EUR/USD: Chance Of Bullish Resumption

Federal Reserve policymakers signaled further interest-rate increases ahead, even as they raised relatively muted concerns over a potential global slowdown that has markets betting heavily that the rate-hike cycle will soon peter out. The widening chasm between market expectations and the interest-rate path the Fed laid out just two months ago underscores the biggest question facing U.S. central bankers: How much weight to give a growing number of potential red flags, even as robust U.S. economic growth continues to push down unemployment and create jobs?

“We are at a point now where we really need to be especially data dependent,” Richard Clarida, the Fed’s newly appointed vice chair, said. “I think certainly where the economy is today, and the Fed’s projection of where it’s going, that being at neutral would make sense,” he added, defining “neutral” as the policy rate somewhere between 2.5% and 3.5%. Such a range implies anywhere from two to six more rate hikes, and Clarida declined to say how many he would prefer. He did say he is optimistic that U.S. productivity is rising, a view that suggests he would not see faster economic or wage growth as necessarily feeding into higher inflation or, necessarily, requiring tighter policy. But he also sounded a mild warning. “There is some evidence of global slowing,” Clarida said. “That’s something that is going to be relevant as I think about the outlook for the U.S. economy, because it impacts big parts of the economy through trade and through capital markets and the like.”

Federal Reserve Bank of Dallas President Robert Kaplan, in a separate interview said he is seeing a growth slowdown in Europe and China. “It’s my own judgment that global growth is going to be a little bit of a headwind, and it may spill over to the United States,” Kaplan said.

The Fed raised interest rates three times this year and is expected to raise its target again next month, to a range of 2.25% to 2.5%. As of September, Fed policymakers expected to need to increase rates three more times next year, a view they will update next month. Over the last week, betting in contracts tied to the Fed’s policy suggests that even two rate hikes might be a stretch. The yield on fed fund futures maturing in January 2020, seen by some as an end-point for the Fed’s current rate-hike cycle, dropped sharply to just 2.76% over six trading days.

Philadelphia Fed chief Patrick Harker also sounded a skeptical note. “At this point I’m not convinced a December rate move is the right move,” he was quoted as saying, citing muted inflation readings. Fed Chairman Jerome Powell on Wednesday also cited slowing global growth as a headwind to the U.S. economy.

But not all policymakers seemed that worried. Chicago Fed President Charles Evans downplayed risks to his outlook, noting that the leveraged loans that some of his colleagues have raised concerns about are being taken out by “big boys and girls” who understand the risks. He said reporters he still believes rates should rise to about 3.25% so as to mildly restrain growth and bring unemployment, now at 3.7%, back up to a more sustainable level. Asked about risks from the global slowdown, he said he hears more talk about it but that it is not really in the numbers yet. But the next six months, he said, bear close watching. Trading Strategies


Trading strategy: Buy

Open: 1.1360

Target (NYSE:TGT): –

Stop-loss: 1.1285

Recommended size: 2.00 mini lots per $10,000 in your account

Short analysis: Bull sentiment increases as a new short-term high is set. Rising RSIs and holds above the 10- and 21-day MAs bolster bull sentiment. We look to buy a dip toward 1.1360 and will look for a test of the 1.1500 area once we are long.


Trading strategy: Await signal

Open: –

Target: –

Stop-loss: –

Recommended size: –

Short analysis: Daily stochs are flat lining but momentum is confirming the rebound. Weekly technicals still highlights sterling’s plight. In our opinion GBP/USD may be volatile in the coming days. We stay sideways due to elevated risk.


Trading strategy: Sell

Open: 113.10

Target: –

Stop-loss: 113.90

Recommended size: 2.11 mini lots per $10,000 in your account

Short analysis: New November lows after breaking below the daily Kijun and 55-day MA set the stage for testing the rising 100-day MA and Cloud base at 112.05/16. Close below the 100-day MA would end 2018 streak of 6 violations with no closes below it. Offer is at Thurday’s low by the 21-day moving average.


Trading strategy: Short

Open: 1.3230

Target: 1.3120

Stop-loss: 1.3285

Recommended size: 3.61 mini lots per $10,000 in your account

Short analysis: The CAD weakened against the USD on Monday, as oil prices slipped and global risk appetite remained in check. The price of oil, one of Canada’s major exports, fell by about 1% on Monday, snapping a three-day streak of gains, as investors weighed up the effectiveness of a potential cut in supply from OPEC and possibly other exporters in the face of rapidly rising global output. We remain short.


Trading strategy: Long

Open: 0.7220

Target: 0.7420

Stop-loss: 0.7120

Recommended size: 1.50 mini lots per $10,000 in your account

Short analysis: Our long remains in the black. Monthly RSI is biased up and the pair holds above the 23.6% Fibo of 0.8136-0.7021. Daily RSI turns from overbought territory though. Consolidation is likely. Once consolidation end the rally should resume. The target remains 0.7420.


Trading strategy: Await signal

Open: –

Target: –

Stop-loss: –

Recommended size: –

Short analysis: The pair hits a new short-term high and holds above the 100-day MA. RSIs are biased up and a bull hammer forms on the monthly chart. Daily RSI is near overbought though and structural resistance near 0.8940/50 looms. While bull sentiment is growing we will stand aside until signals are a bit clearer.

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