USD: FOMC meeting likely to confirm December US rate rise
The US Federal Reserve’s FOMC meeting on Nov 1-2 is likely to confirm that an interest rate rise is still on the cards for December and may even talk about tightening policy in 2017, which could be supportive for the USD for the remainder of this year.
Nonetheless, USD did take a knock following news on Friday that the Federal Bureau of Investigation (FBI) is to consider more reports over security issues surrounding emails from Democratic Presidential candidate Hillary Clinton.
Unless an FBI investigation completely derails her election campaign, which seems unlikely at this stage, then the set-back to the USD should be temporary and may even be a buy opportunity, especially as other central banks, such as European Central Bank, the Bank of Japan and the Bank of England are all firmly in easing mode i.e. it’s the great monetary policy divergence story.
It’s also unclear whether the outcome of the US elections on November 8 will influence the Fed’s monetary policy as it seems determined to raise rates in December.
Though the Fed is expected to reinforce rate rise expectations, where it might surprise the markets is by floating the possibility of further tightening in monetary policy in 2017, possibly beyond the anticipated two hikes. That would be very bullish for USD.
Whether that will be possible is of course another matter. After all parts of the US real estate market look a bit bubbly and many car loans have echoes of sub-prime lending – factors which could haunt the US economy next year.
But for now, that’s not on traders’ radars. After all last week’s economic numbers, which showed Q3 GDP growing at 2.9%, compared with 1.4% in Q2 – was the economy’s best performance in two years and better than the 2.5% anticipated by economists. Though there were potentially temporary factors behind the surge – such as a jump in exports – it does suggest that the economy is not heading for recession.
Other considerations for the Fed are the ongoing rate of job creation and the chance of inflation gradually gliding up towards the Fed’s 2% target.
Bets on a rising USD seem to be piling up. Data from the US Commodity Futures Trading Commission and Reuters indicate that net long positions on USD stand at USD 18.44bn on Oct 25 – the fifth week of increases. Though admittedly this data is very lagging.
And of course, the week is rounded off by Non-Farm payrolls on Friday with expectations for 175,000 jobs created – a figure in that ball park will keep December rate rise expectations on the cards.
TECHNICAL ANALYSIS: EUR/USD – Recovery looks temporary
Over the course of last week, EUR/USD made gains, particularly on Friday as the FBI resurrected the email security story concerning Democrat Presidential contender Hillary Clinton. A pull-back looked on the cards anyway as the down move had become over-extended. Long-term, the fundamentals still point to a weaker EUR and for the time being so do the technicals.
Unless, there are news catalysts or a strong short-covering rally occurs, EUR/USD is likely to resume its downtrend, but traders should first wait for the price action to confirm that before establishing short positions. Even counter-trend moves can be vicious, fast moving and expensive to be on the wrong side of.
Meanwhile, on the dailies the RSI is out of over-sold territory and Friday ended in more neutral territory of 43 (though on some shorter time frames it was over-bought). EUR/USD have also pulled convincingly away from the lower Bollinger band and are heading towards the middle one.
It’s possible that this counter-trend could run a while longer, especially if there is short-covering as selling has been heavily stacked against the EUR and the slow stochs have given a clean and strong buy signal, which could see this counter-trend run further on the upside.
Support can be seen at 1.0940, 1.0924, 1.0894, 1.0858 and 1.0851 with resistance is placed 1.0998, 1.1018 and 1.1054-8.