central bank

CZK: Changing our central bank call to a 50bp rate cut

The blackout period for the Czech National Bank (CNB) began yesterday and we will therefore probably not hear anything more. Deputy Governor Jan Frait really moved the market when he said he was open to a larger rate cut, even more than 50bp at the 8 February meeting. We do know that the deputy governor was one of two board members who voted for a rate cut back in November when the CNB left rates unchanged. So the new statements aren't exactly a game changer, but we have confidence that at least two members will push for a 50bp rate cut at next week's meeting. In addition, the board will have a new forecast which we think should show very low inflation of below 3% for the upcoming months. Overall, this leads us to reassess our call from a 25bp to 50bp rate cut next week.

The acceleration of the rate cut is bad news for the CZK. However, we believe positioning has been heavily short here for some time and should not be so d

S&P 500 At Tipping Point To Start  A Bear Market And What You Need To See

S&P 500 At Tipping Point To Start A Bear Market And What You Need To See

Chris Vermeulen Chris Vermeulen 03.03.2022 21:38
Is a bear market on the way? My research suggests the downward sloping trend line (LIGHT ORANGE in the Daily/Weekly SPY chart below) may continue to act as solid resistance – possibly prompting a further breakdown in the markets for US major indexes.As we've seen recently, news and other unexpected events prompt very large price volatility events in the US major indexes. For example, the VIX recently rose above 30 again, which shows volatility levels are currently 3x higher than normal levels.Increased Volatility & The Start Of An Excess Phase Peak Should Be A Clear WarningThis increased volatility in the markets, coupled with the increased fear of the US Fed and the global unknowns (Ukraine, China, Debt Levels, and others), may be just enough pressure to crush any upside price trends over the next few months. Technically, my research suggests the $445 to $450 level is critical resistance. The SPY must climb above these levels to have any chance of moving higher.Sign up for my free trading newsletter so you don’t miss the next opportunity! Unless the US markets find some new support and attempt to rally back towards recent highs, an “Excess Phase Peak” pattern will likely continue to unfold throughout 2022. This unique price pattern appears to have already reached a Phase 2 or Phase 3 setup. Please take a look at this Weekly GE example of an Excess Phase Peak pattern and how it transitions through Phase 1 through Phase 4 before entering an extended Bearish price trend.Read this research article about Excess Phase Peaks: HOW TO SPOT THEN END OF AN EXCESS PHASE - PART 2SPY May Already Be In A Phase 4 Excess Peak PhaseThis Daily SPY chart highlights my analysis, showing the major downward sloping trend line, the Middle Resistance Zone, and the lower Support Zone. Combined, these are acting as a “Wedge” for price over the past few weeks – tightening into an Apex near $435~440.If the US major indexes attempt to break this downward price trend, then the price must attempt to move solidly above this downward sloping price channel and try to rally back into the Resistance Zone (near $445~$450). Unless that happens, the price will likely transition into a deeper downward price move, attempting to break below recent lows, near $410, and possibly quickly moving down to the $360 level.SPY Weekly Chart Shows Consolidation Near $435 – Possibly Starting A Phase 4 Excess PeakTraders should stay keenly aware of the risks associated with the broad US and global market decline as the Ukraine war, and other unknowns continue to elevate fear and concerns related to the global economy. In my opinion, with the current excess global debt levels, extended speculative market bubbles, and the continued commodity price rally, we may be starting to transition away from an extended growth phase and into a deeper depreciation cycle phase.My research suggests we entered a new Depreciation cycle phase in late 2019 and are already more than 25 months into a potential 9.5-year global Depreciation cycle. What comes next should not surprise anyone.Read this article about Depreciation Cycle Phases: HOW TO INTERPRET & PROFIT FROM THE RISKS OF A DEPRECIATION CYCLE Traders should stay keenly focused on market risks and weaknesses. I expected the conflict in Ukraine to have been priced into the US markets over the past 7+ days. However, I believe the markets were unprepared for this scale or invasion and will attempt to settle fair stock price valuation levels as the conflict continues. This is not the same US/Global market Bullish trend we've become used to trading over the past 5+ years. Looking Forward - preparing for a possible Bear marketMarket dynamics and trends are changing from what we have experienced over the past 40 years for stocks and bonds. The 60/40 portfolio is costing you money now. Traders need an edge to stay ahead of these markets trends and to protect and profit from big trends.The only way to navigate the financial markets safely, no matter the direction, is through technical analysis. By following assets and money flows, we identify trend changes and move our capital into whatever index, sector, industry, bond, commodity, country, and even currency ETF. By following the money, you become part of new emerging trends and can profit during weak stock or bond conditions.Want Trading Strategies that Will Help You To Navigate Current Market Trends?Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.I invite you to learn more about how my three Technical Trading Strategies can help you protect and grow your wealth in any type of market condition by clicking the following link:   www.TheTechnicalTraders.com 
Fighting Continues: Good for Ukraine... And Gold

Fighting Continues: Good for Ukraine... And Gold

Arkadiusz Sieron Arkadiusz Sieron 03.03.2022 16:10
  Kherson fell, but Ukrainians are still fighting fiercely. In the face of war, gold also shows courage – to move steadily up. The battle of Ukraine is still going on. Russian troops took control of Kherson, a city of about 300,000 in the south of Ukraine, but other main cities haven’t been captured yet. Ukrainian soldiers even managed to conduct some counter-offensive actions near the country’s capital. There is a large Russian column advancing on Kyiv, but its progress has been very slow over the last few days due to the staunch Ukrainian resistance and Russian forces’ problems with equipment, tactics, and supplies, including fuel and food. David is still bravely fighting Goliath! Of course, Russian forces still have an advantage and are progressing. However, the pace of the invasion is much slower than Vladimir Putin and his generals expected. The Ukrainians’ defense is much fiercer, while Russia’s losses are more severe. The Russian defense ministry admitted that 498 Russian soldiers have already been killed and 1,597 wounded, but the real number is probably much higher. Even if Russia takes control of other cities, it’s unclear whether it will be able to hold them. What’s more, although the West didn’t engage directly in the war, the response of the West was much stronger than Putin could probably have expected. The US and its allies supplied Ukraine with weapons and imposed severe sanctions against Putin and the Russian governing elite, as well as on Russia’s economy and financial system. For instance, the West decided to exclude several Russian banks from SWIFT and also to freeze most of Russian central bank’s foreign currency reserve assets. Additionally, many international companies are moving out of Russia or exporting their products to this country, adding to the economic pressure. The ruble plummeted, as the chart below shows.   Implications for Gold What does the ongoing war in Ukraine mean for the precious metals market? Well, the continuous heroic stance of President Volodymyr Zelenskyy and Ukrainian defenders is not only heating up the hearts of all freedom-lovers, but also gold prices. As the chart below shows, the price of the yellow metal has soared to about $1,930, the highest level since January 2021. As a reminder, until recently, gold was unable to surpass $1,800. Thus, the recent rally is noteworthy. The war is clearly boosting the safe-haven demand for gold. Another bullish driver is rising inflation. According to early estimates, euro area annual inflation soared from 5.1% in January to 5.8%, and the war is likely to add to the inflationary pressure due to rising energy prices. Both Brent and WTI oil prices have surged above $110 per barrel. Last but not least, I have to mention Powell’s appearance before Congress. In the prepared testimony, he said that the Fed would hike the federal funds rate this month, despite the war in Ukraine: Our monetary policy has been adapting to the evolving economic environment, and it will continue to do so. We have phased out our net asset purchases. With inflation well above 2 percent and a strong labor market, we expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month. This sounds rather hawkish and, thus, bearish for gold. However, Powell acknowledged that the implications of Russia’s invasion of Ukraine for the U.S. economy are highly uncertain. The near-term effects on the U.S. economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain. Making appropriate monetary policy in this environment requires a recognition that the economy evolves in unexpected ways. We will need to be nimble in responding to incoming data and the evolving outlook. Hence, the war in Eastern Europe could make the Fed more dovish than expected at a time when inflation could be higher than forecasted before the war outbreak. Such an environment should be bullish for the gold market. However, there is one important caveat. The detailed analysis of gold prices shows that they declined around the first and second rounds of negotiations between Russian and Ukrainian diplomats in anticipation of the end of the conflict. However, when it became apparent that the talks ended in a stalemate, gold resumed its upward move. The implication should be clear: as long as the war continues, the yellow metal may shine, but when the ceasefire or truce is agreed, we could see a correction in the gold market. It doesn’t have to be a great plunge, but a large part of the geopolitical premium will disappear. Having said that, the war may take a while. I pray that I’m wrong, but the slow progress of the Russian invasion could prompt Vladimir Putin to adopt a “whatever it takes” stance. According to some experts, he is already more emotional than usual, and when faced with the prospects of failure, he could become even more brutal or irrational. We already see that Russian troops, unable to break the Ukrainian defense in open combat, siege the cities and bomb civilians. Hence, the continuation or escalation of Russia’s military actions could provide support for gold prices. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
NFP Quick Analysis: Jobs jump again, adding fuel to the war-related dollar fire

NFP Quick Analysis: Jobs jump again, adding fuel to the war-related dollar fire

FXStreet News FXStreet News 04.03.2022 16:07
The US has gained a whopping 678,000 jobs in February. Slower wage growth is due to the return of lower-paying jobs, and markets are set to ignore it.Russia's invasion of Ukraine is already boosting the dollar and it now gets another push.As if the dollar needs another boost – February's Nonfarm Payrolls have confirmed that the US labor market is on fire. The economy is benefiting from the retreat of the Omicron COVID-19 variant, which further cements the first pandemic-era rate hike from the Federal Reserve. The war will not stop the central bank.The US gained no fewer than 678,000 jobs in February, on top of an upward-revised and strong 481,000 increase in January. Moreover, the unemployment rate slipped to 3.8% – an excellent number in absolute terms, and even better when coming amid an increase in the participation rate to 62.3%. All these figures beat estimates. The disappointing data comes from wages, which remained flat in February and only 5.1% up YoY compared with 5.7% recorded in January. However, that is due to the much-needed return of leisure and hospitality workers who are paid lower wages. Broader employment outweighs a drop in wages. The greenback has been benefiting from Russia's invasion of Ukraine, which is now on its ninth day. The latest scare comes from Europe's largest nuclear power station, which was hit by Russian fire and later taken over by invading soldiers. With every day that passes without a resolution, the global economic damage intensifies. For the Fed, a 5.1% increase in wages as seen in Average Hourly Earnings continues supportingthe need to raise rates. Substantial job gains go hand in hand with employers competing for employees, pushing their salaries higher – and in turn adding to price pressures. Higher energy prices had already shown that such shocks tend to propagate into the broader economy, lifting core prices and salaries. The war has sent oil and gas surging, threatening to further boost inflation. While this NFP report is unlikely to push the Fed to a double-dose rate hike, it could convince officials to forecast a steeper path of increases to borrowing costs. That would further underpin the greenback. In the shorter term, the mix of a strong jobs report, the ongoing war and the closing of trading for the weekend could encourage investors to take further risks off the table – and send them to the safety of the US dollar.
The Swing Overview - Week 9

The Swing Overview - Week 9

Purple Trading Purple Trading 07.03.2022 20:22
The Swing Overview - Week 9 The war in Ukraine continues, and although we all want this tragic event to be ended immediately, but unfortunately, according to last statements of Russian officials, it looks like the war will drag on for a longer period of time. Investors have reacted to this development by selling risk assets, including the Czech koruna. Stock indices are losing ground and the DAX in particular has been under heavy pressure. On the other hand, commodities such as oil, gold, and coal are strengthening strongly. Somewhat surprising is the development in the Australian dollar, which usually weakens in the events of geopolitical uncertainties. However, there is a reason for its current rise. More on this in our article. Conflict in Ukraine   Vladimir Putin probably did not expect to encounter such a brave resistance from Ukraine and that  almost the whole world would send Russia into isolation through significant sanctions. The list of companies and actions that have cut ties with Russia is growing day by the day and Western companies are leaving Russia. Thus, for Russians, foreign goods (food, clothing, furniture, electronics, cars) will gradually become very rare. Probably the strongest sanction that Russia has felt so far, was the freeze of the Russian Central Bank's foreign exchange reserves. In response, the Russian ruble began to depreciate significantly on February 28, 2022, and has already lost more than 30% of its pre-invasion value. In response, the Russian Central Bank intervened by raising the interest rate to 20%, which temporarily halted the ruble's fall.    Figure 1: The Russian ruble paired with the USD and the euro Meanwhile, Western countries have not exhausted all options to stop Russia in this war through economic sanctions in case of further escalation of the conflict yet. The fact that European countries might stop taking Russian gas is also at stake. This would, of course, have a very significant impact on the entire European economy. However, these are still just some economic losses, which can not be   compared at all with the losses of lives experienced by the unprecedentedly attacked Ukraine. In any case, this crisis seems to have the potential to surpass in its consequences the crisis that occurred in Russia in 1998, which led to inflation exceeding 80% and central bank interest rates reaching 150%.   Data from the US economy The ISM manufacturing sentiment indicator for February came in at 58.6 which is better than expected and points to an optimistic development of the US economy. In the labour market sector, the ADP (non-farm job change) indicator was reported, which showed that 475 thousand jobs were created in America in February (compared to 509 thousand in January). The number of unemployment claims reached 215 thousand last week, which was less than expected 226 thousand. Thus, the data show that the US economy is doing well so far and the US Fed is going to raise interest rates at its next meeting on March 16, 2022. Jerome Powell said that he would support a 0.25% rate hike. Powell also said that the war in Ukraine means significant uncertainty for monetary policy.   The US dollar and bond yields The US dollar continues to strengthen, as the USD index shows. In addition to the expected US interest rate hike, the US dollar bullishness is explained by demand for US government bonds in times of uncertainty. Demand for these bonds then pushes down their yields, which continue to fall. Figure 2: 10-year government bond yield on the 4H chart and USD index on the daily chart Index SP500 The US SP 500 index moved in a consolidation range last week. This shows that investors have so far viewed the conflict in Ukraine as an event that is more or less a regional event and therefore saw cheap stocks as a buying opportunity.  However, the sanctions adopted by Western countries will of course also have an impact on the global economy, especially if the conflict deepens further. This concern was then reflected at the end of the week when the index started to weaken. Figure 3: The SP 500 on H4 and D1 chart   Resistance according to the H4 chart is in the region of around 4,410 - 4,420. The nearest support according to the H4 chart is at 4255 - 4284. Significant support is at 4,100 - 4,113. German DAX index In contrast to the SP 500 index, there was a big sell-off in the DAX, showing that investors are worried, among other things, that a further escalation of the conflict could lead to a disruption in the supply of Russian gas, on which Germany is heavily dependent.  According to the daily chart, it looks like the DAX index is now in free fall and is breaking through support barriers as if they did not exist. It looks like the market is starting to show signs of panic selling by inexperienced investors.  If you are speculating in the short term, then bear in mind that short term speculation against such a strong downtrend is very disadvantageous and risky.   Figure 4: DAX on H4 and daily chart     Current resistance is in the area of 13,655 - 13,756. The price is now at support at 13,400, which is already slightly broken, but the closing of the whole session will be crucial. The next support is then at 13 000 - 13 100.   The Czech koruna is losing significantly The Czech koruna has long benefited from the interest rate differential, which has been very favourable for the koruna against the euro and has been the reason why the koruna has appreciated strongly since November 2021. But the Czech koruna, along with other Central European currencies, is a currency that is losing ground heavily in the current conflict.   Figure 5: The EURCZK on the daily chart   Firstly, there is the concern that the Czech Republic is geographically quite close to Ukraine, even though the Czech Republic does not have very significant exports directly with Ukraine nor Russia (in total, around 3% of total Czech exports). At the same time, there is concern about the Czech Republic's dependence on Russian gas. If the taps are closed, then the koruna could shoot above  CZK 27 per euro. Currently, the EURCZK pair is trading at the resistance level of 25. 80 - 25.90.   The Australian dollar The Australian dollar is a currency that tends to weaken during major global crises. In particular, the AUDJPY pair is correlated with the SP 500 index in the short term. Currently, however, the Australian dollar is strengthening.  This is because the Australian economy is export-oriented and exports commodities such as gold, iron ore, coal and gas.  All these commodities are now in high demand. Europe, for example, is realising that dependence on Russian gas is not paying off and is looking for alternatives. A temporary solution will be to rebuild coal-fired power stations. Germany and Italy have already started to buy coal stocks, which are therefore appreciating strongly. As a result, the price of coal has sky-rocketed, with one tonne reaching a record price of the USD 400. Figure 6: The coal price   The gold, traditionally seen as a safe haven in times of uncertainty, is also strengthening. The gold has also been helped by a fall in US bond yields.   Figure 7: The gold on H4 and D1 charts   In terms of technical analysis, the gold stopped at the resistance of $1,973 per ounce. The nearest support according to the daily chart is  $1,870 - 1,878 per ounce. The rise in commodity prices then resulted in the strengthening of the Australian dollar.     Figure 8: The AUDJPY currency pair on D1 chart   The AUDJPY broke the resistance in the range of 0.8400 - 0.8420, which became the new support. The next resistance is then at the level of 85.90 - 86.20.  
Is It Too Late To Begin Adapting To Higher Volatility In The Market?

Is It Too Late To Begin Adapting To Higher Volatility In The Market?

Chris Vermeulen Chris Vermeulen 07.03.2022 22:18
Now is the time for traders to adapt to higher volatility and rapidly changing market conditions. One of the best ways to do this is to monitor different asset classes and track which investments are gaining and losing money flow. Knowing what the Best Asset Now is (BAN) is critical for consistent growth no matter the market condition.With that said, buyers (countries, investors, and traders) are panicking as the commodity Wheat, for example, gained more than 40% last week.‘Panic Commodity Buying’ in Wheat – Weekly ChartAccording to the US Dept. of Agriculture, China will hold 69% of the world’s corn reserves, 60% of rice and 51% of wheat by mid-2022.Commodity markets surged to their largest gains in years as Ukrainian ports were closed and sanctions against Russia sent buyers scrambling for replacement supplies. Global commodities, commodity funds, and commodity ETFs are attracting huge capital inflows as investors seek to cash in on the rally in oil, metals, and grains.How does the Russia – Ukraine war affect global food supplies?The conflict between major commodity producers Russia and Ukraine is causing countries that rely heavily on commodity imports to feed their citizens to enter into panic buying. The breadbaskets of Ukraine and Russia account for more than 25% of the global wheat trade and nearly 20% of the global corn trade.Last week, it was reported that many countries have dangerously low grain supplies. Nader Saad, an Egypt Cabinet spokesman, has raised the alarm that currently, Egypt has only nine months’ worth of wheat in silos. The supply includes five months of strategic reserves and four months of domestic production to cover the bread needs of 102 million Egyptians. Additionally, Avigdor Lieberman, Israel’s economic minister, said on Thursday (3/3/22) that his country should keep “a low profile” regarding the conflict in eastern Europe, given that Israel imports 50 percent of its wheat from Russia and 30 percent from Ukraine.Sign up for my free trading newsletter so you don’t miss the next opportunity!The longer-term potential for much higher grain prices exists, but it’s worth noting that Friday’s close of nearly $12.00 a bushel for wheat is not that far away from the all-time record high of $13.30, recorded 14-years ago. According to Trading Economics, wheat has gone up 75.08% year-to-date while other commodity markets like Oats are up a whopping 85.13%, Coffee 74.68%, and Corn 34.07%.How are other markets reacting to these global events?Year-to-date comparison returns as of 3/4/2022:-9.18% S&P 500 (index), -7.49% DJI (index), -15.21% Nasdaq (index), +37.44% Exxon Mobile (oil), +20.08% Freeport McMoran (copper & gold), -20.68% Tesla (alternative energy), -24.49% Microstrategy (bitcoin play), -40.51% Meta-Facebook (social media)As stock holdings and 401k’s are shrinking it may be time to re-evaluate your portfolio. There are ETFs available that can give you exposure to commodities, energy, and metals.Here is an example of a few of these ETFs:+53.81% WEAT Teucrium Wheat Fund+41.79% GSG iShares S&P TSCI Commodity -Indexed Trust+104.40 UCO ProShares Ultra Bloomberg Crude Oil+59.32% PALL Aberdeen Standard Physical Palladium SharesHow is the global investor reacting to rocketing commodity prices and increasing market volatility?We can track global money flow by monitoring the following 1-month currency graph (www.finviz.com). The Australian Dollar is up +4.25%, the New Zealand Dollar +3.72%, and the Canadian Dollar +0.30% vs. the US Dollar due to the rising commodity prices like metals and energy. These country currencies are known as commodity currencies.The Switzerland Franc +0.96%, the Japanese Yen +0.35%, and the US Dollar +0.00% are all benefiting from global capital seeking a safe haven. As volatility continues to spike, these country currencies will experience more inflows as capital comes out of depreciating assets and seeks stability.We also notice that capital outflow is occurring from the European Union-Eurodollar -4.55% and the British Pound -2.22% due to their close proximity (risk) to the Russia - Ukraine war.www.finviz.comGlobal central banks will need to begin raising their interest rates to combat high inflation!Due to the rapid acceleration of inflation, the US Federal Reserve may have been looking to raise interest rates by 50 basis points at its policy meeting two weeks from now. However, given Russia’s invasion of Ukraine, the FED may become more cautious and consider raising interest rates by only 25 basis points on March 15-16.What strategies can help you navigate current market trends?Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets have begun to transition away from the continued central bank support rally phase and have started a revaluation phase as global traders attempt to identify the next big trends. Precious Metals are starting to act as a proper hedge as caution and concern start to drive traders/investors into Metals and other safe-havens.Now is the time to keep your eye on the ball!I invite you to learn more about how my three Technical Trading Strategies can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com
How You Can Minimize Trading Risk & Grow Capital During A Global Crisis

How You Can Minimize Trading Risk & Grow Capital During A Global Crisis

Chris Vermeulen Chris Vermeulen 09.03.2022 22:39
To minimize trading risk and grow capital during a global crisis is somewhat hinged on the answers to speculative questions. How long will the Russia – Ukraine war last? How high is the price of oil and gas going to go? How quickly will central banks raise interest rates to counter high inflation? What assets should I put my money into? Knowing what the Best Asset Now (BAN) is, is critical for risk management and consistent growth no matter the market condition!‘BUY THE DIP’ or ‘SELL THE RALLY’? - DJI Weekly ChartAs of 3/8/22, YTD returns are: DJIA -10.20%, S&P 500 -12.49%, Nasdaq 100 -18.70%The Dow Jones Industrial Average traded as high as 36952.65 on January 5, 2022The DJIA put in a Covid 2020 Low of 18213.65 on March 23, 2020. When you double the price of this significant low, you get a price of 36427.30, which the DJIA reached on November 4, 2021. This was precisely 591 calendar days from the 2020 low. The 200% level seems to have capped the bull rally. If, in fact, this is the top and the start of a bear market, we should experience high volatility both up and down. However, the highs and lows should be lower as the market begins to trend lower. The volatility will also continue to increase as the market deflates and continues to lose capital.Sign up for my free trading newsletter so you don’t miss the next opportunity! It appears this scenario may very well coincide with the fundamental current events of high inflation, central banks unable to add stimulus, having to raise their interest rates, and current/future geopolitical events.What-To-Do Before the Storm Hits“Have A Plan and Stick-To-Your-Plan”There are some basic strategies or practices that professional traders utilize to minimize trading risk and grow capital. Here are a few ideas:Bull/Bear Markets – In an upmarket, you should buy the dips. In a down market, you should do the opposite and sell the rallies. Rallies in a down 'bear' market tend to be very fast and short-lived.Diversification – Don't have your eggs in too many baskets. It is better to navigate thru a storm by focusing your resources specifically rather than generally.Leverage – Reduce leverage, position size, or know how you will respond to different percentage losses or gains. Understand what your investment objective is as well as your tolerance for risk. If you're having trouble sleeping at night, you should reduce your holdings to the place where you are comfortable.Leverage is a mathematical equation, and it does not have to be 1x, 2x, etc. It can also be 0.75x, 0.50x, etc. You get to decide what's best for you and your family. Leverage is also a double-edged sword! Be careful, especially when the markets are on edge and volatile.Where is the Institutional Money Going?The global currency market, otherwise known as Forex or FX, is the largest market in the world. According to the BIS Triennial Central Bank Survey, published on December 8, 2019, by the Bank for International Settlements, it has an average daily transactional volume of $6.6 trillion.By tracking global money flow, we can get a pretty good idea of where the smart money is going. For now, let’s see what has happened during the last 6-months.According to www.finviz.com, we notice that the US Dollar, despite its Covid stimulus spending spree, was the preferred currency. However, the Eurodollar has seen substantial outflows decreasing by -7.60%, which is entirely understandable with the Russia – Ukraine War at their doorstep.Global central banks ponder how quickly to raise interest rates in order to curb high inflation!According to TradingEconomics, the current global interest rates by major country are: United States 0.25%, Japan -0.10%, Switzerland -0.75%, Euro Region 0.00%, United Kingdom 0.50%, Canada 0.50%, and Australia 0.10%.The US Federal Reserve may have been looking to raise interest rates by as much as 50 basis points at its next policy meeting. However, given Russia’s invasion of Ukraine, the FED may become more cautious and consider raising interest rates by only 25 basis points on March 15-16. We need to pay close attention to this high-impact market event.What strategies can help you minimize trading risk and grow capital?Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets have begun to transition away from the continued central bank support rally phase and have started a revaluation phase as global traders attempt to identify the next big trends. Minimizing risk in order to grow your capital must remain a primary focus for all investors and traders. Now is the time to keep your eye on the ball!I invite you to learn more about how my three Technical Trading Strategies can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com
Gold Likes Recessions - Could High Interest Rates Lead to One?

Gold Likes Recessions - Could High Interest Rates Lead to One?

Finance Press Release Finance Press Release 11.03.2022 16:52
We live in uncertain times, but one thing is (almost) certain: the Fed’s tightening cycle will be followed by an economic slowdown – if not worse.There are many regularities in nature. After winter comes spring. After night comes day. After the Fed’s tightening cycle comes a recession. This month, the Fed will probably end quantitative easing and lift the federal funds rate. Will it trigger the next economic crisis?It’s, of course, more nuanced, but the basic mechanism remains quite simple. Cuts in interest rates, maintaining them at very low levels for a prolonged time, and asset purchases – in other words, easy monetary policy and cheap money – lead to excessive risk-taking, investors’ complacency, periods of booms, and price bubbles. On the contrary, interest rate hikes and withdrawal of liquidity from the markets – i.e., tightening of monetary policy – tend to trigger economic busts, bursts of asset bubbles, and recessions. This happens because the amount of risk, debt, and bad investments becomes simply too high.Historians lie, but history – never does. The chart below clearly confirms the relationship between the Fed’s tightening cycle and the state of the US economy. As one can see, generally, all recessions were preceded by interest rate hikes. For instance, in 1999-2000, the Fed lifted the interest rates by 175 basis points, causing the burst of the dot-com bubble. Another example: in the period between 2004 and 2006, the US central bank raised rates by 425 basis points, which led to the burst of the housing bubble and the Great Recession.One could argue that the 2020 economic plunge was caused not by US monetary policy but by the pandemic. However, the yield curve inverted in 2019 and the repo crisis forced the Fed to cut interest rates. Thus, the recession would probably have occurred anyway, although without the Great Lockdown, it wouldn’t be so deep.However, not all tightening cycles lead to recessions. For example, interest rate hikes in the first half of the 1960s, 1983-1984, or 1994-1995 didn’t cause economic slumps. Hence, a soft landing is theoretically possible, although it has previously proved hard to achieve. The last three cases of monetary policy tightening did lead to economic havoc.It goes without saying that high inflation won’t help the Fed engineer a soft landing. The key problem here is that the US central bank is between an inflationary rock and a hard landing. The Fed has to fight inflation, but it would require aggressive hikes that could slow down the economy or even trigger a recession. Another issue is that high inflation wreaks havoc on its own. Thus, even if untamed, it would lead to a recession anyway, putting the economy into stagflation. Please take a look at the chart below, which shows the history of US inflation.As one can see, each time the CPI annul rate peaked above 5%, it was either accompanied by or followed by a recession. The last such case was in 2008 during the global financial crisis, but the same happened in 1990, 1980, 1974, and 1970. It doesn’t bode well for the upcoming years.Some analysts argue that we are not experiencing a normal business cycle right now. In this view, the recovery from a pandemic crisis is rather similar to the postwar demobilization, so high inflation doesn’t necessarily imply overheating of the economy and could subsidy without an immediate recession. Of course, supply shortages and pent-up demand contributed to the current inflationary episode, but we shouldn’t forget about the role of the money supply. Given its surge, the Fed has to tighten monetary policy to curb inflation. However, this is exactly what can trigger a recession, given the high indebtedness and Wall Street’s addiction to cheap liquidity.What does it mean for the gold market? Well, the possibility that the Fed’s tightening cycle will lead to a recession is good news for the yellow metal, which shines the most during economic crises. Actually, recent gold’s resilience to rising bond yields may be explained by demand for gold as a hedge against the Fed’s mistake or failure to engineer a soft landing.Another bullish implication is that the Fed will have to ease its stance at some point in time when the hikes in interest rates bring an economic slowdown or stock market turbulence. If history teaches us anything, it is that the Fed always chickens out and ends up less hawkish than it promised. In other words, the US central bank cares much more about Wall Street than it’s ready to admit and probably much more than it cares about inflation.Having said that, the recession won’t start the next day after the rate liftoff. Economic indicators don’t signal an economic slump. The yield curve has been flattening, but it’s comfortably above negative territory. I know that the pandemic has condensed the last recession and economic rebound, but I don’t expect it anytime soon (at least rather not in 2022). It implies that gold will have to live this year without the support of the recession or strong expectations of it.Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care.
Fed, COVID-19, Russia-Ukraine - There Are Several Factors Which Affect Chinese Stock Markets

Fed, COVID-19, Russia-Ukraine - There Are Several Factors Which Affect Chinese Stock Markets

Alex Kuptsikevich Alex Kuptsikevich 14.03.2022 11:12
News from Ukraine remains the dominant topic on the financial markets but by no means the only one. Also noteworthy is the increased pressure on Chinese companies, which has intensified since February 17th, almost exactly one month ago. In that time, the Hang Seng has lost more than 20% and in Monday's trading was below 20,000 for the first time in six years. This is an important support area of the last ten years near which the market has previously found support. In all, the drop from the peak in February 2021 represents a fall of more than 40%. The pressure on the Chinese market is due to four factors simultaneously. Firstly, the military crisis in Ukraine is exacerbating logistical problems and causing higher prices for raw materials and agricultural products, which are hitting local companies and households far higher than in developed countries. Secondly, China remains committed to a zero-tolerance approach to COVID-19, once again closing multi-million-dollar areas to contain the outbreak. While Europe and the US are smoothly removing restrictions because of the pandemic, they are the toughest in China since 2020. Thirdly, there continues to be a mass exodus of investors due to fears of delisting several Chinese companies from US exchanges. The technology sector of Chinese companies is caught between a hammer and anvil as it previously faced regulatory pressure domestically and now has the biggest investor outflow. Fourth, even in peaceful times and without the regulatory guillotine, capital traditionally flees emerging markets in the early stages of a reversal in monetary policy. The first Fed rate hike since 2018 is expected this week. Higher inflation is shaping expectations that central banks will act more aggressively than previously anticipated, further shaking out weak players from the market. Those investors trying to see signs of a bottom forming in Chinese assets are likely to watch the market's reaction to comments from the Fed, Bank of England, and Bank of Japan later this week with heightened scrutiny. If regulators focus solely on fighting inflation, the sell-off promises to intensify. If there is more focus on financial stability risks and already observed tightening of financial conditions, we could see attempts to form a bottom.
Are Current Market Cycles Similar To The GFC Of 2007–2009?

Are Current Market Cycles Similar To The GFC Of 2007–2009?

Chris Vermeulen Chris Vermeulen 14.03.2022 16:14
Soaring real estate, rising volatility, surging commodities and slumping stocks - Sound Familiar?This past week marked the 13th anniversary of the bottom of the Global Financial Crisis (GFC) of 2007-2009. The March 6, 2009 stock market low for the S&P 500 marked a staggering overall value loss of 51.9%.The GFC of 2007-09 resulted from excessive risk-taking by global financial institutions, which resulted in the bursting of the housing market bubble. This, in turn, led to a vast collapse of mortgage-back securities resulting in a dramatic worldwide financial reset.Sign up for my free trading newsletter so you don’t miss the next opportunity! IS HISTORY REPEATING ITSELF?The following graph shows us that precious metals and energy outperform the stock market as the ‘Bull’ cycle reaches its maturity. The stock market is always the first to lead, the second being the economy, and the third, being the commodity markets. But history has shown that commodity markets can move up substantially as the stock market ‘Bull’ runs out of steam.The current commodities rally in Gold began August 2021, Crude Oil April 2020, and Wheat in January 2022. Interestingly we started seeing capital outflows in the SPY-SPDR S&P 500 Trust ETF in early January 2022, and the DRN-Direxion Daily Real Estate Bull 3x Shares ETF starting back in late December 2021.LET’S SEE WHAT HAPPENED TO THE STOCK AND COMMODITY MARKETS IN 2007-2008SPY - SPDR S&P 500 TRUST ETFFrom August 17, 2007 to July 3, 2008: SPDR S&P 500 ETF Trust depreciated -20.12%The State Street Corporation designed SPY for investors who want a cost-effective and convenient way to invest in the price and yield performance of the S&P 500 Stock Index. According to State Street’s website www.ssga.com, the Benchmark, the S&P 500 Index, comprises selected stocks from five hundred (500) issuers, all of which are listed on national stock exchanges and span over approximately 24 separate industry groups.DBC – INVESCO DB COMMODITY INDEX TRACING FUND ETFFrom August 17 2007 to July 3, 2008: Invesco DB Commodity Index Tracking Fund appreciated +96.81%Invesco designed DBC for investors who want a cost-effective and convenient way to invest in commodity futures. According to Invesco’s website www.invesco.com, the Index is a rules-based index composed of futures contracts on 14 of the most heavily traded and important physical commodities in the world.BE ALERT: THE US FEDERAL RESERVE POLICY MEETING IS THIS WEEK!In February, the inflation rate rose to 7.9% as food and energy costs pushed prices to their highest level in more than 40 years. If we exclude food and energy, core inflation still rose 6.4%, which was the highest since August 1982. Gasoline, groceries, and housing were the most significant contributors to the CPI gain. The consumer price index is the price of a weighted average market basket of consumer goods and services purchased by households.The FED was expected to raise interest rates by as much as 50 basis points at its policy meeting this week, March 15-16. However, given the recent world events of the Russia – Ukraine war in Europe, the FED may decide to be more cautious and raise rates by only 25 basis points.HOW WILL RISING INTEREST RATES AFFECT THE STOCK MARKET?As interest rates rise, the cost of borrowing becomes more expensive. Rising interest rates tend to affect the market immediately, while it may take about 9-12 months for the rest of the economy to see any widespread impact. Higher interest rates are generally negative for stocks, with the exception of the financial sector.WILL RISING INTEREST RATES BURST OUR HOUSING BUBBLE?It is too soon to tell exactly what the impact of rising interest rates will be regarding housing. It is worth noting that in a thriving economy, consumers continue buying. However, in our current economy, where the consumers' monthly payment is not keeping up with the price of gasoline and food, it is more likely to experience a leveling off of residential prices or even the risk of a 2007-2009 repeat of price depreciation.THE POTENTIAL FOR OUTSIZED GAINS IN A BEAR MARKET ARE 7X GREATER THAN A BULL MARKET!The average bull market lasts 2.7 years. From the March low of 2009, the current bull market has established a new record as the longest-running bull market at 12 years and nine months. The average bear market lasts just under ten months, while a few have lasted for several years. It is worth noting that bear markets tend to fall 7x faster than bull markets go up. Bear markets also reflect elevated levels of volatility and investor emotions which contribute significantly to the velocity of the market drop.WHAT STRATEGIES CAN HELP YOU NAVIGATE CURRENT MARKET TRENDS?Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24 months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe we are seeing the markets beginning to transition away from the continued central bank support rally phase and have started a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into metals, commodities, and other safe havens.IT'S TIME TO GET PREPARED FOR THE COMING STORM; UNDERSTAND HOW TO NAVIGATE THESE TYPES OF MARKETS!I invite you to learn more about how my three Technical Trading Strategies can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com
Buying Gold: ugly short-term deal, promising for long-term

Buying Gold: ugly short-term deal, promising for long-term

Alex Kuptsikevich Alex Kuptsikevich 15.03.2022 11:09
Gold is losing another 1% on Tuesday, pulling back to $1933. Exactly one week ago, quotes were soaring towards $2070, but they have been in a steady downward trend since then. The short-term charts clearly show the even pressure crystallising since March 10th. It may seem illogical that the gold price is down, pending reliable signs of military de-escalation. Rampant inflation should also contribute to the demand for Gold as protection against capital depreciation. The answer to this question seems to be sought in the altered gold supply balance. Likely, the Bank of Russia is now actively selling Gold from its reserves, both domestically and using the remaining means to do so abroad. In the short term, this creates an impressive market overhang, despite data confirming that exchange-traded funds have built up their holdings in the metal to a record. If the current trend develops, the price of Gold could deflate into the $1850-1870 area, where it was before Russian troops entered Ukraine. That said, buying Gold remains a prudent long-term strategy. Geopolitical instability forms the risks of a slowdown in the economy, which will deter the Fed and other major central banks from tightening policy. A 25-point rate hike is expected from the Fed this week, although the markets gave more than a 60% chance of a 50-point hike in the first weeks of the year. In the meantime, the current and expected price situation has only worsened, accelerating the actual depreciation of assets. Looking ahead to the next few months, a very supportive environment remains for gold prices up to around $2,500. The marginal forecasts of a new round of gold growth are also becoming more evident, echoing the dynamic of the 1970s, as the energy and food markets are now in a very similar position. If this holds true, the price could soar several times in the next several years.
S&P 500, Crude Oil And Credit Markets Decrease... Only Bitcoin Price Remains "The Same"

S&P 500, Crude Oil And Credit Markets Decrease... Only Bitcoin Price Remains "The Same"

Monica Kingsley Monica Kingsley 15.03.2022 16:03
S&P 500 decline was led by tech, and made possible by credit markets‘ plunge. The 4,160s held on a closing basis, and unless the bulls clear this area pretty fast today, this key support would come under pressure once again over the nearest days. Interestingly, the dollar barely moved, but looking at the daily sea of red across commodities, the greenback would follow these to the downside. Not that real assets including precious metals would be reversing on a lasting basis here – the markets are content that especially black gold keeps flowing at whatever price, to whatever buyer(s) willing to clinch the deal. Sure, it‘s exerting downward pressure on the commodity, but I‘m looking for the extraordinary weakness to be reversed, regardless of: (…) not even the virtual certainty of only 25bp hike in Mar is providing much relief to the credit markets. Given that the real economy is considerably slowing down and that recession looks arriving before Q2 ends, the markets continue forcing higher rates (reflecting inflation). The rising tide of fundamentals constellation favoring higher real asset prices, would continue kicking in, especially when the markets sense a more profound Fed turn than we saw lately with the 50bp into 25bp for Mar FOMC. Make no mistake, the inflation horse has left the barn well over a year ago, and doesn‘t intend to come back or be tamed. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 bears won the day, and are likely to regroup next – yes, that doesn‘t rule out a modest upswing that would then fizzle out. Credit Markets HYG woes continue, and credit markets keep raising rates for the Fed. The bears continue having the upper hand. Gold, Silver and Miners Precious metals haven‘t found the short-term bottom, but it pays to remember that they are often trading subdued before the Fed days. This is no exception, and I‘m fully looking for gold and silver to regain initiative following the cautious Fed tone. Crude Oil Crude oil didn‘t keep above $105, but would revert there in spite of the stagflationary environment (already devouring Europe). With more clarity in the various oil benchmarks, black gold would continue rising over the coming weeks. Copper Copper weakness is another short-term oddity, which I am looking for to be reversed in the FOMC‘s wake. Volume had encouragingly risen yesterday, so I‘m looking for a solid close to the week. Bitcoin and Ethereum Cryptos are very modestly turning higher, but I‘m not expecting too much of a run next. As stated yesterday, I wouldn‘t call it as risk-on constellation throughout the markets. Summary S&P 500 got into that precarious position (4,160s) yesterday, but managed to hold above. Given the usual Fed days trading pattern, stocks are likely to bounce a little before the pronouncements are made – only to continue drifting lower in their wake. That‘s valid for the central bank not making the U-turn towards easing again, which is what I‘m expecting to happen in the latter half of this year. Inflation would continue biting, and that means stocks are mired in a giant trading range a la the 1970s. Commodities and precious metals would continue building a base here, only to launch higher in response to (surprise, surprise) stubborn inflation. After all, where else to hide in during stagflations? Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.
Kishu Inu, A Meme Coin, Promotes Growth And Development Through Its Transparency

(SHIB) Shiba Inu Price - How Will Be The Altcoin Affected?

FXStreet News FXStreet News 15.03.2022 16:27
Shiba Inu price action sees price pressure against the technical triangle base at $0.00002140. SHIB price action set to test the low of its existence. As global markets threaten to drop into a recession, investors will flee cryptocurrencies in the coming days. Shiba Inu (SHIB) price action is on the cusp of breaking out of a bearish triangle that has dictated price action over the past two months. With a break to the downside, room opens up for an almost 70% drop towards the lowest levels in its existence as investors flee cryptocurrencies overall, following more and more reports that global markets are going into recession. With this dire projection in mind, expect to see further bleeding of SHIB price action as it falls back to $0.00000655. Shiba Inu price action bleeds as investors flee from recession fears Shiba Inu price action is seeing a massive squeeze building from bears trying to break out of the bearish triangle as more and more headwinds combine each day. The situation in Ukraine and new lockdowns in China are spelling supply chain issues again, and banks are starting to use the word recession more often in their reports about the future. This weighs on investor sentiment as cryptocurrencies are put on the backfoot and witness a daily outflow of cash from investors pulling the plug on their positions. SHIB price looks to break below $0.00002140 any moment now, with considerable momentum behind it from the death cross with the 55-day Simple Moving Average (SMA) below the 200-day SMA. Next to that, the Relative Strength Index is nowhere near being oversold, opening the door for short sellers to pick up some more gains in the downtrend. Expect to see a sharp drop in the coming days towards $0.00001000, breaking the monthly S1 and S2 support levels along the way, only to find a floor near $0.00000607, which is near the lowest level in SHIB’s. SHIB/USD daily chart Although red flags are popping up all over financial markets, investors could still be working on a turnaround in an attempt to look beyond the current crisis at hand. If central banks can steer economies out of this dire situation, expect investors to start buying into cryptocurrencies to take advantage of lucrative discounts. This could spill into a turnaround and see price action first pop back above $0.00002500, breaking the bearish 55-day SMA and hitting $0.00002787, above the 28.6% Fibonacci level.
The release of Chinese GDP, Bank of Canada interest rate decision and more - InstaForex talks the following week (part I)

Hang Seng Climbs And Adds 6%, China A50 Gains Ca. 6.5%

Alex Kuptsikevich Alex Kuptsikevich 16.03.2022 10:01
Chinese indices are experiencing their sharpest rally yet on Wednesday amid reassurances from officials that the stock market is going to be supported. Hong Kong’s Hang Seng is up 6%, China’s China A50 is gaining more than 6.5%, while China H-shar is soaring by 12%. These indices have been under increased pressure in recent weeks, getting maximum pressure this week.  On Tuesday, major Chinese indices fell fastest since March 2020, rewriting multi-year lows. Market support from officials came a day after the release of upbeat macro data, indicating a jump in retail sales and industrial production. At the same time, stock market dynamics fundamentally diverged from the economy, and there was a near point where stock volatility was already causing material disruption to the economy.  The China H-shar gained support today after sinking to the lows of late 2008, losing more than half of its price in just over a year of steady decline. The Hans Seng index touched lows since 2016 and areas of market support in 2012 at the peak of Tuesday’s decline. However, Chinese policymakers have worked hard to prevent the sell-off from turning into a self-sustaining spiral over the past two days. Yesterday’s China-US talks saw a positive reaction from the sides, forming a more than 4.5% bounce for the HangSeng during the European trading session.  This momentum was boosted on Wednesday morning after Vice Premier Liu He indicated that China is considering a package of measures to support the economy and financial markets. Soon the People’s Bank of China stated that it would help the stock market with other agencies.  Such words send a message to the market that the levels reached yesterday are a pain point for the Chinese authorities, from where they are ready to step up efforts to support the markets. Yesterday we likely saw the bottom of the Chinese indices for many months to come, despite potentially negative for stock prices rate hikes by the Fed and other major central banks for the equity market. There seems to be too much pessimism and wariness embedded in Chinese valuations after more than a year of declines.
Despite Ultra-Hawkish Fed’s Meeting, Gold Jumps

Despite Ultra-Hawkish Fed’s Meeting, Gold Jumps

Arkadiusz Sieron Arkadiusz Sieron 17.03.2022 17:29
  The FOMC finally raised interest rates and signaled six more hikes this year. Despite the very hawkish dot plot, gold went up in initial reaction. There has been no breakthrough in Ukraine. Russian invasion has largely stalled on almost all fronts, so the troops are focusing on attacking civilian infrastructure. However, according to some reports, there is a slow but gradual advance in the south. Hence, although Russia is not likely to conquer Kyiv, not saying anything about Western Ukraine, it may take some southern territory under control, connecting Crimea with Donbas. The negotiations are ongoing, but it will be a long time before any agreement is reached. Let’s move to yesterday’s FOMC meeting. As widely expected, the Fed raised the federal funds rate. Finally! Although one Committee member (James Bullard) opted for a bolder move, the US central bank lifted the target range for its key policy rate only by 25 basis points, from 0-0.25% to 0.25-0.50%. It was the first hike since the end of 2018. The move also marks the start of the Fed’s tightening cycle after two years of ultra-easy monetary policy implemented in a response to the pandemic-related recession. In support of these goals, the Committee decided to raise the target range for the federal funds rate from 1/4 to 1/2 percent and anticipates that ongoing increases in the target range will be appropriate. It was, of course, the most important part of the FOMC statement. However, the central bankers also announced the beginning of quantitative tightening, i.e., the reduction of the enormous Fed’s balance sheet, at the next monetary policy meeting in May. In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting. It’s also worth mentioning that the Fed deleted all references to the pandemic from the statement. Instead, it added a paragraph related to the war in Ukraine, pointing out that its exact implications for the U.S. economy are not yet known, except for the general upward pressure on inflation and downward pressure on GDP growth: The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity. These changes in the statement were widely expected, so their impact on the gold market should be limited.   Dot Plot and Gold The statement was accompanied by the latest economic projections conducted by the FOMC members. So, how do they look at the economy right now? As the table below shows, the central bankers expect the same unemployment rate and much slower economic growth this year compared to last December. This is a bit strange, as slower GDP growth should be accompanied by higher unemployment, but it’s a positive change for the gold market. What’s more, the FOMC participants see inflation now as even more persistent because they expect 4.3% PCE inflation at the end of 2022 instead of 2.6%. Inflation is forecasted to decline in the following years, but only to 2.7% in 2023 and 2.3% in 2024, instead of the 2.3% and 2.1% seen in December. Slower economic growth accompanied by more stubborn inflation makes the economy look more like stagflation, which should be positive for gold prices. Last but not least, a more aggressive tightening cycle is coming. Brace yourselves! According to the fresh dot plot, the FOMC members see seven hikes in interest rates this year as appropriate. That’s a huge hawkish turn compared to December, when they perceived only three interest rate hikes as desired. The central bankers expect another four hikes in 2024 instead of just the three painted in the previous dot plot. Hence, the whole forecasted path of the federal fund rate has become steeper as it’s expected to reach 1.9% this year and 2.8% next year, compared to the 0.9% and 1.6% seen earlier. Wow, that’s a huge change that is very bearish for gold prices! The Fed signaled the fastest tightening since 2004-2006, which indicates that it has become really worried about inflation. It’s also possible that the war in Ukraine helped the US central bank adopt a more hawkish stance, as if monetary tightening leads to recession, there is an easy scapegoat to blame.   Implications for Gold What does the recent FOMC meeting mean for the gold market? Well, the Fed hiked interest rates and announced quantitative tightening. These hawkish actions are theoretically negative for the yellow metal, but they were probably already priced in. The new dot plot is certainly more surprising. It shows higher inflation and slower economic growth this year, which should be bullish for gold. However, the newest economic projections also forecast a much steeper path of interest rates, which should, theoretically, prove to be negative for the price of gold. How did gold perform? Well, it has been sliding recently in anticipation of the FOMC meeting. As the chart below shows, the price of the yellow metal plunged from $2,039 last week to $1,913 yesterday. However, the immediate reaction of gold to the FOMC meeting was positive. As the chart below shows, the price of the yellow metal rebounded, jumping above $1,940. Of course, we shouldn’t draw too many conclusions from the short-term moves, but gold’s resilience in the face of the ultra-hawkish FOMC statement is a bullish sign. Although it remains to be seen whether the upward move will prove to be sustainable, I wouldn’t be surprised if it will. This is what history actually suggests: when the Fed started its previous tightening cycle in December 2015, the price of gold bottomed out. Of course, history never repeats itself to the letter, but there is another important factor. The newest FOMC statement was very hawkish – probably too hawkish. I don’t believe that the Fed will hike interest rates to 1.9% this year. And you? It means that we have probably reached the peak of the Fed’s hawkishness and that it will rather soften its stance from then on. If I’m right, a lot of the downward pressure that constrained gold should be gone now. If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today! Arkadiusz Sieron, PhDSunshine Profits: Effective Investment through Diligence & Care
(SPX) S&P 500 Reaches $4400 Level - Stock Markets Supported By Several Factors

(SPX) S&P 500 Reaches $4400 Level - Stock Markets Supported By Several Factors

Alex Kuptsikevich Alex Kuptsikevich 18.03.2022 11:05
The global equity market also continues to thaw after a pronounced decline since the start of the year. Initial reports of progress on the peace talks were later supported by indications that the US and China are looking to reduce friction between them and avoid new threats against each other. In addition, reassurances from the world’s major central banks over the past week sounded very encouraging. As a result, the Fear and Greed Index has moved out of the extreme fear territory, having bottomed out last week at levels last seen in March 2020. A return to territory above 20 for the index would typically mean a reversal to growth. One should note the increasing divergence between the S&P500 price and the Relative Strength Index, where since late January, S&P500’s lower lows has been marked by RSI’s higher low. The S&P500 has bounced back from its lows by almost 6% and is now testing the 50-day moving average. A consolidation above 4400 would signal the start of a broader, more powerful rally. Now it looks like the bravest already bought when there was “blood on the streets”; now, it is time for a broader range of buyers to step in. Gold and oil prices remain indicators of the military stand-off between Russia and Ukraine. Signs that progress in talks has stalled have put prices of these assets back on an upward trajectory. Brent crude oil was trading more than 11% above levels at the end of trading on March 16 at the start of the day on Friday. A glance at the chart suggests that technically quotations remain within the uptrend that began back in December. This is in line with the supposed progress in de-escalation between Russia and Ukraine. In our view, it is already worth noting that fears over energy supplies are no longer panic-driven but more constructive, lengthening the forecast horizon.
Risks in the US Banking System: Potential Impacts and Contagion Concerns

The Following Week: Only One (!) Interest Rate Decision, British CPI And US Crude Oil Inventories – Economic Calendar By FXMAG.COM

Mikołaj Marcinowski Mikołaj Marcinowski 18.03.2022 19:51
After a week full of central bank’s announcement it’s time to shift down and observe ‘boring’ economic indicators. Data: courtesy of Investing.com Monday, Tuesday - Japan And South Africa Bank of Japan released its monetary policy statement the previous week. The following Monday is a day free for both Japanese and South Africa’s people. Wednesday - Great Britain, Germany And The USA On Wednesday British CPI is released (prev. 5.5%). One and a half an hour later German Manufacturing PMI goes public. After midday (12:30 p.m.) Annual Budget Release is published and followed by the releases of US New Home Sales. At 2:30 p.m. many investors might follow the release of Crude Oil Inventories. Thursday – Switzerland, Germany And The USA At 8:30 SNB Interest Rate Decision (Q1) is released. What is not so usual – the current interest rate in Switzerland amounts to… -0.75%. At the same time German Manufacturing PMI is released. Four hours later important news comes from the USA where Core Durable Goods Orders are presented (0.7%). Friday – Great Britain, Germany And The USA Friday’s morning might be important for British people as Retail Sales indicator is published. The previously announced value was 1.9%. At 9 a.m. we head to Germany for the last time the following week, because German Ifo Business Climate is released (prev. 98.9). The last important event of the week 21/03-25/03 is the US Pending Home Sales (MoM) released at 2 p.m. Source: Investing.com Economic Calendar Time: GMT
Price Of Crude Oil And Price Of Gold Crosses Each Other

Price Of Crude Oil And Price Of Gold Crosses Each Other

Alex Kuptsikevich Alex Kuptsikevich 21.03.2022 12:14
Gold has remained in a one-and-a-half per cent range since last Thursday. The correction from a peak of $2070 to values below $1900 caused a brief aftershock, but it was not sustained. Gold has now stabilised above the peaks of May and June last year and is currently searching for further meaningful momentum. For short-term traders, gold has taken a back seat as markets try to assess the impact of disrupted supply chains and the amount of supply shortfall in raw materials and food. At the same time, medium-term traders should not lose sight of the fact that the current situation will not allow central banks to act adequately. As a result, the supply of fiat money will increase faster than the supply of commodities. In other words, we should expect greater tolerance for higher inflation from the CBs. In addition, governments should also be expected to provide financial support to the economy. In practice, that means more money supply and a higher level of public debt to GDP. And that is another disincentive for monetary policy, which is negative for the currency. It is also favourable for gold, which is used as protection against capital depreciation. Oil is gradually becoming the opposite of gold. After bouncing back to the trend support level of the last four months, Brent got back above $100 reasonably quickly and is adding 4% on Monday, trading at $109. Speculative demand for oil is picking up again amid discussions of a Russian energy divestment, which could be the agenda for the EU leaders and Biden meeting later this week. In addition, the US oil supply has been slow to rise, with data on Friday showing that the number of working oil drilling rigs declined a week earlier. Oil producers appear to be cautious about demand prospects with record fuel prices and are in no hurry to flood the market. This will fuel prices in the short term but is becoming an increasing drag on the economy in the medium term. Locally, we also risk suggesting that Europe will once again make it clear that it cannot substitute Russian energy, preferring to focus on sanctions against other sectors. And that could prove to be a dampening factor for oil later in the week. Oil prices above 110 still look unsustainably high, and a range with support at $85 looks more adequate for the coming months.
Warren Buffett's Berkshire Hathaway Stock Tops $500,000

