downward trend

Disinflationary trend in Germany gains momentum in May Another drop in headline inflation suggests that the disinflationary trend in Germany is gradually broadening. However, it will not (yet) stop the European Central Bank from hiking rates again.   German headline inflation continued its downward trend, coming in at 6.1% year-on-year in May (from 7.2% YoY in April). Today’s data marks the next stage of a gradually broadening disinflationary process as the drop in headline inflation is no longer exclusively the result of base effects but also the result of dropping prices.   Headline inflation has now dropped from its winter peak of 8.8% to 6.1% YoY and the HICP measure came in at 6.3% YoY, from an 11.6% peak in October last year. For the first time this year, prices actually dropped compared with last month, mainly for energy and food but also for transportation as a result of the newly introduced €49 ticket for public transportation.   Disinflationary trend gradually broadening   Today’s drop in headline inflation will support the view of those who advocated that the inflation surge in the eurozone was mainly a long but transitory energy and food price shock with an unpleasant pass-through to the rest of the economy.   If you believe this argument, today’s drop in headline inflation marks the next stage of a longer disinflationary trend: first, it was negative base effects pushing down headline inflation, and now it is actually falling prices in the same categories accelerating the disinflation. However, signs that the disinflationary process is actually spreading to other parts of the economy are still missing. According to available regional data, even the base effect outside of energy and food is still very limited.   Looking ahead, let’s not forget that inflation data in Germany and many other European countries this year will be surrounded by more statistical noise than usual, making it harder for the European Central Bank to take this data at face value.   Government intervention and interference, whether that's temporary or permanent, and has taken place this year or last, will blur the picture.   In Germany, for example, the newly introduced €49 ticket already helped to push down inflation in May. However, the reversal of last year’s negative base effects from the energy relief package for the summer months should automatically push up headline inflation again between June and August. It will take until the end of the year for headline inflation to fall into the 3%-4% range.   Beyond that statistical noise, the German and European inflation outlook is highly affected by two opposing drivers. Lower-than-expected energy prices due to the warm winter weather are likely to push down headline inflation faster than recent forecasts suggest.   On the other hand, recent wage settlements and still decent pipeline pressure in services are likely to keep core inflation high. We continue to expect that German headline inflation will average around 6% this year.   Weak growth and dropping inflation but ECB will continue hiking For the ECB, macro data released since the May meeting has had something for everyone. The eurozone economy has turned out to be less resilient than anticipated a few weeks ago and confidence indicators, with all the caveats currently attached to them, point to a weakening of growth momentum again.   As headline inflation is gradually retreating, the risk increases that any additional rate hike could quickly turn out to be a policy mistake; at least in a few months from now. However, at the same time, the ECB seems to have given up linking policy decisions too close to their own forecasts (rightly so) and has put more than usual emphasis on actual inflation developments. With this in mind, the unwritten law that high inflation can only be defeated for good with positive real interest rates remains a strong argument for the ECB hawks.   As we have learned over the last 12 months, the ECB seems to prefer to go too high with rates rather than stop prematurely. This is why we expect the ECB to continue hiking by 25bp at its next meeting in two weeks from now.

German export rebound in April is too small to make us happy After the collapse of German exports in March, the rebound in April may seem like good news, but in fact, the recovery was too weak to bring real relief. And there are very few signs of a more robust rebound in the coming months.   The zigzagging continues. After the severe March plunge, German exports rebounded in April, increasing by 1.2 % month-on-month, from -6.0% MoM in March. On the year, exports were up by 1.5%. Don’t forget that this is in nominal terms and not corrected for high inflation. As imports dropped by 1.7% MoM, from -5.3% MoM in March, the trade balance widened to €18.4bn.   Trade unlikely to be a growth driver this yearSince last summer, German exports have been extremely volatile. However, the general trend is pointing downwards, not upwards. Trade is no longer the strong resilient growth driver of the German economy it used to be but rather a drag.   Supply chain frictions, a more fragmented global economy and China increasingly being able to produce goods it previously bought from Germany, are all factors weighing on German exports. In the first quarter of 2023, the share of German exports to China dropped to 6% of total exports, from almost 8% before the pandemic. At the same time, however, Germany’s import dependence on China remains high as the energy transition is currently impossible without Chinese raw materials or solar panels.   In the very near term, the ongoing weakening of export order books, the expected slowdown of the US economy (which accounts for roughly 10% of total German exports), high inflation and high uncertainty will leave clear marks on German exports. After the collapse in March, today’s export numbers bring only very limited relief. In fact, it is a very floppy rebound and another piece of evidence that the traditional growth engine of the German economy – trade - is stuttering.

