Pound is deadlocked. Forecast as of 02.02.2023

2023.02.02 2023.02.02
Pound is deadlocked. Forecast as of 02.02.2023logo

No one can confidently say how the BoE will act in February. Inflation is above 10%, which is pushing the central bank to raise interest rates aggressively, but the economy is weak. Let us discuss the Forex outlook and make up a GBPUSD trading plan.

Fundamental pound forecast today

A weak economy, high inflation, and a dispute among the BoE members. It seems that the UK is watching the same first act of the play while the US has already moved on to the second. It doesn’t matter that the BoE started the monetary tightening cycle earlier than the Fed did. It started selling bonds purchased under QE also earlier. Some economists even suggest that the BoE should be the first to pause monetary restrictions after raising the bank rate by half a point in February. However, hardly anyone can say for sure what exactly the regulator will do. And this uncertainty is driving the GBPUSD into consolidation.

Even a major improvement in global risk appetite and a weakening US dollar since the first FOMC meeting in 2023 failed to strengthen the pound. In the UK, unlike the USA, nothing changes. The IMF still considers the UK economy the weakest in the G7, lowers its GDP growth forecast for the current year by 0.9%, and predicts a recession of -0.6%. Given that estimates of global economic growth were raised to 2.9%, one can say that the UK economy and the sterling are under pressure.

Projections for G7 economies

Source: Bloomberg.

Consumers face high energy prices, borrowers face high interest rates on loans, and taxpayers face high taxes – these are named as the main reasons for the downturn. Furthermore, government spending is cut, and the labour market doesn’t suggest much optimism. So, the future of the UK economy doesn’t look so bright.

Nevertheless, pessimistic forecasts are unlikely to stop the Bank of England from the 10th act of monetary restriction in a row and the growth of the interest rate to 4%, the highest level since 2008. Inflation in the UK seems to have passed its peak but is still at an unacceptably high level of 10.5%. It seems that previous steps along the road of tightening monetary policy are not producing results.

Dynamics of leading central banks’ interest rates

Source: Bloomberg.

The stagflationary environment makes BoE more divided than ever. At the December meeting, the majority of MPC members voted in favor of raising borrowing costs by half a point, but one official suggested a wider move, and two others did not want any change. What will happen in February? Will the balance of power change? The derivatives market is not sure about raising the BoE rate by half a point, although it considers this option the most probable. Derivatives lowered expectations for a rate ceiling to 4.5% from 4.75% in November.

GBPUSD trading plan today 

Thus, unlike the Fed, which will soon pause the process of monetary restriction, or the ECB, whose determination in the fight against inflation is not in doubt, the Bank of England is uncertain. It could easily surprise investors with a smaller increase in the bank rate, which will send down the GBPUSD towards 1.225 and 1.22. If the UK regulator meets the market expectations, then medium-term buy targets will remain at 1.268 and 1.28.

Price chart of GBPUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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Gold Prices Rallied as Markets Kept Betting Against the Fed, Now What?

Gold, XAU/USD, Federal Reserve, Technical Analysis – Briefing:

Gold prices rallied the most in almost 2 weeks after the FedMarkets continue to bet against Powell’s rate outlook visionXAU/USD now turns to non-farm payrolls data on Friday

Recommended by Daniel Dubrovsky

Get Your Free Gold Forecast

Gold prices gained 1.14 percent on Wednesday, the most in almost 2 weeks. The yellow metal is on course for a 7th consecutive week of gains. That would be the longest winning streak since the summer of 2020. All eyes were on the Federal Reserve over the past 24 hours, which delivered a 25 basis point rate hike, as expected. That brought benchmark lending rates to a range of 4.50% – 4.75%.

As usual, the focus was on what could come rather than on what occurred. Since the end of last year, markets have been pricing in an increasingly dovish outlook. As a result, the US Dollar and Treasury yields fell as the S&P 500 gained. The Chicago Fed National Financial Conditions Index is at its lowest since the Fed started tightening last year – a sign of easing liquidity in markets despite quantitative tightening.

What did Chair Jerome Powell say? He acknowledged that inflation has eased somewhat but that ‘it remains elevated’. He stressed that the central bank ‘will need to stay restrictive for some time’ and that if the economy performs as expected, policymakers don’t see cuts this year. How did the markets respond?

Despite Powell’s rhetoric, financial markets continued to bet against the central bank. Fed Fund Futures point at 2 rate cuts towards the end of this year. This is as traders added in almost half a cut to the 2-year horizon. On the intraday chart below, you can see the US Dollar falling alongside front-end bond yields. Gold rallied, capitalizing as the ‘anti-fiat’ trading instrument.

Powell was questioned about the recent easing in financial conditions, but his answer left more to be desired. He said that the focus is “not on near-term moves, but on sustained changes”. All things considered; this continues to leave markets vulnerable to disappointment if a pivot becomes increasingly unlikely. To that end, the focus remains on economic data and non-farm payrolls on Friday.

Gold Surges During the Federal Reserve Rate Decision

Gold Technical Analysis

Gold closed at a new high this year, taking out the January peak at 1949.16. That placed XAU/USD closer to the key 1978 – 1998 resistance zone. Negative RSI divergence is present, showing that upside momentum is fading. That can at times precede a turn lower. In such a case, the 20-day Simple Moving Average (SMA) could maintain the upside focus.

Recommended by Daniel Dubrovsky

How to Trade Gold

XAU/USD Daily Chart

XAU/USD Daily Chart

Chart Created Using TradingView

— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com

To contact Daniel, follow him on Twitter:@ddubrovskyFX

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Gold Treads Water Ahead of a Cascade of Central Bank Hikes. Where to for XAU/USD?

Gold, XAU/USD, US Dollar, FOMC, DXY Index, ECB, BoE, Crude Oil – Talking Points

The gold price is steady today as markets await central banks actionsThe US Dollar tried higher but pulled back into the range amid uncertaintyThe market is eyeing today’s FOMC meeting. What will it mean for XAU/USD?

Recommended by Daniel McCarthy

Get Your Free Gold Forecast

Gold had a look lower at the US$ 1,900 handle in the US session but quickly recovered back above US$ 1,925. At the same time, the DXY Index, a benchmark measure of the US Dollar, moved to higher ground before collapsing into the New York close.

Wall Street had a stellar session on hopes that the Fed Chair Jerome Powell might soften the hawkish stance at today’s Federal Open Market Committee (FOMC) meeting.

Prior to the media blackout, several committee members had been sprouting the message that 25 basis points seemed like the appropriate dosage for tightening and that rates will need to remain high for ‘a long period’.

Interest rate markets have a 25 bp lift baked in. It is the post-meeting commentary that has the potential to set off market moves.

In addition, the European Central Bank (ECB) and the Bank of England (BoE) will be meeting tomorrow, and the market expects both banks to tighten by 50 bp.

Treasury yields slipped a few bps overnight but have done very little through the Asian session today.

The Nasdaq posted a 1.67% gain in its cash session, but futures are indicating a soft start to their day trading.

APAC equities have had a quiet day, although most indices are slightly positive. Likewise, currency markets are lying in wait to see what comes of the Fed meeting, although the Swiss Franc posted solid gains yesterday.

After testing lower levels yesterday, crude oil has held onto the consequent recovery. The WTI futures contract is above US$ 79 bbl while the Brent contract is around US$ 85.80 bbl at the time of going to print.

After the European CPI number, the US will see figures on mortgage applications, employment and the ISM survey. The Fed remains the focus late in the day.

The full economic calendar can be viewed here.

Recommended by Daniel McCarthy

How to Trade Gold

GOLD TECHNICAL ANALYSIS

Gold has dipped below the 10-day simple moving averages (SMA), but remains above all other short, medium and long-term daily SMAs.

This may suggest a pause in short-term bullish momentum, but that underlying medium and long-term bullish momentum remains intact for now. The price remains in an ascending trend channel.

Resistance might be at the recent peak of 1949 or the April 2022 high of 1998.

