Forex Advisor

Fed’s Williams joins the “hawkish” side | 19/08/16 • Fed’s Williams joins the “hawkish” side The dollar’s retreat was halted yesterday following some remarks by San Francisco Fed President John Williams that he would like to get back to a pace of gradual rate increases, preferably sooner rather than later. He said that the economy’s strength warrant...

Intraday

The dollar traded lower against most of its G10 peers during the European morning Monday. It was lower against NZD, AUD, JPY, CAD, EUR and NOK in that order, while it traded higher only versus GBP. The greenback remained virtually unchanged against SEK and CHF.
In a very light economic calendar day, the European trading session is marked by smaller-than-usual trading volatility up until now, as some European markets remain closed in celebration of Assumption Day. The next market moving event is likely to be during the Asian morning Tuesday, when the Reserve Bank of Australia will release the minutes of its August policy meeting. At that gathering, the Bank cut its policy rate by 25bps and noted that the prospects for growth and inflation would be improved by that move. Given that officials did not include an easing bias in the meeting statement, or any form of forward guidance on the rate outlook, we believe that these minutes will be critical with regards to market expectations for the RBA’s rate path. In its Statement on Monetary Policy, which was released a few days after the rate cut, the Bank leaned towards the dovish side we think, by indicating that “inflation is likely to remain below 2% over most of the forecast period”. A confirmation of this dovish bias in the meeting minutes could curb some of the Aussie’s recent gains.
AUD/USD advanced a bit during the European morning Monday, following the selloff in the late US session Friday and the break of the lower boundary of the upside channel that had been containing the price action since the 27th of July. The pair found some buy orders near 0.7640 (S1) and moved higher towards the 0.7675 (R1) resistance line. Given that the pair fell below the aforementioned channel, this has shifted the short-term outlook cautiously negative in my view. However, I would need to see a break below the 0.7640 (S1) support barrier in order to trust further declines. Such a break could challenge our next support at 0.7600 (S2). Taking a look at our short-term oscillators, I see that the RSI hit resistance at its 50 line and turned down, while the MACD, has fallen below its trigger line and could turn negative anytime soon. These indicators give evidence that further declines may be on the cards. As for the longer-term timeframes, the pair is trading above the upside support line drawn from the lows of January. This keeps the broader outlook cautiously positive, but I prefer to wait for a clear close above 0.7800 before I get confident on larger upside extensions.
Support: 0.7640 (S1), 0.7600 (S2), 0.7570 (S3)
Resistance: 0.7675 (R1), 0.7725 (R2), 0.7755 (R3)

Japan’s GDP data disappoint but Yen still strong | 15/08/16 • Japan’s GDP data disappoint but Yen still strong Japanese data released overnight showed that economic growth was flat in Q2 from +0.5% qoq in Q1, missing the forecast of a slowdown to +0.2% qoq. The softness in the report was owed mainly to falling exports, perhaps due to a stronger yen this year...

Intraday

The dollar traded higher or unchanged against all but one of its G10 counterparts during the European morning Wednesday. It was higher against JPY, CHF, NZD, AUD and EUR in that order, while it was lower only versus GBP. The greenback remained virtually unchanged versus CAD, SEK and NOK.
The final UK services PMI for July confirmed its preliminary estimate, indicating that the sector contracted in the immediate aftermath of the “Brexit” referendum. This follows the manufacturing and construction indices for the same period, both of which showed that activity contracted in those sectors as well. Even though the softness in the PMIs may not necessarily translate into softness in other data, it definitely increases the pressure on BoE policymakers to take action tomorrow in order to stimulate the British economy. Expectations for easing at this meeting are very high already, with the implied probability for a 25bps rate cut currently standing at 96%. Given that a rate reduction is already largely priced in, the key question is whether policymakers will opt to deliver more. Will they choose to restart their asset purchases program? A sole 25bps cut could disappoint investors who expect more, and may even cause the pound to rebound. Thus, we maintain the view that in order for sterling to weaken materially, the BoE has to deliver measures over and above market expectations, such as another round of asset purchases or a clear easing bias moving forward.
EUR/GBP traded lower during the European morning Wednesday after it hit resistance near 0.8430 (R1). Then, the rate fell below the upside support line taken from the low of the 14th of July. In my view, this has turned the short-term outlook somewhat negative and as a result, I would expect the bears to continue pushing the rate lower and perhaps aim for the 0.8345 (S1) support level. A decisive break below that barrier could open the way for the 0.8300 (S2) area. Our short-term momentum indicators detect negative momentum and amplify the case for EUR/GBP to continue trading lower for a while. The RSI turned down again after it hit resistance slightly below its 50 line, while the MACD, already below its trigger line, has turned negative. Zooming out to the daily chart, I see that on Tuesday, the pair printed a lower peak. Therefore, although the prevailing trend still looks positive, the recent slide makes me switch my stance to “wait and see” for now with regards to the broader trend.
Support: 0.8345 (S1), 0.8300 (S2), 0.8260 (S3)
Resistance: 0.8430 (R1), 0.8500 (R2), 0.8580 (R3)

Japanese officials resume intervention talk | 03/08/16 • Japanese officials resume intervention talk Overnight, Japanese Vice Finance Minister Asakawa stated that the moves in the FX markets were nervous and that he would watch the market carefully. In our view, this suggests that intervention talks are likely back on the table. Considering the BoJ’s un...