Higher timeframes Last week, the pair closed with a candle of uncertainty, returning to the area of attraction and influence of the daily short-term trend (1.0719) and the final level of the weekly golden cross of the Ichimoku, which is currently at 1.0717. Consolidation below these levels and a breakdown of the zone of the daily upward correction (1.0636) will bring back the downward trend and bearish targets to the market.       The nearest prospects for strengthening bearish sentiment in the current situation can be noted in the support zone of 1.0579 - 1.0557 - 1.0515 - 1.0497 (monthly Fibonacci Kijun + weekly Senkou Span B + downside target for breaking the daily cloud). If buyers return to the market, attention will be focused on bullish targets, which are still located in the area of the daily cloud. The resistance levels of the daily (1.0810 - 1.0864 - 1.0918) and weekly (1.0789 - 1.0862 - 1.0866) Ichimoku crosses, as well as the daily cloud (1.0806 - 1.0956) and the monthly medium-term trend (1.0901), currently serve as bullish benchmarks.     H4 - H1 On lower timeframes, buyers currently have the upper hand. They have established themselves above key levels, turning them into supports in case of a correction. The key levels are currently located at 1.0731-18 (central pivot point + weekly long-term trend). If the ascent continues within the day, resistance from the classic pivot points R2 (1.0806) and R3 (1.0831) may come into play.     Higher timeframes Last week, buyers tested important levels, such as the weekly short-term trend (1.2492) and the final levels of the daily death cross of the Ichimoku (1.2492 - 1.2536), but were unable to close the week above them. With the start of a new trading week, these levels have maintained their positions and continue to be the nearest significant benchmarks for the emergence of new bullish prospects. The location of the most important support levels for the bears on this segment has not changed either. The support zone is quite wide and includes the levels of the weekly Ichimoku cross (1.2343 - 1.2240 - 1.2137) and the monthly medium-term trend (1.2302).     H4 - H1 On lower timeframes, the pair tested the strength of the weekly long-term trend (1.2428) and consolidated below it. The next targets for a decline are now the supports of the classic pivot points S2 (1.2373) and S3 (1.2307). Consolidation above the key levels of 1.2428 - 1.2476 (weekly long-term trend + central pivot point) will bring back the buyers. The next bullish targets within the day will be the resistances of the classic pivot points (1.2513 - 1.2579 - 1.2616).     The technical analysis of the situation uses: Higher timeframes - Ichimoku Kinko Hyo (9.26.52) + Fibo Kijun levels Lower timeframes - H1 - Pivot Points (classic) + Moving Average 120 (weekly long-term trend)      

The XAU/USD chart shows a bearish momentum within a descending channel, indicating a predominant downward trend.       here is potential for a bearish reaction at the first resistance level of 1966.26, leading to a price reversal towards the first support level at 1933.95. Additional support is observed at 1914.16, offering significant buying opportunities. The resistance levels at 1966.26 and 1980.08 present obstacles for upward movement. Monitoring these levels can provide valuable insights for trading opportunities in the XAU/USD market.  