On the downside, support may lie at the lows of 1900 and 1897 or the breakpoints of 1865 and 1825.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter

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TESLA ($TSLA) impulsive rally favors upside [Video]

TESLA (TSLA) showing short term  Elliott wave  impulsive sequence started from 1/06/2023 low. It should remain supported in 3, 7 or 11 swings and extend higher. Short term, it placed ((iv)) correction at 162.78 low against 1/19/2023 low and favors upside in ((v)) of 3 of (3). It proposed ended weekly correction at 101.20 low at weekly blue box area and favors higher or at least can see larger 3 swing larger bounce. It placed (1) at 123.52 high and (2) at 114.92 low. Above there, it favors higher in extended wave (3) and expect further strength to continue. Within (3), it placed 1 at 125.95 high and 2 at 115.64 low. Currently, it favors higher in extended wave 3 of (3) and expect one more leg higher in ((v)) to finish wave 3.

In wave 3, it favored ended ((i)) at 137.50 high and ((ii)) at 124.31 low as 0.618  Fibonacci retracement  against ((i)). Above there, it extends higher in wave ((iii)), which ended at 180.68 high as 2.618 Fibonacci extension of wave ((i)). It proposed ended ((iv)) at 162.78 low in 3 swing pullback. It placed (a) at 166 low, (b) at 178.05 high and finally ended (c) of ((iv)) at 162.78 low. While above there, it favors higher in ((v)) to finish wave 3 of (3). It placed (i) of ((v)) at 174.30 high and expect short term pullback in (ii), which should remain above ((iv)) low to resume upside in (iii) of ((v)). It confirms the sequence above ((iii)) high. Short term, it should be remains supported in 3, 7 or 11 swings to see further upside.

TSLA 1-hour Elliott Wave chart

TSLA Elliott Wave video

 

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Average True Range – the ATR Indicator: improve your trading with volatility measure

2023.01.31 2023.01.31
Average True Range – the ATR Indicator: improve your trading with volatility measurelogo

The ATR (Average True Range) indicator is a useful tool that measures volatility levels. 

The ATR indicator meaning tells us how much the price has changed in a current period compared with previous periods. It is used in trend strategies to assess a trend reversal probability and determine the moment when the market starts a new trend. It also serves to place Stop Loss and Take Profit orders and is used for estimating the range’s width when trading results based on channel strategies. 

The technical indicator is included by default in many trading platforms and applied as an auxiliary indicator combined with Price Action and oscillators.

The article covers the following subjects:

What is ATR: average true range full definition

Technical analysis indicators can be divided into three groups:

The ATR Forex market indicator is often considered to be an oscillator as it helps us define new trend reversal points. If the indicator covers over 75% of its average distance in a fixed time period, there can be a reversal. Unlike oscillators, it hasn’t got the “0” and “100” limits that define overbought and oversold territories. Thus, the ATR indicator is a specific technical indicator that combines the three groups’ features.

The Average True Range was first introduced by J. Welles Wilder in 1978. 

J. Welles Wilder also developed such popular tools as Parabolic SAR and RSI. The technical indicator was first meant for futures markets, which are much more volatile than stock markets. Then it grew so popular that it was included in trading platforms (including trading Forex, trading CFDs, and working with other complex instruments) as a basic one. 

J. Welles Wilder created the ATR indicator for one purpose: determining market high and low volatility.

Average true range trading is rarely applied to manual strategies, but it is often used for forming trading advisors’ automatic risk management trading systems. This technical indicator doesn’t measure a trend’s strength and cannot forecast price movements. It only estimates market high and low volatility. 

That said, the average true range is the indispensable tool for setting profit target levels, stop placement orders, and determining the width of price channels in channel and range strategies (strategies used for trading retracements and breakouts).

The ATR indicator is NOT used for:

determining a price market direction;

searching for a divergence;

it can sometimes indicate reversal points;

it is used for measuring price ranges and the nature of their trend changes.

 

The indicator’s main signal is the following: when the indicator grows, an asset’s volatility grows. The classic error is to link the indicator’s growth to price growth. The ATR indicator doesn’t show the price’s direction either. When it grows, the price line may rise or fall. It’s the price volatility range that increases.

What is Average True Range?

ATR measures volatility over a certain period. It compares:

 Then it takes the greatest of those values and averages them out based on the arithmetic mean.

The indicator’s relatively low values can be read as follows:

The market is flat. The price moves in the same range, and the average difference between highs and lows doesn’t change. However, we cannot estimate the range’s width where the price fluctuates using the ATR indicator.

The market trend is slow. The price grows or falls, but the difference between neighboring candles isn’t significant.

The indicator’s leading signal is a sharp increase in its readings that indicates a rising difference in candlestick extremums. The candles’ bodies and shadows are growing, and the price’s angle of ascent relative to the horizontal axis becomes bigger. At the same time, the price range may remain the same. Volatility growth means that the price covers the same distance faster.

Example of using the average true range indicator:

There’s a small downtrend in the market; the ATR (Average True Range) value is small. 

Then, there’s a sharp high volatility splash: the price range is growing sharply over a short time period. The Average True Range is rising steeply. Next, a slow uptrend begins. Although the distance between the trend’s start and top is many times bigger than the volatile segment’s range, the ATR (Average True Range) is reducing because the trend has been developing over a certain time period.

ATR indicator formula

There are three formulas how to calculate ATR true range:

The difference between a current candle’s extremums (high and low). The current candle’s high less low.

Absolute value of the current Max (High) less the previous value of the close. |High — (Close-1)|.

Absolute value of the current period Min (Low) less the previous value of the close. |Low — (Close-1)|.

 

Then we take the greatest value of those and calculate the ATR indicator’s readings. Here’s the formula:

ATR = Moving Average (TR, m) 

where TR is the greatest value out of the three differences and m is an averaging period. Moving average is the arithmetic mean of a given set of values.

Average True Range calculation

Now let’s find out how to calculate the ATR true range value to better understand its work principle. I remind you that the Average True Range is the greatest value of the following: current period high minus current low; absolute value of current high minus previous close; absolute value of current low minus previous close. The indicator compares those three values for two neighboring candles. The period is the number of candles considered. 

For example, if the period’s value is 1, the ATR indicator will compute the difference of prices for the latest candle. It will compare its High/Low, and the difference between the candle’s High/Low and the previous close of the candle. So, with period “1”, two candles are considered. For example:

The difference between high and low: 1.2121 – 1.2117 = 0.0004, or four points for 4-digit quotes. That is the greatest value of the three possible remainders. 

The print screen shows that the value is identical to ATR true range calculation. “0.0004” means that the average true range is four points for one candle period. 

If we take period 2, the three latest candles will be considered. The two values for the ultimate and the penultimate candles are averaged: they are summed and divided by two, according to the arithmetic mean.

The longer the period, the more candles are considered, and the smoother the ATR line gets. However, remember that ATR reacts slower to price moves when the period gets longer.

How can volatility indicator help while trading?

This useful indicator identifies the moment when the price range starts enlarging sharply. This feature can be used for the following purposes:

To form short-term strategies. A sharp volatility surge is a perfect moment for scalping. You can check my article Forex scalping to learn more about this type of Forex market strategy.

To decide in your trading strategy in which direction a trade should be opened. If the Average True Range covered half its mean range, it’s probably too late to open a trade in the market direction of the trend, and you’d better wait for a reversal.

To determine price targets. Take Profit is placed at the volatility range limit or within the range. If the Average True Range is 60 points, Take Profit can be set at 45-50 points relative to the opening price.

To determine Stop Loss levels. Stop Loss is placed outside the price high and low volatility range and linked to the ATR correction multiplier. ATR correction multipliers are calculated separately for each specific asset.

 

What Does ATR Indicator Tell You?

The ATR indicator has got just one signal: it rises or falls. The higher the ATR line is, the more volatile the market is, and the faster the trend line moves from one range limit to the other.