Warren Buffett's Berkshire Hathaway Stock Tops $500,000

Chris Vermeulen Chris Vermeulen 21.03.2022 21:44
A subscriber asked us recently where he should be putting his money and how to limit losses in his retirement portfolio. He expressed frustration as he watched Buffett’s Berkshire Hathaway stock going up, but at the same time, the stock indices going lower and many of his previously favored stocks experiencing substantial losses! This conversation naturally piqued our curiosity. We decided to look into this for him and, at the same time, share our findings with our subscribers.Berkshire Hathaway stock traded at an all-time record high price of $520,654.46. At a stock price of $512,991, Berkshire’s market capitalization is $756.23 billion. Last year, Berkshire generated a record $27.46 billion of operating profit, including gains at Geico car insurance, the BNSF railroad, and Berkshire Hathaway Energy.BERKSHIRE vs. S&P 500 BENCHMARKWarren Buffett, age 91 (known as the ‘Sage of Omaha’), is the chairman and CEO of Berkshire Hathaway. He is considered by many to be the most successful stock investor in the world and, according to Forbes Real-Time Billionaire List, has a personal net worth that exceeds $120 billion USD.Very few can compete with his long-term track record. Since 1965, Berkshire has provided +20% average annual returns, almost double the +10.2% average annual returns for the S&P 500 Stock Index benchmark. The 2022 year-to-date comparison is:BRK.A Berkshire Hathaway +14.53%; SPY SPDR ETF -6.36%; FB Facebook -35.64%However, according to Buffett’s own humility, he has endured years of underperformance and has had his share of bad stock picks. When Buffet was asked about drawdowns at one of Berkshire’s annual meetings, he stated, “Unless you can watch your stock holdings decline by 50% without becoming panic-stricken, you should not be in the stock market.” According to www.finance.yahoo.com, the five biggest percentage losses for Berkshire have been:1974 -48.7%, 1990 -23.1%, 1999 -19.9%, 2008 -31.8%, and 2015 -12.5%.WHAT CAN WE LEARN FROM THE ‘BUFFETT INDICATOR’?The Buffett Indicator, as dubbed by Berkshire shareholders, is the ratio of the total United States stock market valuations (the Wilshire 5000 stock index) divided by the annual U.S. GDP. The indicator peaked at the beginning of 2022 and remains near all-time highs even though many stocks are well off their record levels.This historical chart of the Buffett Indicator was created by www.currentmarketvaluation.com. Doing quantitative analysis, we learn that the indicator is more than 1.6 standard deviations above the historical average, which suggests the market is over-valued and, in time, will fall back to its historical average.Berkshire Hathaway At Fibonacci Resistance!On March 18, 2022, Berkshire hit an all-time high price of $520,654. The Fibonacci resistance level of 2.618 or 261.8% of the March 23 low of $239,440 is $520,196. As shown on the daily chart, Berkshire also met resistance at the 2.618 standard deviations of the quarterly Bollinger Band.THE BENCHMARK: S&P 500 SPY ETFThe S&P 500 Index is the industry standard benchmark when comparing investment returns. It’s worth noting that as Berkshire reached the Fibonacci 2.618 resistance, the SPY found support at the Fibonacci 1.618 of the SPY March 23, 2020 low.Central banks have begun to tighten credit by raising interest rates for the first time since 2018, attempting to bring fast-rising energy, food, and housing prices under control. More time is needed to determine the full impact that rising global interest rates will have on current markets.However, on the chart below, we can see that the SPY put in a major top around 480 and, for the time being, has found support around 420 (the Fibonacci 1.618 level). Considering the increased market volatility and that we are now entering a cycle of higher interest rates, it would not surprise us to see the SPY eventually break below 420.It is worth noting that when a market makes a top after a prolonged bull-market, we usually experience distribution. Distribution with volatility results from large institutions beginning to liquidate their holdings while smaller retail investors are trying to buy stocks on sale. In other words, the retail investors are buying the dip hoping to get a bargain, while the institutional investors are selling the rally hoping to be liquidated and/or go short. It is a battle that retail investors will eventually lose!It is important to understand we are not saying the market has topped and is headed lower. This article sheds some light on some interesting analyses that you should be aware of. As technical traders, we follow price only, and when a new trend has been confirmed, we will change our positions accordingly. We provide our ETF trades with subscribers to our newsletter, and surprisingly, we have just entered five new trades.Sign up for my free trading newsletter so you don’t miss the next opportunity!WHAT STRATEGIES CAN HELP YOU NAVIGATE The CURRENT MARKET TRENDS? Learn how we use specific tools to help us understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, we expect very large price swings in the US stock market and other asset classes across the globe. We believe the markets have begun to transition away from the continued central bank support rally phase and have started a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern begin to drive traders/investors into Metals and other safe-havens.GET READY, GET SET, GO - We invite you to learn more about how my three ETF Technical Trading Strategies can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com
EM currencies: growing polarisation

EM currencies: growing polarisation

Alex Kuptsikevich Alex Kuptsikevich 22.03.2022 13:04
Since the start of the year, the performance of emerging market currencies mirrors what we saw in 2021, but with more polarisation. The Brazilian real has been the growth leader against the dollar since the start of the year, gaining around 13%. It is followed by the South African rand and Colombian peso, gaining just over 7%. Among the hardest hit is the Russian Rouble (-33%), but also the Egyptian Pound (-14%) and the Turkish Lira (-10%). In our view, this polarisation only promises to increase in the coming months.Commodity-exporting countries have benefited amid a global jump in energy and agricultural commodity prices. Brazil gets a chance to seriously boost its oil sales to the US amid a supply embargo from Russia. Though net oil exporters, the states must buy significant amounts of heavy crude to run their refineries. Until 2019, oil from Venezuela was used for the right blend, subsequently replaced by Russian crude. Now it is being replaced by oil from Brazil, which promises a significant increase in exports and supports the exchange rate of the Brazilian real.The South African rand is in demand, receiving dividends from last year's monetary tightening and a surge in metal prices since the start of the year. As most global markets look for alternatives to the Russian metal, the ZAR is enjoying demand from speculators in anticipation of increased exports from South Africa for political reasons.We may well be seeing a global reversal in the attitude towards commodity exporters' currencies, as even in the event of a military settlement, there is no expectation of a quick recovery of previous economic ties.At the other end of the spectrum are countries' currencies that depend on imports of oil and agricultural products. Egypt buys most of its wheat consumption from Russia and Ukraine, and rising prices severely damage the balance of payments. Egypt's central bank has responded by tightening monetary policy to suppress inflation. But such steps tend to hurt economic growth. Turkey imported almost all its gas from Russia and Azerbaijan and bought its wheat from Ukraine and Russia. Price jumps and supply-chain disruptions will be costly for the economy and cause increased pressure on the Turkish lira.In addition to the prospect of inflated import volumes, Turkey and Egypt face a severe drop in revenues from the tourism industry, as Russia and Ukraine have provided a significant flow of tourists.
Bank of Japan will not keep the yen from falling

Bank of Japan will not keep the yen from falling

Alex Kuptsikevich Alex Kuptsikevich 22.03.2022 14:53
The Japanese yen has fallen for the third week in a row, and the amplitude of this decline has become rather scary on Tuesday. It seems yen traders' stop-lines have been blown as the markets have become increasingly aware of the monetary authorities' reaction to inflation and the outlook for the balance of payments. In addition, over the past three weeks, we have seen a careful return of investors to risky assets, which is causing the yen to sell-off.USDJPY is trading above 120.70, which was last seen six years ago, having gained more than 5% since March 7th, while GBPJPY has soared 6% and EURJPY is up 7%. Against the yen are new comments from the Bank of Japan, which shows no sign of a change in its monetary policy, while central banks in other parts of the world issue increasingly hawkish statements.The pressure on the yen is exacerbated by its dependence on oil and metal imports, which widens the trade deficit of the historically export-oriented country. The value of exports in February 2022 was 18% higher than in 2020, while imports soared by 49%. Booming prices for energy, metals, and agricultural products set Japan up for a further plunge into trade deficits.In former years, sustained surpluses helped the yen maintain its strength or even strengthen during periods of market turbulence, ignoring anaemic economic growth and rising government debt to GDP levels.The resulting crisis in commodity prices will force central banks to unambiguously choose their policy towards government bonds on the balance sheet and the general level of government debt. While the USA and Europe are tightening their rhetoric on interest rates, Japan is deliberately lagging. At the same time, the government maintains an apparent calm, pointing out that there are both disadvantages and advantages of a weak exchange rate. The yen problem is not bothering the authorities right now.We should wait and see if investor confidence in the Japanese currency is undermined. Losing control of the exchange rate would risk an escalation of selling into Japanese government debt more than 250% of GDP. The only realistic soft solution is to deflate the national debt by accelerating inflation, but only if the central bank remains a big buyer to prevent an appreciation of the national debt. Such a policy would lead to sustained pressure on the yen.
The Swing Overview - Week 11 2022

The Swing Overview - Week 11 2022

Purple Trading Purple Trading 23.03.2022 16:13
The Swing Overview - Week 11 The fall in the indices that we have seen in recent days has stopped. The indices strengthened on expectations of a diplomatic solution to the war in Ukraine, which has been going on for more than three weeks. However, these negotiations have not led to any significant breakthrough yet, so the upside potential for the indices could be limited. In addition, the Fed has started its own war against inflation and raised interest rates for the first time in three years, which is rather negative news for equity indices in the short term. However, the statistics say that in the long run it does not mean a trend reversal for the SP 500 index. The Bank of England also raised rates, but the pound surprisingly weakened. The reason for this is in our article. The war in Ukraine   The war in Ukraine has been going on for more than three weeks now and there is still no end in sight. Sentiment has started to improve after reports on negotiations for a diplomatic solution to the war. However, Russia continues to make unrealistic demands that Ukraine cannot agree to. Negotiations have therefore have not led to a solution yet.   Meanwhile, the economic situation in Russia continues to deteriorate rapidly as a result of the sanctions. The credit rating agency Standard & Poor's has downgraded Russia's credit rating from the current grade CCC- to CC. Russia has already announced that it is having difficulty repaying its bonds. However, Russia managed to pay the coupon payments that were due this week, averting the country's imminent bankruptcy for now.   The war in Ukraine will have a negative impact on the global economy. World economic growth for 2022 is expected to fall from 4% to 3.2%. Apart from Russia and Ukraine, Europe and the UK will be hardest hit, where there is a significant risk of recession.   The Fed has raised interest rates The US Fed has launched a war on inflation and raised interest rates for the first time since December 2018. The current rate is 0.50% and further increases will continue. The Fed disclosed that rates are expected to rise to 2.80% within a year.  Figure 1: The evolution of interest rates in the US   The evolution of interest rates, over the last 25 years, is shown in Figure 1.   Jerome Powell commented that the Fed's main goal is to achieve price stability and maximum employment. He expects inflation, which has now reached 7.9%, to reach the target of 2%, but this will take longer than originally expected.    The problem is a persistent labour shortage, which is putting upward pressure on wages. However, the situation is already starting to normalise in some sectors, suggesting that this should not be an uncontrollable spiral wage growth that would strongly support inflation.   According to Powell, the US economy is in good shape and ready for monetary policy normalisation. Therefore, the Fed will start in May to reduce the bonds in its balance sheet, which has grown considerably to almost $9 trillion thanks to the support of the economy during the covid pandemic.   The Index SP500 As far as the impact of interest rate hikes is concerned, this should not change the long-term bullish market. Statistics confirm that over the following 12 months from the date of the hike, the index has reached higher levels in every case since 1983. Figure 2: The impact of the first interest rate hike on the performance of the SP 500 index. Source: Bloomberg     However, the statistics also show that in the short term, there were declines in the index within 3 months and this cannot be ruled out now as well. As for the current developments on the SP 500 index, it has recently bounced off its supports. The reason for this was the hope for a diplomatic solution to the war in Ukraine. However, this has stalled. The Fed also gave optimism to the indices with its statement about the economy doing well. Figure 3: SP 500 on H4 and D1 chart   Overall, the index is currently in a downtrend. In terms of technical analysis, the price has reached the resistance level which is at 4,383 - 4,420. According to the daily chart, the price has reached the EMA 50 moving average, which also serves as resistance. Support according to the H4 chart is at 4,328 - 4,334.  Significant support according to the daily chart is at 4 105 - 4 152.  German DAX index Figure 4: The German DAX index on H4 and daily chart   There was a significant deterioration in economic sentiment in Germany in March, as shown by the ZEW index, which reached a negative reading of -39.3. However, the DAX index, which is much more affected by the war in Ukraine than the US indices, strengthened last week.  The reason for the index's rise was mainly due to signs of a diplomatic solution to the conflict. The price climbed up to the resistance level on the H4 chart last week, which is in the area near the 14,500 price. The strong resistance according to the daily chart is in the range between 14,800 - 15,000.  The closest support according to the H4 chart is at 14,030 - 14,100.   The euro strengthened after the Fed announcement The euro price retested the resistance area which is in the area near 1.1130 - 1.1150 according to the daily chart. However, the Euro remains under pressure and although the ECB was surprisingly hawkish at the last meeting, it is still lagging behind compared to the US Fed. Moreover, the war in Ukraine, and according to some, the looming recession in the Eurozone, does not give much room for the Euro to strengthen. Therefore, it would not be surprising if the EURUSD falls to levels around 1. 0890 - 1. 0900, where the nearest support level is.     Figure 5: The EURUSD on the H4 and daily charts.   From a technical point of view, we can see that EURUSD is still in a downtrend according to the daily chart, so the current pullback may be an opportunity for trades in the short direction.   The Bank of England also raised interest rates The Bank of England raised its key interest rate by 0.25%.  Therefore, the rate is currently at 0.75%. By raising interest rates, the central bank is responding to rising inflation, which is expected to hit 8% in June 2022. But the pound surprisingly weakened sharply after the rate announcement. This was because the central bank was much more cautious in its expectations for the future of the economy. There are already signs that the war in Ukraine is having a negative impact on consumer confidence and is also having a negative impact on household incomes. This would slow economic activity. That is why the central bank has moved away from its previous aggressive hawkish tone.   Figure 6: The British Pound on H4 and daily chart.   A resistance is in the area of 1.3170 - 1.3200, where the price has halted. A support is at 1.3000.  
What Will Be The Impact Of Rising Rates On Stocks & Commodities?

What Will Be The Impact Of Rising Rates On Stocks & Commodities?

Chris Vermeulen Chris Vermeulen 23.03.2022 21:33
Investors and traders alike are concerned about what investments they should make on behalf of their portfolios and retirement accounts. We, at TheTechnicalTraders.com, continue to monitor stocks and commodities closely due to the Russia-Ukraine War, market volatility, surging inflation, and rising interest rates. Several of our subscribers have asked if changes in monitor policy may lead to a recession as higher rates take a bigger bite out of corporate profits.As technical traders, we look exclusively at the price action to provide specific clues as to the current trend or a potential change in trend. We review our charts for both stocks and commodities to see what we can learn from the most recent price action. Before we dive into that, let’s review the various stages of the market; with special attention given to expansion vs. contraction in a rising interest rate environment which you can see illustrated below.PAY ATTENTION TO YOUR STOCK PORTFOLIOWe are keeping an especially close eye on the price action of the SPY ETF. The current resistance for the SPY is the 475 top that happened around January 6, 2022. This top was 212.5% of the March 23, 2020, low that was put in at the height of the Covid global pandemic.The SPY found support in the 410 area at the end of February. If you recall (or didn't know), 410 was the Fibonacci 1.618 or 161.8% percent of the Covid 2020 price drop. Now, after experiencing a nice rally back, of a little over 50%, we are waiting to see if the rally can continue or if rotation will occur, sending the price back lower.COMMODITY MARKETS SURGEDThe commodity markets experienced a tremendous rally due to fast-rising inflation, especially energy, metals, and food prices.The GSG ETF price action shows that we recently touched 200%, or the doubling of the April 21, 2020, low. Immediately following, similar to the SPY, the GSCI commodity index promptly sold off only to then find substantial buying support at the Fibonacci 1.618 or 161.8 percent of the starting low price of the bull trend. Resistance for the GSG is at 26, and support is 21.A STRENGTHENING US DOLLARThe strengthening US dollar can be attributed to investors seeking a safe haven from geopolitical events, surging inflation, and the Fed beginning to raise rates. The US Dollar is still considered the primary reserve currency as the greatest portion of forex reserves held by central banks are in dollars. Furthermore, most commodities, including gold and crude oil, are also denominated in dollars.Consider the following statement from the Bank of International Settlements www.bis.org ‘Triennial Central Bank Survey’ published September 16, 2019: “The US dollar retained its dominant currency status, being on one side of 88% of all trades.” The report also highlighted, “Trading in FX markets reached $6.6 trillion per day in April 2019, up from $5.1 trillion three years earlier.” That’s a lot of dollars traded globally and confirms that we need to stay current on the dollars price action.Multinational companies are especially keeping a close eye on the dollar as any major shift in global money flows will seriously negatively impact their net profit and subsequent share value.The following chart by www.finviz.com provides us with a current snapshot of the relative performance of the US dollar vs. major global currencies over the past year:KNOWLEDGE, WISDOM, AND APPLICATION ARE NEEDEDIt is important to understand that we are not saying the market has topped and is headed lower. This article is to shed light on some interesting analyses of which you should be aware. As technical traders, we follow price only, and when a new trend has been confirmed, we will change our positions accordingly. We provide our ETF trades to our subscribers, and somewhat surprisingly, we entered five new trades earlier this week, two of which have now hit their first profit target levels. Our models continually track price action in a multitude of markets, asset classes, and global money flow. As our models generate new information about trends or a change in trends, we will communicate these signals expeditiously to our subscribers and to those on our trading newsletter email list.Sign up for my free trading newsletter so you don’t miss the next opportunity! WHAT STRATEGIES CAN HELP YOU NAVIGATE The CURRENT MARKET TRENDS? Learn how we use specific tools to help us understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, we expect very large price swings in the US stock market and other asset classes across the globe. We believe the markets have begun to transition away from the continued central bank support rally phase and have started a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern begin to drive traders/investors into Metals and other safe-havens.We invite you to join our group of active traders and investors to learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com
Positions of large speculators according to the COT report as at 15/3/2022

Positions of large speculators according to the COT report as at 15/3/2022

Purple Trading Purple Trading 23.03.2022 19:52
Positions of large speculators according to the COT report as at 15/3/2022 Total net speculator positions in the USD index fell by 5,664 contracts last week. This change is the result of a decrease in long positions by 6,264 contracts and a decrease in short positions by 600 contracts. The decline in total net speculator positions occurred last week in the euro, the British pound and the Japanese yen. The increase in total net positions occurred in the New Zealand dollar, the Australian dollar, the Canadian dollar and the Swiss franc. The significant growth in positions of large speculators in the commodity currencies AUD, NZD and CAD can be explained by the rising prices of commodities exported by these countries. A large number of options and futures contracts expired last week, which explains the large decline in open interest for each currency. The positions of speculators in individual currencies The total net positions of large speculators are shown in Table 1: If the value is positive then the large speculators are net long. If the value is negative, the large speculators are net short. Table 1: Total net positions of large speculators Date USD Index EUR GBP AUD NZD JPY CAD CHF Mar 15, 2022 28380 18794 -29061 -44856 3653 -62340 17740 -5229 Mar 08, 2022 34044 58844 -12526 -78195 -12379 -55856 7646 -9710 Mar 01, 2022 34774 64939 -337 -78336 -14172 -68732 14140 -15248 Feb 22, 2022 36084 59306 -5809 -84080 -11551 -63187 9253 -10987 Feb 15, 2022 35386 47581 2237 -86694 -9333 -66162 12170 -9715 Feb 08, 2022 33765 38842 -8545 -85741 -10366 -59148 14886 -9399   Note: The explanation of COT methodolody is at the the end of the report.   Notes: Large speculators are traders who trade large volumes of futures contracts, which, if the set limits are met, must be reported to the Commodity Futures Trading Commission. Typically, this includes traders such as funds or large banks. These traders mostly focus on trading long-term trends and their goal is to make money on speculation with the instrument. ​The total net positions of large speculators are the difference between the number of long contracts and the number of short contracts of large speculators. Positive value shows that large speculators are net long. Negative value shows that large speculators are net short. The data is published every Friday and is delayed because it shows the status on Tuesday of the week. The total net positions of large speculators show the sentiment this group has in the market. A positive value of the total net positions of speculators indicates bullish sentiment, a negative value of total net positions indicates bearish sentiment. When interpreting charts and values, it is important to follow the overall trend of total net positions. The turning points are also very important, i.e. the moments when the total net positions go from a positive value to a negative one and vice versa. Important are also extreme values ​​of total net positions as they often serve as signals of a trend reversal. Sentiment according to the reported positions of large players in futures markets is not immediately reflected in the movement of currency pairs. Therefore, information on sentiment is more likely to be used by traders who take longer trades and are willing to hold their positions for several weeks or even months.   Detailed analysis of selected currencies   Explanations:   Purple line and histogram: this is information on the total net position of large speculators. This information shows the strength and sentiment of an ongoing trend. It is the indicator r_COT Large Speculators (by Kramsken) in www.tradingview.com. Information on the positions of so-called hedgers is not shown in the chart, due to the fact that their main goal is not speculation, but hedging. Therefore, this group usually takes the opposite positions than the large speculators. For this reason, the positions of hedgers are inversely correlated with the movement of the price of the underlying asset. However, this inverse correlation shows the ongoing trend less clearly than the position of large speculators.​ We show moving average SMA 100 (blue line) and EMA 50 (orange line) on daily charts. ​Charts are made with the use of www.tradingview.com. The source of numerical data is www.myfxbook.com The Euro date Open Interest Specs Long Specs Short Specs Net positions change Open Interest change Long change Short change Net Positions Sentiment Mar 15, 2022 666010 202040 183246 18794 -72980 -40643 -593 -40050 Weak bullish Mar 08, 2022 738990 242683 183839 58844 19015 14298 20393 -6095 Weak bullish Mar 01, 2022 719975 228385 163446 64939 23293 14190 8557 5633 Bullish Feb 22, 2022 696682 214195 154889 59306 -5365 -3704 -15429 11725 Bullish Feb 15, 2022 702047 217899 170318 47581 1949 -1074 -9813 8739 Bullish Feb 08, 2022 700098 218973 180131 38842 14667 5410 -3716 9126 Býčí         Total Change -19421 -11523 -601 -10922     Figure 1: The euro and COT positions of large speculators on a weekly chart and the EURUSD on D1   The total net positions of speculators reached 18 794 contracts last week and they are down by 40 050 contracts compared to the previous week. This change is due to a decrease in long positions by 40,643 contracts and an increase in short positions by 593 contracts. These data suggest a weakening of the bullish sentiment in the euro. The open interest, which fell by 72,980 contracts in the last week, shows that the upward movement that occurred in the euro last week was not supported by a volume and it is therefore a weak price action. The euro continues to weaken under the influence of the war in Ukraine. Last week it returned to a resistance level which could be an opportunity to trade short in the event of a downtrend.  Long-term resistance: 1.1120 – 1.1150. Support: 1.080-1.0850. The next support is at 1.0640-1.0700.   The British pound date Open Interest Specs Long Specs Short Specs Net positions change Open Interest change Long change Short change Net Positions Sentiment Mar 15, 2022 188323 32442 61503 -29061 -57989 -18540 -2005 -16535 Bearish Mar 08, 2022 246312 50982 63508 -12526 34443 3303 15492 -12189 Bearish Mar 01, 2022 211869 47679 48016 -337 23426 5430 -42 5472 Weak bearish Feb 22, 2022 188443 42249 48058 -5809 -6859 -7902 144 -8046 Bearish Feb 15, 2022 195302 50151 47914 2237 -2646 5442 -5340 10782 Bullish Feb 08, 2022 197948 44709 53254 -8545 13941 15112 52 15060 Weak bearish         Total Change 4316 2845 8301 -5456     Figure 2: The GBP and COT positions of large speculators on a weekly chart and the GBPUSD on D1   The total net positions of speculators last week amounted to -29,061 contracts and they are down by 16,535 contracts compared to the previous week. This change is due to a decrease in long positions by 18,540 contracts and a decrease in short positions by 2,005 contracts. This suggests bearish sentiment as the total net positions of large speculators are negative while there is also their further decline. Open interest, which fell by 57,989 contracts last week, means that the rise in the pound price that occurred last week was not supported by volume and it is therefore a weak price action. Risk off sentiment due to the war in Ukraine continues to weigh on the pound and therefore the pound is weakening strongly. Although the Bank of England raised interest rates by 0.25% to 0.75% last week, it also warned of a decline in economic growth as a result of the war in Ukraine. The change in central bank rhetoric is a bearish signal for the pound. Long-term resistance: 1.3180-1.3210.  Next resistance is near 1.3270 – 1.3330. Support is near 1.3000.     The Australian dollar   date Open Interest Specs Long Specs Short Specs Net positions change Open Interest change Long change Short change Net Positions Sentiment Mar 15, 2022 124521 24281 69137 -44856 -72573 4760 -28579 33339 Weak bearish Mar 08, 2022 197094 19521 97716 -78195 7427 6801 6660 141 Weak bearish Mar 01, 2022 189667 12720 91056 -78336 -2912 1167 -4577 5744 Weak bearish Feb 22, 2022 192579 11553 95633 -84080 1 -139 -2753 2614 Weak bearish Feb 15, 2022 192578 11692 98386 -86694 -3825 -5631 -4678 -953 Bearish Feb 08, 2022 196403 17323 103064 -85741 -510 -1512 4400 -5912 Bearish         Total Change -72392 5446 -29527 34973     Figure 3: The AUD and COT positions of large speculators on a weekly chart and the AUDUSD on D1     The total net positions of speculators last week reached - 44 856 contracts, having increased by 33 339 contracts compared to the previous week. This change is due to an increase in long positions by 4,706 contracts and a decrease in short positions by 28,579 contracts. This data suggests a weakening of bearish sentiment in the Australian dollar. Last week we saw a decline in open interest of 72,573 contracts. This means that the upward move that occurred last week was not supported by a volume and it was therefore a weak move as new money did not flow into the market. The Australian dollar strengthened strongly again last week and reached a resistance level. Long-term resistance: 0.7370-0.7440 Long-term support: 0.7160-0.7180.  A strong support is near 0.7080 – 0.7120.   The New Zealand dollar   date Open Interest Specs Long Specs Short Specs Net positions change Open Interest change Long change Short change Net Positions Sentiment Mar 15, 2022 39200 21493 17840 3653 -14050 5718 -10314 16032 Bullish Mar 08, 2022 53250 15775 28154 -12379 2861 5290 3497 1793 Weak bearish Mar 01, 2022 50389 10485 24657 -14172 -6247 -6858 -4237 -2621 Bearish Feb 22, 2022 56636 17343 28894 -11551 -7469 -7580 -5362 -2218 Bearish Feb 15, 2022 64105 24923 34256 -9333 9228 7755 6722 1033 Weak bearish Feb 08, 2022 54877 17168 27534 -10366 -3590 -2037 -3369 1332 Weak bearish         Total Change -19267 2288 -13063 15351     Figure 4: The NZD and the position of large speculators on a weekly chart and the NZDUSD on D1   The total net positions of speculators reached 3,653 contracts last week and they are up by 16,032 contracts compared to the previous week. This change is due to an increase in long positions by 5,718 contracts and a decrease in short positions by 10,314 contracts. This data suggests that there was bullish sentiment on the New Zealand dollar last week. Open interest fell significantly by 14,050 contracts last week. Therefore, the upward movement in the NZDUSD that occurred last week was not supported by volume and therefore the move was weak. The NZDUSD strengthened strongly last week and reached the resistance level. Long-term resistance: 0.690 – 0.6930 Long-term support: 0.6730-0.6740 and the next support is at 0.6590 – 0.6600.   Explanation to the COT report The COT report shows the positions of major participants in the futures markets. Futures contracts are derivatives and are essentially agreements between two parties to exchange an underlying asset for a predetermined price on a predetermined date. They are standardised, specifying the quality and quantity of the underlying asset. They are traded on an exchange so that the total volume of these contracts traded is known.   Open interest: open interest is the sum of all open futures contracts (i.e. the sum of short and long contracts) that exist on a given asset. OI increases when a new futures contract is created by pairing a buyer with a seller. The OI decreases when an existing futures contract expires at a given expiry time or by settlement. Low or no open interest means that there is no interest in the market. High open interest indicates high activity and traders pay attention to this market. A rising open interest indicates that there is demand for the currency. That is, a rising OI indicates a strong current trend. Conversely, a weakening open interest indicates that the current trend is not strong. Open Interest Price action Interpretation Notes Rising Rising Strong bullish market New money flow in the particular asset, more bulls entered the market which pushes the price up. The trend is strong. Rising Falling Strong bearish market Price falls, more bearish traders entered the market which pushes the price down. The trend is strong. Falling Rising Weak bullish market Price is going up but new money do not flow into the market. Existing futures contracts expire or are closed. The trend is weak. Falling Falling Weak bearish market Price is going down, but new money do not flow into the market. Existing futures expire or are closed, the trend is weak.   Large speculators are traders who trade large volumes of futures contracts, which, if the set limits are met, must be reported to the Commodity Futures Trading Commission. Typically, this includes traders such as funds or large banks. These traders mostly focus on trading long-term trends and their goal is to make money on speculation with the instrument. Traders should try to trade in the direction of these large speculators. The total net positions of large speculators are the difference between the number of long contracts and the number of short contracts of large speculators. Positive value shows that large speculators are net long. Negative value shows that large speculators are net short. The data is published every Friday and is delayed because it shows the status on Tuesday of the week. The total net positions of large speculators show the sentiment this group has in the market. A positive value of the total net positions of speculators indicates bullish sentiment, a negative value of total net positions indicates bearish sentiment. When interpreting charts and values, it is important to follow the overall trend of total net positions. The turning points are also very important, i.e. the moments when the total net positions go from a positive value to a negative one and vice versa. Important are also extreme values ​​of total net positions as they often serve as signals of a trend reversal. The COT data are usually reported every Friday and they show the status on Tuesday of the week. Sentiment according to the reported positions of large players in futures markets is not immediately reflected in the movement of currency pairs. Therefore, information on sentiment is more likely to be used by traders who take longer trades and are willing to hold their positions for several weeks or even months.
Falling Japanese yen suggests a changing world order

Falling Japanese yen suggests a changing world order

Alex Kuptsikevich Alex Kuptsikevich 24.03.2022 15:23
The collapse of the Japanese yen continues, and so far, there are no signs of a trend reversal. The rise in the Yen is often linked to capital flight from risky assets, and the weakening is a sign of increased demand for risky assets. But that explanation hardly fits with what is happening now. We likely see the start of a significant reassessment by the markets of Japan's position in the financial system. In a worst-case scenario, this may turn into a debt crisis in the Land of the Rising Sun and be an even bigger disaster for financial markets than the eurozone debt crisis of a decade ago.The starting point for the weakening of the Yen was at the start of February. At that time, equities were in demand as a haven for capital to maintain the purchasing power of investments. The flow into equities was interrupted by the war in Ukraine but accelerated in the last couple of weeks on signs that these events have hyped up the processes that were taking place before. And these processes are now most visible in the dynamics of the Japanese yen against those currencies where the central bank can respond adequately to inflation.Since the start of February, the USDJPY has risen by 6.5%, and almost all of this increase has taken place since March 7th, taking the pair back to levels last seen at the end of 2015. A much more impressive rally is taking place in the Aussie and Kiwi against the Yen. Since the start of February, they have soared by more than 12%. So far this month, the strengthening is the largest in 11 years for AUDJPY and in more than 12 years for NZDJPY.The interest rate differential game, which was so beloved by traders in Japan before the global financial crisis, has found a second life. Australia and New Zealand have the economic potential to raise interest rates, as they are experiencing a surge in exports due to the boom in their export prices. However, the situation in Japan looks considerably more alarming, as Japan's debt-to-GDP ratio has risen by 77 percentage points to 170% since the financial crisis. Permanent QE from the Bank of Japan has kept government debt costs down but doesn't solve the problem.In the last decade, Japan has turned into a net commodity importer due to its growing dependence on energy and metals and increasing competition from China and Korea. The exchange rate should act as a natural mechanism to stabilise trade in this situation.But this adjustment is difficult for debt-laden Japan because selling currency would de facto mean selling bonds denominated in that currency. Under these circumstances, the Bank of Japan will either have to openly accept that it will finance the government (i.e. increase purchases despite inflation) or soften QE. The first option risks triggering a historic revaluation of the Yen. The second option would deal a blow to the economy and finances by raising questions about whether Japan can service its debt.
Bonds Speculators take a pause on their 10-Year Treasury Notes bearish bets

Bonds Speculators take a pause on their 10-Year Treasury Notes bearish bets

Invest Macro Invest Macro 27.03.2022 13:27
By InvestMacro | COT | Data Tables | COT Leaders | Downloads | COT Newsletter Here are the latest charts and statistics for the Commitment of Traders (COT) data published by the Commodities Futures Trading Commission (CFTC). The latest COT data is updated through Tuesday March 22nd and shows a quick view of how large traders (for-profit speculators and commercial entities) were positioned in the futures markets. Highlighting the COT bonds data is the pullback in the 10-Year Bond bearish bets this week. The speculative position in the 10-Year Bond has risen for two straight weeks following three straight weeks of declines (or rising bearish bets). The last two week’s rise has shaved off over 113,886 contracts from the total bearish position and brings the current standing to the least bearish level of the past five weeks at a total of -263,834 contracts. The 10-Year has been under pressure like most all bond markets as the Federal Reserve has started raising interest rates with an outlook of more rate increases to come. The 10-Year yield (as bond prices fall, yields rise) has been sharping surging to the upside with the close this week right around the 2.50 percent level, marking its highest yield since May of 2019. The speculator’s 10-Year bond pullback this week will likely be short-lived and it will be interesting to see if this latest bout of inflation, growth and central bank rate rises will be enough to finally break the multi-decade bull market for bonds. The bond markets with higher speculator bets were the 10-Year Bond (57,163 contracts), Fed Funds (91,899 contracts) and the 5-Year Bond (50,964 contracts). The bond markets with lower speculator bets were the 2-Year Bond (-27,015 contracts), Eurodollar (-128,245 contracts), Ultra 10-Year (-21,571 contracts), Long US Bond (-11,687 contracts) and the Ultra US Bond (-32,279 contracts). Data Snapshot of Bond Market Traders | Columns Legend Mar-22-2022 OI OI-Index Spec-Net Spec-Index Com-Net COM-Index Smalls-Net Smalls-Index Eurodollar 10,832,338 41 -2,656,722 0 3,074,395 100 -417,673 13 FedFunds 2,132,176 81 -13,382 38 29,682 63 -16,300 18 2-Year 2,297,315 20 -47,448 73 126,538 48 -79,090 10 Long T-Bond 1,128,229 36 32,551 95 -5,394 18 -27,157 31 10-Year 3,807,553 51 -263,834 31 464,339 80 -200,505 32 5-Year 3,774,450 36 -296,338 31 544,383 80 -248,045 13   3-Month Eurodollars Futures: The 3-Month Eurodollars large speculator standing this week equaled a net position of -2,656,722 contracts in the data reported through Tuesday. This was a weekly lowering of -128,245 contracts from the previous week which had a total of -2,528,477 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 0.0 percent. The commercials are Bullish-Extreme with a score of 100.0 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 12.5 percent. 3-Month Eurodollars Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 4.2 75.7 3.6 – Percent of Open Interest Shorts: 28.7 47.4 7.4 – Net Position: -2,656,722 3,074,395 -417,673 – Gross Longs: 451,791 8,204,977 389,102 – Gross Shorts: 3,108,513 5,130,582 806,775 – Long to Short Ratio: 0.1 to 1 1.6 to 1 0.5 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 0.0 100.0 12.5 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -11.9 11.0 5.8   30-Day Federal Funds Futures: The 30-Day Federal Funds large speculator standing this week equaled a net position of -13,382 contracts in the data reported through Tuesday. This was a weekly advance of 91,899 contracts from the previous week which had a total of -105,281 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 38.0 percent. The commercials are Bullish with a score of 63.5 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 18.3 percent. 30-Day Federal Funds Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 7.1 77.0 1.8 – Percent of Open Interest Shorts: 7.7 75.6 2.6 – Net Position: -13,382 29,682 -16,300 – Gross Longs: 150,828 1,640,744 38,998 – Gross Shorts: 164,210 1,611,062 55,298 – Long to Short Ratio: 0.9 to 1 1.0 to 1 0.7 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 38.0 63.5 18.3 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -5.2 5.6 -10.5   2-Year Treasury Note Futures: The 2-Year Treasury Note large speculator standing this week equaled a net position of -47,448 contracts in the data reported through Tuesday. This was a weekly fall of -27,015 contracts from the previous week which had a total of -20,433 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 72.7 percent. The commercials are Bearish with a score of 47.5 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 9.9 percent. 2-Year Treasury Note Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 15.9 73.9 6.1 – Percent of Open Interest Shorts: 18.0 68.4 9.6 – Net Position: -47,448 126,538 -79,090 – Gross Longs: 365,795 1,697,892 140,374 – Gross Shorts: 413,243 1,571,354 219,464 – Long to Short Ratio: 0.9 to 1 1.1 to 1 0.6 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 72.7 47.5 9.9 – Strength Index Reading (3 Year Range): Bullish Bearish Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -7.3 5.2 5.5   5-Year Treasury Note Futures: The 5-Year Treasury Note large speculator standing this week equaled a net position of -296,338 contracts in the data reported through Tuesday. This was a weekly lift of 50,964 contracts from the previous week which had a total of -347,302 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 31.2 percent. The commercials are Bullish with a score of 79.7 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 12.9 percent. 5-Year Treasury Note Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 9.1 81.6 7.1 – Percent of Open Interest Shorts: 16.9 67.2 13.7 – Net Position: -296,338 544,383 -248,045 – Gross Longs: 342,471 3,081,019 268,697 – Gross Shorts: 638,809 2,536,636 516,742 – Long to Short Ratio: 0.5 to 1 1.2 to 1 0.5 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 31.2 79.7 12.9 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -28.8 21.1 -2.5   10-Year Treasury Note Futures: The 10-Year Treasury Note large speculator standing this week equaled a net position of -263,834 contracts in the data reported through Tuesday. This was a weekly advance of 57,163 contracts from the previous week which had a total of -320,997 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 31.4 percent. The commercials are Bullish-Extreme with a score of 80.0 percent and the small traders (not shown in chart) are Bearish with a score of 32.0 percent. 10-Year Treasury Note Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 10.8 77.9 7.9 – Percent of Open Interest Shorts: 17.8 65.7 13.2 – Net Position: -263,834 464,339 -200,505 – Gross Longs: 412,030 2,966,196 302,390 – Gross Shorts: 675,864 2,501,857 502,895 – Long to Short Ratio: 0.6 to 1 1.2 to 1 0.6 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 31.4 80.0 32.0 – Strength Index Reading (3 Year Range): Bearish Bullish-Extreme Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -9.5 -2.3 18.6   Ultra 10-Year Notes Futures: The Ultra 10-Year Notes large speculator standing this week equaled a net position of -91,321 contracts in the data reported through Tuesday. This was a weekly decrease of -21,571 contracts from the previous week which had a total of -69,750 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 3.6 percent. The commercials are Bullish-Extreme with a score of 100.0 percent and the small traders (not shown in chart) are Bearish with a score of 41.2 percent. Ultra 10-Year Notes Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 9.7 80.5 9.3 – Percent of Open Interest Shorts: 16.7 63.9 18.8 – Net Position: -91,321 214,698 -123,377 – Gross Longs: 125,921 1,045,958 120,546 – Gross Shorts: 217,242 831,260 243,923 – Long to Short Ratio: 0.6 to 1 1.3 to 1 0.5 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 3.6 100.0 41.2 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -35.7 27.0 20.8   US Treasury Bonds Futures: The US Treasury Bonds large speculator standing this week equaled a net position of 32,551 contracts in the data reported through Tuesday. This was a weekly lowering of -11,687 contracts from the previous week which had a total of 44,238 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 95.2 percent. The commercials are Bearish-Extreme with a score of 18.4 percent and the small traders (not shown in chart) are Bearish with a score of 31.0 percent. US Treasury Bonds Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 9.7 72.6 13.8 – Percent of Open Interest Shorts: 6.9 73.1 16.3 – Net Position: 32,551 -5,394 -27,157 – Gross Longs: 109,965 819,658 156,236 – Gross Shorts: 77,414 825,052 183,393 – Long to Short Ratio: 1.4 to 1 1.0 to 1 0.9 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 95.2 18.4 31.0 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish-Extreme Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 21.3 -18.7 -5.4   Ultra US Treasury Bonds Futures: The Ultra US Treasury Bonds large speculator standing this week equaled a net position of -298,523 contracts in the data reported through Tuesday. This was a weekly fall of -32,279 contracts from the previous week which had a total of -266,244 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 63.4 percent. The commercials are Bearish with a score of 40.0 percent and the small traders (not shown in chart) are Bullish with a score of 59.1 percent. Ultra US Treasury Bonds Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 5.6 81.2 12.6 – Percent of Open Interest Shorts: 29.2 61.0 9.2 – Net Position: -298,523 255,630 42,893 – Gross Longs: 70,425 1,026,988 158,649 – Gross Shorts: 368,948 771,358 115,756 – Long to Short Ratio: 0.2 to 1 1.3 to 1 1.4 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 63.4 40.0 59.1 – Strength Index Reading (3 Year Range): Bullish Bearish Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 7.1 -14.1 8.3   Article By InvestMacro – Receive our weekly COT Reports by Email *COT Report: The COT data, released weekly to the public each Friday, is updated through the most recent Tuesday (data is 3 days old) and shows a quick view of how large speculators or non-commercials (for-profit traders) were positioned in the futures markets. The CFTC categorizes trader positions according to commercial hedgers (traders who use futures contracts for hedging as part of the business), non-commercials (large traders who speculate to realize trading profits) and nonreportable traders (usually small traders/speculators) as well as their open interest (contracts open in the market at time of reporting).See CFTC criteria here.
Euro (EUR), Japanese Yen And Dollar (USD) Interactions. Dollar Index (DXY) Looks Quite Fine. A Year Full Of Fed Decisions...

Euro (EUR), Japanese Yen And Dollar (USD) Interactions. Dollar Index (DXY) Looks Quite Fine. A Year Full Of Fed Decisions...

Alex Kuptsikevich Alex Kuptsikevich 28.03.2022 12:44
There has been a lot of talk lately about the decline of the US dollar's reserve status. However, investors and traders should separate long-term trends from short-term market impulses. Reserve fund managers often prefer to refrain from active selling so as not to cause unnecessary market turbulence, so all reserve trends are stretched out over decades. As long as there is no real threat to the existence of the dollar and the solvency of the US government, managers will avoid making active moves to sell dollar assets. And all the revolutionary changes, such as switching to national currencies, will only result in CBs buying fewer new dollars. But it has little effect on the exchange rate. Right now, we are seeing the opposite picture, as the main competitors are under pressure. Investors are getting rid of the Japanese yen as the Bank of Japan accelerates its currency printing to buy bonds out of the market to stem rising yields. The local government is overburdened with debt, and the economy is still stalling. The only market solution is a devaluation of the yen, which would make exports from Japan more competitive and boost domestic spending. The single currency is suffering from a spike in energy prices and economic problems related to the war in Ukraine. Trading below 1.1000, the EURUSD pair is now where it was heading for the last six months before the pandemic. The medium-term outlook for the dollar is largely influenced by the extent to which the Fed will be able to implement policy tightening. More accurately, how Fed policy compares with the policy of the Bank of Japan, the ECB, or another major central bank. The Fed is clearly acting with greater amplitude, setting itself up for 7 rate hikes this year, which is far more than one would expect from Japan or the eurozone. Moreover, the US remains much further away from the war in Ukraine in business and trade terms than its biggest competitors, which means it can continue to benefit from capital inflows as a haven.
Volatility Retreats As Stocks & Commodities Rally

Volatility Retreats As Stocks & Commodities Rally

Chris Vermeulen Chris Vermeulen 28.03.2022 21:32
The CBOE Volatility Index (VIX) is a real-time index. It is derived from the prices of SPX index options with near-term expiration dates that are utilized to generate a 30-day forward projection of volatility. The VIX allows us to gauge market sentiment or the degree of fear among market participants. As the Volatility Index VIX goes up, fear increases, and as it goes down, fear dissipates.Commodities and equities are both showing renewed strength on the heels of global interest rate increases. Inflation shows no sign of abating as energy, metals, food products, and housing continues their upward bias.During the last 18-months, the VIX has been trading between its upper resistance of 36.00 and its lower support of 16.00. As the Volatility Index VIX falls, fear subsides, and money flows back into stocks.VIX – VOLATILITY S&P 500 INDEX – CBOE – DAILY CHARTSPY RALLIES +10%The SPY has enjoyed a sharp rally back up after touching its Fibonacci 1.618% support based on its 2020 Covid price drop. Money has been flowing back into stocks as investors seem to be adapting to the current geopolitical environment and the change in global central bank lending rate policy.Resistance on the SPY is the early January high near 475, while support remains solidly in place at 414. March marks the 2nd anniversary of the 2020 Covid low that SPY made at 218.26 on March 23, 2020.SPY – SPDR S&P 500 ETF TRUST - ARCA – DAILY CHARTBERKSHIRE HATHAWAY RECORD-HIGH $538,949!Berkshire Hathaway is up +20.01% year to date compared to the S&P 500 -4.68%. Berkshire’s Warren Buffet has also been on a shopping spree, and investors seem to be comforted that he is buying stocks again. Buffet reached a deal to buy insurer Alleghany (y) for $11.6 billion and purchased nearly a 15% stake in Occidental Petroleum (OXY), worth $8 billion.These acquisitions seem to be well-timed as insurers and banks tend to benefit from rising interest rates, and Occidental generates the bulk of its cash flow from the production of crude oil.As technical traders, we look exclusively at the price action to provide specific clues as to the current trend or a potential change in trend. With that said, Berkshire is a classic example of not fighting the market. As Berkshire continues to make new highs, its’ trend is up!BRK.A – BERKSHIRE HATHAWAY INC. - NYSE – DAILY CHARTCOMMODITY DEMAND REMAINS STRONGInflation continues to run at 40-year highs, and it appears that it will take more than one FED rate hike to subdue prices. Since price is King, we definitely want to ride this trend and not fight it. It is always nice to buy on a pullback, but the energy markets at this point appear to be rising exponentially. The XOP ETF gave us some nice buying opportunities earlier at the Fibonacci 0.618% $71.78 and the 0.93% $93.13 of the COVID 2020 range high-low.Remember, the trend is your friend, as many a trader has gone broke trying to pick or sell a top before its time! Well-established uptrends like the XOP are perfect examples of how utilizing a trailing stop can keep a trader from getting out of the market too soon but still offer protection in case of a sudden trend reversal.XOP – SPDR S&P OIL & GAS EXPLORE & PRODUCT – ARCA – DAILY CHARTKNOWLEDGE, WISDOM, AND APPLICATION ARE NEEDEDIt is important to understand that we are not saying the market has topped and is headed lower. This article is to shed light on some interesting analyses of which you should be aware. As technical traders, we follow price only, and when a new trend has been confirmed, we will change our positions accordingly. We provide our ETF trades to our subscribers, and somewhat surprisingly, we entered five new trades last week, four of which have now hit their first profit target levels. Our models continually track price action in a multitude of markets, asset classes, and global money flow. As our models generate new information about trends or a change in trends, we will communicate these signals expeditiously to our subscribers and to those on our trading newsletter email list.Sign up for my free trading newsletter so you don’t miss the next opportunity! Furthermore, successfully trading is not limited to when to buy or sell stocks or commodities. Money and risk management play a critical role in becoming a consistently profitable trader. Correct position sizing utilizing stop-loss orders helps preserve your investment capital and allows traders to manage their portfolios according to their desired risk parameters. Additionally, scaling out of positions by taking profits and moving stop-loss orders to breakeven can complement ones’ success.WHAT STRATEGIES CAN HELP YOU NAVIGATE The CURRENT MARKET TRENDS? Learn how we use specific tools to help us understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, we expect very large price swings in the US stock market and other asset classes across the globe. We believe the markets have begun to transition away from the continued central bank support rally phase and have started a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern begin to drive traders/investors into Metals and other safe-havens.We invite you to join our group of active traders and investors to learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com
Positions of large speculators according to the COT report as at 5/4/2022

Positions of large speculators according to the COT report as at 5/4/2022

Purple Trading Purple Trading 11.04.2022 22:12
Positions of large speculators according to the COT report as at 5/4/2022 Total net speculator positions in the USD index rose by 911 contracts last week. This change is the result of a decrease in long positions by 3,932 contracts and a decrease in short positions by 4,843 contracts. The growth in total net positions occurred last week in the euro, the Australian dollar and the Canadian dollar. There were declines in the total net positions of large speculators in the British pound, the New Zealand dollar, the Japanese yen and the Swiss franc. Interest rate decisions will be made by the central banks of New Zealand and Canada (Wednesday) and the ECB on Thursday this week. The published monetary policy of these banks will be the decisive driver for the NZD, the CAD and the EUR this week. The positions of speculators in individual currencies The total net positions of large speculators are shown in Table 1: If the value is positive then the large speculators are net long. If the value is negative, the large speculators are net short. Table 1: Total net positions of large speculators DatE USD Index EUR GBP AUD NZD JPY CAD CHF Apr 05, 2022 31852 27370 -41758 -37513 -1569 -103829 6923 -12393 Mar 29, 2022 30941 21374 -40070 -49606 -867 -102131 1535 -11579 Mar 22, 2022 29635 23843 -37244 -51189 2520 -78482 -4940 -8424 Mar 15, 2022 28380 18794 -29061 -44856 3653 -62340 17740 -5229 Mar 08, 2022 34044 58844 -12526 -78195 -12379 -55856 7646 -9710 Mar 01, 2022 34774 64939 -337 -78336 -14172 -68732 14140 -15248   Note: The explanation of COT methodolody is at the the end of the report.   Notes: Large speculators are traders who trade large volumes of futures contracts, which, if the set limits are met, must be reported to the Commodity Futures Trading Commission. Typically, this includes traders such as funds or large banks. These traders mostly focus on trading long-term trends and their goal is to make money on speculation with the instrument. ​The total net positions of large speculators are the difference between the number of long contracts and the number of short contracts of large speculators. Positive value shows that large speculators are net long. Negative value shows that large speculators are net short. The data is published every Friday and is delayed because it shows the status on Tuesday of the week. The total net positions of large speculators show the sentiment this group has in the market. A positive value of the total net positions of speculators indicates bullish sentiment, a negative value of total net positions indicates bearish sentiment. When interpreting charts and values, it is important to follow the overall trend of total net positions. The turning points are also very important, i.e. the moments when the total net positions go from a positive value to a negative one and vice versa. Important are also extreme values ​​of total net positions as they often serve as signals of a trend reversal. Sentiment according to the reported positions of large players in futures markets is not immediately reflected in the movement of currency pairs. Therefore, information on sentiment is more likely to be used by traders who take longer trades and are willing to hold their positions for several weeks or even months.   Detailed analysis of selected currencies   Explanations:   Purple line and histogram: this is information on the total net position of large speculators. This information shows the strength and sentiment of an ongoing trend. It is the indicator r_COT Large Speculators (by Kramsken) in www.tradingview.com. Information on the positions of so-called hedgers is not shown in the chart, due to the fact that their main goal is not speculation, but hedging. Therefore, this group usually takes the opposite positions than the large speculators. For this reason, the positions of hedgers are inversely correlated with the movement of the price of the underlying asset. However, this inverse correlation shows the ongoing trend less clearly than the position of large speculators.​ We show moving average SMA 100 (blue line) and EMA 50 (orange line) on daily charts. ​Charts are made with the use of www.tradingview.com. The source of numerical data is www.myfxbook.com   The Euro   date Open Interest Specs Long Specs Short Specs Net positions change Open Interest change Long change Short change Net Positions Sentiment Apr 05, 2022 663589 210914 183544 27370 1174 10871 4875 5996 Bullish Mar 29, 2022 662415 200043 178669 21374 3598 -7008 -4539 2469 Weak bullish Mar 22, 2022 658817 207051 183208 23843 -7193 5011 -38 5049 Bullish Mar 15, 2022 666010 202040 183246 18794 -72980 -40643 -593 -40050 Weak bullish Mar 08, 2022 738990 242683 183839 58844 19015 14298 20393 -6095 Weak bullish Mar 01, 2022 719975 228385 163446 64939 23293 14190 8557 5633 Bullish         Total change -33093 -3281 28655 -31936     Figure 1: The euro and COT positions of large speculators on a weekly chart and the EURUSD on D1 The total net positions of large speculators reached 27 370 contracts last week and they were up by 5 996 contracts compared to the previous week. This change is due to an increase in long positions by 10,871 contracts and an increase in short positions by 4,875 contracts. These data indicates a bullish sentiment for the euro. Open interest has risen by 1,174 contracts in the last week. This shows that the downward movement that occurred in the euro last week was supported by a volume and it was therefore a strong price action. The euro keeps moving in a downtrend. Last week it again reached a strong support in the area around 1.0850. Long-term resistance: 1.0950 – 1.0980.  The next resistance is in the zone 1.1160 – 1.1180. Support: 1.080-1.0850   The British pound   date Open Interest Specs Long Specs Short Specs Net positions change Open Interest change Long change Short change Net Positions Sentiment Apr 05, 2022 238266 35873 77631 -41758 13901 5249 6937 -1688 Bearish Mar 29, 2022 224365 30624 70694 -40070 28653 -2129 697 -2826 Bearish Mar 22, 2022 195712 32753 69997 -37244 7389 311 8494 -8183 Bearish Mar 15, 2022 188323 32442 61503 -29061 -57989 -18540 -2005 -16535 Bearish Mar 08, 2022 246312 50982 63508 -12526 34443 3303 15492 -12189 Bearish Mar 01, 2022 211869 47679 48016 -337 23426 5430 -42 5472 Weak bearish         Total change 49823 -6376 29573 -35949     Figure 2: The GBP and COT positions of large speculators on a weekly chart and the GBPUSD on D1   The total net positions of speculators last week reached 41,758 contracts and thez were down by 1,688 contracts compared to the previous week. This change is due to the growth in long positions by 5,249 contracts and the growth in short positions by 6,937 contracts. This suggests bearish sentiment as the total net positions of large speculators are negative while there has been their further decline. Open interest rose by 13,901 contracts last week. This means that the downward movement in the pound that occurred last week was supported by a volume and it is therefore strong. Long-term resistance: 1.3050 – 1.3070. The next resistance is in the zone 1.3270 – 1.3300. Support is near 1.3000. The next support is near 1.2900   The Australian dollar   date Open Interest Specs Long Specs Short Specs Net positions change Open Interest change Long change Short change Net Positions Sentiment Apr 05, 2022 148898 34871 72384 -37513 5891 911 -11182 12093 Weak bearish Mar 29, 2022 143007 33960 83566 -49606 15240 10213 8630 1583 Weak bearish Mar 22, 2022 127767 23747 74936 -51189 3246 -534 5799 -6333 Bearish Mar 15, 2022 124521 24281 69137 -44856 -72573 4760 -28579 33339 Weak bearish Mar 08, 2022 197094 19521 97716 -78195 7427 6801 6660 141 Weak bearish Mar 01, 2022 189667 12720 91056 -78336 -2912 1167 -4577 5744 Weak bearish         Total change -43681 23318 -23249 46567     Figure 3: The AUD and COT positions of large speculators on a weekly chart and the AUDUSD on D1   The total net positions of speculators last week reached - 37,513 contracts, growing by 12,093 contracts compared to the previous week. This change is due to the growth in long positions by 911 contracts and a decrease in short positions by 11,182 contracts. This data suggests weak bearish sentiment for the Australian dollar as the total net positions of large speculators are negative, but there was an increase in the previous week. There was an increase in open interest of 5,891 contracts last week. This means that the downward movement that occurred last week was supported by a volume and it was therefore a strong price action as new money flowed into the market. The Australian dollar formed a strong bearish pin bar last week. This could indicate further weakening of the AUD/USD pair. However, the pair is in a support area, so to speculate in the short direction it is necessary to wait for the pair to break this support and for a valid retest of the break. Long-term resistance: 0.7580-0.7660                                                                                                              Long-term support: 0.7370-0.7440.  A next support is near 0.7160 – 0.7180.   The New Zealand dollar   date Open Interest Specs Long Specs Short Specs Net positions change Open Interest change Long change Short change Net Positions Sentiment Apr 05, 2022 35788 15428 16997 -1569 907 -76 626 -702 Bearish Mar 29, 2022 34881 15504 16371 -867 -375 -1652 1735 -3387 Bearish Mar 22, 2022 35256 17156 14636 2520 -3944 -4337 -3204 -1133 Weak bullish Mar 15, 2022 39200 21493 17840 3653 -14050 5718 -10314 16032 Bullish Mar 08, 2022 53250 15775 28154 -12379 2861 5290 3497 1793 Weak bearish Mar 01, 2022 50389 10485 24657 -14172 -6247 -6858 -4237 -2621 Bearish         Total change -20848 -1915 -11897 9982     Figure 4: The NZD and the position of large speculators on a weekly chart and the NZDUSD on D1   The total net positions of speculators last week reached to - 1 569 contracts, falling by 702 contracts compared to the previous week. This change is due to a decrease in long positions by 76 contracts and an increase in short positions by 626 contracts. This data suggests that bearish sentiment has set in in the New Zealand dollar over the past week, as the total net positions of large speculators are negative and they continue to fall Open interest rose by 907 contracts last week.  It means that the downward movement in NZDUSD that occurred last week was supported by a volume and therefore this price action was strong. Long-term resistance: 0.6860 – 0.6880. The next resistance is near 0.6980 – 0.7030 Long-term support: 0.6730 – 0.6740.   Explanation to the COT report The COT report shows the positions of major participants in the futures markets. Futures contracts are derivatives and are essentially agreements between two parties to exchange an underlying asset for a predetermined price on a predetermined date. They are standardised, specifying the quality and quantity of the underlying asset. They are traded on an exchange so that the total volume of these contracts traded is known.   Open interest: open interest is the sum of all open futures contracts (i.e. the sum of short and long contracts) that exist on a given asset. OI increases when a new futures contract is created by pairing a buyer with a seller. The OI decreases when an existing futures contract expires at a given expiry time or by settlement. Low or no open interest means that there is no interest in the market. High open interest indicates high activity and traders pay attention to this market. A rising open interest indicates that there is demand for the currency. That is, a rising OI indicates a strong current trend. Conversely, a weakening open interest indicates that the current trend is not strong. Open Interest Price action Interpretation Notes Rising Rising Strong bullish market New money flow in the particular asset, more bulls entered the market which pushes the price up. The trend is strong. Rising Falling Strong bearish market Price falls, more bearish traders entered the market which pushes the price down. The trend is strong. Falling Rising Weak bullish market Price is going up but new money do not flow into the market. Existing futures contracts expire or are closed. The trend is weak. Falling Falling Weak bearish market Price is going down, but new money do not flow into the market. Existing futures expire or are closed, the trend is weak.   Large speculators are traders who trade large volumes of futures contracts, which, if the set limits are met, must be reported to the Commodity Futures Trading Commission. Typically, this includes traders such as funds or large banks. These traders mostly focus on trading long-term trends and their goal is to make money on speculation with the instrument. Traders should try to trade in the direction of these large speculators. The total net positions of large speculators are the difference between the number of long contracts and the number of short contracts of large speculators. Positive value shows that large speculators are net long. Negative value shows that large speculators are net short. The data is published every Friday and is delayed because it shows the status on Tuesday of the week. The total net positions of large speculators show the sentiment this group has in the market. A positive value of the total net positions of speculators indicates bullish sentiment, a negative value of total net positions indicates bearish sentiment. When interpreting charts and values, it is important to follow the overall trend of total net positions. The turning points are also very important, i.e. the moments when the total net positions go from a positive value to a negative one and vice versa. Important are also extreme values ​​of total net positions as they often serve as signals of a trend reversal. The COT data are usually reported every Friday and they show the status on Tuesday of the week. Sentiment according to the reported positions of large players in futures markets is not immediately reflected in the movement of currency pairs. Therefore, information on sentiment is more likely to be used by traders who take longer trades and are willing to hold their positions for several weeks or even months.
COT Currency Speculators drop their Japanese Yen bets to 183-week low

