Long EUR/USD (From 27-Nov to 30-Nov)
Stop loss raised to 1.1223 from 1.1183 on 29-Nov (noted in the AUD/USD trade briefing).
new stop-loss triggered on 30-Nov (trade is small profit)
Real-Time AmpGFX – Bought EUR/USD (Tue 11/27/2018 11:08 PM MT)
Bought one unit of EUR/USD at 1.1296
We want to take a short USD position ahead of Powell’s speech tomorrow.
We think the case is strong for the Fed to pause on further rate hikes for the time being.
After several hikes this year, bringing rates to a level that may be having some restraining impact, witnessing more significant and sustained weakness in US equities and credit, a significant retreat in oil prices and other commodities, ongoing threats from tariffs, slower growth indicators abroad, pressure from the President Trump not to over tighten, and some decline recently in long-term inflation expectations, I think the better strategy would be for the Fed to hold off from further hikes until there is a stronger reason to proceed.
There have been few indications yet from the Fed that they may pause in December, and they may proceed simply because expectations are firmly embedded, and they may cause confusion by not following through. But the case is not that strong to proceed.
If they do decide to hike in December, they may sound more ambivalent about the need for a hike in the first half of next year. In any case, I expect Powell to make it clear that with a press conference every six weeks they have the luxury to wait and take every meeting as it comes.
Powell is only in this job for one year, and he hasn’t been tested yet on a shift in tone and policy trajectory. The market is still in a mindset that the Fed is firmly on a quarterly schedule. I think Powell needs to break down that mindset and could decide to work on that message in his speech on Wednesday.
I’ve chosen EUR as the buy side since it has underperformed relative to some metrics in recent weeks.
I was looking at AUD thinking we could get positives news flow on the trade front. But that is harder to see now. Commodity prices have been falling recently, and this could undermine the AUD.
JPY and Gold could lag because a dovish Fed could reignite equity markets. In any case, both have been surprisingly weak this year, and it feels like you are swimming harder against the tide buying either JPY and Gold.
There is a risk that GBP drags down EUR on Brexit uncertainty, but we hope that GBP weakness could have run its course for the time being, until we get closer to the UK parliamentary vote.
Eurozone inflation data are due towards end week, Germany on Thursday and EZ on Friday. The outlook for inflation is important but probably not a game changer for ECB at this stage.
Long one unit EUR/USD at 1.1296; s/l 1.1183; t/p 1.2018 (Capital at Risk 1.00%)