In segment 1, the indicator is moving horizontally. It means the market is flat: the amplitude of price fluctuations and candlesticks’ size are small.

In segment 2, the ATR value is surging, and the indicator starts growing. It means volatility is increasing, and we should look for an entry point. As the ATR doesn’t indicate a price direction, we shall determine it ourselves. For example, draw support and resistance levels through the flat range’s extremums and open a trade in a breakout direction.

In segment 3, there remains high volatility, but the trend is changing direction. A trader’s task is to catch the price line reversal on time and reverse the trade when volatility is still high.

In segment 4, the indicator is returning to its lowest values in a flat range. It means volatility is declining; the pace of price changes is slowing down; the amplitude where the price fluctuates is decreasing; the candles’ bodies are becoming shorter than the candles in segments 2 and 3. That can indicate a flat market or a trend slowdown. In our case, we have a slow downtrend. It’s a signal for swing-traders and scalpers to exit the market.

 

Here’s how we can use the ATR’s signal about a rise in volatility:

 A new trend’s start is a signal to open a short-term trade to catch the fastest price movement in either direction over a short period. It’s one of the options for scalpers.

A sharp increase in the price movement amplitude is a signal to exit the market or increase stop placement orders’ value. Suppose we have a medium- or long-term trade, and the stop order value was calculated based on the maximum possible drawdown, according to our own risk management rules. We see that the volatility is growing sharply. We have two options: to close the trade earlier before the price reaches the stop level or top up our retail investor accounts, increase the stop value, and wait for a temporary drawdown to end. Without a robust trading strategy, there is a high risk of losing money rapidly.

This volatility indicator doesn’t point to overbought/oversold areas, so its readings are estimated compared to the readings over prior ATR periods by zooming out the chart. Volatility levels don’t depend on a price direction. The ATR line can be rising, while the price can be moving up or down.

Day trading ATR

Large time frames are usually used for preliminary analysis. The main time frame can be H1, and the time frame analyzed can be D1.

Example: let’s use ATR and see how it measures volatility for the USDCAD on the daily time frame.

With period 14, the value is 0.0077. It means that the price’s average true range is 77 points over the last 14 trading days. Switch to the H1 time frame and check how far the price moved since 00:00 up to this moment:

The daily range’s open price at 00:00 is 1.26799 (rounded to 1.2680); the current period price is 1.2661. There’s a powerful downtrend that other indicators can confirm too. The price fluctuates down by almost 20 points, with average volatility being 77 points. Theoretically, if the price line has not covered 50% of the average true range, we can open a trade in the trend direction. The market entry point for a short position is the current candle.

If the price has covered over 50% of the ATR, wait for a while. Think about opening a trade in the opposite direction of the trend if the price covers 70%-80% of the daily ATR. This method isn’t flawless, but it can be one of the options when determining market entry points and the price direction.

The ATR Indicator in MT4

The Average True Range indicator is one of the basic ones in MetaTrader 4 and MetaTrader 5. You can find it in the “Indicators/Oscillators” menu.

ATR true range settings for MT4

In the ATR settings Period is the main parameter. Using the same window, you can set Maximum and Minimum levels. That’s convenient for visually comparing previous periods’ volatility with a current period’s one. Memorizing values isn’t convenient: it’s easier to set the levels and check deviations from a current value by scrolling the chart. The chart will display only the time limits specified in the ATR settings.

You can fix the value of the level in the “Levels” tab, and it will be displayed as a horizontal line in the chart. For example, as the red line in the print screen below. 

One of the drawbacks of displaying the indicator in МТ4 is that only the current value is shown next to its name (the blue rectangle), and it won’t have significant change when you’re scrolling. You can put the cursor on a point and wait for a pop-up window or activate the “Data Window” (Ctrl+D). Both options aren’t convenient to me.

The Visualization tab shows how the indicator will be displayed on a selected time frame. For example, you’re analyzing the chart on several time frames, and you need ATR on the daily time frame. You tick D1, and the indicator will disappear when you switch to other time frames.

There are various modifications of the indicator on the Internet. You can download ATR Ratio on the MQL5 site (Short-term ATR / Long-term ATR ratio).

The template can be added to the platform. Please let me know if you want to learn more about those modifications and work strategies based on them.

ATR settings on LiteFinance’s online platform

How you can find how to manage the ATR settings on LiteFinance’s platform:

Go to “For Beginners/Open a demo account” in the homepage’s upper menu. You will be automatically redirected to a free demo account on LiteFinance’s online platform. Registration isn’t necessary.

Click “Trade” in the left menu. Choose your trading financial instruments. Let’s say the EURUSD pair in the “Currencies” tab.

On the price chart that appears, click on “Indicators” and select “Average True Range.”

ATR settings on LiteFinance’s online platform

There are a few ATR settings:

1. Depth (period)

The default value is 14, which means the indicator uses the last 14 candlesticks. For short periods up to M15, it is recommended to increase that period. For time frames longer than H4 – decrease that period. For example, many traders prefer period 7 for the D1 time frame.

An asset’s peculiarities should also be considered: some pairs are more volatile than others. So, it would be wise to shorten the period for low values of assets’ volatility to increase the indicator’s sensitivity to price changes.

2. Smoothing

It’s about the type of MA that the indicators are based on. There are four options. This parameter doesn’t influence the ATR line’s plotting significantly, but the value can vary, and that can be a decisive moment for high-precision strategies.

3. Accuracy

The parameter varies from 0 to 8 and sets the number of digits after the decimal point. 

You can change the line color in the “Style” tab. 

In contrast to MT4, you can see the indicator’s value by placing a mouse pointer to it.

How to use ATR indicator

Average True range is most often used in the following cases:

To determine Stop Loss levels. Volatility levels outline the range of price movements. The limits of that range can be a reference point.

To determine flat periods. If the ATR value is low when compared with average volatility, the market is flat.

To identify the end of a trend. The farther the price line goes beyond the ATR limits, the likelier it is to stop.

Placing Stop Loss orders

Stop orders are usually placed in the area of local extremums with a slight indent. The question is how to correctly identify local extremums and not let price noise trigger stop orders.

To place stop orders using ATR, we need to do the following:

Draw support and resistance levels through the most evident extremums on a short time frame (М5-М15).

Add/subtract 2*ATR to/from the price value of the candle’s ultimate extremum. The value you get is a Stop Loss level. The multiplier “2” should be adjusted to each specific pair. At least 1.5 ATR is recommended. The best ATR Stop Loss multiplier for time frames starting from H1 is “3”.

There’s a different method: place a stop order at the level when opening a trade. Subtract or add a few points from that value for filtering. To place Take Profit, switch to a bigger time frame and check the financial instruments’ level there.

This method works the best on short time frames with price noise — the price line’s chaotic, unpredictable price movements in either direction. Using the indicator allows us to place stop orders at a safe level, providing for price noise.

Example

During a downtrend, draw a resistance level to open a trade after its breakout, confirmed by the pattern. Open a long position on a pullback. Minimum price — 1.19588, ATR — 0.0005 or five points. Multiply 0.0005 by two and subtract the value from the minimum price. You’ll get the Stop Loss level of 1.19488. As the print screen shows, the price line didn’t get to that level. It tested the level of 1.19516 and then reversed upwards.

Flat filter

You earn from a trending currency pair with medium daily volatility of 80 points. I got this number using a volatility calculator. If current period volatility is less than 50% of that range, the market can be considered flat. So, if the value is less than 40 points, we don’t search for entry points using trend strategies as any direction of quotes will hardly last for a long time.

It’s hard to say if it’s reasonable to follow that scheme. First, the value of 50% is conventional and should be readjusted to each particular pair. Second, the market can be trending on smaller time frames. 

The instrument’s drawbacks are lags, which is true of all moving averages. The longer the period, the less sensitive the instrument is to current price changes. For example, if you set the period at 50, the indicator will consider 50 last candlesticks. If the price changes sharply on the two or three last candles, such trend changes will be absorbed by the previous candles’ values. On the other hand, a short time frame can produce a lot of false trading signals. So, all the minuses of moving averages are typical here too.

