There wasn’t any influence to the capital market from Janet Yellen or Christine Lagarde during last week’s Jackson Hole meeting. Most of the major currencies abnegated gaining the ground to the greenback last week, notwithstanding China and the Euro zone reporting intrepid manufacturing data. Among all the major currencies, the best performer against the US Dollar was the Swedish Krona, but it only managed to outperform the greenback by 0.36 per cent in the past week amid the fresh willpower in its recent economic data. In contrast, improving signs from the full set of Chinese July data, including the latest HSBC manufacturing PMI, failed to lift the Aussie, which dropped by 0.87 per cent against the greenback last week.
The worst performer last week was the Kiwi. In my opinion, the move was mainly driven by the unnecessary worries judging from Wheeler’s intention during his speech last week. RBNZ Governor Graeme Wheeler simply mentioned that the NZD is still overvalued without further elaborations. Instead, he announced that the banks would be subjected to restrictions on high Loan-to-Value Ratio (LVR) housing mortgage loans from 1 October 2013. The banks will be required to restrict new residential mortgage lending at LVRs of over 80 per cent to no more than 10 per cent of dollar value of new housing lending flows. The current ratio is about 30 per cent. This has no relevance to the currency traders, thus sparking off speculation that Wheeler is still “dovish” at this moment and the market decided to price out the earlier hawkish stance from RBNZ.
The currency market will be dominated by the greenback or tapering sentiment towards the September FOMC meeting. If this scenario persists, the development from the other countries is likely to be sidelined or play a minor role. The Aussie is a good example; despite the Chinese economy gaining public attention and debates on its outlook remain elevated, hard landing fears have been up the spout. It is still failing to bolster the Aussie valuation much. More voices in the market have bought the story of tapering to be seen in September, which tips the scale in the favour of the greenback.
Euro: German Ifo Business Climate. Tuesday, 27th August, 4.00pm.
I expect figures to come in at 107.0 (previous figure was 106.2).
US: Prelim GDP q/q. Thursday, 29th August, 8.30pm.
I expect figures to come in at 2.1%, (previous figure was 1.7%).
US: Unemployment Claims. Thursday, 29th August, 8.30pm.
I expect figures to come in at 327K, (previous figure was 336K).
Long EUR/GBP at 0.8580
On the H1 chart, EUR/GBP has broken through the resistance at 0.8575. There seems to have little reason to be bearish on the Euro. BOE governor Carney is due for a speech this Wednesday and the chance of seeing dovish message is pretty high. I foresee the uptrend continuing in the short term.
We will go long at 0.8580 after EUR/GBP retraces towards 0.8575 and rebounces. We will have a stop loss at 0.8535 and we will have two targets on this trade, exiting the first position at 0.8625 and the second position at 0.8670.
Entry Price = 0.8580
Stop Loss = 0.8535
1st Profit = 0.8625
2nd Profit = 0.8670