EUR/USD: Long for 1.1960
Macroeconomic overview:
- The euro rose to a more than two-week high on Tuesday as investors resumed buying risky assets in Europe on growing expectations that economic growth will remain strong against a backdrop of record low interest rates.
- Eurostat confirmed that the Eurozone economy advanced 0.6% on quarter in the three months to September of 2017, in line with market expectations and following 0.7% growth in the previous period.
- The mood among German investors improved further in November, a survey showed on Tuesday, suggesting that markets expect Europe's biggest economy to continue its solid upswing in coming months. The Mannheim-based ZEW research institute said its monthly survey showed its economic sentiment index rose to 18.7 from 17.6 in October. This undershot market consensus forecast for an increase to 20.0. A separate gauge measuring investors' assessment of the economy's current conditions shot up to 88.8 from 87.0 last month. This compared with the market consensus forecast predicting an increase to 88.0.
- Also in focus, European Central Bank chief Mario Draghi, Federal Reserve Chair Janet Yellen, Bank of Japan Governor Haruhiko Kuroda and Bank of England head Mark Carney will form a panel on central bank communication at an ECB-hosted conference in Frankfurt on Tuesday.
Technical analysis and trading signals:
- A drop below 50% fibo of June-September rise (1.1605) was not continued. The rejection of the downward move is a bullish signal. The EUR/USD remains supported above the daily cloud, spanning 1.1654/1.1633. A break of 21-dma at 1.1685 is encouraging for EUR/USD bulls. If it closes above this level today, the next target could be Ichi cloud base at 1.1816.
- Our short position was stopped today and we have switched to long, which is in line with our fundamental view. We see also technical arguments for continuation of upward move.
EUR/GBP supported by lower-than-expected British CPI reading
Macroeconomic overview:
- British inflation held at its highest level in five-and-a-half years in October, and wrong-footed expectations from the Bank of England that it would hit a new peak.
- Consumer price inflation held at an annual rate of 3.0% in October, the Office for National Statistics said, below market average expectation for a 3.1% annual rise.
- The BoE said this month, after it raised interest rates for the first time in a decade, that inflation would probably peak at 3.2% in October and then fall slowly to just above its 2% target in three years' time.
- Tuesday's figures are likely to reinforce doubts about the wisdom of the BoE's decision to raise rates at a time when the economy is sluggish, especially as the effect of last year's Brexit vote on import prices was already at its high point.
- BoE Governor Mark Carney has said the overshoot of the 2% target was due to the effect of the more than 10% fall in the pound after last year's Brexit vote pushing up the price of imported goods.
- British inflation surged from a subdued 0.5% at the time of the Brexit vote in June 2016 to its highest since April 2012 in September.
- The Office for National Statistics said October's steady reading reflected falls in fuel prices being offset by a higher cost of food.
- The alternative measure of retail price inflation, which is used to calculate payments on government bonds and many commercial contracts, rose to a near six-year high of 4.0% - bad news for finance minister Philip Hammond as he prepares an annual budget due on November 22.
- However, the failure of consumer price inflation to exceed 3% means Carney will be spared a legal duty of having to write a letter to Hammond alongside next month's rate decision, explaining why inflation is more than a percentage point above target.
- Costs of manufacturers' raw materials - much of them imported - were 4.6% higher than in October 2016, down from an inflation rate of 8.1% in September. The market had expected a fall to 4.8%.
- Sterling slipped to its lowest in almost three weeks against the euro on Tuesday, while Britain's main FTSE 100 stock index jumped to a session high, after UK inflation data came in slightly weaker than expected.
Technical analysis and trading signals:
- The EUR/GBP broke above 55-dma at 0.8920 and the daily cloud base at 0.8928 today. A sustained move into the cloud targets the cloud top at 0.9027. Daily slow stochs are near OB territory but the bulls show no sign of letting up just yet.
- We have raised our bid to 0.8915.
