european central bank

The euro is in positive territory on Monday. EUR/USD is trading at 1.0907 in the European session, up 0.36%.

It was a quiet week for the euro, which continues to hug the 1.09 line. I expect to see stronger volatility this week, as the eurozone releases GDP and inflation data, followed by the ECB rate announcement on Thursday.

German GDP declines in Q4

Germany’s economy posted a rare decline in the fourth quarter. GDP came in at -0.2% q/q, down from 0.4% in Q3 and shy of the forecast of zero. On an annualized basis, GDP slowed to 1.1%, down from the Q3 read of 1.3%, which was also the forecast. The markets are braced for more bad news out of the eurozone on Tuesday. German retail sales for November are expected to drop by 4.3% y/y, after a decline of 5.9% in November. Eurozone GDP is expected to slow to 1.8% y/y in Q4, compared to 2.3% in Q3.

The ECB will be keeping a close eye on this week’s GDP and inflation data, ahead of a key rate decision on Thursday. The central bank has

European Central Bank and Amazon (AMZN) And Its Earnings

European Central Bank and Amazon (AMZN) And Its Earnings

Walid Koudmani Walid Koudmani 03.02.2022 11:57
Central bank decisions tend to be significant events in normal circumstances, but today’s decision could prove to be quite interesting for markets as different decisions are expected from each of today’s banks. While the Bank of England is set to raise its rate for the second time and signal further unwinding of its pandemic stimulus, the European central bank is expected to maintain it’s wait and see approach despite record inflation of 5,1% announced in January. According to these predictions, we could be seeing a strengthening of the pound thanks to the 0,5% interest rate, while we could sese a mixed reaction of the Euro as markets remain uncertain about the fragile economic recovery, especially given recent escalations on the Russia-Ukraine border which could destabilize the entire continent. Despite this, any surprises in today’s decisions or announcements could have far reaching effects on both the FX market and equities across Europe and the UK as central bankers struggle to balance record inflation with the post pandemic recovery. Can Amazon’s earnings support US indices? While we have seen a noticeable recovery of global indices over the past several days, yesterday’s disappointing earnings report from Meta (Facebook) saw the stock price drop and weigh on US markets as well as general sentiment. Meta’s results came one day after Alphabet announced it’s positive results and optimistic outlook and despite this mixed sentiment, we are seeing a slight pullback of stock markets as they await another mega-cap report. Amazon’s results could prove to be a significant catalyst for potential movements in the markets as a better than expected result could further boost the recent recovery while a disappointing one could drag markets further down. The company benefited greatly from the recent global situation as demand for its products and services increased noticeably thanks to a solid strategy and cost optimization. On the other hand, like many other companies that benefited from the stay-at-home lifestyle, it remains to be seen if that positive performance has carried over into this new phase.  
Meta (FB) Has Some Things To Worry About, Amazon (AMZN) And Ford (F) Ahead Of Publishing Their Reports

Meta (FB) Has Some Things To Worry About, Amazon (AMZN) And Ford (F) Ahead Of Publishing Their Reports

Swissquote Bank Swissquote Bank 03.02.2022 12:05
Yesterday’s ADP data showed that the US economy lost some 300’000 private jobs in December, versus 185’000 job additions expected by analysts, but no one cared. Google jumped by more than 7% yesterday to a fresh record high on the back of strong earnings. Nasdaq gained for the fourth consecutive session adding another 0.50% to its gains. But don’t uncork the champagne just yet! Because the Nasdaq futures are trading more than 2% lower at the time of writing. Disappointing Facebook results, and a 23% plunge in Meta shares in the afterhours trading calls for a red session in the US. Amazon is the last FAANG stock to announce earnings today, and the company is expected to reveal a second consecutive month of earnings decline. Ouch. Inflation in the Eurozone hit 5.1% in December. So, all eyes are on Christine Lagarde and what she has to say at today’s press conference. Will she insist that inflation is transitory or will she finally accept the defeat, and call it a problem? Across the Channel, the Brits will probably raise their interest rates by another 25bp for the second time at today’s meeting. Elsewhere, OPEC maintained its production increase target at 400’000 barrels per day and the consensus is a further advance in crude oil to $100pb in the foreseeable future. Watch the full episode to find out more! 0:00 Intro 0:36 Market update 2:23 Facebook plunges 20% post-results 3:40 Amazon to reveal another earnings decline 5:03 European inflation puts pressure on ECB 7:12 BoE to raise rates for the second time 8:16 OPEC raises output slowly, only Ipek Ozkardeskaya has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked at HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist at Swissquote Bank. She worked as a Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020.
ECB April Preview: Quicker end to QE to help euro recover

ECB April Preview: Quicker end to QE to help euro recover

FXStreet News FXStreet News 13.04.2022 16:55
Euro has been struggling to find demand since the beginning of April. ECB is widely expected to leave key rates unchanged. A hawkish shift in ECB's policy outlook could trigger a steady rebound in EUR/USD. EUR/USD is already down more than 2% in April amid the apparent policy divergence between the Federal Reserve and the European Central Bank (ECB). The European economy is widely expected to suffer heavier damage from a protracted conflict between Russia and Ukraine than the US economy, and the Fed remains on track to hike its policy rate by 50 basis points in May. The shared currency needs the ECB to adopt a hawkish policy stance in order to stay resilient against the greenback. In March, the ECB left interest rates on the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50% respectively. The bank further announced that monthly net purchases under the Asset Purchase Programme (APP), which were initially planned to end in the fourth quarter, will amount to €40 billion in April, €30 billion in May and €20 billion in June before ending in the third quarter. Related article: ECB Interest Rate Decision Is Coming! European Indices (DAX, CAC40) To Plunge Or Rise? What About Forex Pairs? The accounts of the ECB’s March meeting revealed earlier in the month that a large number of the governing council members held the view that the current high level of inflation and its persistence called for immediate further steps towards monetary policy normalization. Hawkish scenario The ECB could decide to adjust the monthly purchases to open the door for a rate hike in the second half of the year if needed. The bank might keep the purchases under APP unchanged at €40 billion in April but bring them down to €20 billion in May to conclude the program by June. Even if the policy statement refrains from offering hints on the timing of the first rate increase, such an action could be seen as a sign pointing to a June hike. In a less-hawkish stance, the bank may choose to leave the APP as it is but change the wording on the QE to say that it will be completed in June rather than in Q3. ECB President Christine Lagarde’s language on the timing of the rate hike will be key if the bank decides not to touch the APP. During the press conference in March, Lagarde noted that the rate hike would come “some time” after the end of QE. If Lagarde confirms that they will raise the policy rate right after they end the APP, this could also be seen as a hawkish change in forward guidance. Dovish scenario The ECB might downplay inflation concerns and choose to shift its focus to supporting the economy in the face of heightened uncertainty by leaving the policy settings and the language on the outlook unchanged. The euro is likely to come under heavy selling pressure if the bank reiterates that the APP will end in the third quarter as planned. That would push the timing of the first rate hike toward September and put the ECB way behind the curve in comparison to other major central banks. According to the CME Group FedWatch, markets are pricing in a more-than-60% probability of back-to-back 50 bps hikes in May and June. Conclusion The ECB is likely to respond to the euro’s weakness, aggressive tightening prospects of major central banks and hot inflation in the euro area by turning hawkish in April. For EUR/USD to stage a steady rebound, however, the bank may have to convince markets that they are preparing to hike the policy rate by June. On the other hand, there will be no reason to stop betting against the euro if the bank chooses to leave its policy settings and forward guidance unchanged. EUR/USD technical outlook EUR/USD closed the previous seven trading days below the 20-day SMA and the Relative Strength Index (RSI) indicator stays below 40, suggesting that bears continue to dominate the pair’s action. On the downside, 1.0800 (psychological level, March low) aligns as first support. With a daily close below that level on a dovish ECB, EUR/USD could target 1.0700 (psychological level) and 1.0630 (March 2020 low). Key resistance seems to have formed at 1.0900 (psychological level, static level). In case this level turns into support, a steady rebound toward 1.1000 (psychological level, 20-day SMA) and 1.1100 (static level, psychological level) could be witnessed.
Follow EUR/USD, EUR To GBP And The Rest Of EUR Pairs - Inflation In Euro Area Continues To Worry Investors After Reaching New High

Follow EUR/USD, EUR To GBP And The Rest Of EUR Pairs - Inflation In Euro Area Continues To Worry Investors After Reaching New High

Walid Koudmani Walid Koudmani 21.04.2022 12:02
Today's Euro area inflation report continued to show the alarming rate of increase in prices mainly driven from energy prices and services. The euro area annual inflation rate was 7.4% in March 2022, up from 5.9% in February and noticeably higher than when compared to a year earlier (1.3%). Stagflation scenario? While we have already seen a slight change in tone from some members of the ECB, hinting at rate hikes sooner than previously expected, today's report could further incentivize the bank to act in an attempt to avoid the increasingly likely stagflation scenario. It will be important to keep an eye on today’s speech from the ECB head Lagarde after another member of the ECB , Kazaks, stated they believe asset purchases may be terminated before Q3 2022 - much earlier than it was expected. Gold price returns to key support area ahead of central banker speeches The price of gold has seen a noticeable pullback after reaching a high of $1958 yesterday while stock markets started the day trading higher following better than expected earnings from Tesla. The precious metal has once again returned to a previous support area of and could continue to see an increase in volatility as investors await today's comments from the heads of BoE and ECB. While the ECB appears to be changing its opinion slightly on the possibility of adjusting its fiscal and monetary policy to contend with record inflation, it remains to be seen how and if Lagarde will downplay the situation in order to calm the markets. In any case, gold might see a reaction to the $1945 area once again after the price managed to rebound several times in the past.  
Italian industrial production fell again in June, raising doubts over 3Q growth

Stronger Euro (EUR)? Rates Spark: Four ECB hikes and a bit more | ING Economics

ING Economics ING Economics 19.05.2022 09:08
Curves pivoting flatter fits a narrative further shifting towards growth concerns. As European Central Bank pricing gets more hawkish there is more than just the possibility of 50bp moves that could explain how 100bp in four meetings after June could come to pass, even if that is not our view    USD and EUR curves pivoting flatter around the belly of the curve amid weaker risk assets is a pattern that fits the narrative of market concerns having shifted toward rising risks to the growth outlook as central banks tighten policies amid high inflation. Continuing to lean more hawkish on the hawk-dove seesaw In EUR, markets have further ratcheted up their ECB rate hike expectations. By the end of the year they expect an overnight rate more than 100bp higher from now. If one assumes that the ECB will use the June meeting to prepare the grounds for rate hikes by announcing also the end of all net asset purchases, then this would imply an expectation of 25bp hikes at each of the other four remaining policy setting meetings in 2022 – and a bit more. 25bp hikes at the four ECB meetings starting with July – and a bit more Does that mean the possibility of a 50bp hike by the ECB is catching on?  After all it had been floated by the ECB’s Klaas Knot earlier this week, but his remarks may have been more about signaling a commitment to act forcefully. A sources article published yesterday outlined that a majority of the Council supported at least two 25bp hikes this year, but downplayed the notion of a 50bp move. Read next: Altcoins: What Is Litecoin (LTC)? A Deeper Look Into The Litecoin Platform| FXMAG.COM Curve flattening fits a pattern of growth concerns and tightening central banks Source: Refinitiv, ING Other factors driving aggressive market pricing The aggressive market pricing will to a degree also reflect a higher risk premium amid volatile times, but we would also not exclude some uncertainty being reflected about the evolution of excess reserves in the banking system and how the ECB proceeds with the tiered deposit rate. The expectation is still that larger early repayments of banks’ targeted longer-term refinancing operations borrowings loom in the months ahead, although higher comparable market rates may have now made it more compelling for banks to hold on to the funds beyond June until the September repayment date. On the forwards strip for the ECB meeting periods markets see c.4bp higher overnight rates for the upcoming June meeting, though it may also include outside chances for an immediate ECB rate hike. It is conspicuous that the market prices the largest increase for September, a rise of noticeably more than 30bp while it is below 25bp for the other meetings this year save July. More than 100bp from the ECB in the four 2022 meetings after June Source: Refinitiv, ING   For September the market prices an increase of more than 30bp Perhaps the ECB minutes to be released today will shed more light on the ECB’s internal deliberations on what needs to be done in the face of rising inflation and the balance of risks tilting less favourably. But given how far official communication has already evolved since the April meeting to converge with the market view, the minutes should look dovish, not to say outdated. It was a meeting that still signaled a very gradual move. To be sure, our own expectation is also that aggressive market pricing will likely not be realised with our economists looking for three ECB hikes by the turn of the year. Today's events and market view In the Eurozone the ECB minutes of the 14 April meeting will take the spotlight amid an otherwise quiet data calendar. The minutes have seldomly been market moving, and they should appear especially outdated this time around as ECB communication has evolved quickly since then. We will also hear from the ECB's de Guindos and de Cos today. The other market focus will be today’s busy supply slate. France sells up to €13bn across shorter dated bond lines, including a new 6Y, and linkers. Spain reopens four bond lines including its 20Y green bond for up to €6bn in total.   The US sees publication of initial jobless claims and existing home sales. Read next: Altcoins: What Is Monero? Explaining XMR. Untraceable Cryptocurrency!? | FXMAG.COM Read this article on THINK TagsRates Daily Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Eurozone: We Will Be Able To Have A More Detailed Look At The Economy As PMI Data Is Released

Rates Spark: The rates upside remains real | ING Economics

ING Economics ING Economics 20.05.2022 08:41
Completing the shift of the market narrative towards growth concerns, bonds are reasserting their role as safe havens. The European Central Bank minutes confirmed the Council's desire to act faster, also with an eye on still ultra low real yields  Risks remain to the upside for rates Bonds' negative correlations with risk assets consolidates amid growth concerns As markets continue to trade in a risk-off fashion, bonds have managed to reassert their role as safe havens. The pattern of bond curves consistently rallying flatter as risk assets sell off has only reestablished itself over the past few sessions. In a way this dynamic completes the transition of the market narrative toward growth concerns, away from being dominated by central banks' prospective tightening lifting market rates out the entire curves. bonds have managed to reassert their role as safe havens This does not mean that data releases couldn't shift the focus again. Next week will offer some opportunities with the release of the flash PMI surveys for instance. And if the Fed deems inflation (expectations) are not coming down fast enough, it may well use the FOMC minutes next week to signal more hawkish moves. The 75bp-hike discussion is not entirely off the table. Unlike the ECB, the Fed has used its meeting minutes as a more active communications tool, such as outlining its plans for the balance sheet run-off. We will also watch the PCE deflator, the Fed's preferred inflation gauge at the end of next week. Risk-off drives curves flatter Source: Refinitiv, ING ECB minutes, outdated but also highlighting the upside in rates The ECB minutes have been overtaken by the quick evolution of ECB communication since the last meeting. The indication now is that a majority of the Council is backing ending net asset purchases in June and hiking for a first time in July is already common place. And markets are attaching some probability to hikes larger than 25bp. The ECB has to increasingly grapple with potential de-anchoring of inflation expectations That does not mean that the known objections of the Council’s doves are invalid: too fast tightening being counterproductive, weighing on growth without being able to do anything about inflation driven by supply shocks. The line of reasoning still holds and explains market concerns reflected in current curve flattening. But the ECB has to increasingly grapple with potential de-anchoring of inflation expectations with some of the related measures already displaying notable shifts. This shift in some inflation expectation measures had been outlined by Isabel Schnabel in one of her more recent speeches. She had also highlighted the still very low level of real yields. This hawkish argument was also found in yesterday’s minutes, with real yields remaining low while the rise in nominal yields was not enough to dampen aggregate demand and bring down inflation in the medium term. Read next: Altcoins: What Is Litecoin (LTC)? A Deeper Look Into The Litecoin Platform| FXMAG.COM EUR real rates have a long way to go Source: Refinitiv, ING   It is worth noting that back around the April ECB meeting the 10Y swap rate was just below 1.6% versus a current level of 1.65%, although following a decent rally after a brief excursion above 2% earlier this month. Real rates remain deeply negative regardless of the maturity, and if this is a measure considered instrumental at reining in inflation over the medium term, then we may have to reckon with more upside to rates. The important question is whether the ECB will have enough time to realize its goals.   The ECB's "separation principle" is still lacking detail The "separation principle" referenced in the ECB accounts states the idea that monetary policy could be set independently from any measures designed to avoid disruptions triggered by any such policy tightening. More specifically to the current situation, Eurozone sovereign bond spreads could be managed while the ECB starts hiking. However, as of now the ECB has still not provided any details on how such a tool could look in practice. Beyond stating the need to keep flexibility and pointing to the potential use of pandemic emergency purchase programme reinvestments, it appears there is no desire to have a broader discussion on the topic just yet. With ECB plans still vague, Italian bonds especially remain vulnerable With ECB plans still vague, Italian government bonds especially remain vulnerable. In the current risk-off environment Italian bonds are still positively correlated with Bunds, ie, they do not trade as risk assets, but the spreads have started to rewiden towards 195bp in 10-year maturities. We still think the market could test out widening this spread towards 250bp before the ECB steps in. ECB plans remain vague, leaving Italian bond spreads vulnerable to further widening Source: Refinitiv, ING Today's events and market views In terms of data and events it will be a quieter session today. The main focus will be on central bank speakers with the ECB's Muller, Kazaks Lane, and Centeno all scheduled for the day. In the UK we will hear from the Bank of England's Chief Economist Huw Pill. Main data of note is the Eurozone consumer confidence. In this shaky risk environment, we expect bonds to retain their poise. It would take a lot of good news for yield upside to resume at the long-end, but central bankers should keep the heat on shorter rates. Read next: Altcoins: What Is Monero? Explaining XMR. Untraceable Cryptocurrency!? | FXMAG.COM Read this article on THINK TagsRates Daily Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Follow FXMAG.COM on Google News
Representatives Of The ECB Claim That By The End Of 2023, Inflation Should Have Reached The Target Level

FX Daily: Dollar rally pauses for breath | ING Economics

ING Economics ING Economics 20.05.2022 10:57
Some support measures for the Chinese economy and some stability in the Chinese renminbi have helped usher in a period of consolidation in FX markets. This may well last into next week, although we would consider this a pause not a reversal in the dollar's bull trend. The stronger dollar is also exporting Fed hikes around the world Not until the Fed pours cold water on tightening expectations should the dollar build a top USD: Some consolidation is in order The dollar is now about 2% off its highs seen late last week. Driving that move has probably been some position liquidation and a preference for currencies like the Japanese yen (JPY) and the Swiss franc (CHF) during turbulent times in global equity markets. In fact, yesterday's FX activity looked like the big sell-off in EUR/CHF on Swiss National Bank (SNB) comments which triggered downside stops in USD/CHF and prompted a slightly broader dollar adjustment. Also helping this period of consolidation has been this week's stability in the Chinese renminbi (CNY). The overnight 15bp cut in the 5-year Loan Prime Rate – aimed at supporting the property sector – has instilled a little more confidence in Chinese assets markets. However, we cannot see USD/CNY heading straight back to 6.50. Instead, a 6.65-6.80 trading range may be developing after the recent CNY devaluation.  However, the emerging market environment still looks challenged given that the stronger dollar is effectively exporting tighter Fed policy around the world. Yesterday we saw rate hikes in Egypt, South Africa, and the Philippines. After devaluing the Egyptian pound by 15% in March, authorities there are very much struggling with the external environment. This has seen Egypt's 5-year Sovereign Credit Default swap rise to news highs of 940bp and is a reminder of the challenge North Africa faces from surging food prices. For today, the data calendar is relatively quiet and there may be some interest in what G7 finance ministers and central bank governors have to say after their meeting in Bonn. Reports suggest Japan would like some tweaks to the final G7 communique, but we very much doubt there will be any change in the core FX language that FX rates be market-determined and that excessive volatility and disorderly moves be avoided. DXY could correct a little lower to 102.30, but we see this as bull market consolidation, rather than top-building activity. Not until the Fed pours cold water on tightening expectations should the dollar build a top. And yesterday Fed hawk, Esther George, said that even this 'rough week' in equity markets would not blow the Fed off course.  EUR: ECB hawks in control Minutes of the April ECB meeting released yesterday show that the hawks are calling the shots. The market now prices a 31/32bp ECB rate hike at the 21 July ECB meeting – pricing which has plenty of scope to bounce between +25bp and +50bp over the next two months. This could drag EUR/USD back to the 1.0650/70 area over the coming days – helped by brief periods of calm in the external environment – but as above we would see this as a bear market bounce. Our core EUR/USD view for 2H22 is one of heightened volatility and probably EUR/USD getting close to parity in 3Q22 when expectations of the Fed tightening cycle could be at their zenith. Read next: Altcoins: What Is PancakeSwap (CAKE)? A Deeper Look Into The PancakeSwap Platform| FXMAG.COM GBP: April retail sales provide a reprieve UK retail sales have come in a little better than expected and break/suspend the narrative that the cost of living squeeze is large enough to derail the Bank of England tightening cycle. We would not get carried away with the sterling recovery, however. Sterling is showing a high correlation with risk assets – trading as a growth currency – and the outlook for risk assets will remain challenging for the next three to six months probably. Here's what our credit strategy team thinks of the European outlook.  Cable may struggle to breach the 1.2500/2550 area and 1.20 levels are very possible over the coming months. New-found hawkishness at the ECB means that EUR/GBP may struggle to sustain a move below 0.8450 before returning to 0.8600. Read next: Altcoins: What Is Litecoin (LTC)? A Deeper Look Into The Litecoin Platform| FXMAG.COM CHF: SNB policy makes the case for EUR/CHF sub 1.00 next year As we discuss in an article released yesterday, it looks like the SNB is targeting a stable real exchange rate to fight inflation. Given that Switzerland's inflation is roughly 4% lower than key trading partners, a stable real exchange rate means that the nominal exchange rate needs to be 4% stronger. This will be an added factor supporting the CHF over the coming months and may start to generate interest in trades positioning for a lower GBP/CHF. 1.2080 is a big support level but 1.1860 looks like the near-term target. Read this article on THINK TagsGBP FX Daily ECB CHF Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Euro Will Strengthen, But Questions Remain About What To Do Next

Fighting With The EU Inflation. Naturally, Strong Euro (EUR) Would Help | Why some ECB officials are suddenly concerned about the weak euro | ING Economics

ING Economics ING Economics 23.05.2022 08:30
Several European Central Bank officials have become more vocal, showing their concern about the weakening euro. As much as we think that these concerns are overdone, strengthening the euro could for the ECB currently be the single most efficient way to temper inflation quickly   In recent days, ECB officials have become more vocal with their concerns about the weak euro. French central bank governor, Villeroy de Galhau, pointed out that a weaker euro would undermine the ECB’s goal of price stability. ECB Executive Board member, Isabel Schnabel, was quoted saying that the ECB was closely monitoring the impact of the weaker euro on inflation. This is in stark contrast with the minutes of the ECB meeting in April, when the exchange rate was only mentioned four times. There was also market speculation that major central banks could go for a kind of Plaza Agreement, using coordinated action and even fx interventions to stop the US dollar from strengthening further and the euro from weakening further. How much of a concern should the recent weakening of the euro really be for the ECB? Since the last ECB staff projections in March, the euro has lost some 5% against the US dollar. The trade weighted euro exchange rate lost almost 2%. However, compared with one year ago, the euro has depreciated by more than 13% vis-à-vis the US dollar and around 6% in trade-weighted terms. In normal times, this weakening of the currency would have been a welcome relief for eurozone exports but at the current juncture it is an additional inflation concern. According to standard estimates, the euro depreciation since March could add another 10 percentage points on inflation this year and 20pp next year. However, at a time in which the main inflationary drivers are energy and commodity prices, which are invoiced in US dollar, the impact of the weaker euro on inflation might be even stronger. With headline inflation rates above 7%, it is hard to see why some ECB officials are concerned about a few additional percentage points. The weak euro might not be the reason for high inflation but it is at least reinforcing it. The main reason why ECB officials have become more vocal on the exchange rate could be the fact that even if higher policy rates will not bring down energy prices or fill containers in Asia, higher policy rates could strengthen the euro. The so-called exchange rate channel could at the current juncture be the most, and probably only, efficient way to ease inflationary pressures relatively quickly. This is why the hawks at the ECB might be inclined to use the currency as an argument to support a 50bp rate hike in July and strong forward guidance that more rate hikes are to come. Expect more than the four references to the exchange rate at the April meeting in the coming weeks ahead of the ECB’s 9 June meeting. Read this article on THINK TagsMonetary policy Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
FX: (GBP/USD) British Pound To US Dollar May Shock You!

Eurozone: PMI drops slightly as inflation pressures remain | ING Economics

ING Economics ING Economics 24.05.2022 14:22
Eurozone: PMI drops slightly as inflation pressures remain The composite PMI fell from 55.8 to 54.9 in May, still signalling decent expansion. With inflation pressures remaining close to all-time highs, this keeps hawkish pressure on the ECB to act quickly despite growth concerns Christine Lagarde, president of the European Central Bank   Squeezed purchasing power, weak consumer confidence, and tightening financial conditions are just a few of the headwinds the eurozone is facing at the moment. Nevertheless, the PMI doesn’t indicate that this is translating into a contracting economy so far, but we do see the first signs of weakness coming through. This is mainly because of the service sector still profiting from fading pandemic restrictions. The May data showed some weakening as the service sector PMI fell from 57.7 to 56.3. While still signalling strong expansion, it is a sign that the reopening boom has started to fade. The manufacturing PMI signalled stalling growth in April, but the indicator improved modestly in May from 50.7 to 51.2. Bugged by input shortages related to the war in Ukraine and lockdowns in China, the sector is having problems with production. At the same time, new orders also decreased for the first time since mid-2020, showing early demand concerns. Inflationary pressures are barely abating though. Input costs have slightly dropped from record highs, and selling price expectations remain close to April’s record high. Some early signs of improvement are unlikely to translate quickly into a fading inflation rate. Moreover, hiring intentions remain strong for now, which will add to labour shortages and subsequently to wage pressures. For the ECB, this is a hawkish signal. The growth outlook is clearly worsening, but the current impact of high inflation and the war is not yet contractionary according to the survey. We have seen ECB doves pushing back at a 50 basis point hike in July, but this PMI release will likely continue the conversation about whether President Christine Lagarde’s promise of no more negative rates by the end of 3Q will already be accomplished at the July meeting, or whether it will be 25bp in July and again in September. The next stop in terms of the ECB's data-driven lift-off is May inflation data, due out next week. Read this article on THINK TagsInflation GDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Spanish PMI Manufacturing Index Hit 52.6! Are People In Spain Worried About Inflation?

Hawkish European Central Bank (ECB)? (Euro To British Pound) EUR/GBP – Further gains to come? | Oanda

Craig Erlam Craig Erlam 24.05.2022 19:57
Hawkish ECB boost the single currency The ECB will become the latest central bank to concede on the inflation argument and raise rates in July and September The euro has caught a strong bid against the pound in recent days on the back of some very hawkish commentary from the ECB and poor economic data in the UK. The ECB will become the latest central bank to concede on the inflation argument and raise rates in July and September, as per President Christine Lagarde’s blog, although some support an even more aggressive approach. That’s boosted the euro at a time when the UK economy is facing the prospect of a recession, with PMI data today highlighting the struggles already appearing in the all-important services sector. EURGBP has rallied strongly on the back of this, holding above the 200/233-day SMA band in the process and pushing a breakout of the recent highs. It also broke above the 55/89-period SMA band on the 4-hour chart in the process which has capped its rallies over the last week. Read next: Altcoins: Ripple Crypto - What Is Ripple (XRP)? Price Of XRP | FXMAG.COM The next test for the pair is 0.86 and 0.8650 which has been a key area of resistance on numerous occasions over the last year, with 0.87 potentially offering further resistance above. Eventually, the euro area and others will likely be dragged into the recession conversation which may see the bullish case wane but for now, it’s interest rates that are dominating the conversation and giving the euro a major lift. Follow FXMAG.COM on Google News This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
This week starts with news about China and COVID and will go on with Eurozone inflation data and other crucial events

What's It Going To Be Czech Krone (CZK), NZD, Euro (EUR), USD? | FX Daily: How hawkish is too hawkish? | ING Economics

ING Economics ING Economics 25.05.2022 08:55
The RBNZ signalled a terminal rate around 4.0% in 2023, following a 50bp hike today. We suspect the rate projections may be too hawkish, but this is a story for the long run: for now, 50bp hikes should keep the NZD on track for a return to 0.70 by year-end. Elsewhere, USD may struggle to recover, but a move to 1.08-1.09 in EUR/USD is not our base case The Reserve Bank of New Zealand hiked rates by another 50bp to 2.0% today. Pictured: RBNZ Governor Adrian Orr USD: Risk sentiment remains the primary driver, but downside risks are smaller now The shockwaves that originated from the slump in US tech stocks yesterday seem to have been absorbed without too much trouble by global equity markets, although more signs of sentiment instability did take some steam off the rally in pro-cyclical currencies. The dollar has found some stabilisation after a negative start to the week and should, for now, continue to trade primarily in line with swings in global risk sentiment. Yesterday, new home sales in the US dropped much more than consensus, a first sign of how higher interest rates are starting to impact the US economy. The data also increases the significance of today’s mortgage application numbers, where another big drop (surely possible given the rising mortgage rates) would likely fuel concerns about an economic slowdown. After all, construction makes up 4% of GDP and retail sales are correlated with housing activity. It may be too soon for the dollar to start discounting a higher risk of US slowdown via the Fed rate expectations channel, but some grim mortgage application figures could contribute to the dollar's softish momentum if equities enjoy a session in the green as futures seem to suggest this morning. At the same time, we think that the downside potential for the dollar is shrinking, especially given a more balanced positioning after a widespread position squaring and a still supportive Fed story. When it comes to the Fed, markets will surely take a close look at the minutes from the May FOMC meeting this evening to gauge how much consensus there was about multiple 50bp increases over the summer and whether there were some dissents about ruling out 75bp hikes. We’ll also hear from Lael Brainard today. EUR: A move to 1.08-1.09 would be too stretched EUR/USD broke the 1.0700 mark yesterday, as markets probably feared a wider drop in the eurozone PMIs, which instead came in only slightly below consensus. The combination of some easing in stagflation-related concerns, hawkish re-pricing of ECB rate expectations, and a weak dollar momentum have all contributed to the recent EUR/USD rally. Now, it appears most of the positives are in the price, especially considering that markets are already pricing in 100bp of ECB tightening by year-end, and we think a consolidation looks more likely than an extension of the rally to the 1.08-1.09 region. The eurozone calendar doesn’t include market-moving data releases today, but there is a long line of scheduled ECB speakers to keep an eye on: Christine Lagarde and Klaas Knot in Davos, Robert Holtzmann, Pablo Hernández de Cos and Philip Lane elsewhere. NZD: Has the RBNZ gone too far with rate projection? The Reserve Bank of New Zealand hiked rates by another 50bp to 2.0% today – in line with market expectations – but delivered a substantial hawkish surprise with its updated rate projections, which signalled an even more aggressive front-loading of monetary tightening. The Bank now forecasts the policy rate at 3.25-3.50% by year-end (up from 2.25-2.50% in the February projections) and around 200bp of total tightening by the end of 2023 – therefore signalling a terminal rate around 4.0%. We start to suspect that the RBNZ might have gone too far on the hawkish side with its rate projections and could struggle to deliver on them, especially if we see a considerable cooling-off in the New Zealand housing market and a generalised global slowdown. That, however, is a story for the long run. In the short term, we have a near-guarantee that the RBNZ will deliver two more half-point hikes this summer, which should keep rate expectations anchored to the new RBNZ projections and allow NZD to maintain a wide rate differential against all other G10 currencies. Ultimately, this should fuel a return to 0.7000 in NZD/USD by 4Q22 or 1Q23 at the latest, in our view. However, the short-term outlook for NZD (and its ability to consolidate above 0.6500) remains strictly tied to swings in global risk sentiment and the Chinese economic outlook, which remains a major source of uncertainty. CZK: CNB intervenes rather verbally, but that may change soon Daily banking sector liquidity data over the past two weeks, during which the CNB has officially been intervening in the FX market, do not suggest significant central bank activity. This is in line with our expectation that the CNB's initial intervention was mainly verbal as in March. This was confirmed in an interview last week by Vice Governor Tomáš Nidetzký, who indicated that the market does not want to fight the CNB. Nevertheless, the koruna continues to lose support from the interest rate differential, which has returned to the level of early May. Thus, in our view, the next CNB dovish move (for example the appointment of new board members, new governor forward guidance) will require a more aggressive approach by the central bank in the FX market if it is serious about intervening. We continue to expect the central bank to keep the koruna below 25 EUR/CZK and, given the again surprisingly high CPI prints, may try to get the koruna closer to 24. However, we still don't have much indication of what will happen with interventions after 1 June, when the new board's term begins. Aside from the name of the new governor, we have no indication yet as to who else will be appointed to the board. In our view, this will be a topic for next month and we expect to know the composition of the new board before the CNB meeting in June. Read this article on THINK TagsRBNZ NZD GBP CZK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The AUD/USD Currency Pair Trading At Its Lowest Level Since Two Years, Hang Seng Index Was Flat

US stocks snap 7-day downtrend. Commodity stocks in wheat, energy and lithium brighten | Saxo Bank

Saxo Bank Saxo Bank 24.05.2022 14:34
Summary:  A technical rally occurred overnight, seeing the S&P500 gain after 7 days of declines, while Agriculture and Energy stocks shone the most, gaining even more momentum proving they are an inflation hedge. In quality tech, Apple shares rose 4% with long-term investors dripping in buy orders. Meanwhile, in big banks JPMorgan gained 6% upon forecasting net interest income to rise, which supported gains in Bank of America, Citigroup. We don’t think the market is at breaking point yet. However see Commodity gains intensifying and offering further upside, as the world worries global wheat supplies could run out in 10 weeks, while demand for lithium batteries rises seeing lithium companies upgrade their earnings and rally. What’s happening in markets that you need to know Big picture themes? Of the Equity Baskets we track across different sectors, we can see select risk appetite is starting to come back in to the market; China’s little giants are up the most month-to-date, supported by China’s fresh interest rate cut. Meanwhile, Cybersecurity stocks were up overnight (but are still down 24% YTD). Year-to-date though, our high conviction asset class, Commodities continues to see the most growth, followed by Defence. In the S&P500 oversold Ag and Bank stocks shine; Agri and Farm Tech stocks were up the most overnight, followed by Diversified Banks. In terms of standout stocks; Ross Stores and Deere (DE) rose the most (9%, 7%), after being two of the most oversold stocks last week. In S&P500 Deer was THE most oversold member. Deer makes 65% of its revenue from Agricultural equipment and selling turf. Earnings are expected to grind higher in 2022 and Deer pays a small dividend yield (1.25%). Asia Pacific’s stocks are trading mixed following more Tech disappointment in the US. While risk sentiment was upbeat overnight on Wall Street, Asia Pac’s markets turned most lower following Snap’s warning that it is unlikely to meet revenue and profit forecasts. Tech sentiment eroded again and further consumer staples earnings results this week are keeping investors cautious. Australia’s ASX200 trades flat, weight by tech falling,  with Block (SQ) down 6% after Bitcoin trades under $30k (Block makes most of its money from BTC transactions). Meanwhile, ASX lithium stocks continue to surge, supported by the new Australian government’s EV stimulus, seeing Liontown (LTR), Allkem (AKE), MinRes (MIN), Pilbara (PLS) dominate the leaderboard and rise 3-4%. Japan’s Nikkei (NI225.I) is down 0.3% led by Recruit (6098) which operates the popular HR engine “Indeed” and company information website “Glassdoor”. Singapore’s STI index (ES3) was however up 0.2% despite a record high inflation and a potential chicken-price shock. Read next: Stablecoins In Times Of Crypto Crash. What is Terra (UST)? A Deep Look Into Terra Altcoin. Terra - Leading Decentralised And Open-Source Public Blockchain Protocol | FXMAG.COM Chinese and Hong Kong equites see lackluster trading despite incremental stimulus measures from the State Council and Biden’s remarks on reviewing tariffs on goods from China.   The attempt to rally in the opening hour in response to positive news of 33 stimulus measures from China’s State Council failed.  Overnight news that Biden will discuss with Treasury Secretary Yellen about reviewing tariffs on goods from China as part of the Biden administration’s effort to ease U.S. inflationary pressures did not incur much excitement. Hang Seng Index (HSI.I) fell 0.8% and CSI300(000300.I) was 0.3% lower. Among the 33 measures was a reduction of RMB60 billion in the purchase tax on passenger cars Great Wall.  Great Wall Motor (02333), Geely (00175) and Guangzhou Automobile (02238) rose 3% to 10% while shares of EV makers fell 3%-9%.  Although reporting a larger than expected 159% YoY increase in revenues and a 30bp improvement of gross margins to 10.4% in Q1, XPeng’s (09868) share fell almost 9% on cautious Q2 guidance.  What to consider? Fed speakers remaining flexible. Fed’s Bostic backed a series of 50bps rate hike moves overnight but hinted at a pause in September if inflation comes down but also opened doors to more aggressive moves if inflation doesn’t cool. Fed’s George said she expects the central bank to raise interest rates to 2% by August (which also means about 100-125bps of rate hikes from the current 0.75-1% rates or 2-3 50bps rate hikes). While the base effects may make headline inflation appear to be softening into the summer, real price pressures aren’t going anywhere and Fed’s hiking pace is likely to continue to prove to be slow. AUD and NZD unable to sustain gains. A fresh slide was seen in NZD this morning following the unexpected decline in retail spending reported today. RBNZ decision is due tomorrow  (in early Asian hours) and it is still a close call between 25 and 50bps rate hike. But it’s more important to note that RBNZ is way ahead of other central banks and getting close to neutral faster than others, which means room for further upside in NZD is limited. AUDUSD is also back below 0.7100 and remains prone to a reversal in risk sentiment more than any domestic developments. While the AUDUSD rose to a 3-week high yesterday, supported by the Australian Labor Government being sworn in after winning the election and bringing in an EV policy ($2k tax incentives), vowing to keep Defense Spending at over 2% of GPD and pledging to offer more childcare support to keep employment high. The USD will likely remain favored for now as risk aversion returns and cut the rally of the AUD.  ECB getting ready to move to exit negative rates. ECB President Lagarde’s comment that the central bank is likely to exit negative rates by the end of the third quarter put a massive bid into the EUR overnight but the pair turned lower from 1.0700 with focus on Fed Chair Powell and PMIs due today. With Fed comments getting repetitive, there is room for ECB’s hawkishness to support the EUR even as Lagarde continues to downplay the possibility of a 50bps rate hike. Germany’s economy shows signs of unexpectedly strengthening in May. Germany’s IFO reading was out at 93.0 versus prior 91.9 in April. The increase is mostly explained by an improved current assessment. The expectations component is almost unchanged and close to levels last seen at the start of the pandemic. Several factors are pushing respondents to be careful regarding the future: supply chain frictions, the Shanghai lockdown, persistent inflationary pressures and lower real disposable incomes of households etc. The German economy will not plunge as it did at the start of the pandemic, of course. But we think that risks of a stagflation are clearly titled on the upside. We will watch closely the first estimate of the May PMIs this morning to have a better assessment of the economic situation in Germany and in the rest of the eurozone.  Potential trading ideas to consider? Singapore’s inflation pain is rising. Core CPI was at a decade high in April at 3.3%, and this is still not a peak. Singapore’s national lunch meal chicken rice is set to get expensive as Malaysia is halting exports of chicken. About 34% of Singapore's chicken imports come from Malaysia. While alternate sources of fresh chicken and options such as frozen chicken may be possible, this is not the last inflation shock to hit the island economy. Vegetable prices are also on the rise due to shortages of supply and the high fertilizer prices. In times like this, we would reiterate the possible inflation hedges remain gold, REITs and commodities. In summary, it is important to look for value investments or stocks that have a solid cash flow generation ability and pricing power but still priced below their fair value. The plot for investing in Lithium thickens.Lithium remains one of our preferred metal exposures for 2022 for upside. Albemarle Corp, the world’s largest lithium producer upgraded its outlook for the second time this month expecting higher lithium prices and demand to further boost their sales. We’ve seen many EV companies sell out of some of their electric vehicles, and this highlights the lack of supply in battery metals, which is also pushing up the lithium price. Albemarle Corp, expects sales to now be as high as $6.2 billion this year, up from its previous estimate of up to $5.6 billion. Read next: Altcoins: What Is Litecoin (LTC)? A Deeper Look Into The Litecoin Platform| FXMAG.COM If have a long time horizon for investing, you could consider dripping money into the market (this is called dollar cost averaging). Remember Shelby Davis said you can make most of your money in a bear market, you just don’t realize it at the time. But the key is to look at quality names that are in a position to return cash to shareholders. So if you want to be in tech for example, you could look at names like Apple, Microsoft and Google, who lead the S&P500 and Nasdaq indices and are growing their earnings and this is likely to continue over the next several years and longer term. The idea is that names like these, will likely lead a secular bull market, once the Market eventually begins to recover. And you ideally want to be in names with growing earnings, rather than throwing darts at some of those names with patchy results that are akin to Ark innovation ETF for example. China’s State Council announced 33 stimulus measures.  An additional VAT credit refund of RMB140 billion brings the overall target of tax refunds, tax cuts and fee reductions to RMB2.64 trillion in 2022.  China is also introducing a reduction of RMB60 billion (equivalent to about 17% of auto purchase tax last year) in tax on passenger car purchases.  The Government is increasing its supports to the aviation industry and railway construction via special bond issuance and loans and is rolling out a series of energy projects.  It is doubling the lending quota for banks to lend to SMEs and allow certain borrowers to postpone repayments.  The State Council also reiterates its support to promote legal and compliant listings of platform companies in domestic as well as overseas markets. Key company earnings to watch this week: Tuesday: Kuaishou Technology, Intuit, NetEase, AutoZone, Agilent Technologies Wednesday: Bank of Nova Scotia, Bank of Montreal, SSE, Acciona Energias Renovables, Nvidia, Snowflake, Splunk Thursday: Royal Bank of Canada, Canadian Imperial Bank of Commerce, Lenovo, Alibaba, Costco, Medtronic, Marvell Technology, Baidu, Autodesk, Workday, VMware, Dell Technologies, Dollar Tree, Zscaler, Farfetch Friday: Singapore Telecommunications   For a global look at markets – tune into our Podcast.  Follow FXMAG.COM on Google News Source: Saxo Bank
Forex: Market Is Dependent On Fed's Shortly Message

