EUR/USD: U.S. Q4 growth better than previously reported
Macroeconomic overview: Revised U.S. GDP data on Thursday showed that U.S. fourth quarter growth slowed less than previously reported as consumer spending provided a boost that was partially offset by the largest gain in imports in two years.
Gross domestic product increased at a 2.1% annualized rate instead of the previously reported 1.9% pace. The economy grew at a 3.5% rate in the third quarter. Despite the upward revision to the fourth quarter, the economy grew only 1.6% for all of 2016, its worst performance since 2011, after expanding 2.6% in 2015.
There are signs that economic activity slowed further in the first quarter, with the trade deficit widening in January and both consumer and construction spending weakening. The Atlanta Federal Reserve is forecasting GDP rising at a rate of 1.0% in the first quarter.
The government also reported that corporate profits after tax with inventory valuation and capital consumption adjustments increased at an annual rate of 2.3% in the fourth quarter after rising at a 6.7% pace in the previous three months.
Free Reports:
Profits were held back by a USD 4.95 billion settlement between the U.S. subsidiary of Volkswagen and the U.S. federal and state governments for violation of environmental regulations. As a result, the economy grew at only a 1.0% rate when measured from the income side, braking sharply from the 5.0% pace of growth in the third quarter.
Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised up to a 3.5% rate in the fourth quarter. It was previously reported to have risen at a 3.0% rate.
Consumer spending is being supported by a tightening labor market. A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits fell 3kk to a seasonally adjusted 258k for the week ended March 25.
Domestic demand increased at a robust 3.4% rate in the fourth quarter, the fastest pace in two years. Some of the increase in demand was satiated with imports, which increased at a 9.0% rate. That was the biggest rise since the fourth quarter of 2014 and was an upward revision from the 8.5% growth pace reported last month. Exports fell more than previously estimated, leaving a trade deficit that subtracted 1.82 percentage point from GDP growth instead of the previously reported 1.70 percentage points.
Robust domestic demand and import growth meant stronger inventory investment than previously estimated. Businesses accumulated inventories at a rate of USD 49.6 billion in the last quarter, instead of the USD 46.2 billion reported last month.
Business investment was revised lower to reflect a more modest pace of spending on intellectual property, which increased at a 1.3% rate instead of the previously estimated 4.5% pace.
Later on Friday, Trump will sign executive orders aimed at identifying abuses that are causing massive U.S. trade deficits and clamping down on non-payment of anti-dumping and anti-subsidy duties on imports, according to his top trade officials. Commerce Secretary Wilbur Ross said that one of the orders directs his department and the U.S. Trade Representative to conduct a major review of the causes of U.S. trade deficits, including “currency misalignment”.
While the foreign exchange market’s reaction to the news was muted, market participants were warily watching for developments.
Eurozone inflation data release is scheduled for today. German and Spanish consumer price data disappointed on Thursday, showing inflation slowed more sharply than expected in March as oil prices slumped. That is why we think that today’s lower reading will not have much impact on the EUR/USD.
Technical analysis: A close under 50% fibo of March rise (1.0699) increases bearish sentiment. The next support is 1.0650 (61.8% fibo).
Short-term signal: Our EUR/USD long was stopped at 1.0695. We see no fundamental reasons for deeper EUR/USD move and are considering another long position in the coming days.
Long-term outlook: Bullish
USD/JPY: Japan’s economy has shown signs of life, short at 111.90
Macroeconomic overview: Japanese factory output rose at the fastest pace in eight months and the jobless rate hit a two-decade low in February, a sign a rebound in overseas demand continued to brighten prospects for the country’s export-reliant economy.
But household spending remained soft and consumer inflation was flat when stripping away the effect of rising energy costs, underscoring the challenges the Bank of Japan faces in generating sustained price rises backed by steady wage growth.
The data may reinforce market expectations that while the BOJ’s next policy move could be to withdraw its massive stimulus, the timing would be some time away.
Industrial output rose 2.0% in February from the previous month, beating market forecasts for a 1.2% gain to mark the biggest increase since June last year, as automakers ramped up production of new models, data showed on Friday.
Separate figures showed Japan’s jobless rate hit a 22-year low of 2.8% in February, down 0.2 percentage point from the previous month.
But household spending fell 3.8% in February from a year earlier, a bigger decline than market forecasts for a 1.7% drop, suggesting a tightening labour market has yet to drive up wages enough to boost consumption.
A rebound in energy costs pushed core consumer inflation to 0.2% in February, matching a median market forecast and marking the fastest annual pace in nearly two years. But a separate consumer price index that excludes the effect of volatile fresh food and energy costs rose just 0.1% in February, suggesting that weak consumption was preventing companies from raising prices of non-energy items.
With inflation far from his 2% target, however, BOJ Governor Haruhiko Kuroda has stressed that he sees “no reason” to dial back the bank’s massive stimulus programme anytime soon. BOJ officials have stressed that they would look at various data, not just the core consumer price figures, in determining whether underlying trend inflation is accelerating backed by solid economic growth. They argue that wage rises must accompany price gains for inflation to sustainably hit 2%.
We expect inflation to accelerate near 1% in the coming months and predict that the BOJ’s next move will be to start scaling back its stimulus.
Technical analysis: The USD/JPY recovery was stopped at 38.2% fibo of March rise yesterday. A break above this level would open the way to 50% fibo at 112.80. But we expect a return of bearish sentiment on this pair soon. The next bears’ target will be 109.93 – 50% retrace of 101.19-118.66 rise.
Short-term signal: We opened USD/JPY short at 111.90 with the short-term target at 111.00.
Long-term outlook: Bearish
TRADING STRATEGIES SUMMARY:
FOREX – MAJOR PAIRS:
FOREX – MAJOR CROSSES:
PRECIOUS METALS:
It is usually reasonable to divide your portfolio into two parts: the core investment part and the satellite speculative part. The core part is the one you would want to make profit with in the long term thanks to the long-term trend in price changes. Such an approach is a clear investment as you are bound to keep your position opened for a considerable amount of time in order to realize the profit. The speculative part is quite the contrary. You would open a speculative position with short-term gains in your mind and with the awareness that even though potentially more profitable than investments, speculation is also way more risky. In typical circumstances investments should account for 60-90% of your portfolio, the rest being speculative positions. This way, you may enjoy a possibly higher rate of return than in the case of putting all of your money into investment positions and at the same time you may not have to be afraid of severe losses in the short-term.
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.
About the Author:
By GrowthAces.com – Daily Forex Trading Strategies