Federal Reserve officials

Monday was uneventful. There are no significant economic reports scheduled for Monday and Tuesday, and all the fundamental events are of secondary importance. Monday was a low volume trading day and both pairs had a slight inclination to correct after a strong rally last week.   The same situation will probably persist today. Among the economic events, the only one worth mentioning is the report on the number of building permits issued in the United States. Even with an empty events calendar, such a report can still provoke a market reaction. But what kind of reaction exactly?   For example, on Friday, when volatility was also quite low, the US Consumer Sentiment Index triggered a 30-point reaction (approximately). We might witness the same reaction today. The main point is that volatility is still low, which makes it difficult to trade, regardless of whether there are reports or not.   Analysis of fundamental events: Among today's fundamental events, the speeches by European Central Bank representatives Andrea Enria, Luis de Guindos, and Elizabeth McCaul stand out. De Guindos has already spoken earlier, and Enria and McCaul clearly carry less weight in the eyes of traders compared to Schnabel and Lane.   Therefore, if traders did not react to yesterday's speeches, it is even less likely that they would today. In the US, you can look forward to the speeches of Federal Reserve officials John Williams and James Bullard. However, Bullard does not have voting rights this year, so his hawkish stance (which is expected) is unlikely to affect morale. As for John Williams, the US central bank held a meeting just last week and we have already heard all the necessary information.   Furthermore, on Wednesday and Thursday, Fed Chairman Jerome Powell's speeches in Congress will attract much more attention. General conclusions: There are few important fundamental and economic events.   You can pay attention to the report on the number of building permits issued in the United States, as it is the only event that can truly provoke a reaction on a potentially low volume trading day. Basic trading rules: 1) The strength of the signal depends on the time period during which the signal was formed (a rebound or a break). The shorter this period, the stronger the signal. 2) If two or more trades were opened at some level following false signals, i.e. those signals that did not lead the price to Take Profit level or the nearest target levels, then any consequent signals near this level should be ignored. 3) During the flat trend, any currency pair may form a lot of false signals or do not produce any signals at all. In any case, the flat trend is not the best condition for trading. 4) Trades are opened in the time period between the beginning of the European session and until the middle of the American one when all deals should be closed manually. 5) We can pay attention to the MACD signals in the 30M time frame only if there is good volatility and a definite trend confirmed by a trend line or a trend channel.  

Analyzing Monday's trades: EUR/USD on 30M chart   On Monday, EUR/USD corrected against Friday's correction. As a reminder, on Friday, the pair started an upward movement after breaking the descending trendline three times. Since the upward movement on that day was strong and sharp, a correction was expected, which we saw on the "quiet" Monday.   From a technical standpoint, the pair has been moving in an ideal manner in the last couple of days. The main question now is whether a new short-term uptrend will begin. Take note that in the medium-term perspective, the euro does not have any reason to rise. The short-term uptrend may simply be a correction on higher time frames. Therefore, the euro could still rise. But in the next couple of months, we believe that it should continue its downward movement.   EUR/USD on 5M chart   On Monday, there were two trading signals on the 5-minute chart and volatility was 54 pips, which is very low. It was quite inconvenient to trade due to such low volatility, but we were lucky to get such trading signals, as they turned out to be false only based on the fact that the pair did not reach the nearest target level. However, with such low volatility, it did not make sense to expect it to reach the target level anyway. The price bounced twice from the area of 1.0971-1.0977. In the first case, it moved up by 12 pips, so the trade should not have been closed at the time when the second signal was being formed. In the second case, the pair moved up by 20-25 pips. Beginners could have made such a profit by closing the trade manually closer to the evening.   Trading tips on Tuesday: On the 30M chart, the pair started to correct, but we still expect it to fall since it is significantly overbought in the long term and also lacks significant reasons to enter a new rally. The key levels on the 5M chart are 1.0835, 1.0871, 1.0901-1.0904, 1.0971-1.0977, 1.1038, 1.1091, 1.1132-1.1145, 1.1184, 1.1241, 1.1279-1.1292. A stop loss can be set at a breakeven point as soon as the price moves 15 pips in the right direction. On Tuesday, Germany will release the second estimate of its inflation report for July. In addition to that, Federal Reserve officials will speak. All of these events are considered secondary of importance.   Basic trading rules: 1) The strength of the signal depends on the time period during which the signal was formed (a rebound or a break). The shorter this period, the stronger the signal. 2) If two or more trades were opened at some level following false signals, i.e. those signals that did not lead the price to Take Profit level or the nearest target levels, then any consequent signals near this level should be ignored. 3) During the flat trend, any currency pair may form a lot of false signals or do not produce any signals at all. In any case, the flat trend is not the best condition for trading. 4) Trades are opened in the time period between the beginning of the European session and until the middle of the American one when all deals should be closed manually. 5) We can pay attention to the MACD signals in the 30M time frame only if there is good volatility and a definite trend confirmed by a trend line or a trend channel. 6) If two key levels are too close to each other (about 5-15 pips), then this is a support or resistance area.   How to read charts: Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them. Red lines are channels or trend lines that display the current trend and show which direction is better to trade. MACD indicator (14,22,3) is a histogram and a signal line showing when it is better to enter the market when they cross. This indicator is better to be used in combination with trend channels or trend lines. Important speeches and reports that are always reflected in the economic calendars can greatly influence the movement of a currency pair. Therefore, during such events, it is recommended to trade as carefully as possible or exit the market in order to avoid a sharp price reversal against the previous movement. Beginners should remember that every trade cannot be profitable. The development of a reliable strategy and money management are the key to success in trading over a long period of time.  