(EUR) Euro Rally Hits A Wall! | Is EUR/USD Going To Decline Again!? | Oanda

Kenny Fisher Kenny Fisher 25.05.2022 16:09
Euro falls sharply The euro has reversed directions on Wednesday and is sharply lower. In the European session, EUR/USD is trading at 1.0663, down 0.67% on the day. The euro was up 1.29% on Monday and extended its gains on Tuesday, hitting a 4-week high, after ECB President Lagarde announced that the ECB would raise interest rates in July. On the data front, there weren’t any surprises out of Germany. GDP in Q1 rose by 0.2% QoQ, as expected. Compared to Q4 of 2019, the quarter prior to the Covid-19 pandemic, growth was 0.9% smaller, which means that the economy is yet to fully recover from the Covid crisis. The war in Ukraine and Covid-19 have resulted in supply chain disruptions and accelerating inflation, which has hampered economic growth. German confidence remains in deep-freeze German GfK Consumer Sentiment came in at -26.0 in May, a slight improvement from the April reading of -26.6, which marked a record low. Not surprisingly, consumers put the blame for their deep pessimism on two key factors – the conflict in Ukraine and spiralling inflation. The GfK survey also found that consumer spending has weakened, as high costs for food and energy have reduced spending on non-essential items. Read next: Altcoins: What Is Polkadot (DOT)? Cross-Chain Transfers Of Any Type Of Asset Or Data. A Deeper Look Into Polkadot Protocol | FXMAG.COM The ECB Financial Stability Review, published twice a year, echoed what German consumers are saying. The report bluntly stated that financial stability conditions have deteriorated in the eurozone, as the post-Covid recovery has been tested by higher inflation and Russia’s invasion of Ukraine. The report noted that the economic outlook for the eurozone had weakened, with inflation and supply disruptions representing significant headwinds for the eurozone economy. Given this challenging economic landscape, the euro will be hard-pressed to keep pace with the US dollar. EUR/USD Technical There is resistance at 1.0736 and 1.0865 EUR/USD is testing support at 1.0648. The next support line is at 1.0519 This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
A Technical Look At The Movement Of The Euro To US Dollar (EUR/USD) Pair

EUR/USD Performs Quite Well, Euro Is Supported By ECB. US Jobless Data Incoming, So Does NFP- How Will They Affect (USD) US Dollar Index (DXY)? Bank Of Canada (BoC) May Boost Canadian Dollar (CAD)! Is It Time To Buy (AMZN) Amazon Stock? | Swissquote

Swissquote Bank Swissquote Bank 30.05.2022 10:03
The week starts on a positive note after the rally we saw in the US stocks before last week’s closing bell. European futures hint at a positive open. The US 10-year yield stabilized around the 2.75% mark, and the US dollar index is now back to its 50-DMA level, giving some sigh of relief to the FX markets overall. Bonds and Equities One interesting thing is that we observe that the equities and bonds stopped moving together since the 10-year yield hit 3% threshold, suggesting that investors started moving capital to less risky bonds if they quit equities, instead of selling everything and sitting on cash. Read next: Altcoins: Ripple Crypto - What Is Ripple (XRP)? Price Of XRP | FXMAG.COM US Jobs Data, Expensive Crude Oil   That’s one positive sign in terms of broader risk appetite and should help assessing a bottom near the actual levels. But the end of the equity selloff depends on economic data. Released on Friday, the US PCE index fell from 6.6 to 6.3% in April. Due this week, the US jobs data, and the wages growth will take the center stage in the Fed talk. Weak dollar pushes the major peers higher, but the rising oil prices preoccupy investors this Monday. The barrel of US crude is above $117, and the news flow suggests further positive pressure. But till where?   Watch the full episode to find out more! 0:00 Intro 0:24 Market update 1:04 Equity, bond correlation is down since US 10-yield hit 3%! 2:58 Economic data is key: what to watch this week? 4:22 BoC to raise rates 5:09 EURUSD pushes higher 6:10 Oil under positive pressure: OPEC, UK windfall tax 9:19 Corporate calendar: GME, HP earnings, Amazon stock split Ipek Ozkardeskaya has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked at HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist at Swissquote Bank. She worked as a Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020. Follow FXMAG.COM on Google News
Weekly analysis on Bitcoin.  Read more: https://www.instaforex.eu/forex_analysis/285670

In Times Of Hawkish ECB, This Week's Eurozone Inflation Plays A Vital Role, As Euro (EUR) May Need Some Boosting, So Does Hungarian Forint (HUF)... On Tuesday We Meet HP Earnings, So Better Let's Watch HP Stock Price Closely! | Saxo Bank

Saxo Bank Saxo Bank 30.05.2022 11:01
What is going on US core PCE prices.  US core PCE data was out on Friday, and it came in as expected at 4.9% y/y and 0.3% m/m. This was slower than last month's 5.2% y/y and may prompt more talk of inflation peaking out. While PCE is the preferred Fed metric, what cannot be ignored right now is that food and energy prices still have more room to run on the upside suggesting that inflation will remain higher for longer. The May CPI print is due on June 10, so that will be the next one on the radar for further cues in terms of Fed's rate hike trajectory but for this week, the focus will be on the jobs report due on Friday Goldman predicts end of battery metal bull market – saying that the prices for key battery metals cobalt, lithium and nickel will fall over the next two years after an over-eager speculation phase. Goldman predicts that lithium prices could drop slightly this year to $54k from recent spot prices near $60k and fall to near $16k in 2023 before rising again further down the road. There’s been “a surge in investor capital into supply investment tied to the long-term EV demand story, essentially trading a spot driven commodity as a forward-looking equity,” the analysts said. “That fundamental mispricing has in turn generated an outsized supply response well ahead of the demand trend.” Oil prices are becoming an important cross-asset driver.  Brent crude oil closed last week just shy of the $120/barrel level (see above) and also just shy of the highest weekly close for the front month contract since the outbreak of war in Ukraine. As the $120 area was often a resistance area during the high oil price period during 2011-14 (although at that time, the US dollar was far weaker), any further significant advance from here will likely dominate market attention and work against further strong improvements in risk sentiment as high energy prices cloud the growth outlook and would erode corporate profit margins. Read next: Altcoins: Ripple Crypto - What Is Ripple (XRP)? Price Of XRP | FXMAG.COM Benchmark Capital and Sequoia Capital put out a dim outlook for technology.  Both venture capital firms were around during the dot-com bubble run-up and burst, and they have both put out perspective and action plans for the companies they have invested in. Those presentations talk about a much dimmer outlook and investors are shifting focus from revenue growth and revenue multiples to that of free cash flow here and now. Cost-cutting and focus on profitable unit metrics are now paramount to survive the coming years. What are we watching next? US Memorial Day Holiday today. This is a major national holiday, so all US markets are closed today. Read next: Altcoins: Tether (USDT), What Is It? - A Deeper Look Into The Tether Blockchain| FXMAG.COM Eurozone inflation prints out this week.  The energy price shock has been bigger for Europe, and May prints are due for Spain, Germany, France, Italy and the Euro-area in the week ahead. Food price pressures continue to build up amid the supply shortages and protectionist measures, and further gains in May will add more weight to the ECB’s resolve to exit negative rates from Q3 with more aggressive tightening. Special meeting of the European Council today and tomorrow.  Talks will focus on the implementation of a proposed embargo on oil imports from Russia (from 2024 onwards according to the latest draft). Hungary is the only EU country against it. The problem is that any new sanctions against Russia require the unanimous agreement of the 27 member states in order to pass. Expect tough negotiations. Hungary’s Prime minister Viktor Orban has recently passed on a “wish list” of demands he wants met to support oil sanctions. This includes a swap line with the European Central Bank and end to the rule of law Article 7 and “conditionality mechanism” procedures, amongst other things. Australian GPD and balance of trade on watch and could disappoint.  Australian GPD data due Wednesday is expected to show economic growth fell from 4.2% YoY to 3% YoY in Q1. Quarterly GPD is expected to grow just 0.7%, following the 3.4% rise in Q4. If data is stronger than what consensus expects, the RBA has more ammunition to rise rates more than forecast, so the AUDUSD might rally. If GPD is weaker, then, the AUD will likely fall. For equities, Australian financials could rally if data is stronger than expected. Secondly, Australian Export and Import data is released Thursday. The market expects Australia’s surplus income (Export income minus imports payments) to rise from $9.4b to $9.5b in April. But given the iron ore price fell 13% in April, the trade data could miss expectations. Follow FXMAG.COM on Google News Several central banks in focus this week.  Tomorrow, the National Bank of Hungary (NBH) will likely deliver a hike of 50 basis points to 5.9 %. The NBH has recently flagged a slowdown in the pace of rate hikes which had a detrimental impact on the Hungarian currency. What the central bank needs to do now is to define more explicitly the risks to growth, the effect that it would have on inflation this year but especially in 2023, the pace of rate hike and how financing conditions could evolve in the next 12-18 months. On Wednesday, the Bank of Canada is expected to increase interest rates by 50 basis points, from 1% to 1.5% (it has downplayed the possibility of a 75-basis-point hike in the short term). The move has already been priced in the market. Further interest hikes will come in the coming months in order to fight inflation which is running at a 31-year high of 6.8% YoY in April. Last week, former Bank of Canada governor Stephen Poloz mentioned the risk that the country will fall into stagflation this year. Earnings Watch.  This week’s earnings releases are weak in terms of impact expect from earnings from Salesforce, Lululemon and Meituan. Analysts are expecting Salesforce to report FY23 Q1 revenue (ending 30 April) growth of 24% y/y on top of a significant operating margin expansion expected to boost free cash flow generation substantially. Monday: Sino Biopharmaceutical, Huazhu Group Tuesday: DiDi Global, Salesforce, HP, KE Holdings Wednesday: Acciona Energias Renovables, China Resources Power, Veeva Systems, HP Enterprise, MongoDB, NetApp, Chewy, GameStop, UiPath, SentinelOne, Elastic, Weibo Thursday: Trip.com, Pagseguro Digital, Remy Cointreau, Toro, Cooper Cos, Meituan, Crowdstrike, Lululemon, Okta, RH, Asana, Hormel Foods Economic calendar highlights for today (times GMT) 0900 – Euro zone Economic, Industrial, Services Confidence surveys 1200 – Germany May Flash CPI 1500 – US Fed’s Waller (Voter) to speak 1700 – ECB's Nagel to speak 2030 – New Zealand RBNZ’s Hawkesby to speak 2300 – South Korea Apr. Industrial Production 2330 – Japan Apr. Jobless Rate 2350 – Japan Apr. Jobless Rate 2350 – Japan Apr. Industrial Production 0030 – New Zealand May ANZ Business Confidence survey 0130 – China May Manufacturing/Non-manufacturing PMI 0130 – Australia Apr. Building Approvals 0130 – Australia Apr. Private Sector Credit Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Saxo Bank
German Export Weakness In The Fourth Quarter Suggests That Recession Fears Are Real

Powerful Euro Incoming? Is ECB's Rate Hike Sure!? German Inflation Is Almost 1% Higher What Can Stimulate European Central Bank (ECB) Monetary Policy Tightening! | ING Economics

ING Economics ING Economics 30.05.2022 16:18
German inflation continues to accelerate, keeping alive the European Central Bank's discussion on a possible 50bp rate hike in July Record-high inflation in Germany has had an impact on consumers' budgeting and financial planning   German headline inflation surged once again as the war in Ukraine pushed up energy and commodity prices, and inflationary pressure broadens. According to a first estimate based on the regional inflation data, German headline inflation came in at 7.9% year-on-year in May, up from 7.4% YoY in April. The HICP measure came in at 8.7% YoY, from 7.8% in April. Unless there is a sharp downward correction of energy prices in the months ahead, German headline inflation will continue to increase and only start to level off in late summer. Still more inflation in the pipeline We've stopped digging out illustrations of the times when inflation in Germany was at comparable levels. Let’s put it like this: most citizens and policymakers have hardly ever seen these kinds of inflation rates in their professional lives. Sure, the surge in headline inflation is still dominantly driven by energy and commodity prices. However, looking at available regional data, the pass-through of these higher prices to the broader economy is in full swing. In some regional states, food inflation was already at double-digit levels and prices for leisure activities, hospitality, and more general services have been accelerating in recent months. The inflation rate for these items is far above the European Central Bank's 2% target. In fact, in April only 17 out of the 94 main components of the German inflation basket had inflation rates of 2% or less. The only significant U-turn in the upward inflation trend was in packaged holidays. However, this was rather driven by the so-called Easter Bunny effect (the timing of the Easter break) and not so much by disinflationary trends. Consequently, any drop in core inflation on the back of lower packaged holidays inflation will be temporary. Looking ahead, the fact that monthly price increases are still far above their historic average (0.9% month-on-month in May compared with 0.2% in a ‘normal’ May) illustrates the high inflationary pipeline pressure. As much as we would like to see a levelling off in inflation rates, with the war in Ukraine and continued tension and upward pressure on energy, commodity and food prices, headline inflation in Germany will accelerate further in the coming months. We think that the pass-through to all kinds of sectors is still in full swing. Add to this the additional price mark-ups in the hospitality, culture and leisure sectors after the end of lockdowns and it is hard to see inflation coming down significantly any time soon. Against the backdrop of recent geopolitical events, we now expect German inflation to average at more than 8% this year with a chance that monthly inflation rates will enter double-digit territory in the summer. ECB 50bp rate hike not off the table The ECB has clearly passed the stage of discussing whether and even when policy rates should be increased. The only discussion seems to be on whether the ECB should start with a 25bp rate hike in July or 50bp. In this regard, it is quite remarkable that both ECB president Christine Lagarde and ECB chief economist Philip Lane have tried to take back control of this particular discussion. In an interview released this morning, Philip Lane definitely broke with the previous ECB communication strategy to never pre-commit. Instead, he spelled out the roadmap for normalising monetary policy, de facto announcing an the end of net asset purchases in early July, a 25bp rate hike at the ECB meeting of 21 July and another 25bp rate hike at the September meeting. There is nothing wrong with the content of his remarks as it is exactly what we have already been expecting the ECB to do. However, a de facto pre-announcement almost two months ahead of the 21 July meeting is remarkable, to say the least. In any case, as today’s German inflation numbers mark an upside surprise for many, the debate on the magnitude of the first hike, be it 25bp vs 50bp, is not entirely off the table. If core inflation in the eurozone continues accelerating in May and June, Lane and Lagarde could still regret their new pre-commitment. Read this article on THINK TagsMonetary policy Inflation Germany ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Euro Will Strengthen, But Questions Remain About What To Do Next

Supporting EUR, USD And Others - What Is Interest Rate? What Is A Negative Interest Rate | Binance Academy

Binance Academy Binance Academy 01.06.2022 16:55
TL;DR It doesn’t make much sense to lend money for free. If Alice wants to borrow $10,000 from Bob, Bob will need a financial incentive to loan it to her. That incentive comes in the form of interest – a kind of fee that gets added on top of the amount Alice borrows. Interest rates profoundly impact the broader economy, as raising or lowering them greatly affects people’s behavior. Broadly speaking: Higher interest rates make it attractive to save money because banks pay you more for storing your money with them. It’s less attractive to borrow money because you need to pay higher amounts on the credit you take out. Lower interest rates make it attractive to borrow and spend money – your money doesn’t make much by sitting idle. What’s more, you don’t need to pay huge amounts on top of what you borrow. Learn more on Binance.com Introduction As we’ve seen in How Does the Economy Work?, credit plays a vital role in the global economy. In essence, it’s a lubricant for financial transactions – individuals can leverage capital that they don’t have available and repay it at a later date. Businesses can use credit to purchase resources, use those resources to turn a profit, then pay the lender. A consumer can take out a loan to purchase goods, then return the loan in smaller increments over time. Of course, there needs to be a financial incentive for a lender to offer credit in the first place. Often, they’ll charge interest. In this article, we’ll take a dive into interest rates and how they work.   What is an interest rate? Interest is a payment owed to a lender by a borrower. If Alice borrows money from Bob, Bob might say you can have this $10,000, but it comes with 5% interest. What that means is that Alice will need to pay back the original $10,000 (the principal) plus 5% of that sum by the end of the period. Her total repayment to Bob is, therefore, $10,500. So, an interest rate is a percentage of interest owed per period. If it’s 5% per year, then Alice would owe $10,500 in the first year. From there, you might have: a simple interest rate – subsequent years incur 5% of the principal or  a compounded interest rate – 5% of the $10,500 in the first year, then 5% of $10,500 + $525 = $11,025 in the second year, and so on.   Why are interest rates important? Unless you transact exclusively in cryptocurrencies, cash, and gold coins, interest rates affect you, like most others. Even if you somehow found a way to pay for everything in Dogecoin, you’d still feel their effects because of their significance within the economy. Take a commercial bank – their whole business model (fractional reserve banking) revolves around borrowing and lending money. When you deposit money, you’re acting as a lender. You receive interest from the bank because they lend your funds to other people. In contrast, when you borrow money, you pay interest to the bank. Commercial banks don’t have much flexibility when it comes to setting the interest rates – that’s up to entities called central banks. Think of the US Federal Reserve, the People’s Bank of China, or the Bank of England. Their job is to tinker with the economy to keep it healthy. One function they perform to these ends is raising or lowering interest rates. Think about it: if interest rates are high, then you’ll receive more interest for loaning your money. On the flip side, it’ll be more expensive for you to borrow, since you’ll owe more. Conversely, it isn’t very profitable to lend when interest rates are low, but it becomes attractive to borrow. Ultimately, these measures control the behavior of consumers. Lowering interest rates is generally done to stimulate spending in times when it has slowed, as it encourages individuals and businesses to borrow. Then, with more credit available, they’ll hopefully go and spend it. Lowering interest rates might be a good short-term move to rejuvenate the economy, but it also causes inflation. There’s more credit available, but the amount of resources remains the same. In other words, the demand for goods increases, but the supply doesn’t. Naturally, prices begin to rise until an equilibrium is reached. At that point, high interest rates can serve as a countermeasure. Setting them high cuts the amount of circulating credit, since everyone begins to repay their debts. Because banks offer generous rates at this stage, individuals will instead save their money to earn interest. With less demand for goods, inflation decreases – but economic growth slows.   ➟ Looking to get started with cryptocurrency? Buy Bitcoin on Binance!   What is a negative interest rate? Often, economists and pundits speak of negative interest rates. As you can imagine, these are sub-zero rates that require you to pay to lend money – or even to store it at a bank. By extension, it makes it costly for banks to lend. Indeed, it even makes it costly to save. This may seem like an insane concept. After all, the lender is the one assuming the risk that the borrower may not repay the loan. Why should they pay?  This is perhaps why negative interest rates are something of a last resort to fix struggling economies. The idea comes from a fear that individuals may prefer to hold onto their money during an economic downturn, preferring to wait until it recovers to engage in any economic activity.  When rates are negative, this behavior doesn’t make sense – borrowing and spending appear to be the most sensible choices. This is why negative interest rates are considered to be a valid measure by some, under extraordinary economic conditions.   Closing thoughts On the surface, interest rates appear to be a relatively straightforward concept to grasp.  Nevertheless, they’re an integral part of modern economies – as we’ve seen, adjusting them can fundamentally alter the behavior of individuals and businesses. This is why central banks take such a proactive role in using them to keep nations’ economies on track. Do you have more questions about interest rates and the economy? Check out our Q&A platform, Ask Academy, where the Binance community will answer your questions.
The Bank Of Canada Is Preparing To Announce Its Final 25bp Hike

Forex: US Dollar (USD) Is Being Supported, EUR/USD Affected By Ban On Russian Oil. Jubilee - British Pound (GBP) Is Going To Take A Rest Because Of Market Holidays In The UK, Canadians Await BoC's Decision | ING Economics

ING Economics ING Economics 01.06.2022 14:14
While our base case is that the Bank of Canada will hike by another 50bp today, the strong macro picture means that a 75bp move cannot be excluded. Elsewhere, data resilience and higher yields should lay the basis for a re-strengtheining of the dollar, and the contrast with a worsening growth picture in Europe may send EUR/USD back to 1.05 in June Source: Shutterstock   Thursday 2 June and Friday 3 June are national holidays in the UK. We will resume the publication of the FX Daily on Monday 6 June. USD: Finding fresh support The dollar has continued to find some support this morning, benefiting from a general sell-off in the bond market, the impact of the EU oil embargo on Russia, and better-than-expected US data (consumer confidence yesterday was a case in point). The past few days seem to have conveyed the message that the Fed’s tightening cycle is based on a sturdier growth story than Europe's (especially after the Russian oil embargo) and the speculation around a September Fed pause is being kept at bay for now. Ultimately, we think all this is laying the basis for a period of gradual re-strengthening in the dollar. Today, data will remain in focus in the US, as the ISM manufacturing and JOLTS job openings for May are released. On the Fed side, John Williams and the arch-hawk James Bullard are both scheduled to speak today, and markets will also keep an eye on regional trends emerging from the Fed’s Beige Book released this evening. All in all, we expect the dollar to find some consolidation and possibly inch higher against most G10 peers for the rest of the week, with the weak bond environment offering a short-term supporting driver (the yen is set to remain the main victim here) and US data - our economist expects another solid US payrolls reading on Friday - still supporting the Fed tightening story and offering a longer-term bullish USD argument. Some stabilisation in global sentiment may allow high-beta currencies – and especially oil-sensitive ones like Canada's dollar and Norway's krone - to find a floor, while other European currencies may remain on the back foot due to a worsening growth outlook in the region. DXY may advance to the 103.00 area in the run-up to the 15 June FOMC meeting. EUR: On track for a return to 1.05 EUR/USD is re-testing the 1.0700 support this morning after a marginal recovery late yesterday proved very temporary. Indeed, the common currency is discounting the re-assessment of the European economic outlook after the EU announced a ban on Russian oil. That news came in conjunction with evidence that inflationary pressures in the eurozone are still not easing, as eurozone-wide CPI figures for May jumped to 8.1% while the core rate advanced to 3.8% year-on-year. While high inflation is keeping the ECB tightening expectations supported, the euro – which is already embedding a good deal of monetary tightening – is struggling to find any solid bullish driver at the moment. In our view, this was a matter of time and we continue to target a return to the 1.0500 area in EUR/USD by the end of this month. Elsewhere in Europe, the Hungarian central bank raised its base rate by 50bp yesterday in line with market expectations, but didn't meet all expectations, including ours. Even the almost historically weak forint did not persuade the central bank to make a bolder move. We did get assurances that monetary policy tightening will continue, but at a slower pace regardless of market or economic conditions. Although the central bank tried to be as hawkish as possible in its communication, it was not enough for the market to reverse the forint's direction. The forint continues to be our least preferred currency at the moment, but on the other hand, still has the most potential to strengthen in the region. We see EUR/HUF around 390 in the short run with a possible quick move to 380 should one of the external factors (war, rule-of-law debate, etc.) show early signs of improvement, reducing the risk premium. GBP: Some weakness (but not a collapse) ahead The pound seems to have been caught in the crossfire of the EU-Russia oil embargo story, largely following other European currencies (except for NOK) lower. This has meant that EUR/GBP has remained tied to the 0.8500 level, which appears to be an anchor for the short term. Given a deteriorating growth outlook in the UK, we expect some GBP weakness ahead and see a move to 0.8600 in the coming weeks as likely. However, we do not see a sterling downtrend morphing into a collapse.   With UK markets closed for two days, expect reduced GBP volatility into the weekend. CAD: We expect 50bp by the BoC today, but 75bp is possible The Bank of Canada is set to raise interest rates for a third consecutive meeting today, and the Bank’s recent communication has strongly suggested we’ll see another 50bp hike. As discussed in our BoC preview, 50bp is also our base case scenario for today, given the strong economy (and an outlook helped by high commodity prices) and jobs market, as well as elevated inflation. Against such a macroeconomic backdrop, we don’t exclude a 75bp move: markets seem to attach a relatively high probability to this scenario given that 70bp are priced in ahead of today’s meeting. As we see a 50bp hike as more likely, there are some downside risks for CAD today, as markets may have to price some 10-20bp out of the CAD swap curve. That said, we think that the BoC will reiterate a very strong commitment to fighting inflation and allow markets to consolidate their bets on at least another 50bp hike in July and a terminal rate around 3.0%. Ultimately, this should put a floor under the loonie, which has been displaying some resilience against the USD rebound, and may not depreciate beyond the 1.2700-1.2750 area even if the 75bp bets have to be scaled back today. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The EUR/AUD Pair May Have The Potential To Continue Its Decline

Eurozone May Experience Slowdown In Growth, But FX Pairs With EUR (EUR/USD, EUR/GBP) And Inflation Definitely Needs A Solution

ING Economics ING Economics 08.06.2022 16:12
Persistent headwinds are pushing the eurozone into a 'muddling through' scenario, and there is a high probability that the region will see one quarter of negative growth this year. But sticky inflation and higher inflation expectations will force the European Central Bank to abandon negative interest rates in the third quarter Muddling through? President of EU Commission Ursula von der Leyen and European Council President Charles Michel at a summit this week in Brussels Content Farewell to negative interest rates Mixed feelings Not exactly the roaring twenties Higher inflation expectations Farewell to negative interest rates In a blog on the ECB’s website, President Christine Lagarde brought forward the growing consensus that has been building within the governing council, namely that stickier-thanexpected inflation requires the quick removal of non-conventional policy measures. A first rate hike in July looks like a near certainty and a 50bp increase cannot be excluded, especially if core inflation comes in higher than expected in the run-up to the July meeting. In any case, negative rates will have disappeared come September. It now seems that the ECB wants to seize the window of opportunity to normalise monetary policy. This requires policymakers to walk a fine line between the rising inflation expectations and economic headwinds. Sentiment divergence between consumers and businesses Source: Refinitiv Datastream Mixed feelings The first quarter showed an upwardly revised 0.3% quarter-on-quarter growth rate, but the second quarter looks more of a conundrum. There is no hard data yet and the sentiment data has been rather inconsistent. Since the start of the war in Ukraine, consumer confidence has dropped to recessionary levels, with the May reading showing hardly any improvement. However, business confidence figures have held up better while still declining. The flash eurozone PMI composite index came in at 54.9, firmly above the boom-or-bust 50 level. This is largely on the back of a strong services sector, which seems to be benefiting from some post-pandemic catch-up demand. Indeed, holiday reservations are back or even above pre-pandemic levels. In the manufacturing sector, the deceleration is more obvious on the back of renewed supply chain problems, higher input prices, and falling orders. Not exactly the roaring twenties There is no clear weakening yet in the labour market, but wages, although rising a bit more rapidly now, are definitely not keeping pace with inflation. At the same time, oil prices are climbing on the back of a (partial) European boycott of Russian oil, further sapping households’ purchasing power. As such, we don’t think that consumption will be a strong growth driver in the coming quarters. And businesses might also become more cautious in their investment plans. That said, there still seems to be a willingness among governments to support the weakest households with fiscal measures. And as the European Commission has proposed extending the escape clause for the Stability and Growth Pact into 2023, not a lot of fiscal tightening should be expected for the time being. We still believe the second or the third quarter of this year might see negative growth. Thereafter, we think the growth pattern will be pretty much in 'muddlingthrough' mode. That should still result in 2.3% GDP growth in 2022 and 1.6% in 2023. Not a recession, but not exactly the roaring twenties either. And downside risk prevails. Both headline and core inflation continue to surpass expectations Source: Refinitiv Datastream Higher inflation expectations Barring a strong increase in natural gas prices amid fewer imports (or a stoppage of supply) from Russia, inflation is probably close to its peak. In May, headline inflation rose to 8.1%, with core inflation at 3.8%. We expect the decrease to be very gradual and it might take until the second half of 2023 before headline inflation falls back below 2%. At the same time, longerterm consumer inflation expectations have now seen an upward shift to 3% in the most recent survey, which explains why the ECB wants to get rates out of negative territory pretty soon. In an interview in Cinco Días, Philip Lane, the ECB’s chief economist, made it very clear that this should be a done deal by September. What happens afterwards will be data-dependent. We don’t think a wage-price spiral will develop, as in the most recent wage agreements the increase foreseen for 2023 is only 2.4%, below the 3% the ECB considers consistent with its 2% inflation objective. That said, we can imagine that the ECB will want to get a bit closer to the elusive “neutral interest rate”. Therefore we think the deposit rate will be raised to 0.25% by year-end, moving to 0.50% in 1Q 2023. Thereafter, a long period of 'wait-and-see' might follow. Source: The eurozone’s muddling through at best | Article | ING Think TagsInflation GDP Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Euro May Attempt To Resume An Upward Movement

ECB officially ends its long era of unconventional monetary policy

ING Economics ING Economics 09.06.2022 14:21
The European Central Bank has just announced its stopping net asset purchases by the end of the month and pre-announced two rate hikes of 25bp each in July and September. The door for 50bp in September is set wide open ECB President, Christine Lagarde and President of De Nederlandsche Bank, Klaas Knot in Amsterdam   The ECB definitely pre-commits. In its just-announced policy decisions, the European Central Bank has not only made the upcoming 2.30 pm CET press conference less interesting but also laid out a clear path for the normalisation of monetary policy in the eurozone. The only open question is actually why the ECB hasn't already hiked interest rates today but intends to wait for lift-off until the next meeting on 21 July. The ECB's press release also includes the latest staff projections, showing that inflation is now expected to come in at 6.8% in 2022, 3.5% in 2023 and 2.1% in 2024. GDP growth is expected to come in at 2.8% in 2022, 2.1% in 2023 and 2.1% in 2024. Stagflation is the word in the eurozone. What did the ECB decide? Net asset purchases will end as of 1 July Reinvestments of the Pandemic Emergency Purchase Programme will continue at least until the end of 2024 and will remain the main instrument against a widening of yield spreads The policy rate remains unchanged, but the ECB announced it ‘intends’ to hike rates by 25bp in July and 25bp in September. The door for a rate hike of 50bp in September is wide open as the statement says, “If the medium-term inflation outlook persists or deteriorates, a larger increment will be appropriate at the September meeting.” Door open for 50bp in September With inflation running red hot but at the same time the eurozone economy slowing down and facing stagnation or even recession, the ECB’s window to normalise monetary policy has been narrowing almost by the day. Today’s decision shows it's managed to find a compromise between the doves and the hawks. A 50bp rate hike in July seemed to be fended off by opening the door for 50bp in September. The era of net asset purchases will come to an end in three weeks, and the era of negative interest rates will come to an end before the autumn. Simply put, the ECB just announced the end of a long era. Whether this will also be the start of a new era of continuously rising interest rates, however, is still far from certain. Read this article on THINK TagsMonetary policy Inflation Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Interest Rates In Eurozone Will Continue To Increase In The Coming Meetings

US Dollar Softening Due To Recession Fears (EUR/USD), Is A 50bps Interest Rate Hike Due To Kick Off The ECB Interest Rate Hiking Cycle ? (EUR/GBP), AUD Recovering As China Reopens Their Economy

Rebecca Duthie Rebecca Duthie 28.06.2022 14:01
Summary: The Fed remains fixated on crushing inflation. Martins Kazaks announced that it was worth looking at a 50 basis point hike. The AUD is benefitting from the reopening of the Chinese economy. Read next: EUR/USD Currency Pair Bullish, KPMG Cuts Growth Forecast For Pound Sterling (EUR/GBP, GBP/USD), RBC Capital Markets Recommend Selling GBP/SEK  ECB Forum Starts on Tuesday The market is reflecting bullish signals for this currency pair. The US Dollar softens in the wake of concerns around a looming recession that comes in the wake of a slowing economy on rising interest rates. Despite these concerns the Federal Reserve bank has made it clear that their focus is on containing surging inflation. The Euro has held onto Monday gains, the European Central Bank (ECB) will get under way today. EUR/USD Price Chart ECB has a busy week for interest rate policy The market is reflecting bullish signals for this currency pair. It is looking likely that the European Central Bank (ECB) is due to start its interest rate hiking cycle with a 50 basis point hike. After Martins Kazaks announced that it was worth looking at a 50 basis point hike the Euro strengthened against both the pound sterling and the US Dollar. This trading week is a busy one for the ECB interest rate policy as central bankers descend on Sintra, Portugal for the ECBs annual central banking get-together. EUR/GBP Price Chart AUD/JPY currency pair The market is reflecting mixed signals for this currency pair. As China comes out of its lockdowns, thus, boosting market expectations of a recovery in the second largest economy in the world and Australia’s largest export market. The Australian Dollar has strengthened in the wake of the news. Due to equities holding onto recent gains and the Japanese Yen’s safe-haven status, the currency is underperforming. AUD/JPY Price Chart GBP/JPY currency pair The market is reflecting mixed signals for this currency pair. The GBP/JPY currency pair is drifting higher as we near to the month end. It is natural for the Japanese Yen to underperform during this time as equities are holding onto their gains due to its safe-haven status. GBP/JPY Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
Trading Signals For The New Zealand Dollar To Swiss Franc Pair (NZD/CHF)

Euro Remains Under Pressure As European Gas Crisis Persists (EUR/USD, EUR/GBP, EUR/CHF), RBNZ Increased Cash Rate (GBP/NZD)

Rebecca Duthie Rebecca Duthie 13.07.2022 17:26
Summary: US inflation at 9.1%. Retreating USD and buoyant commodity prices offered NZD support. UK GDP data beat market expectations. EUR remains under pressure due to gas crisis. Read next: US Inflation Reaches Nearly 41 Year High, RBNZ & BoC Increase Their Cash Rates  EUR/USD The market is reflecting bearish signals for this currency pair. Early on Wednesday the EUR/USD currency pair hit parity, a level not seen in 20 years. US inflation data for June was released on Wednesday and came in at 9.1%, a level that had increased since the May reading of 8.6%. Inflation has risen further despite the Fed’s continuous effort to drive inflation rates down through aggressive interest rate increases. The Euro will continue to remain under pressure amidst the European gas crisis which is far from over. EUR/USD Price Chart UK GDP Data beat expectations The market is reflecting mixed signals for this currency pair. With the UK GDP data coming in surprisingly strong in the mid-trading week has led Goldman Sachs to lower their expectations for a looming recession in the UK economy. All components of the UK economy played their part in contributing to the better than expected data: manufacturing production increased 2.3% in May against a consensus forecast for 0.2%. Industrial production grew 0.9% against expectations for flat output and construction output increased 4.8% against the 4.4% expected. EUR/GBP Price Chart EUR/CHF Currency pair The market is reflecting bearish signals for this currency pair. The Swiss National Bank (SNB) surprised the markets in June with a 50 bps hike in interest rates. The SNB hosts quarterly meetings to discuss monetary policy, the next meeting is due in September whereas the European Central Bank (ECB) will make its decision regarding monetary policy at the end of the month. EUR/CHF Price Chart GBP/NZD pushing downwards The Reserve Bank of New Zealand increased their cash rate by 50 bps on Wednesday in an attempt to reign in persistent inflation. Although the move from the reserve bank was fully priced-in to the financial markets, the retreating US Dollar and buoyant commodity prices allowed room for the NZD to a number of currencies downward, including the pound sterling. GBP/NZD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
Are Stock Markets Endangered? Is The Bear Market Coming?

