Market Overview

EUR/USD: Draghi is likely to disappoint tomorrow


EUR/USD: Draghi is likely to disappoint tomorrow.

EUR/USD: long at 1.3130, target 1.3270, stop-loss 1.3100
•PMI services fell to 53.1, well below July's 54.2 and preliminary estimate of 53.5. Output increased in four out of the five nations covered by the services survey. The sole exception was Italy. Faster rates of output expansion were seen in Ireland (2-month high) and Spain (92-month record). Growth slowed in Germany, but was solid overall, and remained marginal in France.
•The composite index was revised down to 52.5 from the flash estimate of 52.8 and compared to 53.8 in July. Composite PMI is still consistent with quarterly GDP growth of about 0.3%. This would be an improvement compared to the stagnation in the second quarter.
•Euro zone retail sales volumes fell by 0.4% mom and went up by 0.8% yoy in July vs. growth by 1.9% yoy in June. The reading was slightly lower than the median forecast. Sales of food, drinks and tobacco were the weakest, falling by 0.6% mom.
•Today's data indicate that economic growth in the euro zone remains weak and put pressure on the ECB to undertake further steps of quantitative easing. Investors are focused on the tomorrow's meeting of the ECB. The ECB governor Mario Draghi raised market hopes in Jackson Hole by saying that the central bank stands ready to act again and that the risks of doing too little outweighed those of doing too much. In the opinion of market appears to be trying to front-run the ECB. In our opinion the expectations are too excessive and Mario Draghi will maintain the status quo at the nearest meeting. The reason the ECB will likely delay further action is that it will want to see the effect of the TLTRO on the economy.
•The EUR/USD rose today after Ukraine's President Petro Poroshenko press office said an agreement was reached with Russia's Vladimir Putin for a "permanent ceasefire" in eastern Ukraine's Donbass region. Our short term outlook for the EUR/USD is bullish as we do not expect further steps of quantitative easing tomorrow. We went long on the EUR/USD at the level of 1.3130 with the target of 1.3270.

Significant technical analysis' levels:

Resistance: 1.3196 (high Aug 29), 1.3222 (high Aug 28), 1.3274 (21-dma)

Support: 1.3110 (low Sep 2), 1.3105 (low Sep 6), 1.3089 (low Jul 19)

AUD/USD went higher after GDP data, as expected.

AUD/USD: long at 0.9305, target 0.9470, stop-loss 0.9230
•Australian GDP growth amounted in the second quarter to 0.5% qoq and 3.1% yoy vs. growth of 3.5% in the first quarter. The reading was in line with expectations of and slightly above the market consensus. Final consumption expenditure went up by 0.5% qoq and 2.2% yoy and gross fixed capital expenditure increased by 0.3% qoq and fell by 0.9% yoy. Business investment was mixed in the quarter, while a drop in engineering spending overshadowed strength in home building. Inventories made a healthy contribution to growth as firms refilled shelves after several quarters of running down stocks. Net exports detracted 0.9 percentage points from GDP growth in the second quarter 2014.
•Summing up, GDP growth is probably slightly stronger than the RBA's forecast. Negative contribution from net exports weighed heavily on growth. On the other hand, growth was helped out by a correction in inventory. In our opinion GDP growth in the third quarter could be slightly better. In the opinion of there is little chance of a rate cut any time soon and the next move will be a hike. There will be no rush in changing monetary parameters and we expect a hike not sooner than February 2015.
•The governor of the Reserve Bank of Australia Glenn Stevens signalled further cuts in interest rates were unlikely as it would be "unwise" to risk further inflating already high house prices. He noted that leading indicators suggested the economy had continued to grow in the current quarter, after a slowdown in the second quarter. He added said policy was already very accommodative and that was the right setting to support sectors outside of mining.
•In line with our expectations the AUD/USD went up after GDP data beat market consensus. Investors will be focused on retail sales data tomorrow. We keep our long position on the AUD/USD. However, the risk for currency bulls is rising and in the medium term the outlook for the AUD/USD is mixed.

Significant technical analysis' levels:

Resistance: 0.9352 (high Sep 1), 0.9356 (50-dma), 0.9374 (high Aug 28)

Support: 0.9272 (low Aug 26). 0.9235 (low Aug 21), 0.9229 (low Jun 3)

GBP/USD weaker despite strong PMI services data.

•PMI services jumped to 60.5 in August from 59.1 in July, above even the most optimistic forecasts. The strength in services contrasts with a slowdown in the manufacturing sector. PMI manufacturing, published earlier this week, showed the pace of growth in activity slowed to a 14-month low in August. We should note that the situation in the services sector is less dependent on external demand. That is why Britain will rely too much on domestic demand to keep the economic recovery going.
•PMI surveys suggested Britain's economy would grow at a pace close to the 0.8% qoq rate seen in the first two quarters of this year.
•The GBP is still under pressure of this-week survey showed Scotland's nationalists gaining ground in their bid to secure independence next month. An unexpected "yes" vote would hit the GBP hard. The GBP/USD hit today's low at 1.6445, its lowest since February 12.

Significant technical analysis' levels:

Resistance: 1.6559 (10-dma), 1.6615(high Sep 2), 1.6645 (high Sep 2)

Support: 1.6425 (low Feb 12), 1.6392 (low Feb 11), 1.6384 (low Feb 10)

USD/CAD: Time for a long position.

•Investors are focused on today's decision of the Bank of Canada. The meeting has been widely discounted as not important event, as there is no press conference to follow which means no opportunity to announce shift in policy. The Bank of Canada will likely repeat that it is just as likely to cut interest rates as raise them. The central bank is avoiding conceding that a hike is probably much more probable than a cut in order not to strengthen the CAD, as weaker currency supports exports.
•Canada's jobs report for August (scheduled for Friday GMT) will be the other main economic event for the CAD this week. The median forecast for employment change is +10k while our forecast assumes higher reading (+15k).
•At we will be looking to go long on the USD/CAD at 1.0860/70 hoping for a test of 1.1000 level.

Significant technical analysis' levels:

Resistance: 1.0956 (high Aug 27), 1.0998 (high Aug 26), 1.1007 (high May 2)

Support: 1.0857 (low Sep 1), 1.0810 (low Aug 29), 1.0796 (low Jul 29) is an independent macroeconomic research consultancy for traders. We offer you daily forex analysis with forex trading signals. The service covers forex forecasts and signals for following currencies: EUR, USD, GBP, JPY, CAD, CHF, AUD, NZD as well as emerging markets. Our subscribers should expect to receive: forex trading strategies, latest price changes, support and resistance levels, buy and sell forex signals and early heads-up about the potential fx trading opportunities. offers also daily macroeconomic fundamental analysis that enables you to see fundamental changes on forex market. We provide in-depth analysis of economic indicators resulting from knowledge, experience, advanced statistics and cutting-edge quantitative tools.

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