COT Currency Speculators drop their Japanese Yen bets to 183-week low

Invest Macro Invest Macro 16.04.2022 22:07
By InvestMacro | COT | Data Tables | COT Leaders | Downloads | COT Newsletter Here are the latest charts and statistics for the Commitment of Traders (COT) data published by the Commodities Futures Trading Commission (CFTC). The latest COT data is updated through Tuesday April 12th and shows a quick view of how large traders (for-profit speculators and commercial entities) were positioned in the futures markets. All currency positions are in direct relation to the US dollar where, for example, a bet for the euro is a bet that the euro will rise versus the dollar while a bet against the euro will be a bet that the euro will decline versus the dollar. Highlighting the COT currency data was the further rise of bearish bets in the Japanese yen currency futures contracts. Yen speculators pushed their bearish bets higher for a fifth straight week this week and for the sixth time in the past seven weeks. Over the past five weeks, yen bets have fallen by a total of -55,971 contracts, going from a total of -55,856 net positions on March 8th to a total of -111,827 net positions this week. Speculator positions have now slid all the way to the lowest standing of the past one hundred and eight-three weeks, dating back to October 9th of 2019. This recent weakness in yen positions and the yen price has taken place while open interest has been increasing which shows an accelerating downtrend as prices have been falling as more traders have been entering the market on the bearish side. The speculator strength index is also showing that the Japanese yen positions are at a bearish extreme position with the strength index at a zero percent level (strength index is the current speculator standing compared to past three years, above 80 is bullish extreme, below 20 is bearish extreme). The fundamental backdrop has been the major driver of yen weakness. The Bank of Japan has continued on with its stimulus program and has not indicated any plans to move interest rates off their near-zero level while other central banks around the world have put the breaks on their stimulus actions and have started hiking their interest rates to try to tame inflationary pressures. The yen this week hit the lowest level in twenty years against the US dollar as the USDJPY currency pair trades above the 126.00 level. The other major currencies have all hit multi-year highs versus the yen as well. Overall, the currencies with higher speculator bets this week were the Euro (11,690 contracts), Brazil real (603 contracts), New Zealand dollar (1,280 contracts), Canadian dollar (5,235 contracts), Bitcoin (411 contracts), Australian dollar (8,798 contracts) and the Mexican peso (14,050 contracts). The currencies with declining bets were the US Dollar Index (-2,215 contracts), Japanese yen (-7,998 contracts), Swiss franc (-1,549 contracts) and the British pound sterling (-11,296 contracts). Speculator strength standings for each Currency where strength index is current net position compared to past three years, above 80 is bullish extreme, below 20 is bearish extreme OI Strength = Current Open Interest level compared to last 3 years range Spec Strength = Current Net Speculator level compared to last 3 years range Strength Move = Six week change of Spec Strength Data Snapshot of Forex Market Traders | Columns Legend Apr-12-2022 OI OI-Index Spec-Net Spec-Index Com-Net COM-Index Smalls-Net Smalls-Index USD Index 54,836 78 29,637 77 -36,045 15 6,408 87 EUR 678,607 73 39,060 47 -60,750 59 21,690 10 GBP 246,152 68 -53,054 36 70,949 72 -17,895 19 JPY 245,403 86 -111,827 0 131,902 100 -20,075 13 CHF 41,231 16 -13,942 46 22,299 56 -8,357 39 CAD 155,390 34 12,158 59 -33,450 35 21,292 72 AUD 150,939 45 -28,715 58 17,876 32 10,839 79 NZD 37,585 20 -289 71 -429 30 718 60 MXN 175,905 38 14,960 34 -19,553 65 4,593 62 RUB 20,930 4 7,543 31 -7,150 69 -393 24 BRL 67,772 64 46,129 96 -48,954 4 2,825 98 Bitcoin 10,632 56 167 98 -439 0 272 19   US Dollar Index Futures: The US Dollar Index large speculator standing this week resulted in a net position of 29,637 contracts in the data reported through Tuesday. This was a weekly lowering of -2,215 contracts from the previous week which had a total of 31,852 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 76.9 percent. The commercials are Bearish-Extreme with a score of 14.7 percent and the small traders (not shown in chart) are Bullish-Extreme with a score of 86.6 percent. US DOLLAR INDEX Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 80.8 2.2 15.3 – Percent of Open Interest Shorts: 26.7 68.0 3.6 – Net Position: 29,637 -36,045 6,408 – Gross Longs: 44,303 1,226 8,402 – Gross Shorts: 14,666 37,271 1,994 – Long to Short Ratio: 3.0 to 1 0.0 to 1 4.2 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 76.9 14.7 86.6 – Strength Index Reading (3 Year Range): Bullish Bearish-Extreme Bullish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -8.9 5.6 19.6   Euro Currency Futures: The Euro Currency large speculator standing this week resulted in a net position of 39,060 contracts in the data reported through Tuesday. This was a weekly advance of 11,690 contracts from the previous week which had a total of 27,370 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 47.0 percent. The commercials are Bullish with a score of 58.6 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 10.3 percent. EURO Currency Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 32.7 53.0 11.7 – Percent of Open Interest Shorts: 26.9 62.0 8.5 – Net Position: 39,060 -60,750 21,690 – Gross Longs: 221,645 359,853 79,165 – Gross Shorts: 182,585 420,603 57,475 – Long to Short Ratio: 1.2 to 1 0.9 to 1 1.4 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 47.0 58.6 10.3 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -7.9 9.7 -14.0   British Pound Sterling Futures: The British Pound Sterling large speculator standing this week resulted in a net position of -53,054 contracts in the data reported through Tuesday. This was a weekly lowering of -11,296 contracts from the previous week which had a total of -41,758 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 35.8 percent. The commercials are Bullish with a score of 71.6 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 18.6 percent. BRITISH POUND Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 14.4 75.7 8.0 – Percent of Open Interest Shorts: 36.0 46.9 15.3 – Net Position: -53,054 70,949 -17,895 – Gross Longs: 35,514 186,343 19,803 – Gross Shorts: 88,568 115,394 37,698 – Long to Short Ratio: 0.4 to 1 1.6 to 1 0.5 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 35.8 71.6 18.6 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -38.0 33.6 -8.5   Japanese Yen Futures: The Japanese Yen large speculator standing this week resulted in a net position of -111,827 contracts in the data reported through Tuesday. This was a weekly decrease of -7,998 contracts from the previous week which had a total of -103,829 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 0.0 percent. The commercials are Bullish-Extreme with a score of 100.0 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 12.7 percent. JAPANESE YEN Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 4.0 86.7 8.2 – Percent of Open Interest Shorts: 49.6 33.0 16.3 – Net Position: -111,827 131,902 -20,075 – Gross Longs: 9,925 212,850 20,022 – Gross Shorts: 121,752 80,948 40,097 – Long to Short Ratio: 0.1 to 1 2.6 to 1 0.5 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 0.0 100.0 12.7 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -26.5 25.5 -18.8   Swiss Franc Futures: The Swiss Franc large speculator standing this week resulted in a net position of -13,942 contracts in the data reported through Tuesday. This was a weekly lowering of -1,549 contracts from the previous week which had a total of -12,393 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 45.6 percent. The commercials are Bullish with a score of 55.9 percent and the small traders (not shown in chart) are Bearish with a score of 38.8 percent. SWISS FRANC Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 4.0 74.7 21.2 – Percent of Open Interest Shorts: 37.8 20.6 41.5 – Net Position: -13,942 22,299 -8,357 – Gross Longs: 1,642 30,798 8,742 – Gross Shorts: 15,584 8,499 17,099 – Long to Short Ratio: 0.1 to 1 3.6 to 1 0.5 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 45.6 55.9 38.8 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 2.3 1.6 -8.0   Canadian Dollar Futures: The Canadian Dollar large speculator standing this week resulted in a net position of 12,158 contracts in the data reported through Tuesday. This was a weekly gain of 5,235 contracts from the previous week which had a total of 6,923 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 58.8 percent. The commercials are Bearish with a score of 35.4 percent and the small traders (not shown in chart) are Bullish with a score of 72.2 percent. CANADIAN DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 24.3 49.5 25.0 – Percent of Open Interest Shorts: 16.5 71.0 11.3 – Net Position: 12,158 -33,450 21,292 – Gross Longs: 37,724 76,922 38,796 – Gross Shorts: 25,566 110,372 17,504 – Long to Short Ratio: 1.5 to 1 0.7 to 1 2.2 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 58.8 35.4 72.2 – Strength Index Reading (3 Year Range): Bullish Bearish Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -2.0 -8.6 27.6   Australian Dollar Futures: The Australian Dollar large speculator standing this week resulted in a net position of -28,715 contracts in the data reported through Tuesday. This was a weekly increase of 8,798 contracts from the previous week which had a total of -37,513 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 58.2 percent. The commercials are Bearish with a score of 32.2 percent and the small traders (not shown in chart) are Bullish with a score of 78.9 percent. AUSTRALIAN DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 26.3 53.9 19.3 – Percent of Open Interest Shorts: 45.4 42.1 12.1 – Net Position: -28,715 17,876 10,839 – Gross Longs: 39,770 81,396 29,106 – Gross Shorts: 68,485 63,520 18,267 – Long to Short Ratio: 0.6 to 1 1.3 to 1 1.6 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 58.2 32.2 78.9 – Strength Index Reading (3 Year Range): Bullish Bearish Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 46.0 -52.2 49.4   New Zealand Dollar Futures: The New Zealand Dollar large speculator standing this week resulted in a net position of -289 contracts in the data reported through Tuesday. This was a weekly boost of 1,280 contracts from the previous week which had a total of -1,569 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 70.8 percent. The commercials are Bearish with a score of 29.7 percent and the small traders (not shown in chart) are Bullish with a score of 60.1 percent. NEW ZEALAND DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 43.4 45.9 10.0 – Percent of Open Interest Shorts: 44.1 47.0 8.1 – Net Position: -289 -429 718 – Gross Longs: 16,295 17,233 3,773 – Gross Shorts: 16,584 17,662 3,055 – Long to Short Ratio: 1.0 to 1 1.0 to 1 1.2 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 70.8 29.7 60.1 – Strength Index Reading (3 Year Range): Bullish Bearish Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 23.3 -25.5 30.2   Mexican Peso Futures: The Mexican Peso large speculator standing this week resulted in a net position of 14,960 contracts in the data reported through Tuesday. This was a weekly advance of 14,050 contracts from the previous week which had a total of 910 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 33.7 percent. The commercials are Bullish with a score of 64.6 percent and the small traders (not shown in chart) are Bullish with a score of 62.5 percent. MEXICAN PESO Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 46.4 48.8 4.3 – Percent of Open Interest Shorts: 37.9 59.9 1.7 – Net Position: 14,960 -19,553 4,593 – Gross Longs: 81,582 85,784 7,517 – Gross Shorts: 66,622 105,337 2,924 – Long to Short Ratio: 1.2 to 1 0.8 to 1 2.6 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 33.7 64.6 62.5 – Strength Index Reading (3 Year Range): Bearish Bullish Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -11.7 10.9 4.9   Brazilian Real Futures: The Brazilian Real large speculator standing this week resulted in a net position of 46,129 contracts in the data reported through Tuesday. This was a weekly lift of 603 contracts from the previous week which had a total of 45,526 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 95.7 percent. The commercials are Bearish-Extreme with a score of 3.5 percent and the small traders (not shown in chart) are Bullish-Extreme with a score of 97.9 percent. BRAZIL REAL Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 77.6 15.6 6.6 – Percent of Open Interest Shorts: 9.6 87.9 2.5 – Net Position: 46,129 -48,954 2,825 – Gross Longs: 52,624 10,591 4,496 – Gross Shorts: 6,495 59,545 1,671 – Long to Short Ratio: 8.1 to 1 0.2 to 1 2.7 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 95.7 3.5 97.9 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish-Extreme Bullish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -4.2 3.3 10.9   Bitcoin Futures: The Bitcoin large speculator standing this week resulted in a net position of 167 contracts in the data reported through Tuesday. This was a weekly gain of 411 contracts from the previous week which had a total of -244 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 97.9 percent. The commercials are Bearish-Extreme with a score of 6.3 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 19.1 percent. BITCOIN Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 77.2 3.6 10.0 – Percent of Open Interest Shorts: 75.6 7.7 7.4 – Net Position: 167 -439 272 – Gross Longs: 8,207 382 1,058 – Gross Shorts: 8,040 821 786 – Long to Short Ratio: 1.0 to 1 0.5 to 1 1.3 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 97.9 6.3 19.1 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish-Extreme Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 1.9 6.3 -3.8   Article By InvestMacro – Receive our weekly COT Reports by Email *COT Report: The COT data, released weekly to the public each Friday, is updated through the most recent Tuesday (data is 3 days old) and shows a quick view of how large speculators or non-commercials (for-profit traders) were positioned in the futures markets. The CFTC categorizes trader positions according to commercial hedgers (traders who use futures contracts for hedging as part of the business), non-commercials (large traders who speculate to realize trading profits) and nonreportable traders (usually small traders/speculators) as well as their open interest (contracts open in the market at time of reporting).See CFTC criteria here.
The Swing Overview - Week 16 2022

The Swing Overview - Week 16 2022

Purple Trading Purple Trading 22.04.2022 15:00
The Swing Overview - Week 16 Jerome Powell confirmed that the Fed will be aggressive in fighting the inflation and confirmed tighter interest rate hikes starting in May. Equity indices fell strongly after this news. Inflation in the euro area reached a record high of 7.4% in March. Despite this news, the euro continued to weaken. The sell-off also continued in the Japanese yen, which is the weakest against the US dollar in last 20 years.  The USD index strengthens along with US bond yields Fed chief Jerome Powell said on Thursday that the Fed could raise interest rates by 0.50% in May. The Fed could continue its aggressive pace of rate hikes in the coming months of this year. US 10-year bond yields have responded to this news by strengthening further and have already reached 2.94%. The US dollar has also benefited from this development and has already surpassed the value 100 and continues to move in an uptrend. Figure 1: US 10-year bond yields and USD index on the daily chart Earnings season is underway in equities Rising interest rates continue to weigh on equity indices, which gave back gains from the first half of the last week and weakened significantly on Thursday following the Fed’s information on the aggressive pace of interest rate hikes.   In addition, the earnings season, which is in full swing, is weighing on index movements. For example, Netflix and Tesla reported results last week.   While Netflix unpleasantly surprised by reducing the number of subscribers by 200,000 in 1Q 2022 and the company's shares fell by 35% in the wake of the news, Tesla, on the other hand, exceeded analysts' expectations and the stock gained more than 10% after the results were announced. Tesla has thus shown that it has been able to cope with the supply chain problems and higher subcontracting prices that are plaguing the entire automotive sector much better than its competitors.   The decline in Netflix subscribers can be explained by people starting to save more in an environment of rising prices. Figure 2: The SP 500 on H4 and D1 chart The SP 500 index continues to undergo a downward correction, which is shown on the H4 chart. The price has reached the resistance level at 4,514-4,520. The price continues to move below the SMA 100 moving average (blue line) on the daily chart which indicates bearish sentiment.  The nearest resistance according to the H4 chart is at 4,514 - 4,520. The next resistance is around 4,583 - 4,600. The support is at 4,360 - 4,365.   The German DAX index The DAX is also undergoing a correction and the last candlestick on the daily chart is a bearish pin bar which suggests that the index could fall further. Figure 3: The German DAX index on H4 and daily chart This index is also below the SMA 100 on the daily chart, confirming the bearish sentiment. The price has reached a support according to the H4 chart, which is at 14,340 - 14,370. However, this is very likely to be overcome quickly. The next support is 13 910 - 14 000. The nearest resistance is 14 592 - 14 632.   The DAX is affected by the French presidential election that is going to happen on Sunday April 24, 2022. According to the latest polls, Macron is leading over Le Pen and if the election turns out like this, it should not have a significant impact on the markets. However, if Marine Le Pen wins in a surprise victory, it can be very negative news for the French economy and would weigh on the DAX index as well.   The euro remains in a downtrend The Fed's hawkish policy and the ECB's dovish rhetoric at its meeting on Thursday April 14, 2022, which showed that the ECB is not planning to raise rates in the short term, put further pressure on the European currency. The French presidential election and, of course, the ongoing war in Ukraine are also causing uncertainty.  Figure 4: The EURUSD on the H4 and daily charts. The inflation data was reported last week, which came in at 7.4% on year-on-year basis. The previous month inflation was 5.9%. This rise in inflation caused the euro to strengthen briefly to the resistance level at 1.0930 - 1.0950. However, there was then a rapid decline from this level following the Fed's reports of a quick tightening in the economy. A support is at 1.0760 - 1.0780.   The sell-off in the Japanese yen is not over The Japanese yen is also under pressure. The US dollar has already reached 20-year highs against the Japanese yen (USD/JPY) and it looks like the yen's weakening against the US dollar could continue. This is because the Bank of Japan has the most accommodative monetary policy of any major central bank and continues to support the economy while the Fed will aggressively tighten the economy. Thus, this fundamental suggests that a reversal in the USD/JPY pair should not happen anytime soon. Figure 5: The USDJPY on the monthly chart In terms of technical analysis, the USD/JPY price broke through the strong resistance band around the price of 126.00 seen on the monthly chart. The currency pair thus has room to grow further up to the resistance, which is in the area near 135 yens per dollar.  
Britain's Rishi Sunak And EU's Ursula Von Der Leyen Will Meet Today To Finalize The Northern Ireland Drama

GBP: BoE Expected to Raise Yields, US Dollar (USD) Strengthens across the board - Good Morning Forex!

Rebecca Duthie Rebecca Duthie 02.05.2022 09:24
Summary: USD Trumps all other currencies on the forex market today. SNB Sticks to loose monetary policy. BoE expected to raise treasury yields. EUR weakens further over the weekend. Since the market opened today the EURO has weakened against the USD. The USD strengthening comes with expectations of the hawkish Fed pushing U.S yields higher in May, this comes in the fight against the highest inflation the US has seen in 40 years. In addition, the European Central Bank is not expected to increase yields until their Asset Purchasing Program (APP) comes to a close. The current market sentiment is mixed for this major currency pair. EUR/USD Price Chart   Read next: US Dollar (USD) Continues To Trump The EUR, BoE Expected To Increase Interest Rates, SNB Remains Dovish, South African Rand (ZAR) Performance    Mixed market sentiment for EUR/GBP. GBP weakens against the EURO today. The Eurozone and Germany are expected to announce their GDP figures this week which could likely improve investor sentiment in the EURO. The market sentiment for this currency pair is mixed, this comes as the lockdowns in China and the Russia-Ukraine conflict are current aspects that affect both of these currencies. EUR/GBP Price Chart Swiss National Bank Sticks to their loose monetary policy. The USD strengthening against the CHF comes in anticipation of the Fed further increasing U.S yields in May. The Swiss National Bank (SNB) is not budging on their loose monetary policy amidst beliefs that this period of high inflation is temporary, causing the Swiss Franc to weaken. USD/CHF Price Chart Bank of England (BoE) expected to raise yields. Since the market opened this morning, the market sentiment for this currency pair is bullish. Although the price is decreasing, the bullish sentiment comes with expectations that the Bank of England (BoE) will announce an increase in treasury yields by 25 basis points at Thursday's announcements. The Fed is also expected to raise yields, this is causing the price to show volatility. GBP Price Chart   Read next: Euro (EUR) Continues To Weaken Against The US Dollar (USD), Euro Under Pressure Amidst Russia’s Decision To Tighten Gas Supplies. GBP Strengthens Against the JPY.    Sources: fxstreet.com, Finance.yahoo.com, dailyfx.com.
The Swing Overview – Week 17 2022

The Swing Overview – Week 17 2022

Purple Trading Purple Trading 03.05.2022 11:04
The Swing Overview – Week 17 Major stock indices continued in their correction and tested strong support levels. In contrast, the US dollar strengthened strongly and is at its highest level since January 2017. The strengthening of the dollar had a negative impact on the value of the euro and commodities such as gold, which fell below the $1,900 per ounce. The Bank of Japan kept interest rates low and the yen broke the magic level 130 per dollar. The USD index strengthened again but the US GDP declined The US consumer confidence in the month of April came in at 107.3, a slight decline from the previous month when consumer confidence was 107.6.   The US GDP data was surprising. The US economy decreased by 1.4% in 1Q 2022 (in the previous quarter the economy grew by 6.4%). This sharp decline surprised even analysts who expected the economy to grow by 1.1%. This result is influenced by the Omicron, which caused the economy to shut down for a longer period than expected earlier this year.    The Fed meeting scheduled for the next week on May 4 will be hot. In fact, even the most dovish Fed officials are already leaning towards a 0.5% rate hike. At the end of the year, we can expect a rate around 2.5%.   The US 10-year bond yields continue to strengthen on the back of these expectations. The US dollar is also strengthening and is already at its highest level since January 2017, surpassing 103 level.  Figure 1: US 10-year bond yields and the USD index on the daily chart   Earnings season is underway in equities Earnings season is in full swing. Amazon's results were disappointing. While revenue was up 7% reaching $116.4 billion in the first quarter (revenue was $108.5 billion in the same period last year), the company posted an total loss of $8.1 billion, which translated to a loss of $7.56 per share. This loss, however, is not due to operating activities, but it is the result of the revaluation of the equity investment in Rivian Automotive.   Facebook, on the other hand, surprised in a positive way posting unexpectedly strong user growth, a sign that its Instagram app is capable of competing with Tik Tok. However, the revenue growth of 6.6% was the lowest in the company's history.    Apple was also a positive surprise, reporting earnings per share of $1.52 (analysts' forecast was $1.43) and revenue growth of $97.3 billion, up 8.6% from the same period last year. However, the company warned that the closed operations in Russia, the lockdown in China due to the coronavirus and supply disruptions will negatively impact earnings in the next quarter.   Figure 2: The SP 500 on H4 and D1 chart In terms of technical analysis, the US SP 500 index is in a downtrend and has reached a major support level on the daily chart last week, which is at 4,150. It has bounced upwards from this support to the resistance according to the 4 H chart which is 4,308 - 4,313. The next resistance according to the H4 chart is 4,360 - 4,365.  The strong resistance is at 4,500.   German DAX index German businessmen are optimistic about the development of the German economy in the next 6 months, as indicated by the Ifo Business Climate Index, which reached 91.8 for April (the expectation was 89.1). However, this did not have a significant effect on the movement of the index and it continued in its downward correction. Figure 3: German DAX index on H4 and daily chart The index is below the SMA 100 on both the daily chart and the H4 chart, confirming the bearish sentiment. The nearest support according to the H4 is 13,600 - 13,650. The resistance is 14,180 - 14,200. The next resistance is 14,592 - 14,632.   The euro has fallen below 1.05 The euro lost significantly last week. While the French election brought relief to the markets as Emmanuel Macron defended the presidency, geopolitical tensions in Ukraine continue to weigh heavily on the European currency. The strong dollar is also having an impact on the EUR/USD pair, pushing the pair down. The price has fallen below 1.05, the lowest level since January 2017.    Figure 4: EURUSD on H4 and daily chart The euro broke through the important support at 1.0650 - 1.071, which has now become the new resistance. The new support was formed in January 2017 and is around the level 1.0350 - 1.040.   Japan's central bank continues to support the fragile economy The Bank of Japan on Thursday reinforced its commitment to keep interest rates at very low levels by pledging to buy unlimited amounts of 10-year government bonds daily, sparking a fresh sell-off in the yen and reviving government bonds. With this commitment, the BOJ is trying to support a fragile economy, even as a surge in commodity prices is pushing the inflation up.   The decision puts Japan in the opposite position to other major economies, which are moving towards tighter monetary policy to combat soaring prices. Figure 5: The USD/JPY on the monthly and daily chart In fresh quarterly forecasts, the central bank has projected core consumer inflation to reach 1.9% in the current fiscal year and then ease to 1.1% in fiscal years 2023 and 2024, an indication that it views the current cost-push price increases as transitory.   In the wake of this decision, the Japanese yen has continued to weaken and has already surpassed the magical level 130 per dollar.   Strong dollar beats also gold Anticipation of aggressive Fed action against inflation, which is supporting the US dollar, is having a negative impact on gold. The rising US government bond yields are also a problem for the yellow metal. This has put gold under pressure, which peaked on Thursday when the price reached USD 1,872 per ounce of gold. But then the gold started to strengthen. Indeed, the decline in the US GDP may have been something of a warning to the Fed and prevent them from tightening the economy too quickly, which helped gold, in the short term, bounce off a strong support. Figure 6: The gold on H4 and daily chart Strong support for the gold is at $1,869 - $1,878 per ounce. There is a confluence of horizontal resistance and the SMA 100 moving average on the daily chart. The nearest resistance according to the H4 chart is 1 907 - 1 910 USD per ounce. The strong resistance according to the daily chart is then 1 977 - 2 000 USD per ounce of gold. Moving averages on the H4 chart can also be used as a resistance. The orange line is the EMA 50 and the blue line is the SMA 100.  
The Swing Overview - Week 18 2022

The Swing Overview - Week 18 2022

Purple Trading Purple Trading 16.05.2022 10:51
The Swing Overview - Week 18 In the war against rising inflation, central banks in the US, the UK and Australia raised interest rates this week. Britain, meanwhile, warned of the risk of a recession. The CNB also raised rates. They have thus reached their highest levels since 1999. The key interest rate in the Czech Republic is now 5.75%.   The main stock indices have weakened strongly in response to the monetary tightening policies of the major economies and are at significant support levels. The negative sentiment on the indices is confirmed by the VIX fear indicator, which is above 30. The US dollar, on the other hand, continues to ride on the winning wave. The Fed raised interest rates by 0.5% The Fed raised rates by 0.5% points on Wednesday as expected, the highest jump in 22 years. This took the interest rate to 1%. The Fed chief announced that further half a percentage point rate hikes will continue at the next meetings in June and July. Powell also stated that the US economy is doing well and that it can withstand interest rate hikes without the risk of a recession and a significant increase in unemployment.   In addition to the rate hike, the Fed announced that in June it would begin reducing the assets on the bank's balance sheet that the central bank had accumulated during the pandemic. In June, July and August, the Fed will sell $45 billion of assets a month, and starting in September it will sell $95 billion a month.   Although Powell ruled out a 0.75% rate hike at the next meetings, interest rate futures markets continue to expect that possibility with about an 80% probability. Figure 1: The CME Fed Watch tool projections of the target interest rate for the next Fed meeting on June 15, 2022 Based on these expectations, US 10-year Treasury yields continue to strengthen and have surpassed the 3% mark. The US dollar is also strengthening and it is at the highest level since January 2017 and approaching 104.  Figure 2: The US 10-year bond yields and the USD index on the daily chart   Equity indices remain under pressure The SP 500 index initially rallied strongly following the announcement of the rate hike, after Powell ruled out a 0.75% rate hike in subsequent meetings. However, markets gave back all the gains the following day as interest rate futures continue to estimate an 80% probability that the next rate hike, which will take place in June 2022, will be 0.75%.   Figure 3: SP 500 on H4 and D1 chart Thus, in terms of technical analysis, the US SP 500 index continues to move in a downtrend below both the SMA 100 and EMA 50 moving averages with resistance, according to the 4 H chart, at 4,308 - 4,313. The next resistance, according to the H4 chart, is 4,360 - 4,365.  Strong resistance is at 4,500. The current support is 4 070 - 4 100.   German DAX index German industrial orders fell by 4.7% in March, which is more than expected. A major contributor to this negative result was a reduction in orders from abroad as the war in Ukraine hit demand in the manufacturing sector. The outlook is negative and some analysts suggest that the German economy is heading into recession. The reasons are the war in Ukraine, problems in supply chains and high inflation. The Dax index confirms these negative outlooks with a downward trend. Figure 4: German DAX index on H4 and daily chart The index continues to move below the SMA 100 on the daily chart and on the H4 chart, confirming the bearish sentiment. The nearest support according to the H4 is 13,600 - 13,650. Resistance is 14,300 - 14,330. The next resistance is 14,592 - 14,632.   The outlook for the euro remains negative HSBC bank on Thursday significantly cut its forecast for the euro, saying it expects the euro to weaken to parity against the US dollar this year, the first major investment bank to make such a prediction.   The post-pandemic economic environment, which has been damaged by the ongoing war in Ukraine, looks challenging for the European economy, potentially forcing the European Central Bank to tighten policy slowly compared to the U.S. Federal Reserve, which has begun an aggressive rate-hiking cycle.  This has raised the prospect of the single currency falling to levels not seen in two decades. HSBC said it expects the move to happen by the fourth quarter of 2022.   ECB board member Isabel Schnabel said this week that rates may need to be raised as early as July. The precursor to any rate hike must be an end to bond purchases and that could come in late June. Markets are pricing in a 90 basis point tightening in rates this year.   Figure 5: The EURUSD on H4 and daily chart The EUR/USD pair is in a clear downtrend with resistance at 1.0650 - 1.071. The important support is 1.05, but it has already been tested several times and could be broken soon. The next support is from January 2017 at around 1.0350 - 1.040.   The Czech koruna got another injection in the form of an interest rate hike The CNB raised the interest rate by 0.75%, which exceeded analysts' expectations who projected a 0.50% rise. The current rate now stands at 5.75%, the highest since 1999. Consumer price growth continues to rise and by raising the interest rate the central bank is trying to dampen this growth by raising the interest rate. Inflation is expected to reach 15% by mid-year. The CNB has an inflation target of 2% and inflation is expected to reach these levels in 2024.   The problem is economic growth, which is slowing significantly.  But maintaining price stability is clearly more important than the negative effects of higher rates on the real economy.  Figure 6: The USD/CZK and the EUR/CZK on the daily chart The Czech koruna has so far done best on the pair with the euro, as interest rates are zero on the euro. The koruna has been weakening significantly on the USD pair in recent days. The current significant resistance on the USD/CZK is CZK 23.50 per dollar and on the EUR/CZK it is 24.70.    Bank of England warned of recession and more than 10% inflation The Bank of England sent out a strong warning that Britain faces the twin dangers of recession and inflation above 10% when it raised interest rates by a quarter percentage point to 1% on Thursday. The pound fell more than a cent against the US dollar and hit its lowest level since mid-2020, below $1.24, as the gloominess of the BoE's new forecasts for the world's fifth-largest economy caught investors off guard.    The BoE also said it was also concerned about the impact of renewed COVID-19 lockdowns in China, which threaten to hit supply chains again and increase inflationary pressures.    The BoE's rate hike was the fourth since December, the fastest pace of policy tightening in 25 years. The central bank also revised up its price growth forecasts, which suggest it will peak above 10% in the final three months of this year. Previously, it had expected it to peak at around 8% in April. Markets expect interest rates to reach 2-2.25% by the end of 2022.  Figure 7: The GBP/USD on weekly and daily charts In terms of technical analysis, the GBP/USD is in a downtrend. The pound is trading at levels below 1.24 pounds per dollar and has reached to the support of 1.225-1.2330. The nearest resistance according to the weekly chart is at 1.2700-1.2750.   
COT Week 23 Charts: Forex Speculators Positions mostly higher led by Canadian dollar & Swiss franc

COT Week 23 Charts: Forex Speculators Positions mostly higher led by Canadian dollar & Swiss franc

Invest Macro Invest Macro 12.06.2022 17:16
By InvestMacro | COT | Data Tables | COT Leaders | Downloads | COT Newsletter Here are the latest charts and statistics for the Commitment of Traders (COT) data published by the Commodities Futures Trading Commission (CFTC). The latest COT data is updated through Tuesday June 7th and shows a quick view of how large traders (for-profit speculators and commercial entities) were positioned in the futures markets. All currency positions are in direct relation to the US dollar where, for example, a bet for the euro is a bet that the euro will rise versus the dollar while a bet against the euro will be a bet that the euro will decline versus the dollar. COT Currencies market speculator bets were mostly higher this week as eight out of the eleven currency markets we cover had higher positioning this week while three markets had lower contracts. Leading the gains for currency markets was the Canadian dollar (5,945 contracts) and the Swiss franc (4,326 contracts) with the British pound sterling (3,295 contracts), Japanese yen (2,793 contracts), Brazil real (1,389 contracts), Australian dollar (786 contracts), US Dollar Index (400 contracts) and Bitcoin (87 contracts) also showing a positive week. Meanwhile, leading the declines in speculator bets this week were Mexican peso (-2,723 contracts) and Euro (-1,729 contracts) with New Zealand dollar (-1,047 contracts) also registering lower bets on the week. Currency Speculators Notes: US Dollar Index speculator bets have continued their upward climb in four out of the past five weeks as well as nine out of the past twelve weeks. USD Index remains in an extreme-bullish strength level and is very close (currently +37,938 contracts) to the highest net speculator position (+39,078 contracts on January 4th) of this recent bullish cycle, emphasizing the strong speculator bias. The Euro speculator position saw a pullback this week (-1,729 contracts) after huge gains in the previous three weeks (+58,650 contracts). Speculator sentiment is still pretty strong currently (+50,543 contracts) despite a very weak exchange rate (EURUSD at 1.0524 to close the week) and weak outlook for the Eurozone economy with rising inflation. British pound sterling speculator sentiment has crumbled in the past few months. The net speculator position managed to poke its head above its negative bias on February 15th with a total of +2,237 net contracts but sentiment has deteriorated since. From February 22nd to this week, speculator bets have dropped by a total of -73,047 contracts and recently hit a 139-week low on May 24th, the lowest level of speculator sentiment dating back to September of 2019. Japanese yen speculator positions are the most bearish of the major currencies just under -100,000 contracts. The USDJPY exchange rate is at a 20-year high and there has been no sign that the BOJ is interest in raising interest rates while other central banks commit to higher rates. These factors seem to say that the rout of the yen will continue ahead for some time (but how far can it go?). Commodity currency speculator bets are on the defensive lately. Australian dollar spec bets have fallen in five out of the past six weeks. Canadian dollar bets are now in bearish territory for a 5th straight week. New Zealand dollar speculator positions have declined in six out of the past seven weeks and the net position has now fallen to the lowest level since March of 2020 Strength scores (3-Year range of Speculator positions, from 0 to 100 where above 80 is extreme bullish and below 20 is extreme bearish) show that the Brazilian Real, US Dollar Index and Bitcoin are all in extreme-bullish levels at the current moment. On the opposite end of the extreme spectrum, the Japanese yen and the Swiss franc are very weak in relative speculator sentiment and sit in the extreme-bearish levels. Strength score trends (or move index, that calculate 6-week changes in strength scores) shows that the commodity currencies have been losing sentiment over the last six weeks. The Australian dollar, Canadian dollar and the New Zealand dollar have all had changes of at least -18.8 percent in their strength scores with the New Zealand dollar leading the decline with a -33.3 percent drop in six weeks. The US Dollar Index, Euro and Mexican Peso have had small but rising scores over the past six weeks. Data Snapshot of Forex Market Traders | Columns Legend Jun-07-2022 OI OI-Index Spec-Net Spec-Index Com-Net COM-Index Smalls-Net Smalls-Index USD Index 65,163 100 37,938 91 -41,863 5 3,925 59 EUR 730,667 95 50,543 51 -88,189 51 37,646 37 GBP 258,623 76 -70,810 23 80,465 77 -9,655 36 JPY 266,054 100 -91,646 12 109,109 89 -17,463 18 CHF 49,794 41 -16,132 16 27,216 87 -11,084 20 CAD 167,373 42 -1,062 40 -13,401 58 14,463 59 AUD 166,422 57 -47,896 40 47,413 54 483 54 NZD 63,540 70 -19,771 38 22,681 65 -2,910 19 MXN 248,184 72 32,726 41 -38,117 57 5,391 66 RUB 20,930 4 7,543 31 -7,150 69 -393 24 BRL 72,371 70 46,705 96 -48,954 4 2,249 91 Bitcoin 10,990 58 490 93 -529 0 39 14   US Dollar Index Futures: The US Dollar Index large speculator standing this week recorded a net position of 37,938 contracts in the data reported through Tuesday. This was a weekly lift of 400 contracts from the previous week which had a total of 37,538 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 91.2 percent. The commercials are Bearish-Extreme with a score of 5.0 percent and the small traders (not shown in chart) are Bullish with a score of 59.5 percent. US DOLLAR INDEX Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 85.1 3.2 8.9 – Percent of Open Interest Shorts: 26.9 67.5 2.8 – Net Position: 37,938 -41,863 3,925 – Gross Longs: 55,460 2,090 5,780 – Gross Shorts: 17,522 43,953 1,855 – Long to Short Ratio: 3.2 to 1 0.0 to 1 3.1 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 91.2 5.0 59.5 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish-Extreme Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 7.0 -8.8 13.4   Euro Currency Futures: The Euro Currency large speculator standing this week recorded a net position of 50,543 contracts in the data reported through Tuesday. This was a weekly reduction of -1,729 contracts from the previous week which had a total of 52,272 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 50.5 percent. The commercials are Bullish with a score of 51.0 percent and the small traders (not shown in chart) are Bearish with a score of 36.7 percent. EURO Currency Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 31.5 50.0 12.5 – Percent of Open Interest Shorts: 24.6 62.1 7.3 – Net Position: 50,543 -88,189 37,646 – Gross Longs: 230,248 365,628 90,978 – Gross Shorts: 179,705 453,817 53,332 – Long to Short Ratio: 1.3 to 1 0.8 to 1 1.7 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 50.5 51.0 36.7 – Strength Index Reading (3 Year Range): Bullish Bullish Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 8.7 -11.9 22.7   British Pound Sterling Futures: The British Pound Sterling large speculator standing this week recorded a net position of -70,810 contracts in the data reported through Tuesday. This was a weekly increase of 3,295 contracts from the previous week which had a total of -74,105 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 23.0 percent. The commercials are Bullish with a score of 77.3 percent and the small traders (not shown in chart) are Bearish with a score of 35.6 percent. BRITISH POUND Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 13.4 74.1 8.4 – Percent of Open Interest Shorts: 40.8 43.0 12.1 – Net Position: -70,810 80,465 -9,655 – Gross Longs: 34,618 191,742 21,602 – Gross Shorts: 105,428 111,277 31,257 – Long to Short Ratio: 0.3 to 1 1.7 to 1 0.7 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 23.0 77.3 35.6 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -0.9 -4.4 17.9   Japanese Yen Futures: The Japanese Yen large speculator standing this week recorded a net position of -91,646 contracts in the data reported through Tuesday. This was a weekly boost of 2,793 contracts from the previous week which had a total of -94,439 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 12.4 percent. The commercials are Bullish-Extreme with a score of 88.9 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 18.0 percent. JAPANESE YEN Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 6.9 79.3 8.7 – Percent of Open Interest Shorts: 41.4 38.3 15.3 – Net Position: -91,646 109,109 -17,463 – Gross Longs: 18,466 210,889 23,226 – Gross Shorts: 110,112 101,780 40,689 – Long to Short Ratio: 0.2 to 1 2.1 to 1 0.6 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 12.4 88.9 18.0 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 2.4 -2.8 3.9   Swiss Franc Futures: The Swiss Franc large speculator standing this week recorded a net position of -16,132 contracts in the data reported through Tuesday. This was a weekly advance of 4,326 contracts from the previous week which had a total of -20,458 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 15.6 percent. The commercials are Bullish-Extreme with a score of 86.9 percent and the small traders (not shown in chart) are Bearish with a score of 20.0 percent. SWISS FRANC Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 5.2 69.3 18.8 – Percent of Open Interest Shorts: 37.6 14.6 41.1 – Net Position: -16,132 27,216 -11,084 – Gross Longs: 2,609 34,494 9,378 – Gross Shorts: 18,741 7,278 20,462 – Long to Short Ratio: 0.1 to 1 4.7 to 1 0.5 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 15.6 86.9 20.0 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -8.3 2.4 6.0   Canadian Dollar Futures: The Canadian Dollar large speculator standing this week recorded a net position of -1,062 contracts in the data reported through Tuesday. This was a weekly boost of 5,945 contracts from the previous week which had a total of -7,007 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 40.2 percent. The commercials are Bullish with a score of 57.6 percent and the small traders (not shown in chart) are Bullish with a score of 58.6 percent. CANADIAN DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 23.5 44.2 22.4 – Percent of Open Interest Shorts: 24.1 52.2 13.7 – Net Position: -1,062 -13,401 14,463 – Gross Longs: 39,288 74,044 37,463 – Gross Shorts: 40,350 87,445 23,000 – Long to Short Ratio: 1.0 to 1 0.8 to 1 1.6 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 40.2 57.6 58.6 – Strength Index Reading (3 Year Range): Bearish Bullish Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -23.8 14.2 9.7   Australian Dollar Futures: The Australian Dollar large speculator standing this week recorded a net position of -47,896 contracts in the data reported through Tuesday. This was a weekly increase of 786 contracts from the previous week which had a total of -48,682 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 40.4 percent. The commercials are Bullish with a score of 54.3 percent and the small traders (not shown in chart) are Bullish with a score of 53.6 percent. AUSTRALIAN DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 19.1 59.9 14.5 – Percent of Open Interest Shorts: 47.8 31.4 14.2 – Net Position: -47,896 47,413 483 – Gross Longs: 31,720 99,747 24,197 – Gross Shorts: 79,616 52,334 23,714 – Long to Short Ratio: 0.4 to 1 1.9 to 1 1.0 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 40.4 54.3 53.6 – Strength Index Reading (3 Year Range): Bearish Bullish Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -18.8 13.8 4.3   New Zealand Dollar Futures: The New Zealand Dollar large speculator standing this week recorded a net position of -19,771 contracts in the data reported through Tuesday. This was a weekly decline of -1,047 contracts from the previous week which had a total of -18,724 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 38.1 percent. The commercials are Bullish with a score of 65.4 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 18.5 percent. NEW ZEALAND DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 19.4 69.1 4.0 – Percent of Open Interest Shorts: 50.5 33.4 8.6 – Net Position: -19,771 22,681 -2,910 – Gross Longs: 12,310 43,890 2,538 – Gross Shorts: 32,081 21,209 5,448 – Long to Short Ratio: 0.4 to 1 2.1 to 1 0.5 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 38.1 65.4 18.5 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -33.3 31.2 -4.3   Mexican Peso Futures: The Mexican Peso large speculator standing this week recorded a net position of 32,726 contracts in the data reported through Tuesday. This was a weekly decline of -2,723 contracts from the previous week which had a total of 35,449 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 41.3 percent. The commercials are Bullish with a score of 56.9 percent and the small traders (not shown in chart) are Bullish with a score of 65.9 percent. MEXICAN PESO Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 48.0 35.4 3.4 – Percent of Open Interest Shorts: 34.8 50.8 1.2 – Net Position: 32,726 -38,117 5,391 – Gross Longs: 119,162 87,884 8,441 – Gross Shorts: 86,436 126,001 3,050 – Long to Short Ratio: 1.4 to 1 0.7 to 1 2.8 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 41.3 56.9 65.9 – Strength Index Reading (3 Year Range): Bearish Bullish Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 5.4 -6.1 8.3   Brazilian Real Futures: The Brazilian Real large speculator standing this week recorded a net position of 46,705 contracts in the data reported through Tuesday. This was a weekly boost of 1,389 contracts from the previous week which had a total of 45,316 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 96.3 percent. The commercials are Bearish-Extreme with a score of 3.5 percent and the small traders (not shown in chart) are Bullish-Extreme with a score of 91.1 percent. BRAZIL REAL Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 81.1 13.5 5.4 – Percent of Open Interest Shorts: 16.5 81.2 2.3 – Net Position: 46,705 -48,954 2,249 – Gross Longs: 58,657 9,780 3,931 – Gross Shorts: 11,952 58,734 1,682 – Long to Short Ratio: 4.9 to 1 0.2 to 1 2.3 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 96.3 3.5 91.1 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish-Extreme Bullish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -0.2 -0.2 4.4   Bitcoin Futures: The Bitcoin large speculator standing this week recorded a net position of 490 contracts in the data reported through Tuesday. This was a weekly lift of 87 contracts from the previous week which had a total of 403 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 93.2 percent. The commercials are Bearish with a score of 21.6 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 13.8 percent. BITCOIN Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 81.5 1.5 9.7 – Percent of Open Interest Shorts: 77.1 6.4 9.3 – Net Position: 490 -529 39 – Gross Longs: 8,959 169 1,063 – Gross Shorts: 8,469 698 1,024 – Long to Short Ratio: 1.1 to 1 0.2 to 1 1.0 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 93.2 21.6 13.8 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 1.5 -6.4 0.6   Article By InvestMacro – Receive our weekly COT Reports by Email *COT Report: The COT data, released weekly to the public each Friday, is updated through the most recent Tuesday (data is 3 days old) and shows a quick view of how large speculators or non-commercials (for-profit traders) were positioned in the futures markets. The CFTC categorizes trader positions according to commercial hedgers (traders who use futures contracts for hedging as part of the business), non-commercials (large traders who speculate to realize trading profits) and nonreportable traders (usually small traders/speculators) as well as their open interest (contracts open in the market at time of reporting).See CFTC criteria here.
The Swing Overview – Week 23 2022

The Swing Overview – Week 23 2022

Purple Trading Purple Trading 17.06.2022 08:53
The Swing Overview - Week 23 Major global stock indices broke through their support levels after several days of range movement in response to the tightening economy, the ongoing war in Ukraine, slowing economic growth and high inflation. The Reserve Bank of Australia raised its interest rate by 0.50%. The ECB decided to start raising interest rates by 0.25% from July 2022. The winner of last week is the US dollar, which continues to strengthen. Macroeconomic data Data from the US labour market was highly anticipated. The job creation indicator, the so-called NFP, surprised the markets positively. Analysts expected that 325,000 new jobs had been created in May. In fact, 390 thousand jobs were created in the US. Unemployment is at 3.6%. The information on the growth of hourly wages, which is a leading indicator of inflation, was important. Average hourly earnings rose 0.3% in May, less than analysts who expected 0.4%.   Unemployment claims reached 229,000 this week. This is the highest levels since 3/3/2022. However, this is not an extreme increase. The number of claims is still in the pre-pandemic average area. Nevertheless, it can be seen that since 7/4/2022, when the number of applications reached 166 thousand, the number of applications is slowly increasing and this indicator will be closely monitored.  The ISM index of purchasing managers in the US service sector reached 55.9 in May. This is lower than the previous month's reading of 57.1. A value above 50 still points to expansion in the sector although the decline in the reading indicates  economy.   The yield on the US 10-year bond is close to its peak and is currently around 3%. The rise in yields has been followed by a rise in the US dollar. The dollar index has surpassed 103. The reason for the strengthening of the dollar is the aggressive tightening of the economy by the US Fed, which began reducing the central bank's balance sheet on June 1, 2022. In practice, this means that the Fed will let expire the government bonds it previously bought as part of QE and will not reinvest them further. The first tranche of bonds will expire on June 15, so the effect of this operation remains to be seen. Figure 1: The US 10-year bond yields and USD index on the daily chart   The SP 500 Index The SP 500 index has been moving in a narrow range for the past few days between 4,200, where resistance is and 4,080, where support has been tested several times. This support was broken and has become the new resistance as we can see on the H4 chart.   Figure 2: The SP 500 on H4 and D1 chart   The catalyst for this strong initiation move is the strong US dollar and rising bond yields. Therefore, the current resistance is in the 4,075 - 4,085 range.  The nearest support is 3,965 - 3,970 according to the H4 chart. The next support is 3,879 - 3,907.   German DAX index Macroeconomic data that affected the DAX was manufacturing orders for April, which fell 2.7% month-on-month, while analysts were expecting a 0.3% rise. Industrial production in Germany rose by 0.7% in April (expectations were for 1.0%). The war in Ukraine has a strong impact on the weaker figures. The catalyst for breaking support was the ECB's decision to raise interest rates, which the bank will start implementing from July 2022. Figure 3: German DAX index on H4 and daily chart The DAX is below the SMA 100 moving average according to the daily and H4 chart. This shows a bearish sentiment. The nearest resistance is 14,300 - 14,335. Support is at 13,870 - 13,900 according to the H4 chart.   The ECB left the interest rate unchanged  The ECB left interest rates unchanged on June 9, 2022, so the key rate is still at 0.0%. However, the bank said that it will proceed with a rate hike from July, when the rate is expected to rise by 0.25%. The next hike will then be in September, probably again by 0.25%. The bank pointed to the high inflation rate, which is expected to reach 6.8% for 2022. Inflation is expected to fall to 3.4% in 2023 and 2.1% in 2024.  Figure 4: The EUR/USD on H4 and daily chart According to the bank, a significant risk is Russia's unjustified aggression against Ukraine, which is causing problems in supply chains and pushing energy and some commodity prices up. The result is a slowdown in the growth of the European economy. The bank also announced that it will end its asset purchase program as of July 1, 2022. This is the soft end of this program, as the money that will flow from matured assets will continue to be reinvested by the bank. In practice, this means that the ECB's balance sheet will not be further inflated, but for now, unlike the Fed’s balance sheet, the bank has no plans to reduce its balance sheet. This, coupled with the more moderate rate hike plans and the existence of the above risks, has supported the dollar and the euro has begun to weaken sharply in response to the ECB announcement. The resistance is 1.0760-1.0770. Current support at 1.063-1.064 is broken and it will become new resistance if the break is confirmed. The next support according to the H4 chart is 1.0530 - 1.0550.   Australian central bank surprises with aggressive approach In Australia, the central bank raised its policy rate by 0.50%. Analysts had expected the bank to raise the rate by 0.25%. Thus, the current rate on the Australian dollar is 0.80%. However, this aggressive increase did not strengthen the Australian dollar, which surprisingly weakened. The reason for this is the strong US dollar and also the risk off sentiment that is taking place in the equity indices.  Also impacting the Aussie is the situation in China, where there is zero tolerance of COVID-19. This will impact the country's economic growth, which is very likely to fall short of the 5.5% that was originally projected.  Figure 5: The AUD/USD on H4 and daily chart According to the H4 chart, the AUD/USD currency pair has broken below the SMA 100 moving average, which is a bearish signal. The nearest resistance is 0.7140 - 0.7150. The support is in the zone 0.7030 - 0.7040. 
Currency Speculators boost US Dollar Index bets to 5-year high while Euro bets dip into bearish level

Currency Speculators boost US Dollar Index bets to 5-year high while Euro bets dip into bearish level