EUR/USD Falls Below Parity, Eurozone Energy Crisis Concerns Persist (EUR/GBP), Hawkish BoC (USD/CAD), USD/JPY

Rebecca Duthie Rebecca Duthie 14.07.2022 17:34
Summary: The Eurozone energy crisis persists. Potentially more hawkish BoE could be on the horizon. BoC 1% raise in interest rates offers CAD support. Read next: Platinum Prices Touchine 22-month Lows, RBOB Gasoline, Wheat Consumption Expected To Decrease  Stock Markets weighing an even more aggressive Fed The market is reflecting bearish signals for this currency pair. The Euro to US Dollar exchange rate has fallen below parity in the wake of a surge in US Dollar demand. Looking at the combination of events leading to the fall of the EUR/USD, we observe that the stock markets are in the red as they attempt to anticipate the potential effects from a potential 100 basis point hike from the Federal Reserve. The Euro is still struggling as concerns around the seemingly unwavering energy crisis in the Eurozone persists. EUR/USD Price Chart Potentially more hawkish BoE could be on the horizon The market is reflecting bearish signals for this currency pair. The most recent commentary suggests to the market that the Monetary Policy Committee at the Bank of England (BoE) is only one employment report or one inflation number away from a step change in the pace the Bank Rate is being lifted, and that a change of this sort could come as soon as August. This move could offer the pound support going forward. EUR/GBP Price Chart BoC hawkish moves offering CAD support The market is reflecting bearish signals for this currency pair. The US Dollar had a strong start to Thursday's trading day as investors priced in the growing expectations for a 100 basis point increase in interest rates from the Fed in the wake of the 9.1% US inflation data that was released on Wednesday. On Wednesday the Bank of Canada (BoC) shocked markets with their largest interest rate hike since 1998. The hawkish move from the BoC has offered the Canadian Dollar support and has thrown a curveball at investors, leaving a range of responses from analysts. USD/CAD Price Chart USD/JPY The market is reflecting bearish signals for this currency pair. The US Dollar has reversed yesterday's pullback which occurred in the wake of US inflation data being released. The BoJ continues on their dovish monetary policy path. USD/JPY Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
The EUR/USD Pair Could Resume Its Larger Degree Downtrend

ECB Upcoming Policy Rate Decision Offers Euro Support (EUR/USD, EUR/GBP), Higher Than Expected NZ CPI Inflation Data (GBP/NZD), (USD/CAD)

Rebecca Duthie Rebecca Duthie 18.07.2022 16:49
Summary: EUR recovering against the USD. ECB interest rate decision due on Thursday. UK economic data to be released this week. NZ CPI inflation rose 1.7%. Read next: Hawkish Fed Is Driving Gold’s Value Down , Corn Prices At 5-week Lows, Brent Crude Oil Prices Falling  Euro attempting to recover against the USD The market is reflecting bullish signals for this currency pair. The Euro has been attempting to recover against the US Dollar during the Monday trading day and could continue to rise in the coming days if all goes well for Eurozone economies on Thursday after the European Central Bank (ECB) announces their policy decision. In addition there is still market uncertainty around whether Russian gas flows will continue through the Noord Stream 1 after its maintenance ends on July 21st, this remains one of the greatest risks to the Euro. EUR/USD Price Chart Pound sterling could weaken more against the EUR The market is reflecting bullish signals for this currency pair. The EUR/GBP currency pair could strengthen more in the coming days as the market awaits the ECB’s interest rate decision. There is however, some UK economic data that is due to be released which could offer the pound sterling support against the Euro and other currencies. EUR/GBP Price Chart NZ inflation data weakening the NZD. A rise in New Zealand inflation data shocked investors and raised bets for a faster and more hawkish response from the Reserve Bank of New Zealand (RBNZ). However, fears of a ‘hard landing’ for the Kiwi economy have grown as investors are fearing that the combination of rising interest rates and high inflation will negatively impact economic expansion, which may aid in explaining the NDZ’s negative reaction to the data. According to Stats NZ, CPI inflation in NEw Zealand rose 1.7% quarter on quarter, surpassing the markets expectation of a 1.5% increase/ GBP/NZD Price Chart USD/CAD The market is reflecting bearish signals for this currency pair. The Canadian Dollar has continued its rally against the US Dollar after the Bank of Canada (BoC) surprised markets last Wednesday with a 100 basis point hike in interest rates. USD/CAD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com  
This Week's Tesla Stock Split Could Be The Best Moment To Buy The Stock! Twitter Stock Price Plunged!

Euro Remains Supported Ahead Of ECB Policy Decision, Netflix & Tesla Q2 Earnings Reports

Rebecca Duthie Rebecca Duthie 20.07.2022 23:49
Summary: EUR/USD, EUR/GBP currency pairs Netflix earnings report Tesla earnings report Read next: S&P 500 Amongst Major Indexes That Are Rising, Markets Are Waiting For Thursdays ECB Policy Decision  Euro stole headlines on Wednesday The EUR/USD currency pair ended the Wednesday trading day showing mixed market sentiment as the market awaits the European Central Bank’s (ECB) monetary policy decision due on Thursday. The Euro is still facing uncertainty regarding high inflation in the Eurozone and how the ECB plans to tackle it, in addition as the Noord Stream 1 opens after its routine maintenance period, there are still concerns as to whether Russia will open the gas taps. The recovery of the Euro against the dollar could be reflecting a possible market inflection point. The Euro has recovered half of its July losses so far, this could mean a turn around against the Dollar for many other major currencies aswell. The Euro stole the headlines on Wednesday as both Bloomberg News and Reuters reported that the market could see an outsized interest rate yield rise from the European Central Bank on Thursday. EUR/USD Price Chart EUR/GBP currency pair The market is reflecting mixed signals for this currency pair. According to a number of new reports, it is predicted that UK inflation could reach up to 12% by October, the report also showed that the inflation rate was growing at its fastest rate in 40 years. The Euro remains supported ahead of the ECB’s policy decision on Thursday EUR/GBP Price Chart Netflix Earnings Report Netflix's earnings report on Wednesday indicated they lost around 970,000 subscribers, beating the 2 million that was predicted last quarter, thus causing the company's stock price to jump. Its EPS beat market expectations. The company also warned that the rallying US Dollar would have an impact on international revenue. The streaming giant also indicated they had more time to understand and address the issues that have been impacting their streaming, revenue and other major indicators. NFLX Price Chart Tesla earnings report Tesla’s quarter 2 earnings report indicated the company beat market expectations with regards to adjusted EPS. Automotive margins came in at 27.9% down from the 32.9% seen in the first quarter, impacted by inflation, increased competition for battery cells and other components that are required for electric vehicles. In addition the invasion of Russia in the Ukraine and in conjunction with covid-19 lockdown measures in China caused supply chain issues and parts shortages. TSLA Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com, cnbc.com
Euro: Although ECB Is Expected To Rise Interest Rate By 25bps, 50bps Move Wouldn't Be That Shocking

Euro: Although ECB Is Expected To Rise Interest Rate By 25bps, 50bps Move Wouldn't Be That Shocking

FXStreet News FXStreet News 20.07.2022 16:47
The ECB has pre-committed to raising rates by 25 bps in its July meeting. A 50 bps rate increase by the ECB would not come as a surprise. The bank’s rate hike guidance and new anti-fragmentation tool are being eyed. Almost a decade ago, Mario Draghi pledged to do ‘whatever it takes’ to save the euro. Ten years later, the situation is no different and the shared currency is in a dire state yet again. Will European Central Bank (ECB) President Christine Lagarde repeat history by responding to a larger rate hike this Thursday? The central bank meets on July 21 to announce the first interest rate hike in eleven years at 1215 GMT. Lagarde’s press conference will follow at 1245 GMT. ECB could opt for a 50 bps rate hike The ECB is on track to raise rates by 25 bps on Thursday, lifting the key deposit rate to -0.25%. A recent story by Reuters suggested that the ECB policymakers are set to discuss a 50 bps rate hike at the meeting. Therefore, a double-dose rate increase to control record-high inflation will not come as a surprise. Money markets are pricing in 40% odds on a half-point rate hike this week while wagering 97 bps of tightening by September after earlier baking in a one-percentage-point increase. I believe that the ECB will deliver a 50 bps lift-off this month, in the wake of rampant inflation, resumption of the Russian gas supply and the fact that the ECB is way behind the curve. It’s also worth noting that front-loading rates now may allow the central bank some room to pause or go slower on rate hikes when a recession hits. The euro area is battling a record-high inflation rate of 8.6% on an annualized basis, reported in June. Lagarde clearly mentioned in the press conference following the June policy meeting that the rate hike path will remain ‘data-dependent’. Meanwhile, the latest European Commission forecasts showed that inflation is seen at 4% in 2023, lower than the current rate but still double than the central bank’s target. Source: FXStreet But Lagarde did walk back on her words and later said there were "clearly conditions in which gradualism would not be appropriate". Despite the well-telegraphed talks of a 25 bps rate hike, the ECB could follow the US Federal Reserve’s (Fed) footsteps in turning against its pre-committed guidance. With inflation control on top of its agenda, the ECB needs to move forward with bigger rate hikes, as it remains the main laggard in the global tightening bandwagon. Even the Swiss National Bank (SNB) surprised markets with a 50 bps rate rise in its last policy meeting. Meanwhile, the Fed is likely to hike rates by 75 bps next week, totaling 250 bps of increases so far. The premise for a quarter-point rate rise could be also ebbing fears over an imminent recession in the bloc, especially after Russia announced on Tuesday that Russia's Nord Stream 1 pipeline will resume gas flows on schedule this week but at reduced levels. The Nord Stream 1 carries more than one-third of Russia's natural gas exports to Europe and it was critical for the pipeline to restart after it went offline for 10 days on July 11 for annual maintenance. However, a big move this week could trigger a renewed explosion in the peripheral bond yields, already when the Italian bond yields are through the roof amid simmering political turmoil in the region. But the risk could be mitigated by the policymakers if they announce a new bond-buying scheme on Thursday. The new transmission protection mechanism will cap member countries' borrowing costs when they are deemed to be out of sync with economic reality. Sources with knowledge of the matter said, “ECB policymakers home in on a deal to make new bond purchases conditional on next generation EU targets and fiscal rules.” "These include the targets set by the Commission for securing money from the European Union Recovery and Resilience Facility as well as the Stability and Growth Pact, when it is reinstated next year after the pandemic break,” the sources added. Trading EURUSD price with the ECB EURUSD price is witnessing a classic short-squeeze in the lead-up to the ECB showdown after the euro succumbed below parity against the US dollar last week. The pair has recovered roughly 300 pips from a two-decade low of 0.9952 but the further upside remains at the mercy of Lagarde & Co. EURUSD could resume its downtrend towards parity on ‘sell the fact’ trading should the central bank deliver the expected 25 bps rate hike. A double-dose lift-off could restore the ECB’s credibility in fighting inflation, offering a temporary boost to the euro. The main currency pair could extend the short-squeeze towards the critical 1.0360-1.0370 supply zone, eyeing 1.0400 the figure. The upside risks to EURUSD price could be limited if Lagarde fails to commit on big moves in the September meeting. Also, the lack of details on the new anti-fragmentation tool could leave EUR bulls in limbo once again.
Fed Interest Rate Announcement Due Wednesday (EUR/USD), 50bp Hike From BOE Expected (EUR/GBP, GBP/NZD)

Fed Interest Rate Announcement Due Wednesday (EUR/USD), 50bp Hike From BOE Expected (EUR/GBP, GBP/NZD)

Rebecca Duthie Rebecca Duthie 26.07.2022 19:37
Summary: Federal reserve interest rate announcement Wednesday. Barclays updated their expectations for the next BOE interest rate hike. NZD was a poor performer on Tuesday. Read next: NGAS Prices Rising, Cotton Demand Falling, Gold Prices Rising As Recession Fears Rise  Euro at risk of weakening The market is reflecting bearish signals for this currency pair. The euro is at risk of falling as prospects of a weaker economic outlook and restricted gas flows through the Noord Stream 1 pipeline. The threat of Russian oil exports through the Noord Stream pipeline being reduced to 20% could contribute even further to the energy crisis in Europe and drive gas prices even higher. The market is awaiting the Federal Reserve's interest rate hike announcement which is due tomorrow. EUR/USD Price Chart EUR/GBP bearish The market is reflecting bearish signals for this currency pair. Barclays bank has increased expectations to 50bps hikes from the Bank of England (BOE). A 50bp increase is now anticipated for August 4th, according to the UK economic team at Barclays after evaluating incoming UK data and signals from the Bank of England. EUR/GBP Price Chart GBP/NZD currency pair The Pound to New Zealand Dollar exchange rate may be at risk of another decline below the 1.92 level due to a full calendar of event risks in the next few days, making it difficult for it to rise. On Tuesday, the U.S. Dollar recovered from 10-day lows vs the majority of its G20 counterparts, causing the GBP/NZD to increase for a third day in a row. The New Zealand Dollar performed worse than the other major currencies and Sterling. GBP/NZD Price Chart Sources: dailyfx.com, finance.yahoo.com, poundsterlinglive.com
Federal Reserve Raises The Interest Rates By 75bps

Federal Reserve Raises The Interest Rates By 75bps

Rebecca Duthie Rebecca Duthie 27.07.2022 20:04
Summary: Fed chooses a 75 basis point rate hike. Central Banks all around the world are raising interest rates. Federal Reserves On Wednesday the Federal Reserve made their interest rate decision to raise interest rates on Wednesday, they chose to raise interest rates by 75 basis points. The market expectations were elevated to 100 basis points in the wake of June CPI inflation data that reflected that, despite the Fed’s efforts to reign in and control the soaring inflation, inflation was stubborn in its moves upward. The Feds move is likely to cause the US dollar to rally and strengthen against all its major currency pairs and hopefully will aid in bringing down the already soaring inflation rate. Over the past couple weeks the European Central Bank (ECB), Bank of Canada (BoC) and the Bank of England (BoE) amongst others, have all rasied their interest rates in an attempt tio reign in the soaring inflation rates around the world. The Fed has been periodically raising interest rates at every meeting since May, the first rate hike in may was 50 basis points, which shocked the markets and caused the US Dollar to rally and strengthen across the board. The second interest rate hike by the fed was in June of 75 basis points and was one which shocked the market, thereafter the 75 basis point hike decision today, a further 75 basis points. The market had priced in a 75 basis point hike but experts raised their expectations to a 100 basis point rate hike, as the Fed continued to reiterate to the market their commitment to reigning in the sky high inflation rates, rates that have not been seen since the 1980s. In a unanimous vote, the Federal Open Market Committee raised the policy rate to a range between 2.25 percent and 2.50 percent, noting that "inflation remained elevated, reflecting supply and demand imbalances connected to the pandemic, increased food and energy prices, and broader pricing pressures." The FOMC continued by stating that it is "very sensitive" to inflation risks. Officials observed in the new policy statement that "recent measures of spending and production have weakened," despite the fact that job growth has remained "strong," a pointer to the reality that the substantial rate hikes they have implemented since March are starting to take effect. The Fed has increased its policy rate by 225 basis points in total this year, on top of a 75-basis-point increase last month and smaller increases in May and March, as it fights an inflation breakout on a par with the 1980s with monetary policy modeled after the 1980s. As a result, the epidemic era attempts to promote household and corporate spending with cheap money have effectively come to an end. The policy rate is currently at the level that the majority of Fed officials believe has a neutral economic impact. The rate was also achieved in just four months, matching the peak of the central bank's previous tightening cycle, which lasted from late 2015 to late 2018. Little concrete information about the next actions the Fed might take was provided in its most recent policy statement. The Fed's decision will be greatly influenced by whether or not incoming data indicates that inflation is starting to decline. Investors anticipate the U.S. central bank to increase the policy rate by at least half a percentage point at its September meeting in light of the most recent data showing consumer prices rising at a rate of more than 9% annually. Sources: investing.com, reuters
Will The US Dollar Continue To Be Strong And To Keep Growing Or Maybe Situation Will Be Reversed

US ISM Data Defied Market Expectations (EUR/USD), GBP Strengthened Ahead of BOE Policy Decision (EUR/GBP, GBP/AUD),

Rebecca Duthie Rebecca Duthie 04.08.2022 02:09
Summary: The US Dollar made intraday gains on Wednesday. Markets awaiting BOE policy decision. GBP/AUD attempting recovery. Read next: Palladium Prices Touching Two-Week Highs, OPEC+ Increasing Crude Supply Of WTI Crude Oil, Coffee Supply Outlook Seemingly Poor  USD supported by US ISM data The market is reflecting bearish signals for this currency pair. After the Institute for Supply Management (ISM) Services PMI defied market expectations by increasing for the month of July in contrast to the alternative barometer compiled by S&P Global, the U.S. Dollar recovered earlier losses to make intraday gains over various other major currencies. The sharp increases in new orders and overall business activity within the biggest and most significant sector of the U.S. economy's largest and most important sector led to Wednesday's release of the ISM services sector index rising from 55.3 to 56.7 for last month, surprising the currency and bond markets. The Fed will decide in September whether to lower the size of the increments in which it is raising U.S. interest rates. Chairman Jerome Powell indicated last Wednesday that they would take a range of economic indicators into account, causing a significant decline in the value of the dollar. EUR/USD Price Chart BoE Policy rate decision due The market is reflecting mixed signals for this currency pair. The Pound sterling has strengthened ahead of the Bank of England (BoE) interest rate decision. Following the Bank of England report on Thursday, Barclays' foreign exchange analysts predict that the British Pound would likely decline; however, Goldman Sachs is more optimistic about the UK currency's prospects, particularly when compared to the Euro. Before announcing its most recent inflation and economic growth projections, the Monetary Policy Committee of the Bank of England is anticipated to announce another interest rate increase.Through the later part of July and the beginning of August, the Pound strengthened against both the Euro and the U.S. Dollar. The main test for the currency will be the size of the hike announced and the nature of those expectations. EUR/GBP Price Chart GBP/AUD attempting recovery The GBP/AUD currency pair is attempting recovery of the declines experienced in July. In the first few days of August, the Pound to Australian Dollar exchange rate further reversed its July decline, but it may find it difficult to move much further than the nearby 1.76 level in the absence of further support from the Bank of England (BoE) this Thursday. Following the latest Reserve Bank of Australia (RBA) monetary policy announcement on Tuesday, which helped push GBP/AUD to one-month highs, the Australian Dollar was one of the major currencies that underperformed for the week ending on Wednesday. GBP/AUD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundtserlinglive.com
The EUR/USD Pair Maintains The Bullish Sentiment

FOREX: U.S Inflation Data Due Wednesday (EUR/USD), BoE Economic Forecasts Downgrades (EUR/GBP), Potentially Hawkish BoC (GBP/CAD)

Rebecca Duthie Rebecca Duthie 08.08.2022 20:30
Summary: The euro is battling to mount significant gains against the USD. BoE’s economic downgrades. Market expectations for a hawkish BoC. Read next: Meme Stocks Amongst Monday’s Top Performers  EUR/USD suffered defeats this week The market is reflecting mixed signals for this currency pair. The Euro to Dollar exchange rate suffered defeats this week from both near and distant, but if this Wednesday's U.S. inflation data further incenses a still-hawkish Federal Reserve (Fed), it might send the rate back into its laws from July. In the first session of last week, the Euro got dangerously close to the 1.03 handle versus a declining Dollar, but an attempt at a rebound was again thwarted by what appear to be escalating concerns to energy supplies in Germany and several other European nations. The euro has stabilized versus the U.S. dollar in recent weeks following a large sell-off earlier this year, but has been unable to mount a significant comeback due to a dearth of supportive fundamentals. In this aspect, the common currency has faced challenges that have limited its upward performance versus the dollar, including the oil crisis in Europe, regional economic instability, and the ECB's unwillingness to raise rates fast. EUR/USD Price Chart BoE shocked the market with sharp economic downgrades The market is reflecting bullish signals for this currency pair. The Bank of England (BoE) shocked the market last week with sharp downgrades to its economic forecasts, which put Sterling on the back foot and put it at risk of slipping into a cluster of technical support levels around 1.18 in the coming days. As a result, the Pound to Euro exchange rate was muted. The pound sterling was a little firmer this morning against the U.S. dollar and the euro, respectively. The new leader of the British Conservative Party and the British Prime Minister, both named Sunak and Truss, have been the subject of much discussion (tax cuts). Tax cuts may increase already high inflationary pressures, which could lead to additional interest rate increases from the Bank of England. Tax cuts are intended to promote economic growth inside the UK (BoE). EUR/GBP Price Chart GBP/CAD currency pair Last week, U.S. economic data, the U.S. Dollar, and a strong Loonie combined to drag the Pound to Canadian Dollar rate down toward 1.55 and a level that may continue to exert a gravitational pull in the days to come. This prevented the rate from rising above near 10-year lows. Although the unemployment rate in Canada remained at 4.9 percent and wages continued to grow at an annualized rate of 5.2 percent in July, the economy still lost jobs for a second consecutive month. This may have led the market to believe that the Bank of Canada (BoC) will likely maintain the more aggressive monetary tightening and interest rate policy implemented in recent months. GBP/CAD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
Fed is expected to hike the rate by 50bp, but weaker greenback and Treasury yields don't play in favour of the bank

The Market Awaits US Inflation Report (EUR/USD), EUR/GBP Bullish, Canadian Dollar “skewed to the downside”

Rebecca Duthie Rebecca Duthie 09.08.2022 17:19
Summary: Market awaits US inflation reports on Wednesday. Fed and ECB will continue to hike interest rates. The Bank of Canada may decide to scale down its plans to raise interest rates. Read next: Will Tesla’s (TSLA) Stock-Split Boost Interest In Company Shares?  USD is expected to remain supported The market is reflecting bullish signals for this currency pair. As the market awaits the US inflation report on Wednesday, the Euro has remained stable on Tuesday. So far today, the EUR/USD has fluctuated only slightly, around 1.0190. In the North American session, Treasury rates decreased; today in Asia, they were flat throughout the curve. At about 106.36, the US Dollar (DXY) index is unchanged. However, Analysts at Rabobank, a Dutch-based worldwide lender and investment bank, predict that the Euro to Dollar exchange rate (EUR/USD) will decline down below the 1.0 level during the upcoming weeks. In contrast to some analysts' predictions that the Dollar's multi-month surge is coming to an end, new analysis reveals the currency will likely continue to be well supported long into 2023. EUR/USD Price Chart EUR/GBP Bullish The market is reflecting bullish signals for this currency pair. On August 4, the Bank of England increased interest rates by 50 basis points as it stepped up its campaign against inflation. "Having stepped up the pace of rate hikes, it would look odd to throttle back straight away. The Fed and ECB are likely to continue to hike at a rapid pace, and a desire to support sterling will likely drag the BoE along with them," says Goodwin. "Given the fragile backdrop, this makes rate cuts in 2023 more likely," says Goodwin. They anticipate 75 basis points of rate reductions in 2023 when it becomes apparent that the BoE overreacted. Forecasts for a weaker Pound relative to the Euro reflect this anticipation; Oxford Economics predicts that the Pound to Euro exchange rate will be at 1.16 from the end of the third quarter of 2022 through the end of the first quarter of 2023. EUR/GBP Price Chart Canadian dollar “skewed to the downside” According to foreign exchange strategists at Barclays, the forecast for the Canadian Dollar in the near term is "skewed to the downside." The Bank of Canada may decide to scale down its plans to raise interest rates, according to Barclays in its normal weekly currency strategy briefing paper. The bank also notes that the prolonged decrease in oil prices may have an impact. With a reading of -30.6k in July, according to official figures released last week, Canada experienced its second straight loss in employment, falling short of the average estimate of +15k new positions. Despite this, the unemployment rate stayed close to long-term lows at 4.9 percent, while pay growth held steady at 5.4 percent annually. GBP/CAD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
Wow! Federal Reserve decision is not everything next week! What's ahead? InstaForex talks many economic events (Monday) - 30/10/22

US CPI Inflation Data For July Was 8.5%, Beating Expectations

Rebecca Duthie Rebecca Duthie 10.08.2022 14:38
Summary: US Inflation data is expected to be released on Wednesday. EUR/USD & GBP/USD currency pairs. Volatility in the markets. 8.5% consumer inflation. Later today, high volatility is likely to be caused by US inflation data, which is anticipated to show a modest decline in the headline measure (8.7 percent exp vs 9.1 percent prior). The US PPI data is due out on Thursday, but it is unlikely to have a significant impact on the markets given that the Fed would need to observe a significant decline in prices in order to alter its present course of temporary tightening. The US CPI Inflation data for July came in at 8.5%, declining from the 9.1% June high and beating the markets expectations of 8.7%. The fall in inflation was likely aided by a reduction in both food and gasoline prices. The result could indicate to the markets that the Federal Reserve Bank has been successful so far in their interest rate hikes to fight inflation. A stronger result would have likely increased the chances of another interest rate hike of 75 bps in the following months and would have boosted the USD, whilst a weaker result could cause the Fed to drop to a 50 bps interest rate hike next month. EUR/USD The market is reflecting mixed sentiment for this currency pair. The markets have been in a lethargic state recently with a 7-week slide in the VIX volatility index. The current state of lethargy is most likely a result of the medium-term decline in market activity. The seven-week decline in the VIX was mentioned, but there are many other noteworthy episodes from recent history where important events, some with high surprise quotients, failed to significantly move the markets. The PCE deflator, which uses the same data used to calculate the quarterly GDP statistics, is really the Federal Reserve's preferred inflation indicator. Despite this, the markets have consistently shown a strong preference for the CPI, presumably because it is released earlier and has a full week to be incorporated into market views because it is released on a Wednesday. The headline basket's annual inflation growth rate had increased to an astounding 9.1 percent pace at the time of the previous release. That is the highest reading in forty years, and it is not just due to the biggest economy in the world. This reading might meet, miss, or beat the consensus expectation (8.7%), but it is thought that a "beat" would carry the most weight. EUR/USD Price Chart GBP/USD An expert at Société Générale claims that the Pound is "in peril" and that a new decrease in the value of the Dollar is imminent. In the very near future, GBP/USD has a risk of declining below 1.20 once more "Olivier Korber, a Soc Gen strategist, states in a memo dated August 2009. The underlying rationale for the trade, according to Korber, is compelling given the unsettling predictions made by the Bank of England last week, which indicated that UK inflation was expected to peak at "an incredible 13 percent. In addition, according to economists at the Bank of England, a four-quarter recession will begin in this year's fourth quarter. According to Korber, the difference with the forecast for the U.S. economy is currently striking. Last Friday's unexpectedly upbeat US job report stands in stark contrast to the pessimistic UK economic forecast. The likelihood of a second consecutive 75bp Fed rate hike is being discussed as recession fears in the US are gradually subsiding. GBP/USD might retest 1.20 in the very near future if there is potential for more sterling short positions, warns Korber. More than doubling the 250K jobs that the market had anticipated, the U.S. economy added 528K jobs in July, which helped the U.S. dollar recover. GBP/USD Price Chart Sources: poundsterlinglive.com, finance.yahoo.com, dailyfx.com
More effects of FTX crash could show up

Euro Could Be Boosted In Coming Days (EUR/USD), UK Economic Data To Be Released This Week (EUR/GBP), CAD Fell In The Wake Of The PBoC’s Announcement (GBP/CAD)

Rebecca Duthie Rebecca Duthie 15.08.2022 23:52
Summary: EUR/USD recently hit 6-week highs. CAD proves its sensitivity to risk appetite. Could UK inflation hit double figures? EUR/USD recently reached 6 week highs. The market is reflecting bearish signals for this currency pair. A stagnant U.S. Dollar and more accommodating Chinese monetary policy may continue to boost the single euro currency in the days ahead. The Euro to Dollar exchange rate recently hit six-week highs. However, its recovery was halted by resistance on the charts. Last week, when a slew of data from the Bureau of Labor Statistics suggested that a significant slowing of U.S. inflation pressures may have started to move through the pipeline last month, the euro rose to its highest level since the first days of July. Furthermore, The unexpected decision to cut interest rates, announced by the People's Bank of China (PBoC), on Monday could help the euro this week if the PBoC permits the managed-floating Renminbi to weaken in order to boost the regional economy. EUR/USD Price Chart UK major economic data to be released this week The market is reflecting bullish signals for this currency pair. The market is unconvinced that the current trading week will aid the pound sterling in recovering against major currencies with major economic data such as the latest jobs, wages, inflation and retail sales all set to be released. Although the labor market is currently strong, there is a good likelihood that headline UK inflation will reach double digits this week. The Bank of England has already issued a warning that this year's inflation could reach 13% while the economy experiences a five-quarter slump. The UK is experiencing drought-inducing heatwaves, sky-high energy prices, and a political void in No. 10, so any more bad economic news will enrage the already irate populace. EUR/GBP Price Chart CAD fell in the wake of PBoC announcement to cut interest rates. The Pound sterling to the Canadian Dollar rallied from August lows, but could climb further if the Loonie is able to build on Monday declines, which is a busy period for both the U.S and Canada regarding economic data. After the People's Bank of China (PBoC) unexpectedly lowered interest rates in reaction to alarming local economic statistics, the Canadian Dollar fell on Monday along with other currencies that are highly sensitive to risk appetite, commodity prices, and changes in the outlook for global growth. But in light of the aforementioned, it's possible, if not likely, that the directional risk for GBP/CAD is now tilting a little more to the upside than it is to the downside. The Loonie and Sterling must now each navigate a series of domestic economic event risks that are lurking along the path ahead. GBP/CAD Price Chart
Saxo Bank Podcast: The Upcoming Bank Of Japan Meeting, A Look At Crude Oil, Copper And More

Japanese Yen (JPY) Rise. Energy Prices Are Finally Falling!?

John Hardy John Hardy 16.08.2022 10:05
Summary:  Weak data out of China overnight, together with a surprise rate cut from the PBOC and collapsing energy prices later on Monday saw the Japanese yen surging higher across the board. Indeed, the two key factors behind its descent to multi-decade lows earlier this year, rising yields and surging energy prices, have eased considerably since mid-June with only modest reaction from the yen thus far. Is that about to change? FX Trading focus: JPY finding sudden support on new disinflation narrative Weaker than expected Chinese data overnight brought a surprise rate cut from the Chinese central bank and seems to have sparked a broadening sell-off in commodities, which was boosted later by a crude oil drop of some five dollars per barrel on the news that Iran will decide by midnight tonight on whether to accept a new draft on the nuclear deal forward by the Euro zone. In response, the Chinese yuan has weakened toward the highs for the cycle in USDCNH, trading 6.78+ as of this writing and  (there was a spike high to 6.381 back in May but the exchange rate has been capped by 6.80 since then), but the Japanese yen is stealing the volatility and strength crown, surging sharply across the board and following up on the move lower inspired by the soft US CPI data point. US long yields easing considerably lower after an odd spike last Thursday are a further wind at the JPY’s back here. In the bigger picture, it has been rather remarkable that the firm retreat in global long-date yields since the mid-June peak and the oil price backing down a full 25% and more from the cycle highs didn’t do more to support the yen from the yield-spread angle (Bank of Japan’s YCC policy less toxic as yields fall) and from the current account angle for Japan. Interestingly, while the JPY has surged and taken USDJPY down several notches, the US dollar is rather firm elsewhere, with the focus more on selling pro-cyclical and commodity currencies on the possible implication that China may be content to export deflation by weakening its currency now that commodity prices have come down rather than on selling the US dollar due to any marking down of Fed expectations. Still, while the USD may remain a safe haven should JPY volatility be set to run amok across markets, the focus is far more on the latter as long as USDJPY is falling Chart: EURJPY As the JPY surges here, EURJPY is falling sharply again, largely tracking the trajectory of longer European sovereign yields, which never really rose much from their recent lows from a couple of weeks back, making it tough to understand the solid rally back above 138.00 of late. After peaking above 1.90% briefly in June, the German 10-year Bund, for example, is trading about 100 basis points lower and is not far from the cycle low daily close at 77 basis points. The EURJPY chart features a rather significant pivot area at 133.50, a prior major high back in late 2021 and the recent low and 200-day moving average back at the beginning of the month. After a brief JPY volatility scare in late July and into early August that faded, are we set for a second and bigger round here that takes USDJPY down through 130.00 and EURJPY likewise? A more significant rally in long US treasuries might be required to bring about a real JPY rampage. Source: Saxo Group The focus on weak Chinese data and key commodity prices like copper suddenly losing altitude after their recent rally has the Aussie shifting to the defensive just after it was showing strength late last week in sympathy with strong risk sentiment and those higher commodity prices. Is the AUDUSD break above 0.7000-25 set for a high octane reversal here? AUDJPY is worth a look as well after it managed to surge all the way back toward the top of the range before. The idea that a weak Chine might export deflation from here might be unsettling for Aussie bulls. The US macro data focus for the week is on today’s NAHB homebuilder’s survey, which plunged to a low since 2015 in June (not including the chaotic early 2020 pandemic breakout months), the July Housing Starts and Building Permits and then the July Retail Sales and FOMC minutes on Wednesday. With a massive relief in gasoline prices from the July spike high, it will be interesting to see whether the August US data picks up again on the services side. The preliminary August University of Michigan sentiment survey release on Friday showed expectations rising sharply by over 7 points from the lowest since-1980 lows of June, while the Present Situation measure dropped a few points back toward the cycle (and record) lows from May. Table: FX Board of G10 and CNH trend evolution and strength. The JPY is the real story today, but as our trending measures employ some averaging/smoothing, the move will need to stick what it has achieved today to show more. Watch out for a big shift in the commodity currencies in coming days as well if today’s move is the start of something. Elsewhere, the JPY comeback is merely taking CHF from strength to strength, although even the might franc has dropped against the JPY today. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs. Big momentum shift afoot today and watching whether this holds and the JPY pairs and pairs like AUDUSD and USDCAD to see if we are witnessing a major momentum shift in themes here. Also note NOK pairs like USDNOK and EURNOK here. Source: Bloomberg and Saxo Group Upcoming Economic Calendar Highlights (all times GMT) 1400 – US Aug. NAHB Housing Market Index 0130 – Australia RBA Meeting Minutes Source: FX Update: JPY jumps on deflating energy prices, fresh retreat in yields.
Forex: Possibility Of Sharp Jump In Many Trading Instruments

Euro Under Pressure As A Result Of Events In The Energy Market (EUR/USD, EUR/GBP), RBNZ Due To Announce Policy Update (GBP/NZD)

Rebecca Duthie Rebecca Duthie 16.08.2022 22:29
Summary: Eurozone's common currency depreciated. Euro currency is threatened by economic growth concerns. RBNZ midweek policy update. Euro under pressure amidst rising gas prices The market is reflecting bearish signals for this currency pair. According to economists, recent developments in the energy markets of the Eurozone support the argument for additional euro weakness. Due to events in the energy market, which revealed that European benchmark power costs had risen above €500 for the first time, the Eurozone's common currency depreciated further in comparison to recent highs against the Dollar and the Pound. Over the next months, the developments pose a potential of piling on further pressure on the businesses in the area. According to Ole S. Hansen, Head of Commodity Strategy at Saxo Bank, the gas and power situation in the EU is getting worse, which is hurting the euro. In spite of persisting supply constraints from Russia, European countries kept up the pressure on demand to fill their storage tanks before the winter, driving up gas prices. EUR/USD Price Chart Euro is threatened by economic growth concerns. The market is reflecting bullish signals for this currency pair. The European Central Bank has succeeded so far in preventing further significant downside in the EUR-crosses by maintaining its difficult balancing act of raising interest rates to combat multi-decade highs in price pressures while preventing fragmentation of sovereign bond markets (preventing peripheral debt yields from widening out relative to their core counterparts). But because energy inventories in the Eurozone are still low before the winter months, fears about growth are growing. The likelihood that the ECB will only be able to raise rates a few more times before the emphasis shifts to preventing a serious economic downturn is growing. Although the Euro's flaws have been contained, they nevertheless exist and pose a threat to the single currency. EUR/GBP Price Chart RBNZ midweek policy update Following the Reserve Bank of New Zealand's (RBNZ) midweek policy update, analysts at investment banks Goldman Sachs and HSBC are watching for NZD depreciation. Markets anticipate that the RBNZ will increase interest rates by another 50 basis points to 3.0%, but any significant changes in the currency are more likely to be caused by the RBNZ's tone in its guidance. The meeting, according to Goldman Sachs, is expected to be one of the major developments for the foreign exchange markets this week, and the results are most likely to support their bearish NZ Dollar thesis. GBP/NZD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
Only Ugly US Data Could Reverse Sentiment | Gilt Yields In UK Were Steady To Lower

Disappointing July FOMC Meeting Minutes (EUR/USD), Euro Under Pressure (EUR/GBP), RBNZ Policy Update Caused NZD Sell-off (GBP/NZD)

Rebecca Duthie Rebecca Duthie 17.08.2022 22:02
Summary: NZD Sell-off. July FOMC minutes gave no hawkish surprises. Euro under pressure. FOMC meeting minutes for July The market is reflecting bearish signals for this currency pair. The much awaited release of the minutes from the July FOMC meeting turned out to be somewhat disappointing, at least for the US Dollar (via the DXY Index). The minutes contained no hawkish surprises, with one sentence standing out in particular: “Participants judged that, as the stance of monetary policy tightened further, it likely would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation.” Recent data indications, like the US economy's growth trajectory and the July US inflation report's reading of 0% m/m, indicating that recent Federal Reserve policy tweaks are certainly having the desired impact on aggregate demand and inflation. Rate expectations for the September Fed meeting were slightly lowered as a result of the July FOMC minutes. The likelihood of a rate increase of 75 basis points decreased from 51% yesterday to 46% today, indicating that market players are seeing the Fed's most recent statement as a confirmation of what was already known: the rate of rate increases is expected to decelerate over the upcoming months. EUR/USD Price Chart EUR/GBP currency pair The market is reflecting mixed signals for this currency pair. The European Central Bank has succeeded so far in preventing further significant downside in the EUR-crosses by maintaining its difficult balancing act of raising interest rates to combat multi-decade highs in price pressures while preventing fragmentation of sovereign bond markets (preventing peripheral debt yields from widening out relative to their core counterparts). But because energy inventories in the Eurozone are still low before the winter months, fears about growth are growing. The likelihood that the ECB will only be able to raise rates a few more times before the emphasis shifts to preventing a serious economic downturn is growing. Although the Euro's flaws have been contained, they nevertheless exist and pose a threat to the single currency. EUR/GBP Price Chart NZD sell-off in the wake of RBNZ policy update The market's reaction to the Reserve Bank of New Zealand's (RBNZ) August policy update and guidance led to a sell-off of the New Zealand Dollar. The Reserve Bank of New Zealand (RBNZ) signaled it will raise interest rates to levels higher than they had previously been expecting. On paper, the RBNZ did everything it could to back NZD bulls: it said that the economy was in good shape, that inflationary pressures were widespread, and that it would continue to raise interest rates. As the RBNZ suggested they will need to raise rates higher than they had previously thought, short-term New Zealand bond yields increased. Two additional rises of 50 basis points are now likely to occur throughout the course of 2022, and a smaller hike may occur in early 2023. The Pound to New Zealand Dollar fell by two thirds of a percent in the 15 minutes following the decision. GBP/NZD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
Netherlands: Wow! Dutch GDP Exceeded Expectations Growing By 2.6%!

