EURUSD Looks to Break Out (adapted from equities article)
Why Does This Occur?
In currency trading, it is about winners and losers. When one country
is winning–that is, it has a strong economy–their currency should
appreciate. When a currency appreciates it makes the exports of that
country more expensive abroad, slowing down the export portion of GDP.
It also helps to lower the cost of imports and this has a taming effect
When a country is experiencing a weak economy, their currency tends to
depreciate or get weaker. When a currency depreciates, it makes their
exports cheaper abroad, and at the same time increases the cost of
imports. This can increase inflation and/or make domestic goods more
competitive versus imported goods, helping to boost economic activity.
Central Bank Policy is also an influence on a currency. If a country is
easing or likely to keep rates unchanged for an extended period of
time, while another country is talking about tightening (or the market
perceives they will be tightening), it too can lead to more trending
markets with the country who is raising rates (or more likely to raise
rates) being the one with the strong currency.
In June, the ECB eased via a number of measures, including lowering
interest rates, and announcing a program whereby they will provide cheap
money to banks with the hope that they are using those funds to
increase lending. The program is known by the acronym, TLTRO for
Targeted Long-Term Refinancing Operation.
One would have expected that such a scenario would lead to a weaker EURUSD
The EURUSD since the June easing by the ECB has moved up, moved down,
moved up again, and is now back down (see chart). The activity is
non-trending. There has been no conviction. It might be because of the
World Cup. It might be the summer doldrums. It might be less liquidity
and risk appetite due to increased regulation.
July 1, however, there has been another move lower in the EURUSD. In
currency trading on July 16, the low reached 1.3520. The two-month low
is 1.3502. The low for the year from back in early February is 1.3476
(not shown in the chart).
The pair which has been non-trending over 2014–and especially over the
last two months–is on the verge of breaking out below the recent lows.
The technical move is also supported by the fundamentals of a weaker EU
economy, and stronger US economy, and a more dovish ECB and more hawking
(well, less dovish) US Federal Reserve.
All the ingredients are there for a break to new lows in the EURUSD.
The last piece of the puzzle is for the market liquidity to push the
price down and through the support at 1.3502 and then the low at 1.3476.
If done, I would expect that the EURUSD might look to trend lower over
both the near and intermediate term (toward 1.3300 if momentum can be
Volatility is Turning, Yen Crosses and Equities Ready (based on dailyfx article)
Is there a deeper well of change behind the markets than just this past
week's headline-derived swell in volatility? We have seen short-lived
panics quickly squashed by opportunistic traders many times over the
past months and years, with conditions ultimately returning to
complacency and an increasingly stretched reach for return. Yet, rather
than focus on the ripple, the underlying current is starting to turn.
The pull of a 'return to norm' is exposing investors' leverage to risk
and finding different benchmarks for sentiment on divergent paths. What
should we watch for and where are the trading opportunities? We discuss
this in the weekend Trading Video.
The NZD/USD pair fell hard during the course of the week, breaking below
the 0.87 handle. There is a significant amount of support below though,
so we are not necessarily excited about shorting at this point. In
fact, we think that the massive amount of support below should come into
play, and we would be buyers of a supportive candle, as we see the 0.85
level as the beginning of massive support. On the other hand, if we get
above the 0.88 level, we believe that this market that goes to the 0.90
Exchange Rate Forecasts 2015: Euro Dollar Rate (EUR/USD) Gains Lie Ahead
Analysts at BMO Capital have forecast that the euro exchange rate complex will rise in coming months.
The call comes after a soft patch for the euro following the June interest rate cut at the European Central Bank. However, 2014 has for the most part gone the way of the shared currency and trend momentum remains positive longer-term.
According to BMO Capital the ECB will ultimately have to buy fewer assets in ‘QE’ as prices have already risen in advance.
It is a fear of further ECB action that has kept a lid on the shared
currency in recent times, should this fear be removed then we could well
see the euro rise.
(Note: If you are hoping for a better exchange rate then
don't hesitate and don't leave it to chance, ensure your currency
provider has the relevant stop-losses in place. Furthermore, by using an independent provider you could be able to execute your currency needs at rates that can be up to 5% more beneficial than the rates offered by your bank.)
Furthermore, low-yields globally will ensure peripheral Eurozone
bonds are receivers of funds as traders deploy a ‘buys on dips’ strategy
and on a wider cross currency basis this is expected to reduce
From a trade-weighted perspective the EUR (ex-USD) is believed to be
strong, "EURUSD strength not simply due to a weak USD," say analysts.
Germany’s trade surplus with the Euro Area has ceased deteriorating
and this should ensure the Balance of Payments book is to remain strong,
a boon for those hoping for stronger euro exchange rates.
From here, analysts at BMO see 1.3450-1.3500 as the base in EURUSD
and look for the pair to challenge the 1.3700-1.3900 range (3-6m).
Trading the News: U.S. Consumer Price Index (CPI) (based on dailyfx article)
The U.S. Consumer Price Index (CPI) may spur a bullish reaction in the
U.S. dollar (bearish EUR/USD) should the report undermine the Fed’s
dovish outlook for monetary policy.
Why Is This Event Important:
Sticky price growth in the world’s largest economy may heighten the
appeal of the greenback as it puts increased pressure on the Federal
Reserve to move away from its easing cycle, and the next policy meeting
on July 30 may generate an improved outlook for the reserve currency
should a growing number of central bank officials show a greater
willingness to normalize monetary policy sooner rather than later.
Higher input costs along with the pickup in wage growth may generate
another stronger-than-expected inflation print, and an unexpected uptick
in the CPI may fuel a near-term rally in the USD as it boosts interest
However, the persist slack in the real economy paired with the slowdown
in private sector consumption may drag on price growth, and a weak
inflation print may heighten the bearish sentiment surrounding the
greenback as it gives the Fed greater scope to retain its highly
accommodative policy stance for an extended period of time.
How To Trade This Event Risk
Bullish USD Trade: Headline Reading for Inflation Climbs 2.1% or Greater
EURUSD M5 : 33 pips price movement by USD - CPI news event
The headline reading for U.S. inflation unexpectedly climbed to an
annualized 2.1% in May to mark the fastest pace of growth since October
2011, while the core Consumer Price Index (CPI) advance to 2.0% amid
forecasts for 1.9% print. The stronger-than-expected print sparked a
bullish reaction in the reserve currency, with the EUR/USD slipping
below the 1.3550 region, and the greenback retained the gains throughout
the North American session as the pair ended the day at 1.3545.
2014-07-23 14:00 GMT (or 16:00 MQ MT5 time) | [EUR - Consumer Confidence]
if actual > forecast = good for currency (for EUR in our case)
[EUR - Consumer Confidence] = Level of a diffusion index based on surveyed consumers. Financial confidence is a leading indicator of consumer spending, which accounts for a majority of overall economic activity
Eurozone Consumer Confidence Unexpectedly Falls In July
Euro area consumer confidence deteriorated for a second straight
month in July, preliminary data from the European Commission showed
The flash consumer confidence index for Eurozone fell
to -8.4 from -7.5 in June. Economists had forecast the score remain
The confidence index for the EU declined by 1.2 points to -5.5.
The final figures will be released along with the economic sentiment data on July 30.