Fed Chairman Powell yesterday delivered he first part of his testimony to the US Congress. At the event the Fed’s Chairman rejected the idea of the Fed employing negative interest rates, as sought for by US President Trump. The Fed’s Chairman stated that negative interest rates are not appropriate for the US economy as it is in a strong position, showing ongoing growth, a strong labour market and steady inflation. He also avoided entering pre-election politics as he also stated that it was not the Fed’s job to set trade, immigration or federal spending policies. He said that the effects of the three rate cuts are still not fully visible in supporting household and business spending and that the bank will probably stop where it is unless there is “material change in the economic outlook. Today we get the second part of his testimony and should any hawkish comments be made we could see the USD strengthening. EUR/USD continued to drop yesterday, breaking the 1.1000 (R1) support line, now turned to resistance. We maintain a bearish outlook for the pair and for it to change we would require a clear breaking of the downward trendline guiding the pair’s direction since the 11th of the current month. Should the pair remain under the selling interest of the market, we could see it distancing itself from the 1.1000 (R1) resistance line and aim for the 1.0950 (S1) support line. Should the pair’s long positions be favoured by the market, we could see the pair breaking the prementioned downward trendline the 1.1000 (R1) resistance line and aim for the 1.1050 (R2) resistance barrier.
… while AUD weakens on China headlines and financial data…
The Aussie weakened yesterday as worries about the possibility of the US and China reaching a possible “phase 1” deal increased. Wall Street Journal reported that the negotiations have hit a snag over purchases of agricultural products, as China seems not willing to accept a deal that looks one sided in favor of the United states. Also, a Reuters poll, showed that most economists do not expect Washington and China to strike a permanent deal over the coming year. Should we see either side taking a harder stance on the negotiations we could see the feeling of uncertainty in the markets strengthening. Also the Aussie was hit by weak financial data for October this morning, as Australia’s employment change figure turned negative and the unemployment rate ticked up, while China’s Industrial output missed its growth target and China’s retail sales seem weak. Should there be further negative headlines about the US-Sino relationships, we could see the Aussie weakening, while safe havens could strengthen. AUD/USD dropped yesterday and during today’s Asian session broke (albeit not clearly yet) the 0.6800 (R1) support line, now turned to resistance. We maintain a bearish outlook for the pair as the downward trendline incepted since the 7th of November, continues to guide the pair’s price action. Should the bears continue to guide the pair, we could see it distancing itself from the 0.6800 (R1) resistance line and aim for the 0.6740 (S1) support line. Should the bulls take over, we could see the pair breaking the prementioned downward trendline the 0.6800 (R1) resistance line and aim for the 0.6860 (R2) resistance barrier.
Other economic highlights today and early tomorrow
During today’s European session, we get Germany’s preliminary GDP growth rate for Q3, France’s final CPI (EU Normalised) rate for October, UK’s retail sales growth rates for October and Eurozone’s preliminary GDP growth rate for Q3. In the American session we get the US PPI rate for October and the EIA crude oil inventories figure. Among a number of speakers scheduled for today, we tend to concentrate on Fed Chairman Powell’s second part of his testimony before US lawmakers, RBNZ Governor Adrian Orr’s presentation before New Zealand’s Parliament about the bank’s interest rate decision yesterday and BoC Governor Stephen Poloz’s speech in San Francisco, during the Asian session tomorrow.
AUD/USD 4 Hour
Support: 0.6740 (S1), 0.6680 (S2), 0.6615 (S3)
Resistance: 0.6800 (R1), 0.6860 (R2), 0.6925 (R3)
EUR/USD 4 Hour
Support: 1.0950 (S1), 1.0905 (S2), 1.0855 (S3)
Resistance: 1.1000 (R1), 1.1050 (R2), 1.1105 (R3)