Netherlands: Wow! Dutch GDP Exceeded Expectations Growing By 2.6%!

ING Economics ING Economics 18.08.2022 10:07
Dutch GDP rose significantly in the second quarter of this year, up by 2.6% from the previous quarter; it's much stronger than expected. The service sector rebounded particularly well but there was growth in all the main expenditure items. However, the outlook for the second half of the year is negative 'Staff wanted' says this sign at a restaurant in Maastricht, but the economic outlook for the Netherlands is negative 2.6% Dutch GDP growth rate 2Q22 (QoQ) Better than expected Growth supported by expansion of all main expenditure items These are good growth figures for the Netherlands; all expenditures, except inventories, rose. Investment provided the largest contribution to growth; gross capital formation expanded by 5.2% compared with the first quarter. Expenditure volumes rose thanks to a massive increase in transport equipment (37.2%), which had a lot of rebound potential due to earlier supply chain issues. Investment in non-residential buildings (3.7%), ICT equipment (3.2%), machinery & other equipment (2.6%), intangible assets (2.1%) and housing (1.5%) increased. Investment in infrastructure fell (-1.3%) and stock-building also contributed negatively (-0.2% GDP contribution). Household consumption rose 0.9%, particularly because of high spending at the beginning of the quarter. While consumption of services and durable were still expanding, food consumption volumes fell due to higher prices and increased visits to restaurants and bars. It was the first quarter without significant lockdown measures, which mostly ended in  January 2022. Government consumption expanded by 0.1%. Despite still elevated worldwide supply chain disruptions, Dutch exports grew by a decent 2.7%. Goods exports expanded by 2.7%, with both domestically produced goods exports and re-exports showing a positive development. Service exports, such as those driven by incoming foreign tourism, expanded by 2.8%, but remember that this is a rebound from the previous low levels we saw due to the pandemic.  The overall net contribution of international trade to GDP growth was positive (1.2%-point) in the second quarter, because of a long-standing trade surplus and the fact that imports (1.6%) showed weaker growth than exports. The import of services fell by -2.5%. Strong sectorial performance From a sectoral perspective, the value-added growth figure was strongest in the small energy supply sector (8.8% quarter-on-quarter growth). ICT (6.2%), specialised business services (4.5%), semi-public services (3.6%), trade, transport & hospitality (3.6%), water utilities (2.0%), manufacturing (1,2%) also expanded, while output was rather stable in financial services (-0.1%) and agriculture (-0.2%) and value-added contracted in mining & quarrying (i.e. oil & gas, -3.5%). While detailed seasonally adjusted data for subsectors is not available, it seems reasonable to assume that bars & restaurants, travel and recreation, and culture had even more substantial growth than the energy supply sector, given the rebound potential these sectors still had. Outlook less positive The fact that the second-quarter GDP figures were very strong does not mean that the outlook is bright. We maintain that growth will be negative in the coming quarters. Consumers will increasingly be affected by higher prices for energy and food, resulting in cuts to the consumption of other items. Last month we observed the first signs of weakening demand in the value of transactions by ING consumers and the latest figures only seem to confirm that. On top of that, gas prices have risen even further in the past few weeks. Consumer confidence figures have been at record lows for some time, while business sentiment indicators only started to drop recently. While composite indicators are still holding up reasonably well, the balance of business expectations of the economic climate in the next three months has reached its lowest level since the third quarter of 2013, bar the Covid period, according to a survey for the third quarter (mostly executed in July). On a positive note, investment expectations for the current year only fell a little and remained net positive in the third quarter. So we are currently forecasting a mild technical recession for the Dutch economy as our base case. A still very tight labour market, high amounts of Covid-related savings and expansionary fiscal policy in the medium term may somewhat limit the dip in the real economy caused by higher prices. That said, further cuts in energy supplies from Russia are a downward risk scenario that could push energy prices higher still further and put even more pressure on spending and GDP. We’re seeing the first signs of weaker demand Read this article on THINK TagsInflation GDP Consumption Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Hold On Tight! Look How Much Has (EUR) Euro Weakened Against USD (US Dollar) Since The Beginning Of 2021!

Hold On Tight! Look How Much Has (EUR) Euro Weakened Against USD (US Dollar) Since The Beginning Of 2021!

ING Economics ING Economics 18.08.2022 10:27
The euro's depreciation has helped to improve the competitiveness of eurozone businesses but in contrast to previous episodes of euro weakness, exports are hardly benefiting. Remarkably, structurally weaker eurozone economies have gained relative competitiveness since the start of the pandemic Does parity bring relief for eurozone exporters? Euro-dollar reached parity for the first time since 2002 - a milestone that is largely symbolic. However, the weakening of the euro, in general, deserves attention. The euro has been falling against the dollar since mid-2021, which seems to be largely related to diverging central bank expectations and a sudden decline in the eurozone's trade balance. The latter is mainly related to the energy crisis, which has turned a solid trade surplus into a large trade deficit. The high energy prices paid in international markets have played an important role in the weakening of the currency. Because the energy element is so important in the slide of the euro, the euro has weakened most significantly against the dollar. Against other important trade partners, the eurozone has seen its currency weaken less. While the euro has lost 16.2% vis-à-vis the US dollar since 1 January 2021, the trade-weighted exchange rate has only depreciated by 6.9%. The euro's slide has resulted in a lot of imported inflation because we pay for global commodities in dollars. At the same time, gains in competitiveness have been modest. This is far from the best of both worlds. The euro weakening is closely linked to higher energy prices Source: Macrobond, ING Research Competitiveness is improving, but businesses aren't noticing it The competitiveness improvement does require a deeper look, though, as relative inflation between trade partners plays a role. Taking this into account, the real effective exchange rate (REER) for a country is considered to be a key indicator measuring competitiveness. This is an exchange rate which is weighted by local cost developments. In this case, we use unit labour costs. As chart 3 shows, the REER for the eurozone has been sliding, which boosts the competitive position of eurozone companies. This means that despite a limited drop in the nominal effective exchange rate, businesses do seem to be profiting from relatively better price competitiveness. So while the main impact of the weakening euro is definitely negative through higher imported inflation, there is at least some improvement in export competitiveness to be seen, which could cushion the recessionary effects in the domestic market. Competitiveness is improving, but businesses aren't noticing it Source: European Commission, Eurostat, ING Research   The problem is that businesses are far from feeling this though. The Economic Sentiment Indicator has a subindex which reveals how businesses perceive their competitiveness to have changed in their home markets and abroad. This indicates that competitiveness has dropped significantly within the EU and outside. While exports have recovered to the pre-pandemic trend in recent quarters, it looks like the weaker euro has not given an extra push. The question is whether this relates to price competitiveness or whether weakening global demand is causing this. Regardless, it does not look like businesses are profiting from the improved REER at this point, highlighting the fact that the eurozone is currently mainly feeling the burden from the weak euro and is reaping little benefit from it. How has relative competitiveness within the eurozone evolved since the pandemic started? Reflecting on the euro crisis, we noticed a severe deterioration in competitiveness among the ‘periphery’ countries ahead of the crisis. The big question was if the weaker economies could make structural adjustments to become more attractive exporters again and with that, run surpluses. Painful wage adjustments were modestly successful in regaining competitiveness at that point. While competitiveness is not the primary economic problem right now, it is interesting to see if any divergence in competitiveness is emerging again. When looking at the developments in the real effective exchange rate based on unit labour costs against other eurozone economies in recent years, we see interesting differences in performance. Germany, the Netherlands and Belgium have seen their competitiveness deteriorate, while Italy, France and Greece have seen strong improvements. Spanish competitiveness has been stable over recent years, while Portugal has experienced a sizable deterioration. The export powerhouses of the past decade have seen their competitive position slip a little compared to other eurozone countries. This is mainly due to stronger wage growth while productivity growth did not improve in tandem. Overall, this development is a small step towards making the monetary union more coherent and reducing the risk of a new euro crisis triggered by differences in competitiveness. Internal eurozone competitiveness gains are made by France and Italy Source: European Commission, ING Research   A shift in relative competitiveness had already started prior to the pandemic. However, some of the large moves at the start of the pandemic were likely related to how furlough schemes are included in the statistics and so are not necessarily an accurate reflection of underlying competitiveness developments. This seems to be the case for the Netherlands and Greece for example, but in the Dutch case, we still notice a break from the pre-pandemic trend as cost competitiveness ended up at a weaker level in the second quarter. Since energy prices have become a dominant factor and labour cost competitiveness is muddied by government support, a look at a different measure of cost competitiveness is useful. Taking the GDP deflator, a broad price index across the economy, we see that a roughly similar picture emerges. Also here, the Netherlands and Germany have seen cost competitiveness deteriorate compared to other eurozone economies, while Italy and France have seen improvements. Compared to a broader basket of trade partners, the weaker euro dominates but still, we see that Germany and the Netherlands have experienced smaller gains compared to France and Italy. Competitiveness gains have been modest and smallest in the north The euro's depreciation has helped to improve the traditional cost competitiveness of eurozone businesses but in contrast to previous episodes of euro weakness, exports are hardly benefiting. As energy prices are probably a much larger cost concern for eurozone businesses, traditional cost competitiveness indicators have to be taken with a pinch of salt. Still, looking at competitiveness shifts within the eurozone, remarkably, structurally weaker eurozone economies have become relatively more competitive since the start of the pandemic, reducing the risk of a new euro crisis being triggered by stark differences in competitiveness. Read this article on THINK TagsGDP Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Euro To US Dollar Instrument Did Not Change In Value

The Peak Of Inflation May Be Yet To Come? ECB Takes Steps

Conotoxia Comments Conotoxia Comments 19.08.2022 12:38
Inflation in the Eurozone appears to be rising steadily, which may be influenced by the rising cost of electricity and energy carriers. Today's release of producer prices in Germany suggests that the peak of inflation in the Eurozone may be yet to come. Germany is the eurozone's largest economy, so published readings for that economy could heavily influence data for the community as a whole. Energy for businesses rose by 105 percent. Today we learned that in July producer prices (PPI inflation) rose in Germany at the fastest pace on record. PPI inflation on an annualized basis was as high as 37.2 percent. A month earlier, price growth stood at 32.7 percent, while the market consensus was for inflation of 32 percent. Energy prices still seem to remain the main driver of producer costs. The cost of the aforementioned energy for businesses rose 105 percent compared to July 2021. Had it not been for this factor, producer prices could have risen much more slowly, by only 14.6 percent. - according to the published data. Entrepreneurs could translate such a significant increase in costs into their products, which could also raise consumer CPI inflation as a result. Hence, it is not impossible that a possible peak in inflation in the eurozone is yet to come. It could fall in the last quarter of this year, or early next year, assuming that energy prices begin to stabilize or fall. Otherwise, the eurozone economy could plunge into a deep crisis. EUR/USD near parity again The rate of the EUR/USD pair fell today to 1.0084 (yesterday it was around 1.0200) and again approached parity at 1.0000. Concerns about the eurozone economy may be reflected in the exchange rate. However, it seems that the reaction to negative data is becoming less and less, as if the market has to some extent already discounted some of the bad news that may come in the near future. The European Central Bank's forthcoming actions may put the brakes on the euro's sell-off. According to the interest rate market, the ECB may opt for two rate hikes of 50 basis points each this fall. The market assumes that the ECB will raise the main interest rate to 1.5 percent throughout the cycle. Unlike the Fed, which may reduce the pace of hikes at the end of the year, the ECB may only move with a rapid increase in interest rates. Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Source: PPI inflation in Germany highest on record. Euro under pressure
The Bank Of England (BoE) Chasing The Inflation. Forex: GBPUSD, CNHJPY, EURUSD And Others

The Bank Of England (BoE) Chasing The Inflation. Forex: GBPUSD, CNHJPY, EURUSD And Others

John Hardy John Hardy 19.08.2022 13:41
Summary:  The USD is breaking higher still, with important levels falling versus the Euro and yen yesterday. But the pain in sterling is most intense as presaged by the lack of a response to surging UK rates. Can the Bank of England do anything but continue to chase inflation from behind, caught between the Scylla of inflation and the Charybdis of a vicious recession? Also, USDCNH lurks at the top of the range ahead of another PBOC rate announcement on Monday. FX Trading focus: USD wrecking ball swinging again. UK faced with classic ugly choice between taking the pain via inflation or a severe recession The US dollar strength has picked up further after yesterday saw the breakdown in EURUSD below 1.0100 and a shot through 135.50 in USDJPY as longer US yields pushed to local highs. GBPUSD has been a bigger move on sterling weakness as discussed below.  A bit of resilient US data (especially the lower jobless claims than expected and a sharp revision lower of the prior week’s data taking the momentum out of the rising trend) has helped support the USD higher as longer US yields rose a bit further, taking the 10-year US treasury yield benchmark to new local highs, although we really need to see 3.00% achieved there after a few recent teases higher with no follow through higher. Looking forward to next week, the market will have to mull whether it has been too aggressive in pricing the Fed to pivot policy next year on disinflation and an easy-landing for the economy. The steady drumbeat of Fed pushback against the market’s complacency, together with a few of the recent data points (ISM Services, nonfarm payrolls, yesterday’s claims, etc.) has seen some of the conviction easing. But the key test will come next Friday, when Fed Chair Powell is set to speak on the same day we get the July PCE inflation data. Keep USDCNH on the radar through the end of today on the risk of an upside break above the range and Monday as the PBOC is set for a rate announcement (consensus expectations or another 10 bps of easing).   Chart: GBPUSD Lots at stake for sterling as discussed below, as it is a bit scary to see a currency weaken sharply despite a massive ratcheting higher in rate expectations from the central bank. The fall of 1.2000 has set in motion a focus on the 1.1760 cycle low, with an aggravated USD rise here and tightening of global financial conditions possibly quickly bringing the spike low toward 1.1500 from the early 2020 pandemic outbreak panic into focus. It is worth noting that the lowest monthly closing level for GBPUSD since the mid-1980’s is 1.2156. Without something dramatic to push back against USD strength next week from Jackson Hole, it is hard to see how this month may set the new low water mark for monthly closes. Source: Saxo Group GBPUSD slipped below 1.1900 this morning after breaking below the psychologically important 1.2000 level yesterday. As noted in the prior update, it’s remarkable to see the marked weakness in sterling despite the marking taking UK short rates sharply higher – with 2-year UK swaps over 100 basis points higher from the lows early this month. The Bank of England has expressed a determination to get ahead of the inflation spike and the market has priced in a bit more than a 50-basis-points-per-meeting pace for the three remaining BoE meetings of 2022. But is that sufficient given the UK’s structural short-comings and external deficits? Currency weakness risks adding further to spike in inflation this year. The BoE can take a couple of approaches in response: continue with the 50 bps hikes while bemoaning the backdrop and trotting out the expectation that eventually, economic weakness and easing commodity prices will feed through to drop inflation back into the range. Or, the BoE can actually get serious and super-size hikes even beyond the acceleration the market has priced, at the risk of bringing forward and increasing the severity of the coming recession. Until this week, the BoE’s anticipated tightening trajectory had prevented an aggravated weakness in sterling in broader terms, but the currency’s weakness despite a massive mark-up of BoE expectations has ratcheted the pressure on sterling and the BoE’s response to an entirely new level. Turkey shocked with a fresh rate cut yesterday of 100 basis points to take the policy rate to 13.00%. This with year-on-year inflation in Turkey at 79.6% and PPI at 144.6%, and housing measured at 160.6%. The move took USDTRY above 18.00, though it was a modest move relative to the size of the surprise. Turkish central bank chief Kavcioglu said that the bank would also look to “further strengthen macroprudential policy” by addressing the yawning difference between the policy rate and the rate commercial banks are charging for loans (more than double the official policy rate), as the push is to continue a credit-stimulated approach, inflation-be-darned.   Table: FX Board of G10 and CNH trend evolution and strength Note: a new color scheme for the FX Board! Besides changing the green for positive readings to a more pleasant blue, I have altered the settings such that trend readings don’t receive a more intense red or blue coloring until they have reached more significant levels – starting at an absolute value of 4 or higher. So far, most of the drama in sterling is the lack of a response to shifts in the UK yield curve, the broad negative momentum has only shifted a bit here, but watching for the risk of more. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs AUDNZD is crossing back higher, AUDCAD back lower, so NZDCAD….yep. Note the CNHJPY – if CNH is to make more waves, need to see more CNH weakness in an isolated sense, not just v. a strong USD. And speaking of a strong USD, the last holdouts in reversing, USDNOK and USDCHF, are on the cusp of a reversal. Source: Bloomberg and Saxo Group Upcoming Economic Calendar Highlights (all times GMT) 1230 – Canada Jun. Retail Sales 1300 – US Fed’s Barkin (Non-voter) to speak   Source: FX Update: USD surging again, GBP spinning into abyss
The British Pound Is Showing Signs Of Exhaustion Of The Bullish Force

Euro Fundamentals Unchanged (EUR/USD), Pound Sterling In Trouble In The Wake Of Disappointing Economic Data (EUR/GBP, GBP/USD)

Rebecca Duthie Rebecca Duthie 19.08.2022 16:48
Summary: Euro fundamentals appear to be unchanged. Positive US economic data. Poor U.K economic data. Markets Focused of Fed officials - EUR/USD The market is reflecting bearish signals for this currency pair. Markets focused on a variety of Fed officials as they remain unanimous in the direction of future rate hikes but divided on the terminal rate because the fundamentals of the euro appear to be unaltered for the time being. Isabel Schnabel, a member of the ECB's board, was also questioned by Reuters yesterday. In the interview, she expressed concern over the continued threats to the forecast for long-term inflation and the euro's depreciation. The ECB typically doesn't comment on currency exchange rates, but there are times when a broad trend of appreciation or depreciation can influence monetary policy goals. EUR/USD Price Chart Poor economic news putting pressure on GBP - EUR/GBP The market is reflecting bullish signals for this currency pair. After a run of dismal economic news, the British pound is in trouble: growth is lower, the labor market is slowing down, and inflation is still raging. Rates of GBP/USD have reversed their recent upward trend, while rates of GBP/JPY are sliding below multi-month trendline support and rates of EUR/GBP are rising from multi-month trendline support. Retail trader stance has recently changed, indicating a bullish bias for the EUR/GBP and GBP/JPY rates and a bearish bias for the GBP/USD rates. EUR/GBP Price Chart Positive economic data supporting USD - GBP/USD The market is reflecting bearish signals for this currency pair. Prior to the weekend, the Pound to Dollar exchange rate retreated under the 1.20 handle and was close to its yearly lows after positive U.S. economic data and hawkish remarks from Federal Reserve (Fed) officials were followed by a Dollar rally that sent Sterling and a number of other currencies into freefall. While the U.S. dollar got the better of the Pound late on Thursday and had left it trading as an underperformer by Friday even after July's UK retail sales figures came in stronger than expected by the market, Sterling had better resisted the clutches of a strengthening Dollar throughout much of the week, resulting in a resilient performance against other currencies. EUR/USD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
The Euro Is Moving Towards The Target Level

Everyone Is Dissapointed In Euro (EUR). Japanese Officials Have To Face Discontests From Yields Rise

Marc Chandler Marc Chandler 21.08.2022 23:14
For many, this will be the last week of the summer. However, in an unusual twist of the calendar, the US August employment report will be released on September 2, the end of the following week, rather than after the US Labor Day holiday (September 5).   The main economic report of the week ahead will be the preliminary estimate of the August PMI  The policy implications are not as obvious as they may seem. For example, in July, the eurozone composite PMI slipped below the 50 boom/bust level for the first time since February 2021. It was the third consecutive decline. Bloomberg's monthly survey of economists picked up a cut in Q3 GDP forecasts to 0.1% from 0.2% and a contraction of 0.2% in Q4 (previously 0.2% growth). Over the past week, the swaps market has moved from around 80% sure of a 50 bp hike next month to a nearly 20% chance it will lift the deposit rate by 75 bp.  The UK's composite PMI fell in three of the four months through July  However, at 52.1, it remains above the boom/bust level, though it is the weakest since February 2021. The Bank of England's latest forecasts are more pessimistic than the market. It projects the economy will contract by 1.5% next year and another 0.3% in 2024. It has CPI peaking later this year at around 13% before falling to 5.5% in 2023 and 1.5% in 2024. Market expectations have turned more hawkish for the BOE too. A week ago, the swap market was pricing in a nearly 90% chance of another 50 bp hike. After the CPI jump reported in the middle of last week, the market fully priced in the 50 bp move and a nearly 30% chance of a 75 bp hike.   Japanese officials have successfully turned back market pressure that had driven the benchmark three-month implied volatility to 14% in mid-June, more than twice as high as it was at the start of the year  It slipped below 10% in recent days. The BOJ was forced to vigorously defend its 0.25% cap on the 10-year bond. It has spent the better part of the past three weeks below 0.20%. The BOJ has not had to spend a single yen on its defense since the end of June. However, with the jump in global yields (US 10-year yield rose 20 bp last week, the German Bund 33 bp, and the 10-year UK Gilt nearly 40 bp) and the weakness of the yen, the BOJ is likely to be challenged again.   The economy remains challenging  The composite PMI fell to 50.2 in July from 53.2 in June. It is the weakest reading since February. It has averaged 50.4 through July this year. The average for the first seven months last year was 49.0. The government is working on some support measures aimed at extending the efforts to cushion the blow of higher energy and food prices. Japan's Q2 GDP deflator was minus 0.4%, which was half of the median forecast in Bloomberg's survey, but it shows the tough bind of policy. Consider that the July CPI rose to 2.6%, and the core measure, which the BOJ targets, excludes fresh food, rose to 2.4% from 2.2%. The target is 2%, and it was the third month above it. Tokyo will report its August CPI figures at the end of the week.   Australia's flash PMI may be more influential as the futures market is nearly evenly split between a 25 bp hike and a 50 bp move at the September 6 central bank meeting  The minutes from the RBA's meeting earlier this month underscored its data dependency. However, this is about the pace of the move. The target rate is currently at 1.85%, and the futures market is near 3.15% for the end of the year, well beyond the 2.5% that the central bank sees as neutral. The weakness of China's economy may dent the positive terms-of-trade shock. The Melbourne Institute measure of consumer inflation expectations fell in August for the second month but at 5.9%, is still too high.  Through the statistical quirkiness of GDP-math, the US economy contracted in the first two quarters of the year  A larger trade deficit did not help, but the real problem was inventories. In fairness, more of the nominal growth resulted from higher prices than economists expected rather than underlying activity. Still, it does appear that the US economy is expanding this quarter, and the high-frequency data will help investors and economists assess the magnitude. While surveys are helpful, the upcoming real sector data include durable goods orders (and shipments, which feed into GDP models), July personal income and consumption figures, the July goods trade balance, and wholesale and retail inventories.   Consumption still drives more than 2/3 of the economy, and like retail sales, personal consumption expenditures are reported in nominal terms, which means that they are inflated by rising prices  However, the PCE deflator is expected to slow dramatically. After jumping 1% in June, the headline deflator is expected to increase by 0.1%. This will allow the year-over-year rate to slow slightly (~6.5% from 6.8%). The core deflator is forecast (median, Bloomberg's survey) to rise by 0.4%, which given the base effect, could see the smallest of declines in the year-over-year rate that stood at 4.8% in June. Given the Fed's revealed preferences when it cited the CPI rise in the decision in June to hike by 75 bp instead of 50 bp, the CPI has stolen the PCE deflator's thunder, even though the Fed targets the PCE deflator. Real consumption was flat in Q2, and Q3 is likely to have begun on firmer footing.   The softer than expected CPI, PPI, and import/export prices spurred the market into downgrading the chances of a 75 bp hike by the Fed next month  After the stronger than expected jobs growth, the Fed funds futures priced in a little better than a 75% chance of a 75 bp hike. It has been mostly hovering in the 40%-45% range most of last week but finished near 55%. It is becoming a habit for the market to read the Fed dovishly even though it is engaged in a more aggressive course than the markets anticipated. This market bias warns of the risk of a market reversal after Powell speaks on August 26.   At the end of last year, the Fed funds futures anticipated a target rate of about 0.80% at the end of this year. Now it says 3.50%. The pace of quantitative tightening is more than expected and will double starting next month. There is also the tightening provided by the dollar's appreciation. For example, at the end of 2021, the median forecast in Bloomberg's survey saw the euro finishing this year at $1.15. Now the median sees the euro at $1.04 at the end of December. And even this may prove too high.    The FOMC minutes from last month's meeting recognized two risks. The first was that the Fed would tighten too much. Monetary policy impacts with a lag, which also acknowledges that soft-landing is difficult to achieve. The market initially focused on this risk as is its wont. However, the Fed also recognized the risk of inflation becoming entrenched and characterized this risk as "significant." The Jackson Hole confab (August 25-27) will allow the Fed to help steer investors and businesses between Scylla and Charybdis.  Critics jumped all over Fed Chair Powell's claim that the Fed funds target is now in the area the officials regard as neutral. This was not a forecast by the Chair, but merely a description of the long-term target rate understood as neither stimulating nor restricting the economy. In June, all but three Fed officials saw the long-term rate between 2.25% and 2.50%. To put that in perspective, recall that in December 2019, the median view of the long-term target was 2.50%. Eleven of the 18 Fed officials put their "dot" between 2.25% and 2.50%. The FOMC minutes were clear that a restrictive stance is necessary, and the Fed clearly signaled additional rate hikes are required. The discussions at Jackson Hole may clarify what the neutral rate means.  Barring a significant downside surprise, we expect the Fed will deliver its third consecutive 75 bp increase next month. The strength and breadth of the jobs growth while price pressures remain too high and financial conditions have eased encourages the Fed to move as fast as the market allows. However, before it meets, several important high-frequency data points will be revealed, including a few employment measures, the August nonfarm payroll report, and CPI.   The market is also having second thoughts about a rate cut next year  At the end of July, the implied yield of the December 2023 Fed funds futures was 50 bp below the implied yield of the December 2022 contract. It settled last week at near an 8 bp discount. This reflects a growing belief that the Fed will hike rates in Q1 23. The March 2023 contract's implied yield has risen from less than five basis points more than the December 2022 contract to more than  20 bp above it at the end of last week.   Let's turn to the individual currency pairs, put last week's price action into the larger context, and assess the dollar's technical condition  We correctly anticipated the end of the dollar's pullback that began in mid-July, but the power for the bounce surprises. Key technical levels have been surpassed, warning that the greenback will likely retest the July highs.   Dollar Index: DXY surged by more than 2.3% last week, its biggest weekly advance since March 2020. The momentum indicators are constructive and not over-extended. However, it closed well above the upper Bollinger Band (two standard deviations above the 20-day moving average), found near 107.70. Little stands in the way of a test on the mid-July high set around 109.30. Above there, the 110-111.30 area beckons. While the 107.50 area may offer some support now, a stronger floor may be found closer to 107.00.   Euro:  The euro was turned back from the $1.0365-70 area on August 10-11 and put in a low near $1.0030 ahead of the weekend. The five-day moving average slipped below the 20-day moving average for the first time in around 3.5 weeks. The MACD is trending lower, while the Slow Stochastic did not confirm the recent high, leaving a bearish divergence in its wake. The only caution comes from the euro's push through the lower Bollinger Band (~$1.0070). Initially, parity may hold, but the risk is a retest on the mid-July $0.9950 low. A convincing break could target the $0.96-$0.97 area. As the euro has retreated, the US two-year premium over Germany has trended lower. It has fallen more than 30 bp since peaking on August 5. We find that the rate differential often peaks before the dollar.   Japanese Yen: The dollar will begin the new week with a four-day advance against the yen in tow. It has surpassed the (61.8%) retracement objective of the pullback since the mid-July high (~JPY139.40) found near JPY136.00. The momentum indicators are constructive, and the five-day moving average has crossed above the 20-day for the first time since late July. It tested the lower band of the next resistance bans seen in the JPY137.25-50 area at the end of last week. But it appears poised to re-challenge the highs. As volatility increases and yields rise, Japanese officials return to their first line of defense: verbal intervention.  British Pound: Sterling took out the neckline of a possible double top we have been monitoring that came in at $1.20. It projects toward the two-year lows set in mid-July near $1.1760, dipping below $1.18 ahead of the weekend. As one would expect, the momentum indicators are headed lower, and the five-day moving average has fallen below the 20-day moving average for the first time in four weeks. It has closed below its lower Bollinger Band (~$1.1910) in the last two sessions. A convincing break of the $1.1760 low clears the way to the March 2020 low, about 3.5-cents lower. Initial resistance is now seen around $1.1860 and, if paid, could signal scope for another 3/4 to a full-cent squeeze.  Canadian Dollar:  The Canadian dollar was no match for the greenback, which moved above CAD1.30 ahead of the weekend for the first time in a month. The momentum indicators suggest the US dollar has more scope to advance, and the next target is the CAD1.3035 area. Above there, the CAD1.3100-35 band is next. The high since November 2020 was recorded in the middle of July around CAD1.3225. After whipsawing in Q1, the five- and 20-day moving averages have caught the big moves. The shorter average crossed above the longer moving average last week for the first time since July 21. Initial support will likely be encountered near CAD1.2935.   Australian Dollar:  The Aussie was sold every day last week. It is the first time in a year, and its 3.4% drop is the largest since September 2020.   The rally from the mid-July low (~$0.6680) to the recent high (~$0.7135) looks corrective in nature. Before the weekend, it tested the rally's (61.8%) retracement objective. The momentum indicators are falling, and the Slow Stochastic did not confirm this month's high, creating a bearish divergence. A break of the $0.6850-60 area may signal follow-through selling into the $0.6790-$0.6800 band, but a retest on the July low is looking increasingly likely. Initial resistance is now seen near $0.6920.   Mexican Peso:  The peso's four-day slide ended a six-day run. The peso lost about 1.6% last week, slightly better than the 2.25% slide of the JP Morgan Emerging Market Currency Index. This month, the US dollar peaked around MXN20.8335 and proceeded to fall and forged a base near MXN19.81. It has met the (38.2%) retracement objective around MXN20.20 before the weekend. The next (50%) retracement is near MXN20.3230. The 200-day moving average is closer to MXN20.41. The dollar is probing the 20-day moving average seen a little below MXN20.24. The momentum indicators have only just turned up for the greenback. We suspect there may be potential to around MXN20.50 in the coming days.   Chinese Yuan:  The yuan was tagged with more than a 1% loss against the dollar last week, its biggest decline in three months. A combination of poor Chinese data, its small rate cut, and a resurgent US dollar spurred the exchange rate adjustment. At the end of July, China's 10-year yield was about 11 bp on top of the US. However, it switched to a discount after the US jobs data (August 5), and the discount grew every day last week, reaching 35 bp, the most since late June. After gapping higher before the weekend, the greenback reached nearly CNY6.8190, its highest level since September 2020. The next target is around CNY6.85, but given the divergence of policy, a move back toward CNY7.00, last seen in July 2020, maybe a reasonable medium-term target. The PBOC's dollar fix ahead of the weekend showed no protest of the weaker exchange rate.     Disclaimer   Source: Flash PMI, Jackson Hole, and the Price Action
Japan's Prime Minister Tested Covid Positive. Gazprom Confirmed Gas Shipment Would Be Stopped!

Japan's Prime Minister Tested Covid Positive. Gazprom Confirmed Gas Shipment Would Be Stopped!

Marc Chandler Marc Chandler 22.08.2022 16:28
Overview: The euro traded below parity for the second time this year and sterling extended last week’s 2.5% slide. While the dollar is higher against nearly all the emerging market currencies, it is more mixed against the majors. The European currencies have suffered the most, except the Norwegian krone. The dollar-bloc and yen are also slightly firmer. The week has begun off with a risk-off bias. Nearly all the large Asia Pacific equity markets were sold. Chinese indices were a notable exception following a cut in the loan prime rates. Europe’s Stoxx 600 is off by around 1.20%, the most in a month. US futures are more than 1% lower. The Asia Pacific yield rose partly in catch-up to the pre-weekend advance in US yields, while today, US and European benchmark 10-year yields are slightly lower. The UK Gilt stands out with a small gain. Gold is being sold for the sixth consecutive session and has approached the (61.8%) retracement of the rally from last month’s low (~$1680) that is found near $1730. October WTI is soft below $90, but still inside the previous session’s range. US natgas is up 2.4% to build on the 1.6% gain seen before the weekend. It could set a new closing high for the year. Gazprom’s announcement of another shutdown of its Nord Stream 1 for maintenance sent the European benchmark up over 15% today. It rose almost 20.3% last week. Iron ore rose for the first time in six sessions, while September copper is giving back most of the gains scored over the past two sessions. September wheat rallied almost 3% before the weekend and is off almost 1% now.  Asia Pacific Following the 10 bp reduction in benchmark one-year Medium-Term Lending Facility Rate at the start of last week, most observers expected Chinese banks to follow-up with a cut in the loan prime rates today  They delivered but in a way that was still surprising. The one-year loan prime rate was shaved by five basis points to 3.65%, not even matching the MLF reduction. On the other hand, the five-year loan prime rate was cut 15 bp to 4.30%. This seems to signal the emphasis on the property market, as mortgages are tied to the five-year rate, while short-term corporate loans are linked to the shorter tenor. The five-year rate was last cut in May and also by 15 bp. Still, these are small moves, and given continued pressures on the property sector, further action is likely, even if not immediately. In addition to the challenges from the property market and the ongoing zero-Covid policy, the extreme weather is a new headwind to the economy. The focus is on Sichuan, one of the most populous provinces and a key hub for manufacturing, especially EV batteries and solar panels. It appears that the aluminum smelters (one million tons of capacity) have been completed halted. The drought is exacerbating a local power shortage. Rainfall along the Yangtze River is nearly half of what is normally expected. Hydropower accounts for a little more than 80% of Sichuan power generation and the output has been halved. Officials have extended the power cuts that were to have ended on August 20 to August 25. Factories in Jiangsu and Chongqing are also facing outages. According to reports, Shanghai's Bund District turned off its light along the waterfront. Japan's Prime Minister Kishida tested positive for Covid over the weekend  He will stay in quarantine until the end of the month. In addition to his physical health, Kishida's political health may become an issue. Support for his government has plunged around 16 percentage points from a month ago to slightly more than 35% according to a Mainchi newspaper poll conducted over the weekend. The drag appears not to be coming from the economy but from the LDP's ties with the Unification Church. Meanwhile, Covid cases remain near record-highs in Japan, with almost 24.8k case found in Tokyo alone yesterday. Others are also wrestling with a surge in Covid cases. Hong Kong's infections reached a new five-month high, for example. The dollar reached nearly JPY137.45 in Tokyo before pulling back to JPY136.70 in early European turnover  It is the fifth session of higher highs and lows for the greenback. The upper Bollinger Band (two standard deviations above the 20-day moving average) is near JPY137.55 today. We suspect the dollar can re-challenge the session high in North America today. The Australian dollar is proving resilient today after plunging 3.45% last week. It is inside the pre-weekend range (~$0.6860-$0.6920). Still, we like it lower. Initial support is now seen around $0.6880, and a break could spur another test on the lows. That pre-weekend low coincides with the (61.8%) retracement of the rally from last month's low (~$0.6680) to the high on August 11 (~$0.7135). The Chinese yuan slumped to new lows for the year today. For the second consecutive session, the dollar gapped higher and pushed through CNY6.84. The PBOC set the dollar's reference rate at CNY6.8198. While this was lower than the CNY6.8213, it is not seen as much as a protest as an at attempt to keep the adjustment orderly. Europe Gazprom gave notice at the end of last week that gas shipments through the Nord Stream 1 pipeline would be stopped for three days (August 31-September 2) for maintenance  The European benchmark rose nearly 20.3% last week and 27% this month. It rose 35.2% last month and 65.5% in June. The year-to-date surge has been almost 380%. The energy shock seems sure to drive Europe into a recession. The flash August PMI out tomorrow is expected to see the composite falling further below the 50 boom/bust level. Bundesbank President Nagel, who will be attending the Jackson Hole symposium at the end of this week recognized the risk of recession but still argued for the ECB rate increases to anchor inflation expectations. The record from last month's ECB meeting will be published on Thursday. There are two keys here. First, is the color than can be gleaned from the threshold for using the new Transmission Protection Instrument. Second, the ECB lifted its forward guidance, which we argue is itself a type of forward guidance. Is there any insight into how it is leaning? The swaps market prices in another 50 bp hike, but a slight chance of a 75 bp move. The German 10-year breakeven (difference between the yield of the inflation linked bond and the conventional security) has been rising since last July and approached 2.50% last week  It has peaked in early May near 3% before dropping to almost 2% by the end of June. It is notable that Italy's 10-year breakeven, which has begun rising again since the third week of July, is almost 25 bp less than Germany. Several European countries, including Germany and Italy, have offered subsidies or VAT tax cut on gasoline that have offset some of the inflation pressures. Nagel, like Fed Chair Powell, BOE Governor Bailey, and BOJ Governor Kuroda place much emphasis on lowering wages to bring inflation down. Yet wages are rising less than inflation, and the cost-of-living squeeze is serious. They take for granted that business are simply passing on rising input costs, including labor costs, but if that were true, corporate earnings would not be rising, which they have. Costs are being passed through. Later this week, the UK regulator will announce the new gas cap for three months starting in October  Some reports warn of as much as an 80% increase. It is behind the Bank of England's warning that CPI could hit 13% then. The UK's wholesale benchmark has soared 47.5% this month after an 83.7% surge last month. Gas prices in the UK have nearly tripled this year. The UK's 10-year breakeven rose by 38 bp last week to 4.29%, a new three-month high. Although the UK economy shrank slightly in Q2 (0.1%), the BOE warned earlier this month that a five-quarter recession will likely begin in the fourth quarter. Unlike the eurozone, the UK's composite PMI has held above the 50 boom/bust level. Still, it is expected to have slowed for the fourth month in the past five when the August preliminary figures are presented tomorrow. The euro and sterling extended their pre-weekend declines  The euro slipped below parity to $0.9990. The multiyear low set last month was near $0.9950. The break of parity came in the early European turnover. Only a recovery of the $1.0050-60 area helps stabilizes the tone. Speculators in the futures market extended their next short euro position in the week through August 16 to a new two-year extreme and this was before the euro's breakdown in the second half of last week. The eurozone's preliminary August composite PMI due tomorrow is expected to show the contraction in output deepened while the market is expecting the Fed's Powell to reinforce a hawkish message on US rates. After falling to almost $1.1790 before the weekend, sterling made a marginal new low today, closer to $1.1780. The two-year low set last month was near $1.1760. The $1.1850-60 area offers an initial cap. Strike activity that hobbled the trains and underground spread to the UK's largest container port, Felixstowe, which handles about half of the country's containers. An eight-day strike began yesterday. Industrial activity is poised to spread, and this is prompting Truss and Sunak who are locked in a leadership challenge, to toughen their rhetoric against labor. America This is a busy week for the US  First, there is supply. Today features $96 bln in bills. Tomorrow sees a $60 bln three-week cash management bill and $44 bln 2-year notes. On Wednesday, the government sell another $22 bln of an existing two-year floating rate note, and $45 bln five-year note. Thursdays sale includes four- and eight-week bills and $37 bln seven-year notes. There are no long maturities being sold until mid-September. The economic data highlights include the preliminary PMI, where the estimate for services is forecast (median in Bloomberg's survey) to recover from the drop below the 50 boom/bust level. In the middle of the week, the preliminary estimate of July durable goods is expected. Shipments, which feed into GDP models is expected to rise by 0.3%. The revision of Q2 GDP the following day tends not to be a `big market movers. Friday is the big day. July merchandise trade and personal income and consumption measures are featured. Like we saw with the CPI, the headline PCE deflator is likely to ease while the core measure proves a bit stickier. Shortly after they are released, Powell addresses the Jackson Hole gathering.  Canada has a light economic diary this week, but Mexico's a bit busier  The highlight for Mexico will be the biweekly CPI on Wednesday. Price pressures are likely to have increased and this will encourage views that Banxico will likely hike by another 75 bp when it meets late next month (September 29). The July trade balance is due at the end of the week. It has been deteriorating sharply since February and likely continued.    The US dollar rose more than 1% against the Canadian dollar over the past three sessions. It edged a little higher today but stopped shy of the CAD1.3035 retracement objective. Initial support is seen near CAD1.2975-80. With sharp opening losses expected for US equities, it may discourage buying of the Canadian dollar in the early North American activity. The greenback is rising against the Mexican peso for the fifth consecutive session. However, it has not taken out the pre-weekend high near MXN20.2670. Still, the next important upside technical target is closer to MXN20.3230, which corresponds to the middle of this month's range. Support is now seen near MXN20.12.    Disclaimer   Source: No Relief for the Euro or Sterling
Euro (EUR) And British Pound (GBP) Losing The Race Against U.S. Dollar (USD)! 1 Year Statistics