Invest Macro Invest Macro 18.06.2022 20:13
By InvestMacro | COT | Data Tables | COT Leaders | Downloads | COT Newsletter Here are the latest charts and statistics for the Commitment of Traders (COT) data published by the Commodities Futures Trading Commission (CFTC). The latest COT data is updated through Tuesday June 14th and shows a quick view of how large traders (for-profit speculators and commercial entities) were positioned in the futures markets. All currency positions are in direct relation to the US dollar where, for example, a bet for the euro is a bet that the euro will rise versus the dollar while a bet against the euro will be a bet that the euro will decline versus the dollar. There were many really large moves this week in the COT positioning as the data was recorded on Tuesday – just one day ahead of the Federal Reserve’s announcement of a 75 basis point increase in the US benchmark Fed Funds rate. Currency market speculator bets were mostly higher this week as eight out of the eleven currency markets (Russian ruble futures positions have not been updated by the CFTC since March) we cover had higher positioning this week while two markets had lower contracts. Leading the gains for currency market positions was the Canadian dollar (24,264 contracts) and the Japanese yen (21,891 contracts) with the New Zealand dollar (12,933 contracts), Swiss franc (9,324 contracts), US Dollar Index (6,538 contracts), British pound sterling (5,214 contracts), Australian dollar (4,642 contracts), Bitcoin (571 contracts) and Brazil real (508 contracts) also showing positive weeks. Meanwhile, leading the declines in speculator bets were the Mexican peso (-59,107 contracts) and the Euro (-56,561 contracts) this week. Currency Speculators Notes: US Dollar Index speculators raised their bullish bets for a second straight week this week and for the seventh time in the past ten weeks. These increases pushed the large speculator standing (+44,476 contracts) to the highest level in the past two hundred and seventy-three weeks, dating back more than five years to March 21st of 2017. The most bullish level ever was +81,270 contracts on March 10th of 2015. The US dollar strength keeps rolling along and the overall standing has now remained bullish for the past fifty consecutive weeks, dating back to July of 2021. The US Dollar Index price has continued its strength as well and reached a high this week of over 105.75 which is the best level for the DXY since back in December of 2002. Euro speculators sharply dropped their positions this week by the most on record with a huge decline of -56,561 contracts. This record decline beat out the previous high of -52,107 contracts that took place on June 19th of 2018. Euro bets had been gaining over the past month and were at a total of +50,543 contracts before this week’s sharp turnaround which has now tipped the overall spec positioning into bearish territory for the first time since January. Japanese yen speculator bets surged this week (+21,891 contracts) and gained for the fifth straight week. Yen speculator positions have been in bearish territory for over a year and have been extremely week since many central banks around the world started raising their interest rates. The Bank of Japan has not raised rates and has signaled that it will not do so, creating large interest rate differentials compared to the other major currencies. Despite the spec bets increase this week, the yen exchange rate came under further pressure this week with the USDJPY price closing over the 135.00 exchange rate (and remaining near 20-year highs). Mexican Peso speculator bets fell sharply by -59,381 contracts this week and flipped the MXN speculator positioning from bullish to bearish. The weekly speculator decline is the largest fall in the past thirteen weeks and the decrease into a bearish standing is the first time since March 29th. Canadian dollar bets jumped this week by the most in the past seventy-seven weeks and brought the speculator position back into bullish territory for the first time in six weeks. CAD speculator bets have now gained for four straight weeks and the overall spec standing is residing at the highest level since July 2021. New Zealand dollar speculators also boosted their bets this week after the NZD positions had dropped in six out of the previous seven weeks. This week’s rise in weekly bets was the most in the past thirteen weeks but the overall speculator standing remains in bearish territory for the seventh straight week. Strength scores (3-Year range of Speculator positions, from 0 to 100 where above 80 is extreme bullish and below 20 is extreme bearish) show that the US Dollar Index (100 percent), Bitcoin (100 percent) and the Brazilian Real (96.8 percent) are leading the strength scores and are all in extreme bullish positions. On the downside, the Mexican peso (16.1 percent) has fallen into extreme bearish positioning followed by the Japanese yen (25.9 percent) and British pound (26.7 percent) which are just above the 20 percent extreme bearish threshold. Strength score trends (or move index, that calculate 6-week changes in strength scores) shows that the US Dollar Index (19.5 percent), Japanese yen (19.1 percent) and Swiss franc (18 percent) have the highest six-week trend scores currently. The Mexican peso also leads the trends on the downside with a -17.5 percent trend change. Data Snapshot of Forex Market Traders | Columns Legend Jun-14-2022 OI OI-Index Spec-Net Spec-Index Com-Net COM-Index Smalls-Net Smalls-Index USD Index 61,144 91 44,476 100 -47,736 0 3,260 52 EUR 668,164 69 -6,018 33 -28,495 68 34,513 32 GBP 238,322 63 -65,596 27 81,063 78 -15,467 24 JPY 232,513 77 -69,755 26 86,443 78 -16,688 20 CHF 39,362 20 -6,808 39 18,147 72 -11,339 19 CAD 175,219 47 23,202 65 -30,284 43 7,082 44 AUD 142,857 39 -43,254 45 44,710 52 -1,456 49 NZD 45,410 35 -6,838 60 9,773 45 -2,935 18 MXN 197,375 48 -26,381 16 23,148 82 3,233 57 RUB 20,930 4 7,543 31 -7,150 69 -393 24 BRL 69,931 67 47,213 97 -48,458 4 1,245 79 Bitcoin 12,242 68 1,061 100 -947 0 -114 10   US Dollar Index Futures: The US Dollar Index large speculator standing this week resulted in a net position of 44,476 contracts in the data reported through Tuesday. This was a weekly boost of 6,538 contracts from the previous week which had a total of 37,938 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 100.0 percent. The commercials are Bearish-Extreme with a score of 0.0 percent and the small traders (not shown in chart) are Bullish with a score of 52.2 percent. US DOLLAR INDEX Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 86.9 2.9 9.1 – Percent of Open Interest Shorts: 14.2 80.9 3.8 – Net Position: 44,476 -47,736 3,260 – Gross Longs: 53,133 1,752 5,553 – Gross Shorts: 8,657 49,488 2,293 – Long to Short Ratio: 6.1 to 1 0.0 to 1 2.4 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 100.0 0.0 52.2 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish-Extreme Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 19.2 -19.1 7.1   Euro Currency Futures: The Euro Currency large speculator standing this week resulted in a net position of -6,018 contracts in the data reported through Tuesday. This was a weekly fall of -56,561 contracts from the previous week which had a total of 50,543 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 33.2 percent. The commercials are Bullish with a score of 67.9 percent and the small traders (not shown in chart) are Bearish with a score of 31.6 percent. EURO Currency Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 31.0 54.1 12.7 – Percent of Open Interest Shorts: 31.9 58.3 7.5 – Net Position: -6,018 -28,495 34,513 – Gross Longs: 206,986 361,159 84,823 – Gross Shorts: 213,004 389,654 50,310 – Long to Short Ratio: 1.0 to 1 0.9 to 1 1.7 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 33.2 67.9 31.6 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 0.1 -1.1 5.9   British Pound Sterling Futures: The British Pound Sterling large speculator standing this week resulted in a net position of -65,596 contracts in the data reported through Tuesday. This was a weekly lift of 5,214 contracts from the previous week which had a total of -70,810 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 26.7 percent. The commercials are Bullish with a score of 77.6 percent and the small traders (not shown in chart) are Bearish with a score of 23.6 percent. BRITISH POUND Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 12.3 77.2 8.7 – Percent of Open Interest Shorts: 39.8 43.2 15.1 – Net Position: -65,596 81,063 -15,467 – Gross Longs: 29,343 184,011 20,625 – Gross Shorts: 94,939 102,948 36,092 – Long to Short Ratio: 0.3 to 1 1.8 to 1 0.6 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 26.7 77.6 23.6 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 5.9 -4.7 -0.5   Japanese Yen Futures: The Japanese Yen large speculator standing this week resulted in a net position of -69,755 contracts in the data reported through Tuesday. This was a weekly boost of 21,891 contracts from the previous week which had a total of -91,646 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 25.9 percent. The commercials are Bullish with a score of 77.8 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 19.5 percent. JAPANESE YEN Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 14.0 75.6 9.6 – Percent of Open Interest Shorts: 44.0 38.4 16.8 – Net Position: -69,755 86,443 -16,688 – Gross Longs: 32,441 175,789 22,340 – Gross Shorts: 102,196 89,346 39,028 – Long to Short Ratio: 0.3 to 1 2.0 to 1 0.6 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 25.9 77.8 19.5 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 19.1 -16.5 5.7   Swiss Franc Futures: The Swiss Franc large speculator standing this week resulted in a net position of -6,808 contracts in the data reported through Tuesday. This was a weekly lift of 9,324 contracts from the previous week which had a total of -16,132 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 39.2 percent. The commercials are Bullish with a score of 72.4 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 19.1 percent. SWISS FRANC Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 10.9 66.2 22.9 – Percent of Open Interest Shorts: 28.2 20.1 51.7 – Net Position: -6,808 18,147 -11,339 – Gross Longs: 4,291 26,045 9,026 – Gross Shorts: 11,099 7,898 20,365 – Long to Short Ratio: 0.4 to 1 3.3 to 1 0.4 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 39.2 72.4 19.1 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 18.0 -19.8 17.9   Canadian Dollar Futures: The Canadian Dollar large speculator standing this week resulted in a net position of 23,202 contracts in the data reported through Tuesday. This was a weekly boost of 24,264 contracts from the previous week which had a total of -1,062 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 65.4 percent. The commercials are Bearish with a score of 43.5 percent and the small traders (not shown in chart) are Bearish with a score of 44.3 percent. CANADIAN DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 32.3 45.1 16.8 – Percent of Open Interest Shorts: 19.0 62.4 12.7 – Net Position: 23,202 -30,284 7,082 – Gross Longs: 56,550 79,064 29,357 – Gross Shorts: 33,348 109,348 22,275 – Long to Short Ratio: 1.7 to 1 0.7 to 1 1.3 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 65.4 43.5 44.3 – Strength Index Reading (3 Year Range): Bullish Bearish Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 15.9 -14.4 6.3   Australian Dollar Futures: The Australian Dollar large speculator standing this week resulted in a net position of -43,254 contracts in the data reported through Tuesday. This was a weekly lift of 4,642 contracts from the previous week which had a total of -47,896 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish with a score of 44.7 percent. The commercials are Bullish with a score of 52.2 percent and the small traders (not shown in chart) are Bearish with a score of 48.9 percent. AUSTRALIAN DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 22.2 59.9 14.9 – Percent of Open Interest Shorts: 52.4 28.6 16.0 – Net Position: -43,254 44,710 -1,456 – Gross Longs: 31,660 85,591 21,342 – Gross Shorts: 74,914 40,881 22,798 – Long to Short Ratio: 0.4 to 1 2.1 to 1 0.9 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 44.7 52.2 48.9 – Strength Index Reading (3 Year Range): Bearish Bullish Bearish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -13.7 7.8 10.4   New Zealand Dollar Futures: The New Zealand Dollar large speculator standing this week resulted in a net position of -6,838 contracts in the data reported through Tuesday. This was a weekly increase of 12,933 contracts from the previous week which had a total of -19,771 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish with a score of 59.8 percent. The commercials are Bearish with a score of 45.5 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 18.2 percent. NEW ZEALAND DOLLAR Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 32.8 61.8 4.9 – Percent of Open Interest Shorts: 47.9 40.3 11.4 – Net Position: -6,838 9,773 -2,935 – Gross Longs: 14,894 28,062 2,236 – Gross Shorts: 21,732 18,289 5,171 – Long to Short Ratio: 0.7 to 1 1.5 to 1 0.4 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 59.8 45.5 18.2 – Strength Index Reading (3 Year Range): Bullish Bearish Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -0.4 -0.2 3.8   Mexican Peso Futures: The Mexican Peso large speculator standing this week resulted in a net position of -26,381 contracts in the data reported through Tuesday. This was a weekly reduction of -59,107 contracts from the previous week which had a total of 32,726 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bearish-Extreme with a score of 16.1 percent. The commercials are Bullish-Extreme with a score of 82.5 percent and the small traders (not shown in chart) are Bullish with a score of 56.7 percent. MEXICAN PESO Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 57.8 38.3 3.1 – Percent of Open Interest Shorts: 71.2 26.5 1.5 – Net Position: -26,381 23,148 3,233 – Gross Longs: 114,093 75,532 6,170 – Gross Shorts: 140,474 52,384 2,937 – Long to Short Ratio: 0.8 to 1 1.4 to 1 2.1 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 16.1 82.5 56.7 – Strength Index Reading (3 Year Range): Bearish-Extreme Bullish-Extreme Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: -17.5 17.4 -2.9   Brazilian Real Futures: The Brazilian Real large speculator standing this week resulted in a net position of 47,213 contracts in the data reported through Tuesday. This was a weekly rise of 508 contracts from the previous week which had a total of 46,705 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 96.8 percent. The commercials are Bearish-Extreme with a score of 4.0 percent and the small traders (not shown in chart) are Bullish with a score of 79.4 percent. BRAZIL REAL Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 83.0 12.5 4.6 – Percent of Open Interest Shorts: 15.5 81.8 2.8 – Net Position: 47,213 -48,458 1,245 – Gross Longs: 58,023 8,711 3,197 – Gross Shorts: 10,810 57,169 1,952 – Long to Short Ratio: 5.4 to 1 0.2 to 1 1.6 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 96.8 4.0 79.4 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish-Extreme Bullish NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 5.3 -5.0 -4.0   Bitcoin Futures: The Bitcoin large speculator standing this week resulted in a net position of 1,061 contracts in the data reported through Tuesday. This was a weekly increase of 571 contracts from the previous week which had a total of 490 net contracts. This week’s current strength score (the trader positioning range over the past three years, measured from 0 to 100) shows the speculators are currently Bullish-Extreme with a score of 100.0 percent. The commercials are Bearish-Extreme with a score of 0.0 percent and the small traders (not shown in chart) are Bearish-Extreme with a score of 10.3 percent. BITCOIN Statistics SPECULATORS COMMERCIALS SMALL TRADERS – Percent of Open Interest Longs: 81.7 0.5 8.2 – Percent of Open Interest Shorts: 73.0 8.2 9.2 – Net Position: 1,061 -947 -114 – Gross Longs: 9,996 62 1,008 – Gross Shorts: 8,935 1,009 1,122 – Long to Short Ratio: 1.1 to 1 0.1 to 1 0.9 to 1 NET POSITION TREND: – Strength Index Score (3 Year Range Pct): 100.0 0.0 10.3 – Strength Index Reading (3 Year Range): Bullish-Extreme Bearish-Extreme Bearish-Extreme NET POSITION MOVEMENT INDEX: – 6-Week Change in Strength Index: 12.3 -30.9 -3.5   Article By InvestMacro – Receive our weekly COT Reports by Email *COT Report: The COT data, released weekly to the public each Friday, is updated through the most recent Tuesday (data is 3 days old) and shows a quick view of how large speculators or non-commercials (for-profit traders) were positioned in the futures markets. The CFTC categorizes trader positions according to commercial hedgers (traders who use futures contracts for hedging as part of the business), non-commercials (large traders who speculate to realize trading profits) and nonreportable traders (usually small traders/speculators) as well as their open interest (contracts open in the market at time of reporting).See CFTC criteria here.
Serious liquidity crisis? According to Franklin Templeton, a massive, but unlikely deposit flight from Credit Suisse would have to happen

Fears Of A Global Recession Strengthen (EUR/USD), Expectations More Hawkish BoE (EUR/GBP), CHF Was The Best Performing Currency Last Week (EUR/CHF), NZD/USD

Rebecca Duthie Rebecca Duthie 20.06.2022 13:48
Summary: Swiss Franc could be the most appealing safe-haven currency right now. Fears of a high level of striking in the United Kingdom. Russia under-delivers on its gas obligations to some European countries. Read next: Eurozone Inflation Data Offering Euro Support (EUR/USD, EUR/GBP), SNB 0.5% Interest Rate Hike Bombshell (EUR/CHF), BoJ Left Monetary Policy Unchanged (USD/JPY)  EUR/USD The market is reflecting mixed signals for this currency pair. In general there are fears of a global economic recession, this fear is affecting the foreign exchange markets. Russia cut some of its exports in gas to Germany, Italy and France, which foreshadows an increase in gas prices and possibly a complete stop to gas flows. If this occurs, expectations of a euro area recession is likely and will add to further inflation in Europe. All of these factors are driving the price of the EUR/USD currency pair. EUR/USD Price Chart EUR/GBP The market is reflecting bearish signals for this currency pair. Fears of a high level of striking in the United Kingdom is putting the Bank of England (BoE) under pressure to hike interest rates at a rate faster than economists expectations. Expectations of a more hawkish BoE is offering the pound sterling support against the Euro. EUR/GBP Price Chart The SNB’s surprise interest rate hike offered the CHF support The market is reflecting mixed signals for this currency pair. The CHF was the best performing currency during the trading week last week as the Swiss National Bank (SNB) surprised the market with a 50 basis point hike in interest rates. This move was the first of its kind in 15 years and offered the Swiss Franc support, and made the currency the most appealing safe-haven currency. EUR/CHF Price Chart NZD/USD The market is reflecting bearish signals for this currency pair. The New Zealand Dollar has lost momentum as expectations of a hawkish Reserve Bank of New Zealand (RBNZ) fade and Oil prices rise. Global markets continue to struggle amidst rising energy prices and hawkish central banks everywhere. NZD/USD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
Britain's Rishi Sunak And EU's Ursula Von Der Leyen Will Meet Today To Finalize The Northern Ireland Drama

ECB’s Christine Lagarde Eased Fears (EUR/USD, EUR/CHF), Expectations Of A More Hawkish BoE Strengthen (EUR/GBP, GBP/USD)

Rebecca Duthie Rebecca Duthie 21.06.2022 15:46
Summary: President Joe Biden announced he is considering a gas tax holiday. Markets expect a more hawkish BoE, thus offering the pound sterling support. CHF is supported by the SNB's hawkish attitude. Read next: BoE’s Dr Catherine L Mann Speaks  EUR/USD currency pair The market is reflecting bullish signals for this currency pair. US President Joe Biden has announced that he may be considering imposing a gas tax holiday in an attempt to ease inflationary pressure on the US consumer. This looser fiscal policy move could help the Monetary policy tightening moves by the Federal Reserve by adding more flexibility and optionality in its fight against inflation. Theoretically speaking, looser fiscal policy encourages more foreign investment, and thus a higher US Dollar demand. This mixed with a hawkish Federal Reserve could give an extra boost to the US Dollar if the tax cut is approved. During her speech yesterday, European Central Bank (ECB) president Christine Lagarde managed to ease fears via her statement around the ECB’s proactive fight against fragmentation, thereby offering the Euro support. EUR/USD Price Chart BoE expected to accelerate their interest rate hiking path The market is reflecting bearish signals for this currency pair. Analysts at Goldman Sachs and Deutsche Bank say they expect the Bank of England (BoE) to accelerate the rate in which they will raise interest rates. The BoE indicated they would be more inclined to take a more stern stance on inflation, even at the expense of growth. Therefore, giving the markets expectation of a more hawkish BoE, and offering the pound sterling support. EUR/GBP Price Chart SNB’s move to raise interest rates offers CHF support The market is reflecting bearish signals for this currency pair. Despite European Central Bank’s (ECB) Christine Lagarde easing fears around fragmentation, the Swiss Franc is still showing strength against the Euro. Last week the Swiss National Bank (SNB) surprised the markets with a 50 basis point rate hike in its interest rates, which offered the safe-haven currency support. The Swiss Franc was the best performing currency last week. EUR/CHF Price Chart Looming recessions and slowing economies The market is reflecting bullish signals for this currency pair. The pound sterling was edging higher during early trading on Tuesday despite negatives hanging over the GBP. On Wednesday, the UK is expected to release headline inflation data, which is expected to come in at 9.1%, which may even come in higher. In addition, the fears of a slowing UK economy and a global recession are only 2 of the factors that are weighing on this currency pair and on many other foreign exchange pairs. GBP/USD Price Chart Sources: dailyfx.com, finance.yahoo.com, poundsterlinglive.com
The Loonie Pair (USD/CAD) Takes Clues From The Downbeat Oil Prices

Fears Of Recession Loom (EUR/USD), UK CPI Inflation Data 9.1% For May (EUR/GBP), Surprisingly Strong Canadian Inflation Data (USD/CAD), EUR/JPY

Rebecca Duthie Rebecca Duthie 22.06.2022 16:27
Summary: UK CPI inflation data came in at 9.1% for May. BoJ remaining dovish. Fears of a recession loom. Read next: ECB’s Christine Lagarde Eased Fears (EUR/USD, EUR/CHF), Expectations Of A More Hawkish BoE Strengthen (EUR/GBP, GBP/USD)  ECB could benefit from QEQT combination The market is reflecting bullish signals for this currency pair. The Euro currency could benefit if the European Central Bank (ECB) uses the European continent's fragmented economic landscape to its advantage by combining both quantitative easing (QE) and quantitative tightening (QT) to normalise monetary policy by minimising upset. The Euro has been recovering against the US Dollar this week. Concerns over a recession in the US have grown as the Fed continue on their hawkish path of fighting inflation. EUR/USD Price Chart UK CPI inflation data met market expectations The market is reflecting bearish signals for this currency pair. The pound sterling weakened against the Euro in the direct wake of the release of UK inflation data which mostly came in as expected, however, some parts of the report came in softer than was expected and could prove supportive of the British pound currency. UK CPI inflation data came in year-on-year in May at 9.1% which beat April's 9.0% and was in-line with the market expectations. EUR/GBP Price Chart USD/CAD The market is slowing mixed market signals for this currency pair. Canadian inflation data came in surprisingly strong for the month of May, which could likely drive investor expectations of a more hawkish Bank of Canada (BoC) interest rate hiking policies going forward, thus likely supporting the Canadian Dollar. USD/CAD Price Chart BoJ Continues to opt out of monetary policy tightening The market is reflecting bullish signals for this currency pair. As the Bank of Japan (BoJ) continues their monetary easing and chooses to stay away from tightening monetary policy, the Euro and other currencies seem to be gaining on the safe-haven asset. EUR/JPY Price Chart Sources: finance.yahoo.com, poundsterlinglive.com, dailyfx.com
The Swing Overview - Week 26 2022

The Swing Overview - Week 26 2022

Purple Trading Purple Trading 04.07.2022 10:50
The Swing Overview - Week 26 2022 After ashort-term upward correction, the indices resumed their bearish trend and closed the week in the red. Along with this risk-off sentiment, commodity currencies weakened, as did the British pound and the euro. Gold is losing ground as a means of inflation protection and has fallen back below the USD 1,800 per ounce. The US dollar, on the other hand, is still the strongest currency amid the looming recession. Macroeconomic data The number of new home sales in the US for May reached 696,000, beating expectations of 588,000. This is positive news.   On the other hand, the negative news is the drop in consumer confidence, which reached 98.7 for May (103.2 the previous month). The drop in consumer confidence is expected to affect consumer spendings. It is evident that American consumers are reluctant to spend in times of rising prices and are accumulating savings for the future. This is of course contributing to the economic slowdown and the risk of a recession in the US is thus becoming stronger. This was confirmed by the GDP data, which fell for the third month in a row.   The fall in GDP last month was 1.6%. GDP was therefore negative in 1Q 2022. If it is also negative in 2Q2022, it will be an official confirmation of the recession defined by two negative quarters in a row. Jerome Powell suggested this week that the risk of the economy being damaged by higher rates is less important than restoring price stability. This heightens fears that a slowdown in the US economy will take the whole world down with it. So in times when central banks are tackling inflation, this risk will set the tone for some time.    This situation is positive for the US dollar, which is seen by investors as a safe haven asset in times of uncertainty. The dollar therefore remains close to this year's highs.  Although the yield on 10-year US Treasuries has fallen below 3%, the overall trend in bond yields is still upwards. Figure 1: US 10-year bond yields and USD index on the daily chart   The SP 500 Index The strengthening on the SP 500 Index that we have seen in the week of June 20 was really just a short-term correction to the overall downtrend, as we have previously suggested. Last week saw another sell-off and so the overall downtrend on the index continues.   Figure 2: The SP 500 on H4 and D1 chart   The nearest resistance according to the H4 chart is in the range of 3,810 - 3,820. The next resistance is 3,930 - 3,950. A support is 3 640 - 3 670.    German DAX index  The German Ifo Business Climate Index which measures the expectations of manufacturers, builders and sellers for the next 6 months continued to show a value of 92.3, which is worse than the previous month when the index value was 93.0. The fall in the reading suggests some pessimism, accentuated by current market uncertainties, which include the impact of the war in Ukraine and high inflation, which in Germany for the month of June was 7.6% year-on-year. However, inflation fell by 0.1% month-on-month.   The labour market has also indicated problems. The number of unemployed in Germany rose by 133 000, while the market had expected a fall of 6 000. This was very negative news, which triggered a strong sell-off on the Dax on Thursday. On the other hand, retail sales were positive, rising by 0.6% in May, while a 5.4% decline was recorded in April. Figure 3: German DAX index on H4 and daily chart The DAX has broken support according to the H4 chart at 12,850, which has now become the new resistance, which is in the 12,820 - 12,850 range. The next resistance according to the H4 chart is then at 13,280 - 13,375. The strong support according to the daily chart is 12,443 - 12,620, which price is currently approaching.    Eurozone inflation at a new record Eurozone consumer inflation reached another record high in June, rising by 8.6% year-on-year. This is higher than analysts' expectations, who predicted a rise of 8.4%. Inflation is therefore continuing to rise, so the expectation that the ECB could raise rates by more than 0.25% in July is on target and this could support the euro's growth. On the other hand, there is a strong dollar which could continue to slow down bulls on the euro.   Figure 4: EUR/USD on H4 and daily chart The nearest resistance according to the H4 chart is at 1.048 - 1.0500. The next resistance is at 1.0600 - 1.0610. Support is at 1.0360 - 1.0380.   Gold broke the $1,800 price tag The development in gold has once again confirmed that investors prefer US bonds instead of gold, which, in addition to being considered a "safe haven" along with the US dollar, also brings a small but still certain return. The strong dollar is not good news for gold, which has fallen below the key support of USD 1,800 per ounce.  Figure 5: Gold on H4 and daily chart The nearest resistance according to the H4 chart is therefore in the zone of USD 1,800 - 1,807 per ounce. Below this resistance we have several supports. The closest one is 1 780 - 1 787 USD per ounce.  
The Swing Overview - Week 26 2022 - 08.07.2022

The Swing Overview - Week 26 2022 - 08.07.2022

Purple Trading Purple Trading 08.07.2022 09:47
The Swing Overview - Week 26 2022 After ashort-term upward correction, the indices resumed their bearish trend and closed the week in the red. Along with this risk-off sentiment, commodity currencies weakened, as did the British pound and the euro. Gold is losing ground as a means of inflation protection and has fallen back below the USD 1,800 per ounce. The US dollar, on the other hand, is still the strongest currency amid the looming recession. Macroeconomic data The number of new home sales in the US for May reached 696,000, beating expectations of 588,000. This is positive news.   On the other hand, the negative news is the drop in consumer confidence, which reached 98.7 for May (103.2 the previous month). The drop in consumer confidence is expected to affect consumer spendings. It is evident that American consumers are reluctant to spend in times of rising prices and are accumulating savings for the future. This is of course contributing to the economic slowdown and the risk of a recession in the US is thus becoming stronger. This was confirmed by the GDP data, which fell for the third month in a row.   The fall in GDP last month was 1.6%. GDP was therefore negative in 1Q 2022. If it is also negative in 2Q2022, it will be an official confirmation of the recession defined by two negative quarters in a row. Jerome Powell suggested this week that the risk of the economy being damaged by higher rates is less important than restoring price stability. This heightens fears that a slowdown in the US economy will take the whole world down with it. So in times when central banks are tackling inflation, this risk will set the tone for some time.    This situation is positive for the US dollar, which is seen by investors as a safe haven asset in times of uncertainty. The dollar therefore remains close to this year's highs.  Although the yield on 10-year US Treasuries has fallen below 3%, the overall trend in bond yields is still upwards. Figure 1: US 10-year bond yields and USD index on the daily chart   The SP 500 Index The strengthening on the SP 500 Index that we have seen in the week of June 20 was really just a short-term correction to the overall downtrend, as we have previously suggested. Last week saw another sell-off and so the overall downtrend on the index continues.   Figure 2: The SP 500 on H4 and D1 chart   The nearest resistance according to the H4 chart is in the range of 3,810 - 3,820. The next resistance is 3,930 - 3,950. A support is 3 640 - 3 670.    German DAX index  The German Ifo Business Climate Index which measures the expectations of manufacturers, builders and sellers for the next 6 months continued to show a value of 92.3, which is worse than the previous month when the index value was 93.0. The fall in the reading suggests some pessimism, accentuated by current market uncertainties, which include the impact of the war in Ukraine and high inflation, which in Germany for the month of June was 7.6% year-on-year. However, inflation fell by 0.1% month-on-month.   The labour market has also indicated problems. The number of unemployed in Germany rose by 133 000, while the market had expected a fall of 6 000. This was very negative news, which triggered a strong sell-off on the Dax on Thursday. On the other hand, retail sales were positive, rising by 0.6% in May, while a 5.4% decline was recorded in April. Figure 3: German DAX index on H4 and daily chart The DAX has broken support according to the H4 chart at 12,850, which has now become the new resistance, which is in the 12,820 - 12,850 range. The next resistance according to the H4 chart is then at 13,280 - 13,375. The strong support according to the daily chart is 12,443 - 12,620, which price is currently approaching.    Eurozone inflation at a new record Eurozone consumer inflation reached another record high in June, rising by 8.6% year-on-year. This is higher than analysts' expectations, who predicted a rise of 8.4%. Inflation is therefore continuing to rise, so the expectation that the ECB could raise rates by more than 0.25% in July is on target and this could support the euro's growth. On the other hand, there is a strong dollar which could continue to slow down bulls on the euro.   Figure 4: EUR/USD on H4 and daily chart The nearest resistance according to the H4 chart is at 1.048 - 1.0500. The next resistance is at 1.0600 - 1.0610. Support is at 1.0360 - 1.0380.   Gold broke the $1,800 price tag The development in gold has once again confirmed that investors prefer US bonds instead of gold, which, in addition to being considered a "safe haven" along with the US dollar, also brings a small but still certain return. The strong dollar is not good news for gold, which has fallen below the key support of USD 1,800 per ounce.  Figure 5: Gold on H4 and daily chart The nearest resistance according to the H4 chart is therefore in the zone of USD 1,800 - 1,807 per ounce. Below this resistance we have several supports. The closest one is 1 780 - 1 787 USD per ounce.  
The Swing Overview - Week 27 2022

The Swing Overview - Week 27 2022

Purple Trading Purple Trading 08.07.2022 10:27
The Swing Overview - Week 27 2022 The fall in US bond yields, the rise in the US dollar and the sharp weakening in the euro, which is heading towards parity with the dollar. This is how the last week, in which stock indices cautiously strengthened and made a correction in the downward trend, could be characterised. It is worth noting that Germany has a negative trade balance for the first time since May 1991. Is the country losing its reputation as an economic powerhouse of Europe? Macroeconomic data The ISM in manufacturing, which shows purchasing managers' expectations of economic developments in the short term, came in at 53.0 for June.  While a value above 50 still indicates an expected expansion in the sector, the trend since the beginning of the year has been declining, indicating worsening of optimism.   Unemployment claims reached 231,000 last week. This is still a level that is fairly normal. However, we note that this is the 6th week in a row that the number of claims has been rising. The crucial news on the labour market will then be shown in Friday's NFP data.   On Wednesday, the minutes of the last FOMC meeting were presented, which confirmed that another 50-75 point rate hike is likely in July. The minutes also stated that the Fed could tighten further its hawkish policy if inflationary pressures persist. The Fed's target is to push inflation down to around 2%.   The Fed's hawkish tone has led to a strengthening of the dollar, which has reached a level over 107, its highest level since October 2002. Following the presentation of the FOMC minutes, the US Treasury yields started to rise again. Figure 1: The US 10-year bond yields and the USD index on the daily chart   The SP 500 Index The temporary decline in US Treasury yields was the reason for the correction in the bearish trend in equity indices. However, the bear market still continues to be supported fundamentally by fears of an impending recession.  Figure 2: The SP 500 on H4 and D1 chart   The nearest resistance according to the H4 chart is in the 3,930 - 3,950 range. A support is at 3,740 - 3,750 and then 3,640 - 3,670.    German DAX index The German manufacturing PMI for June came in at 52.0 (previous month 54.8). The downward trend shows a deterioration in optimism.    It is worth noting that Germany's trade balance is negative for the first time since May 1991, i.e. imports are higher than exports. The current trade balance is - EUR 1 billion. The market was expecting a surplus of 2.7 billion. Rising prices of imported energy and a reduction in exports to Russia have contributed to the negative balance. Figure 3: German DAX index on H4 and daily chart The DAX is in a downtrend. On the H4 chart, it has reached the moving average EMA 50. The resistance is in the range of 12,900 - 12,960. Strong support on the daily chart is 12,443 - 12,500, which was tested again last week.    Euro is near parity with the USD Even high inflation, which is already at 8.6%, has not stopped the euro from falling. It seems that parity with the dollar could be reached very soon. The negative trade balance in Germany has contributed very significantly to the euro's decline.  Figure 4: EUR/USD on H4 and daily chart The nearest resistance according to the H4 chart is at 1.020 - 1.021. Support according to the daily chart would be only at parity with the dollar at 1.00. Reaching this value would represent a unique situation that has not occurred on the EUR/USD pair since 2002.   Australia raised interest rates The Reserve Bank of Australia raised the interest rate by 0.50% as expected. The current interest rate now stands at 1.35%. According to the central bank, the Australian economy has been solid so far thanks to commodity exports, the prices of which have been rising. Unemployment is 3.9%, the lowest level in 50 years.   One uncertainty is the behaviour of consumers, who are cutting back on spending in times of high inflation. A significant risk is global development, which is influenced by the war in Ukraine and its impact on energy and agricultural commodity prices.   Figure 5: The AUD/USD on H4 and daily chart The AUD/USD is in a downtrend and even the rate hike did not help the Australian dollar to strengthen. However, there has been some correction in the downtrend. The resistance according to the H4 chart is 0.6880 - 0.6900. The support is at 0.6760 - 0.6770.  
What Does Inflation Rates We Got To Know Mean To Central Banks?

What Does Inflation Rates We Got To Know Mean To Central Banks?

Purple Trading Purple Trading 15.07.2022 13:36
The Swing Overview – Week 28 2022 This week's new record inflation readings sent a clear message to central bankers. Further interest rate hikes must be faster than before. The first of the big banks to take this challenge seriously was the Bank of Canada, which literally shocked the markets with an unprecedented rate hike of a full 1%. This is obviously not good for stocks, which weakened again in the past week. The euro also stumbled and has already fallen below parity with the usd. Uncertainty, on the other hand, favours the US dollar, which has reached new record highs.   Macroeconomic data The data from the US labour market, the so-called NFP, beat expectations, as the US economy created 372 thousand new jobs in June (the expectation was 268 thousand) and the unemployment rate remained at 3.6%. But on the other hand, unemployment claims continued to rise, reaching 244k last week, the 7th week in a row of increase.   But the crucial news was the inflation data for June. It exceeded expectations and reached a new record of 9.1% on year-on-year basis, the highest value since 1981. Inflation rose by 1.3% on month-on-month basis. Energy prices, which rose by 41.6%, had a major impact on inflation. Declines in commodity prices, such as oil, have not yet influenced June inflation, which may be some positive news. Core inflation excluding food and energy prices rose by 5.9%, down from 6% in May.   The value of inflation was a shock to the markets and the dollar strengthened sharply. We can see this in the dollar index, which has already surpassed 109. We will see how the Fed, which will be deciding on interest rates in less than two weeks, will react to this development. A rate hike of 0.75% is very likely and the question is whether even such an increase will be enough for the markets. Meanwhile, there has been an inversion on the yield curve on US bonds. This means that yields on 2-year bonds are higher than those on 10-year bonds. This is one of the signals of a recession. Figure 1: The US Treasury yield curve on the monthly chart and the USD index on the daily chart   The SP 500 Index Apart from macroeconomic indicators, the ongoing earnings season will also influence the performance of the indices this month. Among the major banks, JP Morgan and Morgan Stanley reported results this week. Both banks reported earnings, but they were below investor expectations. The impact of more expensive funding sources that banks need to finance their activities is probably starting to show.   We must also be interested in the data in China, which, due to the size of the Chinese economy, has an impact on the movement of global indices. 2Q GDP in China was 0.4% on year-on-year basis, a significant drop from the previous quarter (4.8%). Strict lockdowns against new COVID-19 outbreaks had an impact on economic situation in the country. Figure 2: SP 500 on H4 and D1 chart The threat of a recession is seeping into the SP 500 index with another decline, which stalled last week at the support level, which according to the H4 is in the 3,740-3,750 range. The next support is 3,640 - 3,670.  The nearest resistance is 3,930 - 3,950. German DAX index The German ZEW sentiment, which shows expectations for the next 6 months, reached - 53.8. This is the lowest reading since 2011. Inflation in Germany reached 7.6% in June. This is lower than the previous month when inflation was 7.9%. Concerns about the global recession continue to affect the DAX index, which has tested significant supports. Figure 3: German DAX index on H4 and daily chart Strong support according to the daily chart is 12,443 - 12,500, which was tested again last week. We can take the moving averages EMA 50 and SMA 100 as a resistance. The nearest horizontal resistance is 12,950 - 13,000.   The euro broke parity with the dollar The euro fell below 1.00 on the pair with the dollar for the first time in 20 years, reaching a low of 0.9950 last week. Although the euro eventually closed above parity, so from a technical perspective it is not a valid break yet, the euro's weakening points to the headwinds the eurozone is facing: high inflation, weak growth, the threat in energy commodity supplies, the war in Ukraine. Figure 4: EUR/USD on H4 and daily chart Next week the ECB will be deciding on interest rates and it is obvious that there will be some rate hike. A modest increase of 0.25% has been announced. Taking into account the issues mentioned above, the motivation for the ECB to raise rates by a more significant step will not be very strong. The euro therefore remains under pressure and it is not impossible that a fall below parity will occur again in the near future.   The nearest resistance according to the H4 chart is at 1.008 - 1.012. A support is the last low, which is at 0.9950 - 0.9960.   Bank of Canada has pulled out the anti-inflation bazooka Analysts had expected the Bank of Canada to raise rates by 0.75%. Instead, the central bank shocked markets with an unprecedented increase by a full 1%, the highest rate hike in 24 years. The central bank did so in response to inflation, which is the highest in Canada in 40 years. With this jump in rates, the bank is trying to prevent uncontrolled price increases.   The reaction of the Canadian dollar has been interesting. It strengthened significantly immediately after the announcement. However, then it began to weaken sharply. This may be because investors now expect the US Fed to resort to a similarly sharp rate hike. Figure 5: USD/CAD on H4 and daily chart Another reason may be the decline in oil prices, which the Canadian dollar is correlated with, as Canada is a major oil producer. The oil is weakening due to fears of a drop in demand that would accompany an economic recession. Figure 6: Oil on the H4 and daily charts Oil is currently in a downtrend. However, it has reached a support value, which is in the area near $94 per barrel. The support has already been broken, but on the daily chart oil closed above this value. Therefore, it is not a valid break yet.  
Turbulent Times Ahead: Poland's Central Bank Signals Easing Measures

Monetary Aggregates - Money Supply In The Economy

Kamila Szypuła Kamila Szypuła 10.12.2022 08:49
The central bank is responsible for issuing money, and also conducts the monetary policy of a given country and ensures price stability and the value of money. The monetary policy pursued by the central bank depends primarily on the money supply. Definition Monetary aggregates are a measure of the money supply in domestic currency. Depending on what assets we consider as money, we talk about different monetary aggregates. There are several commonly accepted categories of money, we denote them with the letter M from the English word money. The aggregates are ranked from the most liquid assets to the least liquid. Subsequent aggregates include an ever-wider range of financial assets classified as money. We distinguish several monetary aggregates. They depend on what assets we consider to be money. It is worth noting that the detailed range of assets included in the given monetary aggregates may differ slightly in individual countries. M0 The monetary base (or M0) is the total amount of a currency that is either in general circulation in the hands of the public or in the form of commercial bank deposits held in the central bank's reserves. In simpler terms, it is the total amount of money directly issued by the central bank - the value of notes and coins that are in non-bank circulation, as well as that held by the banking system. The monetary base consists mainly of cash money, which is held by various enterprises, households or institutions. In addition, it is also made up of the required reserve of commercial banks held on accounts with the central bank, as well as the excess reserve, which consists of voluntary contributions of commercial banks with the central bank. The monetary base is the basis for shaping the money supply. This is because it makes it possible to increase the circulation of money. M1 Another type of aggregate is M1, otherwise known as M1 money or transaction money. As you can guess, this aggregate has a broader measure than the monetary base, because in addition to the position of the M0 aggregate, it also includes slightly less liquid assets. It is, for example, the entire value of current deposits, i.e. demand deposits held in commercial banks by private individuals, business entities and financial institutions that are not banks. These contributions can be in n gold and in currencies. The M1 aggregate includes: the above-mentioned cash outside banks' vaults, as well as the value of current accounts of commercial banks with the central bank, the value of the required reserve on central bank accounts, and current deposits in gold and in currencies. M2 The next in line is the M2 aggregate. Its other name is M2 money. And here, as in the case of aggregate M1, it includes assets with even less liquidity than aggregate M1. Therefore, in addition to the M1 aggregate, it also includes all term deposits in commercial banks with an original maturity of up to 2 years, as well as deposits with a notice period of no more than 3 months. M3 The last monetary aggregate is the M3 aggregate, otherwise known as broad money or M3 money. It is the widest unit. Here, as in the previous cases, it includes all components of the M2 aggregate, and additionally also debt securities with an original maturity of up to 2 years, as well as liabilities of banks arising from repurchase agreements. The M3 aggregate contains the most assets, including those characterized by much lower liquidity. Thanks to the fact that it has the largest range of assets, it gives the best picture of how the money supply is shaped. Impact of monetary aggregates The study of monetary aggregates can generate important information on the financial stability and overall health of a country. For example, monetary aggregates that grow too fast can cause fear of high inflation rates. If there is more money in circulation than is needed to pay for the same amount of goods and services, prices are likely to rise. In the event of a high rate of inflation, groups of central banks may be forced to raise interest rates or stop the growth of the money supply. Source: investopedia.com, Begg D., Macroeconomy
Gold's Resilience Tested Amid Rising Dollar and Bond Yields

CEE: US Dollar Continues to Haunt the Region's FX Market

ING Economics ING Economics 30.05.2023 09:01
CEE: US dollar remains the region's nightmare The second print of first quarter GDP in the Czech Republic will be published today. Besides the GDP breakdown, we will also see the wage bill, which has been mentioned several times by the Czech National Bank as a potential reason for a rate hike in June.   Tomorrow, inflation for May and the details of first quarter GDP in Poland will be published. We expect headline inflation to fall from 14.7% to 13.0% YoY, below market expectations, mainly due to fuel and energy prices. On Thursday, we will see PMI numbers across the region, where we expect a slight deterioration in sentiment across the board.   Later, we will see state budget data in the Czech Republic, which posted its worst-ever result in April, raising questions about additional government bond issuance. The European Parliament is also scheduled to hold a session on Thursday, which is expected to cover the Hungarian EU presidency and is also likely to touch on the topic of EU money and the rule of law.   The FX market, as usual in recent weeks, will be dominated by the global story and the US dollar. So, even this week, CEE FX will not be in a bed of roses. We still see the Polish zloty as the most vulnerable, which despite some weakening in the past week remains near record highs. The market has built up a significant long position in PLN over the past two months.   Plus, we may hear more election noise. Moreover, the significant fall in inflation should push the interest rate differential lower. Thus, we see EUR/PLN around 4.540.   The Czech koruna remains the most sensitive currency in the region against the US dollar, which should be the main driver this week. On the other hand, the reversal in the rate differential has been indicating a reversal in EUR/CZK for a few days now.   Thus, at least a stable EUR/USD could allow the koruna to move toward 23.600. The Hungarian forint can expect a headline attack from the European Parliament this week, and given the current strong levels, we could easily see weaker levels again closer to 375 EUR/HUF.   However, we believe the market will use any spike to build long positions in HUF again.
Australian Dollar's Decline Persists Amid Evergrande Concerns and Economic Data

UK Inflation Dilemma: Can Rate Hikes Tackle Soaring Prices and Avert Recession?

InstaForex Analysis InstaForex Analysis 31.05.2023 09:00
On Tuesday, the demand for the pound was significantly higher than that for the euro. As soon as this happened, many analysts began to pay attention to the report on prices in UK stores, as shop price inflation accelerated to 9% this month. This indicates that UK inflation is decreasing slowly or not decreasing at all, despite the benchmark interest rate being raised to 4.5%.   The consensus forecast for the Bank of England's rate currently suggests two more quarter point rate hikes in June and August.   This would bring the rate to 5%. Any further tightening without alternatives would push the British economy into a recession, and even the current rate could potentially cause it, despite the BoE's optimistic forecasts. But how can inflation be combated if it hardly responds to the actions of the central bank?     I believe there can only be one disheartening answer: it cannot. If further rate hikes lead to a recession, the Brits, clearly dissatisfied with recent events within the country, may start a new wave of mass strikes. Take note that in the past year, many Brits have openly criticized the British government for the sharp decline in real incomes and high inflation.   If the rate increases further, the economy will contract, leading to an increase in unemployment. If the rate is kept as it is, it might take years for inflation to return to the target level. The BoE is in a deadlock. BoE Governor Andrew Bailey expects inflation to start decreasing rapidly from April. He noted the decline in energy prices, which will somewhat dampen inflationary pressure on all categories of goods and services. However, the April inflation report was unusually contradictory. While headline inflation showed a significant slowdown, core inflation continues to rise.   Therefore, it is not possible to conclude that inflation is slowing down in the general sense. We can only wait and observe. If Bailey turns out to be right, then the BoE will not need to raise the rate to 5.5% or 6%, which currently seems like a fantasy.   However, if inflation continues to hover around 10%, the BoE will need to devise new measures to address it without exerting serious pressure on the economy. It might require patience for several years. It is entirely unclear which option the central bank will choose.   The demand for the British pound may increase as market expectations of a hawkish stance grow. But will these expectations be justified? The pound may rise based on this, but fall even harder when it becomes clear that the BoE is not ready to raise the rate above 5%. I believe that wave analysis should be the primary tool for forecasting at the moment.     Based on the analysis conducted, I conclude that the uptrend phase has ended. Therefore, I would recommend selling at this point, as the instrument has enough room to fall. I believe that targets around 1.0500-1.0600 are quite realistic.   A corrective wave may start from the 1.0678 level, so you can consider short positions if the pair surpasses this level. The wave pattern of the GBP/USD pair has long indicated the formation of a new downtrend wave. Wave b could be very deep, as all waves have recently been equal.   A successful attempt to break through 1.2445, which equates to 100.0% Fibonacci, indicates that the market is ready to sell. I recommend selling the pound with targets around 23 and 22 figures. But most likely, the decline will be stronger.    
Inflation Dynamics and Market Pricing: Assessing the UK's Monetary Outlook.  Job Openings Decline Continues in the US

Inflation Dynamics and Market Pricing: Assessing the UK's Monetary Outlook. Job Openings Decline Continues in the US

ING Economics ING Economics 31.05.2023 08:39
It is in the UK that the local swap curve is diverging most from the central bank’s message. Swap currently imply another 100bp of tightening will be implemented before year-end. We do not disagree that core inflation has been disappointingly slow to decline in the UK but betting on another four 25bp hikes this year requires a strong opinion on inflation dynamics which we think few in the market actually have.   This means current pricing is unlikely to be maintained. Markets should also be on alert for a pushback by Bank of England (BoE) officials against market pricing. Only Catherine Mann is due to speak today. As the more hawkish member, she is the least likely to disagree with elevated rates but her pushback would be all the more potent.   Forward EUR rates have been relatively immune to the recent re-pricing higher in USD and GBP rates   Today's events and market view Chinese PMIs released today missed expectations on both manufacturing and services, although the latter remains at a healthy level above the 50 expansion/contraction line.   French, Germany, and Italian CPIs for the month of May will be released today. In addition to yesterday’s Spanish prints, this means over 70% of the eurozone-wide print, which is only published tomorrow, will be available to markets today. As is increasingly the case, focus will be squarely on service inflation.   After the sharp re-pricing in BoE hike expectations Catherine Mann’s speech will be closely watched, although, as the most hawkish member on the MPC, we don’t see her as the most likely member to push back against the nearly 100bp of further hikes priced by the curve.   In the US, the decline in job openings is expected to continue, albeit at a more modest pace than last month. Details of the report, such as a worsening of the quits rate, will be closely watched for hints of a further softening of the labour market into Friday’s non-farm payroll release.
Indonesia Inflation Returns to Target, but Bank Indonesia Likely to Maintain Rates Until Year-End

Indonesia Inflation Returns to Target, but Bank Indonesia Likely to Maintain Rates Until Year-End

ING Economics ING Economics 05.06.2023 10:11
Indonesia: Inflation back within target but BI likely on hold until end of year. Headline inflation finally reverted to target in May, with headline inflation slipping to 4.0% year-on-year   Headline inflation back to target after a year Headline inflation slipped below expectations to 4.0% YoY, roughly 0.1% higher compared to the previous month. Inflation is back within Bank Indonesia's (BI) 2-4% target after 12 months and will likely stay within target for the rest of the year. Headline inflation enjoyed a much more pronounced moderation this year, sliding back within target even ahead of BI's expectations. Lower energy and food prices from a year ago level helped push headline inflation lower or unchanged across all items in the CPI basket. Meanwhile, core inflation was also down, dipping to 2.7% YoY and also lower than market expectations (2.8%).       Price stability objective reached but BI likely on hold to steady the IDR Bank Indonesia was one of the first central banks in the region to pause its tightening cycle earlier this year. BI Governor Perry Warjiyo who had expected inflation to slow gradually and revert to target by 3Q, has kept rates at 5.75% since the 16 February policy meeting. Despite the quick reversion to target for inflation, we believe BI will carry out an extended pause to shore up support for the Indonesian rupiah, which was down roughly 2.15% for the month of May. Thus we expect BI to retain policy rates at 5.75% until the end of the year and only consider cutting policy rates should global central banks opt to ease monetary policy.
Weak Economic Outlook for China: Challenges in Debt Restructuring and Growth Prospects

Central Bank Jury: Inflation Concerns Delay Dollar's Decline

ING Economics ING Economics 13.06.2023 13:03
The central bank jury is most certainly still out on whether policymakers have done enough to tame inflation. The implications for FX markets are that the Fed may need to stay hawkish a little longer and our forecast cyclical dollar decline may get delayed. For now, however, we maintain the view that the dollar will be much lower by year-end   Executive Summary: Burden of proof Despite all the talk of economic slowdown and the turn in the inflation cycle, it seems that policymakers still lack sufficient evidence that inflation is under control. Swiss National Bank President Thomas Jordan recently warned of 'second and third round effects' in this inflation cycle. Central bankers as far apart as Australia and Canada have recently had to restart tightening cycles after brief pauses. Investors are now increasingly questioning their own convictions that rates have peaked.   Nowhere is this challenge greater than in the US where tight labour markets and core inflation stubbornly above 4% are keeping the Fed vigilant. And there is a chance that the Fed has to hike one last time this summer. Yet our house view remains that US disinflation becomes much more obvious in the third quarter and that hard will follow soft activity data lower. We still look for substantial Fed cuts in the fourth quarter.   This means we are still looking for the start of a cyclical multi-year dollar bear trend – probably starting in the third quarter. This should carry EUR/USD above 1.15 and USD/JPY well below 130. The tide of a softening dollar should lift most currencies around the world – especially higher-yielding currencies enjoying the benefits of the carry trade.   Within Europe, we forecast most currencies to hold recent gains against the euro – although sterling looks most at risk to Bank of England re-pricing. Modest CEE FX appreciation can continue – despite looming easing cycles. Latin FX looks constructive on the back of high yields and pockets of Asia can appreciate – especially the Korean won.
Weak Economic Outlook for China: Challenges in Debt Restructuring and Growth Prospects

Central Bank Jury: Inflation Concerns Delay Dollar's Decline - 13.06.2023

ING Economics ING Economics 13.06.2023 13:03
The central bank jury is most certainly still out on whether policymakers have done enough to tame inflation. The implications for FX markets are that the Fed may need to stay hawkish a little longer and our forecast cyclical dollar decline may get delayed. For now, however, we maintain the view that the dollar will be much lower by year-end   Executive Summary: Burden of proof Despite all the talk of economic slowdown and the turn in the inflation cycle, it seems that policymakers still lack sufficient evidence that inflation is under control. Swiss National Bank President Thomas Jordan recently warned of 'second and third round effects' in this inflation cycle. Central bankers as far apart as Australia and Canada have recently had to restart tightening cycles after brief pauses. Investors are now increasingly questioning their own convictions that rates have peaked.   Nowhere is this challenge greater than in the US where tight labour markets and core inflation stubbornly above 4% are keeping the Fed vigilant. And there is a chance that the Fed has to hike one last time this summer. Yet our house view remains that US disinflation becomes much more obvious in the third quarter and that hard will follow soft activity data lower. We still look for substantial Fed cuts in the fourth quarter.   This means we are still looking for the start of a cyclical multi-year dollar bear trend – probably starting in the third quarter. This should carry EUR/USD above 1.15 and USD/JPY well below 130. The tide of a softening dollar should lift most currencies around the world – especially higher-yielding currencies enjoying the benefits of the carry trade.   Within Europe, we forecast most currencies to hold recent gains against the euro – although sterling looks most at risk to Bank of England re-pricing. Modest CEE FX appreciation can continue – despite looming easing cycles. Latin FX looks constructive on the back of high yields and pockets of Asia can appreciate – especially the Korean won.
Euro Surges on Hawkish ECB and Favorable Risk Environment

Euro Surges on Hawkish ECB and Favorable Risk Environment

ING Economics ING Economics 16.06.2023 09:55
EUR: Hawkish ECB and better risk environment helps the euro The trade-weighted euro pushed up around 0.2/0.3% yesterday on the hawkish ECB, but the better global growth environment and softer dollar generated a 1% rally in EUR/USD. As our readers hopefully know by now, we are bullish on EUR/USD in the second half, but we are not sure which month exactly the bull trend would take off. Could it be June? The hawkish ECB – especially the upward revision to the 2025 CPI forecast – adds weight to our core house view that the central bank will say hawkish for longer and cut rates later than the Fed. At the same time, it looks like investors are gearing up for another expression of faith in Chinese growth prospects. Expectations are now growing that some fiscal support measures can be announced over the coming weeks to back up the recent monetary easing. This week's important turn-around in USD/CNH looks like an encouraging sign for the pro-cyclical EUR/USD. For EUR/USD today, let us see whether the US data and Fed speakers make much of an impression. In addition, we have four ECB speakers from the more hawkish end of the spectrum. We prefer to back the bullish momentum here and can see EUR/USD pushing on to the 1.1000/1030 region today. Chris Turner   In Norway, Norges Bank (NB) reported the results of a regional survey yesterday: the main takeaway was that price pressures continue to grow. This will ultimately help the central bank build its case for pushing rates beyond 3.50%, even though a much more important input to the NB decision-making process is NOK weakness. The next policy meeting is on Thursday when rates are expected to be raised by 25bp to 3.50%, although at this stage we cannot exclude a surprise 50bp hike.   
Continued Market Stability and Gradual Rate Cuts: Insights on the National Bank of Hungary's Monetary Policy

Continued Market Stability and Gradual Rate Cuts: Insights on the National Bank of Hungary's Monetary Policy

ING Economics ING Economics 16.06.2023 15:54
Market stability has remained in place in all major submarkets (FX, bonds & swaps). Although the forint has been weakening in recent days, the exchange rate against the euro has not hit a critical level that could prompt the central bank to back down. Nor do we see any grey clouds hovering over global financial markets that could darken the future. This is certainly a significant help, as it continues to mean a constructive investment environment overall. In addition, the major central banks (Federal Reserve, European Central Bank) have not surprised markets in any meaningful way, which would be drastically countered by the easing of the Hungarian central bank.   Hungarian yield curve   We don't expect any substantive change in the tone of the press release and the expected press conference. The National Bank of Hungary will continue to define the series of interest rate cuts as a function of market stability and remain committed to the principles of gradualism and prudence. Obviously, the central bank will underscore the acceleration of disinflation as a significant factor, but we think that the Monetary Council will still not want to make any substantive comment on a possible cut in the base rate soon. In other words, the sound distinction between market stability and price stability will remain. The forward guidance is, therefore, unlikely to change in light of this.   ING's inflation and base rate forecasts for Hungary   Looking further down the road If the supportive environment remains and market stability is maintained, the NBH is going to continue its series of gradual interest rate cuts of 100bps. Accordingly, the base rate and the effective rate should merge at 13% at the September rate decision, in our base case. As to whether the rate cuts will resume immediately from here or whether there will be a pause, we will only be able to say with a high degree of certainty once we have seen market conditions and the inflation situation in the autumn. At the moment, we would give a higher probability to a pause of one or two months after September. When we see that inflation has fallen to single-digit levels (which could happen as early as November, so the NBH can make a decision in December with this in mind), then the base rate cut will start.
RBA Expected to Pause as Inflation Moves in the Right Direction

Narrowing Forecasts and Market Expectations: Insights on the National Bank of Hungary's Monetary Policy and Market Views

ING Economics ING Economics 16.06.2023 15:56
What about the forecast changes? Perhaps the most important change will be that, as the extreme risk scenarios have now disappeared, the central bank will hopefully also narrow the updated forecast ranges when it presents the main figures in the June Inflation Report. A narrowing of the forecast range downward would send a rather strong message regarding GDP growth in 2023. This would put the central bank in the ranks of those who do not think it likely that GDP growth of 1.5% will be achieved this year. However, as the economic outlook now depends largely on the performance of agriculture, it may still be justified to maintain a wider band.   ING's expectations regarding the NBH's forecasts   There is a lot of uncertainty around GDP growth next year, so perhaps there is no point in seriously revising expectations. As for inflation, the NBH is likely to raise its forecast, if only because of the change in the excise duty from 1 January 2024. In addition, an inflation rate clearly above 3% could also send an important message to markets, supporting the central bank's new stance that sustained tight monetary policy with a continuous real positive interest rate environment is needed to achieve the inflation target in a sustainable manner.   Our market views The Hungarian forint has come under pressure for the first time in a while, reaching its weakest level against the euro since the end of May. We see EUR/HUF in a 368-378 range for the rest of the year and see the current higher values as only temporary. The market will probably want to wait for the NBH meeting to see how it sees the situation. However, we believe the market will use weaker forint levels as an opportunity to build new positions and benefit from the highest FX carry within the region. Thus, we expect the forint to return more towards the lower end of our range around EUR/HUF 370 next week.   In the rates space, we see the market more or less fairly pricing in the rate cuts this year and the super short end is thus anchored. However, looking at the longer 1-3y horizon, we see room for the market to further price in some normalisation of NBH policy. Our long-term view thus remains unchanged and the 2s10s spread should steepen with the entire curve moving lower, and catching up with the market. In the short term, for next week, we see major scope for a move within the short end of the curve and a flattening in the 1s3s segment that may get the market's attention.   Hungarian Government Bonds (HGBs) have had a massive rally in recent weeks and are posting the highest overall returns in the CEE region this year. We continue to like HGBs, which benefit the most from the whole story in Hungary, further supported by government measures and funding fully under the control of the debt agency. In the coming days, we could see some profit-taking and upward yield pressure from core rates, however, we still see HGBs as expensive relative to CEE peers. On the other hand, it is hard to see a significant trigger for a sell-off and we expect the market to continue to like HGBs.
BOJ Verbal Intervention Sparks Market Reactions and Sets Stage for Eventful Week

Bank of England Rate Decision: Another Rate Hike Expected Amid Rising Inflation and Policy Concerns

Michael Hewson Michael Hewson 19.06.2023 07:51
Bank of England rate decision – 22/06 – this week's central bank rate decision is likely to see the implementation of at least another rate 25bps rate hike from Bank of England policymakers, with the usual suspects of Tenreyro and Dhingra expected to dissent once more, despite UK core inflation surging in April to 6.8% and its highest level since the early 1990's.    With this being Tenreyro's last meeting, she is being replaced by Megan Greene next month, the dissent on the MPC is likely to be much less over the coming months. With average wages surging by 7.2% in the 3-months to April, we saw yet another blow to the central bank's tattered credibility, prompting concern that the MPC might have a lot more to do on the rate front in the coming months.   The current terminal rate being priced by markets is for the UK base rate to top out at 5.75%, 125bps higher from where we are now, after the April wages and unemployment data. While that is probably overpriced, the fact we are at these levels is further evidence of the Bank of England's failure on the policy front. The day before this week's decision we will be getting the latest inflation numbers for May which are expected to show headline inflation decline further from the 8.7% we saw in the April numbers. While this was the lowest level since March last year, it remains painfully high when compared to the likes of the US and in Europe.   Core prices are also higher, as wages continue to exert upward pressure on service cost inflation. For months now Bank of England policymakers have consistently underestimated the persistence of current inflationary trends, consistently hiding behind the Russian invasion of Ukraine, even as commodity prices have fallen well below the levels they rose to in the aftermath of that invasion.   While they are not completely to blame, they have made any number of mistakes, which they seem incapable of acknowledging. Offering mea-culpas appears to be beyond them, with officials showing little indication that they would have done anything different. This is especially worrying given that an acceptance that they might have got things wrong might require some introspection with a view to making changes to ensure a better outcome the next time. If a central bank can't acknowledge its mistakes, how can it learn from them and do things better the next time. 
Bank of England Faces Dilemma: Will They Raise Rates by 25bps or 50bps?