The GBP/USD currency pair experienced a slight correction on Monday but remained in a strong, short-term, upward trend. The current trend period raises many questions, as we have discussed before. Such explosive growth, reminiscent of Bitcoin, often serves as a precursor to a prolonged decline. Traders are using the last chance to buy in fully, but they will soon start to take profits on long positions, which will be a harbinger of a new downward trend. Of course, this is just a hypothesis, and any hypothesis requires confirmation. So far, there are none.   However, let's draw traders' attention again: even in the short term, the pound shows such strong growth that it needs to be more consistent with the macroeconomic and fundamental background. Over the past few months, we have repeatedly mentioned that we expect a decline in the British pound. The decline has yet to begin, and the British currency cannot even correct itself properly, especially in the 24-hour time frame. Let's ask ourselves: Is the British economy really that strong, and is the Bank of England's stance aggressive enough for the pound to show a rise of 2500 in three quarters? The answer is obvious. Of course, part of this trend should be attributed to a simple technical correction after a significant decline.   Another part of the trend is the pound's recovery after Liz Truss's departure. But even with these two "buts," it seems too much. Interestingly, such a momentum trend can continue for some time. The market sees that the pound is growing and logically continues to buy, even though there are no grounds for it. Therefore, the conclusion remains the same: the pound is rising illogically, and at any moment, this growth may end with a crash, but the upward trend can continue for as long as the market deems necessary, largely ignoring the fundamental background.   Events this week may cause a decline in the pound This week, the Bank of England will hold its regular meeting in the UK. The key rate is likely to increase for the thirteenth consecutive time, which is unsurprising. We receive very few comments and forecasts from Bank of England representatives, making it extremely difficult to predict the regulator's future actions. However, the market does not doubt that monetary policy will be tightened again.   If so, this decision has already been priced in. However, if even one "dovish" hint comes from the Bank of England's corridors, it could end badly for the pound. It is evident to everyone that the Bank of England can only maintain elevated interest rates for a limited period. The rate has already reached 4.5%, and after a deceleration in the tightening pace, two 0.25% rate hikes have already been implemented. This week might witness the occurrence of the third and final hike. The British economy has teetered on the brink of recession for four consecutive quarters, and each subsequent rate increase further raises the likelihood of a recession commencing within this year. However, we have been aware of all these factors for quite some time.       On Monday, there were no noteworthy developments concerning the dollar or the pound. Tuesday will also have scarce news. The real excitement will commence on Wednesday when Jerome Powell, the Chairman of the Federal Reserve, makes his debut appearance in Congress. This event might go unnoticed, as Mr. Powell will provide an account of the Federal Reserve's operations and respond to inquiries from senators and congress members. Since the Federal Reserve is an independent entity not subject to the control of the US government, Powell has no reason to fear. He will not face job loss and can address questions according to his own judgment. It is no secret that US authorities would prefer a less aggressive monetary policy since the regulator's actions have led to a banking crisis. But again, Powell and his colleagues have a different view on this matter: inflation is their top priority. We do not expect any "dovish" statements from Jerome. Accordingly, we do not expect the dollar to weaken after his speeches in Congress. The pound has excellent chances of starting a decline this week if the fundamental background means anything to the market.    

Bank lending to households maintained its downward trend, and May brought the first Month-on-Month decline in household borrowing since the first lockdown in 2020. That was exceptional, of course, and before then, we only witnessed monthly declines in household borrowing in the depth of the euro crisis. The impact can be seen in housing markets where prices and transaction volumes are trending down and will feed through to the rest of the economy. Deposits by households increased by 1 billion in May, after declines in March and April. This suggests that the effects of the banking turmoil in the eurozone have remained very limited. Broad money growth was down again in May, bringing the annual growth rate down from 1.9% in April to 1.4%. Narrow money growth (M1) saw the annual downturn deepen from -5.2 to -6.4%, the sharpest drop in history. While there are circumstances that make the impact of this smaller or more dragged out than in previous episodes of monetary contraction, it remains a signal that tightening is well under way. Overall, the eurozone economy is currently in a roughly stagnant growth environment. The fast-paced rate hikes are set to still have a further dampening effect on economic activity as monetary transmission continues to work its way through the system. This leads us to believe that growth is set to remain sluggish at best for the foreseeable future. Still, today’s numbers do not show a cliff-edge drop that would change the ECBs thinking on further rate hikes.