Euro (EUR) And British Pound (GBP) Losing The Race Against U.S. Dollar (USD)! 1 Year Statistics

Conotoxia Comments Conotoxia Comments 22.08.2022 16:44
The recent behavior of the euro and the British pound and their potential weakness against the rest of the world's major currencies is beginning to bring concerns about a sustained deterioration in the prospects for these currencies. As Bloomberg commentators note, the behavior of the pound and the euro are worrisome. We have recently seen large shifts in the euro and pound's short-term market interest rates against the U.S. dollar, with a simultaneous weakening of the GBP/USD and EUR/USD exchange rates. Last week was the worst week for the pound in nearly two years, and at the same time, the yield on the UK's 2-year bond rose by 50 basis points. Typically, the opposite happens in developed markets. Expectations of a central bank rate hike and thus an increase in short-term market yields generally strengthen the currency. The collapse in the correlation between the exchange rate and interest rates is usually associated with emerging markets, which may have lost the battle for the credibility of keeping inflation within the inflation target. The energy dependence of the UK and Europe as a whole means that their balance sheets could deteriorate in the near future, while energy commodity inflation shows no signs of abating. Rate hikes in such a situation may not stem the tide of depreciation of the aforementioned currencies, Bloomberg reports. Thus, it seems that the winter months for the EUR and GBP may be a kind of test of the credibility of the economies in the eyes of investors. Their abandonment of investments in the EUR and GBP despite rising interest rates could be potentially worrying. Moreover, it could change the entire scene of the foreign exchange market. In the dollar index, the euro has a weighting of more than 57 percent, while the pound has a weighting of more than 11 percent. Together, these two currencies alone have a weighting of almost 70 percent. Since the beginning of the year, the euro against the U.S. dollar has lost almost 12 percent, and the British pound almost 13 percent. In contrast, since August 2021, the euro has lost almost 15 percent to the dollar, and the British pound less than 14 percent. Of the major currencies, only the Japanese yen has fared worse and has weakened by almost 20 percent against the U.S. dollar over the year. Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.   Source: Pound and euro similar to currencies of emerging markets?
The Us Dollar's (USD) Decline Will Not Be More Prolonged

EUR/USD Falls Below Parity, Investor Expectations For BoE Spiked (EUR/GBP), GBP/USD At Risk Of Further Losses

Rebecca Duthie Rebecca Duthie 22.08.2022 17:27
Summary: EUR/USD could be moving toward a potential further fall. EUR/GBP. GBP/USD may see further losses this week. EUR/USD falls below parity The market is reflecting bearish signals for this currency pair. Testing below the parity handle, the EUR/USD is moving toward a potential further fall. Sellers have pushed hard to allow for another move-below since this level came back into play just after the Euro start this morning. Whether it can go on is the key question. Euro bears have returned for another battle at the parity handle of EUR/USD, drawing like moths to a flame. It took almost six months for this price to finally give way when it was last in action, in the second half of 2002. This is a significant psychological level. This really illustrates the influence of psychological factors as well as the significance of emotion in the market. Inflation is rampant in the Eurozone, and the ongoing conflict in Ukraine makes problems of economic policy, notably in the area of energy, more complicated. The question is whether we're approaching an abnormal market climate. EUR/USD Price Chart Pound sterling loses against the Euro The market is reflecting bullish signals for this currency pair. Late last week, despite official data that suggested retail spending held steady in the face of high inflation in the UK and another spike in investor expectations for Bank of England (BoE) interest rates, the pound lost ground against the euro. Friday's losses occurred as a result of the Dollar gaining and investors' declining risk appetite putting significant pressure on Sterling and other currencies. This prevented the Pound from benefiting from a sharp increase in UK government bond yields that was happening in the background. EUR/GBP Price Chart GBP/USD could fall further this week The market is reflecting mixed signals for this currency pair. A busy U.S. economic calendar or comments from Federal Reserve (Fed) officials might cause U.S. bond yields and the Dollar to rise even further on a burgeoning comeback, further damaging the Pound to Dollar exchange rate, which collapsed last week. Better than anticipated UK economic data and a sharp rise in market expectations for interest rates at the Bank of England (BoE) last week did not help the pound sterling, and it frequently appeared to be the most vulnerable among major currencies to rising U.S. bond yields and a rally in the dollar. GBP/USD Price Chart Sources: finance.yahoo.com, poundsterlinglive.com, dailyfx.com
Ukraine's Successes Have Infuriated Putin Allies| Intel Acquired Mobileye And More

Why Is Euro Falling? Heroic Ukrainian War, Strong Dollar And More

InstaForex Analysis InstaForex Analysis 23.08.2022 19:33
Relevance up to 13:00 2022-08-24 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. The euro and the pound reacted with a decline to the news that economic activity continues to weaken worldwide, and Europe was no exception. It has increased fears that rising prices and the war in Ukraine will lead the world into recession. Accordingly, nothing is surprising in that the euro has fallen below parity against the US dollar as the demand for safe-haven assets has increased again. As today's data showed, the volume of production in the eurozone, which includes 19 countries, decreased for the second month. In August, record inflation for energy and food severely undermined demand, pushing more and more sectors down. The problem also lies in the high activity in the service sector, such as tourism, which has almost stopped. Only in the UK did the purchasing managers' index manage to stay above 50 points, which indicates an increase in activity. But this is what concerns the service sector. Manufacturing activity showed an unexpectedly large drop. In Asia, Japan's output also declined due to a surge in COVID-19 cases, further reducing demand, which is already struggling with the weight of rising inflation. Australia's services sector contracted for the first time in seven months, somewhat offsetting tourism growth. All these data paint a bleak picture for the global economy, as most central banks remain focused on curbing inflation by raising borrowing costs. A little later today, several US PMI data will be released, showing improvements in manufacturing and services. But the published figures of the eurozone indicate a contraction of the economy in the third quarter of this year because the decline in production is currently observed in several sectors, from manufacturers of basic materials and cars to companies engaged in tourism and real estate. Even more painful for investors was the news that Germany began to sink, which showed the sharpest decline since June 2020. All the efforts of the authorities to reduce dependence on Russian natural gas against the background of a reduction in supplies after Ukraine start winning the war. In France, things are also no better – activity there has decreased for the first time in a year and a half. Europe's largest economies cannot withstand record inflation and growing uncertainty. The indicator of the French private sector activity in August reached the lowest level since the failures and amounted to 51 points, while production activity decreased to 49 points. New orders declined both in the service sector and manufacturing, while companies quickly lost confidence in their future. In Germany, the index of business activity in the manufacturing sector turned out to be slightly better than economists' forecasts, but this did not help much, as it amounted to 49.8 points – this indicates a decline in the sphere. The index of business activity in the services sector completely collapsed to 48.2 points. The European economy is experiencing a deepening decline in private sector business activity, riddled with further uncertainty. Against this background, the euro continues to fall. Bulls need to correct the situation very quickly and return to 0.9940 since the problems will only increase without this level. Going beyond 0.9940 will give confidence to buyers of risky assets, opening a direct road to 1.0000 and 1.0130. If there is a further decline in the euro, buyers will certainly show something around 0.9860, but this will not help them much since updating the next annual minimum will only strengthen the bear market. Having missed 0.9860, you can say goodbye to hopes for a correction, which will open a direct road to 0.9820. Nothing good happens for the pound. Buyers need to do everything to stay above 1.1730 – the nearest support level. Without doing this, you can say goodbye to the hopes of recovery. Moreover, in this case, we can expect a new major movement of the trading instrument to the levels: 1.1690 and 1.1640. A breakdown of these ranges will open a direct road to 1.1580. It will be possible to talk about stopping the bearish scenario only after the breakdown and consolidation above 1.1780, allowing the bulls to count on a recovery to 1.1820 and 1.1870. Source: Forex Analysis & Reviews: The answer to the question of why the euro is falling so much
Forex: So Could US Dollar (USD) And EUR/USD Become More Resistant To Data?

EUR/USD Expected To Remain Below PArity, UK Economy Grew In August (EUR/GBP, GBP/USD)

Rebecca Duthie Rebecca Duthie 23.08.2022 18:50
Summary: ECB may turn more hawkish. The US economic downturn may have increased in August. EUR/USD still below parity The market is reflecting mixed sentiment for this currency pair. Will the European Central Bank (ECB) adopt a more hawkish stance this week given the pressure the Euro is still under and its recent breach of parity with the dollar? For the meeting on September 8th, the market anticipates a 54 bp rate increase. If the ECB wants to support the EUR/USD, may it start talking about the possibility of more drastic rate increases? Joachim Nagel, the head of the Bundesbank said, “Given high inflation, further interest-rate hikes must follow,the past few months have shown that we have to decide on monetary policy from meeting to meeting.” Investment firm Nomura's strategists have increased their confidence in a wager that the Euro to Dollar exchange rate (EUR/USD) is likely to experience a few "large figure" movements below parity. EUR/USD Price Chart EUR/GBP currency pair The market is reflecting bearish signals for this currency pair. In August, the UK economy grew, according to a closely-followed assessment of activity. Although consumers and businesses were struggling with rising inflation levels, the monthly S&P Global PMI series did reveal a slowdown in activity continued. Looking ahead, the trend is consistent with negative growth. The Euro is under pressure from the Eruozone energy crisis as market participants are expecting further interest rate hikes from the ECB. EUR/GBP Price Chart EUR/USD The release of data on Tuesday that suggested that the U.S. economy's downturn may have increased in August caused the Dollar to revert in value relative to the Euro and the British Pound. The service PMI score for the U.S. economy was 44.1, much below the 49.2 markets had projected and the 47.3 from July, according to S&P Global's PMI survey. According to S&P Global, the output decline was the sharpest since May 2020 and was the fastest since the first pandemic outbreak since the series' start almost 13 years ago. The numbers indicate that despite elevated inflation and rising interest rates at the Federal Reserve, the U.S. economy is slowing down. Another indication of a slowdown may dampen investor expectations for the amount of interest rate increases the Fed is prepared to make in the upcoming months, at least from the standpoint of the currency market. Cooling rate hike expectations can cause bond rates to fall, which is negative for the U.S. dollar. EUR/USD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
The French Housing Market Is More Resilient | The Chance Of Republicans Winning The Senate Is Up

France: In August Business Climate Indicator Hit 103

ING Economics ING Economics 25.08.2022 14:44
France's business climate stabilised in August at 103, painting a more favourable picture than the PMI indices. However, the sub-indices do not give cause for optimism and there is little doubt that the autumn and winter will be more difficult. Shoppers at the Galeries Lafayette department store on the Champs-Elysees in Paris   The business climate indicator, published by INSEE, stabilised in August at 103, above the long-term average (100). The decline in industry (from 106 to 104) was offset by an improvement in retail trade (from 96 to 99). In the services sector, the indicator remained almost stable at 106. The economic situation depicted by the business climate indicators seems more favourable than the PMI indices for August published on Tuesday suggested. Both the composite PMI and the PMI for the manufacturing sector were below the 50 level, which signifies contraction. Although business sentiment is generally above its long-term average in most sectors, some components of the index are more worrying. In particular, in industry, the stock of finished goods is rising sharply and is back above its long-term average for the first time since July 2020. At the same time, both global and foreign order books are deteriorating. After months of supply difficulties, stocks are now high and will need to be cleared in the coming months, which, combined with a slowdown in global demand, is likely to have a negative impact on production. The fall in production could therefore be faster than the fall in demand, thus accentuating the contraction in activity. We see a similar pattern in the retail sector, where the assessment of expected sales is deteriorating sharply while inventories are rising. Moreover, while industrial managers remain relatively positive about expected production in the coming months, they have revised their production assessment downwards sharply in recent months. This indicates that industrial activity is weaker than expected already this quarter.  There's more optimism in the service sector There's more optimism in the service sector. This is particularly the case in the accommodation and catering sub-sector, thanks to an excellent tourist summer in France. The general and personal outlook of business leaders in the services sector has improved and the economic uncertainty felt has decreased. There is little doubt that the service sector will make a more positive contribution to economic growth in the third quarter than industry, although optimism in the tourism sector could diminish rapidly as the summer fades.  All in all, after a rather good spring, with second quarter GDP up 0.5% Quarter-on-Quarter after the first quarter's drop (-0.2%), and a summer boosted by tourism and good weather, all indicators are now pointing to a much more difficult autumn and winter. The global slowdown in demand, the deterioration in consumer and business confidence, the risks to energy supplies and inflation, which is reaching new heights and undermining purchasing power, are likely to push the European and French economies straight into recession. While French GDP this year could grow by around 2.2% thanks to the second quarter and the carry-over effect, growth will stall in 2023 and will probably be close to 0% for the whole of the year. Read this article on THINK TagsGDP France Eurozone Business climate Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The ECB Has No Other Options But To Keep Tightening The Monetary Policy

Breaking: ECB Has Another Reason To Be Hawkish! Non-financial Corporate Lending Rose!

ING Economics ING Economics 26.08.2022 12:53
Bank lending to non-financial corporates continued to be surprisingly strong at the start of summer despite higher rates and high economic uncertainty. A hawkish sign for the ECB Rising corporate bank lending in the eurozone is a hawkish sign for the ECB ahead of its September meeting   Credit to the private sector continued to grow strongly in July. This is somewhat surprising given higher interest rates, low confidence and banks indicating tighter credit standards and weaker demand for borrowing. Nevertheless, growth for non-financial corporate bank lending accelerated from 6.8% year-on-year to 7.7% YoY in July. This sounds dramatic but is mainly due to a large base effect. Nevertheless, month-on-month bank lending to non-financial corporates was still 0.9% in July, well above recent trend growth. Household credit growth slowed from 4.6 to 4.5%. The trend in household bank lending growth is slowing at the moment, which hints at a more immediate effect of higher interest rates. Money growth continues to slow rapidly as the ECB has stopped quantitative easing (QE) and increased interest rates. Broad money growth (M3) fell from 5.7 to 5.5% YoY in July. The narrower estimate M1, considered to be a better leading indicator of economic activity, dropped from 7.2% YoY to 6.7% YoY growth. The tightening of the monetary stance is adding to concerns about economic growth, as signs are becoming clearer that the economy could have already started a mild recession at this point. September ECB Meeting For the ECB, continued strong growth in corporate bank lending could be taken as a sign that the neutral rate is still a bit away. Sliding consumer borrowing points in the other direction, but overall this is a hawkish sign ahead of the September meeting. We expect the ECB to move by another 50 basis points now before signs of a recessionary economic environment become more widespread. Read this article on THINK TagsGDP Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Euro Remains Below Parity Against The US Dollar (EUR/USD), Risk Of UK Stagflation Continues To Rise (EUR/GBP, GBP/NZD),

Euro Remains Below Parity Against The US Dollar (EUR/USD), Risk Of UK Stagflation Continues To Rise (EUR/GBP, GBP/NZD),

Rebecca Duthie Rebecca Duthie 25.08.2022 21:00
Summary: EUR trading below parity against the USD. UK at risk of energy crisis. Kiwi outperforms on Thursday. EUR/USD trading below parity The market is reflecting mixed signals for this currency pair. Policymakers at the European Central Bank have been relatively silent on the lecture circuit lately, but that may soon change as the summer comes to an end. There was disagreement about the 50-bps rate increase even as inflation pressures in the Eurozone had risen, according to the minutes of the ECB meeting in July. The ECB may ultimately disappoint in the upcoming months as fears turn back to weak growth, even as rates markets are discounting a more aggressive course going forward. Powell might exert pressure on the market to raise expectations for the Fed's September rate hike to 75 basis points because the markets now expect the Fed to deliver approximately 65 basis points of increases. This may provide short-term support for the Dollar and maintain pressure on the Euro into the next month. EUR/USD Price Chart Risk of UK Stagflation rises The market is reflecting bearish signals for this currency pair. The energy crisis in the Eurozone is still putting the Euro under pressure. As the economy slows and inflation pressures increase, the risk of stagflation in the UK is continuing to rise. However, given the developing energy crisis that threatens to drive UK inflation rates further higher into double digit territory over the coming few months, traders feel that the Bank of England is currently focusing on the latter of these two crises. In terms of odds on a BOE raise, markets are currently at their most aggressive levels of the year. EUR/GBP Price Chart GBP/NZD - Kiwi outperforms GBP This week saw the start of the short-lived mid-month recovery in the Pound to New Zealand Dollar exchange rate. If the Kiwi continues to excel and Sterling continues to underperform among the major currencies, the exchange rate is likely to unravel even more in the days to come. After profiting from a general easing of the U.S. Dollar ahead of Friday's visit by Federal Reserve Chairman Jerome Powell at the annual Jackson Hole Symposium for central bankers, the New Zealand Dollar outperformed on Thursday in a booming market for Asia Pacific currencies. GBP/NZD Price Chart Sources: finance.yahoo.com, poundtserlinglive.com, dailyfx.com
The Japanese Yen Has The Worst Performer Among The G-10 Currencies

Euro Under Pressure From Rising Prices (EUR/USD, EUR/GBP), Fed Chair Jerome Powell Address On Friday (USD/JPY)

Rebecca Duthie Rebecca Duthie 26.08.2022 15:44
Summary: EUR/USD back above parity. Risk of UK stagflation increases as inflation pressures rise. Jerome Powell to address on Friday. EUR/USD trading above parity on Friday The market is reflecting mixed signals for this currency. Yesterday, we learned more about the Governing Council of the European Central Bank (ECB), who voted to raise interest rates by 50 basis points last month despite having talked up the increase by 25 bps in the months before the vote. The inclusion of the anti-fragmentation mechanism known as the "transmission protection instrument," which serves as additional firepower in the case of a jump in sovereign yields of the EU's riskier member states, was supported by a unanimous vote of the Council. However, the decision to raise interest rates by 50 basis points was not unanimously supported. In my opinion, this shouldn't be an issue in future meetings because the risk of embedded inflationary expectations over the medium term is increased by the inflation rate's close proximity to double digits. Following the announcement by Russia's national gas monopoly that it would cut off supplies through a crucial pipeline for three days in September, the already constrained market for gas saw substantial double-digit percentage increases during the past week. In the absence of convincing supply-side responses from European capitals to the ongoing Russian gas diplomacy, the economic difficulties these price increases entail may continue to be a barrier for the single currency. EUR/USD Price Chart EUR/GBP The market is reflecting mixed signals for this currency pair. After slipping back below parity with the dollar during the Monday session, the euro enjoyed some reprieve for the majority of the following week, but European gas prices continued to soar after a week-long stretch of astronomical gains. The soaring energy prices in the Eurozone continue to weigh on the Euro single currency. As the economy slows and inflation pressures increase, the risk of stagflation in the UK is continuing to rise. However, given the developing energy crisis that threatens to drive UK inflation rates further higher into double digit territory over the coming few months, traders feel that the Bank of England is currently focusing on the latter of these two crises. In terms of odds on a BOE raise, markets are currently at their most aggressive levels of the year. EUR/GBP Price Chart USD/JPY The market is reflecting mixed signals for this currency pair. When Tokyo CPI came in above forecasts for August, USD/JPY yawned. Instead of the expected 2.5%, the core CPI increased 2.6% year over year. The national CPI statistic that is due in three weeks can be inferred from the Tokyo CPI number. FX markets have been relatively quiet over the last 48 hours. The reason for this is the lack of summer liquidity, which prevents traders from taking large positions before Friday's address by Fed Chair Jerome Powell at the Jackson Hole Economic Policy Symposium. USD/JPY Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
The Main Scenario Of The EUR/USD Pair Is Still A Downtrend

Jackson Hole Economic Symposium Gave Guidance On Future Monetary Policy Decisions From Major Central Banks (EUR/USD, EUR/GBP, GBP/USD)

Rebecca Duthie Rebecca Duthie 29.08.2022 15:00
Summary: Fed anticipates that tightening will cause growth to decelerate. ECB indicate a hawkish outlook. Both Fed and ECB holding a hawkish outlook The market is reflecting bullish signals for this currency pair. He made it clear in his speech at the Jackson Hole conference that the Fed anticipates that tightening will cause growth to decelerate and that households would experience some pain as a result. His comments that the present rate is neutral appear to have cleared up any doubt. The Jackson Hole Economic Symposium confirmed what the majority of attendees had anticipated before the event even began: that inflation does not appear to be slowing down, necessitating sustained resolve on the part of the Fed in the form of unrelenting interest rate increases.   Not only the Fed, though; ECB members also contributed to the narrative by speaking about the approaching rate decision with a heightened feeling of urgency and proposing increases of 50 or 75 basis points. After the unexpected 50 bps rate increase in July, the interest rate meeting on September 8th could result in a second rate increase. Villeroy, Schnabel, Kazak, Knot, and Holzmann all agreed that the rate increase in September should have been significant (by ECB criteria). It is action time, according to Oli Rehn, one of the ECB's slightly more dovish members, and the next move will be "important." EUR/USD Price Chart   Euro rallied against the GBP on Monday The market is reflecting bullish signals for this currency pair. Entering the new week, the Euro was supported by the hawkish outlook from the ECB that was indicated at the Jackson Hole Symposium on Friday. Risk of a UK recession still remains high. EUR/GBP Price Chart   Hawkish fed weighs on GBP/USD The market is reflecting mixed signals for this currency pair. The exchange rate between the pound and the dollar initially increased on Friday, but it quickly lost those gains when Federal Reserve Chairman Jerome Powell warned that businesses and individuals would struggle more if the bank raised interest rates in a bid to lower U.S. inflation.    Following last week's hawkish remarks by Fed Chair Powell at the Jackson Hole Economic Symposium, the pound sterling continued to decline this past Monday. Markets had anticipated this outcome in large part, but confirmation revealed the differences between the economies of the US and UK. Goldman Sachs reported the decrease in UK economic data this morning, reiterating the Bank of England (BoEopinion )'s from a few weeks ago that a UK recession is anticipated in the fourth quarter - a significant change from their earlier prediction. GBP/USD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
Forex: Euro On Holidays. Do Not Count Your Chickens Before They Are Hatched!

Forex: Euro On Vacations. Do Not Count Your Chickens Before They Are Hatched!

Kim Cramer Larsson Kim Cramer Larsson 30.08.2022 08:53
US 2-years Treasury yields is testing June peak at 3.45 forming what looks like an Ascending triangle like pattern. If yields close above 3.45 first target is 3.73 but a move to around 3.90-4.00% is likely.If rejected at the 3.45 we could see US 2-year yields test the lower rising trendline.However, RSI is above 60 with no divergence indicating higher levels are the most likely scenario Source: Bloomberg. US 10-years Treasury yields is struggling to break the 3.11 resistance just peaking above to be rejected at the 0.618 retracement at 3.13. Now being rejected twice the past week it is having another go today. If closing above 3.13 there is some resistance at 3.27 but June peak at 3.50 is likely to be tested.However, the US 10-years is moving in what looks like a rising wedge meaning if it is once again rejected and closes below 3%, a correction down to around the 0.618 retracement at 2.76 is likely. However, RSI is above 60 and no divergence indication yields will break higher Source: Saxo Group The US 10-years Treasury future has broken below 0.618 retracement and support at 117 5/32. If it closes below, it has further confirmed the downtrend and is on course to test June lows at around 114 7/32. Some support at around 116   Source: Saxo Group Euro Bunds gapped lower this morning below key support at 149.75 testing 0.618 retracement at 147.94. RSI is below 40 and no divergence indicating lower levels. We could see buyers trying to close the gap but the former support at 149.75 is now a strong resistance.Some support at around 145.16 Source: Saxo Group   Source: Technical Update - US 2 and 10-years Treasury yields testing key resistance levels. Euro Bund future hit by heavy selling  
Risk Appetite Across Markets Taking A Hit After Fed Chair Powell's Hawkish Speech

Euro (EUR) May Be Skyrocketing Soon! Jackson Hole Meeting Wasn't Only About Fed's Hawks

ING Economics ING Economics 30.08.2022 12:57
We will remember Jackson Hole not just for Powell's hawkish speech, but also for the ECB gearing up its own hawkishness – 75bp hikes are not just for the Fed. Even if just an attempt to invoke the market's help to do the heavy lifting of tightening financial conditions, near term it means more curve flattening. Accelerating inflation still justifies the means  Hawkish ECB communications shift bear flattens the curve... EUR money markets have clearly set their sights on a 75bp hike at the September meeting after the string of hawkish comments over the weekend. The ESTR OIS (euro short-term rate overnight indexed swap) forward for the September reserve period is now at 65bp, implying a 60% probability for a larger move. It was the European Central Bank’s Robert Holzman, Martins Kazaks and Klaas Knot who all hinted more-or-less explicitly at a 75bp hike being on the table while others have called for more forceful action. France’s François Villeroy appears to suggest more frontloading with a call for showing determination now to avoid “unnecessarily brutal” hikes at a later stage. The significance of that hawkish communications shift was underscored by the ECB’s Isabel Schnabel who warned that greater sacrifices may be needed to bring inflation under control. And indeed the ECB’s current official economic outlook certainly still looks overly optimistic against the backdrop of a deepening energy crunch. This all spells further yield curve flattening as the ECB looks more prepared to hike even into a downturn.    The barrage of hawkish ECB comments means more EUR curve flattening is on the cards Source: Refinitiv, ING ...but may signal more reliance on the market to do the heavy lifting While acknowledging further normalisation is appropriate, the ECB’s chief economist Philip Lane struck a more balanced tone. In light of high uncertainty, he argued for a steady pace of hikes to the terminal rate. Smaller hikes would be less likely to cause adverse side effects and make it easier to correct course. Under the current circumstances, we suspect that 50bp would fit his idea of “steady” and “small”. He also notes that policy works through its influence on the entire yield curve. After the July rate hike, higher market rates have meant that the monetary tightening that has already occurred is far greater than just the first policy rate increase. In particular, he notes that mid and longer-end segments of the yield curve are most important for determining financing conditions in the economy and that these are more sensitive to expectations of the terminal rate than the precise path of policy rates towards it. That insight leads us back to one possible aim of the more hawkish communications twist: let the market do the heavy lifting of tightening financing conditions. As long as inflation risks are skewed to the upside, hawkish talk is likely to persist. And as long as the market plays ball, it may not necessarily translate into an even larger 75bp hike. However, one can also argue that when relying on hawkish talk it is even easier to eventually correct course than it is with a strategy of “smaller hikes". At this point, we still think that the ECB will significantly underdeliver compared to what markets are pricing. The crucial question is just when this notion will dawn on markets. The EUR swap curve prices front-loaded hikes in 2022 Source: Refinitiv, ING ECB quantitative tightening on the back burner? It appears that a discussion on quantitative tightening might not be as imminent, which should also come as a relief for periphery bonds. Accelerated ECB rate hikes and political uncertainty in Italy have already brought the benchmark 10Y spread of Italian bonds over German Bunds back towards 230bp. Bringing quantitative tightening to the table could tip the fragile balance towards more widening, even after the introduction of the Transmission Protection Mechanism. But it is quite notable that amid the latest hawkish push on rates, Italy's spreads have actually managed to eke out a small tightening versus Bunds. The Council's views on quantitative tightening seem not quite as aligned as their view on rates. After being brought up last week by the Bundesbank's Nagel and also by subtle hints in the ECB meeting minutes, the ECB’s Olli Rehn now said it was too early to publicly discuss quantitative tightening. While Kazaks said it could be discussed, he added it was too early to implement. Today's events and market view The reason for the ECB's hawkish turn will become more obvious today. As markets are looking for a further acceleration in inflation, all eyes are on the German and Spanish readings today ahead of tomorrow's eurozone flash CPI release which the consensus sees heading to 9%. The core rate is seen accelerating to 4.1%. Also to watch are the business climate indicators today, economic sentiment and consumer confidence, all of which are expected to come in softer. The 1y1y ESTR forward is back to 2.13%, though that is still short of the peak seen in June when it topped 2.5%. It might still push higher from here, but the long end should increasingly lag. In primary markets, Italy will reopen the 5Y, 8Y and 10Y sectors as well as a floating rate bond for a total of up to €8bn. Read this article on THINK TagsRates Daily Federal Reserve ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Financial Conditions Look Quite Scary. How Central Banks Fight Inflation?

German Inflation Came In At 8.8%, Hitting Levels Not Seen In 50 Years

Rebecca Duthie Rebecca Duthie 30.08.2022 15:26
Summary: The rise in prices was led by those of food and energy. ECB interest rate decision. German inflation soars in the wake of rising energy prices Energy prices drove up inflation in August, pushing it to its highest level in over 50 years and surpassing a previous high set only three months earlier, statistics revealed on Tuesday. The acceleration of German inflation to a record level due to rising energy costs is supporting expectations for a sizable interest rate increase at the ECB meeting next week. Following an unexpected 8.5% increase in July, consumer prices, which are harmonised to be comparable with inflation data from other European Union countries (HICP), rose by 8.8% annually, according to the federal statistics agency. According to Germany's statistics office, the rise in prices was led by those of food and energy, however their effect was largely mitigated by temporary government aid, such as a fuel refund and incredibly inexpensive public transportation. According to the same statistics office, food costs rose 16.6% year over year in August compared to the same month the previous year, while energy prices rose 35.6% higher. The increase in August includes anti-inflationary measures like lower fuel taxes and cheaper public transportation tickets. These restrictions are about to expire, which suggests that price increase may pick up speed. Data on inflation in the eurozone are coming on Wednesday, and another record surge of 9% is anticipated. According to the Bundesbank, Germany's inflation percentage will reach around 10% in the fourth quarter of 2022, and the prognosis is very uncertain because of the "unclear situation" on the commodity markets, which is a result of Russia's conflict in Ukraine. The ECB is faced with not just the difficulty of extraordinary inflation but also the ensuing cost-of-living pressure that some analysts claim has already caused a recession in the 19-nation bloc. That is the biggest concern for the continent as a whole. While a half-point rate increase by the ECB is anticipated on September 8, some have suggested a larger 75 basis-point increase, similar to the more aggressive actions the Federal Reserve has recently taken. Positive news emerged on Tuesday as energy prices in Europe decreased as a result of the European Commission's plans to act quickly. Despite the risky nature of trading, nations in the region have been successful in filling natural gas storage facilities in time for the winter heating season. Sources: reuters.com, bloomberg.com
Interest Rates In Eurozone Will Continue To Increase In The Coming Meetings

A Hawkish ECB Is Supporting The Euro (EUR/USD, EUR/GBP), Poor Investor Sentiment Toward The UK (GBP/USD)

Rebecca Duthie Rebecca Duthie 31.08.2022 16:48
Summary: ECB turns hawkish in the wake of high eurozone inflation. Pound sterling appears poised to test new lows against the euro, the dollar, and other major currencies. Euro supported by hawkish ECB The market is reflecting mixed signals for this currency pair. August saw a new high for inflation in the eurozone, and future months are predicted to see an increase. According to data from Eurostat, the increase in inflation in August was caused by a faster increase in the cost of food, alcohol, and cigarettes, which increased by 10.6% on a yearly basis compared to a 9.8% increase in July. Given the continuing rise in natural gas costs, it is anticipated that inflation in the Eurozone would rise further in the upcoming months, possibly reaching double digits. The reversal of several German subsidies and skyrocketing energy prices even before the start of the heating season indicate that inflation will continue to rise and surpass 10% before peaking around the turn of the year. Since US Federal Reserve Chair Jerome Powell's aggressive address at the Jackson Hole Symposium last Friday, there has been a noticeable change in tone among many European Central Bank (ECB) Members. The figures released today will undoubtedly strengthen arguments in favor of raising jumbo interest rates at the European Central Bank meeting next week. The central bank meeting next week is crucial since markets are heavily pricing in hawkishness; now, 70 bps are put in for September and 160 bps by year's end. EUR/USD Price Chart GBP is quickly becoming the worst performing currency of 2022 The market is reflecting bullish signals for this currency pair. Despite the fact that the money markets have upped their interest rate bets for the September meeting by about 4 basis points since Monday, the Bank of England (BoE) still confronts a difficult struggle as Q4 recession fears build. Since I don't see the BoE acting aggressively over the winter, front-loading now might be essential, thus a 75bps hike is still an option. The hawkish attitude from the ECB offers the Euro support. EUR/GBP Price Chart GBP testing new lows against USD and Euro The market is reflecting bearish signals for this currency pair. In light of the negative investor sentiment toward the UK and the ongoing weakness in the global equity markets, the pound sterling appears poised to test new lows against the euro, the dollar, and other major currencies. The Pound has already lost 1.33% of its value against the Euro this week, and if these declines continue, it will experience its biggest weekly decline against the euro since May. The UK pound is still losing ground versus the US dollar, having dropped another 0.83% since the week's beginning. The current loss for 2022 is 14%. As August draws to a close, it is clear that the British pound had the worst month of any major currency, losing value relative to all of its G10 competitors. Further losses are likely since the drop of the pound indicates a pervasive and unshakeable unfavorable attitude among investors worldwide. The UK currency is on track to become the worst performing major currency of 2022 within a matter of weeks given its present performance and tendencies. GBP/USD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
The Market Expects Norges Bank To Keep Interest Rates Unchanged

Swiss Franc (CHF) And Norwegian Krone (NOK) Weakness

John Hardy John Hardy 31.08.2022 16:54
Summary:  The G3 currencies are chopping around aimlessly versus one another while the bigger story afoot across FX is weakness in the rest of the G10 currencies, particularly in the Swiss franc and Norwegian krone, the currencies that had formerly traded the strongest against the euro as a bit of ECB catchup on tightening guidance and easing energy prices. NOK is particularly weak today, perhaps on fears that the EU is set to cap energy and power prices and may twist Norway’s arm in the process? FX Trading focus: EUR relief and squeeze for now, but remember longer term picture. Is NOK suddenly worried about price caps for its energy exports? Yesterday I highlighted the squeeze risk in EURUSD If the 1.0100 area traded, but the US dollar has remained quite firm, while the real story is in the euro upside squeeze elsewhere, particularly against the Swiss franc as the ECB has gotten religion on the need to bring forward and raise its tightening plans, while the collapse in oil prices and natural gas prices to a lesser degree over the last couple of days has EURNOK shorts running for cover. Yesterday, another flurry of ECB speakers at a conference saw ECB rate expectations pulled back a bit higher as some, including Nagel, argued for a front-loading of rate hikes, which has the market leaning a big harder in favour of a 75-basis point move at next Thursday’s ECB meeting. Still, as the weeks wear on, it is important to realize that Germany being ahead of its schedule on refilling gas storage reserves doesn’t mean the country can meet anything approaching normal gas demand through the winter unless Russia turns up the gas flow rates or the gas can be sourced from elsewhere, as storage is only a fraction of the amount need for winter consumption rates as heating demand jumps. The EU has called an emergency meeting next Friday that will likely result in a cap on electricity and perhaps also natural gas prices for some end users, a  move that will prevent many consumers and especially small businesses from going cold over the winter or going broke or having too much of their budgets swallowed by energy costs. But such a move to cap prices will also have the typical result that demand will remain higher than it would otherwise, and that will have to mean rationing of power/gas, a dicey process to manage. Either way, real GDP will decline if less gas is available, even if Russia does turn back on the gas after turning it off today for a few days of purported maintenance and continues to deliver the trickle of flows that it has been delivering recently. The August US ADP payrolls data release today is the first using a “revamped” methodology that is meant to provide more time and higher frequency data on the labor market, as well as information on pay rises, given the ADP access to salary information. The headline release of +125k was disappointing, but it will take time for the market to trust this data point even if the new methodology eventually proved better for calling the eventual turn in the labor market. Yesterday’s Jul. JOLTS jobs openings survey was nearly a million jobs higher than expected after the prior month was revised solidly higher, suggesting a still very strong demand for labor. The USD picture is still choppy and uncertain, with today’s ADP number chopping long treasury yields back lower after they trade to new local highs. The Friday’s official jobs report will weigh more heavily, with earning surprises potentially the largest factor, while the September 13 CPI data point will weigh heaviest of all ahead of the Sep 21 FOMC meeting. As discussed in this morning’s Saxo Market Call podcast, an Atlanta Fed measure of “sticky inflation” is showing unprecedented relative strength to the BLS’s standard core CPI measure. Chart: EURNOKEURNOK has backed up aggressively higher on the huge haircut to crude oil prices over the last couple of sessions and as the ECB has delivered a far sterner message on its intent to bring forward and steepen rate tightening intentions. As well, if the EU emergency meeting sees the spotlight turned on Norway’s gargantuan profits it is earning on oil and gas profits from the reduction of Russian deliveries, the EURNOK rise could be aggravated well through the pivotal 10.00 area. Source: Saxo Group Table: FX Board of G10 and CNH trend evolution and strength.The US dollar remains strong, with Euro flashing hot in the momentum higher – although questions remain how long this can last. Sterling continues its ugly slide, while CHF has lost moment likely on EURCHF flows, and NOK is losing altitude very quickly as noted above. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs.USDCAD and AUDUSD are looking at interesting levels, with the former having now more decisively broken the range, while AUDUSD is teetering. Note the EURCHF and EURNOK readings trying to flip to positive here, together with other EUR pairs. USDNOK has flipped positive in rapid fashion after yesterday’s flip higher. Source: Bloomberg and Saxo Group Source: FX Update: NOK, NOK, who’s there? Energy price caps?
The Upside Of The EUR/USD Pair Remains Limited

The EUR/USD Pair Is Swinging. Details Of What Happens.