Bank of England Faces Dilemma: Will They Raise Rates by 25bps or 50bps?

Michael Hewson Michael Hewson 22.06.2023 08:06
Bank of England set to raise rates again, but by how much?      European markets fell for the third consecutive day yesterday, after the IFO in Germany warned that a recession would be sharper than expected in the second half of the year, and UK core inflation unexpectedly jumped to a new 32 year high. US markets also fell for the third day in a row after Fed chairman Jay Powell doubled down on his message from last week to US lawmakers yesterday, that US rates would need to rise further to ensure inflation returns to target.   This weakness in US markets looks set to translate into a lower European open, as we look towards another three central bank rate decisions, from the Swiss National Bank, Norges Bank and the Bank of England all of whom are expected to raise rates by 25bps today. Up until yesterday's CPI number markets were predicting with a high degree of certainty that we would see a 25bps rate hike from the Bank of England later today.   That certainty has now shifted to an even split between a 25bps rate hike to a 50bps rate hike after yesterday's sharp jump in core CPI to 7.1% in May.   As inflation readings go it's a very worrying number and suggests that inflation is likely to take longer to come down than anticipated, and even more worrying price pressure appears to be accelerating, in contrast to its peers in the US and Europe where prices now appear to have plateaued.   This has raised the stakes to the point that the Bank of England might feel compelled to hike rates by 50bps later today, and not 25bps as expected. Such an outcome would be a surprise from the central bank given their cautious nature over the years, however such has been the strong nature of recent criticism, there is a risk that they might overreact, in a sign that they want to get out in front of things. Whatever they do today it's not expected to be a unanimous decision, but the surge in core inflation we've seen in recent months, does make you question what it is that Swati Dhingra and Silvana Tenreyro are seeing that makes them think that the last few meetings were worthy of a no change vote.    In the absence of a press conference to explain their actions a 50bps rate move would be a risky strategy, as it could signal they are panicking. A more measured response would be to hike by 25bps with a commitment to go more aggressively at the next meeting if the data warrants it. The big problem the bank has is that they won't get to see the July inflation numbers, when we could see a big fall in headline CPI, until after they have met in August, putting us into the end of Q3 until we know for certain that inflation is coming down. The resilience in UK core inflation has got many people questioning why it is such an outlier, compared to its peers, however if you look closely enough the reason is probably staring us in the face in the form of UK government policy and the energy price cap, which has kept gas and electricity prices artificially high for consumers.   If you look at the price of fuel at the petrol pump it is back at the levels it was prior to the Russian invasion of Ukraine, due to the slide in oil prices from their peaks of $120 a barrel, with consumers already benefitting from this disposable income uplift into their pockets directly in a lower bill when it comes to refilling the family car.    Natural gas prices have gone the same way, yet these haven't fed back into consumers' pockets in the same way as they have in the US and Europe.   This has forced employers here, in the face of significant labour shortages, to increase wages to attract the staff they need, as well as keep existing staff to fulfil their business functions. We already know that average weekly earnings are trending upwards at 7.6% and in some sectors, we've seen wage growth even higher at between 15% and 25%.    These increased costs for businesses inevitably feed through into higher prices in the cost of delivering their services, and voila you have higher service price inflation which in turn feeds into core prices, in essence creating a price/wage spiral.   It is perhaps a supreme irony that an energy price cap that was designed to protect consumers from rising prices is now acting in a fashion that is making UK inflation a lot stickier, and making the UK's inflation problem a lot worse than it should be.   So, while a lot of people are blaming the Bank of England for the mess the UK is in, we should also direct some of the blame at the energy price cap, a Labour Party idea that was hijacked by the Conservatives and is now acting as moron premium in the UK gilt market.   It is these sorts of poorly thought through political interventions that always have a tendency to come back and bite you in ways you don't expect, and the politicians are at it again, with the Lib Dems calling for a £3bn mortgage protection scheme, another crackpot idea that would push back in the opposite direction and simply make the task of getting inflation under control even more difficult.     On the plus side there are reasons to be optimistic, with the energy price cap set due to be reduced in July, while PPI inflation has also been falling sharply, with the monthly numbers in strongly negative territory, meaning it can only be a matter of time before the year-on-year numbers go the same way.     This trend of weaker PPI suggests that market forecasts of a terminal bank rate of 6% might be overly pessimistic, and that subsequent data will pull gilt yields lower, however we may have to wait another 2 to 3 months for this scenario to play out in the data.   This should still feed into headline CPI by the end of the year, though core prices might prove to be slightly more difficult to pull lower.      EUR/USD – remain on course for the April highs at 1.1095 while above the 50-day SMA at 1.0870/80 which should act as support. Below 1.0850 signals a move towards 1.0780.   GBP/USD – fell back to the 1.2680/90 area yesterday before recovering, having found resistance at the 1.2845/50 area at the end of last week. Still on course for a move towards the 1.3000 area, while above the 50-day SMA currently at 1.2510.    EUR/GBP – found support at the 0.8515/20 area and has move up towards the recent highs at 0.8620. A move through 0.8630 could see a move towards 0.8680. While below the 0.8620 area the bias remains for a return to the recent lows.   USD/JPY – currently finding itself rebuffed at the 142.50 area, which is 61.8% retracement of the 151.95/127.20 down move. Above 142.50 targets the 145.00 area. Support now comes in at 140.20/30.    FTSE100 is expected to open 45 points lower at 7,514   DAX is expected to open 82 points lower at 15,941   CAC40 is expected to open 34 points lower at 7,227   By Michael Hewson (Chief Market Analyst at CMC Markets UK)
Central Bank Focuses on Extending Rate Stability Amidst Inflation Concerns

Central Bank Focuses on Extending Rate Stability Amidst Inflation Concerns

ING Economics ING Economics 22.06.2023 09:24
Board pushes for longer rate stability Given that the upside risks to inflation mentioned by the CNB should be under control, the main theme for the summer months will be for the central bank to fight the market's dovish expectations. For June, we expect inflation to fall to 9.5% YoY and move below 9.0% later on. Disinflation is set to slow significantly in the autumn months due to the base effect and we may even see a slight pick-up towards the end of the year - reflecting the base effect and government measures introduced late last year.   This trajectory is the central bank's main concern at the moment, in our view. In our base case, we expect the first cut to take place in November, when the CNB will have a new forecast including a Nowcast for inflation for the rest of the year. By that time the impact of the base effect and energy repricing in January will be clearer, and inflation could reach the tolerance band of the CNB's inflation target. The risks we see are that rates will remain unchanged for the rest of the year and that the cutting cycle will not start until February, when the CNB will release its next forecast, or in March, when the board will already have January inflation to hand.   What to expect in FX and rates markets The Czech koruna has been trading at weaker than expected levels in recent weeks, but we still believe EUR/CZK should go lower. On a global level, the CZK should benefit most from a rebound in EUR/USD, while the CNB will try to postpone dovish market pricing, which should support interest rate differentials. On top of that, market positioning is rather light compared to PLN and HUF and carry is still decent. We expect the koruna to move below 23.70 EUR/CZK in coming days.   Market expectations did not change much after the CNB press conference, despite higher volatility. The market at the moment expects a first rate cut of 25bp in September and more than 100bp by the end of the year. Our expectations and the risks together mean that we believe the market is too dovish. It will be hard for CNB to change market expectations in the coming weeks and we cannot expect a complete pricing out of rate cuts this year. Moreover, over the longer 3-4y horizon, the market is pricing in a near return to 3%, the CNB's equilibrium rate. From this perspective, we do not think the short end of the curve has much room to price in more rate cuts and see more of a case for higher rates in the market.
Bank of England Faces Rate Decision: Uncertainty Surrounds Magnitude of Hike

Bank of England Faces Rate Decision: Uncertainty Surrounds Magnitude of Hike

Michael Hewson Michael Hewson 22.06.2023 12:28
Bank of England set to raise rates again, but by how much?    By Michael Hewson (Chief Market Analyst at CMC Markets UK)     European markets fell for the third consecutive day yesterday, after the IFO in Germany warned that a recession would be sharper than expected in the second half of the year, and UK core inflation unexpectedly jumped to a new 32 year high. US markets also fell for the third day in a row after Fed chairman Jay Powell doubled down on his message from last week to US lawmakers yesterday, that US rates would need to rise further to ensure inflation returns to target.     This weakness in US markets looks set to translate into a lower European open, as we look towards another three central bank rate decisions, from the Swiss National Bank, Norges Bank and the Bank of England all of whom are expected to raise rates by 25bps today. Up until yesterday's CPI number markets were predicting with a high degree of certainty that we would see a 25bps rate hike from the Bank of England later today. That certainty has now shifted to an even split between a 25bps rate hike to a 50bps rate hike after yesterday's sharp jump in core CPI to 7.1% in May.     As inflation readings go it's a very worrying number and suggests that inflation is likely to take longer to come down than anticipated, and even more worrying price pressure appears to be accelerating, in contrast to its peers in the US and Europe where prices now appear to have plateaued. This has raised the stakes to the point that the Bank of England might feel compelled to hike rates by 50bps later today, and not 25bps as expected.     Such an outcome would be a surprise from the central bank given their cautious nature over the years, however such has been the strong nature of recent criticism, there is a risk that they might overreact, in a sign that they want to get out in front of things. Whatever they do today it's not expected to be a unanimous decision, but the surge in core inflation we've seen in recent months, does make you question what it is that Swati Dhingra and Silvana Tenreyro are seeing that makes them think that the last few meetings were worthy of a no change vote.      In the absence of a press conference to explain their actions a 50bps rate move would be a risky strategy, as it could signal they are panicking. A more measured response would be to hike by 25bps with a commitment to go more aggressively at the next meeting if the data warrants it. The big problem the bank has is that they won't get to see the July inflation numbers, when we could see a big fall in headline CPI, until after they have met in August, putting us into the end of Q3 until we know for certain that inflation is coming down.   The resilience in UK core inflation has got many people questioning why it is such an outlier, compared to its peers, however if you look closely enough the reason is probably staring us in the face in the form of UK government policy and the energy price cap, which has kept gas and electricity prices artificially high for consumers. If you look at the price of fuel at the petrol pump it is back at the levels it was prior to the Russian invasion of Ukraine, due to the slide in oil prices from their peaks of $120 a barrel, with consumers already benefitting from this disposable income uplift into their pockets directly in a lower bill when it comes to refilling the family car.  Natural gas prices have gone the same way, yet these haven't fed back into consumers' pockets in the same way as they have in the US and Europe.   This has forced employers here, in the face of significant labour shortages, to increase wages to attract the staff they need, as well as keep existing staff to fulfil their business functions. We already know that average weekly earnings are trending upwards at 7.6% and in some sectors, we've seen wage growth even higher at between 15% and 25%.      These increased costs for businesses inevitably feed through into higher prices in the cost of delivering their services, and voila you have higher service price inflation which in turn feeds into core prices, in essence creating a price/wage spiral. It is perhaps a supreme irony that an energy price cap that was designed to protect consumers from rising prices is now acting in a fashion that is making UK inflation a lot stickier, and making the UK's inflation problem a lot worse than it should be.   So, while a lot of people are blaming the Bank of England for the mess the UK is in, we should also direct some of the blame at the energy price cap, a Labour Party idea that was hijacked by the Conservatives and is now acting as moron premium in the UK gilt market. It is these sorts of poorly thought through political interventions that always have a tendency to come back and bite you in ways you don't expect, and the politicians are at it again, with the Lib Dems calling for a £3bn mortgage protection scheme, another crackpot idea that would push back in the opposite direction and simply make the task of getting inflation under control even more difficult.     On the plus side there are reasons to be optimistic, with the energy price cap set due to be reduced in July, while PPI inflation has also been falling sharply, with the monthly numbers in strongly negative territory, meaning it can only be a matter of time before the year-on-year numbers go the same way.   This trend of weaker PPI suggests that market forecasts of a terminal bank rate of 6% might be overly pessimistic, and that subsequent data will pull gilt yields lower, however we may have to wait another 2 to 3 months for this scenario to play out in the data.     This should still feed into headline CPI by the end of the year, though core prices might prove to be slightly more difficult to pull lower.    EUR/USD – remain on course for the April highs at 1.1095 while above the 50-day SMA at 1.0870/80 which should act as support. Below 1.0850 signals a move towards 1.0780.     GBP/USD – fell back to the 1.2680/90 area yesterday before recovering, having found resistance at the 1.2845/50 area at the end of last week. Still on course for a move towards the 1.3000 area, while above the 50-day SMA currently at 1.2510.      EUR/GBP – found support at the 0.8515/20 area and has move up towards the recent highs at 0.8620. A move through 0.8630 could see a move towards 0.8680. While below the 0.8620 area the bias remains for a return to the recent lows.     USD/JPY – currently finding itself rebuffed at the 142.50 area, which is 61.8% retracement of the 151.95/127.20 down move. Above 142.50 targets the 145.00 area. Support now comes in at 140.20/30.      FTSE100 is expected to open 45 points lower at 7,514     DAX is expected to open 82 points lower at 15,941     CAC40 is expected to open 34 points lower at 7,227
USD/JPY Climbs Above 143 as Japan's Core CPI Remains Above 3%

USD/JPY Climbs Above 143 as Japan's Core CPI Remains Above 3%

Kenny Fisher Kenny Fisher 26.06.2023 08:34
USD/JPY climbs above 143 Japan’s core CPI remains above 3%   The Japanese yen has stabilized on Friday after falling close to 1% a day earlier.  In the European session, USD/JPY is trading at 143.05, down 0.04%. Earlier, USD/JPY touched a high of 143.45, the highest level since early November 2022. On the data calendar, the US releases ISM Services PMI later today. The consensus stands at 54.0 for June, following 54.9 in May. The services sector has posted four straight readings over the 50 level, which separates expansion from contraction.     Japan’s core inflation higher than expected Japan continues to grapple with high inflation and core CPI for May was higher than expected. With inflation around 3%, other central banks would love to trade places with the Bank of Japan, but Japan’s inflation remains above the 2% target and has become an issue for the central bank after decades of deflation.   Nationwide core CPI, which excludes fresh food but includes energy items, climbed 3.2% in May y/y, down from 3.4% in April but above the consensus of 3.1%. What was more worrying was the “core-core index”, which excludes fresh food and energy, jumped 4.3% in May, up from 4.1% in April. This was above expectations and marked the highest level since June 1981.     Core CPI has now remained above the BoJ’s inflation target of 2% for 14 consecutive months. This puts into question the BoJ’s stance that cost-driven inflation is temporary and therefore there is no need to tighten monetary policy. Inflation risks are tilted to the upside and the BoJ will find it more difficult to defend its ultra-loose policy if inflation pressures don’t ease.   The BoJ maintained its policy settings at last week’s meeting and has no plans to tighten interest rates anytime soon. This puts the BoJ at odds with other major central banks, which have been aggressively tightening rates in order to curb inflation. The US/Japan rate differential has been widening as the Fed raises rates while the BoJ stands pat. This has sent the yen sharply lower, raising concerns that the government could intervene in the currency markets in order to prop up the yen.   The Ministry of Finance stunned the global financial markets in September and October when it intervened, at a time when the yen had fallen below the 150 line. The yen hasn’t fallen quite that low, but I would expect to hear louder verbal intervention out of Tokyo if the yen falls below 145.     USD/JPY Technical USD/JPY tested support at 142.82 earlier. The next support level is 142.07 There is resistance at 143.83 and 144.27  
Asia Morning Bites: Focus on Regional PMI Figures, China's Caixin Manufacturing Report, and Upcoming FOMC Minutes and US Non-Farm Payrolls"

Navigating the Monetary Policy Dilemma: Markets, Central Banks, and Financial Conditions - 27.06.2023

ING Economics ING Economics 27.06.2023 10:56
FX Daily: Hawkish Sintra kicks off The ECB Symposium in Sintra starts today, with an introductory speech by Lagarde plus remarks from other ECB members. A generally hawkish tone should come from all sides: the eurozone (despite a worsening growth outlook), the UK (despite the mortgage crisis) and the US. We’ll also monitor the speech by Norges Bank Governor today and Canada’s CPI numbers.   USD: Slightly weaker into Sintra The week has started on a rather quiet tone across most asset classes. The dollar is trading softer against the pro-cyclical currencies, a sign that the FX market has also fully overlooked the weekend crisis in Russia. As highlighted in yesterday’s FX Daily, investors are fully focused on the central bank story, and with the FOMC and post-FOMC hawkish messages having now been absorbed, we are transitioning to a period where data will tell investors whether there is any need to push tightening expectations beyond the one rate hike priced in for July. The notion of first and second-tier data releases is a bit more muffled in an environment where markets are spasmodically looking for evidence of disinflation and/or economic slowdown. We will see a gradual intensification in the US data release calendar in the coming days, which will culminate with ISM services and payroll data on 6 and 7 July; and then June CPI figures on 12 July. Zooming back into this week, the Conference Board consumer confidence data today will be the highlight of the day, although some focus will also be on May’s Durable goods orders and new home sales, and on June’s Richmond Fed Manufacturing index. Consensus expectations point to a relatively firm set of numbers, and we see no reasons to strongly disagree. Considering the low likelihood of a dovish turn by Fed Chair Jerome Powell at his Sintra speech tomorrow, an acceleration in the dollar decline does not seem very likely.
Assessing China's Economic Challenges: A Closer Look Beyond the Japanification Hypothesis"

Strong Economic Data and Soft Inflation Boost Market Sentiment

Ipek Ozkardeskaya Ipek Ozkardeskaya 28.06.2023 08:12
Strong data and soft inflation boost appetite US stocks shrugged off the early week pessimism on the back as of a set of strong economic data released yesterday.   The durable goods orders rose – along with strong jobs data, this is a sign that the US businesses are not in cash-saving mode, Richmond manufacturing index fell less than expected, house prices recovered and house sales beat expectations – in line with the rest of the strong data from US housing market over the past few weeks. US consumer confidence jumped more than expected in June, to the highest level since the beginning of last year.     We would've normally expected sentiment to be dampened by strong data because of more hawkish Federal Reserve (Fed) expectations, but the S&P500 jumped more than 1%, Nasdaq rallied almost 2%, while the Russell 2000 advanced around 1.5%.      Easing inflation is maybe why stock investors are happy with strong data The Australian inflation fell to a 13-month low, and the Canadian inflation fell more than expected, in a sign that the central bank efforts to pull prices lower is paying off. The AUDUSD was sharply sold below its 50-DMA which stands near the 0.6680 level, while the USDCAD rebounded off a fresh low since September on the back of soft inflation and a 2% fall in crude oil prices.   Across the Atlantic Ocean, some encouraging news came in regarding inflation, as well. The British shop prices dipped to 8.4% this month, down from 9% recorded in May. That was the sharpest decline in prices since the end of 2021 – when prices took a lift, and it was not thanks to the Bank if England (BoE) hikes, but it was because Tesco, Sainsbury's, Asda and Morrisons were asked to 'behave' in their pricing to prevent them from passing the higher costs, and higher wages on to their clients more than necessary. So, it is possible that Jeremy Hunt rolling up his sleeves would be more effective to bring inflation down than any BoE hike at this stage.   The good news for the Brits is that, Rishi Sunak and Jeremy Hunt have all the motivation in the world to bring inflation down if they don't want to be minced at next year's election. The bad news is that, if they don't achieve fast results, they will still be minced because the BoE will continue hiking rates and that will leave millions of households facing an enormous rise in their housing costs.   And the Bank for International Settlements, known as the central bank of the central banks, warned that the final stretch of the monetary tightening will likely be the toughest, with some 'surprises' on the way. Another banking crisis, real estate chaos, a financial crisis? We will see. Today, the Fed will reveal the result of its stress test for the banks. If they see no issue, they will keep pushing, until something breaks.     By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank
Challenges Ahead for Austria's Competitiveness and Economic Outlook

Central Bank Dilemma: Balancing Balance Sheet Strategies Amid Cautious Voices and Inflation Pressures

ING Economics ING Economics 29.06.2023 09:35
But there are also more cautious voices on the topic. Just as Lagarde pointed out in yesterday’s panel, interest rates remain the ECB’s primary monetary policy tool. In another background report by Econostream released in the afternoon, ECB officials signalled that the current passive run-off was sufficient, and especially speeding it up via the changes to the PEPP guidance and/or reinvestments would unnecessarily risk financial stability.   After all, the possibility to flexibly reinvest PEPP holdings is one of the main tools that the ECB still has to quickly react to spread widening pressures in bond markets. At some point the ECB has to decide on the balance sheet size it wants to target, which goes hand-in-hand with an ongoing review of the ECB’s operational framework. Yesterday, Lagarde flagged that this work could hopefully be completed in the next “six to nine months”. This indicates some upside risk to previous communication which saw the review being concluded by the end of the year.   Today's events and market view Inflation remains the central banks’ one needle in the compass that dictates their policy nowadays. This puts the focus squarely on today’s inflation readings out of Germany and Spain. German headline and core rates are seen higher on the back of base effects and statistical tweaks. Spain’s headline rate is seen falling below the 2% level but, more importantly, the core rate is seen to come down only marginally.   Alongside Italy’s data from yesterday this should already give a good idea of where tomorrow’s eurozone reading is headed – and it should signal no let up in the pressure on central banks to continue to act forcefully.   In this set-up yield curves will remain inverted for some time. Markets will see the softness in wider data, such as in yesterday’s eurozone credit growth which shows that policy transmission is working. Still, if there is anything that could turn the market it is surprises in the inflation data, which markets might be quicker to extrapolate even if central banks themselves might want to see confirmation from more than just one reading.   In other data we will get the initial jobless claims out of the US, pending home sales, as well as a third reading for first quarter GDP growth.
Turbulent Times Ahead: ECB's Tough Decision Amid Soaring Oil Prices

Inflation Numbers Take Center Stage as Quarter Comes to a Close

Michael Hewson Michael Hewson 30.06.2023 09:50
Inflation numbers a key focus as we round off the quarter       European markets continued their recent patchy performance, as we come to the end of the week, month, quarter, and half year, with the FTSE100 sliding back while the likes of the DAX and CAC40 were slightly more resilient, after German inflation came in slightly higher than expected in June.   US markets were slightly more positive, but even here the Nasdaq 100 struggled after a sizeable upward revision to Q1 GDP to 2%, and better than expected weekly jobless claims numbers sent US yields sharply higher to their highest levels since March, while the US dollar also hit a 2-week high.   The surprising resilience of US economic data this week has made it an absolute certainty that we will see another rate increase in July, but also raised the possibility that we might see another 2 more rate increases after that.   The resilience of the labour market, along with the fact that core inflation remains sticky also means that it makes the Federal Reserve's job of timing another pause much more difficult to time. Today's core PCE Deflator and personal spending numbers for May could go some way to making that job somewhat easier.   Core PCE Deflator is forecast to remain unchanged at 4.7%, while personal spending is expected to slow from 0.8% to 0.2%. While the Federal Reserve isn't the only central bank facing a sticky inflation problem, there is evidence that it is having slightly more success in dealing with it, unlike the European Central Bank which is seeing much more elevated levels of headline and core prices. Yesterday, we saw CPI in Germany edge higher from 6.3% in May to 6.8%, while in Spain core prices rose more than expected by 5.9%, even as headline CPI fell below 2% for the first time in over 2 years.   Today's French CPI numbers are expected to show similar slowdowns on the headline rate, from 5.1% to 4.6%, but it is on the core measure that the ECB is increasingly focussing its attention. Today's EU flash CPI for June is forecast to see a fall to 5.6% from 6.1%, however core prices are expected to edge back up to 5.5% after dropping to 5.3% in May. Compounding the ECB's and other central banks dilemma when it comes to raising rates is that PPI price pressures are falling like a stone and have been since the start of the year, in Germany and Italy. In April French PPI plunged -5.1% on a monthly basis, even as the year-on-year rate slowed to 7% from 12.8%.   If this trend continues today then it might suggest that a wave of deflation is heading our way and could hit sometime towards the end of the year, however while core prices remain so resilient central banks are faced with the problem of having to look in two different directions, while at the same time managing a soft landing. The Bank of England has an even bigger problem in getting inflation back to target, although it really only has itself to blame for that, having consistently ignored regular warnings over the past 18 months that it was behind the curve. The risk now is over tightening just as prices start to fall sharply.   Today's Q1 GDP numbers are set to confirm that the UK economy managed to avoid a contraction after posting Q1 growth of 0.1%, although it was a little touch and go after a disappointing economic performance in March, which saw a monthly contraction of -0.3% which acted as a drag on the quarter overall.   The reason for the poor performance in March was due to various public sector strike action from healthcare and transport, which weighed heavily on the services sector which saw a contraction of -0.5%. The performance would have been worse but for a significant rebound in construction and manufacturing activity which saw strong rebounds of 0.7%.   There is a risk that this modest expansion could get revised away this morning, however recent PMI numbers have shown that, despite rising costs, business is holding up, even if economic confidence remains quite fragile.     One thing we do know is that with the recent increase in gilt yields is that the second half of this year is likely to be even more challenging than the first half, and that the UK will do well to avoid a recession over the next two quarters.       EUR/USD – slid back towards and below the 50-day SMA, with a break below the 1.0850 area, potentially opening up a move towards 1.0780. Still have resistance just above the 1.1000 area.     GBP/USD – continues to come under pressure as we slip towards the 50-day SMA at 1.2540. If this holds, the bias remains for a move back to the 1.3000 area. Currently have resistance at 1.2770.       EUR/GBP – currently being capped by resistance at the 50-day SMA at 0.8673, which is the next resistance area. Behind that we have 0.8720. Support comes in at the 0.8580 area.     USD/JPY – briefly pushed above 145.00 with the November highs of 147.50 beyond that.  Support remains at the 142.50 area, which was the 61.8% retracement of the 151.95/127.20 down move. A fall below this support area could see a deeper fall towards 140.20/30.    FTSE100 is expected to open 18 points higher at 7,489     DAX is expected to open 12 points higher at 15,958   CAC40 is expected to open 8 points higher at 7,320      
Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

Asia Morning Bites: Trade Data from Australia, Taiwan Inflation, and US Fed Minutes Highlighted

ING Economics ING Economics 06.07.2023 08:15
Asia Morning Bites Australia reports trade this morning, and Taiwan releases June inflation data. US Fed minutes showed officials in favour of additional rate hikes. Busy day for US data ahead of Friday's payrolls.   Global Macro and Markets Global markets:  It was the turn of the back end of the yield curve to rise yesterday. 10Y US Treasury yields rose 7.7bp to 3.932%. But despite some fairly hawkish Fed minutes, the front end didn’t move much. 2Y yields rose only 0.9bp to 4.945%. US equities opened lower yesterday, but after a choppy day which lacked direction, finished only slightly down. The S&P 500 ended 0.2% lower while the NASDAQ fell 0.18%. The USD continued to find support from the Fed outlook, and EURUSD moved down to 1.0855. Other G-10 currencies also lost ground.  The JPY remains at 144.43, similar to this time yesterday, though it has been quite volatile. Most of the Asian FX pack lost ground to the USD yesterday. The CNH has traded back up above 7.26. G-7 macro:  Despite what was clearly a meeting with considerable differences of opinion, and very low conviction on the way forward, the key element to the June FOMC minutes seems to be that “almost all” officials thought more tightening would be needed this year. Here’s a link to the transcript. Today, we have the ADP survey of employment, jobless claims, and the service sector ISM survey, all coming ahead of tomorrow’s payrolls. Taiwan: June inflation data will remain subdued, with consensus estimates targeting a 1.8%YoY inflation rate, slightly down from the 2.02% reading in May. Core CPI is running slightly higher, but not much, and could also decline slightly from the 2.57% May reading. This all suggests that Taiwan’s central bank need not follow the Fed if they decide to hike rates again this month, as now looks likely.   What to look out for: US ADP and Australia trade Australia trade (6 July) Taiwan CPI inflation (6 July) US ADP employment, initial jobless claims, trade balance, ISM services (6 July) South Korea BOP balance (7 July) Taiwan trade (7 July) US NFP (7 July)
Challenges for the Belgian Economy: Mixed Performance and Threats to Competitiveness

Hungary's Economic Outlook: Navigating a Technical Recession and Disinflationary Pressures

ING Economics ING Economics 06.07.2023 13:36
Hungary: Technical recession set to end soon Economic activity has slowed significantly in all sectors except for one. Base effects and favourable weather conditions have boosted the positive contribution from agriculture which could lift Hungary out of technical recession in the second quarter of 2023. In the meantime, we still won’t have too much to cheer about. A lack of domestic demand is weighing on retail sales, construction and industrial output, with the latter currently being supported mainly by export sales. We see GDP growth of just 0.2% in 2023. The only silver lining coming from the weak economy is that the pricing power of companies is rapidly diminishing, thus the disinflationary process has shifted into a higher gear. We see single-digit inflation in November 2023 with the full-year average being around 18%. Disinflation with preserved market stability helps the central bank’s agenda: the ongoing normalisation of monetary policy. We see 100bp of further cuts to the effective rate before it reaches the base rate at the September meeting. After that, we see the National Bank of Hungary remaining cautious. Weakening economic activity is hitting import demand which, combined with lower energy prices, is helping the country’s external balances improve. We expect the current account deficit to narrow to around -2.2% of GDP this year with positive risks. However, the marked drop in consumption is putting significant pressure on the budget’s VAT revenue stream, and key challenges loom. With structural improvements in all other aspects though, we do not expect any sovereign credit rating changes from rating agencies in the near future. We expect EUR/HUF to oscillate in the current range of 368–378, depending on the National Bank of Hungary's communication regarding the rate-cutting cycle and on progress with the EU. Regarding the latter, our base case remains an agreement and partial access to the Cohesion Fund before the year ends. Hungarian Government Bonds can benefit the most from monetary policy normalisation, further supported by government measures and debt agency funding control (for more details, check out our Monitoring Hungary).  
Portugal's Strong Growth Fades as Global Conditions Weaken

Exploring the Recent Developments in the Norwegian Economy and the Strengthening Norwegian Krone: Insights from Valeria Bednarik

Valeria Bednarik Valeria Bednarik 07.07.2023 09:57
In the dynamic world of foreign exchange, understanding the factors driving currency movements is crucial for investors and traders alike. Today, we turn our attention to the Norwegian economy and the implications of recent data releases and policy actions by the central bank, as we engage in a conversation with renowned analyst Valeria Bednarik. With her vast expertise and deep insights into the foreign exchange market, Bednarik sheds light on the latest developments surrounding the Norwegian krone (NOK) and its performance against major currencies. The Norwegian economy has been making headlines due to the actions taken by the Norges Bank, which has adopted a more aggressive stance compared to its European counterpart, the European Central Bank (ECB). In June, the Norges Bank raised the key policy rate by an impressive 50 basis points to reach 3.75%, marking a 15-year high. This bold move by Governor Ida Wolden Bache reflects concerns over the potential entrenchment of inflation and suggests that rates could further increase to 4.25% by autumn.   Read more on FXStreet   FXMAG.COM:  How would you comment on the latest data from the Norwegian economy and the actions of the central bank there, and what about the Norwegian krone as a result?   Valeria Bednarik: The NOK benefited from the Norges Bank's decision to become more aggressive than the European Central Bank. The NB hiked the key policy rate by 50 basis points (bps) to 3.75% in June, a 15-year high. Governor Ida Wolden Bache warned about the risk of inflation becoming entrenched,  indicating rates could reach 4.25% by autumn.   Following the announcement, the Norwegian krone strengthened against most major rivals, the Euro included. Wolden Bache was spot on, as inflation in the country was up by 6.7% YoY in May 2023 from 6.4% in the previous month and surpassing expectations of a 6.2% increase. It was also higher than the EU inflation, which hit 6.1% YoY in May.  
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Norges Bank's Battle Against Inflation: The Impact on the Norwegian Krone

Jakob Westh Christensen Jakob Westh Christensen 07.07.2023 12:00
The Norwegian economy and the actions of the country's central bank, Norges Bank, have been closely observed amidst the challenges posed by inflation and its impact on the Norwegian krone. In light of the latest data from the Norwegian economy, market participants eagerly seek insights into the central bank's response and its implications for the currency.   According to Jakob Westh Christensen, eToro Nordic Market Analyst, Norway took early action in addressing inflation concerns. When inflation emerged globally towards the end of 2021, the ECB and the Fed viewed it as transitory and delayed taking action. In contrast, Norges Bank promptly implemented its first interest rate hike in September 2021. Although the country has managed to keep inflation below double-digit levels experienced by other European nations, recent data paints a concerning picture. In May, inflation in Norway rose to 6.7% from 6.4% the previous month, indicating a worrying upward trend.     FXMAG.COM:  How would you comment on the latest data from the Norwegian economy and the actions of the central bank there, and what about the Norwegian krone as a result?    Jakob Westh Christensen, eToro Nordic Market Analyst said: Towards the end of 2021, when inflation began to emerge around the world, and the European Central Bank (ECB) and the Federal Reserve (Fed) saw the inflation as transitory and failed to act, Norges Bank (Central Bank of Norway), acted promptly by implementing its first interest rate hike in September 2021. Despite successfully keeping inflation below the double-digit levels experienced by many European countries, the Scandinavian country has yet to witness the same decline in inflation as most other countries are currently experiencing. On the contrary, the latest data shows a concerning increase in May, with inflation rising to 6.7% from 6.4% the previous month. Thanks to its self-sufficient energy production and government support, Norway has been shielded from the severe energy price spikes that affected many other European countries. But their tight labour market and the weak currency continue to fuel inflation. The country, with a population of 5.5 million, has a tight labour market with an unemployment rate of just 3.5%, experiencing robust wage growth. At the same time, the depreciation of the Norwegian krone against the US dollar and the euro further complicates the situation for the import-dependent economy, driving up the costs of everyday imported goods. The decline in oil prices explains part of the oil-exporting nation’s weakened currency. But also, the diminishing interest rate differential with major economies like the US and the Eurozone reduces the attractiveness of holding the Norwegian currency for investors. To counter the weakening of the Norwegian krone and combat inflation, Norges Bank raised the policy rate by 0.50 percentage points to 3.75% in late June, providing some support for the currency. However, the central bank acknowledges that the fight is far from over and has indicated the likelihood of another rate hike at the upcoming meeting in August, with the policy rate potentially rising to 4.25% during the autumn. While Norges Bank was the first to enter the battle against inflation, it might turn out that they will also be the last to leave it.  
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Norwegian Krone Gains Momentum: Norges Bank's Hawkish Stance and Positive Economic Outlook Drive Recovery

Michał Jóźwiak Michał Jóźwiak 07.07.2023 16:17
The Norwegian krone, except for the Japanese yen, has faced a challenging start in 2023 as it emerged as the worst-performing G10 currency. This downward trend continued from the previous year, resulting in disappointments for the Scandinavian currency. However, experts have argued that the krone was undervalued given Norway's robust macroeconomic fundamentals. Now, with the help of a hawkish Norges Bank, which recently increased rates by 50 basis points in June, the currency is showing signs of recovery. The Norges Bank's decision to adopt a more hawkish stance should not come as a surprise. Core inflation, a key indicator of price dynamics, reached new highs in May. Additionally, the latest report from the Norges Bank indicates that Regional Network contacts expect wage growth to reach 5.4% in 2023, marking its highest level since 2008. These developments provide further support to the notion that price pressures in Norway may be more persistent than previously anticipated. FXMAG.COM: How would you comment on the latest data from the Norwegian economy and the actions of the central bank there, and what about the Norwegian krone as a result?   Michal Jozwiak: Aside from the Japanese yen, the Norwegian krone has been the worst performing G10 currency so far in 2023 - last year was also marked by disappointments for the Scandinavian currency. For a while, we have argued that the krone was deeply undervalued, particularly given Norway’s excellent macroeconomic fundamentals, and it seems that, with the help of a hawkish Norges Bank, which hiked rates by 50bps in June, the currency is beginning to recover.  Norges Bank’s recent hawkish pivot should come as no surprise. Core inflation, our preferred measure of price dynamics, rose to new highs in May. Furthermore, based on the recent report from the Norges Bank, Regional Network contacts expect wage growth to reach 5.4% in 2023 – its highest level since 2008. This gives further backing to the argument that price pressures in Norway may be more stubborn than previously thought.   The market is currently pricing in about 50bps of rate hikes in the next six months, however, we do not rule out an even more hawkish stance should we see further increases in core inflation and wages, possibly at the expense of lower growth in 2023. The possibility of higher central bank rates, and a degree of normalisation in the exchange rate that moves it closer to values justified by its fundamentals should, we believe, allow NOK to recover some of its earlier losses in the coming months.
Analyzing the Recent Developments in the Norwegian Economy and their Impact on the Norwegian Krone

Analyzing the Recent Developments in the Norwegian Economy and their Impact on the Norwegian Krone

Andrey Goilov Andrey Goilov 07.07.2023 12:58
The latest data from the Norwegian economy has prompted market participants to closely examine the implications for the country's financial landscape, particularly in relation to the actions of the central bank and the performance of the Norwegian krone. Andrey Goilov, an analyst at RoboForex, provides insights into the key developments shaping the Norwegian economy. Notably, the statistics reveal a rise in inflation from 6.4% to 6.7% and an increase in the interest rate from 3.25% to 3.75%. These figures align with the challenges faced by many European countries, including the impact of food inflation and the volatility in the energy sector.    FXMAG.COM: How would you comment on the latest data from the Norwegian economy and the actions of the central bank there, and what about the Norwegian krone as a result?   Andrey Goilov, analyst at RoboForex: The latest statistics published in Norway demonstrated a rise in inflation to 6.7% from 6.4% previously and growth of the interest rate to 3.75% from 3.25%.Norway faces the same problems that most European countries do: consumer prices are growing because of food inflation and the energy carriers sector is unstable.Also, there are risks of a slowdown in the economy.The growth of the interest rate must normally support the national currency, and this is what actually happens.USDNOK has been declining since 31 May 2023. By now, it has reached 10.74 and might drop to 10.52 if the CB gives some signals of a further rise in the interest rate.   Visit RoboForex
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New Zealand Central Bank Hits Pause After 12 Consecutive Rate Hikes: Manufacturing Stalls and Inflation Expected to Decline

Kenny Fisher Kenny Fisher 12.07.2023 13:23
New Zealand’s central bank takes a pause after 12 consecutive hikes New Zealand Manufacturing PMI expected to show manufacturing is stalled US inflation expected to decline to 3.1% The New Zealand dollar showed some gains after the Reserve Bank of New Zealand paused rates, but has given up most of those gains. In the European session, NZD/USD is trading at 0.6206, up 0.14%.   RBNZ takes a breather There was no dramatic surprise from the RBNZ, which kept interest rates on hold at Wednesday’s meeting, as expected. The central bank has been aggressive, raising rates 12 straight times since August 2021 until Wednesday’s meeting. This leaves the cash rate at 5.50%. The RBNZ had signalled that it would take a break, with Deputy Governor Hawkesby stating last month that there would be a “high bar” for the RBNZ to continue raising rates. Today’s rate statement said that interest rates were constraining inflation “as anticipated and required”, adding that “the Committee is confident that with interest rates remaining at a restrictive level for some time, consumer price inflation will return to within its target range.” The RBNZ did not issue any updated forecasts or a press conference with Governor Orr, which might have resulted in some volatility from the New Zealand dollar. The central bank has tightened rates by some 525 basis points, which has dampened the economy and chilled consumer spending. Is this current rate-tightening cycle done? The central bank would like to think so, but that will depend to a large extent on whether inflation continues to move lower toward the Bank’s inflation target of 1-3%. The pause will provide policymakers with some time to monitor the direction of the economy and particularly inflation. If inflation proves to be more persistent than expected, there’s every reason to expect the aggressive RBNZ to deliver another rate hike later in the year. New Zealand releases Manufacturing PMI for June on Wednesday after the rate decision. The manufacturing sector has contracted for three straight months, with readings below the 50.0 line, which separates contraction from expansion. The PMI is expected to rise from 48.9 to 49.8, which would point to almost no change in manufacturing activity. The US will release the June inflation report later in the day. Headline inflation is expected to fall from 4.0% to 3.1%, but core CPI is expected to rise to 5.3%, up from 5.0%. If core CPI does accelerate, that could raise market expectations for a September rate hike. A rate increase is all but a given at the July 27th meeting, with the probability of a rate hike at 92%, according to the CME FedWatch tool.   NZD/USD Technical 0.6184 is a weak support level. Below, there is support at 0.6148 0.6260 and 0.6383 are the next resistance lines  
US Inflation Eases, but Fed's Influence Remains Crucial

US Inflation Eases, but Fed's Influence Remains Crucial

Alex Kuptsikevich Alex Kuptsikevich 13.07.2023 08:16
The latest report on the US consumer price index reveals a slowdown in inflation, with an annual rate of 3.0% in June compared to 4.0% the previous month. This figure, slightly below the expected 3.1%, indicates a moderation in price growth. Core inflation also decelerated to 4.8% from 5.3%, falling in line with expectations. Surprisingly, this marks the ninth consecutive report where indicators have either met or fallen short of expectations, sparking a distinct market reaction. Notably, the response from the market differs this time around, as confidence grows and risk appetite increases, leading to a decline in the value of the US dollar. The latest report has fueled speculation that the Federal Reserve (Fed) may deviate from its planned two rate hikes this year or consider an expedited shift towards policy easing in the upcoming year.   US inflation slows, but Fed has the last word The US consumer price index slowed to an annual rate of 3.0% in June from 4.0% the previous month. This was slightly below the expected 3.1%. Core inflation slowed to 4.8% from 5.3%, and 5.0% expected. This is the ninth consecutive report where an indicator has been in line or weaker than expected, but we see a different market reaction.       This time the markets are confident, risk appetite is rising, and the dollar is falling as the latest report has fuelled speculation that the Fed will not need to stick to its plan of two rate hikes this year or will allow for a quicker reversal to policy easing next year. While the Fed is often wrong in its forecasts, it is still the Fed that has the final say on interest rate decisions. Despite the constant inflation surprises, FOMC members remain hawkish in their comments, regularly pointing out that the fight against inflation is not over.     After the latest inflation report, the dollar index was close to its lowest level since April 2022, losing more than 12% from its peak last September. This decline creates additional pro-inflationary pressure, unlikely to please the central bank. Traders' and investors' attention should now turn to the Federal Reserve's assessment of the latest data. In addition to the speeches by Barkin, Kashkari and Bostic, the Fed's Beige Book will be released today, which will be used as the basis for the Fed's observations at the July meeting.    
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US CPI Report Sparks Speculation on Fed's Monetary Policy Path

Matthew Ryan Matthew Ryan 13.07.2023 12:18
The recent US Consumer Price Index (CPI) reading has ignited discussions and speculation regarding the future monetary policy of the Federal Reserve. Traders and investors have closely scrutinized the implications of this report, seeking insights into the direction of interest rates and the overall stance of the central bank. To gain further perspective on the matter, we reached out to Matthew Ryan, CFA, an expert in the field, for his analysis. Ryan emphasizes that the US dollar experienced a widespread sell-off in response to the soft US inflation report. The June data revealed a significant easing of headline inflation, reaching its lowest level in over two years. Equally notable was the unexpected drop in the critical core index, falling below 5% for the first time since November 2021, marking a significant turning point.     The dollar selling off across the board after soft US inflation report intensified bets that the Federal Reserve's rate hike cycle may soon be nearing an end. Headline inflation eased sharply in June, falling to its lowest level in more than two years, while the critical core index also unexpectedly dropped below 5% for the first time since November 2021 - somewhat of a watershed moment.   The retreat in the sticky core inflation measure will be particularly welcome news for the Fed, as it suggests that the bank's ultra-aggressive tightening cycle is finally bearing fruit. There remains a long way to go before underlying price pressures return to target, though the notion that almost all metrics of US inflation are trending in the right direction will be highly comforting for officials.     Recent hawkish communications from FOMC officials, including chair Powell, suggest that another 25 basis point rate hike remains highly likely later this month. We are, however, of the opinion that additional hikes beyond then are far from guaranteed, and are increasingly confident in our call that the July hike will be the last in the current cycle, before rate cuts commence at some point in H1 2024. We think that this dovish pivot should open the door to additional downside in the US dollar in the coming months.    - Matthew Ryan, CFA    
UK Inflation Shows Promising Decline, Signaling a Path to More Sustainable Levels

UK Inflation Shows Promising Decline, Signaling a Path to More Sustainable Levels

Craig Erlam Craig Erlam 19.07.2023 09:29
It's been a long time coming but inflation in the UK is finally on the decline and in a rare show of good news, it's falling at a faster pace than expected on both the headline and core levels.  We haven't been treated to many reports like this over the last couple of years, and even when we have any enthusiasm has quickly been extinguished. But this feels different. Without wanting to fall victim to the "this time it's different" mantra that often precedes a terrible turn of events, there is something more promising about this shift. It follows similar declines in the US and the eurozone in recent months, both of which were sharper than expected and at the headline and core level. Unless this is a blip across the board, which is possible, it may be a sign that inflation is on a path to more modest and sustainable levels.  Of course, there's still an awfully long way to go and the central bank is not going to declare victory on the back of one release. But those wild interest rate forecasts of 6.5%+ that we've been seeing may start to be pared back, perhaps quite significantly as it becomes clear that favourable base effects combined with lower energy and food inflation and the impact of past hikes start to have a substantial impact on the data.  The pound has fallen quite heavily on the back of the release which probably reflects those expectations now being pared back. I don't want to get too carried away but peak rate expectations may now be behind us which could make for a more hopeful second half of the year.  I say I don't want to get carried away but then, upon seeing the release, I was immediately reminded of the famous Office US "It's happening!" scene that is so often widely circulated on social media so perhaps I also, in the words of Michael Scott, need to stay calm.   Oil flat but recent developments have been positive Oil prices are a little flat early in the European session after bouncing back a little on Tuesday. Since breaking above the recent range highs late last week, oil prices have been a little choppy although importantly they have held above that prior range and, in the case of Brent crude, seen support around the previous highs. That could be viewed as a bullish technical signal, although that will naturally depend on a number of other factors including the economic data and what producers are doing. Both have been favourable for prices recently, helping Brent break back above $80 for the first time in almost three months.   Gold eyeing another move above $2,000?  Gold broke higher again on Tuesday after briefly paring gains late last week and early this. Lower yields and a weaker dollar are continuing to boost its appeal on the back of some more promising inflation data and lower interest rate expectations. The yellow metal broke above $1,960 yesterday before running into some resistance around $1,980. It's now closing in on $2,000 which is the next major barrier to the upside, a break of which may suggest traders have turned bullish on gold after two months of declines.   Is bitcoin looking vulnerable after yesterday's break?  Bitcoin is back above $30,000 today but looking vulnerable to another dip below. Broadly speaking, the cryptocurrency has been range-bound over the last month but it has drifted toward the lower end of this and the move below $30,000 yesterday may have made some nervous. If we do see a significant break lower, the next key area of support may be found around $28,000.
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Tequila Turn: Mexico's Anticipated Rate Cut and Market Spreads

ING Economics ING Economics 19.07.2023 09:45
Tequila Turn: Mexico to front run the US The market discount sees a Mexican central bank rate cut from November. We agree, and we in fact can see rates being cut faster then the market discounts thereafter. There is a lot of comfort built in. This can be gleaned from the appreciation in the peso and falls in market rates. The next step is to prepare for a marked dis-inversion of the curve, ahead of the US.   There is a high degree of policy comfort built into the Mexican curve (TIIE), so much so that we are more and more inclined to anticipate initiation of a material easing process in the coming months. The policy rate at 11.25% is some 6% above the Fed funds rate, representing quite a large cushion. It has only been wider on two occasions in the past 15 years – emergency Fed cuts during the Great Financial Crisis and the same at the onset of the pandemic. There is no requirement for this spread to be wider. In fact, we believe it will narrow as the Fed hikes some more, while Banxico holds pat. A glance at the chart below highlights the elevation of the official overnight rate, and its excess over the interest rate differential to the US. That differential is at or about highs. Technically, Banxico started its pause before the Fed did, and is likely to extend it at its August policy setting meeting, while the Fed suspends its pause by hiking at its July meeting. There is a Mexico turning point theme coming from this, in anticipation of something similar from the Fed down the line. Banxico should be in a position to front run the Fed.   Mexico central bank rate is stretched, and also versus the Fed funds rate...   A decent portion of this front running theme is already being seen in market rates. In contrast to the ongoing elevation in the policy rate differential, the 10yr market spread (TIIE vs SOFR) is now at 4.3%, in from a cycle high at 6.75%. The chart below illustrates the contrast, and shows that 10yr spread at the tight end of the range seen over the past decade and a half. Right now, the 10yr market spread looks tight while the policy rate differential looks wide. The tightening in market spreads has correlated with the ongoing appreciation in the peso (MXN), with both reflecting a comfort factor coming from the wide front-end rates differential.
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ECB Raises Rates by 25 Basis Points; Eurozone Yields Fall as Euro Slides

Craig Erlam Craig Erlam 28.07.2023 08:46
ECB hikes rates by 25 basis points Signals the central bank may pause at the next meeting in September Euro slides as eurozone yields fall   The ECB raised rates for potentially the final time in the tightening cycle on Thursday, although it refused to give any indication of what will happen going forward. Instead, the central bank is insisting that decisions will be guided by the economic data and that interest rates will need to remain sufficiently restrictive for some time. This is consistent with what we heard from the Fed a day earlier and what most major central banks will be communicating soon enough if they aren’t already. We remain in a period of uncertainty on the economic data, despite the progress that has already been achieved and the further moves that are expected over the rest of the year. If the inflation data continues to improve as many expect, there’s every chance the ECB pauses in September and doesn’t then feel it necessary to hike further by October. There are, of course, an abundance of upside risks to the inflation data from the economy continuing to display significant resilience, as we’ve already seen this year, or fresh energy or food price shocks. These things and more could tempt the ECB to hike further later in the year.     Euro falls below 1.10 against the dollar The lack of commitment to further rate hikes from the ECB today weighed on the euro and saw eurozone yields decline. The single currency plunged against the dollar, slipping back below 1.10 after coming close to 1.1150 earlier in the day.       It would appear the ECB has failed to open the door to a pause without triggering too much excitement, as it would have preferred. President Lagarde was desperately trying to avoid doing so in the press conference, repeatedly referring back to previous comments rather than directly answering questions, and it seems in doing so, traders have instead opted to read between the lines. We may see efforts to correct this in the weeks ahead.  
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Domestic Demand Collapse Spurs Disinflation Surge: Hungary Economic Update

ING Economics ING Economics 31.07.2023 15:59
The collapse in domestic demand strengthens disinflation Headline inflation eased to 20.1% YoY in June, mainly driven by the 0.4% MoM decline in food prices. Within this, the fall in processed food prices was the main driver, hence the sharp 2ppt deceleration in core inflation to 20.8% YoY. In our view, the rapid deterioration in firms' pricing power is evident, and will only accelerate going forward as competition among retail outlets for households' overall shrinking disposable income intensifies. Based on our high-frequency data collection, we expect disinflation to strengthen further going forward, driven mainly by food deflation. In this context, we expect average inflation to fall to single digits in the fourth quarter, while average inflation for the year as a whole is likely to be below, but close to 18%.    Inflation and policy rate   Rate cuts to continue in 100bp steps if market stability prevails At the July meeting, monetary policy normalisation continued as the National Bank of Hungary (NBH) lowered the effective interest rate by a further 100bp to 15%. The central bank emphasised cautiousness, graduality and predictability, so we expect same-sized cuts into the September merger of base and effective rates. After September, however, the NBH has several options to alter the interest rate complex. The central bank can either continue the easing cycle unabated in 100bp increments, setting the policy rate at 10% at the end of 2023. However, reducing the pace of cuts to 50bp seems to be another viable option, leaving the key rate at 11.5%. In our view, the NBH will cut both repo and deposit rates by 100bp in October, leaving room for market rates to adjust lower, but will only cut the base rate by 100bp in November and December. We, therefore, expect the policy rate to end the year at 11%.   Real rates (%)   VAT receipts hit hard by fall in domestic demand The Hungarian budget posted a deficit of HUF 132.7bn in June, bringing the year-to-date cash flow-based shortfall to 85% of the full-year target. The decline in domestic demand is weighing heavily on tax revenues. In this respect, VAT receipts in the first half of 2023 were only 2.2% higher than a year ago compared to the 24% average inflation during this period. Despite some ongoing adjustments (e.g. public investment cuts), we still see a slippage of 0.5-1% of GDP in this year's budget. A recent interview with the Finance Minister revealed that a revision could come as early as September, which in our view could lead to additional adjustments plus a minor increase in the 2023 EDP deficit target. From a cash-flow perspective, the fate of the EU funds remains a key issue, with the clock ticking (90 days) at the European Commission's table, as the government officially submitted the self-review on horizontal enabler (judiciary) reforms on 18 July.   Budget performance (year-to-date, HUFbn)   We still believe in a HUF turnaround Although we heard what we thought we would from the National Bank of Hungary – a cautious cut with a commitment to remain patient – market players were ignorant of the hawkish message. The NBH’s assurance that the cutting cycle will not be accelerated did not result in a turnaround in EUR/HUF as we expected. However, our market view remains unchanged. In case of further forint weakening, we expect the central bank to hit the wire and repeat some hawkish statements, trying to push against HUF underperformance versus Central and Eastern European peers. Moreover, we see some improvement in conditions at the global level, too. Last but not least, despite the whole EU fund issue being overly politicised, we still believe in a positive outcome before the year-end. Our ultimate argument would be that European politicians don’t want to bother with Hungarian issues when European Parliament elections are approaching (June 2024). On a local level, we think FX carry should continue to be the main positive driver for the HUF, supported by an improving current account, a record decline in gas prices, and despite cuts by a cautious central bank, overall pushing EUR/HUF closer to 370.   CEE FX performance vs EUR (30 December 2022 = 100%)   We continue to see further curve steepening In the rates space, we found the IRS curve a bit steeper again after the last NBH meeting and a steeper and lower curve remains our main view for the coming months. 2s10s spread has moved roughly 100bp since May, the first rate cut, and we still see room for further normalisation of the IRS curve, which remains by far the most inverted in the CEE universe. Market expectations for this year are more or less fair given that the September rate merge is a broad market consensus, however, NBH's next steps are unclear to the market, and we see the market underestimating further normalisation in the next year or two, opening the door for more curve steepening. On the other hand, the fall in core rates will slow the normalisation of the curve compared to previous months.   Hungarian sovereign yield curve   Hungarian government bonds (HGBs) eased in July and the rest of the region caught up with the swift rally. We therefore see current valuations of HGBs as more justifiable, which could attract new buyers. Despite the fiscal slippage risk, year-to-date issuance has reached 60% by our calculations, which we see as more than sufficient. Moreover, recent government measures supporting HGBs and the fastest disinflation in the region should be enough to sustain demand.
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RBA Takes Another Breather, Leaves Room for Future Tightening

