EUR/USD: House likely to vote on U.S. tax bill today
Macroeconomic overview:
- With the House and Senate leaders having reached an agreement on a compromise tax bill last Friday, the House of Representatives is expected to vote on the final legislation today. The bill will then head to the Senate for consideration and a vote either today or tomorrow. There is little doubt that Republicans have the votes to pass the bill in both chambers of congress and send it to the president’s desk before the end of the week.
- The USD has returned on offer across the board. It is difficult to read much into these market moves as the nearing of the Christmas period is typically characterized by lower trading volumes and thinner-than-usual liquidity. Still, there are two things worth noting: 1. the fact that the dollar has not managed to capitalize, even on a short-term basis, on the US tax reform progress illustrates that the market is (rightly) disregarding all this “noise” and focusing on long-term fundamentals, which remain USD-bearish; and 2. commodity prices are rallying strongly, with raw industrials leading the way, something that should turn out to be good for commodity-related FX.
- The Munich-based Ifo economic institute said its business climate index edged down to 117.2 from an upwardly revised reading of 117.6 in November which was the highest on record. The December reading came in lower than market forecast for a value of 117.5. The slight drop in the headline figure was due to less optimistic business expectations while assessments of the current business situation were more positive, Ifo said.
Technical analysis and trading signals:
- Spikes above the daily cloud top have been limited for EUR/USD recently but another run looks likely. The cloud spans 1.1698/1.1823 on Tuesday while 1.1834 was Monday’s peak. Slow stochs are upticking. The December 12 1.1718 low and cloud base are supports.
- We stick to our bullish view on this pair.
AUD/USD: RBA expressed more confidence about economic outlook
Macroeconomic overview:
- Australia's central bank has become more confident about the economic outlook in recent months, but weakness in consumer spending remains a "significant risk" amid slow income growth and high debt levels.
- Minutes of the Reserve Bank of Australia's December meeting showed policy makers again balanced subdued inflation against record high household debt while leaving interest rates at 1.50%.
- "Over the prior year or so, the unemployment rate had fallen and inflation had moved closer to target," Tuesday's minutes showed. "Recent data had increased confidence there would be further progress on these fronts."
- However, it also noted household consumption had been weighed by slow wages growth, something of a global phenomenon. "How far and when stronger conditions in the economy and labour market might feed through into higher wage growth and inflation remained important considerations shaping the outlook."
- The RBA has spent more than seven years now without raising interest rates, the longest span since the official cash rate was introduced in 1990.
- Interbank futures suggest this period of record-low rates could be here to stay for at least another year.
- Policy makers got some encouraging signs in the days following the December 5 meeting, with third quarter GDP data showing the economy expanded at its fastest annual pace in over a year. October retail sales also bounced after months of lukewarm activity in a promising sign for Christmas sales. Data out last week showed employment surged past all expectations to notch up a 14th straight month of gains in November, the longest stretch of rises since the early 1990s. In addition, government spending on public infrastructure had boosted non-mining business investment and was likely to support economic growth for some time.
- "In these circumstances, spare capacity in the labour market was expected to be absorbed gradually and wage growth was expected to pick up over time," members noted.
- Yet the recent run of better data was still not enough for policy makers to start considering a rate hike.
- The RBA last month cut its forecasts for core inflation, which is now seen lurking under its long-term 2-3% band for another two years.
- Meanwhile, wages are growing at an annual pace of just 2%, sapping consumer spending power. Indeed, household consumption rose just 0.1% in the third quarter to post its smallest increase since 2008. "The outlook for household consumption continued to be a significant risk, given that household incomes were growing slowly and debt levels were high," the bank warned.
Technical analysis and trading signals:
- The Aussie has been on an uptrend since last week, rising in six of the last seven sessions, helped by strong data at home as well as from China, Australia's top trading partner. A positive cross of 7- and 14-day ema is an important bullish signal. The pair pierced above the 23.6% fibo of September-December fall.
- We opened a long position at 0.7640 on Friday and set the target at 0.7815.
TRADING STRATEGIES SUMMARY:
FOREX - MAJOR PAIRS: 
FOREX - MAJOR CROSSES: 
PRECIOUS METALS: 
How to read these tables?
1. Support/Resistance - three closest important support/resistance levels
2. Position/Trading Idea:
BUY/SELL - It means we are looking to open LONG/SHORT position at the Entry Price. If the order is filled we will set the suggested Target and Stop-loss level.
LONG/SHORT - It means we have already taken this position at the Entry Price and expect the rate to go up/down to the Target level.
3. Stop-Loss/Profit Locked In - Sometimes we move the stop-loss level above (in case of LONG) or below (in case of SHORT) the Entry price. This means that we have locked in profit on this position.
4. Risk Factor - green "*" means high level of confidence (low level of uncertainty), grey "**" means medium level of confidence, red "***" means low level of confidence (high level of uncertainty)
5. Position Size (forex)- position size suggested for a USD 10,000 trading account in mini lots. You can calculate your position size as follows: (your account size in USD / USD 10,000) * (our position size). You should always round the result down. For example, if the result was 2.671, your position size should be 2 mini lots. This would be a great tool for your risk management!
Position size (precious metals) - position size suggested for a USD 10,000 trading account in units. You can calculate your position size as follows: (your account size in USD / USD 10,000) * (our position size).
6. Profit/Loss on recently closed position (forex) - is the amount of pips we have earned/lost on recently closed position. The amount in USD is calculated on the assumption of suggested position size for USD 10,000 trading account.
Profit/Loss on recently closed position (precious metals) - is profit/loss we have earned/lost per unit on recently closed position. The amount in USD is calculated on the assumption of suggested position size for USD 10,000 trading account.