20th August 2019 - The risk appetite holds ahead of Jackson Hole

Walid Salah Eldin

Active member
The single currency is still depressed by rising odds of having stronger than expected monetary stimulus package next month since The ECB's Board Member Olli Rehn referred to that last week.

The German Finance Minister Olaf Scholz has followed Olli Rehn's comment by reference to the need of fiscal stimulus too to spur faster growth, paving the way for adopting easier austerity measurements in EU to boost growth and raise the inflation levels. The German Bund 10 year yield is now at -0.65% rising from its all time formed low at -0.727% by last week end.

While Italy is living in persisted unstable political stance, mainly because of EU imposed fiscal austerities on it to fix its financial situation and tighten its deficit. The Italian 10 years Bond yield is now at 1.437, after reaching its lowest level since 2016 at 1.324% last Thursday.

The Governor of Bank of Finland Olli Rehn's comments drove EURGBP to correct to the downside reaching 0.9090 by the end of last week, after peaking at 0.9324 in the beginning of it.

While GBP could be boosted by stronger than expected retail sales, inflation rates and wage pressure in UK in July, while the efforts are gathering to cap Boris Johnson from crashing UK out of EU without a deal anyway at the end of next October, as he plans.

As it seems impossible to watch The Brexit Advocate Boris Johnson having EU shift of its position on The Irish boarder backstops, after Theresa May's Failure to do. I guess he knows that too and that's why he is looking for a solution more inside of UK than outside of it.

The Speaker of the House of Commons, John Bercow pledged to do anything to stop that crush out, while many MPs are looking forward now for recalling to cut the parliament yearly vacation to look in the Brexit outcome.

In the same time, the UK Labor party leader Jeremy Corbyn is still looking forward for new parliament election he believes he can win to pass demand for new referendum.

The greenback could be underpinned further and also the demand for riskier assets in the beginning of this new week by Trump's economic adviser Larry Kudlow's reference to no serious worries about recession in US meanwhile. Kudlow, The White House National Economic Council director expected more positive news to come over the trade war during his speech to Fox News last Sunday.

After Trump decided to delay additional tariffs on some Chinese imports including clothing, video game consoles, computer monitors, certain toys, items of footwear and computers until December 15, not the beginning of September as what was scheduled.

Following Kudlow's optimistic comments, WTI could be able to rise again above $56 per barrel, The demand for risky assets maintained S&P 500 existence above 2900 and The gold retreated below $1500 per ounce psychological level.

In the same time The demand for US Treasuries retreated sending UST 10 year yield above 1.60% again, after diving last week to 1.53% on Kudlow's Assurances which could calm down the worries about global economic slowdown sending the sovereign bonds yields up across the broad.

While the markets are waiting by the end of this week for the monetary policies makers and also the fiscal policies makers scheduled meeting as usual each year in the Jackson Hole symposium.

The meeting is expected to highlight the fear of US trade wars and The current tendency to easier monetary policy to underpin the global economic growth.

The equities markets can react positively to this tendency especially, if it is to come without displaying serious worries about the global growth.

Like what the Fed did by the end of last July, When it lowered the Fed fund rate by only 0.25% warning about expecting long U.S. monetary easing cycle naming that action “mid-term policy adjustment”.

So, The Federal Reserve Chairman Jerome Powell's speech will be closely watched next Friday By God's will.

EURUSD Daily Chart:

EURUSD-Daily-20-08-2019 04-48-30 ص.jpg

After forming another lower high at 1.1249, EURUSD retreated again for trading currently near 1.1085 in its third consecutive day of being below its daily Parabolic SAR (step 0.02, maximum 0.2) which is reading today 1.1242.

The pair is now trading below its daily SMA50 and its daily SMA100 after short lived period above them ended to forming another lower high at 1.1249, while it is still undermined over longer range by continued trading below its daily SMA200.

Having a lower low at 1.1026 helped the pair to continue its series of lower highs by giving it longer space to form another lower high at 1.1249 below its recent lower high at 1.1285 and its formed peak at 1.1412 on last Jun. 25.

The daily chart shows that EURUSD RSI-14 is referring now to existence inside the neutral region reading 38.240.

While EURUSD daily Stochastic Oscillator (5, 3, 3) which is more sensitive to the volatility is having now its main line inside the oversold territory below 20 at 12.031 in intersection with its signal line which is lower inside the same area at 11.140.

This indicator is showing now crossover probability again inside the oversold territory, but with higher low this time can cause convergence to the upside but it is in need of holding above 1.1026 to avert extension to the downside, after a period of forming relatively close lower highs since peaking at 1.1621 on last Oct. 16.

Important levels: Daily SMA50 @ 1.1217, Daily SMA100 @ 1.1216 and Daily SMA200 @ 1.1286

Experienced S&R:

S1: 1.1026

S2: 1.0838

S3: 1.0569

R1: 1.1249

R2: 1.1285

R3: 1.1412

Have a good trading day

Kind Regards

Global Market Strategist of FX-Recommends

Walid Salah El Din
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