Example:

The EURUSD’s average volatility over the past performance during the week was 44.25 points.

The ATR current value on 4-digit quotes was 61 points on the daily chart. As the current volatility is higher than average, the market isn’t flat, and the current trend is a bit stronger than the weekly one.

Determining potential trend reversal points

The bigger the indicator wave’s amplitude is relative to its previous values, the likelier the price line is to reverse.

Example

A relatively low ATR value couldn’t say if there was a trend on the daily chart. There was an uptrend, but its pace was so slow that the Average True Range couldn’t identify it.

The indicator’s steep growth indicates that market volatility is rising: the price’s angle of ascent is increasing, and the price is changing faster. The trader only needs to predict the trend’s direction. 

ATR reaching the maximum and reversing means that volatility has started to fall. Note that the trend changed its direction while the indicator line was growing. Let me remind you that the Average True Range doesn’t indicate price directions; it only shows a relative price change speed. The indicator’s return to its current lows means that the price change speed is declining: the market is becoming flat or trending slower.

There’s another way to identify pivot points. The average true range value is compared with the distance that the price has covered from the beginning of a time frame to the present moment. A shorter time frame is used for comparison.

Example. Let’s take as 100% the H1 ATR value, which shows a price movement’s average true range over the past hour. Then switch to the one-minute time frame and find where the current H1 time frame begins. Estimate the price distance covered up to the present moment.

If the price line went farther than 70%, a reversal is highly likely to happen. Think about opening an opposite position.

 If the price line covered less than 30% of the distance, think about opening a trade in the trend direction.

If the distance varies from 30% to 70% of the range, take your time.

Those values are just a reference point. They are specific to each particular asset.

ATR trading strategies

Trading on several time frames using levels and ATR. Most strategies have already been described above. I’ll show you how to use them in practice.

Step 1. Daily time frame analysis

Open the GBPUSD’s daily chart and check the trend.

The chart shows a strong, steady trend that started after a dramatic drawdown. Note a sharp ATR surge during the downtrend: one could profit from short positions there. A smooth uptrend continues; there are several consecutive growing candles with small bodies. The ATR indicates there’s no strong volatility. That means the price is expected to continue rising smoothly. The ATR value is 92 points.

Step 2. Short-term time frame analysis

Then switch to the M15 chart and check how many points the price has covered since the daily opening.

The opening price was 1.38988 at 00:00. By the morning, the price gained almost 55 points and then came back. ATR indicates high volatility. As the daily range is 92 points and the price isn’t far from the start, we can presume that the uptrend will continue.

Step 3. Opening of a trade

Let’s sum up: we decided to open a long position because:

There’s a slow uptrend with low volatility on the daily time frame.

The M15 time frame is showing a resistance level from which the price has just pulled back upwards.

The price has covered nearly 50% of its daily volatility and partly corrected back to the daily range’s start point.

So, I open a trade at 1.39236 (almost 25% of the daily range equal to 92 points). Stop Loss: current ATR*2, which equals 14 points. A multiplier of 3 would probably be better: Stop Loss would be located a bit below the opening price of 1.38988. Take Profit: 75% of daily ATR.

The volume of a position should be determined individually and depends on your goals and deposit.

Close the trade based on Take Profit or when a clear reversal pattern appears. I don’t think it will appear before the daily ATR reaches 50%, though. The profit target is 5 USD.

Step 4. Closing a trade

4.1. Conservative scenario

Everyone has their own profit targets, but I’d recommend that beginner traders shouldn’t wait for Take Profit to trigger and should fix current profit targets at the first reversal.

If you see that the price cannot decide its direction during a high volatility period, like in this market conditions, close the trade. Closing price: 1.39385. Profits in 2.5 hours: around 15 points minus spreads.

4.2. Aggressive scenario

The target is to make the most profits based on the ATR theory. I’m not in a hurry to close a trade, and I hold it. As a result, it closed at Stop Loss at minus 1.51 USD. The market analysis revealed a mistake. The market volatility is still high, but there was a clear trend shift. The arrow in the print screen below marks the opening point.

The daily candlestick is downward. So, I open a counter trade using the same principle: the opening price at 00:00 (1.38988) marks the beginning of the volatility range, but the trend is downward now. The volume can be doubled.

It took me 30 minutes to claw back the loss from the previous trade and earn 0.5 USD. I fixed the profit from the second trade for psychological reasons: to cover the previous loss.

Key points:

The ATR indicator shows current volatility shifts. However, the examples proved that the price could change its direction within a few hours. That can be used in Swing trading strategies.

To calculate Stop Loss for a short time frame, we’d better use multipliers equal to or less than 2. I’m open to further discussions regarding the issue, though.

There are two market exit strategies. The first one suggests exiting at the first trend reversal. The other one implies using Take Profit calculated based on ATR. If a trade hasn’t closed by the end of the day, close it manually. If a trade is closed at Stop Loss, try to open a counter position.

You can use hedging or Trailing Stop.

ATR Trailing Stop Loss

Trailing Stop Loss is a Stop Loss order that follows the price in the direction of a trade and stays at the taken level if the price reverses.

Volatility is measured only by the price range over a fixed time frame. The price can move in any direction. If we open a trade and place a regular Stop Loss order when the price went outside a flat range, we can have the following scenario: the price reaches fast the opposite limit of the volatility range and gets back. Here’s an example in the print screen below.

Average True Range starts growing, and we can open a long position in point 1. If a trader is eyeing the chart all the time, he/she will close the trade based on patterns in point 2. If he/she misses that moment, he/she will lose profits and make losses in point 3. The price will have gone through the entire volatility range and backward within a few hours. 

Using ATR Trailing Stop allows us to fix at least some parts of profit and avoid closing a trade at loss during high volatility. Theoretically, the Trailing stop’s value is ATR*k, where “k” is a volatility multiplier set manually. Most often, it’s “2”, “2.5” or “3”: the higher the time frame, the bigger the multiplier.

The same example: a long position is opened at 1.26776 in point 1 and secured with Trailing Stop set at 2*0.0006, i.e., 12 points, which equals the ATR value registered at the trade’s opening. If the trade is secured with Trailing Stop, it will be automatically closed in point 2. If we deduct spreads, the profit will be around 15-17 points on 4-digit quotes in two hours. Without Trailing Stop, the trade would have been closed at 12-point loss plus spreads.

How to set Trailing Stop on LiteFinance’s platform:

Set the position sizing of a trade and open it in one click.

Open the “Portfolio” menu in the lower part of your platform and click “Edit”.

Set Trailing Stop in the window that opens.

ATR stock trading

The instrument’s application to the stock market is the same. Average True Range estimates trading activity and most traders’ interest in a stock. If the indicator’s value is growing, volatility and trade volumes are growing too. If the value is low, the market is flat. In addition to ATR, you can use the volume indicator or the depth of market (DOM) in MT5 to check powerful support and resistance levels.

The indicator is even more useful when financial reports, press releases, or other stats are published. It helps us to see:

Market reaction – how fast and violently the market reacts to the news.

Market volatility levels concerning specific newsworthy occurrences; what type of news provokes a stronger market reaction.

Volatility degree: how long a high volatility period lasts after statistics are released.

Correlation: which releases are interrelated? For example, will Apple’s financial reports affect other technological companies’ quotes?

Another important aid will be the Economic calendar and financial calendar. Have a try and use ATR on the Tesla (TSLA) chart, for example.

Downsides of ATR

The Average True Range has got some downsides too:

Limited area of application. It doesn’t show asset’s price directions or provide forecasts. It only estimates general volatility levels compared with previous periods.

Lags. Specific average true range formula. Volatility can start growing, but the indicator’s value will still be low. Lagging can last across 1-2 candlesticks.

Though ATR belongs to the oscillators group, it’s best applied in combination with Stochastic, MACD, and other oscillators. Also, short periods will work better: the period of 12-14 is optimum on the H1 time frame.

