- Published: 24 November 2015
- Written by Editor
God willing, Q3 US GDP figure will be in focus today with expected upward revision to show 2% annualized growth, after the preliminary reading had shown decelerating to only 1.5% following growth by 3.9% in the second quarter.
After last October FOMC meeting, The committee has chosen to cool the worries about the US economy because of the global economic slowdown saying merely following last meeting that it will monitor the global developments, while the economy is running by a moderate pace amid balanced risks.
It has been considered direction to downplay the global economic slowdown risk, as it said in September that the global developments may restrain the growth of the US economy.
The Fed has already supported the odds of having the first interest rate hiking by the end of this year by showing higher consideration of raising the fund rate next December by saying that it will see next meeting "whether it will be appropriate to raise the target range or not" , after keeping it unchanged between 0 and 0.25% since Dec. 16 2008.
Fed Yellen repeated again yesterday that the lift−off will be warranted, if there is continued improvements on jobs and inflation.
The markets are really still watching continued improvement in the labor market but with tame inflation pressure weighing down on the interest rate outlook in US.
So, tomorrow Oct US PCE release will be closely watched too, after it rose by only 0.2% y/y in September following increasing yearly by only 0.3% in September, August and July.
This rate is still obviously away from the Fed's 2% inflation target over the medium term which was the main reason why the Fed did not raise the interest rate earlier last September.
Since the beginning of this year US yearly PCE has managed to stand close to zero mainly because of the significant slide of energy prices which started by the beginning of the second half of last year.
The current tame inflation pressure which persisted this year because of the relatively weak energy prices and the odds of raising rates themselves which supported the greenback this year putting pressure on the inflation broadly.
With this tame inflation pressure, the Fed can choose to keep waiting looking forward for watching evidence of inflation rising over the medium term towards its 2% yearly target which has not been reached since March 2012.
Watching negative yearly PCE tomorrow can lower the current interest rate outlook in US, as it is not favorable to the central bank to watch increasing deflation worries and also lower growth rates amid continued worries about the global growth slowdown.
While taking a decision for raising the interest rate in US can support the greenback further and erode the inflation building power.
EURUSD has faced downward pressure by the end of last week and also in the beginning of this week, after The ECB president Mario Draghi assured on the ECB's readiness to take more stimulus measurements saying that "ECB Will Do What It Must to Spur Price Gains".
The current low inflation level in EU which is also far from the ECB 2% goal drove Draghi to repeat several times since the recent ECB governing council meeting on last Oct. 22 that "there will be reassessment of the QE impact next December" raising the odds of taking new easing decision.
It should be mentioned here that the energy prices played a key role in directing the inflation in EU too even by a transitory way, despite the common currency slide which could not prop up the inflation rate in EU yet.
The low inflation pressure in EU has already helped the ECB to prompt its QE plan in the first quarter of this year, before watching later what can be named sluggish inflation rebounding to the positive territory, before turning back below zero last September.
EURUSD could be supported by the release of Nov EU PMI composite preliminary reading which rose to 54.4, while the consensus was referring to no change to be as it has been in October at 53.9.
Nov EU PMI Service preliminary reading rose up to 54.6, while the consensus was pointing to 54.1 to be as the same as October and also Nov EU Manufacturing PMI flash reading rose to 52.8, while the consensus was 52.3 like October.
EURUSD opened also last week under pressure on a downside gap at 1.0740 following Paris terror attacks and it could hardly fill this gap last Thursday by rebounding to 1.0763, after falling to 1.0616.
Now, EURUSD which could find support at 1.0593 yesterday can face in its way down another supporting level at 1.0570, before facing 1.0520 which could prop the pair up on last Apr. 13 to form higher low above 1.0462 which capped the pair falling on last Mar. 13.
While the way up is in need now for getting over intermediate resistance at 1.0707 which stopped its rebound from 1.0663, before facing last week high at 1.0763 which can be followed by facing higher resistance at 1.0829 which capped its bouncing up from 1.0674.
EURUSD is now in its day number 24 of continued being below its daily Parabolic SAR (step 0.02, maximum 0.2) which is reading today 1.0738.
The pair is having its daily RSI-14 in the neutral area but close to the oversold area below 30 reading now 33.582.
EURUSD daily Stochastic Oscillator (5, 3, 3) which is more sensitive to the volatility is having also its main line now in the neutral region close to the oversold area below 20 reading 24.380 and also its signal line which is reading 31.381.
Have a good day
FX Market Strategist
Walid Salah El Din
Mob: +20 12 2465 9143