So far, the EUR/USD has traded in a relatively narrow 140 point range between 1.1460 and 1.1320 since Monday. Considering the stream of weaker Euro zone data this week, the single currency has been fundamentally resilient.
From the perspective of the European Central bank (ECB), the most concerning data point was yesterday’s German Industrial Production report. After four consecutive months of weaker output numbers, the market consensus was for a rebound of .8%.
This forecast wasn’t even close as further downside pressure from the auto industry pushed the value of production to -.4%, which represents the fifth contraction over the last six months.
Later in the session, the European Council released their estimates of the member states GDP growth rates for this year and out to 2020, which was not encouraging reading for Forex traders with expectations of any material rate normalisation from the ECB this year.
For example, the growth estimate for Germany in 2019 has dropped from 1.8% to 1.1% over the last six months. The output estimate for France is now down to 1.3% and Italy may barely avoid an outright recession with an estimate of 0.2% growth.
By comparison, the median GDP growth estimate for the USA is 2.7%; this number is slightly higher that the projected growth rates for Germany, France and Italy combined.
And even though recent comments from ECB officials have pushed back on the immediate need for another round of targeted refinancing operations, we interpret to 260 basis point positive spread between the US 10-year yield and the German Bund yield as a market indicator that peak divergence between the FED and the ECB is still sometime in the future.
Technically, the EUR/USD has trade lower every day this week. With the 1.1300 level back in view, we see scope for a break of 1.1285 opening up range extension into the 1.1240 area.
Our trade suggestion to sell at 1.1485 did not get filled, which leaves us short from 1.1475. We suggest holding short from 1.1475 with an initial target of 1.1180 and a 1.1460 stop.
The Sterling been active this week with the GBP/USD swinging in a 330 point range this week. The negative outlook from the Bank of England meeting was somewhat offset by the market’s positive response to the chances the final Brexit vote could be postponed until the end of the year.
Our open short position from 1.3155 hit the initial target of 1.2860 during yesterday’s London session. We are happy to be out with a nice profit and suggest staying on the sideline over the weekend.
The Aussie Dollar posted its largest one-day loss in over a year this week as the RBA changed their interest rate outlook from positive to neutral during a speech from RBA chief Phillip Lowe. Today’s release of their monetary policy statement underscored the potential downside risk for inflation, wage growth and GDP over the next 24 months.
This is a large fundamental shift from the central bank and local credit markets have now priced in 32 basis points of easing out to January 2020. Technically, the internal momentum indicators are pointing lower and we see scope for a test of the .6920 area over the near-term.
Our trade suggestion to add to short positions at .7310 was not filled, which leaves us short from .7175. We suggest holding short from .7175 with an initial target of .6960 and a .7165 stop.
Not including the “flash crash” on January 3rd, the USD/JPY has traded in a broad 107.50 to 110.00 range for over a month. Interestingly, the BoJ has been very silent this year as other G-7 Central banks have been recalibrating their forward rate normalisation strategies.
Considering that the BoJ benchmark overnight deposit rate has been negative for over three years, it’s not surprising that the idea of higher rates has not been included in any of their recent policy discussions. Despite this, we expect the next meaningful move in the USD/JPY to be lower.
Our trade suggestion so sell at 110.40 was not filled, which leaves us flat. We suggest that short-term traders can look to sell USD/JPY at 109.70 with an initial target of 107.60 and a 110.65 stop.
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