Spanish inflation falls below 2% for the first time in two years Spain's inflation outlook improved further in June. Headline inflation fell below 2% for the first time since March 2021. However, inflation is expected to pick up in the second half of the year due to several factors, including higher oil prices and the fading of favourable base effects.   Spanish inflation reaches 2% target The downward trend in Spanish headline inflation continues, falling to 1.9% year-on-year in June from 3.2% YoY in May. This month's sharp fall in inflation was expected given the jump in June last year. This marks the first time in about two years, since the start of the spike in inflation, that inflation is back in line with the ECB's 2% target. Headline inflation has now fallen to 1.9% YoY, after peaking at 10.8% in July 2022, while the HICP gauge stands at 1.6% YoY, down from its peak of 10.7% in July last year. Core inflation fell further to 5.9% in June from 6.1% in May, showing that disinflationary pressures are broadening.  

Based on what we can see on its GBP/USD weekly chart, there is a few interesting things: 1. The appearance of Bearish Divergent between Stochastic with GBP/USD. 2. The appearance of Bearish Three Little Indian (Cyan circle). 3. The appearance of Rising Wedge weakening Pattern. 4. There is a Wolve Waves Pattern.     Based on those facts above, Cable seems has the chance to continue its quite huge downward tren, maximum in the next 2 weeks where as long as there is no upward correction rally that exceeds the 1.2850 level, GBP/USD will try to fall down towards the trend line ETA Line of its Wolve Wave or at least to the 1.2307 level as its main target.     

Services are now also slowing We certainly don’t deny that the pick-up in wage growth, in combination with lower energy prices, is boosting consumers’ purchasing power, supporting consumption growth over the coming quarters. But at the same time, some increase in the savings ratio looks likely as the economic outlook has become more uncertain (in some member states unemployment has started to increase). All sectors are now signalling a deceleration in incoming orders, while inventories in industry and retail are at a very high level. Even services, which held up well despite the recessionary environment in manufacturing, are losing steam. The services confidence indicator fell in June below its long-term average. That doesn’t necessarily mean that the only way is down – we still expect a strong summer holiday season, supporting third-quarter growth. But after that things might become shakier again, as the US economy is expected to have fallen into recession by then. The bottom line is that we now only expect 0.4% growth in 2023. Subsequently, on the back of the low carry-over effect, we pencil in a 0.5% GDP expansion for 2024.   Downward trend in inflation continues The flash headline inflation estimate for June came out at 5.5%, while core inflation increased slightly to 5.4%. However, the increase in core inflation is entirely due to a base effect in Germany that will disappear in September. The growth pace of core prices, measured as the three-month-on-three-month annualised change in prices, now stands at 4.4%. That is still too high, but the trend is clearly downwards. The inventory overhang is leading to falling prices for goods. In the European Commission’s survey, selling price expectations softened again in all sectors, while the expected price trends in the consumers’ survey fell to the lowest level since 2016. It, therefore, doesn’t come as a surprise that we expect the downward trend in inflation to continue, with both headline and core inflation likely to be below 3% by the first quarter of 2024.   Selling) price expectations are coming down across the board

Spanish headline inflation reaches 1.9% Spanish inflation has fallen faster than in other eurozone countries. In June, Spanish inflation stood at 1.9% year-on-year, while the eurozone recorded 5.5%. These positive developments can be attributed to more favourable base effects from energy prices, which rose faster in Spain than in other countries last year. However, if these favourable base effects fade in the coming months, Spanish headline inflation could rise again. In addition, the phasing out of several government measures by early 2024 is expected to have an upward effect on inflation. Spanish core inflation, excluding energy and food prices, remains remarkably high at 5.9% and is even above the eurozone average of 5.4%. Core inflation is expected to remain at a high level throughout the year and gradually decline. Yet there are indications that core inflation is also on a sustained downward trend. For instance, inflation in the buoyant hospitality sector, which accounts for 14% of the inflation basket, is cooling markedly despite strong sustained demand on the back of a strong tourist season. Core inflation is expected to remain at high levels throughout the year and only gradually decline.   Slowing momentum despite tourism recovery For 2023, we expect growth of 2.2%, well above the eurozone average of 0.4%. Although the economy performed strongly in the first quarter, momentum is expected to wane as financial conditions tighten. The main driver of growth will be net exports, supported by the continued recovery of the tourism sector, which surpassed pre-pandemic levels in May and April. Although headline inflation fell to 1.9% in June, it is expected to rise in the coming months due to less favourable base effects for energy and persistent core inflation.   The Spanish economy in a nutshell (% YoY)

