Daily Forex Analysis: GBP/USD: British Growth Gathers Pace

GROWTHACES.COM Forex Trading Strategies

Taken Positions

EUR/USD: short at 1.1080, target 1.0750, stop-loss 1.1180, risk factor *

USD/JPY: long at 123.70, target 125.80, stop-loss 122.90, risk factor *

USD/CHF: long at 0.9560, target 0.9810, stop-loss 0.9490, risk factor *

NZD/USD: short at 0.6660, target 0.6405, stop-loss 0.6740, risk factor *

EUR/GBP: short at 0.7145, target 0.6905, stop-loss 0.7190, risk factor **

Pending Orders

USD/CAD: buy at 1.2900, target 1.3095, stop-loss 1.2820, risk factor *

AUD/USD: sell at 0.7390, target 0.7205, stop-loss 0.7465, risk factor *

EUR/CHF: buy at 1.0495, target 1.0795, stop-loss 1.0380, risk factor *

 

EUR/USD: Stay Short Ahead Of Fed Meeting

(short at 1.1080)

• The USD is firming today as cautious investors covered short positions ahead of the start of a two-day Fed meeting and as a continued slump in Chinese equity markets sapped appetite for riskier assets.
• China stocks were lower on Tuesday, even as Beijing pledged to lend further support after stocks sank 8% in the previous session, raising concerns about stability in the world’s second-biggest economy. Chinese regulators said they were prepared to buy shares to stabilise the stock market, while the central bank injected cash into money markets and hinted at further monetary easing.
• Investors’ focus is turning on tomorrow’s Fed statement. In our opinion FOMC may lay the groundwork for hiking rates this autumn and expect a surprise on the hawkish side, which should strengthen the USD.
• After Fed meeting, the next main event for the USD will be second-quarter US GDP, the first estimate of which will be published on Thursday. The Commerce Department said on Monday non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 0.9% mom after an unrevised 0.4% drop in May. The reading was above the market expectations for 0.4% mom growth. Shipments of core capital goods, which are used to calculate equipment spending in the government’s GDP measurement, slipped 0.1% mom in June after a 0.3% mom fall in May. That suggests business spending was probably a drag on second-quarter GDP. The main GDP growth driver was most likely consumer spending as a consequence of improving labor market. Net exports should have been slightly positive after strongly weighing on overall economic activity in the first quarter due to the port strikes.
• We went EUR/USD short after yesterday’s Ifo reading and do not change our strategy. We expect the EUR/USD to fall to at least 1.0810, near recent low posted on July 20. However, a deeper fall to 1.0750 is likely in case of hawkish FOMC statement on Wednesday and strong GDP reading on Thursday.

Significant technical analysis’ levels:

Resistance: 1.1099 (session high Jul 28), 1.1129 (high Jul 27), 1.1197 (high Jul 13)

Support: 1.0969 (low Jul 27), 1.0949 (10-dma) 1.0922 (low Jul 23)

 

GBP/USD: British Growth Gathers Pace

(stay sideways)

• British GDP grew 0.7% qoq and 2.6% yoy in the April-June period, in line with market forecasts, after a first-quarter expansion of 0.4% qoq.
• The recovery is still driven by the services sector. Services output, which makes up more than three quarters of the economy, was up 0.7% qoq after a 0.4% qoq rise in the first three months of 2015. Domestic demand is expected to remain strong, with households bolstered by higher wages and temporarily low inflation, and signs that firms are stepping up investment as the recovery matures.

• The preliminary reading of GDP is largely an estimate by Britain’s statisticians with more half of the data yet to be gathered, and the figures are often revised.
• The GBP appreciated after data showed the British economy picking up pace in the second quarter, supporting a view that the Bank of England could start raising interest rates in the coming months.
• In our opinion three out of nine policymakers will vote to raise interest rates as soon as next week’s BoE meeting. We expect a rate hike in December, while market still sees a hike at the beginning of 2016. In our opinion the GBP should remain strong on the re-pricing of expectations towards an earlier hike, but the USD is also likely to strengthen in the short-term. That is why we stay sideways on the GBP/USD. The outlook on the EUR/GBP remains bearish.

Significant technical analysis’ levels:

Resistance: 1.5671 (high Jul 23), 1.5732 (high Jul 1), 1.5787 (high Jun 29)

Support: 1.5490 (low Jul 27), 1.5469 (low Jul 24), 1.5449 (low Jul 14)