InstaForex Analysis InstaForex Analysis 01.09.2022 10:25
EUR/USD 5M The EUR/USD pair continued to move in a style already familiar over the past two weeks. The price reversed sharply again, and the movement took place inside the 0.9900-1.0072 channel. We have already said that this channel cannot be considered a horizontal channel, although formally it is just that. That movement, which we call flat, is also not really such, but has all the signs of it. Best of all, the current movement fits the description of a "swing", which is actually no better than a flat. The pair failed to settle above the level of 1.0072 for the second time, so now we can count on a certain drop in quotes. From Wednesday's macroeconomic reports, we note inflation in the European Union, which continued to accelerate and now stands at 9.1% y/y. It was after the release of this report that the euro began to appreciate, but we do not believe that these two events are connected. At this time, when it is already known about the possible tightening of the European Central Bank's monetary policy in September, the likelihood of a tougher rate hike does not increase. In regards to Wednesday's trading signals, the situation was slightly better than the day before. Mainly due to the formed area of 1.0001-1.0019. First, a sell signal was formed when the price settled below it, and then a buy signal. The sell signal turned out to be false, but the pair went down 15 points. Therefore, Stop Loss should have been set to breakeven. The long position managed to earn 30 points as the price reached the nearest target level of 1.0072. A rebound from the level of 1.0072 could no longer be worked out, since this signal was formed rather late. COT report: The Commitment of Traders (COT) reports on the euro in the last few months clearly reflect what is happening in the euro/dollar pair. For most of 2022, they showed an openly bullish mood of commercial players, but at the same time, the euro fell steadily at the same time. At this time, the situation is different, but it is NOT in favor of the euro. If earlier the mood was bullish, and the euro was falling, now the mood is bearish and... the euro is also falling. Therefore, for the time being, we do not see any grounds for the euro's growth, because the vast majority of factors remain against it. The number of long positions for the non-commercial group increased by 11,600, and the number of shorts increased by 12,900 during the reporting week. Accordingly, the net position increased by about 1,300 contracts. After several weeks of weak growth, the decline in this indicator resumed, and the mood of major players remains bearish. From our point of view, this fact very eloquently indicates that at this time even commercial traders still do not believe in the euro. The number of longs is lower than the number of shorts for non-commercial traders by 44,000. Therefore, we can state that not only does the demand for the US dollar remain high, but that the demand for the euro is also quite low. The fact that major players are in no hurry to buy the euro may lead to a new, even greater fall. Over the past six months or a year, the euro has not been able to show even a tangible correction, not to mention something more. We recommend to familiarize yourself with: Overview of the EUR/USD pair. September 1. The ECB was late, does not admit its mistakes and continues to do everything "for show". Overview of the GBP/USD pair. September 1. The pound is already falling by inertia and tends to overtake the euro in the fall against the dollar. Forecast and trading signals for GBP/USD on September 1. Detailed analysis of the movement of the pair and trading transactions. EUR/USD 1H The pair has consolidated above the trend line on the hourly timeframe, but still does not leave the feeling that the downward trend continues. At the moment, the pair is generally trading inside the horizontal channel, and this channel has already expanded to 0.9900-1.0072. If the bulls manage to settle above it, then it will be possible to count on a slight increase in the euro, but given the current "swing", there may be constant rollbacks to the downside. We highlight the following levels for trading on Thursday - 0.9900, 1.0019, 1.0072, 1.0124, 1.0195, 1.0269, as well as Senkou Span B (1.0051) and Kijun-sen (1 ,0001). There is not a single level below the level of 0.9900, so there is simply nothing to trade there. Ichimoku indicator lines can move during the day, which should be taken into account when determining trading signals. There are also secondary support and resistance levels, but no signals are formed near them. Signals can be "rebounds" and "breakthrough" extreme levels and lines. Do not forget about placing a Stop Loss order at breakeven if the price has gone in the right direction for 15 points. This will protect you against possible losses if the signal turns out to be false. The European Union will publish the unemployment rate and the index of business activity in the manufacturing sector in the second assessment for August. Both reports are insignificant. Meanwhile, we have the ISM index of business activity in the service sector in the United States, and this report may provoke a market reaction. Explanations for the chart: Support and Resistance Levels are the levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels. Kijun-sen and Senkou Span B lines are lines of the Ichimoku indicator transferred to the hourly timeframe from the 4-hour one. Support and resistance areas are areas from which the price has repeatedly rebounded off. Yellow lines are trend lines, trend channels and any other technical patterns. Indicator 1 on the COT charts is the size of the net position of each category of traders. Indicator 2 on the COT charts is the size of the net position for the non-commercial group.     Relevance up to 02:00 2022-09-02 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/320492
The EUR/AUD Pair May Have The Potential To Continue Its Decline

How The EUR/USD Looks In The Short And In The Long Positions?

InstaForex Analysis InstaForex Analysis 01.09.2022 11:54
Analysis of transactions in the EUR / USD pair Euro tested 0.9998 at the time when the MACD was far below zero, which limited the downside potential of the pair. Sometime later, it tested the level again, but this time the MACD line was above zero, so the upside potential was limited. This happened after the test of 1.0043. Although the sharp rise in the eurozone consumer price index came as no surprise, it hurt euro's upward outlook in the morning. Then, in the afternoon, dollar was affected by weak employment data from ADP, which suggested that the rate hikes implemented by the Fed hurt the labor market. Today, a number of reports are scheduled to be released, namely the volume of retail trade in Germany, index of business activity in the manufacturing sector and change in the unemployment rate of the eurozone. Good figures will allow buyers to try updating the weekly highs. But in the afternoon, the focus will shift to the data on US jobless claims, ISM manufacturing index and speech by FOMC member Raphael Bostic. For long positions: Buy euro when the quote reaches 1.0026 (green line on the chart) and take profit at the price of 1.0081. A rally will occur if statistics in the Euro area exceed expectations. Take note that when buying, the MACD line should be above zero or is starting to rise from it. Euro can also be bought at 1.0005, but the MACD line should be in the oversold area as only by that will the market reverse to 1.0026 and 1.0081. For short positions: Sell euro when the quote reaches 1.0005 (red line on the chart) and take profit at the price of 0.9959. Pressure will return if the Euro area releases weak economic statistics. The failure of buyers to update yesterday's highs will also end the upward correction. Take note that when selling, the MACD line should be below zero or is starting to move down from it. Euro can also be sold at 1.0026, but the MACD line should be in the overbought area, as only by that will the market reverse to 1.0005 and 0.9959. What's on the chart: The thin green line is the key level at which you can place long positions in the EUR/USD pair. The thick green line is the target price, since the quote is unlikely to move above this level. The thin red line is the level at which you can place short positions in the EUR/USD pair. The thick red line is the target price, since the quote is unlikely to move below this level. MACD line - when entering the market, it is important to be guided by the overbought and oversold zones. Important: Novice traders need to be very careful when making decisions about entering the market. Before the release of important reports, it is best to stay out of the market to avoid being caught in sharp fluctuations in the rate. If you decide to trade during the release of news, then always place stop orders to minimize losses. Without placing stop orders, you can very quickly lose your entire deposit, especially if you do not use money management and trade large volumes. And remember that for successful trading, you need to have a clear trading plan. Spontaneous trading decision based on the current market situation is an inherently losing strategy for an intraday trader.       Relevance up to 09:00 2022-09-02 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/320532
What's ahead of Euro against greenback today? Let's look at Stefan Doll's review

Despite Declining Energy Prices, European Central Bank (ECB) Is Expected To Hike The Rate By 75bp

ING Economics ING Economics 01.09.2022 12:46
Markets now favour a 75bp hike by the European Central Bank in an upcoming meeting, ignoring the drop in energy prices this week. Gilts are suffering from fears of fiscal spending and foreign outflows Bonds have their hawkish blinkers on and miss a drop in energy prices A beat in core eurozone CPI, with our economist flagging worrying signs of second-round effects from energy to goods prices, has tipped the scales in favour of a 75bp ECB hike in September. The market is now pricing 125bp of tightening over the next two meetings. Another flurry of hawkish comments, from the usual suspects Joachim Nagel and Robert Holzmann, helped convince investors that hawks are winning the front-loading hike debate. What’s more surprising is that the further rise in front-end rates and, expectedly, curve flattening, occurs while European-traded energy prices continue their decline this week. September and October are shaping up to be busy months in terms of supply With so much hawkishness priced and some relief in traded energy, it is tempting to call the peak in 10Y Bund yields, but there is another factor at play. September and October are shaping up to be busy months in terms of supply. Even if volumes do not match the previous years, we ascribe lower issuance to more difficult liquidity conditions, we would expect a greater market impact. The first eight months of the year are a case in point, despite lower volumes, supply has put greater pressure on bond yields across the credit spectrum. Bond sales should push bond yields higher in September and October Source: Bond Radar, ING Gilts have no (foreign) friends UK rates continue to rise relative to their European and US peers. As we wrote recently, divergence in energy prices and inflation explains their jump relative to USD yields. As for the faster rise than European peers, one needs to dig deeper into UK-specific problems. In an economy that is generating a greater proportion of its inflation domestically, the coming fiscal support package stands a greater chance of resulting in a more aggressive Bank of England (BoE) tightening cycle. These fears are probably exacerbated by the current leadership vacuum and the uncertainty about the extent of extra spending and tax cuts that will be unveiled. Fears of fiscal profligacy tend to hit gilts harder. Due to a (historically at least) wider current account deficit, UK markets are more sensitive to a worsening of its twin deficits. The recent decline in net overseas buying of gilts, still positive but the lowest on a rolling three-month basis since 2020 when fears of a mini run on the sterling were rife, did not help. We’re still far from the simultaneous sell-off in UK bonds, stocks, and currency that occurred in March 2020 and prompted the BoE to restart quantitative easing, but the parallel sheds an awkward light on its plan to actively sell bonds, on top of ‘passive’ balance sheet reduction. Foreign buying of gilts is at its lowest since 2020 Source: Refinitiv, ING Today's events and market views Most manufacturing PMIs released today will be second readings with the exception of the Dutch, Spanish, and Italian indices. Italian and eurozone unemployment complete the list of European releases. Supply will remain an important driver of short-term price action with Spain (3Y/10Y/30Y and linker), France (9Y/10Y/16Y), and Ireland (10Y/30Y) lined up for today. In the afternoon, US PMI manufacturing is a second reading but its ISM equivalent is a first. In addition to a decline in the headline figure, markets will look closely for a further drop in the prices paid component. Jobless claims and construction spending are the other US releases we look out for. The pre-ECB meeting quiet period starts today so we would be surprised to hear Fabio Centeno make any comment on monetary policy. The Fed’s own quiet period only starts this weekend so Raphael Bostic might try to out-hawk his colleagues. Read this article on THINK TagsRates Daily ECB Bonds Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Saxo Bank Podcast: Lifting Risk Sentiment And Seeing A Weaker US Dollar

The FED's Monetary Policy Is Favorable To The USD

InstaForex Analysis InstaForex Analysis 01.09.2022 13:12
The US currency is in tension before the release of the US labor market report, despite the advantage over the European one. At the same time, EUR does not leave attempts to rise and catch up. Currently, the downward trend prevails on the markets, plunging the American and European currencies into pessimism. According to economists at Commerzbank, a long-term strengthening of the US labor market provides significant support to the greenback. Experts put an equal sign between a strong labor market and a growing dollar. According to preliminary estimates, the positive trend in the USD will continue as long as the Federal Reserve adheres to a tight monetary policy. This situation is favorable for the US currency, but undermines the position of the European one. The EUR/USD pair was trading at 1.0012 on the morning of Thursday, September 1, trying to get out of the current range. At the same time, analysts pay attention to the high probability of the pair moving towards parity. The greenback plunged a bit on Wednesday evening, August 31, after the release of macro statistics on the US labor market, but later won back short-term losses. U.S. private-sector jobs increased by 132,000 last month, according to Automatic Data Processing (ADP), an analyst firm. Initial jobless claims in the U.S. surged to 248,000 on Friday, according to preliminary forecasts. Data on unemployment in the country will be released on September 2. Experts expect this indicator to remain at the level of July (3.5%) and to increase the number of jobs in the non-agricultural sector of the country. Many currency strategists rely on strong US employment data and falling unemployment. They consider these indicators the most important for the Fed and its future monetary policy. However, some experts argue that the key indicator for the central bank is the level of salaries. Recall that Fed Chairman Jerome Powell and other members of the FOMC are counting on the "cooling" of the national labor market. Representatives of the Fed are trying to avoid a situation in which wage growth provokes another round of inflation. In such a situation, the increase in the number of vacancies recorded in August is a negative signal for the central bank. Against this background, the European currency seeks to maintain balance and get out of the price hole. However, its efforts are rewarded with rare bursts of recovery, and then a decline. Adding fuel to the fire is uncertainty about the European Central Bank's next steps on the rate. According to Nordea economists, next week the central bank will raise the rate by 75 basis points. The bank believes that even negative forecasts for economic growth in the region will not interfere with this. At present, the inflation rate in the eurozone remains stably high. According to current reports, inflation in EU countries reached an impressive 9.1% in August. Previously, this figure was 8.9%. The current situation undermines the euro's position, which is hardly kept afloat. According to analysts, the weakening of the euro against the dollar is due to the active tightening of monetary policy by the Fed. At the same time, the current parity between currencies may disappear when a compromise is reached in the EU on tightening the monetary policy or when inflation in the United States returns to the target of 2%. However, both situations are unlikely, experts say. According to experts, the 1:1 ratio between the dollar and the euro will remain until the EU countries begin to tighten monetary policy following the example of the United States. However, there are many pitfalls here, as the ECB needs to find a compromise between all the countries of the euro bloc. Many experts believe that by the end of 2022 the balance of power in the EUR/USD pair will change, due to which the topic of parity will be removed. Experts allow changes in the ECB's actions regarding monetary policy. The same is possible with regard to the Fed, which is worried about labor market problems and galloping inflation. According to analysts, the pair will tend to the usual ratio of 1.0500-1.1000. "In the event of a sharp turnaround, the EU economy will receive a solid bonus for the growth of exports and the economy at the expense of the US and China," the experts emphasize. Market participants are concerned about the questions: will the Fed take a decisive approach to monetary policy? Will the ECB follow suit? Many traders and investors are skeptical about the immediate prospects for the dollar and the euro. At the same time, analysts expect a reduction in key rates in the second half of 2023. The implementation of such a scenario will weaken the greenback and limit the potential for its strengthening. In the current situation, some experts believe that the markets are wishful thinking, expecting less rigidity from the Fed in the process of forming monetary policy. In this matter, much depends on the level of unemployment in the country. Excessive strengthening of the labor market in the US is pushing the central bank to tighten monetary policy as soon as possible. Fed officials are stepping up the pace of this tightening, emphasizing that they are ready to temporarily sacrifice the economy for the sake of curbing inflation. However, a few months ago they said they would try to avoid a recession. However, despite the economic upheavals, the US currency remains strong and remains competitive in the global market.       Relevance up to 08:00 2022-09-04 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. Read more: https://www.instaforex.eu/forex_analysis/320524
Forex: Market Is Dependent On Fed's Shortly Message

US Dollar Driven By Hawkish Fed (EUR/USD), Pound Sterling Struggled Throughout August (EUR/GBP, GBP/AUD)

Rebecca Duthie Rebecca Duthie 01.09.2022 17:56
Summary: The USD strengthened by a hawkish Fed. GBP struggled in August. Euro value declined against USD on Thursday The market is reflecting mixed signals for this currency pair. Thursday sees a decline in the value of the Euro as markets are swept by a steadfast US Dollar following additional hawkish remarks from Fed speakers. Despite the market leaning toward a 75 basis-point increase at the European Central Bank (ECB) meeting next week as a result of yesterday's higher than expected CPI, the EUR/USD was unable to gain traction. The US dollar's ascent is unabated, and it appears that it will soon reach highs last seen in 2002 as the preferred safety play. This week, a new wave of risk-off trading sent USD pairings higher and equity markets lower across a number of markets. US Treasury yields have reached multi-year highs as US interest rate expectations continue to rise. EUR/USD Price Chart EUR/GBP touching June lows The market is reflecting bullish signals for this currency pair. One analyst said there is little reason to expect an improvement over the upcoming weeks or months as the value of the pound relative to the euro has dropped substantially over the past few days and is currently at levels last seen in June. The Pound suffered in August, with analysts attributing its poor performance to worries that the UK's debt load will rise as the next administration tries to mitigate the effects of the cost of living problem. This occurs as the Bank of England raises interest rates, driving up the yield paid on gilts, the name for UK government debt. The Bank of England gave historically low interest rates during the Covid crisis and actively purchased government debt as part of its quantitative easing program. As a result, the government was able to increase borrowing without any problems. However, the Bank will now actively sell government debt and may raise rates by an additional 50 basis points in September, significantly restricting the government's ability to borrow money as the nation grapples with yet another crisis. EUR/GBP Price Chart GBP/AUD Despite a great August making the Australian Dollar one of the better performing currencies of 2022, experts at investment bank Goldman Sachs said they remain concerned on the currency on a "tactical basis." The announcement that one of China's major cities has been placed on lockdown as the government of the nation pursues a "zero covid" strategy to combat the coronavirus raises doubts about the near-term prospects for Australia's top export market. GBP/AUD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
The AUD/JPY Currency Pair Is Moving In A Downward Trend

Problems Of The Euro. Will The ECB Rates Rise And How Much?

InstaForex Analysis InstaForex Analysis 02.09.2022 10:01
The dollar starts September with a combative mood, trading near 20-year highs and benefiting from flows to safe havens. Fears for the fate of the global economy and the drumbeat of leading central banks are rattling traders' nerves. The greenback is also popular with investors, as they need to buy USD to maintain their margin positions in the face of declining stock indices. Players' nervousness is compounded by the fact that stocks are entering a historically weak period for the market. Since 1950, the S&P 500 has fallen by an average of 0.5% in September. This year, everything speaks in favor of repeating historical trends. Over the past two months, the volume of a net short position against S&P 500 futures has grown significantly and reached its highest value in two years. The index just ended the month with its fourth consecutive daily decline on Wednesday. Investors are still under the impression after Federal Reserve Chairman Jerome Powell's statement last Friday that the central bank's key rate should be raised to a level that will allow inflation to be controlled, despite the risks of recession. The S&P 500 index since last Thursday, the last day before Powell's speech in Jackson Hole, lost more than 5%. "The market has received a message that the Federal Reserve is going to fight inflation at any cost. We don't think we've seen a bottom this year," strategists at Optimal Capital Advisors said. On Wednesday, the head of the Federal Reserve Bank of Cleveland, Loretta Mester, continued this topic. She said that the US central bank needs to raise the base rate from the current target range of 2.25%-2.5% above 4% by the beginning of next year and leave it at this level for some time to reduce inflation. Against this background, the yield of two-year US Treasury bonds, which changes in accordance with expectations regarding interest rates, reached the highest level since the end of 2007 yesterday, rising above 3.5%. The higher yield of treasuries pushes up the dollar as investors sell debt denominated in other currencies to get a higher premium on US treasuries. "It doesn't look like they can actually offer decent resistance to the dollar, given such a gloomy global outlook," Rabobank strategists said, referring to other major currencies. "If you sell the dollar, what will you buy?" – they said. The greenback has been growing for three consecutive months, while the euro fell by 6.5% over the same period. The greenback's growth against the single currency reflects concerns that a sharp jump in energy prices in the eurozone, caused by the conflict between Russia and Ukraine, will lead to higher inflation and push the European economy into recession. "High inflation and gas supplies are still serious problems in the euro area. We think this will continue to put downward pressure on the single currency," Commonwealth Bank of Australia analysts said. As data released on Wednesday showed, inflation in the eurozone rose to a record high of 9.1% in August. This strengthened the case for further significant rate hikes by the ECB to tame it. "Before the start of the Jackson Hole symposium, the market expected the ECB to raise the rate by 1 bps by the October meeting, and since then these expectations have only increased. However, a rate hike is unlikely to strongly support the euro against the greenback, given that investors are likely to remain focused on the risks of stagflation in the eurozone and given the safe haven function for the dollar," Rabobank analysts said. "We maintain our EUR/USD target at 0.9500 for one month and still expect the widespread strengthening of the US dollar to persist over the next six months or so," they added. Another unexpected rise in inflation increases speculation about a 75 bps ECB rate hike at next week's meeting. However, MUFG Bank economists do not believe that the euro will benefit from this sharp tightening. "Market participants currently estimate a 71 bps rate hike by the ECB policy meeting on September 8, as well as the fact that it will continue to raise rates to 1.50% by the end of the year. Market expectations of a sharper tightening of policy were supported by the hawkish comments of ECB policy makers after Jackson Hole and the recent announcement of another unexpected increase in inflation in the eurozone. However, we are not convinced that a sharp tightening of the ECB's policy will support the steady growth of the euro, as the risks of recession in the eurozone remain elevated," they said. The eurozone, in case of termination of pipeline gas supplies from Russia, may face a recession in the second half of 2022, analysts at Fitch Ratings believe. "The onset of recession in the eurozone is likely in the second half of 2022, and in 2023, Germany and Italy will experience an annual decline in GDP. Economic vulnerability in the event of termination of pipeline gas supplies remains high, despite recent active efforts to diversify import sources, in particular LNG," Fitch said. With the passing of the summer heat, as well as news that European countries are filling their storage facilities at a faster pace than expected, energy prices in the eurozone have decreased from peak values. However, the European economy, and especially Germany, remain vulnerable to the onset of winter if Russia stops supplying gas, given that storage facilities cover only 25-30% of winter consumption. "It is very difficult to predict how the situation with gas will develop in the European Union in winter, since much will depend, among other things, on the weather and the volume of gas coming from alternative sources to Russia," said the deputy head of the Directorate of the European Commission for Energy in the relevant committee of the European Parliament. The European Commission expects gas prices in Europe to remain at an elevated level in the coming winter and fall in 2024-2025. "We expect that prices will remain at an elevated level in the coming winter, they will fall again in 2024-2025. But they are subject to some fluctuations," EC spokesman Tim McPhie said. Gas prices and sentiment in Europe are now undergoing a serious stress test, as the Nord Stream-1 gas pipeline closed on August 31 for maintenance. All this warns against excessive enthusiasm for the recovery of the European currency at this stage, ING strategists note. The EUR/USD pair ended Wednesday's session with an increase of 0.3%, near 1.0057, having reached a weekly high at 1.0080 during yesterday's trading. At the same time, the USD index fell by 0.1% to 108.65 points. The euro was supported by expectations that the ECB will raise the interest rate by 75 basis points next week.Meanwhile, dollar shorts were mainly caused by the rebalancing of portfolios at the end of the month, turning into consolidation. The EUR/USD pair lost its bullish momentum on Thursday and plunged by almost 150 points from Wednesday's closing levels. At the same time, the USD index rose to the highest levels since June 2002, coming close to 110. The Fed's tough stance is still working in favor of the greenback, and the energy crisis in Europe is against the euro, which has not gone away with the correction of gas prices over the past three days. "Even after reaching new records, the dollar has room for further growth, which is facilitated by the prospects of a global recession and, in particular, the energy crisis in Europe," Generali analysts said. Fears related to the global recession were exacerbated by China, which announced that Chengdu, a city with a population of about 21 million people, was put on lockdown due to coronavirus. Reflecting investors' unwillingness to take risks, key Wall Street indexes mostly declined on Thursday. Friday's US employment report for August carries risks for stocks, because if it is strong, it will increase the prospects for further Fed rate hikes. The Fed's determination is beyond doubt, since it once led the movement among major central banks to aggressively tighten monetary policy. As for the ECB, it has yet to prove that it is really ready to act, and not just talk. "The ECB has yet to convince the markets with its comments to prove that it is willing to endure economic pain in order to effectively combat price risks. Only at this point will the euro be able to really benefit from the ECB's monetary policy on a more sustainable basis," noted the strategists of Commerzbank. "In a crisis, the market is likely to sell the euro as an initial reaction due to fears of a recession. The ECB's determination to fight inflation is likely to have a positive impact on the single currency only at a later stage – if at that time the ECB really sticks to its approach. This means that euro bulls will probably have to be patient for some time," they added. "The markets are now putting in quotes an increase in the ECB rate by 167 bps in total by the end of the year. However, the recent narrowing of spreads on two-year swaps between the euro and the dollar may have already ended, and a reversal – if the ECB does not meet the new hawkish expectations embedded in prices – could send EUR/USD to new lows next week," ING analysts said. They predict that the EUR/USD pair will remain under pressure in the range of 0.9900-1.0100.         Relevance up to 22:00 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. Read more: https://www.instaforex.eu/forex_analysis/320609
Will The European Currency (The Euro) Fall Indefinitely?

The EUR/USD Pair: The Trend Will Be Bullish Or Bearish?

InstaForex Analysis InstaForex Analysis 02.09.2022 10:11
EUR/USD 5M The EUR/USD pair continued to move in the style already familiar over the past two weeks and the 0.9900-1.0072 channel. Despite the fact that there was a fall of more than 100 points during the day, the pair still remained inside the horizontal channel. Therefore, no new conclusions on the technical picture can be made now. Perhaps the euro will continue to fall (especially if the US statistics are strong), and then the pair will overcome the level of 0.9900. But until this happens, we are stating a fact - a wide flat or "swing" remains. There were only minor reports in the European Union on Thursday. The unemployment rate and the second assessment of the index of business activity in the services sector are not the data that could provoke the euro's collapse. Also not involved in the pair's decline and the ISM business activity index in the US. Thus, the macroeconomic statistics was, in contrast to the previous days of the week, but it had no effect on the course of trading. In regards to Thursday's trading signals, everything was pretty good. First, a buy signal was formed when the price settled above the extreme level of 1.0019. The upward movement did not last long and ended near the Senkou Span B line. The signal cannot be considered false, since the nearest target level was worked out. Managed to earn 7 points. The sell signal also had to be worked out, and it brought good profit to traders, since the pair, after its formation, went down about 110 points, forming another sell signal near the critical line along the way. The pair did not reach the level of 0.9900 by only a dozen points, the deal had to be closed manually in the late afternoon with a profit of at least 90 points. COT report: The Commitment of Traders (COT) reports on the euro in the last few months clearly reflect what is happening in the euro/dollar pair. For most of 2022, they showed an openly bullish mood of commercial players, but at the same time, the euro fell steadily at the same time. At this time, the situation is different, but it is NOT in favor of the euro. If earlier the mood was bullish, and the euro was falling, now the mood is bearish and... the euro is also falling. Therefore, for the time being, we do not see any grounds for the euro's growth, because the vast majority of factors remain against it. The number of long positions for the non-commercial group increased by 11,600, and the number of shorts increased by 12,900 during the reporting week. Accordingly, the net position increased by about 1,300 contracts. After several weeks of weak growth, the decline in this indicator resumed, and the mood of major players remains bearish. From our point of view, this fact very eloquently indicates that at this time even commercial traders still do not believe in the euro. The number of longs is lower than the number of shorts for non-commercial traders by 44,000. Therefore, we can state that not only does the demand for the US dollar remain high, but that the demand for the euro is also quite low. The fact that major players are in no hurry to buy the euro may lead to a new, even greater fall. Over the past six months or a year, the euro has not been able to show even a tangible correction, not to mention something more. We recommend to familiarize yourself with: Overview of the EUR/USD pair. September 2. The euro has nothing to hope for and nowhere to expect help. Overview of the GBP/USD pair. September 2. The pound continues to slide downhill. Forecast and trading signals for GBP/USD on September 2. Detailed analysis of the movement of the pair and trading transactions. EUR/USD 1H The pair continues to be inside the 0.9900-1.0072 channel on the hourly timeframe. If the bears manage to gain a foothold below it, then it will be possible to count on the resumption of the global downward trend. Otherwise, the "swing" will remain. We highlight the following levels for trading on Friday - 0.9900, 1.0019, 1.0072, 1.0124, 1.0195, 1.0269, as well as Senkou Span B (1.0051) and Kijun-sen (1.0001). There is not a single level below 0.9900, so there is simply nothing to trade there. Ichimoku indicator lines can move during the day, which should be taken into account when determining trading signals. There are also secondary support and resistance levels, but no signals are formed near them. Signals can be "rebounds" and "breakthrough" extreme levels and lines. Do not forget about placing a Stop Loss order at breakeven if the price has gone in the right direction for 15 points. This will protect you against possible losses if the signal turns out to be false. There will again not be a single important event in the European Union on September 2, but we have as many as three important reports in the United States. Of course, the NonFarm Payrolls report will be of most interest. We are waiting for the market reaction to it, two other reports (wages and unemployment) are important, but more secondary. Explanations for the chart: Support and Resistance Levels are the levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels. Kijun-sen and Senkou Span B lines are lines of the Ichimoku indicator transferred to the hourly timeframe from the 4-hour one. Support and resistance areas are areas from which the price has repeatedly rebounded off. Yellow lines are trend lines, trend channels and any other technical patterns. Indicator 1 on the COT charts is the size of the net position of each category of traders. Indicator 2 on the COT charts is the size of the net position for the non-commercial group. Paolo Greco   Relevance up to 02:00 2022-09-03 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/320611
Representatives Of The ECB Claim That By The End Of 2023, Inflation Should Have Reached The Target Level

The Dollar Is At Highs And The Euro Is Retreating

InstaForex Analysis InstaForex Analysis 02.09.2022 11:51
The US currency is closing the week strongly higher, having confirmed its leading position once again. Its European rival is rapidly losing ground. According to analysts, EUR/USD will be retesting the parity level from time to time, which is not good for the euro. The greenback, which has reached its peak in the past 20 years, started its rally late on Thursday, September 1. On the first day of autumn, the US dollar posted the third week of continuous gains. So, on Friday, it recorded the highest value in the past two decades trading against the euro and the yen. The US dollar hit 20-year highs following the release of the manufacturing index in the US. The data showed that the ISM Manufacturing PMI stayed at the same level of 52.8 in August. Some analysts expected a drop to 52 points. Yet, as the data shows, activity in the US manufacturing sector has notably increased. The indicator has been showing strength for a long time already. In this light, the European currency is noticeably retreating against its American counterpart. The euro opened this week below the parity level but managed to win back some losses later on. In the middle of the trading week, EUR/USD recovered to 1.0078 amid lower gas and oil prices and hawkish comments from the ECB. For your reference, the euro first tested the party level in early July and then slumped to the critical level of 0.9903. The situation only worsened as EUR was struggling to leave the parity level and withstand the downward pressure. On Friday morning, September 2, the EUR/USD pair was trading near 0.9970. There is a possibility that the pair may slightly advance to 0.9980. Its breakout will open the way for sellers towards the area of 0.9800–0.9820. Monetary policy tightening of the US Federal Reserve provides significant support to the greenback. The dollar is getting stronger as the Fed's September meeting is approaching. At the same time, the European currency is in a much less favorable position as it is pressured by a protracted energy crisis in Europe. Market participants expect the Fed to maintain its tight monetary policy as this measure is necessary to tackle accelerated inflation. The rate is projected to increase by 75 basis points to 3-3.25%. On Friday, the employment data in the US will be released. Estimates suggest that the unemployment rate in August stayed close to 3.5% recorded in July. The nonfarm payroll employment has increased by 300K. The Federal Reserve will consider this data to evaluate the state of the labor market and make a decision on the key rate. Experts assume that strong macroeconomic data will greenlight the rate hike through 2023. Markets are sure that the Fed will raise the rate for the third time in September by 75 basis points. For a different scenario, the Fed will need to see a deep decline in the labor market. Yet, there are currently no signs that it is cooling down. This summer, the US economy performed relatively well despite the threat of a recession. However, analysts at Danske Bank are skeptical about the current policy of the Fed. They point out that headline inflation in the country has reached its peak while the labor market and inflationary pressure remain strong. This makes it harder for the regulator to avoid recession as this is where the US economy is headed in 2023, Danske Bank concludes.     Relevance up to 08:00 2022-09-05 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. Read more: https://www.instaforex.eu/forex_analysis/320649
The EUR/USD Pair Showed Local Speculative Interest In Short Positions Yesterday

The EUR/USD Pair Showed Local Speculative Interest In Short Positions Yesterday

InstaForex Analysis InstaForex Analysis 02.09.2022 11:58
Yesterday, the single currency showed a rather impressive decline, falling below parity again. And it started during the European trading session, under the influence of the actual European macroeconomic statistics. In particular, the final data on the index of business activity in the manufacturing sector turned out to be worse than the preliminary estimate, and fell from 49.8 points to 49.6 points. While the preliminary estimate showed a decrease to 49.7 points. In addition, the data on unemployment also turned out to be not the best, although formally, it fell from 6.7% to 6.6%. But in fact, it remained unchanged, as the previous data were revised upwards. Unemployment rate (Europe): But in the United States, the final data on the index of business activity in the manufacturing sector turned out to be better than the preliminary estimate, which showed a decrease from 52.2 points to 51.3 points. In fact, it dropped to 51.5 points. However, the strengthening of the dollar is still somewhat surprising, as the data on applications for unemployment benefits do not inspire optimism. Of course, the number of initial requests decreased by 5,000. But the number of repeated requests increased by 26,000. And this is quite a lot. Number of retries for unemployment benefits (United States): It is possible that the dollar's growth is purely speculative in anticipation of today's release of the report of the United States Department of Labor. And while the unemployment rate is projected to remain unchanged, data on employment change clearly indicate a high potential for its growth. In addition, 310,000 new jobs should be created outside of agriculture, against 528,000 in the previous month. Such a strong decline in the rate of job creation clearly hints that the US labor market is losing momentum, and the situation is starting to worsen, which will be the reason for a sharp weakening of the dollar. Number of new non-agricultural jobs (United States): The EURUSD currency pair showed local speculative interest in short positions yesterday. As a result, the quote fell below the parity level, having almost reached the lower boundary of the sideways range of 0.9900/1.0050. The technical instrument RSI H4 crossed the middle line 50 from top to bottom during the downward momentum. As a result, the indicator settled in the lower area of 30/50, which indicates the downward mood of market participants. It should be noted that the signals from RSI H4 are of a variable nature due to the fact that the quote, as before, is moving within the sideways formation. MA moving lines on Alligator H4 have many intersections, which corresponds to the flat stage. Alligator D1 is directed to the downside, there is no intersection between the MA lines. This signal from the indicator corresponds to the direction of the main trend. In this case, the strengthening of the downward signal will occur at the moment when the MA (D1) lines are kept below the parity level. Expectations and prospects The convergence of the price with the lower limit of the flat 0.9900 led to an increase in the volume of long positions, as a result, a rebound appeared on the market. Despite the variable speculative interest, the quote is still in the sideways on the basis of a downward trend. Thus, the work can be built on the basis of two tactics: Rebound or breakdown relative to one or another control border. Concretize the above The bounce tactic is seen by traders as a temporary strategy. The breakout tactic is considered the main strategy because it can indicate the subsequent price move. Complex indicator analysis in the short-term and intraday periods have a variable signal due to the current flat. At this time, the indicators indicate a long position due to the price rebound from the lower border of the flat. Indicators in the medium term are focused on a downward trend.     Relevance up to 20:00 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/320635
The EUR/AUD Pair May Have The Potential To Continue Its Decline

How Can Beginner Investors Interpret The EUR/USD Pair Today?