In a recent interview with FXMAG.COM, we had the privilege of discussing the current state of inflation in the United States with Michael Stark, an experienced analyst from Exness. As inflation has been a hot topic of discussion and concern for both investors and policymakers, we sought Stark's insights on whether the downward trend in inflation will continue in the third quarter. According to Stark, unless there are any significant unforeseen events, it is likely that inflation will continue to fall in the U.S., albeit not by a substantial margin. He points out that American non-core inflation has been steadily slowing since the previous summer, with monthly fluctuations showing some variability. One of the primary factors contributing to the deceleration in inflation is the strong cycle of monetary tightening, which has been one of the most robust in history. Coupled with the relatively steady price of oil compared to the previous year and supply chains returning to a semblance of normalcy for most products, the pressures on inflation have become less evident. Additionally, weaker job data in the USA, traditionally considered a significant driver of inflation, have also played a role in the moderation of price increases. FXMAG.COM: Will inflation continue to fall in the U.S. in the third quarter? Barring some exceptional event, yes, but maybe not by very much. American non-core inflation has slowed consistently since last summer although the monthly declines in the rate have been somewhat variable. This has been one of the strongest cycles of monetary tightening in history and, combined with the price of oil remaining relatively steady compared to last year and supply chains back to normal or something resembling normal for most products, the biggest pressures on inflation are much less clear now. Job data in the USA – traditionally cited as being a key driver of inflation – have also been weaker overall since the second quarter. However, it’s probably too early to start expecting a return to 2% inflation even by the end of the year. Now that the Fed is likely to pause hikes and possibly start cutting in the second quarter of 2024, we might see inflation stick above the old target. Inflation is quite unpredictable more than a few months ahead, but holding PMIs might suggest that it could remain above target for longer.  

German industrial ‘bad news show’ continues A further drop in German industrial production in June is another illustration of the country's ongoing stagnation.   The industrial bad news show continues. German industry continued its downward trend in June as industrial production dropped by 1.5% Month-on-Month, from -0.1% MoM in May. For the year, industrial production was down by 1.7%. Industrial production is still more than 5% below its pre-pandemic level, more than three years since the start of Covid-19. Production in energy-intensive sectors escaped the negative trend and increased by 1.1% MoM in June, still down by more than 12% over the year. The disappointing industrial production performance in June was mainly driven by the automotive industry (-3.5% MoM) and the construction sector (-2.8% MoM). With today’s numbers, the risk has increased that the flash estimate of stagnating GDP growth in the second quarter could still be revised downwards.   More industrial disappointments to come Today’s industrial production data will do little to change the current hangover mood in Germany. The country finally seems to have woken up to the reality that it's lost international competitiveness over the last decade on the back of too few investments and hardly any structural reform. The pandemic and the war in Ukraine have worsened the problems without being the root cause. It doesn’t come as a surprise that according to a recent survey, German companies have never been more pessimistic about the country’s international competitiveness than currently. With earlier investments and reforms, the economy could have mastered the current challenges better. As a result, economic stagnation is the new normal. And in this new normal, the ‘traditional’ growth drivers of the German economy, i.e. industry and exports, have actually become a drag on growth. Looking ahead, last week’s surge in industrial orders brightened the industrial outlook somewhat. However, up to now, the rebound in new orders in May and June has only offset the sharp drop earlier in the spring but is not yet the start of a new positive trend. In fact, ongoing high inventories and the order book deflation until springtime still suggest more industrial disappointments in the months ahead.

