Category: Analysis

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Long Term Direction

The data reflects an indifferent time for the US Dollar that has been marginally boosted by good October data for consumer prices. Further improvements are necessary before any changes are expected to be made to Monetary Policy. The outlook is optimistic on improvements due to the recent lowering of interest rates.Global tensions are keeping any bullish activity on the sidelines so the overall summary is that the long term direction is flat.

Monetary Policy and Interest Rate

The current situation is that the European Central Bank is monitoring the current policy with changes to the interest rate unlikely to be made for the foreseeable future.

As decided at the last Governing Council meeting in September, net purchases will be restarted under the Governing Council’s asset purchase programme (APP) at a monthly pace of €20 billion as from 1 November. The Governing Council expects them to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.

Economy

GDP Growth Rate

The data for Q3 was as expected and continues the worsening twelve-month trend.

Consumer Prices

Inflation Rate

The data for October was as expected and continues the worsening twelve-month trend.

Labour Market

Unemployment Rate

The data for October was slightly worse than expected but continues the improving twelve-month trend.

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Short Term Analysis

4 Hour Timeframe

Commentary

  • Up-trending since October 1st after a bounce from 4 Hour Support Test
  • Created a Fibonacci trend with a 0.618  break zone

Expectations

  • Bullish action to continue towards 4 + 1 Hour + 15 Minute Resistance zone

1 Hour Timeframe

Commentary

  • Up-trending since October 1st with a short reprieve at 1.100 zone which also confluences with the 4 hour 0.618 Fibonacci break zone.

Expectations

  • Bullish action to continue towards 4 + 1 Hour + 15 Minute Resistance zone

15 Minute Timeframe

Commentary

  • Up-trending since October 1st with a short reprieve at 1.100 zone which also confluences with the 4 hour 0.618 Fibonacci break zone.

Expectations

  • Bullish action to continue towards 4 + 1 Hour + 15 Minute Resistance zone

Short Term Analysis Conclusion

Bullish action to continue towards 4 + 1 Hour + 15 Minute Resistance where it can be sold upon a bearish expectation on Fundamental Analysis.

The sell can then be held until the price reaches the 1 Hour + 15 Minute Support or Fundamental Analysis expectation looks bullish.

Long Term Analysis

Month Timeframe

Commentary

  • Down-trending since Feb 18 after stalling around Monthly Resistance
  • Created a Fibonacci trend with a 0.382  break zone

Expectations

  • Down-trend to continue towards Month + Week Support

Week Timeframe

Commentary

  • Down-trending since February 18 after stalling around Monthly Resistance
  • Small retracement at the 1.1400 zone

Expectations

  • Down-trend to continue towards Month + Week Support

Day Timeframe

Commentary

  • Price has broken through the down-trending Fibonacci
  • Bullish climb since touching Day Support on October 1st

Expectations

  • Bullish climb to continue towards Week + Day Resistance

Long Term Analysis Conclusion

Price to rise towards Week and Day Resistance where it can be sold upon a bearish expectation on Fundamental Analysis.

The sell can then be held until the price reaches the Day Support or Fundamental Analysis expectation looks bullish.

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Even though there has been a mix of data, the trend has been improving over the previous twelve months.

The release due on November 28th is expected at 3.50 percent which will maintain the uptrend.

US GDP Growth Rate courtesy tradingeconomics.com

Fundamental and Geopolitical Analysis


measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments

Central Bank focus points
  • No other significant news events at this time

Sentiment Analysis

  • Dollar is in a bullish period over the previous week

Order

Orders to buy are good at appropriate levels determined by Technical Analysis here

Image credits: Aron Van de Pol

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There are six indicators that are used to judge the performance of an economy:

  1. GDP Growth Rate
  2. Unemployment Rate
  3. Inflation Rate
  4. Interest Rate
  5. Balance of Trade
  6. Government Debt to GDP

Balance of Trade and Government Debt to GDP are the only two that have worsened over the previous twelve months.