Key points

Volatility indicators are necessary for professional trading. They aren’t informative enough for beginner traders to appreciate them more than other tools. Nevertheless, it’s worth mentioning as some may need them for developing their trading strategies. 

Would you like to download the ATR indicator free? Don’t hustle. It’s a basic indicator on MT4 and MT5 platforms, and you can get used to it on demo retail investor accounts. If ATR isn’t there for some reason, you can reinstall the platform or copy the setup file from the MQL/Indicators folder from the platform installed on another computer. You can also find ATR on LiteFinance’s platform integrated into the Client Area. You don’t need to install it.

I hope this article has been useful for you. If you’ve got any questions left, ask them in the comments section. Good luck in trading!

P.S. Did you like my article? Share it in social networks: it will be the best “thank you” 🙂

Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

Useful links:

I recommend trying to trade with a reliable broker here. The system allows you to trade by yourself or copy successful traders from all across the globe.Use my promo-code BLOG for getting deposit bonus 50% on LiteFinance platform. Just enter this code in the appropriate field while depositing your trading account.Telegram chat for traders: https://t.me/litefinancebrokerchat. We are sharing the signals and trading experienceTelegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders https://t.me/liteforex

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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Euro Steadies Ahead of Crucial Fed and ECB Meetings This Week. Higher EUR/USD?

Euro, EUR/USD, US Dollar, Fed, ECB, China PMI, AUD/USD. Crude Oil – Talking Points

Euro support eased as markets look toward rate changes this week.A strong Chinese PMI wasn’t enough to overcome weak local data for the AussieThe Fed, ECB and BoE are in the box seat this week. Where will EUR/USD end up?

Recommended by Daniel McCarthy

Get Your Free EUR Forecast

The Euro is steady going into the European session today and is looking to notch up a fourth straight monthly gain after making a 20-year low last September.

The US Dollar losing ground across the board has aided the rally thanks to perceptions that the Federal Reserve might be less aggressive in its tightening regime.

The move up for EUR/USD has also received some tailwinds from the European Central Bank (ECB) stepping up its fight against inflation.

Tomorrow the Fed will be fine-tuning its stance, followed by the ECB on Thursday. Markets are anticipating a hike of 25 basis points(bp) and 50 bp respectively.

Markets in general appear to be bracing for these key events with APAC equities having a quiet Tuesday after a stellar January performance to the topside.

Wall Street finished its session lower, with the Nasdaq down 1.96%. Futures are pointing to a soft start to their cash session later.

Currency markets are relatively subdued with the exception of the Aussie Dollar. It slid lower after disappointing domestic retail sales and credit data. The move also dragged the Kiwi Dollar down.

A strong Chinese PMI number for January revealed the uptick in sentiment after the Communist party unshackled the economy from Covid-19 restrictions at the end of last year.

The manufacturing PMI for January was in line with forecasts at 50.1 and the non-manufacturing read came in at 54.4, notably above the 52.0 anticipated. This combined to give a composite PMI read of 52.9 against 42.6 previously.

Treasury yields have held onto overnight gains with the benchmark 10-year note back 3.50%

Elsewhere, the Adani saga continues to play out as the conglomerates’ rebuke of criticism is yet to allay markets. The company has lost around US$ 70 billion of market capitalisation since an active investor, Hindenburg Research, listed a series of concerns.

Crude oil continues to sink to 2-week lows on worries of the tightening coming from central banks this week. The WTI futures contract is under US$ 78 bbl while the Brent contract is below US$ 85 bbl. Gold is fairly steady near US$ 1,920.

A series of inflation, jobs and growth data across Europe is due out today.

The full economic calendar can be viewed here.

Recommended by Daniel McCarthy

How to Trade EUR/USD

EUR/USD TECHNICAL ANALYSIS

EUR/USD made a 9-month high this month at 1.0927 which was just shy of the historical resistance levels at 1.0936 and 1.0945 which are a breakpoint and prior peak respectively. These levels may continue to offer resistance.

The price is almost all period simple moving averages (SMA) with except for the 10-day SMA. A recovery back above it may see bullish momentum evolve.

On the downside, support could be at the previous lows and breakpoints of 1.0787, 1.0774, 1.0766 and 1.0736.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter

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Biden administration plans to end emergency declarations on covid-19 on May 11

Early Tuesday morning in Asia, an Associated Press (AP) reporter quotes the White House statement suggesting that US President Joe Biden will end COVID-19 emergency declarations in the United States on May 11.

The news also mentions US President Biden’s pledge to use the veto if congress passes a bill to eliminate Covid vaccine mandate on healthcare providers working on certain federal programs.

On the previous day, China’s Center for Disease Control and Prevention (CDC) said, reported by Reuters, “China’s current wave of COVID-19 infections is nearing an end, and there was no significant rebound in cases during the Lunar New Year holiday.”

Also read: China CDC: Current wave of COVID infections nearing an end

AUD/USD remains pressured

Despite the upbeat news, the risk-barometer AUD/USD pair remains depressed around 0.7050, down for the third consecutive day, as traders await Aussie Retail Sales for December and China’s official activity data for January.

Also read: AUD/USD finds intermediate support around 0.7050, risk-off mood still intact

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Economic calendar for the week 30.01.2023 – 05.02.2023

2023.01.30 2023.01.30
Economic calendar for the week 30.01.2023 – 05.02.2023logo

Review of the main events of the Forex economic calendar for the next trading week (30.01.2023 – 05.02.2023)

Thanks to the strengthening on Thursday and Friday, the dollar managed to end the week in positive territory with its DXY index demonstrating a modest gain of about 20 points. The past week, which was the last full trading week of the month, turned out to be extremely volatile and full of releases of important macro statistics. Next week promises to be no less interesting, with plenty of trading opportunities. In its course, the world’s 3 largest central banks (the Fed, the Bank of England, the ECB) will decide on interest rates. From the ECB and the Bank of England, market participants expect an increase in interest rates by 0.50%, but from the Fed – only by 0.25%. The leaders of the US Central Bank may go for the same increase in March, but then they will probably take a break to assess the impact of the measures taken on inflation and the economy. The probability of such moves is estimated by market participants at about 70%, according to CME Group. This development puts pressure on the dollar, despite the very positive macro data coming out of the US lately.

The next week will end with the publication of key data from the US labor market: the US Department of Labor will present a monthly report for January. In addition, next week, market participants will pay attention to the publication of important macro statistics from Germany, the Eurozone, New Zealand, and China.

* during the coming week, new events may be added to the calendar and / or some scheduled events may be cancelled.

** GMT time

Monday, January 30

07:00 EUR Germany GDP for the 4th quarter (preliminary release)

GDP is considered the most important indicator of the overall health of the economy. The growing trend of the GDP indicator is considered positive for the national currency. The German economy is the locomotive of the entire European economy. A high value of the GDP indicator is considered a positive factor for the EUR, and a low value is considered a negative one.

The growth of the European and German economies slowed down sharply in 2019, and in 2022 the European economy has entered a recession in many respects. The risk of a coronavirus pandemic, and then a military conflict in Ukraine added to domestic political risks after Brexit.

If the GDP data turns out to be weaker than the forecast, this will put even more downward pressure on the euro. Better-than-expected data may strengthen the euro in the short term. However, the risks for the euro are directed towards its further weakening.

Forecast: German GDP growth in the 4th quarter of 2022 was 0%.

Tuesday, January 31

00:30 AUDRetail Sales Index

Retail Sales Index is published monthly by the Australian Bureau of Statistics and measures total retail sales. The index is often considered an indicator of consumer confidence and reflects the state of the retail sector in the short term. The growth of the index is usually a positive factor for the AUD; a decrease in the indicator will negatively affect the AUD. Previous index value (for November) was +1.4% (after a decrease of -0.2% and growth of +0.6%, +0.6%, +1.3%, +0.2% in previous months, in April by +0.9%, in March by +1.6%, in February and January 2022 by +1.8%). If the data turns out to be weaker than the previous value, the AUD may drop sharply in the short term, but if it’s above the previous values, the AUD is likely to strengthen.