InstaForex Analysis InstaForex Analysis 02.09.2022 12:38
Analysis of transactions in the EUR / USD pair Euro tested 1.0026 at the time when the MACD was just starting to move above zero, which was a good signal to buy. It led to a price increase of around 15 pips, after which pressure returned mainly because of weak statistics on the Euro area. Sometime later, the pair tested 1.0005, but this time the MACD line was far below zero, which should have limited the downward potential. Surprisingly, the quote continued to move down, and long positions from 0.9959 brought losses. Euro fell yesterday because of the disappointing data on the volume of retail trade in Germany and index of business activity in the manufacturing sector of Germany and the whole Euro area. Similar index from the US also led to its decline as the better-than-expected figure strengthened the positions of euro sellers and dollar buyers. This led to the fall of EUR/USD to yearly lows Data on the foreign trade balance of Germany and producer price index of the eurozone are scheduled to be released today, but they are of little interest to the market. That is why the focus will shift in the afternoon, after the release of reports on the unemployment rate, change in the number of people employed in the non-farm sector, change in the average hourly wage and share of the economically active population in the US. All of these are likely to lead to a surge in volatility as their numbers are expected to be much better than the forecasts. This will prompt another decrease in EUR/USD. The opposite scenario will start an upward correction. For long positions: Buy euro when the quote reaches 0.9978 (green line on the chart) and take profit at the price of 1.0119. A rally will occur only if statistics in the US come out lower than the forecasts. Take note that when buying, the MACD line should be above zero or is starting to rise from it. Euro can also be bought at 0.9959, but the MACD line should be in the oversold area as only by that will the market reverse to 0.9978 and 1.0019. For short positions: Sell euro when the quote reaches 0.9959 (red line on the chart) and take profit at the price of 0.9919. Pressure will return if statistics in the US exceed expectations. Take note that when selling, the MACD line should be below zero or is starting to move down from it. Euro can also be sold at 0.9978, but the MACD line should be in the overbought area, as only by that will the market reverse to 0.9959 and 0.9919. What's on the chart: The thin green line is the key level at which you can place long positions in the EUR/USD pair. The thick green line is the target price, since the quote is unlikely to move above this level. The thin red line is the level at which you can place short positions in the EUR/USD pair. The thick red line is the target price, since the quote is unlikely to move below this level. MACD line - when entering the market, it is important to be guided by the overbought and oversold zones. Important: Novice traders need to be very careful when making decisions about entering the market. Before the release of important reports, it is best to stay out of the market to avoid being caught in sharp fluctuations in the rate. If you decide to trade during the release of news, then always place stop orders to minimize losses. Without placing stop orders, you can very quickly lose your entire deposit, especially if you do not use money management and trade large volumes. And remember that for successful trading, you need to have a clear trading plan. Spontaneous trading decision based on the current market situation is an inherently losing strategy for an intraday trader.     Relevance up to 08:00 2022-09-03 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/320645
"A notable risk facing credit markets next year is the potential for the European Central Bank (ECB) to reduce the size of its balance sheet via the tapering of the asset purchase programme"

The Euro Is Under Pressure. Will It Able To Rebounds?

Kenny Fisher Kenny Fisher 02.09.2022 14:02
The euro is in positive territory today after taking a nasty spill on Thursday. In the European session, EUR/USD is trading at 0.9984, up 0.40%. Euro slides as risk appetite slides Thursday was a day to file away and move on for the euro, as EUR/USD tumbled 1.07%. The euro is under pressure from a high-flying US dollar and is having trouble staying above the symbolic parity line. A combination of solid US numbers, weak eurozone data and lower risk sentiment sent the euro sharply lower. German Manufacturing PMI dipped to 49.1, down from 49.3 in July. This marked a second straight contraction, and was the lowest level since May 2020, at the start of the Covid pandemic. It was a similar story for the eurozone Manufacturing PMI, which dropped from 49.8 to 49.6, a 26-month low. The manufacturing sector continues to struggle with supply chain disruptions and a shortage of workers, and high inflation and an uncertain economic outlook are only exacerbating matters. In the US, the ISM Manufacturing PMI held steady at 52.8, showing modest expansion. The labour market remains strong, with initial jobless claims dropping to 232 thousand, down from 237 thousand a week earlier and much better than the consensus of 248 thousand. Adding to the euro’s woes is the uncertainty over European energy supplies from Russia. Russia has shut down Nord Stream 1 pipeline for three days for maintenance, but Germany has charged that the shutdown is politically motivated and that the pipeline is “fully operational”. Nord Stream is supposed to come back online on Saturday. Even if Moscow does restore service, this episode is a reminder of Europe’s energy dependence on an unreliable Russia. Germany has greatly reduced its dependence on Russian gas, from 55% in February to just 26%, but a cutoff from Moscow would result in a shortage this winter. The week wraps up with the August nonfarm payrolls report. The consensus is for a strong gain of 300 thousand, after the unexpected massive gain of 528 thousand in July. The report could well be a market-mover for the US dollar. The markets are finally listening to the Fed’s hawkish message, and a strong reading will raise expectations of a 0.75% hike in September and likely push the dollar higher. Conversely, a weak report would complicate the Fed’s plans and raise the likelihood of a 0.50% hike, which could result in the dollar losing ground after the NFP release. . EUR/USD Technical EUR/USD is testing resistance at 0.9985. Above, there is resistance at 1.0068 There is support at 0.9880 and 0.9797 This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
Wow! Federal Reserve decision is not everything next week! What's ahead? InstaForex talks many economic events (Monday) - 30/10/22

ING Economics Team Expects Fed And ECB To Change Their Strategy A Bit As Recession Could Be More Acute Than Forecasted

ING Economics ING Economics 04.09.2022 10:43
Different shades of recession are spreading across the globe at record speed as soaring inflation, geopolitical tensions, and astronomical gas prices show no signs of abating. As central banks grapple with working out how to balance inflation and growth, there's one thing we're sure of: tough times lie ahead In this article A return to reality for Europe The colours of recession Out with the old, in with the new Looking ahead Recession’s coat of many colours ING's Carsten Brzeski on the different shades of recession spreading across the globe.   A return to reality for Europe Returning from the summer break always helps when looking at the bright side of the world's economic prospects. An often heard truism is that relaxed economists make fewer pessimistic forecasts. But when you're tracking the European and, specifically, German economies, no summer break is long enough to make short-term economic forecasts more optimistic. On the contrary, returning to Europe’s economic reality after the summer means returning to a recessionary environment, as gas prices are moving from one astronomic high to the other and will lead to unprecedentedly high energy bills over the winter. Even without a complete stop to Russian gas, high energy and food prices will weigh heavily on consumers and industry, making a technical recession – at least – inevitable. The colours of recession No two recessions, however, are the same. In fact, we are currently seeing different colours of recession across the world. The US economy has actually been in a technical recession – defined as two consecutive quarters of negative growth – but it feels nowhere close to a recession. Our chief international economist in New York, James Knightley, says weaker global growth, the strong dollar and the slowdown in the housing market on the back of higher interest rates, will make it feel like a ‘real’ recession at the turn of the year, however. In other regions of the world, we are not currently seeing fully-fledged recessions, but given that China and emerging markets need higher growth rates than the Western hemisphere, the expected sub-potential growth rates can easily feel recessionary. As a consequence, even if Europe currently remains the epicentre of geopolitical tensions, it almost looks as if recession and recessionary trends are a new export item. Out with the old, in with the new With different shades of recession spreading across the global economy, but inflation still stubbornly high as a result of post-pandemic mismatches of demand and supply as well as energy price shocks, the dilemma for major central banks is worsening: how to balance inflation and growth. In the past, the answer would have been clear: most central banks would have shifted towards an easing bias. Not this time around. We are currently witnessing a paradigm shift, recently illustrated at the Jackson Hole conference. A paradigm shift that is characterised by central banks trying to break inflation, accepting the potential costs of pushing economies further into recession. This is similar to what we had in the early 1980s. Back then, higher inflation was also mainly a supply-side phenomenon but eventually led to price-wage spirals and central banks had to hike policy rates to double-digit levels in order to bring inflation down. With the current paradigm shift, central banks are trying to get ahead of the curve. At least ahead of the curve of the 1970s and 1980s. Whether the paradigm shift of central bankers is the right one or simply too much of a good thing is a different question. What strikes me is that central bankers have implicitly moved away from measuring the impact of their policies by medium-term variables and expectations towards measuring it by current and actual inflation outcomes. This could definitely lead to some overshooting of policy rates and post-policy mistakes. Looking ahead We still think that the paradigm shift will not last that long and looming recessions will bring new pivots, forcing the Fed to stop hiking rates at the end of the year and eventually cutting rates again in 2023, and stopping the ECB from engaging in a longer series of rate hikes. Reasons for this out-of-consensus view are that we expect a more severe recession than the Fed and ECB do, and a faster drop in US inflation, in particular, than the Fed expects. Also, in a recession, any neutral interest rate is lower than in a strong growth environment. Finally (and a bit meanly), central banks have not had a good track record with their inflation predictions over the past few years. In any case, we are back from the summer break and looking ahead to a very exciting autumn. Enjoy reading and stay tuned. TagsMonthly Update   Source: ING Monthly: Recession’s coat of many colours | Article | ING Think   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Saxo Bank Podcast: Natural Gas On Colder Weather, Wheat And Coffee Under Pressure, JPY Weaker And More

The Interruption Of Gas Supply Has Sent The Euro Downwards

InstaForex Analysis InstaForex Analysis 05.09.2022 13:29
The energy crisis in the EU continues to deepen amid Russia's full shutdown of the Nord Stream pipeline over the past weekend. The interruption of gas supply has sent the euro downwards once again. Early on Monday, the European currency lost 0.5% against the US dollar and hit a 20-year low at 0.9903. EUR/USD came under pressure following Russia's decision to extend maintenance of the Nord Stream pipeline. Gazprom shut down the pipeline indefinitely, citing an oil leak in one of its turbines. EU officials believe the technical issues are merely a pretext by the Kremlin to shut down gas exports to the European Union According to the West, Moscow is trying to impose an energy blockade on the EU at the beginning of the heating season in a last-ditch attempt to force EU to relax its sanctions against Russia. At the same time, the Kremlin has blamed Western sanctions imposed on Russia for the pipeline's shutdown. Russia is claiming that sanctions prevent Gazprom from keeping the Nord Stream's turbines running. On Saturday, Gazprom tried to alleviate EU concerns by stating that the company would increase natural gas exports to Europe via Ukraine. However, the West has deemed Gazprom's promises to be unreliable. Such an increase would not fully compensate for the shutdown of Nord Stream. Furthermore, this cannot be a permanent solution. Natural gas deliveries via Ukraine could be difficult due to the ongoing conflict between the two countries. This escalation of the gas war between Russia and the EU is forcing EU policymakers to seek solutions for the supply problem. The EU is worried that the shutdown of Nord Stream could send natural gas prices in Europe even higher. On Friday, EU energy ministers are set to present emergency measures to tackle rising energy prices. These measures would likely include natural gas price caps. Furthermore, EU politicians would push for a reduction in gas demand and consumption in the European Union. The ongoing energy crisis will be in the headlines this week, dimming the short-term prospects of the euro. As the gas conflict escalates, risks of an economic slowdown would rise. With the ECB preparing for another interest rate increase, the timing for these risks could not be worse. The ECB's policy meeting is scheduled to take place on Thursday. The EU regulator is now increasingly expected to carry out more aggressive policy measures after inflation in the eurozone reached 9.1%. However, with the EU facing a renewed threat of an energy collapse, recession, and a serious financial crisis, many analysts do not believe that ECB president Christine Lagarde will take a more hawkish step than in July. Earlier, the European Central Bank increased the key rate by 50 basis points to 0.5%. At the same time, the Federal Reserve hiked the rate by 75 basis points to 2.25-2.5%. The gap between EU and US interest rates could likely increase even further in September, as traders expect another 75 bps move by the Fed in September. It would be a third such increase in a row. "Everything is pointing to a lower euro," Carol Kong, senior associate for international economics and currency strategy at Commonwealth Bank of Australia said. "We've heard a great deal of negative news about the European economy, and I think the decline in the euro can continue this week." On the technical side, EUR/USD bears hold dominance in the market. The 7-week support line at 0.9880 is acting as an additional downside filter for the pair. EUR/USD must regain 1.0100 for bullish traders to return to the market.     Relevance up to 10:00 2022-09-10 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. Read more: https://www.instaforex.eu/forex_analysis/320805
Short-term analysis - Euro to US dollar by InstaForex - 31/10/22

Eurozone: Retail Sales Rose Because Of Increased Food And Fuel Consumption

ING Economics ING Economics 05.09.2022 14:30
The small increase in retail sales at the start of the third quarter brings little optimism about the outlook. Increased food and fuel spending masked a decline in sales for all other items. Expect consumption to decline from here on due to the purchasing power squeeze that the eurozone is going through Eurozone retail sales in July Retail sales increased by 0.3% in July, which is small enough for this uptick to be in line with the downward trend seen in recent months. The peak in retail sales was in November and sales in July were about 2.5% below that level. Food and fuel caused the small increase in July as all other items saw a decline of -0.4% in terms of sales volumes. A strong increase in Germany and the Netherlands masked declines in the other large eurozone markets. Don’t expect this to be the start of a sustained upturn in sales. The outlook remains rather bleak for the months ahead as real incomes go through an unprecedented squeeze due to high inflation and lagging wages. We expect consumption to contract for the coming quarters on the back of this. For the European Central Bank though, it is definitely no smoking gun for the start of a contraction. With the September meeting coming up and October of course not long after, the doves are looking for clear evidence that the economy is moving into contraction territory. Today’s data will, in that sense, not be of much help. Still, evidence of a recessionary environment is likely to become more apparent as new data comes in. Read this article on THINK TagsInflation GDP Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Italian industrial production fell again in June, raising doubts over 3Q growth

Euro To US Dollar Index Falls - Touching Levels Not Seen In 20 Years

Rebecca Duthie Rebecca Duthie 06.09.2022 00:01
Summary: Thursday's European Central Bank (ECB) meeting during this crucial week for the euro. Russia cuts off Nord Stream gas supply. A crucial week for the Euro. But is still at risk as energy issues become more apparent. Euro Index suffers in the wake of Russia Turning off the gas taps Monday saw a new 20-year low for the euro as concerns about a worsening energy crisis in the area increased as Russia cut off gas supplies to Europe through its main pipeline. In recent months, there has been an increase in the correlation between the euro and natural gas prices, with the latter declining as energy prices rise. Before the chilly winter months, Europe is frantically trying to wean itself off Russian supply and build up reserves, but many predict a significant economic damage. Invoking an oil leak in a turbine, Russia postponed a Saturday deadline for the Nord Stream pipeline to begin carrying oil. It happened at the same time that the Group of Seven finance ministers announced a limit on Russian oil prices. Early in European trading, the euro fell to $0.9876, its lowest level since 2002, before bouncing back to $0.9939, but down 0.2% on the day. "Gas flows have been curtailed even more than expected and we have already seen evidence of demand destruction weighing on activity," said Michael Cahill, a strategist at Goldman Sachs. "We now expect the Euro to fall further below parity ($0.97) and remain around that level for the next six months," he added. Investors are gearing up for Thursday's European Central Bank (ECB) meeting during this crucial week for the euro, as markets have priced in a nearly 80% possibility of a massive 75 basis point (bp) interest rate hike. The stabilization of the euro, which has lost over 8% of its value over the last three months, will be welcomed by ECB policymakers. That will fuel the desire to tighten policy in an effort to control inflation. EUR/USD Price Chart Sources: finance.yahoo.com, reuters.com
The German Economy Will Still Have To Cope With The Delayed Impacts Of Last Year’s Crises

Eurozone: German Ifo Index Decreased Once Again Hitting 88.5!

ING Economics ING Economics 25.08.2022 14:08
The list of arguments why the German economy is sliding into recession is getting ever longer. The question isn't about whether there'll be a recession but rather how severe and how long it will be Germany Economy Minister, Robert Habeck, speaking about energy at a news conference in Berlin yesterday   Germany’s most prominent leading indicator, the Ifo index, just dropped for the third month in a row, coming in at 88.5 in August, from 88.7 in July. This is the lowest level since June 2020. The positive interpretation is that the weakening of the Ifo index is slowing down. The negative interpretation is obviously that no improvement is currently in sight. Expectations remain close to their all-time lows and were only worse in December 2018 and April 2020. Earlier this morning, the details of German GDP growth in the second quarter brought some positive surprises. Growth was slightly revised upwards to 0.1% Quarter-on-Quarter, from zero in the first estimate, which finally brought the German economy back to its pre-crisis level. Private consumption surprised to the upside (+0.8% QoQ) and even more importantly was revised upwards significantly in the first quarter to +0.8% QoQ, from initially -0.1% QoQ. It was net exports and the construction sector which weighed on economic activity in the second quarter. Ifo index provides more recession evidence Looking ahead, however, it is hard to see private consumption holding up when inflation is high, energy invoices will be doubling or tripling in the coming months and consumer confidence is at all-time lows. Tuesday’s PMI readings already suggested that the economy is in contraction territory and we are afraid that this time around the indicators are right. The Germany economy is quicky approaching a perfect storm In fact, the German economy is quickly approaching a perfect storm. The war in Ukraine has probably marked the end of Germany’s very successful economic business model: importing cheap (Russian) energy and input goods, while exporting high-quality products to the world, benefitting from globalisation. The country is now in the middle of a complete overhaul, accelerating the green transition, restructuring supply chains, and preparing for a less globalised world. And these things come on top of well-known long-standing issues, such as a lack of digitalisation, ageing infrastructure, and an ageing society, to mention a few. In the coming weeks and months, these longer-term changes will be overshadowed by shorter-term problems: high inflation, possible energy supply disruptions, and ongoing supply chain frictions. In recent weeks, these shorter-term problems have become larger as low water levels and the new gas levy have added to inflation and recession concerns. There are some upsides. Surprisingly strong consumer spending in the first half of the year is one. The fact that the filling of the national gas reserves is actually ahead of schedule is another. Gas reserves are currently back to their average levels of 2016-2021. However, it remains far from certain whether gas reserves at 95% in November, as targeted by the government, can get energy consumption through an entire winter without Russian gas. There are simply too many unknowns like the severity of the winter season and the potential reductions in gas consumption by households and corporates. In any case, even without an energy supply disruption, the economy would be facing high energy costs. This alone, combined with the disruption from the low water levels for industry, ongoing geopolitical uncertainty and supply chain frictions, should be enough to push the German economy into a winter recession. Today’s Ifo index adds to the long list of evidence that the German economy is sliding into a winter recession. The question no longer seems to be if it will be a recession. The only question is how severe and how long that  recession will be. Read this article on THINK TagsIfo index Germany Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The ECB Has No Other Options But To Keep Tightening The Monetary Policy

A Bullish Outlook For The Dollar Index. The Importance Of The Rate Hike For The Euro

InstaForex Analysis InstaForex Analysis 06.09.2022 11:26
The euro seeks to wrap itself in favor of the gas problems faced by the countries of the eurozone. Most often, the EUR loses, but now there is a small chance for its short-term recovery amid a slowing USD rally. The greenback took a breather on the morning of Tuesday, September 6, to recover from a heady rally. This strategy has led to some decline from all-time highs against the euro, but it is still too early to draw conclusions. The threat of a recession looms over both currencies. Adding fuel to the fire is the high likelihood of a sharp rise in US interest rates. A short-term slowdown in the growth of the USD against key currencies and a slight subsidence against the European one was caused by expectations of statistical data on the index of business activity in the US services sector (ISM). According to preliminary estimates, this figure fell to 55.1% in August from 56.7% in July. Significant support for the US currency is provided by expectations about the rate hike by the Federal Reserve. According to analysts, the central bank is "at a low start" in this matter. At the same time, 62% of specialists include in prices its increase by an additional 0.75 percentage points, up to 3-3.25% per annum. In such a situation, the dynamics of the euro, which has to withstand the gas crisis in the eurozone, is in distress. At the beginning of this week, the euro fell by 0.7% to 0.9880. According to experts, this is the lowest figure in the last 20 years. The current energy crisis has seriously shaken the euro's position. The driver of this fall was the actions of the Russian authorities, who announced a complete suspension of the supply of natural gas through the Nord Stream pipeline. According to analysts, this will increase the economic problems of European businesses and households. Against this background, mass short positions on the European and British currencies were recorded. Experts fear that this trend will strengthen. According to currency strategists at ING Bank, "gas pressures sent the EUR/USD pair to new lows this year." Recall that earlier this week, the pair fell below 0.9900 for the first time since October 2002. According to ING economists, in the near future the EUR/USD pair will continue to fall to a new support level in the range of 0.9600-0.9650. However, this is an extremely low level for a pair, which threatens the existence of the single currency. The EUR/USD pair cruised near 0.9963 on the morning of Tuesday, September 6, winning back previous losses. However, experts warn against euphoria, as the dollar is ready to brace itself and continue its rally, displacing the euro. In such a situation, many analysts see a way out in a further increase in the key rate by the European Central Bank. However, ING economists do not agree with this, who consider it excessive to raise the rate by the central bank by 75 bps at once. According to experts, this will not solve the current problems of the eurozone. ING bank believes that the rate hike by 75 bps at the next meeting, scheduled for Thursday, September 8, is "too big a step for the ECB, which will not help the euro." You should expect it to increase by 50 bps, analysts conclude. Expectations about a sharp rate hike by the ECB (by 75 bps) are fueled by growing inflation in the euro area, the threat of a recession and disappointing macroeconomic data for the region. The icing on the cake was the deepening of the energy crisis in Europe. This undermines the demand for a single currency, experts emphasize. According to current reports, in July, retail sales in the euro area fell by 0.9% in annual terms. At the same time, markets expected a decline of 0.7%. In addition, the Sentix investor confidence index fell to -31.8 points in September from -25.2 points in August. Against this backdrop, Sentix analysts noted a "clear deterioration" in the economic situation in the eurozone, stressing that this is the lowest rate since May 2020. The US currency continues to benefit from the current situation, despite a short-term subsidence. Many experts agree on the long-term upward trend of the dollar, which has been observed since mid-2021. Experts believe that a significant divergence in the monetary strategies of central banks is a significant driver of the growth of the USD against the euro. It is noted that the ECB is still "two steps behind the Fed" in terms of raising rates. The situation was not saved even by its increase by 50 points in July. However, the ECB may revise its strategy and raise the rate at the next meeting by 50-75 bps. Another important factor in the greenback's growth is the stability of the US economy. According to analysts, the US is relatively easy to survive the gas crisis, while selling energy to Europe. In the long term, this state of affairs plays against the ECB and the countries of the European bloc, but it plays into the hands of the Federal Reserve. In such a situation, it is difficult for the ECB not only to raise, but also to keep rates at a high level, unlike the Fed. Under such a scenario, a deep economic downturn in the eurozone is possible, experts warn. The current market environment creates a bullish outlook for the dollar index (USDX). Currently, the bulls on the dollar are in a strong position, pushing the bears. However, the situation may change at any time. In the short and medium term, analysts allow it to rise to an impressive 120 points, that is, an increase of 9%. In a favorable scenario, USDX will head towards the peaks of 2001-2002. However, experts consider this option extreme, although they allow its implementation until the end of 2022.     Relevance up to 08:00 2022-09-11 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. Read more: https://www.instaforex.eu/forex_analysis/320889
The Price Of EUR/USD Pair Will Develop Sideways Movement

Despite The Rising Rates, What Does Change Of Interest Rate Policy Means To Eurozone

ING Economics ING Economics 06.09.2022 12:24
Eurozone government deposits at the central bank are subject to a 0% rate cap. This means hundreds of billions of euros could be shifted around. In some cases, this will reduce repo lending or boost demand for safe bonds, all exacerbating the existing collateral shortage Source: Shutterstock The return to positive policy rates will change the incentives for public sector actors in markets Germany’s and Austria’s debt agencies no longer want to lend securities against cash Exiting negative and eventually zero interest rate policies does not simply mean higher rates, but it also means some of the incentives that have dictated the basic market structure and functioning we have become accustomed to over the years of extraordinary policies will change as well. One such change has been highlighted by reports that Germany’s and Austria’s debt agencies are planning to change their repo rules. They no longer want to lend out their securities against cash, but only against other collateral. Why now? And what are the amounts involved? Government cash deposits held at central banks are remunerated at the ECB's deposit facility rate, but importantly that remuneration is capped at zero. Given the vast amounts of excess liquidity in the banking system, short term market rates have traded noticeably below the deposit facility rate. With the deposit facility rate below or at zero the incentive for governments to park cash outside of the central bank were low. But the ECB is now expected to hike the deposit facility rate at a fast pace to well above zero, possibly by 75bp already this week – and the gap to the remuneration capped at 0% will widen quickly. For the abovementioned repos that means that the economics of  government debt agency lending out a security against cash and redepositing at the ECB will change dramatically. Ballooning government central bank deposits are a problem as their remuneration is capped at 0% Source: Refinitiv, ING Germany’s government deposits at the Bundesbank amount to currently €176bn, €120bn of which from the central government Eurozone government deposits at their respective central banks amount to around €600bn currently, fluctuating between €600 to 700bn over the past year. Pre-pandemic they were in the region of €200 to 300bn, already up from around €50 to 150bn before negative interest rates (and then QE) were introduced. But it was the pandemic that has led governments to build up vast cash buffers. Remuneration at the negative depo rate did not matter, it was actually better than market rates. Germany’s government deposits at the Bundesbank amount to currently €176bn, €120bn of which from the central government. Those of Austria at the Oesterreichische Nationalbank amount to €17bn. Certainly not all of that cash originates from the debt agencies' repo operations for which the rules are now tweaked. The operations affected are those that the agencies conduct to support market functioning and market liquidity. Collateral scarcity is set to worsen It all boils down to the one burning issue, the scarcity of high quality collateral. The incentives for the German debt agency to reduce its cash holdings at the central bank are clear. The options are to either seek alternative short term investments, or –  in this special case the simpler solution – to tweak the rules to avoid generating the cash in the first place. Crucially, allowing market participants to effectively only swap securities does not add to the overall availability of government bonds as lending against cash does. While it may still ease price distortions for individual securities, the overall high price for already scarce collateral is unaddressed. As an aside, the ECB's own securities lending against cash (capped at 150bn) has gained importance since late last year, tripling in volume to now account for half of the ECB's overall securities lending. Worsening collateral scarcity is already visible in widening 2Y German swap spreads Source: Refinitiv, ING   There should be an incentive to reduce the cash holdings at the central bank Looking beyond the case where just repo rules are tweaked, there should be an incentive to reduce the cash holdings at the central bank, thus limiting those holdings to the need for safety liquidity buffers. Some countries already have institutional arrangements in place to transfer the cash back to the banking system, via daily repos or the collection of non-collateralised deposits. Those arrangements were more likely meant to smoothen the volatility of the accounts to facilitate the ECB’s liquidity management rather than to structurally reduce the vast amounts that have now accumulated. Cash could of course also be invested in high quality liquid assets - think government bills or similar assets. Alternatively, debt agencies could run down cash buffers, simply by issuing less government paper. All of this to the same effect that the market's collateral availability for is further reduced. This is already visible in the stretched bond valuations (2Y German Schatz in the chart above) relative to swaps. Read this article on THINK
EUR/USD Dropped To New Multi-year Lows, Truss Delivers A Convincing Package To Beat The Cost Of Living Crisis (EUR/GBP), RBA Interest Rate Decision (GBP/AUD)

EUR/USD Dropped To New Multi-year Lows, Truss Delivers A Convincing Package To Beat The Cost Of Living Crisis (EUR/GBP), RBA Interest Rate Decision (GBP/AUD)

Rebecca Duthie Rebecca Duthie 06.09.2022 22:12
Summary: U.S. economy is doing well despite tighter monetary policy. Truss - The new UK prime minister as of Tuesday. RBA interest rate decision. EUR/USD hits multi-year lows on Tuesday The market is reflecting mixed signals for this currency pair. On Tuesday due to negative sentiment, the EUR/USD dropped to new multi-year lows, briefly touching 0.9865 in choppy trading after U.S. markets resumed trading after the Labor Day holiday on Monday. Even while the euro was able to somewhat recoup some of its losses during the day, broad U.S. dollar rise in the early afternoon hampered the currency's sentiment. As a result of a rise in U.S. Treasury rates, which drove both short-term and particularly long-dated yields considerably higher, DXY rose as much as 0.85% at one point. Bond prices rose in part as a result of better-than-expected statistics from the U.S. services sector. The non-manufacturing PMI for August rose to 56.9 versus 55.1 predicted, according to the Institute for Supply Management, which indicates that the economy is still very robust. The fact that the U.S. economy is doing well despite tighter monetary policy suggests that the central bank will likely move forward with its plans to raise interest rates a few more times in the upcoming months, keeping them there for longer than initially anticipated to reduce inflation, which would be bullish for the dollar. However, for the time being, a dovish pivot will not materialize. EUR/USD Price Chart GBP supported by Truss’ policies The market is reflecting mixed signals for this currency pair. The British pound has had a terrible year, but if the incoming prime minister can present a convincing package of policies to address the cost of living crisis, the pound may recover in the remaining months of the year. According to a number of media publications, Truss, who became prime minister on Tuesday, may implement a plan to cap energy costs at £130 billion. She's also expected to make a major tax cut announcement as part of one of her major campaign promises. According to sources, the UK's incoming Prime Minister is thinking about freezing energy prices for millions of homes this winter, a move that may reduce the country's inflation rates by as much as four percentage points. According to Capital Economics, an independent research firm, core inflation would nevertheless continue to be stubbornly high and attract additional Bank of England interest rate increases. EUR/GBP Price Chart RBA decided on 50bps interest rate hike The Reserve Bank of Australia (RBA), which raised interest rates by another 50 basis points, together with indications that the central bank is reaching the conclusion of its tightening cycle, left the Australian Dollar floundering. By raising rates by 50 basis points, the RBA satisfied market expectations and promised additional rate increases in its outlook. Sterling pounds According to Live's RBA preview, the currency would be more affected by the direction of future raises than by a 50 basis point increase, which would provide little support to the Australian dollar. We warned that the Australian dollar might suffer from a "dovish" hike, in which the Bank sought to curb expectations for additional assertive action. The RBA brings Australia's basic lending rate into a range of 2-3% that it views as the "neutral" position by raising the Cash Rate to 2.35%. As a result, it holds that interest rates are neither restrictive nor stimulatory, which lends support to the idea that the RBA may start to contemplate easing back. GBP/AUD Price Chart Sources: finance.yahoo.com, poundsterlinglive.com, dailyfx.com
Eurozone's GDP Is Forecasted To Hit 2.1% For 2022, Inflation Expectations May Be Corrected

Eurozone's GDP Is Forecasted To Hit 2.1% For 2022, Inflation Expectations May Be Corrected

Jing Ren Jing Ren 06.09.2022 15:01
We can expect quite a bit of volatility on Thursday, when the ECB will make its rate decision. Surveyed economists are almost evenly split on whether there will be a 50bps or a 75bps hike. The market has priced in around 68bps, implying a favoritism towards the tighter policy. However, it's still possible to get a bounce in the currency, since the move isn't fully priced in. Though part of the expectations could be influenced by an unusually large amount of debt issuance by Eurozone countries this week. Italy, Austria and Germany are all issuing bonds before the ECB meeting, which could put upward pressure on yields, and obscure how the market is really feeling about what will happen with the rate decision. Putting the pieces together There are good fundamental arguments for both positions, as might be expected. On the one hand, EU inflation is likely to keep rising after Russia cut off supply of gas through Nord Stream 1. Tighter policy might be justified in an attempt to prevent higher energy costs from spreading through the economy. On the other hand, that very possibility of higher energy costs could justify keeping rates on hold. Higher energy costs would contribute to a recession, thus lower prices, and less need for the ECB to take as aggressive attitude. However, the reality is inflation isn't on the "supply side" (that is, because of increased funds) as much as it is due to factors outside the ECB's control. The ECB doesn't control the price of energy, nor the flow of gas from Russia, nor the shutdown of factories because of higher energy and transportation costs. The ECB has one tool, and just because it might not be the most appropriate for the situation, it doesn't mean they won't use it, anyway. The market reaction There is wide expectation that the Fed will also hike rates by 75bps. Meaning that if the ECB goes for only 50bps, the gap between the Euro and the dollar will once again widen. That would put downward pressure on the EURUSD. On the other hand, a 75bps hike would simply maintain the gap, which could help the EURUSD, but would have less buoyancy. The other factor to keep in mind is that ECB staff projections are announced at the same time. This could have a bigger impact on the currency, since forward expectations of rate hikes weigh more on institutional investors. Lately, there have been several ECB members emphasizing that they will push for tighter policy. Some have gone so far as to suggest that rates could go above the "neutral rate" in order to tamp down inflation. That would imply at least another 175bps of hikes over the next four meetings. The future is what matters Those aggressive stances might be tempered if the staff forecasts cut the outlook for the shared economy's growth for this year and next. The last projections showed that the bank expected 2.1% growth for this year, and is likely to be revised downward. Inflation was also projected to be at 2% for next year, something that is likely to be revised upwards.
Inflation Rising Again In The Eurozone, Positive GDP In The Great Britain

Euro Is Awaiting Thursday! Is There Any Chance For ECB (European Central Bank) To Change Its Stance?

ING Economics ING Economics 07.09.2022 11:14
Thursday’s ECB rate decision is apparently on a knife edge. This should also tell you that there is a very broad range of possible hike outcomes by year end, do not dismiss anything. The upshot is higher front-end rates volatility, especially with the explosion in swap spreads and collateral shortage ECB doves out in force, but enough to force a 50bp hike? Despite the ECB’s pre-meeting quiet period being in full force, it seems doves have mounted a last minute, and coordinated, push to a more gradual approach to policy normalisation. Fabio Centeno, Yannis Stournaras, and to a lesser extent Martins Kazaks and Edward Scicluna, seem to push back against the barrage of hawkish comments that have coloured ECB communication in the past few weeks. The disagreement on the face of it does not seem insurmountable, but they highlight that whatever policy decision is taken tomorrow, a 75bp hike is not yet set in stone. A 75bp hike is not yet set in stone The main takeaway from our four doves (for the purpose of these comments at least) was that they did highlight the policy trade-off between fighting inflation and safeguarding growth, something the hawks, and other central banks such as the Fed, have been at pains to dismiss. Ultimately ECB forward guidance, for it hasn’t abandoned the idea of steering market expectations despite what it says, should be taken with a pinch of salt by markets. In addition to a wide range of opinions today, the range of possible economic outcomes into this winter should in turn convince markets that it is very difficult to predict ECB policy even a few meetings into the future. 2Y implied EUR rates volatility has overtaken 10Y Source: Refinitiv, ING Don't get wedded to any specific ECB outcome, and expect more volatility The implications are twofold. First, even out-of-consensus calls like our own for only another 75bp of hikes this year, are far from impossible if the economy takes a turn for the worse between this meeting and the next. On the other hand, more hikes than the roughly 150bp priced for this year, let alone next, are definitely possible, especially if governments expand support measures for energy consumers. The second implication is that rates volatility at the short-end is definitely warranted, more so than for longer maturities which should rely mostly on much slower-moving estimates for long-term equilibrium interest rates. Rates volatility at the short-end is definitely warranted, more so than for longer maturities On the topic of front-end volatility, the explosion in swap spreads is gaining more attention in rates markets. The 0% rate cap on government deposits at the ECB (or at national central banks) means some national treasuries have suspended their repo operations as they will soon get a much worse rate on their deposits than the interest rates they are paying on repos. Similarly, we expect national and sub-national treasuries to prefer parking their excess cash into short-term securities rather than earning nothing by placing it at their domestic central banks. Both effects are worsening the collateral shortage, and widening swap spreads. The collateral shortage is widening the gap between bond yields and swap rates Source: Refinitiv, ING US 10yr continues to journey towards 3.5% The rise in US market rates and the pressure it places on wider core rates continues. The US economy is clearly refusing to lie down, with yesterday's ISM number a reminder of this. The structure of the curve has moved from being a bullish one for bonds to quite a neutral one (positioning of the 5yr to the curve). But it has not quite switched to outright bearish positioning. This continues to imply that a rise in the 10yr back towards the high hit at 3.5% in June remains on the cards, but not necessarily a big rise beyond that (so far). The US economy is clearly refusing to lie down The 2yr is already there (at 3.5%), and the market has 3.75% to 4% as an end game for the Federal Reserve. The risk going forward is that the market decides to edge this even higher. The fact that risk assets are lower will not worry the Fed here. The key thing is whether the system can take it. Based off where banks can print commercial paper as a spread over the risk free rate, the system remains in good shape (as that spread remains exceptionally low). The rising rates environment has more to go, and that also forms the background music as the ECB faces its own key decision on Thursday. Today's events and market view Bank of England governor Bailey and other members will appear in front of the treasury select committee. It is hard to imagine the questions and answers not being heavily interpreted by markets with an eye on next week’s policy meeting. Germany will add to long-end supply this week with a 15Y auction worth €1.5bn. This is the last scheduled euro sovereign bond sale of the week so we expect the long-end to trade better afterwards. Eurozone Q2 unemployment and GDP will feel dated and the economic focus will likely be on US July trade in the afternoon instead. There is a long list of Fed speakers today including Thomas Barkin, Loretta Mester, and Lael Brainard. Read this article on THINK
Interest Rates In Eurozone Will Continue To Increase In The Coming Meetings

More Rate Hikes Are Coming. The Increase In The USD/JPY Will Not Change The Political Position Of The Bank Of Japan

ING Economics ING Economics 03.09.2022 09:39
Expect more big rate hikes in September from the major central banks, even if many of them are closing in on the end of their respective tightening cycles In this article Federal Reserve European Central Bank Bank of England Bank of Japan   Federal Reserve Our call: A third consecutive 75bp rate hike in September with Fed funds hitting 3.75-4% in December. Rate cuts from summer 2023. Quantitative tightening (QT) to continue until rate cuts begin. Rationale: While there was a technical recession in the first half of the year this was attributed to volatility in trade and inventories. Consumer spending, business capex and job creation are firm, and with inflation remaining stubbornly high and financial conditions not tightening as much as the Fed would like, more rate hikes are coming. But the 2023 global outlook is deteriorating while higher interest rates and the strong dollar are set to weigh on domestic activity, which is already facing a steep downturn in the housing market. We expect rate cuts next summer. Risk to our call: Two-way. If the labour market remains tight and inflation doesn't fall as quickly as we expect then rate hikes will continue for longer.  Conversely, if the economy reacts badly to rate hikes a deep recession will likely prompt a more rapid reversal in Fed policy. James Knightley European Central Bank Our call: A 50bp rate hike in September and another 25bp in October, followed by a long pause.  Rationale: The eurozone is facing a longer recession and financing conditions have already tightened significantly in recent weeks. The ECB will try to bring its policy rate to the lower end of the range for neutral rates as quickly as possible. However, we think that the ECB is still underestimating the risk and severity of a recession. As soon as the recession becomes more evident, the ECB will also turn more dovish. Any neutral policy rate is much lower in a recession than in a strong growth environment.  Risk to our call: The paradigm shift in many central banks and a high acceptance of a worsening recession is the price to pay to fight inflation. The risk is that the ECB will continue hiking way into the recession and would deliver a total of 150bp rate hikes until Spring 2023. Carsten Brzeski Bank of England Our call: A 50bp rate hike in September and November Rationale: For the same reasons as the ECB, we think the Bank of England is closer to the end of its tightening cycle than the beginning. That said, there is scope for further aggressive action in the near term. While core inflation should fall throughout next year, the jobs market remains tight and the Bank is worried about the risk of persistent wage inflation. We also think a large government energy support package looks increasingly inevitable, and we think that could provide further impetus for the BoE to keep hiking in the near term. The recent weakness in sterling will bolster the hawks' case, even if in practice this isn’t likely to move the needle for inflation all that much. Risk to our call: Two-way. A lack of government support could force the Bank to stop hiking sooner. Equally a 75bp rate hike in September shouldn’t be totally ruled out given other central banks' actions, and neither should the risk of Bank Rate hitting 3% later this year. However, that would make rate cuts more likely in 2023 James Smith Bank of Japan Our call: Bank of Japan will maintain an accommodative policy stance. Rationale: CPI will likely stay above 2.5% till the end of 2022, but the BoJ will downplay it as 'cost-push' driven inflation that will prove to be temporary. Labour conditions are expected to become tighter as labour shortages persist, but it is still questionable that this will lead to meaningful wage increases over the coming months. Even if USD/JPY rises above 140, it won’t be a reason for the BoJ to change its policy stance. Risk to our call: If signs of wage growth are detected then the BoJ may reconsider its policy stance, but that will become more likely when Governor Haruhiko Kuroda retires next April. Min Joo Kang    Source: https://think.ing.com/articles/monthly-central-banks-our-main-calls/?utm_campaign=September-01_monthly-central-banks-our-main-calls&utm_medium=email&utm_source=emailing_article&M_BT=1124162492 Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
For What It Is Worthy To Pay Attention Next Week 23.01-29.01

The New UK Prime Minister Will Face Energy Bills Climb. The EBC Open For Further Rate Hikes.

