Yesterday (19/01), EUR/USD ticked up in the context of an increasing likelihood that the Federal Reserve (Fed) could delay its first interest rate hike of the year after the International Monetary Fund (IMF) lowered its global economic growth forecasts for 2016. The pair moved between $1.0860 and $1.0938, before settling at $1.0911, up 0.17% compared to the open price.
Tuesday, the International Monetary Fund (IMF) cut its global growth forecast for 2016 from 3.6% to 3.4%. This was the third time the agency has lowered its estimates over the last year due to weaker prospects for commodity-producing nations and risks tied to the Federal Reserve’s interest rate hike which could trigger a capital outflow from emerging countries. The decision coming hours after the lower-than-expected China’s gross domestic production in fourth quarter sent the US stocks into a volatile session even Asian and European closed higher thanks to China’s further stimulus measures outlook.
The sell off is exacerbated today when oil price continue to fall violently back under $29 level. The imbalance between supply and demand was confirmed after the report of the International Energy Agency which showed that global oil markets could drown in oversupply. The IEA trimmed 2016 estimates for global oil demand as China’s economic slowdown and raised forecasts for supplies as the removal of international sanctions freed Iran to boost export by 500,000 barrels per day in the first half of this year and 1 million barrels a day at the end of 2016. Although production from non-OPEC is forecasted to drop 600,000 barrels a day in 2016, the comeback of Iran has ensured that the glut would last, especially when other OPEC members including Saudi Arabia have no sign to cut their output considerably.
In 2015, global oil demand growth slipped to a one-year low in the fourth quarter amid mild winter temperatures and economic weakness in commodity producers. Therefore, the slightly lower output from Saudi Arabia and Iraq in December, which put the gross production from OPEC down 90,000 barrels a day, fell to support the oil price. There is still about 600,000 a day more than the average of 31.7 million required in 2016.
Today, the Energy Information Administration will report the Crude Oil Inventories Change showing the number of barrels of crude oil held in inventory by commercial firms during the past week. The reading is forecasted to increase by 3.3 million barrels in week ended 15/01. This has been the largest expected amount since October 2015.
After that, the Building Permits for new residential housing construction will be published by the Census Bureau. It is an excellent gauge of future construction activity because obtaining a permit is among the first steps in constructing a new building. Yesterday, the NAHB Housing Market Index showed the number was at 60, still above the 50 level. The data on housing starts has been relatively stable lately and today’s update is projected to show a slight gain for closing month of last year with 1.20 million permissions.
Bureau of Labor Statistics is due to report Consumer prices index (CPI) and CPI excluding food and energy. Although this is not the favourite gauge of Fed’s inflation, the CPI and core CPI index play an important role when it comes to deciding the possibility of Fed raise interest rate in the first quarter. On Tuesday, the CME Group’s Fed Watch tool placed the probability of a rate hike next week at 8.4% and of March’s meeting at 40%.
“Headline inflation will return to target once oil prices stabilise, but recent further declines in global oil prices are calling into question when such a stabilisation may occur,” St. Louis Fed President James Bullard said last week. Meanwhile, the Chicago Fed’s Charles Evans, in the first week of January, noted “I am less optimistic about the inflation outlook than most of my colleagues.”
Today’s update on the consumer price index for December isn’t expected to offer much relief for policymakers who are worrying about disinflation risk or worse. Econoday.com’s consensus forecast is looking for another month of flat pricing for the headline data. But that’s still enough to lift the annual pace above its current 0.5% year-over-year rise, if only slightly.
The core inflation numbers are firmer, providing substantially more support for thinking that disinflation momentum isn’t accelerating. CPI ex-food and energy is up 2.0% for the year through November and today’s numbers will probably stick close to the rate for December. That’s a sign that the bear market in energy isn’t spilling over into the price trend generally.
Yesterday, the People’s Bank of China (PBOC) said the central bank would inject more than 600 billion yuan ($91.22 billion) into the financial system to help ease a liquidity expected before the Lunar New Year holiday in early February. Before the market open, the PBOC set the yuan mid-point rate at 6.5578, maintaining stability following the previous session’s fix of 6.5596. Further stimulus from Beijing has calmed down the investors and encourage them to keep investing in riskier assets.
Currently, at 16:13 GMT+7, the pair is trading at $1.09500, up 0.46% compared with the opening price of $1.09058.
Regarding chart H4, the pair has formed an ascending triangle with three highs and three rising lows since the session 06/01. The currency pair closed in green in 4 out of 5 last candles and is likely to make a breakout at the current candle to continue the uptrend pattern after two unsuccessful attempts on 11/01 and 15/01 sessions.
The Relative Strength Index (RSI) is at 63.01 and moving toward the 70 line, indicating that the bullish is overwhelming. Once the price enters 70-100 region which is considered to be overbought, the reverse is likely to happen, pull the pair back down.
Deriving from chart H1, the price has inched up from the open of Asian session and went beyond 23.6 bar at $1.09184. The pair is reaching the highest level of $1.09835, the strong resistance which has held the price from rising higher for a month. However, the current candle is likely to come back to the 23.6 bar and may lower to 38.2 level at $1.08783.
ADX indicator (The Average Directional Index (ADX) measures trend strength without regard to trend direction while the other two indicators, Plus Directional Indicator (+DI) and Minus Directional Indicator (-DI), complement ADX by defining trend direction) is 45 which shows that the pair has strongly confirm the current trend. The ADX line has been above both +DI line and -DI line, and the +DI (the yellow line) is above the -DI (the white line), indicating a clear direction that prices are moving up.
The MUAEA Signal Trend Indicator has shown the Buy Signal since yesterday, giving us the rewards of approximately 479 points.
As we can see in chart H1, there are only 4 red candles compared to 8 green ones. The bull is strong as oil price fall lower in Asian session triggering concerns about weak US inflation could tamper the effort of policy makers to tighten the largest economy. As for the Euro, the common currency is benefiting from its funding currency condition, despite early data showed that the German index of producer prices fell by 2.3% compared to a year earlier.
The price managed to continue its uptrend in the last candle but the bear came in. The candle closed with long upper shadow and the market has enter the bearish zone as oil briefly ticked up.
As regarding to the CPI, a firm figure which can come as more than 0%, may breathe a new wind into the Fed rate hike outlook, sending the US dollar broadly higher.
If the data of US economy cannot wave the confidence about its healthy, the US stock market may slump one again and push the money flow into less risky instruments such as gold, Japanese Yen and the greenback.
Today, the prices are likely to have the second consecutive up session as the oil outlook hasn’t found any support.
However, as mentioned in the Risk, the price may go down in the context of volatile stock market which unwind the investors’ position from riskier assets to safe-haven including US dollar.
Analyses of Group fiinvesting