Forecast for December: -0.3%.

01:00 CNY China Manufacturing and Services PMI from the China Logistics and Procurement Federation (CFLP)

This indicator is an important indicator of the state of the Chinese economy as a whole. A result above 50 is seen as positive and strengthens the CNY, while one below 50 is negative for the yuan. Previous values: 47.0 in November, 49.2 in October, 50.1 in September, 49.4 in August, 49.6 in May, 47.4 in April, 50.2 in February, 50.1 in January .

The relative growth of the index and the value of 50 should have a positive effect on the CNY. The data above the value of 50 indicate an increase in activity, which has a positive effect on the quotes of the national currency. Otherwise, and if the value of the indicator is below 50, the yan will be under pressure and probably will decrease. Forecast for December: 49.7.

Services PMI assesses the state of the services sector in the Chinese economy. A result above 50 is considered positive and strengthens the yuan. Previous values: 41.6 in November, 48.7 in October, 50.6 in September, 52.6 in August, 47.8 in May, 41.9 in April, 51.6 in February, 51.1 in January .

Despite the relative decline, the indicator is still above 50, which is likely to have a positive impact on the yuan quotes. Otherwise, and if the value of the indicator is below 50, the yuan will be under pressure and probably will decrease.

Forecast for December: 51.0.

07:00 EUR Retail sales in Germany

Retail sales is the main indicator of consumer spending in Germany showing the change in retail sales. A high result strengthens the euro, and vice versa, a low result weakens it. Previous values: +1.1% (-5.9% yoy), -2.8% (-5.0% yoy), +0.9% (-0.9% yoy) , -1.3% (-4.3% YoY), +1.9% (-2.6% YoY), -1.5% (-9.6% YoY), + 1.2% (+1.1% YoY), -5.4% (-0.4% YoY), +0.9% (-1.7% YoY), +0, 2% (+6.9% YoY), -0.2% (+10.1% YoY) in January 2022.

The data speaks of the unstable recovery of this sector of the German economy. Data better than the forecast and / or the previous value is likely to have a positive impact on the euro, but only in the short term. Forecast for December: +0.2% (-4.3% in annual terms).

10:00 EUR Eurozone GDP for the 4th quarter (first estimate)

GDP is considered an indicator of the overall health of the economy. The growing trend of the GDP indicator is considered positive for the EUR; a low result weakens the EUR.

Recently, macro data from the Eurozone have been indicating a gradual recovery in the growth rate of the European economy after a sharp drop in early 2020.

Thus, according to the forecast of economists, the Eurozone GDP is expected to have contracted in the 4th quarter of 2022 by -0.1%, but seen an increase of +2.2% in annual terms after an increase of +0.7% (+4.0% in yoy) in 3Q, +0.8% (+4.1% yoy) in 2Q 2022, +0.6% (+5.4% yoy in 1st Q4, +0.3% (+4.6% YoY) in Q4, +2.2% (+3.9% YoY) in Q3, +2.2% (+14.3% YoY) in Q2 and down -0.3% (-1.3% YoY) in Q1 2021.

If the data turns out to be weaker than the forecast and / or previous values, the euro may decline. Better-than-expected data may strengthen the euro in the short term, although the full recovery of the European economy, even to pre-crisis levels, is still far away.

Preliminary estimate for the 4th quarter: -0.1% (+2.2% in annual terms).

13:00 EUR Harmonized Index of Consumer Prices (HICP) in Germany (preliminary release)

This index is published by the EU Statistics Office and is calculated on the basis of a statistical method agreed between all EU countries. It is an indicator for assessing inflation and is used by the Governing Council of the ECB to assess the level of price stability. A positive result strengthens the EUR, a negative result weakens it.

Previous indicator values: +9.6% in December, +11.3% in November, +11.6% in October, +10.9% in September, +8.8% in August, +8.5% in July, +8.2% in June, +8.7% in May, +7.8% in April, +7.6% in March, +5.5% in February, +5.1% in January 2022 year (in annual terms). If the data for January turns out to be better than the previous values, the euro may strengthen in the short term. The growth of the indicator is a positive factor for the euro. The data suggests mounting inflationary pressures in Germany, which in turn is putting pressure on the ECB to tighten its monetary policy. Data worse than the previous value will have a negative impact on the euro.

Forecast: +10.0% in January.

21:45 NZD Employment rate. Unemployment rate (Q4)

The employment rate reflects the quarterly change in the number of employed New Zealanders. The growth of the indicator has a positive impact on consumer spending, which stimulates economic growth. A high value is positive for NZD, while a low value is negative.

Previous values: +1.3% in Q3, 0% in Q2 2022, +0.1% in Q1 and Q4, +2.0% in Q3, +1.0% in Q2, +0.6% in Q1 2021.

Also at the same time, the New Zealand Bureau of Statistics publishes a report on the unemployment rate – an indicator that assesses the share of the unemployed population to the total number of able-bodied citizens. Growth of the indicator indicates the weakness of the labor market, which leads to a weakening of the national economy. A decrease in the indicator is a positive factor for the NZD.

Forecast: New Zealand unemployment in Q4 2022 was at 3.3% (against 3.3% in Q2 and Q3, 3.2% in Q1 and Q4, 3.4% in Q3, 4.0% in Q2, 4.7% in Q1 2021).

If other indicators of the New Zealand Bureau of Statistics report come out with a deterioration, this is likely to negatively affect the NZD. Worse-than-expected data will have an even stronger negative impact on the NZD.

Wednesday, February 1

10:00 EUR Consumer Price Index. Core Consumer Price Index (preliminary release)

Consumer Price Index (CPI) is published by Eurostat and measures the change in prices of a selected basket of goods and services over a given period. The index is a key indicator for assessing inflation and changing consumer preferences. A positive result strengthens the EUR, a negative result weakens it.

Previous values: +9.2% in December, +10.1% in November, +10.6% in October, +9.9% in September, +9.1% in August, +8.6% in June , +8.1% in May, +7.4% in April and March, +5.9% in February, +5.1% in January, +5.0% in December. If the data turns out to be worse than the forecast, the euro may short-term, but sharply decline. Data better than the forecast and / or the previous value may strengthen the euro in the short term. The target level of consumer inflation of the ECB is slightly below 2.0%, and the data indicate an acceleration of inflation in the Eurozone.

Core Consumer Price Index (Core CPI) determines the change in prices of a selected basket of goods and services over a given period and is a key indicator for assessing inflation and changing consumer preferences. Food and energy are excluded from this indicator for a more accurate estimate. A high result strengthens the EUR, while a low result weakens it. In January 2022, Core CPI increased by +2.3%, in February – by +2.7%, in March – by +2.9%, in April – by +3.5%, in May – by +3 .8%, in June – by +3.7%, in August – by +4.3%, in September – by +4.8%, in October – by +5.0%, in November – by +5 .0%, in December – by +5.2%.

 If the data for January 2023 turns out to be worse than the previous value or forecast, this may negatively affect the euro. If the data turns out to be better than the forecast or the previous value, the euro is likely to react with an increase. Core inflation in the Eurozone is accelerating, which is positive (under normal economic conditions) for the euro.

13:15 USD ADP National Employment Report

Usually, the ADP report on the level of employment in the private sector has a strong impact on the market and dollar quotes. An increase in the value of this indicator has a positive effect on the dollar. The US private sector is expected to grow by 86,000 in January (against April, 425,000 in March, 375,000 in February, 372,000 in January 2022, by 807,000 in December, 534,000 in November, 571,000 in October, 568,000 in September, 374,000 in August, 330,000 in July, 692,000 in June, 978,000 in May, 742,000 in April, 517,000 in March, 117,000 in February, 174,000 in January 2021). The relative growth of the indicator may have a positive impact on the dollar quotes, and the relative decline of the indicator can affect it negatively. The market reaction may be negative, and the dollar may decline if the data also turns out to be worse than the forecast.