NZD/USD posts strong gains on Tuesday New Zealand retail sales are expected to decline by 2.6%   The New Zealand dollar has posted strong gains on Tuesday. In the European session, NZD/USD is trading at 0.5959, up 0.55%. On the data calendar, New Zealand retail sales are expected to decline by 2.6% q/q in the second quarter, compared to -1.4% in Q1. The New Zealand dollar has gone on a dreadful slide since mid-July, falling as much as 500 basis points during that spell. The current downswing has been driven by weak global demand and jitters over China’s economy, which is showing alarming signs of deterioration. Chinese releases have been pointing downward recently. Exports and imports have fallen, manufacturing activity is weak and the world’s second-largest economy is experiencing deflation. Last week, Evergrande, a huge Chinese property developer, filed for bankruptcy in the United States, raising fears of contagion to other parts of the economy. It wasn’t long ago that the Chinese ‘miracle’ was being touted as an economic powerhouse on the global stage, but now the world’s second-largest economy is in deep trouble and is dragging down global growth. An interesting silver lining is that deflation in China could help lower inflation worldwide, which would be good news for the Fed, ECB and other central banks that are battling to push inflation lower. The People’s Bank of China (PBOC) has responded in recent days to the economic slowdown with some cuts to lending rates, but surprisingly, has not trimmed the five-year loan prime rate, which has a major impact on mortgages. The PBOC’s lukewarm move to the economic crisis could mean China’s economy will continue to sputter, and that is bad news for the New Zealand dollar, as China is by far New Zealand’s largest trading partner. If Chinese releases continue to head lower, we can expect the New Zealand dollar to continue losing ground.   NZD/USD Technical NZD/USD has pushed above resistance at 0.5941 and is putting pressure on resistance at 0.5978. There is support at 0.5885 and close by at 0.5848  

EUR/USD   Higher Timeframes The past day has been bearish, but significant changes have not occurred as the pair continues to remain within the range of the previous days, forming consolidation. Today, we close the working week, and the result is of interest. If the bears manage to create a clear bearish sentiment in the weekly candlestick pattern, the euro's tasks will be aimed at breaking through the level of 1.0614 (weekly short-term trend + monthly medium-term trend) and eliminating the daily Ichimoku cross (1.0652 – 1.0638 – 1.0620 – 1.0588). For the bulls, the current situation still faces weekly resistances at 1.0733 – 1.0766.     H4 – H1 On the lower timeframes, the bears managed to break below key levels towards the end of yesterday. Currently, this position is maintained, and strengthening their positions will be possible through the continuation of the current decline and gaining support from classic pivot points (1.0644 – 1.0620 – 1.0579). The key levels today are holding defense around 1.0685 – 1.0701 (central pivot point + weekly long-term trend). Consolidation above and a reversal of the movement could bring activity back into the market, favoring the bulls. Additional intraday bullish targets include 1.0709 – 1.0750 – 1.0774 (resistances of classic pivot points).     Higher Timeframes Bears successfully advanced yesterday and are close to closing the current week with a bearish candlestick combination, forming a rebound when testing important weekly levels (1.2268 – 1.2292). A weekly rebound and the elimination of the daily Ichimoku cross (1.2205) will draw attention to breaking the support of the monthly medium-term trend (1.2093) and the recovery of the weekly downward trend (1.2036).       H4 – H1 On the lower timeframes, the bulls lost key levels yesterday, shifting the main advantage to the bears. To develop the decline, intraday targets today may be the supports of classic pivot points (1.2184 – 1.2151 – 1.2089). The key levels currently act as resistances and are located at 1.2246 (central pivot point of the day) and 1.2301 (weekly long-term trend). Consolidation above could change the current balance of power. The next targets for the recovery of bullish positions within the day will be 1.2341 and 1.2374 (resistances of classic pivot points).

GBP November GDP surprised to the upside last week, calming concerns over the possibility of a technical recession in Q4. The economy expanded by 0.3% month-on-month, following a contraction of the same magnitude in October. If the latest PMI data is anything to go by, another modest expansion in activity may be on the way in December, which would likely avoid the confirmation of a technical recession once the quarterly data is released in mid-February. The reaction in sterling to the data was subdued, however.     This week's data will test the Bank of England's recent hawkishness. In addition to the key December CPI inflation report, we will get November wage and December employment figures. While both wage and inflation numbers are expected to show a downward trend, they are both higher than in the Eurozone or the US. Core inflation is still hovering around 5%, and wages are growing at a near 7% rate, and we will have to see substantial reductions in both before the MPC is comfortable with the start of the cutting cycle.