic institute's business climate index, based on a monthly survey of some 7,000 firms, rose to 108.5 in September from an upwardly revised 108.4 in August. The reading was the strongest since May and compared with the consensus forecast of 108.0.
• Bundesbank chief Jens Weidmann said the the European Central Bank should ignore the impact of cheap oil when deciding policy and use asset purchases only as a last resort. A dispute between Weidmann and Draghi over the asset purchases had quietened down in recent months and Wednesday's remarks are may signal a revival of the debate.
• As we expected Draghi's comments (despite being quite dovish) confounded some market expectations that the ECB was close to expanding its asset buys and sent the EUR slightly stronger. The EUR/USD is again above the 100-dma, but 21-dma and 10-dma are still the resistance levels. The reaction to Draghi’s comments shows how EUR-bearish the market is. A common-sense approach suggests that being a year away from the expiry of the current QE programme, it is difficult to see the rationale for announcing a decision to extend it now. This bearishness may turned into a surprisingly strong rise in the EUR on a short squeeze.
• The market will be looking for any hints on Fed monetary policy in today’s Janet Yellen’s lecture (21:00 GMT). The market may be disappointed if there is no clear suggestion on a rate hike timing. In our opinion a further rise in the EUR/USD is possible in the second half of the week.

Significant technical analysis' levels:
Resistance: 1.1264 (10-dma), 1.1324 (61.8% of 1.1460-1.1105), 1.1329 (high Sep 21)
Support: 1.1146 (100-dma), 1.1125 (55-dma), 1.1105 (low Sep 23)

GBP/USD: Long At 1.5240
(long at 1.5240)

• The GBP edged up slightly from a two-week low against the USD today, but is still much weaker than the previous week, as investors bet the Bank of England would wait until the second half of next year to raise interest rate.
• The BoE is expected to come second only to the Fed among major central banks in raising rates from their current historic lows. But with UK inflation stuck at zero, and with the Fed keeping rates on hold last week and cutting its growth forecasts, the BoE is in no hurry to proceed.
• Bank of England Deputy Governor Ben Broadbent said he has not been on the brink of voting for higher interest rates, unlike some of his colleagues, and labour costs in Britain need to grow quite a lot faster to get inflation back to the bank's target. He said Britain's jobs market was more important to the BoE than the timing of a Fed rate hike.
• While BoE chief economist Andy Haldane warned last week of a possible emerging market crisis, Broadbent sounded less worried, saying developing economies had been slowing for a while. Haldane said the BoE could need to cut interest rates as its next move.
• Earlier in the week, another deputy governor, Jon Cunliffe, said price pressures were not building up in Britain, but that the next interest rate move is still likely to be up.
• Keeping interest rates low results in high mortgage lending figures. The British Bankers' Association said today British banks approved the highest number of mortgages for house purchase last month since February 2014, and net mortgage lending hit a five-year high.
• We went long on the GBP/USD at 1.5240 yesterday. Market expectations for a rate hike were moved to later date under pressure of comments from dovish wing of the MPC. However, three other BoE policymakers: Ian McCafferty, Martin Weale and Kristin Forbes are the opinion that rate hikes may be needed sooner than current market consensus. That is why we think current GBP bearishness is slightly exaggerated.

Significant technical analysis' levels:
Resistance: 1.5340 (200-dma), 1.5364 (high Sep 23), 1.5375 (21-dma)
Support: 1.5221 (low Sep 23), 1.5164 (low Sep 4), 1.5150 (low May 6)

AUD/NZD: Commodity Currencies Under Pressure Of A Rate Cut In Norway

• The NZD rose on a relief rally after giant dairy cooperative Fonterra lifted its milk payout forecast. Dairy is New Zealand's top export earner and sliding milk prices due to an oversupply is one reason for the nation's sluggish growth.
• New Zealand dairy processor Fonterra posted record consumer product sales in China. Consumer products operating profit in China leapt more than five-fold to a record NZD 45 million, with sales volumes up 33%.
• Fonterra lifted also its price forecast to NZD 4.60 per kilogram of milk solids from NZD 3.85.
• The upward revision of Fonterra’s milk price forecast supported the NZD. But a diverging interest rate outlook with the Federal Reserve is likely to bring the kiwi under renewed pressure. The Reserve Bank of New Zealand cut interest rates to 2.5% earlier this month and at least one more cut is expected before the end of the year.
• The AUD is still under pressure of weak data from China, Australia’s top export market. Moreover, all commodity currencies (CAD, AUD, NZD) are under pressure of a surprising cut in Norwegian interest rates today.
  
• The AUD dropped strongly this week against the USD, the JPY and the NZD. However, recent macroeconomic data from Australia were firm, especially labor market figures. Moreover, Reserve Bank of Australia Governor Glenn Stevens said on September 18 he was content with current policy setting, which means we should expect a longer period of stable rates.
• Monetary policy divergence between Australia and New Zealand should support the AUD/NZD. We should also expect a rise in the AUD/JPY soon, as some investors still expect additional monetary stimulus in Japan. Our short-term outlook on the AUD/NZD and the AUD/JPY is bullish for the coming weeks. The medium-term outlook on the AUD/NZD remains bullish, but the appreciation of the AUD/JPY may be limited in longer perspective.

Significant technical analysis' levels:
Resistance: 1.1169 (session high Sep 24), 1.1270 (high Sep 23), 1.1309 (high Sep 22)
Support: 1.1040 (low Sep 10), 1.1000 (psychological level), 1.0943 (low Sep 9)
Source: Growth Aces Forex Trading Strategies