Millions of Americans have previously been laid off due to the coronavirus pandemic and related quarantine measures. Most of the layoffs were concentrated in the tourism and retail sectors. Other important sectors of the economy also suffered. The ADP previously reported that the most significant drop in employment was recently recorded in the construction sector and the financial services sector.

Although the ADP report does not have a direct correlation with the US Department of Labor official data on the labor market, which will be published on Friday, the ADP report is often its harbinger, having a noticeable impact on the market.

15:00 USD US Manufacturing PMI (from ISM)

The US Manufacturing PMI published by the Institute for Supply Management (ISM) is an important indicator of the state of the US economy as a whole. A result above 50 is considered positive and strengthens the USD, while one below 50 is considered negative for the US dollar.

Forecast: 48.2 in January (against 48.4 in December, 49.0 in November, 50.2 in October, 50.9 in September, 52.8 in August, 53.0 in June, 56.1 in May , 55.4 in April, 57.1 in March, 58.6 in February, 57.6 in January). The index is above the level of 50 and, despite the relative decline, has a relatively high value, which is likely to support the dollar. The data above the value of 50 indicate an acceleration of activity, which has a positive effect on the quotes of the national currency. If the indicator falls below the forecast and especially below the value of 50, the dollar may sharply weaken in the short term.

19:00 USD The Fed’s interest rate decision. The Fed’s monetary policy statement

In 2020, the dollar was declining, because investors were withdrawing funds from safe-haven assets, buying riskier and more profitable assets of the stock market, which continued to grow despite the threat of a second wave of the coronavirus epidemic and the associated economic slowdown. The role of the dollar as a defensive asset also declined. However, in 2021 the situation has changed – the dollar strengthened. Now market participants are waiting for the US central bank to continue the cycle of tightening monetary policy, but at an even slower pace.

As expected, at this meeting the rate will be raised again (by 0.25% to 4.75%). During the publication of the rate decision, volatility may rise sharply throughout the financial market, primarily in the US stock market and in dollar quotes, especially if the rate decision differs from the forecast or unexpected statements are made by the Fed leaders.

Powell’s comments could affect both short-term and long-term USD trading. A more hawkish stance on the Fed’s monetary policy is seen as positive and strengthens the US dollar, while a more cautious stance is seen as negative for the USD. Investors want to hear Powell’s opinion on the Fed’s plans for this year.

19:30 USD Press conference of the FOMC (Federal Open Market Committee of the US Federal Reserve)

The press conference of the Federal Open Market Committee of the US Federal Reserve lasts about an hour. The first part presents the ruling, followed by a series of questions and answers that can increase market volatility. Any unexpected statements by Powell on the Fed’s monetary policy will cause an increase in volatility in dollar quotes and in the US stock market.

Thursday, February 2

12:00 GBP Bank of England interest rate decision. Minutes of the meeting of the Bank of England. Planned volume of asset purchases by the Bank of England. Monetary Policy Report

At the December meeting, the Bank of England unexpectedly raised its key interest rate to 0.25%, becoming the first leading central bank to increase the cost of borrowing since the start of the coronavirus pandemic. In February, the interest rate was raised to 0.50%, in March to 0.75%, in May to 1.00%, and in December to 3.50%. Members of the Monetary Policy Committee felt that raising the cost of borrowing in a strong labor market to curb price increases was entirely appropriate. At the same time, further tightening of monetary policy may be required to bring inflation to the target level of 2.0%.

It is expected that at this meeting the Bank of England will again raise the interest rate to 4.0%. However, despite the high level of inflation in the country and the fact that positive macro data is coming from the UK, the interest rate may remain at the same level of 3.50%, given the situation in Ukraine. Such a decision could cause a weakening of the pound.

Also at this time, the minutes of the Monetary Policy Committee (MPC) of the Bank of England are published with the votes “for” and “against” the increase / decrease in the interest rate. The main risks for the UK after Brexit are associated with expectations of a slowdown in the country’s economic growth, as well as with a large current account deficit in the UK’s balance of payments.

The intrigue about the further actions of the Bank of England remains. And in trading the pound and FTSE100 index futures, there are plenty of trading opportunities during the publication of the bank’s rate decision.

Also at the same time we expect the publication of the report of the Bank of England on monetary policy containing an assessment of economic prospects and inflation. At this time, the volatility in the pound quotes can rise sharply. One of the main benchmarks for the Bank of England regarding the prospects for monetary policy in the UK, in addition to GDP, is the inflation rate. If the tone of the report is soft, then the British stock market will receive support, and the pound will fall. Conversely, the report’s tough rhetoric on curbing inflation, which implies a further increase in the interest rate in the UK, will lead to a strengthening of the pound.

12:30 GBP Speech by Bank of England Governor Andrew Bailey

Financial market participants are waiting for Andrew Bailey to clarify the situation regarding the future policy of the UK central bank. Volatility usually rises sharply during speeches by the head of the Bank of England in the quotes of the pound and the FTSE London Stock Exchange index if he gives any hints of tightening or easing monetary policy of the Bank of England. Probably, Andrew Bailey will also give explanations regarding the decision made by the Bank of England on the interest rate and touch upon the state and prospects of the British economy after Brexit against the backdrop of a sharp rise in energy prices and inflation. If Bailey does not touch on monetary policy issues, the reaction to his speech will be weak.

13:15 EUR ECB interest rate decision

The ECB will publish its decision on the key rate and on the deposit rate. The ECB’s tight stance on inflation and the level of key interest rates contributes to the strengthening of the euro, a soft position and rate cuts weaken the euro. Given the high level of inflation in the Eurozone, according to the ECB management, the balance of risks for the economic outlook for the Eurozone “remains skewed to the negative side.”

“The Governing Council believes that interest rates will still need to be raised significantly … in order to ensure a timely return of inflation to a medium-term target of 2%,” the ECB said in a statement following the December meeting.

Speaking at the World Economic Forum in Davos in January 2023, the ECB President Christine Lagarde said that “inflation expectations are not easing” and “the ECB will continue to raise rates.” In her opinion, “inflation is too high”, and “the ECB intends to bring it down to 2% in a timely manner.”

The ECB believes that GDP growth may decline, including due to the energy crisis in the EU, high uncertainty, weakening global economic activity and tightening financing conditions. However, the recession should not drag on too long, although strong growth is not expected either.

“In the near future, growth will recover as the current headwinds ease. Overall, Eurosystem staff forecast economic growth of 3.4% in 2022, 0.5% in 2023, 1.9% in 2024 and 1.8% in 2025,” said the statement based on the results of the December meeting.

Thus, if we follow this signal from the head of the ECB, as a result of this meeting, the key interest rate will be raised again, most likely by 0.25%, but other, tougher decisions are possible too (increase by 0.5% or even by 0.75%). The ECB deposit rate for commercial banks is also likely to be raised.

Well, since inflation in the Eurozone is still unacceptably high for the leaders of the ECB, they may announce an increase in interest rates at the next meetings.

Perhaps this will also be mentioned in the accompanying statements of the leaders of the ECB.

13:45 EUR Press conference of the ECB. ECB Monetary Policy Statement

The press conference will be of major interest to market participants. In its course, a surge in volatility is possible not only in euro quotes, but also in the entire financial market, if the ECB leaders make unexpected statements. The ECB leaders will assess the current economic situation in the Eurozone and comment on the bank’s decision on rates. In previous years, as a result of some meetings of the ECB and subsequent press conferences, the euro exchange rate changed by 3% -5% in a short time.

A soft tone of statements will have a negative impact on the euro. And, on the contrary, a tough tone of the speech of the ECB management regarding the monetary policy of the central bank will strengthen the euro.

