27-Aug-2020

1) Australian Dollar Raises After Strong China Industrial Profits Data
2) GBP/USD : Aiming At 1.33 Amid Powell’s Speech, Hogan’s Departure, Bullish Technicals
3) EUR/USD: Waiting For Powell To Pierce Potent Price Cap, Volatility Set To Explode

1) Australian Dollar Raises After Strong China Industrial Profits Data

The Australian dollar rose slightly as investors reacted to the disappointing data from Australia and China. In Australia, data from the statistics bureau showed that building capital expenditure dropped by 4.4% in the second quarter. That was a worse decline than the first quarter’s decline of 1.1%. Building capital expenditure declined by 7.6% while private new capital expenditure fell by 5.9%. Other data from China showed that industrial profits rose by 19.6% in July after rising by 11.50% in June. The profits declined by 8.1% from January to July.

The US dollar index dropped during the Asian session as investors await an important speech by Federal Reserve chair at the Jackson Hole summit. In the speech, Jerome Powell will talk about the state of the American economy and possibly reveal the bank’s plans to support the economy. The speech will come a day after the US released strong new home sales data. It will also come a few hours after the second reading of Q2 GDP data. Analysts expect that the data will show that the economy contracted by 32.5% in the second quarter after contracting by 5.0% in the first quarter. Also, we will receive the initial and continuing jobless claims numbers.

The economic calendar will have some important data from Europe today. In Switzerland, the Federal Office of Statistics will release the second quarter GDP data. Analysts expect the data to show that the economy contracted by 9.6% and 8.6% on a year-on-year basis and quarter-on-quarter basis, respectively. This is after the economy weakened by 1.3% and 2.6% in the first quarter. In Sweden, the statistics bureau will release the retail sales, manufacturing confidence, and trade data. Meanwhile, in Italy, the statistics office will release the Italian industrial sales numbers.

The AUD/USD pair was little changed after the mixed data from Australia and China. It is trading at 0.7235, which is slightly above the 50-day and 100-day EMAs on the four-hour chart. The price is also slightly below the YTD high of 0.7280. The signal and main line of the MACD and the force index have moved above the neutral line. Therefore, the pair is likely to remain within the current range ahead of Jerome Powell’s speech.

2) GBP/USD : Aiming At 1.33 Amid Powell’s Speech, Hogan’s Departure, Bullish Technicals

Is Brexit becoming better? Michel Barnier, the gruntled chief EU Negotiator is still in charge, but he lost a close ally – Phil Hogan. The tall Irishman was prominent in influencing future commercial relations between Brussels and London through his post as Commissioner of Trade for the EU.

Hogan is out – following his violation of quarantine rules in his native Ireland. The European Commission may struggle to find a replacement as formidable – and knowledgeable of the sensitive issues on the Isle of Ireland – like the outgoing official.

Uncertainty about EU-UK relations hamstrung sterling and bulls may find some relief, allowing GBP/USD to rise amid dollar weakness.

The main of the week is due out later on Thursday – Jerome Powell, Chairman of the Federal Reserve, will deliver a highly-anticipated speech in the virtual Jackson Hole Symposium. Powell is set to lay out a new policy framework, allowing inflation to temporarily surpass the 2% target – catching up with slow rises in consumer prices beforehand.

While inflation is far from being a concern and rates are set to remain around zero through 2022, the long-term shift may weigh on the dollar. If investors foresee low borrowing costs for longer, yields on US Treasuries could fall, dragging the greenback along with it.

Powell’s projected policy statement is not fully priced by markets and confirming the shift could trigger a fall in the dollar and a rise in cable. The devil may be in the details.

Two American economic indicators serve as a warm-up to the Fed Chair’s speech. Initial jobless claims are set to decline in the week ending August 21 after rising in the previous week and causing concern. The first revision of second-quarter Gross Domestic Product is set to show a minor improvement – albeit from a record crash of 32.9% annualized.

Coronavirus headlines are mostly positive on both sides of the pond, with cases declining in the US and seemingly under control in Britain. Efforts to develop a vaccine are in full force and fresh headlines regarding medical developments could boost sentiment and depress the safe-haven dollar.

Cable continues benefiting from upside momentum on the four-hour chart and is trading above the 50, 100, and 200 Simple Moving Averages. Moreover, the Relative Strength Index remains below 70, outside overbought conditions.

Resistance is at the recent high of 1.3265, followed by the late 2019 peak of 1.3330. The next level is December’s peak of 1.3510.

Support awaits at 1.3185, which was a swing high in early August. It is followed by 1.3150, a peak earlier this week, and 1.3130, a low point on Thursday. 1.3050 and 1.3005 are next.

3) EUR/USD: Waiting For Powell To Pierce Potent Price Cap, Volatility Set To Explode

A joyful day for the bulls? Jerome Powell, Chairman of the Federal Reserve, will address the virtual Jackson Hole Symposium and may down the dollar. Tension has been mounting all week and limiting volatility, which may now explode.

Investors expect Powell to introduce a new monetary policy framework which includes Average Inflation Targeting (AIT). That means allowing consumer prices to run hot – compensating for previous shortfalls. As the Fed mostly failed in achieving its 2% inflation target, adopting that new framework would keep interest rates lower for longer, weakening the dollar.

How much of that is already priced in? The dollar’s recent stability indicates that markets are uncertain that Powell will take that path. The response depends on the speech and the details the world’s most powerful central banker provides.

Ahead of the speech, the US releases initial jobless claims, which carry expectations of improving after a disappointing increase over one million last week. The lapse of federal unemployment benefits worth $600/week is weighing on the economy that continues its gradual recovery.

Investors will also eye the second release of Gross Domestic Product figures for the second quarter. A minor upgrade is on the cards following the initial report reading a record drop of 32.9% annualized.

The state of the economy and the stock market also play a role in politics. President Donald Trump is set to deliver his acceptance speech at the Republican National Convention. Protests against social injustice in Wisconsin are competing with the news from the GOP event, but their impact is unclear. Trump has somewhat narrowed the gap with rival Biden.

Coronavirus headlines have been mostly positive. Markets are shrugging off the increase in European cases and encouraged by the drop in American figures. More importantly, hopes for a vaccine are keeping stocks bid and somewhat weighing on the dollar.

Moderna, a firm based in Massachusets, said its vaccine candidate triggers a positive response also with the elderly. Further developments may move markets.

Euro/dollar is capped under the crucial resistance line of 1.1850, which held it down in recent days and also converges with the 50 Simple Moving Average on the four-hour chart. On the other hand, momentum has turned positive and EUR/USD trades above the 100 and 200 SMAs.

Beyond 1.1850, the next target is 1.1875, a swing high on the way down, followed by the early August peak of 1.1915 and the two-year high of 1.1965.

Support awaits at 1.18, a round level that provided support last week. It is followed by 1.1750, the previous week’s trough, followed by 1.17, a double-bottom.