ING Economics ING Economics 01.08.2023 10:25
Reserve Bank of Australia takes another breather Pausing for a second consecutive meeting, today's rate decision is in line with some better inflation data this month and means the Bank can respond to future data events with less fear of overdoing the tightening.   Not clear why market was even looking for a hike It is a genuine mystery to us why there was a small majority of forecasters looking for a hike at today's meeting. We certainly were not. The June inflation data came in better than most of the expectations, including on the core measures. So that alone should have been enough to keep the RBA on hold. And none of the other data since the last meeting have been particularly alarming. Sure, the labour data wasn't exactly soft, but it wasn't super-strong either, and the unemployment rate while still very low, was stable from the previous month.  In the statement in July, Governor Philip Lowe noted that further tightening "will depend upon how the economy and inflation evolve", and in the event, the economy and inflation tended to indicate that they were on the right track. For a central bank that has been keen to give the economy a chance where at all possible, there was simply no good argument for a hike today.   There will be better excuses to hike than existed this month   More hikes are possible - probably one, maybe two That doesn't mean that there is no chance of any further tightening in this cycle. And while the June inflation figures were lower than expected, the month-on-month increase was not even close to what is required to get inflation back to target. And that will have to change. Today's statement notes that there is still a chance for some further tightening and that the RBA will "continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market"  We think that this broad assessment means the RBA can be a bit more choosy when it does decide to tighten again. If it responded to every tiny mishap in the data, then rates would rapidly rise, and by the time the economy did finally show more evidence of turning, the odds are that they would by then have gone too far. This way, they are giving a soft landing the best chance of happening.  Base effects will become far less helpful after the July CPI release later this month, and the July reading of CPI will also incorporate substantial electricity tariff hikes which means that inflation could backtrack higher for July and August readings. That puts a September rate hike firmly into the frame, and possibly leaves the door open for a further hike before the base effects should turn more helpful once more - absent seasonal supply chain shocks, which is harder to take for granted in these climate-changed times.     So we will be looking for one more rate hike to 4.35% at the RBA's next meeting in September. And we will be reserving judgement on another and hopefully final one in October or November, if the macroeconomy remains resilient and if inflation is making insufficient progress lower. The September meeting would be Lowe's last meeting as governor, as the new Governor, Michele Bullock, will take over from 18 September. It would be a nice handover gift if the tightening were largely completed before she takes the helm. 
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NZD/USD Drops 1% on Weak Chinese Manufacturing PMI and Upcoming New Zealand Employment Report

Kenny Fisher Kenny Fisher 02.08.2023 15:12
NZD/USD is down 1% China’s Caixin Mfg. PMI contracted in July The New Zealand dollar continues to show sharp volatility early in the week. In Tuesday’s European session, NZD/USD is trading at 0.6142, down 1.06%. The decline has wiped out the gains the New Zealand dollar made on Monday when it rose 0.85%. China’s Caixin Mfg. PMI declines China’s recovery has been bumpy, and this week’s PMIs didn’t bring any good news. The Caixin Manufacturing PMI for July declined for the first time in three months, falling from 50.5 to 49.2 and missing the consensus estimate of 50.3 points. On Monday, the official PMIs pointed to weak activity, with manufacturing coming in at 49.3 and non-manufacturing at 51.5 points. The 50.0 line divides expansion from contraction. The weak Caixin Manufacturing PMI has sent the New Zealand dollar sharply lower on Tuesday. China is a key trading partner for New Zealand and the New Zealand dollar is sensitive to Chinese economic releases. New Zealand’s labour market has been tight, which has interfered with the central bank’s efforts to bring inflation back to the 2% target. We’ll get a look at the second-quarter employment report on Wednesday, and the data may not be to the Reserve Bank’s liking. Employment Change is expected to rise by 0.5%, compared to 0.8% in Q1. The unemployment rate is projected to inch higher to 3.5% in the second quarter, up from 3.4% in the first quarter. There aren’t many tier-1 releases ahead of the Reserve Bank’s meeting on August 16th, which makes Wednesday’s employment report doubly important. If, as expected, the data shows that the labour market is robust, it will support the Reserve Bank raising rates. Conversely, a weak employment report would be a reason for the central bank to take a pause from raising rates. In the US, the manufacturing data reaffirmed weakness in the sector. The ISM Manufacturing PMI for July improved from 46.0 to 46.4 but missed the estimate of 46.8. ISM Manufacturing Employment slipped to 44.4, down from 48.1 and shy of the estimate of 48.0 points.     NZD/USD Technical NZD/USD has pushed below support at 0.6184. Below, there is support at 0.6093 0.6246 and 0.6337 are the next resistance lines  
RBA Pauses Rates as Australian Dollar Slides; ISM Manufacturing PMI in Focus

RBA Pauses Rates as Australian Dollar Slides; ISM Manufacturing PMI in Focus

Kenny Fisher Kenny Fisher 02.08.2023 09:07
RBA pauses rates Australian dollar slides 1.3% ISM Manufacturing PMI expected to remain in negative territory The Australian dollar continues to swing wildly this week. In Tuesday’s European session, AUD/USD is trading at 0.6630, down 1.30%. On Monday, AUD/USD jumped 1% higher.   RBA pauses rates, as expected There were no surprises from the Reserve Bank of Australia, which paused for a second straight month and maintained the cast rate at 4.10%. The money markets had priced in a pause but the Australian dollar still took a nosedive after the decision, as the money markets have lowered the probability of a rate hike in September to below 20%. Recent key data showed that the Australian economy has cooled off, with inflation easing in the second quarter and retail sales for June falling by 0.8%. These numbers provided support for the RBA to take a pause at today’s meeting. Still, the argument can be made that with inflation at 6%, double the upper band of the RBA’s target range, there is room for further rate hikes. The RBA did not change its inflation outlook, predicting that inflation would not return to the 2%-3% target range before late 2025. Services inflation, which includes rising rent prices, remains sticky and this is a key concern for the central bank. Governor Lowe’s rate statement said that future rate decisions “will depend upon the data and the evolving assessment of risks.” This is a reminder that inflation and employment reports will play a key role in determining the RBA’s rate path. There is speculation that the RBA is done with tightening, but with inflation still at high levels, Lowe’s message to the markets was that further hikes remain on the table.   In the US, today’s key event is ISM Manufacturing PMI. The manufacturing sector remains in the doldrums and has been in decline since October, with readings below the 50.0 level. In June, the Manufacturing PMI slipped to 46.0, the lowest level since May 2020. Another decline is expected for July, with a consensus estimate of 46.8 points.   AUD/USD Technical AUD/USD has pushed below support at 0.6697. Below, there is resistance at 0.6573 There is resistance at 0.6771 and 0.6875    
Trader Who Predicted Bitcoin Crash Sends Warning About Investing

Trader Who Predicted Bitcoin Crash Sends Warning About Investing

FXMAG Team FXMAG Team 02.08.2023 09:08
If you're an ardent follower of cryptocurrency trends, you'll probably have heard of Peter Brandt. Brandt, a famed commodity trader, etched his name in the annals of crypto history when he predicted the Bitcoin crash of 2018. His uncanny foresight was validated when Bitcoin's value plummeted from a high of nearly $20,000 to below $4,000 that year. Now - Brandt has sent out a new warning about investing in Bitcoin, sparking a ripple of concern among investors.   Who is Peter Brandt?   Peter Brandt is more than a celebrated commodities trader; he's an esteemed personality in the world of finance with a successful trading career spanning over forty years. He made his mark in the late 1970s by demonstrating an exceptional knack for anticipating market trends and movements. Brandt expanded his professional reach by becoming an author, imparting his deep understanding to a broader audience. His seminal work, "Diary of a Professional Commodity Trader," brought to light by Wiley in 2011, is considered a must-have resource for those interested in delving into the complexities of commodity trading. The book serves as a journey through Brandt's personal trading history, providing a candid peek into the high-risk world of trading. Beyond trading and authorship, Brandt is the founding head of Factor LLC, his proprietary trading company, where he disseminates his market assessments and potential trading strategies. His followers highly regard his technical analysis charts, which have garnered a significant audience on social platforms, solidifying his status as a reliable voice in the industry.   The 2018 Prediction and Its Realisation   When Brandt predicted Bitcoin's 2018 crash, he cited key market patterns and trends that seemed to suggest an impending downturn. One pattern was a 'parabolic advance' - a steep, curved upward trend that Bitcoin exhibited leading up to the 2018 crash. Parabolic advances have historically been associated with unsustainable market bubbles, so spotting this pattern was a key reason behind Brandt's forecast.   Brandt also noted the euphoric sentiment surrounding Bitcoin, which was reminiscent of other historic market bubbles. The rampant speculation, combined with the lack of a tangible underlying asset, were strong indicators of an unsustainable price level.   His prediction was shockingly accurate. Bitcoin's value dropped by more than 80% in a year, falling from nearly $20,000 in December 2017 to below $4,000 by December 2018. This crash validated Brandt's forecast, proving his proficiency in understanding and predicting market trends.   The Aftermath and Recovery   Despite the severe crash, Bitcoin showed its resilience and rebounded in the subsequent years. In 2019, Bitcoin embarked on a recovery path, closing the year at around $7,200, a significant increase from its low point the previous year.   The year 2020 brought further growth, with Bitcoin's value more than tripling. The global pandemic played a role in this surge, as economic uncertainties and inflationary fears drove many investors towards Bitcoin as a 'digital gold' and hedge against traditional market instabilities.   In 2021, Bitcoin reached unprecedented heights, crossing the $60,000 mark, propelled by institutional acceptance, technological advancements, and an increasingly digital global economy. The Bitcoin boom highlighted its inherent volatility but also demonstrated its potential for high returns.   This recovery provides a valuable lesson to investors: while cryptocurrencies can experience significant drops, they also have the potential to rebound strongly, reflecting their volatile yet potentially rewarding nature.   Brandt's Current Warning and Why He's Concerned   Brandt's recent warning concerning Bitcoin signals his belief that history may repeat itself. He has noted the possibility of another 'parabolic advance' similar to the one seen before the 2018 crash. As we know, parabolic advances often precede significant market corrections. However, this time around, things are different. Bitcoin and the overall crypto market have matured significantly, with institutional acceptance, regulatory developments, and technical advancements.   Bitcoin has shown resilience despite previous market crashes and regulatory challenges, suggesting a robust underlying strength. It continues to evolve, adapting to changing market conditions and regulations and constantly improving its technology and network.   Nonetheless, Brandt's prediction serves as a reminder of Bitcoin's inherent volatility, whereas the price of Solana and other coins seems more stable. It should be seen as a word of caution for investors, reminding them to do their due diligence and consider risk management strategies when investing. The potential for high returns in Bitcoin comes with equally high risks.   Furthermore, a potential downturn in Bitcoin doesn't necessarily equate to a lack of faith in the technology behind it. Blockchain, the underlying technology of Bitcoin, has far-reaching potential beyond just cryptocurrency. It's set to revolutionize various industries, from finance and supply chain to healthcare and education, indicating a promising and enduring future regardless of Bitcoin's price volatility.   The Future of Bitcoin: A Word of Caution   While the cautionary advice of Peter Brandt carries weight, it isn't an indisputable indicator of an impending market crash. Like all financial spheres, Bitcoin's future is marked by unpredictability and uncertainties. Nevertheless, his alert serves as a pertinent reminder of the inherent risks associated with investing in cryptocurrencies.   Brandt's perspectives underscore the importance of investor education and exercising caution when dealing with Bitcoin and other cryptocurrencies. Given the potential for abrupt price swings in the market, investors are urged to conduct comprehensive research and assess their risk appetite before venturing into cryptocurrency investment.   Peter Brandt's story and his knack for accurate forecasts offer an essential lesson in prudence and rigorous examination in the unpredictable realm of crypto investing. While the potential for massive gains can be compelling, it's paramount to keep in mind the intrinsic risks tied to a market known for its swift fluctuations. As we navigate the future, Brandt's admonitions serve as a potent reminder to prospective investors: tread carefully, invest wisely, and always brace for unforeseen circumstances.
Czech National Bank Prepares for Possible Rate Cut in November

Brazil's Central Bank Set to Begin Easing Cycle as FX Markets Shift Focus from US Debt Downgrade

ING Economics ING Economics 02.08.2023 09:26
FX Daily: Brazil set to start its easing cycle Markets were taken aback by Fitch's downgrade of US debt yesterday. EUR/USD rose, but the greenback is enjoying safe-haven demand to the detriment of high-beta currencies. We doubt this will be a long-lasting driver for FX markets and the focus will rapidly shift back to data. In Brazil, the central bank should start cutting rates today: we expect 25bp.   USD: Downgrade unlikely to be long-lasting driver The dollar resilience was untouched by the soft block of data released yesterday, where the ISM manufacturing rebounded less than expected and remained quite deep in contractionary territory, and JOLTS figures showed a bigger than anticipated drop in job openings. Markets are clearly turning a blind eye to second-tier activity figures, and expectations that jobs figures will still be robust this week likely prevented any further dovish repricing in the USD curve, and left other factors (mostly weak data from China) to keep the dollar supported. A surprise development that shook FX markets late in the US session yesterday was the announcement that Fitch downgraded the US from AAA to AA+, with a stable outlook. Fitch mentions the fiscal deterioration over “the next three” years and elevated government debt as the main reasons for the downgrade, which is the first one since 1994. This puts the US fiscal discussion back in scope for investors after the debt ceiling saga was quickly put on the back burner. EUR/USD jumped on the news, but high-beta currencies suffered, and the dollar seems to have been shielded by safe-haven demand. Will this prove to be a driver for the FX market beyond the knee-jerk reaction? We doubt that. Treasury Secretary Janet Yellen described the downgrade as “outdated”, and markets will likely see it in a similar way (i.e. strictly tied to the debt ceiling standoff) especially in a week full of important data releases and with the next Federal Reserve rate hike hanging in the balance. Today, the ADP employment figures are the key highlight on the data front. In July, ADP figures more than doubled consensus estimates (almost 500k) but the official payroll print was a more modest 209k.
Metals Update: Gold Demand Declines Marginally, Copper and Aluminium Positions Adjusted

BRL: Speculation Mounts Ahead of Brazil's Central Bank Easing Cycle Decision

ING Economics ING Economics 02.08.2023 09:31
BRL: 25bp or 50bp to start the easing cycle? There is fevered speculation that Brazil’s central bank, BCB, will start its easing cycle later today. Having been pressured by the Lula administration for most of the year to cut rates, it now seems the BCB has sufficient ammunition to deliver a credible rate cut. Brazil’s congress has passed important fiscal reforms (fiscal policy always proving Brazil’s Achilles Heel) and a sharp decline in inflation has allowed inflation expectations to drop close to BCB’s target near the 3.50% area. The only question it seems for the market is whether the BCB will kick off the cycle with a 25bp or 50bp cut. Historically, when BCB makes the decision to adjust policy, it moves in large increments. Equally, BCB has been fighting the government all year and with two new additions to its board may not want to be seen as acting overly aggressively. Even though BCB has not provided much signalling on this easing (unlike the recent telegraphed cuts in Chile), we would not rule out a 50bp rate cut. The interest rates market already prices close to 500bp of easing over the next year – so may not drop too much further – but we think the Brazilian real may not need to sell off too harshly. After all, real interest rates remain hugely in positive territory and a recent sovereign rating upgrade – and lower volatility – suggest the Brazilian real will continue to be a recipient of carry trade flow.  
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FX Daily: US Treasury Wobble Sparks Risk Asset Concerns, Boosts Dollar

ING Economics ING Economics 03.08.2023 10:18
FX Daily: US Treasury wobble unnerves risk assets A sell-off at the long end of the US Treasury market has cast a shadow over risk assets and hit cyclical currencies. The dollar has been the main beneficiary. Expect focus to very much remain on the US bond market into next week's quarterly refunding. For today, attention is on whether the BoE hikes 25bp or 50bp and how Brazilian assets react to the 50bp rate cut.   USD: Tracking Treasuries Wednesday's session was all about the US bond market and the sell-off at the long end of the curve. US 30-year Treasury yields were briefly 15bp higher. And far from the benign bullish disinversion of the curve we saw after the soft June CPI print, yesterday's move was a more negative bullish steepening. Higher risk-free rates hit US growth stocks (Nasdaq -2%) and also hit 'growth' currencies, such as the commodity complex and the unloved Scandi currencies. At the heart of yesterday's move was the US fiscal story. Despite the Democrat administration and its supporters in the media decrying Fitch's decision to remove the sovereign's AAA status on Tuesday evening, there is genuine concern over US fiscal dynamics. And it looks like the Fitch release was carefully timed. Yesterday also saw a slightly higher than expected US quarterly refunding announcement, where $103bn of 3, 10, and 30-year bonds will be sold next week. The fact that fiscal dynamics were in play yesterday was reflected in wider US asset swap spreads (Treasuries underperforming the US swap curve) and the US yield curve steepening. As above, higher risk-free rates are providing greater headwinds to risk asset markets - including equities. We are also seeing some slightly higher cross-market volatility readings which may prompt investors to partially de-risk from carry trade strategies (good for the Japanese yen and Swiss franc on the crosses, bad for the high yielders). We will also be interested to see how the Brazilian real performs today after Brazil's central bank started its easing cycle last night with a 50bp cut and promised similar magnitude cuts over coming meetings. The currency could edge a little lower today given the international environment. While the US Treasury story will be with us into next week's auctions, the focus today will be on the initial jobless claims (these have been moving markets) and the services ISM index. Barring a significant rise in claims or a big dip in the services ISM, it looks like the dollar will hang onto recent gains into what should be a decent US July nonfarm payrolls report tomorrow.    DXY could grind its way toward the 103.50 area.  
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Turkey's Inflation Struggle: Insights from Santa Zvaigzne-Sproge on Monetary Policy and Challenges Ahead

Santa Zvaigzne Sproge Santa Zvaigzne Sproge 03.08.2023 10:33
In this interview, we speak with Santa Zvaigzne-Sproge, CFA, Head of Investment Advice Department at Conotoxia Ltd., to gain insights into Turkey's current inflation situation and the effectiveness of the central bank's monetary policy. Turkey has experienced a significant drop in inflation since Ms. Hafize Gaye Erkan took over as the central bank's governor. However, recent CPI and PPI readings indicate that the battle against inflation is far from over. Inflation in Turkey has decreased from a staggering 85.51% in October 2022 to 38.21% in June 2023. Nevertheless, the latest data for July, with PPI at 44.50% and CPI at 47.83%, suggests that inflation remains a pressing concern. The Central Bank of the Republic of Turkey has responded to this challenge by raising interest rates from 8.5% to 17.5%, but questions remain about whether these measures will be sufficient to bring inflation to a single-digit level.   FXMAG.COM: What is your assessment of the CPI and PPI readings from Turkey, and do they allow the central bank to continue too loose a monetary policy? Does Turkey have any chance at all of returning to its inflation target?   Santa Zvaigzne-Sproge, CFA, Head of Investment Advice Department at Conotoxia Ltd. The Central Bank of the Republic of Turkey has already gone a long way since Ms. Hafize Gaye Erkan was appointed as the central bank’s new governor. Previously, Turkey’s monetary policy was known to be ultra-accommodative, which provoked inflation that may be hard to imagine in the Western world. Turkey’s inflation plunged more than two times from 85.51% in October 2022 to 38.21% in June 2023, however, the July data of 44.50% for PPI and 47.83% for CPI show that the fight against inflation is certainly not over. After the new governor was appointed, the Central Bank of the Republic of Turkey doubled the key interest rates from 8.5% to 15% and later increased it to 17.5%. While the jump has been rather significant, the interest rates may still be too low to return the inflation to at least one-digit numbers. However, the Central Bank of the Republic of Turkey has expressed that the country’s monetary policy would be further tightened as much as necessary in a timely and gradual manner. Reasons for such an uptick in last month’s inflation may be at least partially related to the government raising taxes in July on fuel and a variety of goods to repair the deteriorated public finances due to the costly presidential re-election campaign and financing needs to recover from the February earthquakes. Governor Hafize Gaye Erkan has announced that inflation may reach 58% by the end of this year (more than doubling the previous forecast) acknowledging that the process of driving down the inflation may take more time than previously expected. It is important to note that driving inflation down is a complicated and time-consuming process, and none of the Western countries have succeeded in reaching their 2% target yet despite aggressive rate hike cycles and considerably lower “starting points” (the highest CPI in the US was 9.1% versus Turkey’s 85.51%). Furthermore, while the commonly accepted target for inflation is 2%, Turkish inflation has not reached this level since 1969. During the relatively low period of inflation in Turkey (2004 – 2018) CPI varied mainly from 6% to 8%. Therefore, these numbers could be more realistic inflation targets for Turkey. In order for Turkey to successfully return to one-digit inflation, its first task would be to stop its currency from depreciating further. Turkish Lira has lost nearly 45% of its value against the US Dollar (USDTRY = 26.9684) this year. For it to happen, Turkey would need to return the investors’ trust in its currency which may not be an easy task to accomplish. However, interest rates have historically proved to be the most effective and easiest-to-control instrument for policymakers to drive down inflation. Therefore, there may be a high chance of further rate hikes in Turkey’s future    
Euro-dollar Support Tested Amidst Rate Concerns and Labor Strikes

Tackling Turkey's Inflation Challenge: A Closer Look at Monetary Policy and Price Pressures

David Kindley David Kindley 03.08.2023 10:35
In our conversation with an analyst from broker Orbex, we delve into Turkey's current inflation situation and the effectiveness of the central bank's monetary policy. Turkey has been grappling with a persistent inflation problem, evident from the latest CPI and PPI readings. The Consumer Price Index rose by 9.49% MoM in July and by 47.83% YoY, indicating a concerning upward trend. While these figures are still lower than the peak inflation of 85% in 2022, they break an eight-month trend of inflation slowing down. The lira's sharp depreciation since President Erdogan's election win in May and the government's decision to raise taxes on essential goods and fuel have exacerbated price pressures, heightening the inflation risks.   FXMAG: What is your assessment of the CPI reading from Turkey, and do they allow the central bank to continue too loose a monetary policy? Turkey is facing a high and persistent inflation problem, as the latest CPI and PPI readings show. Turkey's Consumer Price Index rose by 9.49% MoM in July and by 47.83% YoY. Although these figures are much higher than the inflation rates in the US and EU, they are lower than Turkey's 85% peak in 2022. However, the latest figures are disappointing as they break Turkey's eight-month trend of slowing inflation. The lira's sharp depreciation since President Erdogan's win in the May elections has increased price pressures. The government also raised taxes on many essential goods and fuel, partly to cover the costly pledges it made before the ballot. This worsens the inflation risks. Meanwhile Turkey's Central Bank may soon be out of fire power as it has already responded with two sharp interest-rate hikes that raised its benchmark by 900 basis points to 17.5%.  
Australian GDP Holds Steady at 0.4% as RBA Maintains Rates at 4.10%

Bank of England's Bold Move: Implications for the British Economy and GBP

Alex Kuptsikevich Alex Kuptsikevich 03.08.2023 10:54
In our conversation with Alex Kuptsikevich, an analyst from FXPro, we delve into the Bank of England's recent decision on interest rates and its implications for the British economy and the GBP. The central bank's move to raise its key interest rate by 25 basis points to 5.25% is a significant step, marking the highest rate since 2008. This decision comes as Britain grapples with one of the highest inflation rates among developed nations, leaving little room for inaction. Unlike the Federal Reserve and the European Central Bank, the Bank of England cannot afford to take a wait-and-see approach. The soaring inflation necessitates swift action, and indications suggest that the central bank may not stop raising interest rates until it reaches 5.75%, matching the peak of monetary tightening seen in 2007.   FXMAG: What is your assessment of the Bank of England's decision on interest rates? Should we still expect a hike in the Isles? And what's next for the GBP in the context of the BoE's decision? The Bank of England is expected to raise its key interest rate by 25 points to 5.25%, the highest since 2008. Britain's inflation rate, one of the highest in the developed world, makes it impossible to pause and look around - a privilege the Fed has used and the ECB may do in September. It is worth bracing for indications that the BoE will not stop raising interest rates before the end of the year, taking the rate to 5.75% - the peak of monetary tightening in 2007.   The Bank of England's hawkish stance is also likely to attract buyers to the Pound, which has weakened over the past three weeks. An appreciating currency will suppress imported inflation and dampen consumer demand, helping to bring CPI back to the 2% target. With explicit hawkish comments from the central bank, GBP can avoid breaking the upward trend of recent months and accelerating its decline.  
CZK: Koruna's Resilience Amid Global Influences - 16.08.2023

CZK: Koruna's Resilience Amid Global Influences

ING Economics ING Economics 16.08.2023 11:22
CZK: Koruna is only one in the region to resist global influences The Czech koruna is the only currency in the CEE region that has surprisingly resisted losses. The widely expected depreciation after the end of the Czech National Bank's intervention regime two weeks ago did not come and, moreover, the strong US dollar does not seem to be weighing on the koruna. The balance sheet data also refutes any suspicions that the central bank would be active in the market again and prevent the CZK from weakening. IRS rates are following US rates in a rapid pace upwards, which was probably helped by the very stretched dovish expectations earlier. Plus, it appears the CNB hawkish story may have one more mini episode thanks to the spike in fuel prices following the August excise tax hike. This, by our calculations, could lead headline inflation above the CNB's forecast, whereas so far inflation has basically only surprised to the downside in recent months. Thus, the market may later find the current upward correction in rates to be justified. But it is too early to tell. For now, however, the interest rate differential in the Czech Republic seems to be the only one on a significant upswing, supporting FX. Based purely on yesterday's rate move, our model indicates that this could be enough for the koruna to move below 24.0 EUR/CZK for the first time since the last CNB meeting. Of course, the Czech Republic is not in a vacuum and a stronger US dollar or higher gas prices could also have an impact here, but for now it seems to be an island of safety in the region.
CZK: Koruna's Resilience Amid Global Influences - 16.08.2023

CZK: Koruna's Resilience Amid Global Influences - 16.08.2023

ING Economics ING Economics 16.08.2023 11:22
CZK: Koruna is only one in the region to resist global influences The Czech koruna is the only currency in the CEE region that has surprisingly resisted losses. The widely expected depreciation after the end of the Czech National Bank's intervention regime two weeks ago did not come and, moreover, the strong US dollar does not seem to be weighing on the koruna. The balance sheet data also refutes any suspicions that the central bank would be active in the market again and prevent the CZK from weakening. IRS rates are following US rates in a rapid pace upwards, which was probably helped by the very stretched dovish expectations earlier. Plus, it appears the CNB hawkish story may have one more mini episode thanks to the spike in fuel prices following the August excise tax hike. This, by our calculations, could lead headline inflation above the CNB's forecast, whereas so far inflation has basically only surprised to the downside in recent months. Thus, the market may later find the current upward correction in rates to be justified. But it is too early to tell. For now, however, the interest rate differential in the Czech Republic seems to be the only one on a significant upswing, supporting FX. Based purely on yesterday's rate move, our model indicates that this could be enough for the koruna to move below 24.0 EUR/CZK for the first time since the last CNB meeting. Of course, the Czech Republic is not in a vacuum and a stronger US dollar or higher gas prices could also have an impact here, but for now it seems to be an island of safety in the region.
Argentine Peso Devaluation: Political Uncertainty Amplifies Economic Challenges

Argentine Peso Devaluation: Political Uncertainty Amplifies Economic Challenges

ING Economics ING Economics 16.08.2023 12:52
ARS: The only way is down Argentine officials devalued the Argentine peso (ARS) by close to 20% yesterday, which now means one US dollar buys 350 pesos. At the same time, the local central bank hiked rates by 21% to 118% in an attempt to get on top of inflation which is now running at 115% year-on-year. The reason for the step-change in the pace of the depreciation in the official USD/ARS rate was politics. Weekend primary elections saw surprising support for libertarian candidate Javier Milei, who has no interest in the ongoing lending plans from the IMF and recommends dollarising the Argentine economy. The peso came under pressure on the back of these results and with no FX reserves to resist this pressure, the central bank was forced to speed up the ARS devaluation. The result makes the outcome of October's general election highly uncertain and will question Argentina's path ahead with the IMF, where the Washington-based lender is currently reviewing whether to disperse the next $7.5bn tranche of a $44bn four-year programme. Argentina has had a tough year with drought hitting core exports of wheat, corn and soy and it clearly needs some help. For multi-national corporates, the peso has been incredibly difficult to hedge. The one-year USD/ARS outright forward is already close to 1000 and hyper-inflation accounting means that even if corporates have been able to create local ARS liabilities to offset ARS assets, the ARS depreciation of local entity is still running through quarterly P&L accounts. The road ahead looks a tough one for the peso.
ECB Meeting Uncertainty: Rate Hike or Pause, Market Positions Reflect Tension

Challenges Ahead: Examining the Bank of England's Inflation Fight and Economic Deterioration in the UK

InstaForex Analysis InstaForex Analysis 16.08.2023 13:30
The Bank of England has raised interest rates fourteen times in a row, but has failed to make significant progress in the fight against high inflation. Moreover, recent reports, some of which were released on Tuesday, show a deterioration in various economic processes in the UK. Let's discuss this in more detail.     Inflation in the UK initially rose more sharply than in the US or EU. The market probably believed that if inflation in the UK was higher, the BoE would raise interest rates longer and stronger. To some extent, this is true since its rate has risen more compared to the European Central Bank. But at the same time, the Federal Reserve's rate is even higher and has every chance of remaining so until both central banks begin easing policies. As we can see, the pound sterling has no advantage in this regard. Unemployment in the UK has increased over the past year from 3.5% to 4.2%.   In other words, it is indeed growing in the UK, unlike in the US, where the indicator remains near its 50-year lows. Wage growth rates have increased from 5.8% to 8.2% in the last five months alone. And the faster wages grow, the higher the chances of a new acceleration in inflation. The last five quarters of the UK's GDP ended with the following results: +0.1%, -0.1%, +0.1%, +0.1%, +0.2%. Let's compare them with the last five quarters in the US: -0.6%, +3.2%, +2.6%, +2.0%, +2.4%. The difference is obvious. If the BoE's rate were now at 3% or 4%, meaning there was room for further rate hikes, the pound sterling could continue to rise based on everything mentioned above. However, the UK interest rate has risen to 5.25%, which is the highest level since 2008.   Its peak was at 5.75% in 2008. Assuming that the rate will not exceed this value, the BoE will raise the rate two more times at most. Theoretically, the central bank could increase it to 6.5-7%, which is clearly required by the current inflation rate, but for now I don't believe this will happen, and the market is unlikely to put such a scenario into prices. Therefore, monetary tightening in the UK is coming to an end, as it is in the US. America has almost achieved its target, and its economy has hardly suffered. The UK cannot boast of the same. I believe that demand for the pound will only decrease.     Based on the conducted analysis, I came to the conclusion that the upward wave pattern is complete. I still consider targets around 1.0500-1.0600 quite realistic, and with these targets in mind, I recommend selling the instrument. The a-b-c structure looks complete and convincing. Therefore, I continue to advise selling the instrument with targets located around the 1.0836 mark and even lower. I believe that we will continue to see a bearish trend. The wave pattern of the GBP/USD pair suggests a decline.   You could have opened short positions a few weeks ago, as I advised, and now traders can close them. The pair has reached the 1.2620 mark. There's a possibility that the current downward wave could end if it is wave d. In this case, wave 5 could start from the current levels. However, in my opinion, we are currently witnessing the construction of a corrective wave within a new bearish trend segment. If that's the case, the instrument will not rise further above the 1.2840 mark, and then the construction of a new downward wave will begin.
European Markets Anticipate Lower Open Amid Rate Hike Concerns

New Inflation Methodology Sparks Hope for BoE as GBPUSD Faces Resistance

Craig Erlam Craig Erlam 23.08.2023 10:33
New inflation methodology offers hope for BoE 1.28 could be major resistance point for GBPUSD A break of 1.26 could be bearish signal   Recent UK economic data has been a mixed bag, with wages rising at a much-accelerated rate but inflation decelerating as expected. While the Bank of England will be relieved at the latter, the former will remain a concern as wage growth even near those levels is not consistent with inflation returning sustainably to target over the medium term. The ONS released new figures overnight that appeared to suggest core inflation is not rising as fast as the CPI data suggests. The reportedly more sophisticated methodology concluded that core prices rose 6.8% last month, down from 7% the previous month and 7.3% the month before. The official reading for July was slightly higher at 6.9% but down from only 7.1% in May. So not only is the new methodology showing core inflation lower last month but the pace of decline is much faster. That will give the BoE hope that price pressures are easing and they’re expected to do so much more over the rest of the year.     GBPUSD Daily     It’s not clear whether this will prove to be a resumption of the uptrend or merely a bearish consolidation. It is currently nearing 1.28, the area around which it has previously run into resistance this month and around the 38.2% Fibonacci retracement level. Another rebound off here could be viewed as another bearish signal, which may suggest we’re currently seeing a bearish consolidation, while a move above could be more promising for the pound. If the pair does rebound lower then the area just above 1.26 will be key, given this is where it has recently seen strong support. It is also where the 55/89-day simple moving average band has continued to support the price in recent months.
Worrisome Growth Signals in Eurozone PMI: Recession Risks Loom Amid Persistent Inflation Pressures

Worrisome Growth Signals in Eurozone PMI: Recession Risks Loom Amid Persistent Inflation Pressures

ING Economics ING Economics 23.08.2023 12:44
Eurozone PMI paints worrisome growth picture Another weak PMI for the eurozone confirms a sluggish economy with recession as a downside risk. Inflation pressures for services remain stubborn as wage pressures continue to be a concern. The latter adds to our expectations that the ECB's hiking cycle is not over yet.   There is very little to like about today’s PMI. In recent months, the PMI has painted a worsening picture of eurozone activity, and August data are no different. The composite PMI dropped from 48.6 to 47 with the services PMI also dropping below 50. Inflationary concerns are not over though. The manufacturing sector has been in contraction for some time, with new orders falling and backlogs of work easing. This is helping inflationary pressures subside quickly. Services activity held up for a while but is now also showing contraction, according to the survey. While goods inflation is easing on the back of lower costs and weak demand, services inflation remains elevated for now due to increased wage cost pressures – despite weakening demand. The economic picture that we're seeing is quite worrisome. Growth in the bloc was decent at 0.3% quarter-on-quarter between April and June, but strong Irish growth masked a lot of underlying weakness. While we expect tourism to have contributed positively to third-quarter growth, business surveys like the August PMI show a picture of deteriorating activity. This makes a recession a realistic downside risk to the outlook. The main concern that the European Central Bank will have with this reading is the inflationary effect of wage pressures. The economy is cooling off significantly, but hawks on the ECB board will be tempted to push for one more hike as wage pressures are translating into elevated inflation pressures for services. The fact that the selling price inflation indicator from the PMI inched up this month clearly leaves the door open to another ECB rate hike.
Understanding the Factors Keeping Market Rates Under Upward Pressure

Swedish Krona's Plunge Amid Economic Challenges: Riksbank Rate Hike Expectations and Uncertain Future

Ed Moya Ed Moya 25.08.2023 09:39
Governor Thedeen say krona is fundamentally undervalued Markets fulling pricing in September Riksbank quarter-point rate hike Sweden’s government expects economy shrink by -0.8% in 2023 (previously eyed -0.4%) Sweden’s krona has been punished as the economy appears to be headed for a tough recession. Core inflation is coming down too slowly and that will keep the Riksbank hiking even as expectations grow for a lengthy recession.  The krona has not been getting any relief as many Swedes have started to embrace holding euros given the krona’s record plunge this year. Riksbank Governor Thedeen Riksbank governor Thedeen said that “the krona is too weak and it is fundamentally undervalued.” He added that “it should strengthen and we think that it will, but we know that it is almost impossible to predict currency moves over the short and medium term.” It is tough to call for a reversal after watching the krona fall to a fresh all-time low against the euro.  The current market expectations for the September meeting is to see the Riksbank raise rates by 25bps to 4.00%.  A freefalling krona is complicating the inflation fight, but that could see some relief as the outlook for the eurozone deteriorates. Expectations for the Sweden’s GDP are not seeing a strong consensus emerge.  Given the currency and inflation situation, it seems that the economy could be entering a recession that last more than a handful of quarters. The Swedish government is expecting a 0.8% decline in 2023 and a 1.0% growth for 2024.  It seems hard to believe that households will be a better position anytime soon, so a recession extending beyond 2024 seems likely.   The EUR/SEK weekly chart     EUR/SEK (weekly chart) as of Thursday (8/24/2023) shows the uptrend to record high territory is showing overbought conditions have arrived.  If the krona is able to firm up here, a mass exodus of EUR/SEK bullish bets could see price action tumble towards the 11.7118 region. If the plunge deeper into record low territory continues, EUR/SEK could make an attempt at the 12.000 which is just below the 141.% Fibonnaci expansion level of the 2020 high to 2021 low move. Last week, the krona was the most volatile G10 currency, so we should not be surprised if that volatility extends further given the chaos in the bond markets.    
GBP: ECB's Dovish Stance Keeps BoE Expectations in Check

Market Insights Roundup: A Glimpse into Economic Indicators and Corporate Performance

Michael Hewson Michael Hewson 28.08.2023 09:11
In a world where economic indicators and market movements can shift with the blink of an eye, staying updated on the latest offerings and promotions within the financial sector is crucial. Today, we delve into one such noteworthy development that has emerged on the horizon, enticing individuals to explore a blend of banking and insurance services. As markets ebb and flow, being vigilant about trends and opportunities can lead to financial benefits. Let's explore this exciting promotion that brings together the worlds of banking and insurance to offer a unique proposition for consumers.     By Michael Hewson (Chief Market Analyst at CMC Markets UK) US non-farm payrolls (Aug) – 01/09 – the July jobs report saw another modest slowdown in jobs growth, as well as providing downward revisions to previous months. 187k jobs were added, just slightly above March's revised 165k, although the unemployment rate fell to 3.5%, from 3.6%. While the official BLS numbers have been showing signs of slowing the ADP report has looked much more resilient, adding 324k in July on top of the 455k in June. This resilience is also coming against a backdrop of sticky wages, which in the private sector are over double headline CPI, while on the BLS measure average hourly earnings remained steady at 4.4%. This week's August payrolls are set to see paint another picture of a resilient but slowing jobs market with expectations of 160k jobs added, with unemployment remaining steady at 3.5%. It's also worth keeping an eye on vacancy rates and the job opening numbers which fell to just below 9.6m in June. These have consistently remained well above the pre-Covid levels of 7.5m and have remained so since the start of 2021. This perhaps explain why the US central bank is keen not to rule out further rate hikes, lest inflation starts to become more embedded.                          US Core PCE Deflator (Jul) – 31/08 – while the odds continue to favour a Fed pause when the central bank meets in September, markets are still concerned that we might still see another rate hike later in the year. The stickiness of core inflation does appear to be causing some concern that we might see US rates go higher with a notable movement in longer term rates, which are now causing the US yield curve to steepen further. The June Core PCE Deflator numbers did see a sharp fall from 4.6% in May to 4.1% in June, while the deflator fell to 3% from 3.8%. This week's July inflation numbers could prompt further concern about sticky inflation if we get sizeable ticks higher in the monthly as well as annual headline numbers. When we got the CPI numbers earlier in August, we saw evidence that prices might struggle to move much lower, after headline CPI edged higher to 3.2%. We can expect to see a similar move in this week's numbers with a move to 3.3% in the deflator and to 4.3% in the core deflator.       US Q2 GDP – 30/08 – the second iteration of US Q2 GDP is expected to underline the resilience of the US economy in the second quarter with a modest improvement to 2.5% from 2.4%, despite a slowdown in personal consumption from 4.2% in Q1 to 1.6%. More importantly the core PCE price index saw quarterly prices slow from 4.9% in Q1 to 3.8%. The resilience in the Q2 numbers was driven by a rebuilding of inventory levels which declined in Q1. Private domestic investment also rose 5.7%, while an increase in defence spending saw a rise of 2.5%.             UK Mortgage Approvals/ Consumer Credit (Jul) – 30/08 – while we have started to see evidence of a pickup in mortgage approvals after June approvals rose to 54.7k, this resilience may well be down to a rush to lock in fixed rates before they go even higher. Net consumer credit was also resilient in June, jumping to £1.7bn and a 5 year high, raising concerns that consumers were going further into debt to fund lifestyles more suited to a low interest rate environment. While unemployment remains close to historically low levels this shouldn't be too much of a concern, however if it starts to edge higher, we could start to see slowdown in both, as previous interest rate increases start to bite in earnest.            EU flash CPI (Aug) – 31/08 – due to increasing concerns over deflationary pressures, recent thinking on further ECB rate hikes has been shifting to a possible pause when the central bank next meets in September. Since the start of the year the ECB has doubled rates to 4%, however anxiety is growing given the performance of the German economy which is on the cusp of three consecutive negative quarters. On the PPI measure the economy is in deflation, while manufacturing activity has fallen off a cliff. Despite this headline CPI is still at 5.3%, while core prices are higher at 5.5%, just below their record highs of 5.7%. This week's August CPI may well not be the best guide for further weakness in price trends given that Europe tends to vacation during August, however concerns are increasing that the ECB is going too fast and a pause might be a useful exercise.     Best Buy Q2 24 – 29/08 – we generally hear a lot about the strength of otherwise of the US consumer through the prism of Target or Walmart, electronics retailer Best Buy also offers a useful insight into the US consumer's psyche, and since its May Q1 numbers the shares have performed reasonably well. In May the retailer posted Q1 earnings of $1.15c a share, modestly beating forecasts even as revenues fell slightly short at $9.47bn. Despite the revenue miss the retailer reiterated its full year forecast of revenues of $43.8bn and $45.2bn. For Q2 revenues are expected to come in at $9.52bn, with same store sales expected to see a decline of -6.35%, as consumers rein in spending on bigger ticket items like domestic appliances and consumer electronics. The company has been cutting headcount, laying off hundreds in April as it looks to maintain and improve its margins. Profits are expected to come in at $1.08c a share.        HP Q3 23 – 29/08 – when HP reported its Q2 numbers the shares saw some modest selling, however the declines didn't last long, with the shares briefly pushing up to 11-month highs in July. When the company reported in Q1, they projected revenues of $13.03bn, well below the levels of the same period in 2022. Yesterday's numbers saw a 22% decline to $12.91bn with a drop in PC sales accounting for the bulk of the drop, declining 29% to $8.18bn. Profits, on the other hand did beat forecasts, at $0.80c a share, while adjusted operating margins also came in ahead of target. HP went on to narrow its full year EPS profit forecast by 10c either side, to between $3.30c and $3.50c a share. For Q3 revenues are expected to fall to $13.36bn, with PC revenue expected to slip back to $8.79bn. Profits are expected to fall 20% to $0.84c a share.         Salesforce Q2 24 – 30/08 – Salesforce shares have been on a slow road to recovery after hitting their lowest levels since March 2020, back in December last year, with the shares coming close to retracing 60% of the decline from the record highs of 2021. When the company reported back in June, the shares initially slipped back after full year guidance was left unchanged. When the company reported in Q4, the outlook for Q1 revenues was estimated at $8.16bn to $8.18bn, which was comfortably achieved with $8.25bn, while profits also beat, coming in at $1.69c a share. For Q2 the company raised its revenue outlook to $8.51bn to $8.53bn, however they decided to keep full year revenue guidance unchanged at a minimum of $34.5bn. This was a decent increase from 2023's $31.35bn, but was greeted rather underwhelmingly, however got an additional lift in July when the company said it was raising prices. Profits are expected to come in at $1.90c a share. Since June, market consensus on full year revenues has shifted higher to $34.66bn. Under normal circumstances this should prompt a similar upgrade from senior management.   Broadcom Q3 23 – 31/08 – just prior to publishing its Q2 numbers Broadcom shares hit record highs after announcing a multibillion-dollar deal with Apple for 5G radio frequency components for the iPhone. The shares have continued to make progress since that announcement on expectations that it will be able to benefit on the move towards AI. Q2 revenues rose almost 8% to $8.73bn, while profits came in at $10.32c a share, both of which were in line with expectations. For Q3 the company expects to see revenues of $8.85bn, while market consensus on profits is expected to match the numbers for Q2, helping to lift the shares higher on the day. It still has to complete the deal with VMWare which is currently facing regulatory scrutiny, and which has now been approved by the UK's CMA.
Fed Chair Powell Signals Cautious Approach to Monetary Policy, Suggests Rates to Remain Elevated

Fed Chair Powell Signals Cautious Approach to Monetary Policy, Suggests Rates to Remain Elevated

ING Economics ING Economics 28.08.2023 09:13
Powell signals Fed to tread carefully, but that rates will stay high Chair Powell acknowledges that monetary policy is “restrictive” and that policymakers will “proceed carefully” in determining whether to hike rates further. September is set for a pause, but robust growth means the door remains ajar for a further potential hike. Markets see a 50-50 chance of a final hike while we think rates have most probably peaked. 2% remains the target with the Fed prepared to hike further In his Jackson Hole address, Federal Reserve Chair Jerome Powell reaffirmed that the Fed remains focused on hitting the 2% inflation target and keeping it there. He spends a considerable amount of time breaking down inflation into different components and explaining the drivers, but as is usually the case, emphasises the non-energy, non-housing services. This remains the stickiest portion given relatively high labour input costs in a tight jobs market environment. Here, “some further progress… will be essential to restoring price stability”, but the expectation is that “restrictive monetary policy” will bring supply and demand into better balance and it will come down. In fact, the description “restrictive” with regards to monetary policy is used on seven occasions in his speech with higher borrowing costs and tighter lending conditions acknowledged as factors that will act as a brake on the economy and slow inflation to 2% over time. But Powell is wary the recent strength in activity data mean that the “economy may not be cooling as expected”. In turn, this “could put further progress on inflation at risk and could warrant further tightening of monetary policy.” As a result, the Fed "are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective". Monetary policy signalled to stay tight Nonetheless, he acknowledges that monetary policy assessment is “complicated by uncertainty about the duration of the lags” between implementation and the real world impact. With real interest rates “well above mainstream estimates for the neutral policy rate” there is clearly a concern that the Fed don’t want to tighten too much. This view point was echoed in the minutes to the July FOMC meeting that said  “a number of participants judged that… it was important that the Committee's decisions balance the risk of an inadvertent overtightening of policy against the cost of an insufficient tightening”. With Chair Powell concluding that “we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data” we expect the Fed to leave the Fed funds target range unchanged at 5.25-5.5% at the September meeting. However, given the tight jobs market and strong third quarter activity the Fed will continue to signal the potential for one further rate rise before year-end in their forecast update, and will likely scale back the median forecast for 100bp of rate cuts in 2024 that it published in June.   We think rates have peaked and cuts will come in 2024 We don't think it will carry through with that final forecast hike though. The combination of higher borrowing costs, which is resulting in mortgage rates, credit card, auto loan and personal loan borrowing costs hitting two-decade plus highs, together with less credit availability, pandemic-era savings being run down and student loan repayments restarting should intensify the financial squeeze in the fourth quarter and beyond. So while the US economy may well expand at more than a 3% annualised rate in the current quarter, we expect to see a weaker performance in the fourth quarter together with further significant progress on inflation returning towards target. Our base case continues to be interest rate cuts through 2024 as monetary policy is relaxed to a more neutral footing.
Australia Retail Sales Rebound with 0.5% Gain; AUD/USD Sees Volatility - 28.08.2023

Australia Retail Sales Rebound with 0.5% Gain; AUD/USD Sees Volatility

Kenny Fisher Kenny Fisher 28.08.2023 16:26
Australia retail sales rebounds with 0.5% gain Fed’s Powell keeps door open to further hikes The Australian dollar started the week with gains but then retreated. In the European session, AUD/USD is trading at 0.6408, up 0.09%. Last week, the Australian dollar showed significant swings of around 1%. Australia’s retail sales surprise on the upside Australian retail sales rebounded in July with a respectable gain of 0.5% m/m.  This followed a dismal -0.8% reading in June and beat the consensus estimate of 0.3%. The welcome uptick was driven by the Women’s World Cup which was held in Australia and was a massive boost for Australia’s travel and retail sectors. Much of the tournament took place in August, which means that the August retail sales report should also receive a shot to the arm. The August report showed that consumers still have an appetite for spending, but there are unmistakable signs that the economy is cooling. Inflation has been falling, wage growth in the second quarter was weaker than expected and unemployment rose to 3.7%. This all points to the Reserve Bank of Australia holding rates at the September 5th meeting, and the future markets have priced a hold at around 90%. The slowdown in China, which is Australia’s largest trading partner, could throw a monkey wrench into the central bank’s efforts to guide the economy to a soft landing. There is a always the concern that aggressive tightening, with the aim of curbing inflation, will choke economic growth and tip the economy into a recession. The Australian dollar is sensitive to Chinese releases and the recent batch of soft Chinese data has weighed on the struggling Australian dollar.   Federal Chair Jerome Powell delivered the keynote speech on Friday, but anyone looking for dramatic headlines walked away disappointed. Powell reiterated that the battle to lower inflation to the 2% target “still has a long way to go”. Powell was somewhat hawkish with regard to interest rates, saying that the Fed would “proceed carefully” with regard to raising rates or putting rates on hold and waiting for additional data. This was a deliberate omission of any mention of rate cuts, a signal that the Fed isn’t even thinking about lowering rates. The future markets responded by raising the odds of a rate hike in September to 21%, up from 14% a week ago.     AUD/USD Technical AUD/USD is testing resistance at 0.6424. Above, there is resistance at 0.6470 There is support at 0.6360 and 0.6317    
Australia Retail Sales Rebound with 0.5% Gain; AUD/USD Sees Volatility - 28.08.2023

Australia Retail Sales Rebound with 0.5% Gain; AUD/USD Sees Volatility - 28.08.2023

Kenny Fisher Kenny Fisher 28.08.2023 16:26
Australia retail sales rebounds with 0.5% gain Fed’s Powell keeps door open to further hikes The Australian dollar started the week with gains but then retreated. In the European session, AUD/USD is trading at 0.6408, up 0.09%. Last week, the Australian dollar showed significant swings of around 1%. Australia’s retail sales surprise on the upside Australian retail sales rebounded in July with a respectable gain of 0.5% m/m.  This followed a dismal -0.8% reading in June and beat the consensus estimate of 0.3%. The welcome uptick was driven by the Women’s World Cup which was held in Australia and was a massive boost for Australia’s travel and retail sectors. Much of the tournament took place in August, which means that the August retail sales report should also receive a shot to the arm. The August report showed that consumers still have an appetite for spending, but there are unmistakable signs that the economy is cooling. Inflation has been falling, wage growth in the second quarter was weaker than expected and unemployment rose to 3.7%. This all points to the Reserve Bank of Australia holding rates at the September 5th meeting, and the future markets have priced a hold at around 90%. The slowdown in China, which is Australia’s largest trading partner, could throw a monkey wrench into the central bank’s efforts to guide the economy to a soft landing. There is a always the concern that aggressive tightening, with the aim of curbing inflation, will choke economic growth and tip the economy into a recession. The Australian dollar is sensitive to Chinese releases and the recent batch of soft Chinese data has weighed on the struggling Australian dollar.   Federal Chair Jerome Powell delivered the keynote speech on Friday, but anyone looking for dramatic headlines walked away disappointed. Powell reiterated that the battle to lower inflation to the 2% target “still has a long way to go”. Powell was somewhat hawkish with regard to interest rates, saying that the Fed would “proceed carefully” with regard to raising rates or putting rates on hold and waiting for additional data. This was a deliberate omission of any mention of rate cuts, a signal that the Fed isn’t even thinking about lowering rates. The future markets responded by raising the odds of a rate hike in September to 21%, up from 14% a week ago.     AUD/USD Technical AUD/USD is testing resistance at 0.6424. Above, there is resistance at 0.6470 There is support at 0.6360 and 0.6317    
UK Monetary Policy Outlook: A September Hike Likely, but November Uncertain

UK Monetary Policy Outlook: A September Hike Likely, but November Uncertain

ING Economics ING Economics 01.09.2023 09:47
Uncomfortably high inflation and wage growth should seal the deal on a September rate hike from the Bank of England. But emerging economic weakness suggests the top of the tightening cycle is near, and our base case is a pause in November. Markets have been reassessing Bank of England rate hikes Rewind to the start of the summer, and the view that the UK had a unique inflation problem had become very fashionable. At its most extreme, market pricing saw Bank Rate peaking at 6.5%, some 125bp above its current level. Since then, this story has begun to lose traction. The differential between USD and GBP two-year swap rates, a gauge of interest rate expectations, has halved. That reflects the growing reality that the UK inflation story looks less of an outlier than it did a few months back. Like most of Europe, food inflation has begun to slow, and further aggressive falls are likely judging by producer prices. Consumer energy bills fell by 20% in July, and another 5% decline is baked in for October. The Bank of England itself is now describing the level of interest rates as “restrictive” – a statement of the obvious perhaps, but nevertheless tells us that policymakers think they’ve almost done enough with rate hikes.   UK and US rate expectations have narrowed   A September hike is likely but November is less certain Still, we’re not quite there yet, and recent inflation data has continued to come in on the upside. Private sector wage growth – measured on a three-month annualised basis – is running at a cycle-high of 11%. Services inflation also edged higher in July, although this was partly attributable to some unusual swings in specific categories rather than broad-based moves. A September hike is therefore highly likely. Whether markets are right to be pricing another hike for November is less certain. We’ll only get one round of CPI and wage data between the September and November meetings. Wage growth is unlikely to have slowed much, but we’re hopeful for early signs that services inflation is inching lower. Various surveys suggest few service-sector firms are raising prices, and we think that reflects the sharp fall in gas prices. A lot also hinges on whether we continue to see signs of weakness in economic activity. Like Europe, the UK’s PMIs look worrisome and will have prompted some pause for thought at the Bank of England. The jobs market is also cooling, and the vacancy-to-unemployment ratio – which BoE Governor Andrew Bailey has consistently referenced – is closing in on pre-Covid highs. There’s also been an ongoing improvement in worker supply. We’re now at a point where survey numbers and various bits of official data suggest that both economic growth and inflation are losing steam. The inflation and wage growth figures aren’t there yet, but these are lagging perhaps most out of all economic indicators. A November pause isn’t guaranteed, but it remains our base case. To some extent, we’re splitting hairs. In the bigger picture, the Bank is becoming much more focused on how high rates need to go – and instead, the central goal will increasingly become keeping market rates elevated long after it stops hiking. Any further rate hikes should be seen as a means to that end.      
Bank of England: Falling Corporate Price Expectations May Signal Peak in Rate Hike Cycle

MXN Outlook: Banxico's View on a Strong Peso Sparks USD/MXN Rally

ING Economics ING Economics 01.09.2023 10:56
MXN: Banxico expressing a view over a strong peso Unlike Chinese authorities which are battling renminbi weakness and cut the FX deposit required reserve ratio last night, Mexican authorities are seemingly expressing a view that the peso is too strong. Here USD/MXN spiked more than 2% last night after Banxico announced that it would allow its "hedge book" or short USD/MXN position in the FX forward market to roll off rather than be extended.  By way of background, Banxico has intervened to support the peso during two periods (February 2017 and March 2020) and has done this by auctioning dollars through the FX forward markets using one-month to 12-month tenors. The total size of those positions is now around $7.5bn. Banxico announced yesterday that it would allow this position to roll off gradually, effectively over the next 12 months. Investors have read this as Banxico expressing a view that the peso has come far enough. And given the peso has been a prime beneficiary of the carry trade, we should not underestimate the risk of a further correction higher in USD/MXN ahead of this long US weekend. Yet USD/MXN has traded below 17.00 for very good reasons, including high carry and nearshoring trends. And given our view that the dollar does turn lower next year, we see the Banxico move as slowing rather than reversing the USD/MXN trend. Two further quick points: returns on the MXN carry trade may now come more from carry than nominal MXN appreciation, and speculation may grow in the TIIE market (Mexican swap curve) that Banxico may prefer early rate cuts after all if it does not want its currency to strengthen much more.
Portugal's Growing Reliance on Retail Debt as a Funding Source and Upcoming Market Events"