The Federal Reserve are monitoring the labour market and inflation to decide on further rate hikes. Fed fund futures have over 70 percent probability that a hike is happening, however this has dipped from over 75 percent.

Photo by David Everett Strickler on Unsplash

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United States Inflation Rate

The trend has been improving over the course of twelve months although more recently has been falling from the high’s of June and July of almost three percent.

The consensus forecasts the inflation to rise again following on from five releases of month on month stagnation.

United States Inflation Rate
US Annual Inflation

Fundamental and Geopolitical Analysis

Recent comments from the central bank…

…supporting strong labor market conditions and a sustained return to 2 percent inflation.

  • Other than the mid term elections last week there are no geopolitical events of concern.
  • Interest rates remained on hold at last weeks FOMC meeting.

Sentiment Analysis

  • Dollar has gained strength following the interest rate decision and coming out of a lull in the run up to mid term elections.

 

Photo by James Balensiefen on Unsplash

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United States Non Farm Payrolls

The trend is rising over a twelve month period, held steady for a six month period and could be considered to have declined over a three month period.

United States Non Farm Payrolls

With a consensus of 180 thousand, nothing changes too much from a trend view.

Technical Analysis

 Chart Trend Direction Trend Break Zone 
 Day Up 111.40
Four Hour  Down 112.70
Thirty Minutes  Up 111.70
  • Low risk entry at  111.85
  • High risk entry at N/A

Fundamental and Geopolitical Analysis

“The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.”

  • Stock market sustained losses in previous week but set to recover

Sentiment Analysis

  • Traders direction mixed but it appears more are opn the sidelines than invested so a rally could be expected.

Order

Buying up the dollar from low risk entry makes sense fundamentally in the run up to Non Farm Payroll release.

TRADE APPROVED

Image credits: Aron Van de Pol

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Euro Area Inflation Rate

Euro inflation has a rising trend although the last 12 months have been tumultuous.

Euro Area Inflation Rate
Trading Economics

The release is expected at 2.1 percent / 2.2 percent so a buy from trend lows is suitable.

Technical Analysis

 Chart Trend Direction Trend Break Zone 
 Day Down 120.60
Four Hour  Not set Not set
Thirty Minutes  Not set Not set

 

  • Low risk entry at: waiting on Four Hour and Thirty Minute trends to set
  • High risk entry at: 127.40

Fundamental and Geopolitical Analysis

“The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.”

  • If inflation continues to heat up, interest rate hike will be brought forward
  • Italian borrowing costs are causing the budget to breach fiscal rules
  • EU economic forecasts are due on Monday

Sentiment Analysis

  • Traders are uneasy regarding Italy’s fiscal situation
  • Italian unemployment rate is closing in on 10%, release due Wednesday
  • The sentiment is not favorable of a purchase

Order

Fundamentally, a buy from 127.40 makes sense but while the Italian situation has dovish sentiment it is not a good time to enter.

TRADE DENIED

Photo by davide ragusa on Unsplash

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United Kingdom Interest Rate

The interest rates have increased over the last year and further rate hikes are expected.

This meeting is forecast to be a rate hold event however during Bank of England Governor Mark Carney’s speech look for signs of a hike during the December meeting of the Monetary Policy Committee.

Technical Analysis

Chart Trend Direction

Trend Break Zone
Day Up 142.20
Four Hour Down 145.40
Thirty Minutes Up 142.75
  • Low risk entry at  143.45
  • High risk entry at 142.90

Fundamental and Geopolitical Analysis

The focus of the Bank of England is to maintain 2 percent inflation.

  • Inflation is at 2.4 percent indicating further hikes necessary
  • Political uncertainty over decision to leave EU continues to hinder the pound
  • No events of interest in run up to Interest Rate decision

Sentiment Analysis

  • Bearish sentiment since May met with 1922 Committee on Tuesday
  • News reports the meeting was warm and may have softened the critics

Order

I am satisfied that the analysis indicates it is a suitable time to order.

Image credits: Aron Van de Pol