'Significant upside risks to inflation'  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  FOMC minutes released yesterday showed that most Federal Reserve (Fed) officials see 'significant upside risks to inflation that may require more tightening'. Policymakers cited a range of scenarios that included the rising commodity prices that could lead to 'more persistent elevated inflation'. Two of them favoured halting rate hikes, but the minutes showed no official dissenters. The Fed economists also expect a small rise (only) in jobless rate in the US, but they warned that commercial real estate fundamentals could worsen.   The regional banks are under a rising pressure, as a Fitch analyst warned that dozens of US bank credit ratings are at risk – just a week after the rating agency downgraded the US' credit rating, and Moody's downgraded 10 US small and mid-sized banks.   The US 2-year yield remained little changed at around the 5% mark, while the 10-year flirts with the 4.30% level, approaching last October's peak, raising questions among investors on whether levels above 4% are a good entre point in the US 10-year papers, or could it go higher? Looking at the net speculative positions, the rising US treasury yields attract investors. Asset managers' combined treasury positions hit a record in August, but that also means that these positions could be unwound and give way to a deeper selloff. The conclusion is, even though the actual levels look appetizing for US long-dated papers – especially with the Fed's nearing the end of its tightening cycle and trouble brewing in China. risks prevail. Activity on Fed funds futures gives less than 15% chance for a September rate hike in the wake of the latest FOMC minutes. That's slightly higher than around 10% assessed to a 25bp hike before the release of the minutes yesterday. But the pricing for a potential 25bp and even 50bp hike in November meeting are in play.   The US dollar extends gains, and the dollar index is now marching above its 200-DMA, into the overbought market territory, with little reason for investors to step back given the Fed's decided hawkish stance on its rate policy. The S&P500 extended losses below its 50-DMA yesterday and is preparing to test the 4400 support to the downside, while Nasdaq 100 closed below the 15000 level for the first time since end of June. Tesla dropped another 3% yesterday on news that it cut its car prices in China for the second time this year, and the shares closed the session at a spitting distance from the major 38.2% Fibonacci retracement, which should distinguish between the positive trend building since the beginning of this year and a bearish reversal.   Elsewhere, Target jumped nearly 3% yesterday after beating profit expectations when it released Q2 earnings yesterday. Lower costs boosted profit margins, and gross margins jumped 27% last quarter compared to 21.5% printed a quarter earlier, net income more than quadrupled. Shiny results helped investors overcome the 11% drop in online sales – vs. 5% growth nailed by Amazon, and the slashed sales and profit outlook. Again, despite the risk that US consumers may not spend much in the next few quarters, what we see in most data is that... they continue spending – and the resilience of spending starts weighing more on Fed expectations than the risks that don't materialize.