Metals Surge on China's Property Sector Stimulus and Positive Economic Data

ING Economics ING Economics 01.09.2023 10:59
Metals – Fresh stimulus from China for the property sector Base metals prices extended this week’s gains this morning as healthy economic data and fresh stimulus measures in China buoyed sentiment. Caixin manufacturing PMI in China increased to 51 in August compared to 49.2 in July; the market was expecting the PMI to remain around 49. This is the strongest manufacturing PMI number since February. Meanwhile, Beijing has announced fresh stimulus measures aimed at supporting the property sector. The People’s Bank of China has lowered the minimum downpayment for mortgages for both first-time buyers (from 30% to 20%) and second-time buyers (from 40% to 30%) while the minimum interest premium charged over the Loan Prime Rate has also been reduced. China is also allowing customers and banks to renegotiate interest rates on existing housing loans which could reduce interest expenses for borrowers. LME continues to witness an inflow of copper into exchange warehouses. LME copper stocks increased by another 3,675 tonnes yesterday, taking the total inventory to a year-to-date high of 102.9kt. Meanwhile, cancelled warrants for copper remain near zero levels, hinting that there may not be any inventory withdrawals from LME in the short term and total stocks could continue to climb over the coming weeks. Europe witnessed an inflow of 2,700 tonnes yesterday whilst 950 tonnes were added in the Americas and 25 tonnes in Asia. Gold prices have held steady at around US$1,940/oz as the latest economic data from the US eased some pressure on the Federal Reserve to continue with rate hikes. The core PCE (Personal Consumption Expenditure) deflator in the US increased at a flat 0.2% month-on-month in July, the second consecutive month at 0.2% which should help the Fed in getting inflation back on track to around 2%. On the other hand, data from Europe was not that supportive with core CPI falling gradually from 5.5% to 5.3% and CPI estimates remaining flat at 5.3%. The focus is now turning to today’s US non-farm jobs report which is expected to show a smaller rise in payrolls in August.
Upcoming Corporate Earnings Reports: Ashtead, GameStop, and DocuSign - September 5-7, 2023

Swiss Retail Sales Decline, Inflation Expected to Dip, US Unemployment Claims Drop

Kelvin Wong Kelvin Wong 01.09.2023 11:32
Swiss retail sales decline by 2.3% Swiss inflation expected to dip to 1.5% US unemployment claims drop to 228,000 US PCE Price Index rises by 3.3%     The Swiss franc has lost ground on Thursday. In the North American session, USD/CHF is trading at 0.8835, up 0.59%. Thursday’s Swiss retail sales for July looked awful, falling 2.3% m/m. This follows a revised gain of 1.5% in June. Market attention has now shifted to Swiss inflation, which will be released on Friday. Swiss inflation dropped to 1.6% in July, the lowest level since July 2022. The downtrend is expected to continue in August with a consensus estimate of 1.5%. Policy makers at the Swiss National Bank have to be pleased with the inflation rate. Switzerland boasts the lowest inflation rate in the developed world and both headline and core inflation are comfortably nestled in the central bank’s inflation target range of 0%-2%. Still, the SNB remains wary about inflation, with concerns that increases in rents and electricity prices could push inflation back up to 2%. Food inflation remains high and rose from 5.1% to 5.3% in July. Unlike other major central banks, the SNB meets quarterly, which magnifies the significance of each rate decision. At the June meeting, the central bank raised rates to 1.75% from 1.50% and hinted that further hikes were coming. The SNB has projected inflation will hit 2.2% in 2023 and 2024, above its target. That means the SNB expects to have to continue raising rates, although, as is the case with many other central banks, the peak rate appears to be close at hand. In the US, unemployment claims dropped to 228,000 last week, down from a revised 232,000 and below the estimate of 236,000. All eyes will be on Friday’s job report, with nonfarm payrolls expected to dip to 170,000, down from 187,000.   The Fed’s favourite inflation gauge, the PCE Price Index, increased in July by 0.2% for a second straight month, lower than the estimate of 0.3%. On an annualized basis, the PCE Price Index climbed 3.3% in July, up from 3.0% in June. Service prices rose by 0.4% in July, up from 0.3% from the previous month. The numbers indicate that the Fed’s battle with inflation is far from over, and the final phase of pushing inflation down to 2% may prove the most difficult. . USD/CHF Technical USD/CHF is testing resistance at 0.8827. Above, there is resistance at 0.8895 0.8779 and 0.8711 are providing support
Bank of Japan Governor Hints at Rate Hike: A Closer Look

Hungary Economic Outlook: Downgraded Full-year Growth Forecast Amidst Recession Concerns

ING Economics ING Economics 04.09.2023 15:30
Monitoring Hungary: Full-year growth outlook downgraded In our latest update, we reassess our Hungarian economic and market forecasts, as we turn gloomier on the full-year growth prospects. The marked collapse in domestic demand supports both external balances and disinflation. We also add some more hawkishness to our monetary policy call.   Hungary: at a glance Following weaker-than-expected activity data in the second quarter, we now see a recession in 2023 as we lower our full-year GDP growth forecast to -0.5%. The collapse in domestic demand is reflected in industry and retail sales data, while the value added share of both sectors remained weak in the second quarter. Real wage growth has been negative for 10 months, and even after a turnaround, we expect only a limited impact on consumption in the fourth quarter. The slowdown in economic activity is drastically reducing import demand, and we now expect both the trade and current account balances to end the year in surplus. Disinflation will continue amid constrained repricing power, with the headline and core measures falling below 8% and 10%, respectively by the end of the year.  After the September rates conversion, monetary authorities will likely switch off the autopilot mode and move to a second phase of policy normalisation, so we make a slight hawkish change to our interest rate forecast. We see a 2% of GDP slippage in this year's budget, which is likely to be addressed by a combination of consolidation and an upward shift of the target after the expected September revision. We remain positive on the forint, as the relative carry opportunity has improved in light of the latest guidance from the central bank. In the rates space, a possible upside surprise to inflation might be convincing enough for investors to adhere to the hawkish tone of the central bank, shifting short-end rates higher.   Quarterly forecasts   irst-half data prompts downgrade to our 2023 growth outlook Hungary has been in a technical recession for a year now, with economic activity contracting in all sectors except agriculture in the first half of 2023. The positive contribution from agriculture was not enough to pull the economy out of technical recession, as the collapse in domestic demand weighed on all sectors. Going forward, although real wages are likely to rise from September, this should have a limited impact on consumption. With double-digit interest rates for the rest of the year and with scarce fiscal room, investment activity will be severely constrained. On the export side, a looming global manufacturing recession is likely to weaken export prospects. Taking these factors into account, we have decided to revise our full-year growth forecast from 0.2% to -0.5% year-on-year, thus we now see a recession in 2023.   Real GDP (% YoY) and contributions (ppt)
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Addressing the 2% GDP Budget Slippage Expected in September: Hungarian Economic Update

ING Economics ING Economics 04.09.2023 15:34
The 2% of GDP slippage in the budget will be addressed in September The Hungarian budget posted a deficit of HUF 44.3bn in July, bringing the year-to-date cash flow deficit to 86% of the full-year target. The decline in domestic demand is weighing heavily on tax revenues. In this respect, VAT receipts in the first seven months of 2023 were only 1.5% higher than a year ago, compared to an average inflation of 23.2% in this period. We see a 2% of GDP slippage in this year's budget, which is likely to be addressed by a combination of consolidation and an upward revision of the target after the expected September revision. We see the EDP deficit target being raised by 0.5ppt to 4.4%, while a number of austerity measures are likely to be announced. From a financing perspective, the financing needs   Budget performance (year-to-date, HUFbn)   We believe the forint will benefit from the retuned hawkish message Since the beginning of August, the Hungarian forint has strengthened versus the euro from levels above 390 to below 380. This has happened despite the fact that the "higher for longer" narrative has gained momentum in the US, which has kept the dollar firmly bid. Not to mention the uncertainty surrounding the Australian LNG strikes, which caused volatility in gas prices. However, the forint seemed to shrug off these headwinds and closed the month with a gain of around 2.5% against the euro. Going forward, we remain constructive on the overall outlook for the HUF. As the central bank has reined in excessive rate cut expectations, the relative carry opportunity has definitely improved. In this respect, the forint can maintain its very attractive carry, the highest in the Central and Eastern European region and leads the emerging markets space despite 400bp of cuts so far. The NBH will carry out the second phase of monetary policy normalisation in such a way that HUF assets will be supported by the highest real interest rates in CEE. In addition, the country's external balances have improved significantly due to the slump in domestic demand, and we now expect the current account to post a full-year surplus. Taking these factors into account, we still believe that the forint can strengthen back to the 370 level against the euro by the end of this year. But the road there will be bumpy, with many red flags waving, from the fate of EU funds to the outcome of this year's budget review to the decisions of credit rating agencies.   CEE FX performance vs EUR (30 December 2022 = 100%)
RBA Expected to Pause as Inflation Moves in the Right Direction

RBA Expected to Pause as Inflation Moves in the Right Direction

Kenny Fisher Kenny Fisher 04.09.2023 15:42
RBA expected to pause US nonfarm payrolls rise slightly to 187,000 The Australian dollar has started the week with slight gains. In Monday’s European session, AUD/USD is trading at 0.6464, up 0.21%.   RBA expected to pause The Reserve Bank of Australia is expected to hold interest rates at 4.10% when it meets on Tuesday and a rate hike would be a huge surprise. The central bank has paused for two straight meetings and the odds of a third pause stand at 86%, according to the ASX RBA rate tracker. The most important factor in RBA rate policy is of course inflation. In July, CPI fell to 4.9% y/y, down from 5.4% y/y and better than the consensus of 5.2% y/y. Inflation is moving in the right direction and has dropped to its lowest level since February 2022. A third straight pause from the RBA will likely raise expectations that the current rate-tightening cycle is done but I don’t believe we’re at that point just yet. This is Governor Lowe’s final meeting and he is expected to keep the door open to further rate hikes. Incoming Governor Bullock stated last week that the RBA “may still need to raise rates again”, adding that the Bank will make its rate decisions based on the data. The RBA isn’t anywhere near declaring victory over inflation and has projected that inflation will not fall back within the 2%-3% inflation target until late 2025.   The week wrapped up with the US employment report for August. The Fed will be pleased as nonfarm payrolls remained below 200,00 for a third straight month, rising from a revised 157,000 to 187,000. Wage growth fell to 0.2% in August, down from 0.4% in July and below the consensus of 0.3%. The data cements a rate hold at the September 20th meeting, barring a huge surprise from the CPI report a week prior to the rate meeting. . AUD/USD Technical AUD/USD is testing resistance at 0.6458. Above, there is resistance at 0.6516 There is support at 0.6395 and 0.6337    
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Rates Spark: Close calls as EUR rates drift higher ahead of ECB Decision and US Market Return

ING Economics ING Economics 05.09.2023 11:38
Rates Spark: Close calls EUR rates have drifted higher, contemplating the chances of further ECB tightening. Returning US markets today could extend the momentum of the late Friday sell-off while busy issuance could add to the upward pressure. Eventually data decides for how long 10Y UST yields can be supported in the 4 to 4.25% area, with eyes this week on tomorrow's ISM services.   With the US out for Labor Day, EUR rates drifted higher at the start of the week with the usually more policy-sensitive belly of the curve in the lead. European rates' main focus remains the ECB, given the proximity of the next meeting and given that it's the final chance officials have to communicate their policy preferences ahead of the quiet period. ECB President Lagarde’s speech yesterday yielded little concrete information regarding the ECB's  next steps –  even though the speech centred around the importance of communication. She did remark that “action speaks louder than words”. While she was arguably talking more about what the ECB has already achieved, hiking rates by 425bp over a relatively short time span of 12 months, the comment surely resonates with the ECB’s hawks' current thinking about the upcoming decision. Over the weekend the ECB’s Wunsch already opined that "a bit more" tightening was necessary. Bundesbank’s Nagel delved into more technical matters around the ECB’s decision to end the remuneration of banks' minimum reserves. He argued that more should be done on reserves – if via not rates, it seems some hawks are ready to consider other options for tightening financial conditions. Important inputs to the upcoming decision are measures of expected inflation. Market based measures, such as the 5y5y forward inflation swap, have recently come off their peaks but remain mired in relatively elevated territory. The aforementioned 5y5y forward is still close to 2.6%. As ECB's Schnabel noted in last week's speech this is also a reflection of growing uncertainty surrounding the longer inflation outlook and could in turn reflect slowly eroding credibility of the ECB’s commitment to get inflation to 2%. Today the ECB will release its consumer survey which has seen 3y median inflation expectations already drop from 3% at their peak to 2.3% as of June. That is also ready close to 2%, but before the turmoil of 2022 median expectations were usually even closer to 2%. The June survey results also pointed to a more pronounced tail in the distribution, towards higher inflation outcomes.   The last ECB hike had little traction further out the curve
Turbulent Times Ahead: Poland's Central Bank Signals Easing Measures

Turbulent Times Ahead: Poland's Central Bank Signals Easing Measures

ING Economics ING Economics 08.09.2023 12:11
Dovish National Bank of Poland press conference and de-facto easing guidance The central bank is concerned about the rapidly deteriorating economic outlook and confident about further disinflation. Policymakers de facto presented a guidance for further easing. Economic conditions deteriorate more than expected According to the National Bank of Poland (NBP) governor the situation in the external environment has "radically changed". In particular, the German economy faces recession, which will negatively affect Polish exports. He also noted the disappointing developments in China. According to Governor Glapiński, the previously expected slowdown in the global economy is proving to be deeper and longer. With regard to domestic developments the Monetary Policy Council (MPC) chairman said that full-year GDP growth in Poland in 2023 would be low, close to zero, or even negative. The president expressed strong concerns about the outlook for economic growth, which will facilitate a further decline in inflation.   Inflation moderating faster than anticipated by the MPC In the opinion of  Governor Glapiński, inflation is no longer high, but "moderate", and will be close to "creeping" by the end of the year. In September, the NBP expects inflation to be slightly above 8.5%, which is already in single digits. Therefore, in the opinion of the NBP chair, the conditions outlined earlier, i.e. a fall in inflation to a single-digit level and projections indicating a rapid decline in inflation, have been met. Glapiński is strongly convinced that inflation will continue declining and sees no serious threats to such a scenario. He recalled that NBP projections that inflation should continue going down and may reach the upper bound (above the NBP target) in 2025, but there are external forecasts pointing that it could even happen in 2024. Similar to yesterday's post-meeting statement, during the press conference the NBP head ignored potentially pro-inflationary factors, i.e. rapid wage growth and expansionary fiscal policy, among others.   The overall tone of the conference: very dovish In our view, the tone of the conference was very dovish, with the chairman manifesting an aversion to positive real rates and even saying that before yesterday's cut, the real rate (at -3.4% vs. -10% in the first quarter of 2023) was "killing" for the economy. Also, the NBP governor presented a stong aversion to bear the disinflation cost in the form of sacrificed economic growth or a deterioration in the labour market. The Fed chairman clearly declares that some deterioration in the situation of workers is needed for inflation to decline. At the same time, Professor Glapiński has again declared that he tolerates inflation at 5%, which is higher than the NBP target (2.5%, +/-1%). The dovish stance was also manifested by a very tolerant approach to the weakening of the zloty. He considered yesterday's 2% drop in the currency a small change, as the zloty had previously strengthened 17%. In his opinion, such a weakening of the PLN has no impact on the CPI, especially in the face of the profound deflationary processes taking place abroad. The MPC's assessment of the economic situation and the disinflation factors also showed the Council's sensitivity to weaker GDP growth. The chairman stressed that the slowdown is deeper and more prolonged and the recovery is weak, which lowers inflation and causes currency fluctuations. He added that the deflationary process is mainly related to the economic slowdown in many countries. In our view, he attributed a relatively small role to receding supply shocks. We believe that the conference missed observations that other central banks point out. They say that the economic downturn is dampening inflation less than in previous business cycles because labour markets are relatively strong in the US and Europe. The same is true in Poland. Hence, many central banks are paying attention to stubbornly high services inflation.   Bottom line: further easing before the end of the year During the press conference, Glapiński presented a very dovish approach. He admitted that inflation was falling faster and the economic situation was deteriorating more than the Council's expectations. That was the main rationale behind the deeper-than-anticipated cut in the policy rate. At the same time, he presented a strong conviction that disinflation would continue: "we cut rates because we are confident that inflation will continue to fall". The MPC head refrained from outlining any clear forward guidance whatsoever and declared that future decisions would be data-dependent. However, we believe he sent a strong signal about future easing. In our view, the Council will continue to cut rates as long as CPI inflation (in YoY terms) continues to fall. In the NBP president's view, the pre-cut real rate (at the end of August it was -3.4% vs. -10% in the first quarter of 2023) is devastating for the economy. We note that, according to the NBP, by the end of the year CPI will fall from 10% YoY to 6-7%. That implies a 300bp increase in the real rate (it will be less negative). We assume that NBP rate cuts will continue but on a smaller scale than CPI deceleration. The market reaction to the NBP president's statements (weakening of the zloty seen yesterday and today along with further steepening of the yield curve) indicates that investors fear that rapid interest rate cuts may result in higher inflation in the medium term and the need for rate hikes.
US Inflation Rises but Core Inflation Falls to Two-Year Low, All Eyes on ECB Rate Decision on Thursday

Turbulent Times Ahead: Poland's Central Bank Signals Easing Measures - 08.09.2023

ING Economics ING Economics 08.09.2023 12:12
The Commodities Feed: Strong Chinese oil imports The rally in oil seems to be running out of steam, despite further constructive data releases. Continued strength in the USD is likely providing some headwinds to the market.   Energy - LNG strike action set to start The rally in the oil market appears to be running out of steam, at least for now, with ICE Brent settling a little under US$90/bbl yesterday and coming under some further pressure in early trading this morning. The continued strength in the USD will likely provide some headwinds, not just to oil, but to the broader commodities complex. EIA weekly inventory data, which was delayed by a day due to a public holiday earlier in the week in the US, was fairly constructive. US commercial crude oil inventories fell by 6.31MMbbls over the last week, leaving inventories at a little under 417MMbbls - the lowest level since December. The larger draw was driven by strong crude oil exports, which increased by 404Mbbls/d WoW to 4.93MMbbls/d. Meanwhile, refinery run rates continue to creep lower as we move deeper into refinery maintenance season. On the product side, gasoline inventories fell by 2.67MMbbls to a little under 215MMbbls - levels last seen back in November. Gasoline inventories should start to edge higher as we move further out of the driving season, although we will likely have to wait until after refinery turnarounds to see more meaningful builds. Distillate fuel oil stocks increased by 679Mbbls over the week, which again will provide some comfort to the market as we head into the winter months, although distillate stocks are still well below the 5-year average. The latest trade data from China yesterday was supportive. It shows that crude oil imports over August averaged 12.48MMbbls/d, up 21% MoM and 31% higher than year-ago levels. While we have seen stock-building over large parts of the year, refiners have also been operating at higher rates, due to stronger domestic demand as well as increased exports. Refined product exports over August totalled 5.89mt, up 23% YoY. This leaves cumulative refined product exports over the first eight months of the year at 42.51mt, up almost 43% YoY. Natural gas prices could get a boost higher today with strike action at Chevron’s Gorgon and Wheatstone LNG facilities set to start today. This strike action was originally set to start yesterday but was delayed due to ongoing negotiations. However, this morning the Offshore Alliance has said that industrial action will commence today at 13.00 local time. The initial phase of action will see only partial strikes. However, this will escalate over time with rolling 24-hour strikes to commence from 14 September.      
Positive Shift in Inflation Structure: Core Inflation Falls in Hungary

Positive Shift in Inflation Structure: Core Inflation Falls in Hungary

ING Economics ING Economics 08.09.2023 13:33
Inflation structure takes a favourable turn Upward pressure on inflation in August came mainly from fuel and other non-core items, and disinflation was more widespread than expected (including services). This explains why we're now seeing a stronger deceleration in core inflation than in the headline. The core reading fell 2.3ppt to 15.2% YoY. This is not just a base effect phenomenon, as the month-on-month print was 0.2%. Moreover, over the last three months, core inflation has averaged 0.247% MoM, which is in line with the central bank's target of 3% annualised inflation. We are not saying the job is done, but the underlying inflation performance is encouraging. Other underlying indicators, such as the sticky price inflation calculated by the National Bank of Hungary, are also promising and suggest that price pressures are continuing to ease in the deeper layers of the economy. Hungary is slowly but surely coming out of the woods.   Headline and underlying inflation measures (% YoY)     Single-digit inflation achievable by November In light of today's data, a single-digit inflation rate at the end of the year seems certain. If there are no further price shocks, we could even see a rate below 10% as early as November. If we see a continuation of the recent repricing trend, and based on retail price expectations, we can be hopeful that the core reading will reach the sub-10% range by December. When it comes to average headline inflation, we have not changed our view and are looking for an inflation rate of around 18% in 2023 on average.     The correlation between retail price expectations and core inflation   Looking ahead to next year, we're expecting average inflation to be at around 5.0% – although we still see some upside risks. The expected dynamic wage outflows next year should translate into significant positive real wage growth. Households with savings in inflation-linked retail bonds should also see a large coupon payment in the first quarter of 2024. Should the reinvestment rate turn out to be lower than expected, the rising consumption propensity could bring back the strong repricing power of companies on the back of boosted domestic demand. Upcoming tax changes – such as the increase in fuel excise duty and the hike in road tolls – could also lead to second-round effects. On the other hand, recessionary risks in the developed world and the renewal of corporate energy contracts expiring this year on much more favourable terms will help to partially offset these risks.   No room for complacency in monetary policy In our view, monetary policy is unlikely to be significantly influenced by inflation developments in August. It is almost out of the question that the central bank will cut the effective rate to 13% in September, merging this with the base rate. The National Bank of Hungary will reduce the complexity of the monetary policy to some extent. However, given the risks to financial markets (mostly FX markets) and the evolution of global monetary policy with higher-for-longer narratives, the central bank may adopt a more hawkish stance than the market consensus after September, which could include leaving the effective interest rate unchanged for one or two months.    
Australian Employment Surges in August Amid Part-Time Gains, While US Retail Sales and PPI Beat Expectations

The Japanese yen edges higher amid BoJ policy comments

ING Economics ING Economics 08.09.2023 13:45
The Japanese yen is slightly higher on Thursday. In the European session, USD/JPY is trading at 147.39, down 0.19%. The yen can’t seem to find its footing and has dropped close to 1% this week. Earlier today, the yen fell as low as 147.87, closing in on the 148 line which has held since October 2022. Bank of Japan policy makers don’t make public statements or hold interviews nearly as much as Fed members, and I must admit to being pleasantly surprised at seeing that two BoJ officials had made public comments in as many days. I have found the Fed to be considerably more transparent than the BoJ, and the more we hear from BoJ policy makers, the better, especially during a time of expectations of a shift in BoJ policy. On Wednesday, Bank of Japan member Hajime Takata said that the BoJ needed to “patiently maintain” its massive monetary stimulus, noting that the central bank would need a year to determine whether recent wage increases were sustained. The BoJ has insisted that it will not tighten policy until it sees evidence that inflation is sustainable, such as higher wage growth. What was more interesting was that Takata said that Japan’s economy is “finally seeing early signs of achieving the BoJ’s 2% inflation target”. This may not be a ringing endorsement that the target is close, but at least is an acknowledgment of broad inflationary pressures, which the BoJ has tended to downplay despite core CPI exceeding the 2% target for 16 consecutive months. On Thursday, BoJ member Junko Nakagawa had a more dovish message, saying that the central bank needed to maintain its ultra-loose monetary policy and argued that there was an “equal degree of upside and downside risks to the inflation outlook”, which made it difficult to determine when inflation might hit 2% in sustainable manner. The BoJ next meets on September 22nd and the markets will be looking for hints of a shift in policy, which could have major ramifications on the direction of the Japanese yen.   USD/JPY Technical USD/JPY is testing support at 147.58. Below, there is support at 146.71 1.4810 and 1.4893 are the next resistance lines    
Strong August Labour Report Poses Dilemma for RBA: Will Rates Peak or Continue to Rise?

Strong August Labour Report Poses Dilemma for RBA: Will Rates Peak or Continue to Rise?

ING Economics ING Economics 14.09.2023 08:06
Australia: Strong labour report complicates RBA decision Although most of the jobs created this month were part-time, these have a habit of turning into full-time jobs, with all that this implies for higher spending power and other benefits. This pushes the pendulum back a little in favour of some further RBA tightening.   August labour report Keeping up its reputation for being an unforecastable piece of data, Australia's August labour report surprised strongly on the upside. A total of 64,900 new jobs were created in August. And although almost all of these were part-time jobs (62,100), such jobs have a habit of becoming full-time in the months ahead, which will also imply higher wages, greater job security, and better benefits - all things that usually go hand in hand with consumer confidence and stronger consumer spending.  The chart below shows the evolution of Australian employment smoothed over three months. What is evident is that although full-time employment had been slowing, the ongoing rise in part-time jobs might presage a renewed pick up in full-time jobs in the months ahead.  This would be a problem because the Reserve Bank of Australia (RBA) has been trying to cool the economy enough to bring inflation down. It has certainly made some good progress this year, getting the headline monthly inflation rate down to 4.9% in July, and the wage growth figures have also been surprisingly well-behaved. But just like the US, where inflation is now rising again at a headline level, Australian inflation has used up all the helpful base effects from last year, and the going will be a lot harder in the months ahead until we get to the November data when it should start to improve again.    Rates peaked or not? We have been wrestling with our RBA rate call, coming very close this month to chopping out our forecast for one final rate hike before the end of this year - possibly at the November meeting. We are glad now that we didn't remove this because the data flow on the activity side seems to be holding up better than would be consistent with further decent progress towards the RBA's inflation target.  Presentationally, it also might be useful for the new RBA Governor, Michelle Bullock, to stamp her authority on markets and establish a reputation for not taking risks with inflation. This would be better done early in her tenure before minds start to get made up, on the assumption that central banks still follow the implications of the seminal Barro and Gordon research.  So for now, the final 25bp cash rate hike to 4.35% remains part of our forecast. We will need to see further solid progress on inflation reduction, as well as some more concrete signs of slowing activity and domestic demand before we ditch it.   
BoJ Governor Hints at Possible Policy Normalization Amidst FX Market Speculation

BoJ Governor Hints at Possible Policy Normalization Amidst FX Market Speculation

FXMAG Team FXMAG Team 14.09.2023 08:52
In an interview with the Yomiuri, BoJ Governor Kazuo Ueda indicated that the central bank could have enough information and data by the end of the year to judge whether wages will continue to rise at a pace that is necessary to achieve the 2% price stability target. However, back in April, Governor Ueda indicated that next year’s annual wage bargaining will likely become a key factor in deciding the future of monetary policy but the BoJ could make a decision on whether the 2% inflation target accompanied by wage growth is achievable at an earlier point depending on the data that becomes available beforehand. The governor’s latest remark is a repeat of his previous comments saying the central bank is of the view that it is ready to normalise its policies once conditions are satisfactory for such moves. Instead, the latest comment was likely made to combat speculative moves in the FX market, which could act as a hindrance to monetary policy. As long as markets are pricing in a Fed rate cut sometime next year, the BoJ will likely continue with the current monetary easing policies. We continue to expect that the BoJ will likely start the normalisation process by exiting from the YCC framework in CY25, once the global economy enters the next cyclical recovery. The BoJ will likely remain cautious of any major policy changes as long as the central bank maintains that “there are extremely high uncertainties for Japan's economic activity” and to not repeat past mistakes of premature policy tightening, especially as the government is maintaining a strong commitment to the Abenomics policy framework to pull Japan completely out of deflation. On the other hand, the risk scenario is if the global economy remains resilient and markets stop pricing policy rate cuts by key central banks next year, the BoJ could start the normalisation process in CY24 under the judgement that the global economy will remain strong.   In an interview with the Yomiuri, BoJ Governor Kazuo Ueda indicated that the central bank could have enough information and data by year-end to judge whether wages will continue to rise at a pace that is necessary to achieve the 2% price stability target. Markets reacted to the interview as a hint that the central bank could start the normalisation process much earlier than previously anticipated.   However, Governor Ueda has made similar remarks before, and the latest comment is likely not a change in the central bank’s or the governor’s views. Back in April, Governor Ueda indicated during his press conference that next year’s annual wage bargaining will likely become a key factor in deciding the future of monetary policy, but the BoJ could make a decision on whether the 2% inflation target accompanied by wage growth is achievable at an earlier point depending on the data that becomes available beforehand.   The governor’s latest remark is a repeat of his previous comments saying the central bank is of the view that it is ready to normalise its policies once conditions are satisfactory for such moves. The remark was likely made to combat speculative moves in the FX market, which could act as a hindrance to monetary policy. In other words, the governor’s statement is likely similar to those typically made by the Minister of Finance and other MoF officials where they issue warnings on volatility in the FX market verbally but do not implement any actual intervention moves.
Strong Employment Surge in Australia: Is a Reversal in AUDUSD Imminent?

Strong Employment Surge in Australia: Is a Reversal in AUDUSD Imminent?

Craig Erlam Craig Erlam 14.09.2023 15:11
Australian employment increased by 64,900 in August (2,800 full-time, 62,100 part-time) Participation hits 67%, a new high Is a double bottom forming in AUDUSD? The Australian jobs data on Thursday was surprisingly good, with the number of new jobs created vastly exceeding expectations, although the bulk were in part-time roles. Participation also unexpectedly improved, hitting 67% for the first time which will be very welcomed by the central bank as it, and every other one around the world, seeks to defeat inflation while achieving a soft landing. That job will be much easier if the tightness in the labour market is eased through more people joining it, rather than people losing their jobs at higher interest rates bite. Despite these promising figures, markets are still positioning for another possible rate hike from the RBA over the coming meetings under the new leadership of Governor Michele Bullock. One more hike between now and the middle of next year is around 40% priced in which is arguably quite high under the circumstances. RBA Interest Rate Probability Source – Refinitiv Eikon   The second is the potential double bottom that’s now formed during that consolidation period. With the neckline around 0.6520, a break above here could be quite a bullish move and, in theory, offer a possible price projection based on the size of the pattern. Obviously, there are no guarantees but a break of the neckline would make things interesting.
AUD/USD Analysis: Australian Dollar Steady Amidst RBA Transition and US Economic Data

AUD/USD Analysis: Australian Dollar Steady Amidst RBA Transition and US Economic Data

Kenny Fisher Kenny Fisher 18.09.2023 15:26
The Australian dollar continues to drift as we start the new trading week. In Monday’s European session, AUD/USD is trading at 0.6438, up 0.11%. The Reserve Bank of Australia releases its minutes of this month’s meeting. The RBA extended a pause in rates for a third month, holding the official cash rate at 4.10%. This was ex-Governor Philip Lowe’s final meeting. Lowe noted that “passed its peak” but was “still too high and will remain so for some time yet”, as he kept the door open to further rate hikes. The markets are more dovish and are looking ahead to the RBA trimming rates sometime in 2024. Investors will be looking for clues in the minutes with regard to future rate moves. Michelle Bullock takes over today as the new Governor of the RBA. Bullock is not expected to make any major policy shifts and has stated that the upcoming rate decisions will be data-dependent. The new governor will have her hands full with implementing major changes at the bank, after a government committee urged an overhaul at the central bank which is intended to streamline the Bank’s activities and create greater transparency. The US ended last week on a mixed note. The Empire State Manufacturing Index surprised to the upside, jumping to 1.9 in September from -19 in August, above the market consensus of -10. The UoM consumer sentiment index slowed to 67.7 in September, down from 69.5 in August and shy of the market consensus of 69.1 points. Inflation Expectations fell to 3.1% in August, down from 3.5% in July and the lowest level since March 2021. This is another sign that inflation is weakening and supports a pause at the Federal Reserve meeting on Wednesday. The markets have priced in a pause at 99%, according to the CME FedWatch tool, up from 92% one week ago.   AUD/USD Technical AUD/USD tested support at 0.6428 earlier. The next support line is 0.6381 0.6477 and 0.6524 are the next resistance lines  
Crude Oil Prices Continue to Rise Amid Tight Supply and Economic Uncertainty

Bank of England's Interest Rate Dilemma Amid High Inflation

InstaForex Analysis InstaForex Analysis 27.09.2023 13:46
In order to understand how the Bank of England is going to act at the remaining two meetings in 2023, we need to consider its potential for raising interest rates. The first and most crucial indicator that the central bank (and the markets) has been relying on for some time is inflation. However, as of September, inflation remains extremely high, well above the target level. One might assume that the BoE will continue to hike rates, but in September, it took a pause. A pause can only mean two things: either the BoE is preparing to end the tightening process, or it has already completed it     BoE Governor Andrew Bailey and some other members of the BoE's Monetary Policy Committee have mentioned that they expect inflation to drop to 5% by the end of the year. A 5% inflation rate is still very high, 2.5 times above the target. If the BoE is already prepared to conclude its tightening, it may not achieve the target. Furthermore, there's no guarantee that inflation won't start accelerating again.   For instance, US inflation has been rising for the past two months. All I want to convey with these arguments is that it's still too early to assume that inflation can return to 2% at the current interest rate level. Based on that, I believe that the BoE has exhausted its potential for rate hikes, and this is the main reason for the pause in September. Now, the central bank will only raise rates if inflation starts to accelerate significantly. And in that case, the 2% target may be forgotten for several years even with a peak rate, but we could still see 1-2 more emergency rate hikes. I also want to note that the BoE (like the European Central Bank) is counting on holding rates at the peak level for an extended period to bring inflation back to 2%. This was mentioned after last week's meeting.   The Monetary Policy Committee expects inflation to slow down further, but Bailey says cutting rates would be "very premature". Four out of nine committee members voted for a rate hike at the previous meeting. In addition, the Monetary Policy Committee said its balance sheet of government debt will shrink by £100 billion. Based on the analysis conducted, I came to the conclusion that a downward wave pattern is being formed.   I still believe that targets in the 1.0500-1.0600 range for the downtrend are quite feasible, especially since they are quite near. Therefore, I will continue to sell the instrument. Since the downward wave did not end near the 1.0637 level, we can expect the pair to fall to the 1.05 level and slightly below. However, the second corrective wave will start sooner or later.     The wave pattern of the GBP/USD instrument suggests a decline within the downtrend. At most, the British pound can expect the formation of wave 2 or b in the near future. However, even with a corrective wave, there are still significant challenges. At this time, I would remain cautious about selling, as there may be a corrective upward wave forming in the near future, but for now we have not seen any signals for this wave yet.  
ECB Warns of Financial Stress, Fed Maintains Caution: Euro Reacts

Turbulent Times: Chile's Central Bank Adapts to Global Storms

ING Economics ING Economics 27.10.2023 15:11
Global storms blow Chile's central bank off course Chile’s central bank is blaming difficult external conditions for its decision to slow the pace of rate cuts and suspend its FX reserve accumulation programme. This may bring questions for other central banks in the region.   50bp instead of 75bp Late yesterday, the Central Bank of Chile (CBC) delivered a 50bp rate cut. This brings the overnight target rate down to 9.00%. The move was a surprise in that the CBC had guided over recent meetings for the target rate to end the year in the 7.75-8.00% area. Investors had assumed that with the policy rate at 9.50% before yesterday and two meetings left, two 75bp cuts would be forthcoming. Chile's central bank was quite explicit in its rationale for the smaller rate cuts. Its domestic macro scenario remained very much on track. The economy was slowing, inflation was falling and longer-term inflation expectations were anchored at 3%. What was not on track was the international scenario, where higher US yields on the back of a hawkish Federal Reserve and fiscal concerns, a strong dollar and high oil prices were all weighing heavily on Chilean asset markets and raising concerns over financial stability. The CBC statement provided little forward guidance as to the size of future rate cuts, but presumably, the market will continue to reprice the pace and terminal rate of the CBC easing cycle. When the central bank opened its easing cycle in July with a 100bp rate cut (to 10.25%), investors priced in rates being cut to 3.50% next year. The pricing of the low point in the easing cycle has been pared back to just under 5.00% now and could be raised further after yesterday’s caution from the CBC.   Weak peso prompts suspension in FX reserve rebuild In a sign of just how sensitive the central bank is to recent weakness in Chile’s peso, the CBC yesterday announced it was suspending two schemes designed to rebuild FX reserves. One was the suspension of June’s plan to add $10bn to its FX reserves over a 12-month window. This plan was suspended yesterday, with only $3.6bn accumulated. The other was to unwind its short dollar position in its Non-Deliverable Forward (NDF) book. Last year, the CBC had sold $9.1bn through the NDF market to protect the peso. In suspending the unwind programme, it leaves a $2.7bn short dollar position to roll over. This will have been a disappointing announcement for the central bank to have made yesterday. It had been seeking to rebuild FX reserves after losing virtually half of them last year trying to fight peso weakness. Curtailing the reserve rebuild programme sees the CBC stop short of reaching the goals it had set to improve its FX reserve adequacy metrics.   Sovereign credit: Chile stands out among Latin American peers Chile retains one of the strongest sovereign credit profiles in Latin America with its A2/A/A- ratings, despite some deterioration in recent years over political volatility and fiscal concerns. Chile’s sovereign CDS spreads and dollar bond spreads trade at the tight end of the region, and around the middle of its rating tier, with comparables such as Poland and Saudi Arabia. Investor perception, therefore, is of Chile as a more stable investment than regional peers such as Brazil and Mexico, and much more than the extreme example of Argentina.   Chile still boasts a strong sovereign rating (rating versus CDS)   Market implications Chile’s financial markets are closed today (27 October) for a national holiday. When they re-open – assuming the international conditions have not deteriorated any further – Chile’s peso should get a lift. However, with the dollar environment staying strong, we doubt investors would want to chase USD/CLP much below the 900. This remains our year-end target. Chile’s swap market should see some decent re-pricing at the short end of the curve. Traders had assumed that the CBC was on target to take the policy rate to 7.75-8.00% by year-end. These expectations can be pared back by 30bp – perhaps by 50bp. Chile’s moves also raise questions for some other banks in the region. Brazil also started rate cuts this summer and firmly guided for 50bp rate cuts at every meeting this year. Brazil’s central bank meets to set rates next week. The market now prices 48bp and 46bp cuts for the 3 November and 14 December meetings respectively. Brazil’s real has held its value much better than Chile’s peso, and its central bank may therefore be more tempted to push ahead with 50bp cuts this year – but the scale of the 2024 easing cycle could be pared back still further. Expectations for Banxico’s easing cycle were always priced more conservatively than in Chile and Brazil. But Chile’s more cautious move stands to cement current pricing that Banxico will not be cutting rates for another six months – unless the pricing of the Fed cycle adjusts sharply lower. And like others in the region, the terminal rate in Banxico’s easing cycle has already been re-priced 150bp higher over the last three months. Like Chile, Banxico also has a forward book unwind programme underway at the moment. As we noted when the plan to unwind its $7.5bn short dollar position was announced in September, the majority of that unwind would be front-loaded into September and October. Mexico’s currency has generally performed better than Chile’s and given that a decent chunk of the unwind has taken place, we doubt Banxico would follow CBC and scrap its own forward book programme.    In general, high US interest rate volatility has undermined the carry trade and weighed heavily on the Latam high-yielding currencies which had been its beneficiary. Unless the Fed can usher in some more benign conditions, we expect choppy conditions for USD/Latam continuing into year-end.
Renewable Realities: 2023 Sees a Sharp Slide as Costs Surge

Bank of Japan's YCC Tweaks Disappoint Markets: USD/JPY Rises Above 150

ING Economics ING Economics 02.11.2023 12:05
Bank of Japan disappoints markets again despite another YCC tweak It seems the Bank of Japan has opted for a little bit of everything by changing its reference rate for YCC, revising up inflation outlooks and scrapping daily fixed-rate bond purchase operations. However, markets appear disappointed with the BoJ's willingness to keep its YCC framework, with initial reactions showing USD/JPY and JGB yields moving higher.   Perhaps today's tweak is not that minor after all Following a local media leak on a possible adjustment to the Bank of Japan's Yield Curve Control (YCC) framework, market sentiment quickly shifted from no change in YCC to some change – such as lifting the upper limit ceiling from the current 1.00% to 1.25%, or even higher. The BoJ's verdict was eliminating the effective upper ceiling of 1%, but keeping 1% as a reference (raised from 0.5%) and ending daily fixed-rate bond purchases. This will give the central bank more flexibility but adds more uncertainty to the market. Many market participants probably think that today's BoJ tweaks are minor, as major policy settings remained unchanged, the reference rate was kept at 1%, and the fiscal year 2025 (FY25) inflation outlook remained below 2%. While it's true that the BoJ tweaked the wording from the upper ceiling to the reference, 1% is still 1%. However, in our view, ending the daily bond purchase program is a major step taken by the Bank of Japan today. It means that it won't explicitly fix the rate any more and will let the market decide. The BoJ can now allow the JGB 10Y yield above the reference, but certainly will not let it get too far. The revised inflation outlook also hints at possible policy changes in the future, but it has yet to be reached with confidence as the FY25 outlook was kept below 2%. For the time being, the BoJ will continue to maintain its YCC policy and buy more time to anchor long-tenor yields down to support the economy until it confirms continued wage growth beyond this year. Governor Kazuo Ueda also said at its press conference that next spring's wage negotiations are a key event.    BoJ's newest outlook report suggests a pivot is coming There are two surprises in the newest outlook report that caught our eye. The inflation outlook for FY24 is too high, but too low for FY25. The fiscal year 2023 and 2024 inflation outlooks were upwardly revised to 2.8% from the previous 2.5% and 1.9% respectively, and inched up only to 1.7% from the previous 1.6% for 2025. We had expected to see an above 2% inflation outlook for FY24, but the following year's outlook should remain untouched. Now, the Bank of Japan forecasts that inflation will likely rise steadily at 2.8% in FY23 and FY24, suggesting that it is set to remain above target throughout FY24. The BoJ seemingly tried to send a message to the market that it considers the current overheated inflation to be transitory by keeping its outlook for FY25 below the 2% target – but at the same time, the higher projection may secure room for the central bank to be flexible on how to respond to higher inflation next year.    Inflation will likely remain high throughout FY 24   The next quarterly outlook report will be out in January, and perhaps the Bank of Japan can scrap the YCC at this point. It will heavily depend on global bond market trends. By then, market rates are expected to step down in line with UST moves, and the BoJ will have the right opportunity to abandon YCC as pressure on the JGB also subsides a bit. With today's policy decision, we have revised up our JGB 10Y forecasts for the fourth quarter of 2023 onwards. The BoJ's bond purchase operations will likely increase to keep market rates not too far from the reference rate of 1%. We're also maintaining our long-standing first rate hike call for the central bank in the second quarter of next year. We have argued for sustainable inflation, the closing of negative output gaps and healthy wage growth as prerequisites for the BoJ's action, and we believe that the central bank's last puzzle of healthy wage growth could be met by the second quarter of 2024.   FX: USD/JPY will keep policy makers busy A disappointingly modest adjustment to the BoJ's YCC strategy has seen USD/JPY push back above 150. As above, it seems like the BoJ did not want to risk a JGB market meltdown by opting for larger steps today. Unless US data softens sharply or the Federal Reserve surprises by dropping its hawkish bias, it looks like USD/JPY can push onto the 152 area – marking last October's intra-day spike high. Depending on how USD/JPY gets to 152 – quickly, or in a slow grind – this will probably determine how quickly Japanese authorities intervene. In total, Tokyo sold $70bn in September and October last year, with around half of that coming when USD/JPY spiked to 152 in late October. On the subject of FX intervention, we had been expecting the Ministry of Finance to release FX intervention figures for October today, but have not seen anything yet. We think that Japanese authorities, like the Chinese authorities, are praying for a turn in the dollar to take pressure off their own currencies. And whilst the dollar stays strong, intervention (or in China's case, funding squeezes) will be used to ride out the strong dollar storm. Today's Bank of Japan move suggests USD/JPY continues to trade around 150 into year-end and has a better chance of turning lower in the first quarter of next year when the dollar should be softer and the BoJ could exit YCC more forcefully.
Brazilian Central Bank (BCB) to Proceed with 50bp Interest Rate Cut Today Amidst Challenging External Environment

Brazilian Central Bank (BCB) to Proceed with 50bp Interest Rate Cut Today Amidst Challenging External Environment

ING Economics ING Economics 02.11.2023 12:31
BRL: BCB to push ahead with 50bp cut today Brazil’s central bank (BCB) meets to set rates today. Economists and investors are unanimous that, unlike Chile last week, the BCB will not be blown off course from its forward guidance. Here a 50bp cut has been well-telegraphed, which would take the selic policy rate to 12.25%. Since embarking on its easing cycle in August the BCB’s statement has consistently guided for 50bp cuts at future meetings. We would expect that phrasing to re-appear today. However, market pricing now only looks for a 44bp cut at the December meeting and the depth of the 2024 easing cycle has been re-priced 125bp higher over recent months. This has largely been down to higher US yields and the strong dollar, but more recently has been a function of President Lula late last week questioning his government’s commitment to a zero budget deficit next year. The fiscal side has long been Brazil’s Achilles heel and the BCB has not been shy about emphasising fiscal risks in its statements. We think the BCB will have to acknowledge the more difficult external environment. And that could see the BCB easing cycle priced a little shallower still. That could be seen as a mild Brazil real positive. Yet, fiscal risks look set to hold the real back and we much prefer exposure to the Mexican peso. Look for BRL/MXN to drop back to 3.50 later this year.
The December CPI Upside Surprise: Why Markets Remain Skeptical About a Fed Rate Cut in March"   User napisz liste keywords, oddzile je porzecinakmie ChatGPT

Bank of England Holds Rates Steady Amid Growing Rate Cut Expectations for 2024

ING Economics ING Economics 02.11.2023 15:10
Bank of England keeps policy steady but pushes back against rate cut expectations The Bank of England may have kept rates on hold, but we're seeing the first signs of pushback against financial markets which are starting to price in rate cuts for 2024. We think investors are right to be thinking that way and we expect the first cut over summer next year.   The Bank of England has kept rates on hold for a second consecutive meeting and, barring some major unpleasant surprises in the data between now and Christmas, it’s fair to say the tightening cycle is over. On the face of it, this latest decision looks neither surprising nor controversial. Six members voted to keep rates on hold and three for a hike, in line with what more or less everyone had expected. With the exception of Sarah Breeden, where this was her first meeting, the remaining members voted exactly as they did in September – a recognition that we’ve had very little data since then, and what we have had hasn’t moved the needle for policy. But beneath the surface, we detect hints that the Bank is uncomfortable with markets beginning to price rate cuts for next year. Ahead of the meeting, investors were pricing at least two 25 basis point cuts by the end of 2024. BoE Governor Andrew Bailey is quoted as saying it’s “too early” to be talking about cuts, while the statement says rates need to be restrictive for “an extended period of time”. That's a slight hardening in the language compared to what we'd seen in August and September. And while the Bank’s models forecast inflation a touch below target in two years' time – which is considered to be the time horizon over which monetary policy is more effective – they show headline CPI at 2.2% once an “upside skew” is applied. That’s policymakers trying to tell us that, at the margin, the amount of tightening and subsequent easing may be insufficient to get inflation back to target. That said, the committee is visibly putting less weight on its forecasts than it once might have done given ongoing uncertainty and poor model performance.   The Bank's models point to inflation at or just below target in two years' time   As has been clear since the start of the summer, this is a central bank whose overriding goal now is to convince investors that it won’t need to cut rates for a significant period of time. However, we believe markets are right to be thinking about rate cuts from next summer. As the BoE itself acknowledges, much of the impact of past tightening is still to hit the economy. We estimate the average rate on mortgage lending, which so far has gone from 2% to 3.1%, will go to 3.8% by the end of 2024 as more homeowners refinance. It will be higher still if the Bank ultimately doesn’t cut rates next year. We also forecast core inflation to be below 3% by next August – and assuming the jobs market continues to gradually weaken, we think the Bank will be in a position to take its foot off the brake. We’re forecasting a gradual easing cycle that takes Bank Rate back to just above 3% by the middle of 2025 from the current 5.25% level.
The December CPI Upside Surprise: Why Markets Remain Skeptical About a Fed Rate Cut in March"   User napisz liste keywords, oddzile je porzecinakmie ChatGPT

The Czech National Bank's Prudent Approach: Unchanged Rates and Economic Evaluation

ING Economics ING Economics 03.11.2023 14:01
Czech National Bank review: Staying on the safe side The CNB decided to wait for the start of the cutting cycle due to concerns about the anchoring of inflation expectations, high core inflation in its forecast and possible spillover into wage negotiations. The December meeting is live, but we slightly prefer the first quarter of next year. Economic data will be key in coming months.   Rates remain unchanged for a little longer The CNB Board decided today to leave rates unchanged despite expectations of a first rate cut. Five board members voted for unchanged rates at 7.00% and two voted for a 25bp rate cut. During the press conference, Governor Michl justified today's decision on the continued risk of unanchored inflation expectations, which may be threatened by the rise in October inflation due to the comparative base from last year. This could seep into wage negotiations and threaten the January revaluation, according to the CNB. At the same time, the board still doesn't like to see core inflation near 3% next year. So overall, it wants to wait for more numbers from the economy and evaluate at the December meeting, which the governor said could be another decision on whether to leave rates unchanged or start a cutting cycle   New forecast shows weaker economy and more rate cuts The new forecast brought most of the changes in line with our expectations. The CNB revised the outlook for GDP down significantly and the recovery was postponed until next year. Headline inflation was revised down slightly for this year but raised a bit for next year. The outlook for core inflation will be released later, but the governor has repeatedly mentioned that the outlook still assumes around 3% on average next year. The EUR/CZK path has been moved up, but slightly less than we had expected. 3M PRIBOR has been revised up by a spot level from the August forecast, implying now the start of rate cuts in the fourth quarter of this year and a larger size of cuts next year. For all of next year the profile is 30-65bp lower in the rate path, indicating more than 100bp in cuts in the first and second quarter next year.   New CNB forecasts   First cut depends on data but a delay until next year is likely Today's CNB meeting did not reveal much about what conditions the board wants to see for the start of the cutting cycle and given the governor's emphasis on higher inflation in the next three prints, we slightly prefer February to December. The new inflation forecast indicates 8.3% for October and levels around 7% in November and December. The last two months seem too low to us, but given the announced energy price cuts, this is not out of the question. So this is likely to be a key indicator looking ahead as to whether or not it will give enough confidence to the board that inflation is under control. Another key question is whether the CNB will move up the date of its February meeting so that it has January inflation in hand for decision-making.   What to expect in FX and rates markets EUR/CZK jumped after the CNB decision into the 24.400-500 band we mentioned earlier for the unchanged rate scenario after the decision. For now, the interest rate differential does not seem to have changed much after today's meeting, which should not bring further CZK appreciation. On the other hand, the new CNB forecast showed EUR/CZK lower than we expected and the board seems more hawkish. Therefore, we could see EUR/CZK around these levels for the next few days if rates repricing remains roughly at today's levels. However, we expect pressure on a weaker CZK to return soon as weaker economic data will again increase market bets on a CNB rate cut, which should lead EUR/CZK to the 24.700-24.800 range later. In the rates space, despite the high volatility, the market did not change much at the end of the day. The very short end of the curve (FRAs) obviously repriced the undelivered rate cut, however the IRS curve over the 3Y horizon ended lower, resulting in a significant flattening of the curve. The market is currently pricing in more than a 150bp in cuts in a six-month horizon, which in the end is not so much given the possible acceleration of the cutting pace after the January inflation release. Even though the CNB didn't deliver today's rate cut, we think the central bank is more likely to catch up with the rate cuts next year rather than the entire trajectory shifting. Therefore, we see room for the curve to go down, especially in the belly and long end.
Shift in Central Bank Sentiment: Czech National Bank Hints at a 50bp Rate Cut, Impact on CZK Expected

Czech Inflation Inches Up: Analyzing the Numbers and Future Rate Cut Prospects

ING Economics ING Economics 10.11.2023 11:24
Czech inflation rises on base effects Inflation rose in October, as expected, due to the effect of government measures last year. However, the trend remains disinflationary. Inflation will fall again in November and we are likely to approach inflation targets in January. However, the central bank will probably want to have the January number in hand before cutting rates.   Seasonal effects kick-started inflation again Headline inflation accelerated again from -0.7% to 0.1% month-on-month in October, which translated into a rise from 6.9% to 8.5% year-on-year due to the base effect from last year when the government introduced measures to reduce household energy prices. The statistical office mentions that without this effect, inflation in October would have been 5.8% YoY. The result was 0.1ppt above the market's and our expectations and 0.2ppt above the Czech National Bank's forecast. However, the range of estimates was very wide and biased towards higher numbers this time.   Food prices rose for the first time since May, up 0.8% MoM, which was an expected seasonal rebound but we had expected a smaller increase. Housing prices fell 0.5% MoM dragged down by energy prices, in line with our forecast. Fuel prices were flat for the first time after a large increase in recent months. And clothing prices rose 2.4% MoM, in line with seasonal expectations.   Headline inflation breakdown (pp)   Above the CNB forecast but still close Core inflation fell from 5.0% to 4.5% YoY, according to our calculations. The CNB expects 4.0% on average for the fourth quarter, implying that today's number should be close to the central bank's forecast. However, as always, we will see the official numbers later today. Our fresh nowcast indicator for November shows 7.3% YoY, which would again be slightly above the CNB's forecast (7.1%) but less than we expected earlier. Surprisingly for us, the central bank left rates unchanged in November and, as we mentioned in the CNB review, the board seems to be more cautious than we expected. So today's numbers will not be a game changer and as we mentioned earlier, for now, we see February as the more likely opportunity for a first rate cut given that we are unlikely to see much information changing the overall picture until the December meeting.
Market Digests Optimistic Fed Outlook: Soft Economic Data Supports 'Soft Landing' Scenario

Market Digests Optimistic Fed Outlook: Soft Economic Data Supports 'Soft Landing' Scenario

ING Economics ING Economics 16.11.2023 12:00
Happily digesting By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Yesterday was about digesting Tuesday's softer-than-expected US CPI data, feeling relieved that the US Senate passed a stopgap spending bill to avert a government shutdown and welcoming a softer-than-expected producer price inflation, and a softer-than-expected decline in US retail sales – which came to support the idea that, yes, the US economy is probably slowing but it is slowing slowly, while inflation is easing at a satisfactory pace.   The sweet mix of the recent economic data backs the idea that the Federal Reserve (Fed) could achieve what they call a 'soft landing' following an aggressive monetary policy tightening – and more importantly stop hiking the interest rates.   At this point, investors are 100% sure that the Fed won't hike rates in December. They are 100% sure that the Fed won't hike rates in January. There is more than a quarter of a chance for a rate cut to be announced by March. And the pricing suggests that there is a higher chance for a rate cut in the Fed's May meeting, than not.   Conclusion: investors threw the Fed's 'higher for longer' mantra out of the window this week.   BUT this is certainly as good as it gets in terms of Fed optimism. If the markets go faster than the music, the Fed must calm down the game by a tough talk, and if needed, by more action. The Fed's Mary Daly expressed her concerns about the Fed's credibility if it declared victory over inflation prematurely. And credibility is the most important tool that a central bank has. When the credibility is broken, there is nothing to break.    
Turbulent Times for Currencies: Bank of England's Pause and Federal Reserve's Rate Cut Projections - 14.12.2023

BSP Keeps Rates Unchanged After Off-Cycle Move, Eyes Potential Hikes in Near Term