Friday, February 3

13:30 USD Average hourly wages. Non-farm Payrolls. Unemployment rate

These are the most important indicators of the state of the labor market in the US in January. Forecast: +0.3% (against +0.3% in December, +0.6% in November, +0.4% in October, +0.3% in September and August, +0.5% in July , +0.3% in June, May and April, +0.4% in March, 0% in February, +0.7% in January 2022, +0.6% in December, +0.3% in November, +0.4% in October, +0.6% in September and August 2021) / +0.175 million (against +0.233 million in December, +0.263 million in November, +0.261 million in October, +0.263 million in September, +0.315 in August, +0.528 million in July, +0.372 million in June, +0.390 million in May, +0.428 million in April, +0.431 million, +0.678 million in February, +0.467 million in January 2022, + 0.199 million in December, +0.210 million in November, +0.531 million in October, +0.194 million in September, +0.235 million in August 2021) / 3.6% (against 3.5% in December, 3.7% in November and October, 3.5% in September, 3.7% in August, 3.5% in July, 3.6% in June, May, April and March, 3.8% in February, 4.0% in January 2022, 3.9% in December, 4.2% in November, 4.6% in October, 4.8% in September, 5.2% in August 2021), respectively.

In general, the indicators can be described as quite positive, if not encouraging, apart from the NFP section. Market participants may sharply react negatively to its weak value. Nevertheless, it is often difficult to predict the market reaction to the publication of indicators, because many indicators for previous periods are subject to revision. Now it will be even more difficult to do this, since the economic situation in the US and many other major economies remains controversial with increased risks of recession and high inflation. In any case, when the data from the US labor market is published, a surge in volatility is expected in trading not only in USD, but throughout the financial market. Cautious investors might prefer to stay out of the market during this period of time.

15:00 USD US Services PMI (from ISM)

This indicator assesses the state of the services sector in the US economy. These services sectors (unlike the manufacturing sector) have virtually no impact on the country’s GDP.

A result above 50 is seen as positive for the USD. Forecast for January: 53.0 (against 49.6 in December, 56.5 in November, 54.4 in October, 56.9 in August, 56.7 in July, 55.3 in June, 55.9 in May , 57.1 in April, 58.3 in March, 56.5 in February, 59.9 in January, 62.0 in December), which is likely to have a generally positive impact on the USD. However, the relative decline of the index, and especially below the value of 50, may negatively affect the dollar in the short term.

Price chart of EURUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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US Dollar Poised Ahead of Fed as China Returns. Where to for USD?

US Dollar, DXY Index, USD, Fed, FOMC, China, CSI 300, Hang Seng – Talking Points

The US Dollar remains range bound as the Fed meeting loomsAn impending tightening by the BoE and ECB also clouds expectationsChina’s re-opening might provide a bright spot. Will that send the DXY index lower?

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The US Dollar continues to tread water to start the week ahead of the Federal Open Market Committee (FOMC) meeting on Wednesday.

The market is anticipating a 25 basis point (bp) lift in the target rate. Friday’s PCE inflation data suggests that a slowing in the pace of hikes might be appropriate.

A crucial aspect will be the post-decision press conference where Fed Chair Jerome Powell will be speaking in a question-and-answer session. US Treasury Secretary Janet Yellen highlighted recession risks last Friday.

It is a big week ahead for central banks with the Bank of England (BoE) and the European Central Bank (ECB) also delivering a verdict for their respective rate paths on Thursday. A Bloomberg survey of economists forecasts a 50 bp hike from both banks.

Mainland Chinese markets re-opened today after a week off to celebrate the Lunar New Year. The CSI 300 equity index opened over 2% higher but then eased lower throughout the day. Hong Kong’s Hang Seng Index (HSI) went deep in the red, down over 1.6% at one stage.

Korea’s Kospi index was also notably lower while Australian and Japanese indices were little changed. Futures markets are pointing to a benign start to the Wall Street cash session later.

Currency markets have had a quiet start to the week while crude oil continues to languish after Friday’s sell-off. OPEC+ will be meeting on Wednesday to discuss production targets where most of the market is not anticipating a change.

Likewise, gold has been subdued so far, trading near US$ 1,930 at the time of going to print.

After the German GDP number today, the US will see the latest read of the Dallas Fed’s manufacturing activity index.

The full economic calendar can be viewed here.

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How to Trade EUR/USD

DXY (USD) INDEX TECHNICAL ANALYSIS

The DXY index continues to moulder near the 10-month low. This month’s low of 101.50 and the May 2020 low of 101.30 might provide support. The price has been in the 101.50 – 103.49 range for 3-weeks.

On the topside, resistance could be at the breakpoint of 103.42 or the prior peaks of 103.49, 105.63, 105.82, 107.20 and 108.00.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter

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EUR/USD holds at around 1.0860s as traders brace for the Fed and ECB’s decisions

The US core PCE, the Fed’s preferred gauge for inflation, edges down, sparking speculations for a Fed pivot.
Consumer Sentiment improved, while inflation expectations ticked lower.
EUR/USD Price Analysis: Upward biased, but short-term neutral, ahead of Fed and ECB’s decisions.

The EUR/USD got rejected from the 1.0900 psychological barrier for two consecutive days and on Friday slipped to the 1.0860 region after data from the United States (US) cemented the case for a 25 bps rate hike by the Fed. At the time of writing, the EUR/USD is trading at 1.0866.

Soft US core PCE increased the likelihood of the Fed lifting 25 bps

Wall Street finished the week with gains, shrugging off worries about an impending recession in the United States. Thursday’s data cemented the case for a robust economy, with Q4’s expanding by 2.9% QoQ above estimates of 2.6%, while Q3 remained at 3.2%. That sparked conversations of a possible “soft landing” by the US Federal Reserve.

In the meantime, Friday’s data revealed that inflation is cooling down, probably at a faster pace than estimated. The Fed’s favorite inflation gauge, the core Personal Consumption Expenditure (PCE) was aligned with estimates of 4.4% YoY, but below November’s 4.7%. That augmented speculations around the Fed would slash the size of rate hikes, as December marked the first lift in rates not being at 75 bps. Instead, Powell and Co. went for a 50 bps as it was appropriate, as mentioned by them while emphasizing that the pace was not as important as the peak of rates.

As Friday’s session ends, the CME FedWatchTool shows that odds for a Fed’s 25 bps rate hike stand at 99.2%, and traders are foreseeing the Federal Funds rate (FFR) to peak at around 5%, by March’s meeting.

In another tranche of data, a poll from the University of Michigan reported the US Consumer Sentiment, which improved vs. the preliminary reading of 64.6 to 64.9. Data revealed that inflation expectations for 1-year are estimated at 3.9%, lower than the previous poll, while for a 5-year, they stood at 2.9%.

Across the pond, European Central Bank (ECB) officials had reiterated they would raise rates at the upcoming meeting on February 2. ECB’s President Christine Lagarde said that the bank would “stay the course” with a 50 bps rate hike in January and the next meeting after that, albeit inflation in the Eurozone slid to 9.2%.

That said, the stage is set with the Fed lifting rates to 4.50-4.75% and the ECB to 2.50%, which would reduce the spread between the US and the Eurozone. Hence, the EUR/USD could resume its upward bias and test 1.1000 unless an unpleasant dovish surprise by Lagarde caps the rally and tumbles the EUR/USD.

EUR/USD Technical Analysis

Ahead into the next week, the EUR/USD remains upward biased. The pullback in the last couple of days could be attributed to the 1.0900 mark probing to be difficult resistance to hurdle. Also, the monetary policy decisions of the ECB and the Fed were an excuse for traders to close their positions.

Even though the EUR/USD is pressured, the price action from Thursday and Friday formed a series of successive candlesticks with a long bottom wick, suggesting that some buying pressure is resting. Nevertheless, the commitment o hold EUR/USD long positions throughout the weekend, and with uncertainty in the financial markets, kept the EUR/USD shy of reclaiming 1.0900.

A breach of the latter would expose the 1.1000 mark. As an alternate scenario, the EUR/USD diving below 1.0835, the weekly low, and the pair would dip toward the 20-day Exponential Moving Average (EMA) at 1.0788.

 

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