Yesterday, it was a mixture of sentiment. First to be released was the unexpected surge of existing home sales which economists and analysts in general expected to ease by 0.5%. House data however proved otherwise with the national association of realtors saying that the current low mortgage rates was fueling demand for house sales. At a yearly adjusted rate of 5.62M houses and a 1.1% rise in May, they were quick to note that price appreciation fuelled by the latter was unsustainable. This came as a surprise and despite the switch to pro-USD sentiment after the release, the greenback didn’t gain much perhaps taking caution from such remarks. Anyhow, the USD bull cycle just started if you consider recent comment by Dudley and Rosengren. Both of these Fed officials reiterated the need of continuous tightening saying that posing or halting interest rates at this crucial moment posed a risk to the economy and that the current low inflation is transitory and should continue to rise in the short-medium term. Furthermore, the Feds should begin rebalancing their balance sheet most probably from October with initial announcement being made on September. It is expected that this balance sheet reduction will be in nominal terms and not as a percentage of the GDP-which is growing a slow pace. They will begin with withdrawing liquidity at $10B this quarter with the amount rising to $40B by Q4 of 2017. If you note, talks of the same liquity withdrawal, by tapering, is on the cards by ECB while BoJ steered clear from insinuating such. Their-BoJ- balance sheet by the way is 100% of their GDP and it begun swelling in 2012 with Abenomics. In other news, the RBNZ retained their interest rates at 1.75% and said that rates will continue to remain accommodative. Carney on the other hand dashed hopes on BoE raising rates by saying that inflation pressure were under control. In my opinion, it’s the speed of political agreement between Theresa May’s Conservatives party and the DUP that should move the Pound. So far, they are not in agreement and the GBP continues to trend lower.
Today, I look to trade EURGBP. Looking at the weekly chart, 0.8850 looks like a good resistance level and it has been a year of price consolidation between 0.8350 and 0.8850. Stochastics are overbought and a sell signal printed while bear momentum continues to build up. In my opinion, if prices fail to break higher, prices will trend back lower and fall squarely within this consolidation channel and selling now should be a good entry point. In the 1HR chart there is a sell signal printed and zooming in, if price trend higher, set a sell limit at 0.8830 with a 50 pip stop loss above 0.8850 and hold. Otherwise, if it does close lower in the next 1-2 hours, sell and place a stop loss above 0.8850.
Trade as follows:
Sell Limit: 0.8830
Stop Loss: above 0.8880
Take Profit: 0. 0.87-support in the daily chart.
Watch out for Canadian core retail sale at NY open with expectations at 0.7% from -0.2%.
Have a good trading day.