ING Economics ING Economics 16.11.2023 12:14
After off-cycle move, Philippines central bank keeps rates unchanged The Bangko Sentral ng Pilipinas (BSP) kept policy rates untouched at 6.5% at today’s meeting after carrying out an off-cycle move two weeks ago.   BSP holds after off-cycle move The BSP kept policy rates untouched at 6.5% today after hiking by 25bp two weeks ago at an off-cycle meeting. This move was expected by market participants. BSP deems it appropriate to retain policy settings “tight” until inflation heads toward a target consistent path while remaining ready to tighten further if needed. The central bank believes that the growth outlook remains “intact” while risks to the inflation outlook remain tilted to the upside.  BSP lowered its 2024 risk-adjusted inflation forecast to 4.4% (from 4.7%) while 2025 inflation is projected to settle at 3.4% (from 3.5%).  BSP reiterated the need for non-monetary intervention to help lower price pressures given that inflation remains largely driven by supply-side factors.   BSP keeps setting untouched for now   Behind target in 2024, BSP could hike in the near term Despite today’s pause, we believe BSP will remain ready to hike rates in the near term given its latest risk-adjusted inflation forecast of 4.4% for 2024. Given the projected breach in 2024 (based on risk-adjusted forecasts), BSP could have benefited from tightening at today's meeting given the lagged impact of policy actions.    For now, it appears that the central bank is likely to keep policy rates untouched, possibly for the rest of the year while keeping its powder dry for potential tightening should inflation risks flare up again.  Meanwhile, the lagged impact of previous policy rate hikes should continue to weigh on growth well into 2024. The PHP will likely move sideways but benefit from the hawkish signals coming from the BSP.      
Unraveling the Dollar Rally: Assessing the Factors Behind the Surprising Rebound and Market Dynamics

Tide of Lower US Rates Propels EUR/USD Higher: A Look into 2024"

ING Economics ING Economics 16.11.2023 12:40
EUR/USD: Lifted higher by the tide of lower US rates US slowdown is central: Our forecast for a higher EUR/USD next year hangs wholly on the view that the US will slow down, inflation will ease and the Fed will be able to make monetary policy less restrictive. Currently we forecast 150bp of Fed easing starting next May/June. This is premised on tighter financial conditions finally weighing enough on aggregate demand to see US growth converge on the stagnant trajectories, especially in Europe. Our team forecast US growth at just 0.5% next year versus the consensus of 1.0%. Equally, our end year 2024 EUR/USD forecast of 1.15 is slightly above the current consensus of around 1.11. In terms of timing the trajectory, our current bias is that EUR/USD strength will become more apparent from the second quarter onwards. The dollar traditionally performs well at the start of the year and with the eurozone in recession, the first quarter may be too early to see a decisive turn higher in EUR/USD.     ECB could crumble: The headwinds to a EUR/USD rally largely stem from weak eurozone growth and the risk that the ECB chooses to cut rates alongside the Fed. This would limit the expected narrowing in yield differentials at the short-end of the curve. Our team forecast three quarters of negative eurozone growth (3Q23 to 1Q24 inclusive) and full-year 2024 eurozone growth at just 0.2%. We expect 75bp of European Central Bank (ECB) easing in 2024 starting in the third quarter, but clearly the risk is that the ECB eases earlier and the Fed later such that the starting pistol for the EUR/USD rally is never fired. Equally, a failure of European governments to agree on fiscal reform by year-end 2023 could see the re-introduction of the Stability and Growth Pact in early 2024 – an unwelcome arrival in a recession.   EUR/USD looks fairly valued:  Our medium-term fair value model suggests EUR/USD is fairly valued down at these lowly levels. In other words, there is not the kind of extreme undervaluation that has supported EUR/USD at these levels in the past. This really does build the case that if there is to be a EUR/USD rally, it will have to be driven by the dollar leg. Away from the Fed easing story there is also the risk of US fiscal deterioration and de-dollarisation – perhaps both slow-burn stories. There is also the small matter of the US election. Most commentators warn of a Trump 2.0 administration being ‘louder’. Depending on how the opinion polls progress, we presume any swing in favour of a second term for Donald Trump to be dollar positive – given the experience of the loose fiscal and protectionist policy agenda during his last stay at the White House.    
Rates Spark: Time to Fade the Up-Move in Yields

SEK: Riksbank's Dilemma - To Hike or to Hold in a Precarious Balancing Act

ING Economics ING Economics 23.11.2023 13:19
SEK: Riksbank at a crossroads Today’s Riksbank rate announcement is as close to a 50/50 hike/hold decision as it can get. The Bank has been hugely focused on the krona’s levels recently, and the recent good performance of SEK has prompted markets to lean on the dovish side (70% implied probability of a hold). One major counterargument is that the recent SEK strength has been somewhat “artificial”, given it has been driven by some rather aggressive FX selling via hedging operations by the Riksbank itself. On the inflation side, core and headline price pressures have abated faster than expected, although the CPIF excluding energy is still at 6.1% YoY, and the Prospera surveys suggested inflation expectations have remained quite sticky. What we see as a major point in favour of a hike is timing. The Riksbank’s next policy meeting is in February, when the economic slack will have likely materialised more clearly in Sweden and abroad and it will be considerably harder to hike rates. If the intent is to provide more support to SEK, the Riksbank may take into account that FX sales (i.e. the “artificial” support to SEK) should terminate around the end of January/early February if the current weekly pace is sustained, and be encouraged to hike now rather than later, when economic conditions likely won’t allow it. All in all, we are slightly leaning in favour of a rate hike today, even though we admit it is a very close call. A hold may be accompanied by an acceleration in quantitative tightening. The FX impact won’t just depend on the outcome, since there is a tangible risk of a split board, which could limit the upside potential for SEK in the event of a hike.
National Bank of Romania Maintains Rates, Eyes Inflation Outlook

CEE Focus: Anticipating Turkey's Rate Hike Amidst Regional Rate Dynamics

ING Economics ING Economics 23.11.2023 13:21
CEE: Turkey hiking rates again Today's calendar in the region is basically empty. Elsewhere today, we have a central bank meeting in Turkey. We expect another rate hike of 250bp to 37.5%, which is broadly in line with expectations, but surveys show a wider range of rate hikes. The latest inflation release in October showed the underlying trend starting to improve not only for the core rate but also the headline. Accordingly, we expect the bank to consider a slower hike. However, risks are on the upside given strong tightening moves since August. In FX, yesterday brought an unexpected turn in Czech rates. The market was heavily paid across the curve, more so than elsewhere in the CEE region. The rates move thus shot the interest rate differential up for once, erasing the potential for the CZK weakness we mentioned earlier. EUR/CZK responded by moving lower and back to 24.450. For now, this seems to match the rate move exactly. However, it is hard to say where rates will head today. Yesterday's statement from the Czech National Bank, released after the rate move, suggests that the discussion about waiting for January inflation continues. On the other hand, weak economic data and a stronger koruna are reasons for lower rates and bets on an earlier rate cut. Despite the timing of the first rate cut, we think the short end of the curve should be lower, leading the CZK to weaker levels. Thus, we remain negative on the currency.
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Bank Indonesia Maintains Policy Rate at 6% in Line with Expectations: Signals Focus on Currency Stability

ING Economics ING Economics 23.11.2023 13:26
No surprises today as Bank Indonesia keeps policy rate unchanged Indonesia's central bank has opted to keep the policy rate at 6%, in line with estimates.   BI opts to keep the policy rate at 6% Bank Indonesia (BI) held fast today, retaining the policy rate at 6%, in line with expectations. With inflation still relatively subdued, Governor Perry Warjiyo opted to pause despite renewed pressure on the rupiah. Despite today’s hold, BI indicated it would step up currency stabilisation efforts to limit the impact of imported inflation.  BI may have opted to refrain from tightening further after 3Q GDP slipped below market expectations and below the 5% threshold after seven straight quarters.      The central bank expects 4Q GDP to be “strong” citing solid consumer confidence and PMI readings pointing to a manufacturing sector in expansion.  Meanwhile, domestic liquidity conditions were deemed “ample” with loan growth expected to hit 9-11% this year despite recent policy tightening.    On the external balance, BI expects the current account balance to settle somewhere within -0.4% to 0.4% of GDP this year, with the trade surplus normalising after a record-wide reading last year.   BI decides to hold today   BI done with rate hikes? After hiking policy rates unexpectedly in October, BI opted to keep rates untouched, possibly with growth needing an extra boost to close out the year. The question now is whether Bank Indonesia is done with its current rate hike cycle. We believe the answer will once again hinge on currency stability, with BI keeping its focus on providing support for the IDR. In the meantime, it looks as if the central bank is content with stepping up intervention via the spot, DNDF and bond markets to ensure FX stability.  In the coming months, BI will likely be keeping an eye on the currency and imported inflation dynamics, with the central bank likely remaining open to additional tightening should the IDR come under substantial pressure.
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National Bank of Hungary Maintains Course with 75bp Rate Cut in November

ING Economics ING Economics 23.11.2023 13:59
No surprise in November The National Bank of Hungary (NBH) reduced its base rate by 75bp to 11.50% at its November rate setting meeting. At the same time, the entire interest rate corridor was lowered by 75bp, maintaining the symmetry of the +/- 100bp range. Although this was again a unanimous decision, the menu seen in October was also present at this rate-setting meeting. That is, the Monetary Council decided between a 50, 75 or 100bp cut. The statement and press conference made it clear what the reasoning was for sticking with the proverbial golden mean.   The pros and cons canceled each other out A hawkish shift compared to the October meeting was dropped due to favourable incoming macroeconomic data. Hungarian inflation returned to single-digit territory, with the underlying monthly repricing pattern showing similarities to 2019-2020 (pre-shock pattern). The improvement in the external balance continued on the back of rising export capacity, supported by shrinking domestic demand, which reduced import needs and the energy balance also improved. Last but not least, together with the ongoing disinflation, the Hungarian economy exited the recession and the incoming high-frequency data suggest that the year-on-year print could return to positive territory from the fourth quarter of 2023. However, all these positive changes have been accompanied by significant external risks. Geopolitical tensions and sanctions are still with us, and we can't rule out another shock to energy and commodity markets as a result. The armed conflicts in Ukraine and Gaza keep the economic landscape highly unpredictable. On the macroeconomic side, there are ongoing labour market tensions and recessionary fears in the international environment. Against this background, the Monetary Council decided to maintain its cautious approach and closed the door on the dovish 100bp easing option.   Steady as she goes Even before today's official and explicit forward guidance, we expected the National Bank of Hungary to stick to the recent step size as the baseline pace of further rate cuts. During the background discussion, Deputy Governor Virág made it clear that – based on the latest information – the policy rate could fall below 11% by the end of the year and reach single digits in February 2024. We wouldn't go so far as to say that this is a pre-commitment, but it's certainly the closest thing to it. Such a rate path would imply a continuation of 75bp rate cuts up to (and including) the February rate-setting meeting. In general, the statement and the press conference did not bring any changes either in the tone of monetary policy or in the main functions that influence monetary policy decisions. As a result, today's rate-setting meeting can be described as a well-managed non-event.   Our market views After the NBH meeting, everything seems to be in line with market expectations and rates have not moved much. This is good news for the HUF, which has re-established a relationship with rates over the last three days and has weakened to 380 EUR/HUF before the meeting. Still, the recent rally in rates points to weaker HUF levels, but this will probably not be the case for now. A stable NBH and higher EUR/USD could offset this, plus we could see some progress in negotiations with the EU in the near term. Overall, today's meeting thus seems to be positive for HUF, which will halt the weakening from recent days. In the short term we probably need to see some catalysts for new gains, e.g. the EU story, but overall we remain positive on the HUF. If everything goes in a positive direction, then we believe EUR/HUF will move into the 370-375 range before the year ends. On the other hand, the current weakness probably hasn't changed the market's long positioning much and we should still keep that in mind if bad news comes. Rates have rallied a lot in recent weeks and have closed the biggest gaps between market pricing and our forecast. But something is still missing to perfection and we still see the whole curve lower but rather flatter later. At the short end of the curve, we think the market needs to accommodate the set pace of 75bp rate cuts as the central bank confirmed today, while the long end remains significantly elevated also because of high core rates. Thus, as we mentioned earlier, the long end in our view has more potential to rally further and the curve has steepened too early and too quickly, closing the gap with the region.
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Rates Spark: Feeble Pushback Amid Central Bank Messaging and German Budget Uncertainty

ING Economics ING Economics 27.11.2023 14:21
Rates Spark: Feeble pushback Markets are clearly eyeing the turn of the rate cycle, but amid central banks’ 'high for longer' messaging and data releases, volatility remains elevated. Add to that the uncertain outlook for the German budget and Bund supply.   Feeble ECB pushback amid a broader sense of improving inflation Markets are still pricing more than three 25bp cuts over the next year, and more than a 50% chance discounted that the first cut will already come in April. By June, it is already fully priced. We have had pushback over the past few days from European Central Bank (ECB) officials, but aggressive pricing shows it has had limited effect. The hawks were signalling again that hikes are not off the table. More centrist members seemed to downplay these chances but still stressed persistence. Francois Villeroy, for instance, stated that rates should plateau for the next few quarters. More interesting were discussions surrounding ending PEPP reinvestments sooner picking up again. The minutes of the October ECB meeting confirmed the messaging around the key rate – that hikes are not entirely off the table. But the reality is also that the “disinflation process was proceeding somewhat faster than expected”, while the ECB is not as optimistic about the macro backdrop anymore. Amid all the central bank messaging, we should also note that financial conditions remain relatively tight, at least when measured by real interest rates. The 2Y real OIS is just 10bp shy of this cycle’s highest levels. At the longer end, the 10Y is well off the September spike but still higher than any time before that. This is thanks to the market inflation expectations component having come down notably from its highs over the past two months. Overall, it might lessen the need for officials to push back more aggressively, although some would point out the often-cited fragility of inflation expectations.   Yesterday’s flash PMIs remained in contractionary territory but notched up a bit and signalled that the downturn is not worsening. For market interest rates yesterday, that was enough to start turning somewhat higher again.   German budget woes highlight downside risks across the supply and macro outlook As we head into the final months and weeks of the year, bond supply prospects move into focus. But this time around, there is increasing uncertainty surrounding the outlook for issuance of German Bunds after the constitutional court derailed the government’s budget plans. The downside risks are obvious, but we still have to get a clearer picture of what the ultimate impact is – not just in terms of supply but also for fiscal stance and the macro outlook as a whole. The political fallout is brewing, too. Members of the Free Democratic Party (FDP), which currently holds the finance ministry within the government coalition, have successfully petitioned to get a vote on whether to leave the coalition. The outcome would be non-binding for party leadership, though. Yesterday, the finance minister announced that he wants parliament to retroactively declare an “emergency situation” for the current year, which would also allow for a suspension of the debt brake for the 2023 budget. This prospect gave Bund yields an uplift and retightened the Bund asset swap spread. But this plan is largely an after-the-fact legitimisation of 2023 borrowing given few other viable options and does not mean more debt issuance. The more relevant announcement of the 2024 budget has been postponed.    Today's events and market view Left to their own US Thanksgiving holidays, 10Y Bund yields climbed over 2.6%, again steepening the curve in the process. Today’s calendar mainly features the German Ifo index – seen improving slightly – and public appearances from ECB President Christine Lagarde, Vice President Luis de Guindos and Spain’s Pablo Hernández de Cos. US markets will see an early close today, but we will have data releases from the US in the form of the S&P flash PMIs for November. Both services and manufacturing were just above the 50 threshold that demarks contractionary territory. Looking into next week, the inflation outlook, which has helped drive the rally, will likely remain the main focus. The eurozone flash CPI could show inflation easing further, with the core rate likely getting into the 3% handle – even if only barely. The easing trend of inflation should also be confirmed in the US by the PCE data, the Fed’s preferred inflation measure.
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Prolonged Softness in Services PMIs Amid Unchanged RBA Rates: Insights by Michael Hewson

Michael Hewson Michael Hewson 06.12.2023 12:08
Services PMIs expected to remain soft, as RBA leaves rates unchanged By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets got off to a rather lacklustre start to the week, weighed down by a rebound in the US dollar as well as weakness in basic resources and energy prices, as investors took a pause after the gains of the past couple of weeks.  US markets fared little better, sliding back in the face of a modest rebound in yields as investors hit the pause button ahead of this week's jobs data, which is due at the end of the week, with markets in Europe set to open slightly weaker this morning.   Earlier this morning the RBA left rates on hold at 4.35% after last month's decision to raise rates by another 25bps. Despite last month's surprise decision to raise rates today's decision acknowledged that inflation was now starting to moderate in goods even as concerns remained about services inflation. Nonetheless, despite this acknowledgement that inflation appears to be slowing there was little indication that the central bank was considering another rate move in the near term. Last month's decision to raise rates was driven by concern about domestic price pressures and while today's decision to hold was a relief there was little sign that a policy change in either direction was being considered with Governor Bullock acknowledging significant uncertainties around the outlook.   Nonetheless today's decision to hold came against a backdrop of a month which has seen 2-year yields decline almost 40bps from their 4.52% peaks on the 1st November, as markets surmised the central bank is now done, with the Australian dollar falling sharply.   The recovery in US yields yesterday appeared to be because of the possibility that the declines seen over the past few days may have been a little too much too quickly, given Powell's comments on Friday last week when he pushed back on the idea that rate cuts were on the cards for the first half of 2024.   There is certainly an element of the market getting ahead of itself when you look at a US economy that grew at 5.1% in Q3 and still has an unemployment rate of 3.9%. The same sadly cannot be said for Europe where the French and German economies could well already be in recession.   While recent manufacturing PMI data in Europe suggests that economic activity might be bottoming out, the same can't be said for the services sector which on the basis of recent inflation data is experiencing sticky levels of inflation. This in turn is prompting a continued hawkish narrative from the ECB despite rising evidence that the bloc is already in contraction and possible recession as well. Recent data from the French economy showed economic activity contracted in Q3 and there has been little evidence of an improvement in Q4.   The recent flash PMIs showed that services activity remained stuck in the low 45's, although economic activity does appear to be improving, edging higher to 48.7. The main concern is that the resilience shown by the likes of Spain and Italy as their tourism season winds down appears to have declined after Italy fell sharply in October to 47.7, while Spain was steady at 51.1, although both are expected to show slight improvements in today's November numbers with a rise to 48.3 and 51.6 respectively.   The UK economy also appears to be showing slightly more resilience where there was saw a recovery into expansion territory in the recent flash numbers to 50.5, while earlier this morning the latest British Retail Consortium retail sales numbers for November, which showed that consumers remained cautious despite the increasing number of Black Friday deals ahead of the Christmas period as retailers looked to tempt shoppers into opening their wallets. Like for like sales in November rose 2.6%, the same as the previous month, with sales of high value goods remaining soft, with consumers preferring to go with lower ticket and essential items spend of food and drink, health and personal care.      In the US we also have the latest October JOLTS job opening numbers which are expected to show vacancies slow from 9.5m to 9.3m, while the latest ISM services survey forecast to show a resilient economy.   The headline is expected to show an improvement to 52.3, with prices paid at 58 and employment improving to 51.4 from 50.2 due to additional holiday period hiring. Gold prices are also in focus after yesterday's new record high saw a sharp reversal with prices closing lower in what looks like a bull trap and could see prices pause for a period of time and retest the $2,000 an ounce in the absence of a rebound.     EUR/USD – continues to look soft dropping below the 200-day SMA at 1.0825, with a break of the 1.0800 having the potential to retest the 1.0670 area. Resistance now at the 1.0940 area, and behind that at last week's highs at 1.1015/20.   GBP/USD – the failure to move above the 1.2720/30 area has seen the pound slip back with support at the 1.2590 area currently holding. A break below 1.2570 signals a deeper pullback towards the 1.2460 area and 200-day SMA. A move through the 1.2740 area signals a move towards 1.2820.    EUR/GBP – found support at the 0.8555 area for the moment, but while below the 0.8615/20 area, the risk remains for a move towards the September lows at 0.8520, and potentially further towards the August lows at 0.8490.   USD/JPY – found some support at the 146.20 area in the short term, with resistance now at the 148.10 area. Looks vulnerable to further losses while below this cloud resistance with the next support at the 144.50 area.   FTSE100 is expected to open 15 points lower at 7,498   DAX is expected to open 9 points higher at 16,413   CAC40 is expected to open 3 points lower at 7,329
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Bank of Canada Holds Steady with a Hawkish Outlook Amid Economic Concerns

ING Economics ING Economics 12.12.2023 12:56
Bank of Canada retains its hawkish bias The BoC kept rates unchanged as expected, but had to recognise that rates are “clearly restraining spending” and that disinflation is happening at a faster pace. However, that was not enough to drop the threat of another hike if necessary. While this is generally good news for CAD, external factors (US data in particular) remain much more relevant.   Sticking to the tightening threat The Bank of Canada kept rates unchanged at 5.0% today, as widely expected. The policy statement noted that “higher interest rates are clearly restraining spending: consumption growth in the last two quarters was close to zero, and business investment has been volatile but essentially flat over the past year”. Incidentally, the BoC recognised the faster pace on the disinflation front, dropping the reference to “slow” progress on inflation. Those considerations would have likely led to a more dovish tone on the policy outlook as a consequence, but the BoC decided to reiterate the threat of more monetary policy tightening instead: “Governing Council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed”. The concerns about the inflation outlook come not only from potential external shocks (e.g. energy prices), but also from a resiliently tight domestic labour market, as confirmed by last week’s strong jobs figures. We are still convinced that the BoC will not tighten policy further given the deterioration of the economic outlook and our expectations for a steady decline in Canadian’s inflation. However, there is a likely intent to fight the ongoing dovish repricing of rate expectations in Canada, and that means the BoC out-of-meeting commentary may be careful to send dovish messages to the market before the January meeting, when new economic projections will be released.   CAD still too reliant on US data From a market perspective, the reiteration of the hawkish bias by the Bank of Canada is positive news for CAD, although the acknowledgement of faster inflation decline and the strong impact of tight monetary conditions on the economy have offset the impact on the loonie, which is holding steady after the announcement. Despite the BoC’s reluctance to pivot to a more dovish stance, the loonie remains highly affected from a deterioration in US data, to which it has the highest correlation in G10. In the short term, the last bits of evidence of US activity resilience may support CAD – especially in the crosses – but we expect the worsening of US (as well as Canadian) growth sentiment next year to make CAD less appealing than other risk-sensitive currencies like the antipodeans and Scandies.
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rate cuts, European Central Bank, ECB, monetary policy, interest rates, forex, currency exchange, EUR/USD, market expectations, hawkish pushback, Robert Holzman, economic forecasts, central bank, Federal Reserve, Bank of England, forex analysis.

ING Economics ING Economics 12.12.2023 13:20
CEE: NBP presser should support PLN The National Bank of Poland left rates unchanged as expected. The statement did not change much either. The MPC wants to know more about the new government's fiscal policy and the impact on inflation before its next steps. So the more interesting story today will be Governor Adam Glapinski's press conference. Our economists see stable rates next year, but the story and risks are not so simple. In addition to the NBP, today we will also see monthly data in the Czech Republic, including industrial production which, like yesterday's retail sales, should confirm the weak economy in the fourth quarter. Also this morning, the second reading of Romania's third-quarter GDP data has already been published. In the markets yesterday, rates were catching up with the fall in core rates from the previous days across the CEE region, which somewhat undermines the FX picture in general. This is most visible in the PLN and CZK market. In Poland, however, the hawkish NBP should help the currency today. Thus, we may see a weaker zloty this morning but by the end of the day, we should be back to 4.320 EUR/PLN or lower. On the other hand, in the Czech Republic, the CZK remains without the support of the central bank and rates are pointing more towards the 24.40 EUR/CZK levels where we were a few days ago. Moreover, weaker data may support this move higher. fter the Polish zloty, the Mexican peso has delivered some of the largest total returns over the last month (alongside the Turkish lira!). As we discuss in our 2024 FX outlook, we think the Mexican peso can hold firm - even in the face of rate cuts. On that front, Mexico today releases inflation data for November - where core CPI is expected to drop to a new cycle low of 5.3% YoY. The market is slowly coming round to the view that Banxico could cut rates in the first quarter - perhaps at the March meeting. Pricing of a Banxico easing cycle looks a little conservative and we think MXN rates could soften if next week's Banxico policy meeting sheds more light on an easing cycle - especially if anyone were to vote for a cut.  We think MXN gains will be more of a total return story in 2024 - i.e. attractive interest rates but spot USD/MXN not going too much below 17.00. Indeed, Banxico might well be thinking the peso is a little too strong on a real exchange rate basis. But strong fiscal support should see Mexican growth hold up next year. Another reason we think the peso should continue to outperform.    
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The Swiss National Bank Adopts a Slightly More Dovish Tone Without Imminent Rate Cuts

ING Economics ING Economics 14.12.2023 14:13
The Swiss National Bank appears slightly more dovish The SNB kept its key rate unchanged at 1.75%, as expected. Its message is slightly more dovish, but it doesn’t mean rate cuts are imminent.   A slightly more dovish message As expected, the Swiss national bank decided to keep its key rate unchanged at 1.75% at its December meeting, its level since June 2023. The SNB's communication is more dovish, indicating that they are clearly not considering any further rate hikes. Against a backdrop where consumer price inflation stood at 1.4% in Switzerland in November, the 6th consecutive month below 2%, this is not surprising. But the SNB is going a little further than that. First, it has revised its inflation forecasts downwards. It is now forecasting average inflation of 2.1% in 2023, 1.9% in 2024 and 1.6% in 2025, compared with 2.2%, 2.2% and 1.9%, respectively, at its previous meeting. The SNB is still expecting inflation to rebound in the coming months on the back of higher energy prices, rents and VAT. Nevertheless, it acknowledges that inflation has been weaker than expected in recent months and that "In the medium term, reduced inflationary pressure from abroad and somewhat weaker second-round effects are resulting in a downward revision". The inflation forecasts for the entire period are, therefore, within the price stability range, defined by the SNB as being between 0 and 2% inflation. According to the SNB, the balance of risks for inflation forecasts is also well balanced, with the risks of an upside surprise being as great as those of a downside surprise. In addition, although it still states that it is "willing to be active in the foreign exchange market as necessary", it no longer explains how. In recent quarters, the SNB has been buying Swiss francs to reinforce its appreciation, which has had the effect of reducing imported inflation but has also worsened the competitiveness of domestic exporters. The SNB no longer seems to favour the idea of an even stronger Swiss franc and could now start selling the currency again, which would support exports and, therefore, economic growth in Switzerland. This is a major change for the SNB.   But rate cuts are not just around the corner The message is, therefore, slightly more dovish. However, there is nothing to suggest that rate cuts will be forthcoming soon. Firstly, the SNB's target is asymmetrical, as it wants to achieve inflation of between 0 and 2%. Today's inflation forecasts fall squarely within this target, and the SNB expects inflation to be at 2% in the second and third quarters of 2024. These inflation forecasts offer little argument for an imminent rate cut. In addition, the SNB has a tool to steer monetary policy other than its policy rate: its interventions on the foreign exchange markets. It is likely to use this instrument first and start selling Swiss francs before considering rate cuts. It confirmed this between the lines during the press conference. Finally, the SNB's key rate is at 1.75%, a fairly unrestrictive level close to the level of expected inflation. Past interest rate rises are, therefore, much less damaging to the economy than they are in the United States and the Eurozone.   Against this backdrop, the SNB is likely to take a much longer pause than the Fed and the ECB. Rate cuts will probably come, but much later than the other central banks. At this stage, we are expecting the first rate cut to come in December 2024, compared with the first rate cuts expected in the first half of the year for the Fed and the ECB. Moreover, the scale of the rate cuts is likely to be much smaller than elsewhere. Total rate cuts in 2024 and 2025 could be in the region of 50bp or even a maximum of 75bp in Switzerland.   FX: SNB no longer focusing on FX sales The SNB confirmed today that it is no longer focusing on FX sales. This is consistent with our EUR/CHF update in our 2024 FX Outlook published last month and supports our view that EUR/CHF can remain stable near 0.95/0.96 next year. 
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Tale of Two PMIs: UK Services Accelerate, Manufacturing Declines

Kenny Fisher Kenny Fisher 18.12.2023 14:06
UK Services PMI accelerates, Manufacturing PMI declines Bailey’s dampens rate cut expectations The British pound is steady on Friday, after posting gains of 1.1% a day earlier. In the European session, GBP/USD is trading at 1.2767, up 0.03%. UK PMIs a mix British PMIs were a mixed bag in December. The Manufacturing PMI eased to 46.4, down from 47.2 and shy of market expectations of 47.5. Manufacturers are pessimistic as the UK economy is struggling and demand for UK exports has weakened. The services sector is in better shape, as the PMI rose to 50.9, up from 53.7 in November, which marked the strongest level of growth since May. Services providers continued to show optimism about business conditions, despite the squeeze from the cost of living and elevated borrowing costs. Bailey pushback sends sterling soaring It’s been a dramatic week, with central bank rate decisions in the spotlight. On Wednesday, Fed Chair Powell shifted his hawkish stance and projected that the Fed would trim rates three times in 2024. This sent the US dollar lower against the majors. The Bank of England took the opposite approach on Thursday in its decision to hold rates at 5.25%. Governor Bailey stuck to his script of “higher for longer”. Bailey acknowledged that inflation was moving in the right direction but said in his rate statement that “there is still some way to go” and kept the door open to further rate hikes to bring inflation back down to 2%. Bailey was crystal clear in comments to reporters after the meeting, reiterating that “it’s really too early to start speculating about cutting interest rates”.   There was no mistaking Bailey’s hawkish message and the pound responded with massive gains. Still, Bailey’s view was far from being unanimous, as the MPC vote was 6-3, with three members in support of raising rates. The markets are marching to their own tune and expect a flurry of rate cuts in 2024, despite Bailey’s pushback. The markets trimmed rate-cut bets following the BoE decision but have still priced in around 100 basis points in easing in 2024. Clearly, there is a deep disconnect between the markets and Bailey & Co. with regard to rate policy.     GBP/USD Technical There is resistance at 1.2835 and 1.2906 1.2727 and 1.2653 are providing support    
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Eurozone, German Service PMI Ease in December, Euro Snaps Four-Day Rally

Kenny Fisher Kenny Fisher 18.12.2023 14:07
Eurozone, German Service PMI ease in December Euro snaps four-day rally The euro has snapped a four-day winning streak on Friday. In the European session, EUR/USD is trading at 1.0949, down 0.38%. The euro has enjoyed a strong week, with gains of 1.77%. Soft Eurozone, German services PMIs weigh on euro Eurozone Services PMI eased in December, indicating that the economy continues to struggle. The PMI fell from 48.7 to 48.1 and missed the consensus estimate of 49.0. This marked a fifth straight month of contraction in the services sector, with 50 separating contraction from expansion. Germany, the largest economy in the eurozone, also reported a decline, with the PMI falling to 48.4, down from 49.6 in November and short of the consensus estimate of 49.8. Euro soars after ECB pause The European Central Bank held the benchmark rate at 4.0% for a second straight time on Thursday. This move was expected, but the central bank pushed back against market expectations for interest rate cuts next year, sending the euro soaring 1.09% against the US dollar after the announcement. ECB President Christine Lagarde reaffirmed that the Bank would continue its “higher for longer” stance, saying that the Bank was not about to let down its guard and lower rates. Lagarde sounded hawkish even though the ECB lowered its inflation forecast at the meeting. Inflation has fallen to 2.4% in the eurozone, within striking distance of the 2% target. Lagarde acknowledged that inflation was easing but said that domestic inflation was “not budging”, largely due to wage growth.   There is a deep disconnect between the markets and the ECB with regard to rate policy. ECB President Lagarde poured cold water on expectations for rate cuts, arguing that inflation had not been beaten. The markets are marching to a very different tune and have priced in at least in around six rate cuts in 2024 and are confident that Lagarde will have to change her stance, with inflation falling and the eurozone economy likely in recession. . EUR/USD Technical EUR/USD is testing support at 1.0957. Below, there is support at 1.0905 1.1044 and 1.1096 are the next resistance lines    
BoJ Set for Rate Announcement Amidst Policy Speculation, USD/JPY Tests Key Resistance

BoJ Set for Rate Announcement Amidst Policy Speculation, USD/JPY Tests Key Resistance

Kenny Fisher Kenny Fisher 18.12.2023 14:09
BoJ to make rate announcement on Tuesday Fed’s Williams says no rate cuts planned The Japanese yen is lower at the start of the week. In the European session, USD/JPY is trading at 142.77, up 0.44%. The yen continues to power higher and surged 1.9% last week. It marked a fifth straight winning week for the yen, which has climbed 6.2% during that time. The yen strengthened to 140.95 on Friday, its highest level since July 31. Will BoJ make a move? Bank of Japan policy meetings have become must-see events, with investors on edge over speculation that the central bank is planning to tighten policy. Tuesday’s meeting will be closely watched, especially after hints from senior BoJ officials that it could phase out negative rates, which would be a sea-change in policy that would likely boost the yen. The BoJ might not announce any changes at the meeting, but I doubt that will quell speculation that a policy change is coming. The BoJ tends to hold its cards close to its chest, maximizing the surprise effect of any policy moves. The BoJ has been an outlier among central banks in sticking to an ultra-loose policy while its peers were busy raising rates, and the BoJ is expected to tighten policy next year while other major central banks are looking to cut rates. The BoJ has long insisted that inflation is not sustainable, but that position has become difficult to defend, as inflation has remained above the 2% target month after month.   New York Fed President John Williams said on Friday that the Fed was not discussing rate cuts and that the Fed could tighten policy if inflation stalled or reversed directions. The markets don’t seem to be listening, however, and have priced in six rate cuts next year, starting as soon as March. At last week’s meeting, Fed Chair Jerome Powell finally jumped on the rate-cut bandwagon and said that the Fed would cut rates three times in 2024. . USD/JPY Technical USD/JPY is testing resistance at 142.61. Above, there is resistance at 143.06 There is support at 142.02 and 141.57  
Bank of Japan Keeps Rates Steady, Paves the Way for April Hike Amidst Market Disappointment

Bank of Japan Keeps Rates Steady, Paves the Way for April Hike Amidst Market Disappointment

ING Economics ING Economics 19.12.2023 12:14
JPY: Ueda disappoints markets, but April hike on the table The Bank of Japan kept rates unchanged today as widely expected, but disappointed market hawkish expectations. The Bank kept its dovish guidance unchanged (“take additional monetary easing steps without hesitation if needed") which forced markets to abandon speculation of a rate hike in January.   The yen took a hit, falling almost by 1.0% against the dollar after the announcement and press conference by Governor Ueda, but we identified a few changes in the Bank’s assessment of the economic outlook that likely endorse the market’s lingering expectations for a hike in April. In particular, the BoJ noted that private consumption has continued to increase modestly, that inflation is likely to be above 2% throughout the 2024 fiscal year and that underlying inflation is likely to increase. Those statements are aimed at paving the way for policy normalisation in 2024, in our view. We expect the yield curve control to be scrapped in January and a hike to be delivered in April. From an FX perspective, the yen may simply revert to trading primarily on external factors (US rates in particular) after the BoJ ignored market pressure and likely signalled the path to normalisation should be a gradual one. We remain bearish on USD/JPY in 2024, as the oversold yen can still benefit from the end of negative rates in Japan and we see the Fed cutting rates by 150bp, but the pace of depreciation in the pair will be gradual in the near term, and we only see a decisive break below 140 in 2Q24.   ⚠️ Did the #BOJ fall asleep on the $JPY 🖨️ print button or what? 🤭Almost makes you wonder if someone out there is in desperate need of liquidity… 🤔 https://t.co/EdRfXb9vUH pic.twitter.com/z2dN3YVtuH — JustDario 🏊‍♂️ (@DarioCpx) December 19, 2023
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BoJ Holds Steady, Yen Takes a Dive: Market Disappointment as Bank of Japan Maintains Policy Amid Speculation

Kenny Fisher Kenny Fisher 19.12.2023 15:04
BoJ makes no changes to policy or guidance Yen declines over 1% The Japanese yen is sharply lower on Tuesday. In the European session, USD/JPY is trading at 144.42, up 1.15%. The yen surged 1.95% last week but has faltered and pared most of those gains this week. BoJ maintains policy Tuesday’s Bank of Japan meeting was a live meeting, as there was speculation that the central bank might make a move after some broad hints of tighter policy from senior Bank officials. In the end, the meeting was a non-event as even a tweak in language was not to be found, and disappointed market participants gave the yen a thumbs down. The BoJ maintained its policy settings, but speculation is high that the central bank will tighten policy next year, at a time when the other major banks are loosening policy as inflation moves lower. Governor Ueda acknowledged that prices and wages are moving higher but said more time was needed to determine if a “positive wage-inflation cycle will fall in place”. Core inflation has remained above the 2% target for some 19 months, but the BoJ has argued that inflation has been driven by cost-push factors and is not sustainable. At a post-meeting press conference, Ueda rejected exiting from the Bank’s ultra-loose policy, saying that uncertainty over the outlook is “extremely high”. The markets have been exuberant since the Fed meeting last week when Fed Chair Powell penciled in three rate cuts next year. Traders are far more bullish and are betting on six rate hikes in 2024, starting in March. We’re seeing some pushback from the Fed to reign in market expectations. On Friday, New York Fed President John Williams said a rate cut in March was “premature” and even warned that rates could move higher if inflation were to stall or reverse. Cleveland Fed President Mester said on Monday that the markets are a “bit ahead” of the Fed on rate cuts, as the Fed was focused on how long it would need to maintain rates in restrictive territory, while the markets were focused on rate cuts.   USD/JPY Technical USD/JPY has pushed past resistance at 143.30 and 143.81 and is testing resistance at 144.45.  Above, there is resistance at 145.51 There is support at 142.66 and 142.15    
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EUR: Lagarde's Potential Hawkish Shift in Davos Amidst Market Skepticism

ING Economics ING Economics 16.01.2024 12:20
EUR: Lagarde may sound more hawkish in Davos The data inputs for EUR/USD will mostly come from Germany this week, with 2023 GDP figures today and the ZEW survey tomorrow along with final CPI numbers. We have often discussed how European Central Bank rate cut expectations appear way too aggressive (150bp by year-end), although the dovish members of the bank have failed to deliver a coordinated pushback. Despite ECB hawks' protests against dovish expectations having had little impact on the market, the WEF event in Davos this week – which sees many ECB speakers including President Christine Lagarde – should not be overlooked. Lagarde has a greater potential to influence markets given a clearly divided Governing Council, and we suspect that she will opt for a more hawkish tone compared to last week’s comments. There may be some help for the euro coming from Davos, although we should be wary. Fed expectations have been resistant to data and the same could hold true for the ECB as well. The minutes from the December policy meeting are also released this week. We still think it is premature for EUR/USD to trade sustainably above 1.10. Elsewhere, Sweden published inflation figures today. CPIF declined to 2.3% from 3.6% (consensus 2.2%), although the core measure excluding energy remained high, slowing from 5.4% to 5.3% versus a consensus of 5.2%. Despite this, it remains unlikely that the Riksbank will tighten policy again. If anything, this modestly raises the chances that another round of FX sales will be started after the current reserve hedging programme ends in early February (in our view).
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Yen Slips as Economic Data Disappoints, SNB's Dovish Stance Challenges Franc's Gains

Enrique Díaz-Álvarez Enrique Díaz-Álvarez 16.01.2024 14:48
A disappointing set of domestic economic data sent the yen lower against the dollar once again last week, with the Japanese currency opening trading this week around the 145 level. Expectations for the first Bank of Japan interest rate hike have continued to be pushed further into the future amid signs of an easing in wage pressure and a drop in inflation. Last week’s earnings data for November was a massive miss, with wages growing by only 0.2% year-on-year, the lowest rate since December 2021 and well below the +1.5% consensus. Bank of Japan officials have placed heavy emphasis on earnings data in recent communications. The upcoming annual ‘Shuntō’ salary negotiations, which conclude in March, will be key in determining the timing of the first hike. As things stand, a strong wage negotiation will likely be needed to convince investors that tightening will commence soon, with swaps now assigning only around a one-in-three chance of a first move in April. National inflation data will be the focus this week, with the December data due on Thursday.   CHF We recently said that it might be difficult for the franc to hold onto its gains and, indeed, the currency sold off last week and was among the worst performers among the G10 currencies. We continue to view the franc as expensive, and believe that more weakness could be in store in the coming quarters, particularly should the Swiss National Bank begin to shift its attention towards supporting the country’s growth outlook. We don’t view the recent uptick in inflation as something that could potentially prevent the SNB from delivering a dovish pivot, particularly as both measures of inflation remain firmly within target. The focus this week should be on external news, although Thursday's speech by SNB President Jordan in Davos will also be worth following.
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Singapore Inflation Surges: MAS Expected to Maintain Policy Amidst Elevated Pressures

ING Economics ING Economics 25.01.2024 12:47
Singapore's central bank likely to stand pat after inflation picks up Stubborn inflation points to the Monetary Authority of Singapore standing pat at its 29 January meeting.   December inflation picks up to 3.7% Singapore’s December inflation quickened to 3.7% year-on-year, faster than markets had forecasted (3.5% YoY) and up from the 3.6% YoY reported in the previous month. December saw food inflation moderate to 3.7% YoY (from 4% YoY) while clothing inflation fell 1% YoY.  Forcing headline inflation higher were faster prices increases for transport (3.9% vs 2.8% YoY) and recreation and culture (6.3% vs 5.6% YoY previously). Meanwhile, core inflation, which is the price measured more closely followed by the Monetary Authority of Singapore (MAS), rose to 3.3% YoY – much higher than expectations of a 3% YoY rise. December’s core inflation was faster than the 3.2% YoY gain recorded in November.   We expect inflation to remain elevated in the near term, with Singapore implementing the second round of increase for the goods and services tax (GST). On top of this, a potential increase in global shipping costs due to issues on security at important shipping lanes could mean that inflation remains sticky in 2024.       Inflation comes in higher than expected, pointing to MAS keeping setting untouched     Faster inflation points to MAS standing pat MAS recently switched to conducting four policy meetings per year, with the first policy meeting for 2024 set for 29 January. With inflation accelerating more than expected and price pressures remaining elevated due to the implementation of GST and potential spikes in global shipping costs, we expect the MAS to retain all policy settings at its upcoming meeting. Furthermore, we believe the MAS will likely want to retain their hawkish bias until they are convinced that core inflation will remain under control.  
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Bank of Japan Signals Potential End to Negative Rates, June Hike on the Horizon

ING Economics ING Economics 25.01.2024 13:15
Bank of Japan opens the door to ending negative rates, but timing uncertainty remains The Bank of Japan stood pat on monetary policy today as widely expected. But the market is now paying attention to a more positive tone on the wage and inflation outlook, as well as an upgrade to the FY2024 inflation outlook which lays the groundwork for policy normalisation. We still see a slightly higher chance of a first hike taking place in June than in April.   No surprise that the BoJ kept its policy rate and 10-year yield target unchanged We think the Bank of Japan's modest change in its view on inflation hints that policy normalisation is approaching. The BoJ assessed its statement that the likelihood of achieving the price goal has “continued to gradually rise.” Governor Kazuo Ueda’s comments on wages and inflation were also more positive than in previous meetings, signalling that a path to policy normalisation could be underway. Markets were likely pleased to hear that the central bank would consider whether negative rates should remain if the price goal is in sight and that it can make policy decisions without all small firm wage data.   Quarterly outlook report Aside from the policy decision itself, the BoJ’s quarterly outlook report was closely watched by market participants. As we expected, the BoJ lowered its core inflation outlook for FY 2024 from 2.8% to 2.4% while upgrading the outlook for FY 2025 from 1.7% to 1.8%. The government's efforts to curb inflation and the recent weaker-than-expected global commodity prices will likely drag down the price for early 2024, but the BoJ still sees underlying inflation pressures remaining through FY 2025, induced by solid wage growth. This tells us that a rate hike is only a matter of time – but with the BoJ reconfirming its patient easing stance, the timing remains uncertain.     BoJ outlook Market bets on an April rate hike increased sharply after today’s decision, but for now, we retain our long-standing view of the first rate hike materialising in June. Of course, this could change depending on upcoming inflation trends and growth conditions. There was no change in the forward guidance from today’s statement, and we don’t think the BoJ will deliver any policy changes at its next meeting in March. We also don't expect it to make any noise by delivering a surprise policy change at the end of the fiscal year. Governor Ueda has stated that more information will be available ahead of the April meeting than in March, so we're inclined to think that the latter is probably off the table. There are several areas to follow to gauge the precise timing of the BoJ’s policy change, but inflation should be considered the most important of them all. In our view, the inflation path up until April will be quite bumpy, exacerbated by the government’s energy subsidy programmes. Consumer inflation has slowed over the past two months as the government renewed some of the subsidy programmes from last November, combined with softening oil prices. We expect inflation to move even lower in January (vs 2.2% in December) but pick up quite sharply again in February. April CPI is a key piece of data for judging the inflation trend, but by the time the April meeting is held, the nationwide CPI report won't yet be available. April is also in the middle of the wage-negotiating Shunto season. While Governor Ueda mentioned that there isn't any need to wait to gather all data from small firms, we belive that the BoJ will wait a couple of more months to see if the wage growth could actually lead to sustain inflationary pressure – particularly in service prices. The BoJ will take orderly steps, including forward guidance being revised before any action is taken. We think that this revision will likely happen in April. Taking these factors into consideration, we still expect the Bank of Japan to announce its first rate hike in June for now.     Choppy inflation is expected at least for 1Q24   FX: Not hawkish enough USD/JPY held pretty steady after the release of the BoJ decision but dropped around 0.7% as Governor Ueda hinted that wages and prices were heading in the direction of price stability. The same thing occurred in the JGB market, with 10-year JGB yields edging about 3-4bps higher around the same time as USD/JPY sold off. As above, market expectations of a shift in BoJ policy will now roll on to the 26 April meeting, when the next set of CPI forecasts will be released. Today’s price action, where the yen is now handing back its short-term gains, suggests the market will be happy to park the BoJ policy normalisation story until April. Given further upside risks to US rates over the next month – including the risk of higher Treasury yields next week, should the US quarterly refunding announcement shine a light on the US fiscal deficit – USD/JPY can probably continue to trade around this 147/148 area. And BoJ intervention remains a threat should USD/JPY trade over 150 again. We currently have USD/JPY forecasts at 140 for the end of March and 135 for the end of June. We certainly like that direction of travel – particularly if the short-end of the US curve starts to break lower ahead of the first Fed hike, which we forecast in May. The risk is that mixed market sentiment and low volatility keep interest in the carry trade and keep the yen softer than our end-of-first quarter target. However, we suspect carry trade investors will be increasingly turning to the Swiss franc as their preferred funding currency. The Swiss National Bank wants a weaker currency and may be the first to ease. The BoJ wants a stronger currency and will now be the only G10 central bank to hike.   
EUR: Lagarde Balances Data Dependency Amidst Rate Cut Speculations

EUR: Lagarde Balances Data Dependency Amidst Rate Cut Speculations

ING Economics ING Economics 25.01.2024 16:04
EUR: Lagarde will try to hold the data dependency line As Francesco Pesole discusses in our ECB Cheat Sheet, President Christine Lagarde will try to avoid being drawn into any pre-commitment over a summer rate cut. In theory then, if she can avoid this and leave markets with a sense that the European Central Bank is truly data-dependent, short-term euro interest rates could nudge a little higher and support FX pairs like EUR/USD and EUR/CHF. For reference, the market still prices 17bp of ECB rate cuts for the 17 April meeting, whereas our team only sees the easing cycle starting in June once the ECB has a better understanding of the spring wage round. We would say that the ECB event risk (statement 14:15CET, press conference 14:45CET) proves a mild upside risk to EUR/USD - but the carpet could be pulled from under the euro should President Lagarde somehow convey the message that the policy rate will be getting cut in the summer after all. 1.0850-1.0950 looks the EUR/USD range, with outside risk to 1.0980/90 should the ECB pushback against easing expectations prove surprisingly effective. Elsewhere Norges Bank announces rates today. The policy rate was hiked to 4.50% in December - so it would seem far too soon for Norges Bank to embrace any idea of easing. However, the Norwegian krone has been suffering a little this year as the backup in market interest rates has hit the risk environment. In all, we suspect EUR/NOK needs to trade a little longer in this 11.35-45 range.
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The Deliberate Comments of Deputy Governor Virág: Anticipating a 100bp Rate Cut by National Bank of Hungary

ING Economics ING Economics 25.01.2024 16:33
The comments of Deputy Governor Virág were deliberate However, on 17 January Deputy Governor Virág spoke at the Euromoney conference in Vienna, and his remarks tilted our rate cut expectations from 75bp to 100bp. He conveyed the message that: “based on the information available, there were as many reasons for a 75bp cut as there were for a 100bp cut at the January meeting”. We believe that these comments are more likely to indicate an increase in the pace of rate cuts, as they were made in the context of weighing the favourable developments in internal factors against unfavourable developments in external factors   Our call Against this backdrop, we see the National Bank of Hungary cutting the base rate by 100bp on 30 January. This could bring the key rate down to 9.75% after the rate-setting meeting, while we expect the Monetary Council to also cut both ends of the rate corridor by 100-100bp. There remains one major factor that poses a downside risk to our call and that is FX stability. We believe that if we were to see a further marked deterioration in EUR/HUF, this would encourage the central bank to remain more cautious and maintain the previous pace of 75bp of easing. However, as the central bank will certainly remain in data-dependency mode, this does not mean that 100bp cuts will be automatic going forward. Rather, we expect the NBH to cautiously assess both internal and external developments and act accordingly on a meeting-by-meeting basis. Our view on the pace of disinflation has not changed, as we expect disinflation to continue forcefully in the first quarter, but then to stall from the second quarter onwards as base effects reverse. This means that, on the basis of current information, we expect the pace of rate cuts to be reduced at the March meeting.   Our market views The Hungarian forint outperformed its CEE peers significantly in the first days of the year with lows below 378 EUR/HUF. However, we turned negative on HUF ahead of the December inflation reading due to significant divergence between FX and rates, which proved to be the right decision. HUF has since weakened by 2% flushing out the long positioning that the market had built in the last two months. Of course, EUR/HUF is one of the main, if not most important, factors influencing the speed of the NBH rate cut.   CEE currencies vs EUR (end 2022 = 100%) For now, we think EUR/HUF levels of 386-387 are still comfortable for the central bank, however, we believe that above 390 the NBH would start to consider a more cautious approach with a hard stop above 395, i.e. only a 75bp rate cut.  We believe the gap between FX and rates that we pointed to earlier has been closed, but positioning and global risk-off sentiment affecting the entire CEE region could push EUR/HUF higher, which would raise the risk to our NBH call   Hungarian yield curve   After a huge rally in rates in the first half of January, the market pressure eased and some bets on rate cuts were taken back. However, the curve continues to steepen with the 2s10s IRS within reach of zero, significantly outperforming CEE peers at the moment. However, if the NBH delivers a 100bp rate cut as we expect, the market will move back to where it was after the December inflation reading and comments from NBH officials. That's why we like getting rates at these levels at the short end of the curve. Looking even better in our view are Hungarian Government Bonds (HGBs) which have also sold off and are not trading far off the IRS curve. So with a very favourable inflation profile for the coming months and the central bank cutting rates, we see good value here once again. Additionally, the supply side of HGBs looks good, with a significant drop in net supply in particular, from last year.  
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Treading Cautiously: Markets Await Today's Core PCE Data for Fed Insight

Michael Hewson Michael Hewson 26.01.2024 14:13
Today's core PCE the next key signpost ahead of next weeks Fed meeting By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets managed to eke out a small gain yesterday after the ECB kept rates unchanged but left the door ajar to the prospect of a rate cut before the summer. ECB President Christine Lagarde did push back strongly on speculation that policymakers had discussed anything like that insisting that such talk was premature, echoing her comments made earlier this month. It was noteworthy however that the possibility of a cut before June wasn't ruled out completely, and it was that markets reacted to yesterday as yields declined sharply, which does keep the prospect of an earlier move on the table given how poor this week's economic data has been.   US markets also managed to finish the day higher with the S&P500 and Nasdaq 100 putting in new record closes, after US Q4 GDP came in well above expectations at 3.3%. The core PCE price index also remained steady at 2% for the second quarter in succession, and in line with the Federal Reserve's inflation target, thus keeping faint hopes of a US rate cut in March alive. It also places much greater importance on today's December core PCE deflator inflation numbers which aren't expected to vary much from what we saw in the November numbers. At the moment markets seem convinced that the Fed might spring a surprise in March and slip in an early rate cut if inflation shows further signs of slowing. That might make sense if the US economy was struggling but this week's economic numbers clearly suggest it isn't, and if anything is still growing at a decent clip. There is a danger that in cutting rates in March they drive market expectations of further cuts into overdrive, something they have been keen to push back on with recent commentary.   In any case with the Federal Reserve due to meet next week markets are continuing to try and finesses the timing of when the first rate cut is likely to occur, after Powell's surprisingly dovish shift when the central bank last met just before Christmas. That means today PCE numbers are likely to be a key waypoint for markets and the central bank, after the PCE core deflator slowed to 3.2% in November, slipping from 3.4% in October, and the lowest level since April 2021. A further slowdown to 3% or even lower, which appears to be the consensus could see markets continue to build on the prospect of a rate cut in March, which took hold back in December. The bigger concern for some Fed officials is that headline CPI appears to be ticking higher again, which may make the last yards to 2% much trickier. This will be the Fed's key concern over an early cut as it could reignite the inflationary pressures that have taken so long to get under control. This caution would suggest that March is too early for a US rate cut, and that the market is getting ahead of itself, with policymakers also likely to pay attention to consumer demand. This means personal spending is also likely to be a key indicator for the FOMC and here we are expecting to see a pickup to 0.5% from 0.2%. With the US consumer still looking resilient the Fed is likely to be extra cautious if inflation starts ticking higher again as it already has with headline CPI.   It was also interesting to note that while yields fell sharply yesterday, the US dollar didn't, it actually finished the day higher and well off the lows of the week.       EUR/USD – slipped back towards the 200-day SMA at 1.0820/30 yesterday, with a break below 1.0800 targeting a potential move towards 1.0720. Resistance at the highs this week at 1.0930 and behind that at 1.1000.  GBP/USD – while the pound has struggled to push higher this week, we've managed to consistently hold above the support at the 50-day SMA as well as the 1.2590 area. We need to get above 1.2800 to maintain upside momentum. EUR/GBP – finally slipped to support at the 0.8520 area, which needs to hold to prevent a move towards the August lows at 0.8490. Resistance at the 0.8620/25 area and the highs last week. USD/JPY – currently finding resistance at the 148.80 area which has held over the last week or so which could see a move back towards the 146.25 area. A fall through 146.00 could delay a move towards 150 and argue for a move towards 144.00. FTSE100 is expected to open 30 points higher at 7,559 DAX is expected to open 50 points lower at 16,857 CAC40 is expected to open 28 points higher at 7,492.
Tepid ECB Holds Rates, Lagarde Eyes Summer Cut, EURUSD Consolidation

Tepid ECB Holds Rates, Lagarde Eyes Summer Cut, EURUSD Consolidation

Kenny Fisher Kenny Fisher 26.01.2024 14:45
ECB leaves rates on hold Lagarde still eyeing summer rate cut EURUSD consolidating after correction The European Central Bank left interest rates on hold on Thursday and claimed inflation is progressing towards its target while giving no clear guidance on when interest rates will start falling. We came into the new year with markets pricing in a March rate cut and that is now looking increasingly difficult. Even with a late pivot – which was always likely the strategy of the central bank – policymakers would have to signal that a rate cut is a live possibility over the next six weeks in appearances made between meetings. That’s not impossible but it’s arguably not particularly transparent. The data is unlikely to surprise to that degree. President Christine Lagarde and some colleagues have previously indicated a rate cut in summer may be appropriate but investors are not convinced we’ll have to wait that long. Lagarde stuck with that today while suggesting demand was weaker, as is the economy, and inflation is falling. Perhaps this is her way of leaving the door slightly ajar for March or maybe the usual lack of clear guidance has left everyone desperately looking for something that isn’t there. I get the feeling Lagarde and her colleagues wanted to give absolutely nothing away today, instead opting for an array of vague, uninformative statements that buy them six more weeks before they may have to say or do something. A bullish correction or sideways continuation?   The euro has drifted lower after the announcement and press conference but it hasn’t broken out of the range it’s traded in over the last week or so. EURUSD Daily Source – OANDA The correction we’ve seen since the turn of the year appears to be running on fumes but there’s still a question of whether this is just that, and will turn higher and look to break the highs, or just a continuation of the longer term sideways trend. There are some important support levels between 1.07 and 1.0850 which could tell us which is the case.  

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