ING Economics ING Economics 03.09.2022 09:12
Despite headline inflation at a new record high and multiple hawkish comments by European Central Bank members, we are expecting the ECB to ‘only’ hike by 50bp next week. In Canada, with excess demand causing inflation to remain well above target, we expect the Bank of Canada to opt for a 75bp hike on Wednesday In this article US: Focus next week will be Powell's comments on monetary policy UK: New prime minister to face immediate test as energy bills climb Canada: Bank of Canada expected to hike rates by 75bp next week Eurozone: ECB to implement another 50bp hike; 75bp not ruled out US: Focus next week will be Powell's comments on monetary policy Markets continue to favour a 75bp rate hike from the Federal Reserve on 21 September despite the economy having been in a technical recession since the first half of the year. With more than three million jobs added since the start of 2022, consumer spending continuing to grow, and inflation running at more than 8%, it is hard to argue this is a “real recession” with the fall in GDP instead down to volatility in trade and inventory data which continues to swing wildly due to ongoing supply chain issues. Monday is a holiday and the data calendar is light so instead we will be focusing on Federal Reserve Chair Jerome Powell’s comments at a conference on monetary policy next Thursday. With the Fed’s “quiet period” ahead of the 21 September FOMC meeting set to kick in the following weekend, it will be the last opportunity he has to shift market expectations. We expect him to talk up the need to act forcibly to get a grip on inflation. Moreover, with core inflation set to rise from 5.9% to 6.1% on 13 September, we agree that a 75bp hike is the most likely outcome. UK: New prime minister to face immediate test as energy bills climb The new UK prime minister will finally be announced on Monday, and Foreign Secretary Liz Truss is widely expected to beat Rishi Sunak to be Boris Johnson’s successor. Markets will be looking at two key areas in the first few days of the new leader. First, extra government support for households and businesses amid soaring energy costs seems inevitable – the question is what form it will take. Truss has said during her campaign that her preference is for tax cuts, though the sheer scale of the energy bill increase anticipated by early next year suggests this is unlikely to be sufficient. Most households will be paying more than 10% of their income on energy in the 12 months from October, which is when the next big increase in bills kicks in. That suggests blanket support payments (or a price cap of some form), in addition to more targeted measures for low-income households, will be required – as will similar support for smaller businesses. Markets are increasingly assuming this will translate into extra Bank of England rate hikes. We agree with that assessment, even if markets are heavily overestimating the scale of tightening that’s likely to be required. Second, Brexit is expected to come back to the fore. Truss is pushing for the passage of the Northern Ireland Protocol Bill, which would enable ministers to unilaterally override parts of the deal agreed with the EU in 2019, and has already passed through the House of Commons. Press reports also suggest Truss is considering triggering Article 16, which in theory allows either side to take safeguard measures if elements of the Northern Ireland agreement aren’t perceived to be working. This story is not likely to be a fast-moving one, but ultimately a unilateral move by the UK to overwrite parts of the deal could see Brussels suspend the UK-EU trade deal, which it can do with 9-12 months' notice. Canada: Bank of Canada expected to hike rates by 75bp next week Next week will see the Bank of Canada hike rates by 75bp after a 100bp hike in July. Inflation is well above target and the economy is growing strongly, and with the BoC having openly talked of the need to front-load policy tightening we do not expect it to switch back to more modest 50bp incremental changes just yet. Read our full BOC preview Eurozone: ECB to implement another 50bp hike; 75bp not ruled out Even if the ECB doves have been very silent in recent weeks, we expect the ECB to ‘only’ hike by 50bp next week. This would be a compromise, keeping the door open for further rate hikes. A 75bp rise looks like one bridge too far for the doves but cannot be excluded. Further down the road, we can see the ECB hiking again at the October meeting but have difficulties seeing the ECB continue hiking when the eurozone economy is hit by a winter recession. Hiking into a recession is one thing, hiking throughout a recession is another. Read our full ECB preview Key events in developed markets next week Source: Refinitiv, ING   ECB Canada Bank of Canada    Source: https://think.ing.com/articles/key-events-in-developed-markets-next-week-020922/?utm_campaign=September-02_key-events-in-developed-markets-next-week-020922&utm_medium=email&utm_source=emailing_article&M_BT=1124162492 Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The EUR/USD Pair Could Resume Its Larger Degree Downtrend

What Can We Expect From Euro (EUR) And ECB (European Central Bank)? Check Out This Detailed Comment By ING Economics

ING Economics ING Economics 07.09.2022 15:02
We expect the European Central Bank (ECB) to hike by 50bp at its September meeting. Markets are pricing in 66bp at the moment, and the consensus is leaning in favour of 75bp, so we see some downside risks for the euro. At the same time, short-term rates have not had much of an impact on EUR/USD lately, and the energy crisis should remain the key driver Four scenarios ahead of the September ECB meeting As discussed in our September ECB preview, policymakers in Frankfurt will likely have to choose between a 50bp or 75bp rate hike this week. We think that a 75bp move would be too hard to digest for the dovish front within the Governing Council, and our call is for a 50bp move. That said, we cannot fully exclude a 75bp hike aimed at frontloading tightening before a recession hits this winter. In our “Crib Sheet”, we analyse four potential scenarios on a scale from dovish to ultra-hawkish and what this can mean for EUR/USD and EUR rates, taking into account the size of the rate hike as well as the ECB’s stance on inflation, growth and quantitative easing/tightening (QE/QT). EUR and ECB crib sheet Source: ING Downside risks for EUR... The market’s pricing for the meeting is currently around 66bp, which by itself suggests some negative reaction by the EUR if our 50bp call proves correct. Much of the market reaction will also be driven by any hints about future policy. Since a reiteration of the meeting-by-meeting, data-dependent approach seems quite likely, markets will have to derive their rate path expectations from the updated staff projections on growth and inflation. In particular, the size and length of a winter recession will be key, and should it become the ECB’s baseline scenario, then some dovish re-pricing across the curve might occur and weigh on the euro. Comments about the euro weakness are likely to be a theme too and could have some impact on the EUR. However, verbal protest about a weak currency is now the norm among many central banks and has notably yielded very few results. Unless any reference to FX interventions is made, markets may not read too much into currency-related comments. ... but the ECB is a secondary driver now Regardless of the direction of the EUR reaction on Thursday, there’s a non-negligible chance that the FX impact will prove rather short-lived. This is because EUR/USD has been blatantly unreactive to ECB rate expectations lately, as the energy crisis has continued to drive the majority of the pair’s moves. In the chart below, we show how the two-year EUR-USD swap rate differential – a gauge of ECB-Fed monetary policy divergence expectations – has moved significantly in favour of the EUR recently, but EUR/USD has failed to follow it higher. EUR/USD hasn't followed the short-term rate differential higher Source: Refinitiv, ING   In our EUR/USD short-term fair value model, the short-term rate differential now has a smaller beta than relative equity performance, which is a gauge of diverging growth expectations and is more directly impacted by the energy crisis. This also means that the short-term undervaluation in EUR/USD has shrunk to around 3-4% from the 5-6% peak seen two weeks ago.   We expect the energy story to return firmly to the driving seat for EUR/USD after the post-ECB reaction. Barring a very hawkish surprise, this should keep EUR/USD below parity and prevent it to reconnect with the more supportive rate differential. The 0.98-0.99 area could prove to be a near-term anchor for EUR/USD, but a further worsening of the energy crisis and/or further dollar strengthening can trigger a drop to the 0.96-0.97 area. Read this article on THINK TagsEURUSD Energy crisis ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Bank of Canada (BoC) Interest Rate Policy Decision - Met Market Expectations

Bank of Canada (BoC) Interest Rate Policy Decision - Met Market Expectations

Rebecca Duthie Rebecca Duthie 07.09.2022 16:03
Summary: Bank of Canada interest rate decision. BoC met market expectations. Bank of Canada meets market expectations The Bank of Canada (BoC) met the market expectations on Wednesday by hiking their interest rates by 75bps up to 3.25% from 2.5%. Their Ivey PMI beat market expectations which were set at 48.3, but came in at an actual value of 60.9. Bank of Canada increases policy interest rate by 75 basis points, continues quantitative tighteninghttps://t.co/YXW4npzhVA#economy #cdnecon — Bank of Canada (@bankofcanada) September 7, 2022 Bank of Canada In order to safeguard the economy by limiting the amount that interest rates might need to increase over the medium term, the BoC increased its cash rate from 1.75% to 2.5% in July. This was done as part of a strategy to move monetary policy to an economically restrictive level sooner rather than later. Despite the fact that interest rate derivative market pricing implies that investors already expect the benchmark to climb further and as far as 3.75% by year's end, the BoC considers that restrictive threshold to involve a cash rate that is a place above the 3% level. “The Bank's commitment to front-loading rate hikes in the face of red-hot inflation means an even bigger 100 bps increase (matching July's hike) can't be ruled out. Canadian employment (Friday) is expected to rise 5K in August following two consecutive monthly declines. The unemployment rate is expected to increase to 5.0%, which is still very low,” says Alvin Tan, head of Asia FX strategy at RBC Capital Markets. With the approaching Bank of Canada rate decision expected today and the European Central Bank meeting on Thursday, we will undoubtedly use expectations to our advantage. Expectations play a significant part in the market impact of major event risk. In this meeting, both are expected to raise their respective benchmark rates by 75 basis points, but the former is doing so based on a 100-basis-point increase at its last meeting and the discount of a hawkish central bank. Sources: dailyfx.com, poundsterlinglive.com, investing.com
The Japanese Yen Has The Worst Performer Among The G-10 Currencies

US Dollar’s Unwavering Strength (EUR/USD), EUR/GBP, USD/JPY Falls To Lowest Level Seen Since 1998

Rebecca Duthie Rebecca Duthie 07.09.2022 16:25
Summary USD/JPY hitting lowest levels in 24 years. USD still strong. Expectations of the next interest rate hike from BoE fell. EUR/USD currency pair The market is reflecting bearish signals for this currency pair. Since the US Dollar continues to rise and shows little sign of slowing, it has been a wrecking ball for the foreign exchange markets. I would exercise caution in pursuing this upside, though, given that the most recent US CPI is right around the horizon. The inclination would be to downplay US dollar declines. The 0.99 handle serves as support for the euro, and although there has been a breach below it, there hasn't yet been a close below it. The language used, such as expressing a willingness to enter restrictive territory as opposed to merely front-loading policy to play catch-up, will be crucial in determining whether the Euro can find a floor, even though the ECB is preparing to raise interest rates by 75 basis points at its meeting tomorrow. EUR/USD Price Chart GBP declines The market is reflecting mixed signals for this currency pair. The Bank of England enters the scene and hits the already weak pound just as the market was concentrating on the new prime minister, Liz Truss. Following comments made by members of the Bank's Monetary Policy Committee (MPC), markets quickly reduced their expectations for a 75 basis point interest rate hike at next week's policy decision, causing a steep decline in the value of the pound. The panel's comments show that the Bank is still hesitant to hike interest rates in order to combat inflation and instead is betting that prices would decline as the economy weakens. EUR/GBP Price Chart USD continues to strengthen Today, the Japanese Yen's value against the US Dollar fell to its lowest level since 1998. In order to keep bond yields low, the Bank of Japan (BoJ) reaffirmed its yield curve control (YCC) program on Wednesday, despite the Fed's unambiguous indication that rates will rise. Today, the 10-year Japanese government bond (JGB) traded close to the 0.25% upper limit set by the central bank. The bank then declared that they would increase their bond buying as part of their planned operations. The 2-year note currently trades at 3.75%, with Treasury rates continuing to fly higher. Everywhere it has increased, the US dollar has. USD/JPY Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
The Markets Still Hope That The Fed May Consider Softer Decision

The ECB Interest Rate Decision - Met Market Expectations

Rebecca Duthie Rebecca Duthie 08.09.2022 14:25
Summary: ECB policy rate decision. ECB met interest rate expectations. ECB Decision Met Expectations The ECB on Thursday hiked interest rates by 75bps - meeting market expectations. Deposit Facility rate of the ECB exceeded market expectations, by 25bps, coming in at a 75bps rate hike. ECB Interest rate Decision The European Central Bank (ECB) policy announcement on Thursday may have some potential effects on the foreign exchange market, according to a "crib sheet" published by ING Bank. The market is anticipating a 75 basis point increase as the ECB looks to take swift action against inflation before the Eurozone's growth slows and a recession takes hold. However, ING economists believe that the market is mistaken in using 75 basis points, which might be the day's first significant source of volatility for the Euro. "Policymakers in Frankfurt will likely have to choose between a 50bp or 75bp rate hike this week. We think that a 75bp move would be too hard to digest for the dovish front within the Governing Council, and our call is for a 50bp move," says Francesco Pesole, a foreign exchange strategist at ING. According to ING's base case scenario, a 50bp would fall short of market expectations, causing the Euro to Dollar exchange rate (EUR/USD) to decline. In this base scenario, the ECB also projects weaker growth rates for the Eurozone, anticipating a wintertime recession. While high inflation will continue, it will start to decline over the outlook horizon, according to ECB predictions. If the ECB took an even more "dovish" posture, they would raise interest rates by 25 basis points as they assessed the severity of the impending economic slowdown, which would be reflected in their revised GDP projections. Inflation forecasts that indicate prices drop down to the 2.0% target over the forecast horizon would also be part of this dovish scenario. According to this call, the EUR/USD is expected to trade close to 0.96. However, the ECB will be keenly aware of the effects their decisions will have on the Euro because a weak Euro itself is an inflationary phenomenon because it drives up the price of importing commodities. This is especially detrimental during a crisis brought on by high gas and oil import prices. Sources: investing.com, poundtserlinglive.com
The EUR/USD Pair Is Still In A High Position On The 1H Chart

ECB Interest Rate Decision (EUR/USD), UK Government Plans To Cap Gas Prices (EUR/GBP, GBP/AUD)

Rebecca Duthie Rebecca Duthie 08.09.2022 15:45
Summary: ECB raised all 3 major interest rates by 75bps. UK Government capping gas prices for next 2 years. RBA nearing the end of its interest rate hiking cycle. ECB interest rate hikes The market is reflecting bullish signals for this currency pair. To combat record-high inflation in the Euro Area, the ECB increased each of the three major interest rates by 75 basis points. Markets and experts had generally anticipated the decision to raise interest rates by 75 basis points, thus the first impact on the Euro has been muted so far. The ECB also noted that the governing council anticipates raising rates during the coming sessions, which is consistent with money market pricing, which projects a further 92 basis points of tightening by year's end. Looking ahead, attention will primarily be on ECB President Lagarde's news conference, where she is expected to discuss the necessity to raise interest rates into restrictive territory (above neutral rates) in order to support the euro in the short term. The energy crisis, which continues to put pressure on the Euro through parity, is the major story, though. EUR/USD Price Chart UK Government to cap gas prices The market is reflecting mixed signals for this currency pair. Following the announcement that the UK government would cap annual UK gas prices at £2500 for the next two years, the likelihood of a stronger finish to 2022 for the British Pound moved closer. An influential economist claims that the action effectively keeps UK inflation at current levels and averts the possibility of a recession. Investors have dumped sterling in recent months due to concerns that the UK would be among the nations worst affected by a confluence of rising inflation and slowing economic growth. Therefore, Truss' intervention refutes this claim, stating that the changes will probably reduce inflation's predicted peak by 5 percentage points. EUR/GBP Price Chart RBA nearing the end of their interest rate hiking cycle The Reserve Bank of Australia (RBA) is reaching the conclusion of its interest rate hike cycle, according to Governor Philip Lowe, which will cause the Australian Dollar to weaken. In the meantime, data indicating the nation's outstanding trade surplus shrank in July put additional pressure on the Australian dollar. According to Lowe, disparities between Australian and American pay setting practices allow the RBA to afford to slow pace. GBP/AUD Price Chart Sources: finance.yahoo.com, poundsterlinglive.com, dailyfx.com
A Wait-And-See Attitude Towards All US Dollar Pairs Is Advisable

The US Dollar Keeps Growing And Is It Thanks To Fed's Policy?

InstaForex Analysis InstaForex Analysis 12.09.2022 11:17
Former US Treasury Secretary Lawrence Summers said dollar has more room to grow given a number of fundamentals behind it. He expressed skepticism over the effectiveness of any intervention to turn the tide for yen. In a statement, Summers stressed that the US has a huge advantage in not being dependent on "outrageously expensive foreign energy." He noted that Washington has taken a stronger macroeconomic response to the pandemic, and that the Federal Reserve is now tightening monetary policy faster than its counterparts. So far, the Bloomberg Dollar Spot Index is up about 11% year-to-date, hitting a record high this week. Dollar reached its highest level against euro since 2002 on Tuesday - 0.9864, while it reached the highest level since 1998 against yen on Wednesday - 144.99. Yen has depreciated faster than euro, causing a more-than-19% fall against dollar this year. This prompted increased warnings from Japanese officials, with Bank of Japan Governor Haruhiko Kuroda meeting with Prime Minister Fumio Kishida to discuss latest concerns on Friday. Japanese officials are not ruling out options as market participants discuss the chances of intervention to buy yen and sell dollars. Japan hasn't done this since 1998, when it teamed up with the US - while Summers was deputy treasury secretary - to help stem the yen's fall. For its part, the US Treasury Department insisted on its unwillingness to support any potential intervention in the forex market to stop the depreciation of yen. Summers stressed that the more fundamental issue for yen is the interest rate adjustments in Japan, both short-term and long-term. The Bank of Japan maintained a negative short-term interest rate, as well as a 0.25% yield cap on 10-year bonds.  Go to dashboard       Relevance up to 14:00 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/321348
The Agressive Rate Hikes By The Fed Did Not Lead To A Deeper Recession

The EUR/USD Pair Has A Chances For A Further Recovery

InstaForex Analysis InstaForex Analysis 13.09.2022 12:23
Euro is likely to rise as risk appetite will surge if inflationary pressure in the US eases. The lower figure will also affect the Federal Reserve, weakening its grip on rate increases. Recently, US Treasury Secretary Janet Yellen expressed optimism for a slowdown in inflation, but warned that uncertainty remains. The core CPI for August is expected to show growth, while the overall index is likely to slow to 8.1%. Inflation has been a major concern for the Biden administration as high gas and food prices earlier in the year have seriously undermined the president's popularity and the Democrats' prospects for maintaining control of Congress. Also, in response to high price increases, the Federal Reserve has been raising interest rates rapidly. They hope that such a move will curb further price hike as quickly as possible, so there were several increases of 75 basis points at once at the past meetings, and the same is expected in September. But even if inflation slows in August, the Fed is unlikely to step back from its mandate as the central bank intends to do whatever it takes to bring inflation under control. Talking about EUR/USD, there are chances for a further recovery, but only in the event that inflation eases in the US. If the opposite happens, euro will decline, and buyers will have to cling to 1.0100 in order to bring back the possibility of a rally. The nearest target will be resistance level of 1.0150, the breakdown of which will open a direct path to 1.0190 and 1.0240. The farthest target will be the level of 1.0270. In case of a further decrease and breakdown of 1.0100, sellers will become more active in the market, which could push the quote to 1.0030 and 1.0000 In terms of GBP/USD, a lot depends on the 17th figure as its breakdown creates a pretty good chance for a larger upward correction. That will open a direct route to the highs at 1.1750 and 1.1790. The farthest target will be 1.1840. But if pressure on the pair returns, buyers will have to do everything to stay above 1.1660, otherwise, there will be another major sell-off towards the level of 1.16130. Its breakdown will open a direct path to 1.1580 and 1.1550.   Relevance up to 08:00 2022-09-14 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/321521
Interest Rates In Eurozone Will Continue To Increase In The Coming Meetings

Euro Shows Strength On Monday (EUR/USD), UK Inflation Data Ahead (EUR/GBP), USD Gains Against The JPY(USD/JPY)

Rebecca Duthie Rebecca Duthie 12.09.2022 14:25
Summary: Ukrainian resistance in the country's east boosted the Euro. EUR/GBP may struggle in the wake of UK inflation data release. USD had a rough start to the week against the euro. Euro strengthened during Monday’s session The market is reflecting bullish signals for this currency pair. The news of Ukrainian resistance in the country's east as Ukrainian soldiers launched a counteroffensive caused the euro to rally by a significant 1.4% this morning. Bringing our attention back to the ECB, there was evident unhappiness among the board members after the significant 75 basis point increase was fully anticipated by the markets and had little to no impact on them. The infamous ECB "sources" said shortly after President Lagarde's address that rate increases could reach 2% (restrictive territory) to fight inflation and hinted in some way that the 2023 growth prediction was a bit on the "rosy" side. Finally, sources claimed that QT was imminent, with negotiations set to begin in October and a likely announcement to be made at the October ECB meeting. EUR/USD Price Chart EUR/GBP risk could increase The market is reflecting mixed signals for this currency pair. In the days ahead, when the market will likely be most interested in UK inflation data that could further increase the already elevated risk of aggressive interest rate action from the Bank of England (BoE) next week, the Pound to Euro exchange rate may struggle to get off the ground after falling last week. When the Bank of England (BoE) announces its interest rate decision for September on September 22 after delaying it to accommodate the nation's day of mourning for Her Majesty Queen Elizabeth II, the new fiscal package might have a substantial impact on the BoE's monetary policy. EUR/GBP Price Chart USD/JPY currency pair The market is reflecting bearish signals for this currency pair. The US Dollar had a mixed week to start, falling versus the Euro but rising once more against the Japanese Yen. The EUR/JPY moved closer to Friday's 8-year high as a result. Other currency combinations were generally quiet. Despite further browbeating from Japanese officials—this time from Deputy Chief Cabinet Secretary Seiji Kihara—the Yen weakened. He mentioned that excessively one-sided currency movements are being watched. In order to take advantage of the depreciating Yen and stimulate the economy, Japan recently announced a relaxation of travel regulations for visitors traveling domestically. USD/JPY Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com  
The ECB President Christine Lagarde's Speech Could Bring Back Risk Appetite

Could The Situation On Energy Market Make Rates Go Down?

ING Economics ING Economics 13.09.2022 15:22
Falling energy prices are a key downside risk to European rates. Hawkish central banks and fiscal policy mean a further jump in yields is possible, but this may bring forward the bond rally we expected for late 2022/early 2023 Eye-popping volatility in energy markets is making short-dated rates and bonds even more difficult to trade The plunge in traded energy prices continues The European Union’s proposed energy market reforms and consumption curbs managed to draw a line under the continued climb in both traded gas and electricity prices. The impact has been nothing short of spectacular, especially as it occurred in the midst of a gas supply worst-case scenario, a total cut-off of the Nord Stream flow. We’ve highlighted recently that a continued fall in energy prices constitutes a key downside risk to European rates, in EUR and GBP. That downside is growing. From the point of view of rates markets, the (tentative) reaction has been as close as one would expect from energy policy goldilocks: not too effective economically that it provides cover for central banks to hike further, but effective enough that it does allow energy prices to drop. Of course, between the two effects, the drop in energy prices may well be the one that impacts rates the most, but this is far from a foregone conclusion. Central banks are now overtly worried about second-round effects, a de-anchoring of inflation expectations, and a broadening of inflation – all of which could justify a continued hawkish tone. Short EUR rates haven't yet reacted to lower gas prices Source: Refinitiv, ING Bonds remain shaky but the next rally may occur earlier than 2023 The main takeaway from last week’s European Central Bank meeting for EUR rates markets is an updated, more hawkish, ECB reaction function. The ECB seemed to have taken, indeed ripped, more than a few pages out of the Fed’s book. The upshot is that markets should, and have to a large extent already, concluded that euro for euro, the central bank will deliver more monetary tightening if energy prices rise further. We’ll leave it to our economics colleagues to discuss whether this is the right approach going into a recession but we share their scepticism.  The upshot is that a jump in energy prices has so far impacted rates to the upside, but not to the downside. Nothing is set in stone and the further they drop, the more likely they are to take rates with them. For now, we stick to our view, also motivated by the strength of the US economy, that upside risk dominates for bonds. This is particularly true in an environment of fragile investor sentiment and rising supply, as is customary in September and October. If confirmed, however, the milder inflation picture would precipitate the rally in government bonds we expect for late 2022/early 2023, through 1% in the case of 10Y Bunds. Falling inflation expectations are another challenge to the Fed's hawkish stance Source: New York Fed, ING Today's events and market view Today’s eurozone CPI are final readings of the August prints, and so are less liable to surprise, but the forward-looking Zew components should be a good indicator of market sentiment. It’ll be interesting if the drop in traded energy prices and various measures taken to shield customers register in the market mood. Judging from the improvement in risk assets this month, we would say they have. The main fireworks will come from the US, however, with the August CPI report. Consensus, and our own view, is for a drop in headline inflation, but a rebound in core. How markets react to these mixed messages is an important question for rates over the coming weeks and months. The Fed has pushed aggressively against any dovish interpretation of one CPI report in July so a drop in rates and re-steepening of the curve would be notable. The drop in consumer inflation expectations published by the New York Fed yesterday was another challenge to its hawkish stance. The National Federation of Independent Business small business optimism completes the list of releases. Primary market activity will take the form of 3Y/7Y/24Y auctions in Italy, a 2Y debt sale in Germany, and of dual-tranche 5Y/30Y European Union syndication which could raise upwards of €10bn. In the US session, a 30Y T-bond auction is a highlight. Note that 3Y and 10Y auctions already took place yesterday, meaning a lot of supply pressure has already been felt in USD markets, however demand was soft.  Read this article on THINK TagsRates Daily Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Analysis Of The US Dollar Currency Index Price Movement

US Dollar Rallies In The Wake Of CPI Inflation Data

Rebecca Duthie Rebecca Duthie 13.09.2022 18:17
Summary: U.S. inflation is running hotter than markets anticipated. Core inflation reading is the one that concerns the Fed the most. Core CPI increased by 0.6% in Augus US CPI Inflation Missed Market Expectations Data that showed U.S. inflation is running hotter than markets anticipated caused the Dollar to rise dramatically, giving the Federal Reserve more confidence to hike interest rates. After U.S. headline CPI inflation rose 8.3% year-over-year in August, defying expectations for a reading of 8.1%, stocks dropped and the safe-haven high-yielding Dollar surged, though it was still lower than July's 8.5%. But contrary to forecasts for a decline, the month-over-month metric increased by 0.1%, the BLS reported, up from July's reading of 0%. The core inflation reading will be the one that concerns the Fed the most. Core CPI increased by 0.6% in August, exceeding both the 0.3% market expectation and the 0.3% result in July. Core CPI inflation is the form of inflation that the Fed may be able to control through higher interest rates because it is domestically based and therefore excludes external factors like energy prices. Core CPI inflation increased by 6.3% on an annual basis, exceeding both July's 5.9% and the market's expectations of 6.1%. LISTEN NOW: Inflation rose 8.3% year-over-year — we discuss the hotter-than-expected CPI number. Listen and follow the @SquawkStreet podcast here or on your favorite podcast platform: https://t.co/BoklbeW3jy pic.twitter.com/v2SxAuQfsh — CNBC (@CNBC) September 13, 2022 With a 1.40% increase against the New Zealand Dollar and a 0.84% increase against the Euro, the dollar advanced versus all the major currencies. "In response to the data, all G10 currencies weakened against the US dollar, with the largest losses seen in currencies that had recently benefited from the improvement in risk conditions. The pound, euro, yen, Kiwi dollar, Aussie dollar, and Swedish krona have now recorded losses in excess of one percent against the greenback, while the Norwegian krone posted the largest decline as it is down 2% on the day," says Jay Zhao-Murray, Market Analyst at Monex Canada. Even though gasoline prices were down significantly, the U.S. inflation surprise still occurred, suggesting that the energy shock is still having an impact. However, everyone is still surprised by the lag. In the event that workers seek greater wage agreements and businesses increase their prices, the Fed will be eager to boost rates. Sources: poundsterlinglive.com
Thursday's Bank's of England decision may be record-breaking!

UK CPI Inflation Data Reflected The First Drop In 1 Year

Rebecca Duthie Rebecca Duthie 14.09.2022 15:28
Summary: UK CPI inflation beat market expectations. UK CPI Inflation fell from its 40-year high reached in July. UK CPI Inflation Data Beat Market Expectations In August, the Bank of England and households experienced an unexpected - and presumably transitory - decrease in consumer price inflation for the first time in almost a year. Following a 40-year high of 10.1% in July, annual consumer price rise fell to 9.9% on Wednesday, according to the Office for National Statistics. This was the first decline since September 2021 and fell short of the 10.2% increase predicted by a Reuters poll. However, experts cautioned that inflation was anticipated to peak at approximately 11% in October, when a new home energy tariff cap begins, and that it might be difficult to decline because of underlying pressures and a new fiscal stimulus from the government. ⚠️BREAKING:*UK CPI INFLATION RISES 9.9% IN AUGUST, DOWN FROM 40-YEAR HIGH OF 10.1% 🇬🇧🇬🇧 pic.twitter.com/Lc5in4fnrW — Investing.com (@Investingcom) September 14, 2022 Following the passing of Queen Elizabeth, the British central bank decided to postpone raising interest rates until next Thursday. On September 22, the BoE is expected to increase rates by 0.75 percentage points to 2.5%, according to financial markets. With the exception of a temporary attempt to support sterling during a 1992 exchange rate crisis, this would be its largest rate increase since 1989. Despite a slowing economy at risk of recession, the majority of economists surveyed by Reuters believe a half-point increase is more plausible, and they also anticipate the BoE to keep raising rates into next year. A severe pressure on living standards has been brought about in Britain by the rise in European natural gas prices brought on by Russia's invasion of Ukraine, which has been compounded by post-COVID labor shortages and supply-chain bottlenecks. Inflation is lowest in several European nations, notably Spain and the Netherlands, but it is the highest among the G7's major advanced economies in the UK. Prime Minister Liz Truss's capping household energy costs The incoming Prime Minister Liz Truss's decision to cap household energy costs, which will increase by 25% rather than 80% in October, has made it marginally easier for the BoE to achieve its goal of returning inflation to its 2% objective, at least in the short term. Before the cap, analysts predicted that inflation may reach 15% or higher early the following year. In addition to promising other help and tax cuts, the government is anticipated to employ public borrowing to make up for the lower rates charged by energy providers. This is anticipated to cost approximately 100 billion pounds ($116 billion). According to experts, this additional stimulus for an economy that is nearly at full employment and experiencing the lowest unemployment rate since 1974 would prolong domestic inflation pressures and force the BoE to raise rates further in order to bring inflation back to its 2% objective. Sources: Reuters.com
The British Pound Is Showing Signs Of Exhaustion Of The Bullish Force

US Dollar Rose In The Wake Of US CPI Inflation Reports (EUR/USD), UK CPI Inflation Data Exceeded Market Expectations (EUR/GBP, GBP/AUD)

Rebecca Duthie Rebecca Duthie 14.09.2022 17:11
Summary: Money market pricing indicates that the Fed will raise rates by 75 basis points. UK CPI inflation rate was lower in August than it was in July. According to economists, the Australian Dollar will fare better than any other major currency in 2022. USD rose, gold futures fell & stocks dropped sharply The market is reflecting mixed signals for this currency pair. The US Dollar rose, gold prices fell, and US stocks dropped sharply on Tuesday as a result of the August US CPI report's substantial effect on the financial markets. Headline Inflation in the US gained +0.1% m/m and +8.3% y/y, above expectations of no gain m/m and an increase of +8.1% y/y. Also hotter than anticipated, the core reading came in at +0.6% m/m versus a projection of +0.3%, while the y/y stood at +6.3% versus +6.1% anticipated. Money market pricing indicates that the Fed will raise rates by 75 basis points, but the tail-risk surprise has changed from a 50 to a 100 basis point increase. This reveals where the momentum is: more rate increases will result in the Fed Funds rate peak being higher than anticipated before the inflation report. EUR/USD Price Chart Has UK Inflation hit its peak? The market is reflecting mixed signals for this currency pair. Pound Sterling increased the day after the news broke. The UK CPI inflation rate was lower in August than it was in July, indicating that the price increase's peak may have already passed. This would be a favorable development for the outlook of the UK economy and, consequently, the Pound. However, the Bank of England's decision on September 22 looms large, and the final position of Sterling at the end of September may depend on whether they choose to raise interest rates by 75 or 50 basis points. According to analysts at certain large investment institutions, the market is expecting a 75 basis point increase from the Bank, which it must provide to maintain stable Pound exchange rates. The pound would decline if the Bank of England disappointed markets with a modest increase. EUR/GBP Price Chart GBP/AUD currency pair According to recent research from BMO Capital Markets, the Australian Dollar is a "quality" currency that is expected to increase in value against the U.S. Dollar and all other major currencies in the upcoming months. According to a BMO analysis of the Aussie Dollar, it is one of the best-performing currencies in 2022 because of a strong set of underlying reasons that support it. According to economists, the Australian Dollar will fare better than any other major currency in 2022 thanks to the nation's strong export market and sound domestic fundamentals. Australia's foreign exchange revenues have increased due to rising commodity prices, which has supported its currency. GBP/AUD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
The EUR/USD Pair Is Showing A Potential For Bearish Drop

"(...) ECB is now expected to introduce a tiered remuneration for EL."

ING Economics ING Economics 15.09.2022 16:17
The European Central Bank (ECB) could once again engage in banks' profit micro-management by remunerating some bank liquidity at 0% instead of the deposit rate. We review potential deposit and reserve tiering designs and how they may impact money markets Abundant excess liquidity will become very expensive for the ECB As things stand, the ECB is set to pay an increasing amount of interest to banks on the nearly €4.6tr of excess liquidity (EL) outstanding in the banking system. At current deposit rates, this means €34.5bn per year, and if rates reach the 2.5% peak implied by the swap curve in 2023, this would amount to €115bn. Whilst this is sure to be portrayed, unfairly, in some corners as a subsidy to banks, this is not necessarily a problem insofar as banks' financing costs are also increasing. The problem is that a large part of this excess liquidity was provided by the ECB in past targeted longer-term refinancing operations (TLTRO) loans to banks, with a lower average interest rate. As a result, the ECB is now expected to introduce a tiered remuneration for EL. There is a precedent. In 2019, it shielded part of banks' excess reserves held at the ECB (which are part of EL alongside deposits placed at the ECB) from negative interest rates. Back then, the goal was to prevent a collapse in banks' profitability; this time around, the aim is the opposite, but the practice of micro-managing banks' profitability is the same. The distribution of excess liquidity and TLTRO balances is different across countries Source: ECB, ING Potential designs The form tiering of EL takes depends on the ECB's goals. If the aim is simply to offset the benefit offered through TLTROs and to incentivise banks to repay the existing balance, then remunerating a proportion of EL proportional to TLTRO balances at 0% is the way to go. If, on the other hand, the ECB is digging in for a long period of high-interest rates, and high excess liquidity (the remaining portion is explained by the size of its bond portfolio, which will take a lot longer to unwind than TLTRO balances) then it may opt to remunerate at 0% either: a) A multiple of banks' required reserves. This is what it did in 2019, with the multiple set at 6x or b) A proportion of banks’ EL. For instance, calculated as an average balance over a certain period. In the example below, we calibrate the threshold calculated for each method so to the total amount of EL earning 0% at the eurozone level is the same as for a 6x multiple of required reserves, currently around €960bn. In effect, option one is more targeted and limited in time to the maturity of existing TLTRO facilities with the latest due to be repaid in 2024. We surmise this would be an effective way to force TLTRO repayments, but there is a simpler way to achieve this: change TLTRO terms. This is also the option that would cause the most disruptions. For instance, Italian banks would see a greater proportion of their EL earning 0%. Within the two sub-options a) would make the size of EL earning 0% proportional to a bank’s balance sheet, which is not ideal in cases where reserve requirements are not proportional to the EL deposited at the ECB. Similarly to option one above, Italian banks would see a greater portion of their EL earning 0%. Sub-option b) on the other hand would make sure that all banks see the same proportion of their EL remunerated at 0% and at the deposit rate. The ECB will want to make sure the deposit rate remains the marginal policy interest rate The impact on EUR rates and money markets will depend on how the tiering system is structured. We’re assuming that in all cases the amount remunerated at 0% will be fixed (according to one of the methods described above) and that any EL above that threshold will earn the deposit rate. In practice, however, tiering will lower the average rate earned by banks on their EL. It is also possible that for some banks, 0% becomes the marginal interest rate if their EL is below the threshold. An alternative design would be to remunerate at the deposit rates EL until a certain threshold. If that threshold is high enough, it would act as an incentive to repay TLTRO without causing a fall in money market rates. Some tiering options could have disrupting effects on Italian money markets Source: Refinitiv, ING The higher the threshold, the greater the disruptions The most important factor is thus how many banks will find themselves with EL at the ECB below or close to the threshold. In a ‘prudent’ scenario, tiering is designed so that the vast majority of banks find themselves with EL balances well above the threshold. This, however, would only partially reduce the ECB’s interest rate bill. In a more aggressive case, a high threshold means many banks would find that they are earning 0% on all of their EL balance, thus creating an incentive to reduce them by any economical means possible. Irrespective of how it is calculated, the ECB can set the tiering threshold at three levels. 1 High threshold (above €2.5tr of EL earning 0%) At the eurozone level, if the threshold is set so high that more banks have EL below the threshold than above, we would expect a collapse in money market rates as banks rush to lend their cash and disincentivise depositors from parking cash at their branches. This makes this option unlikely as it would amount to a net easing of financial conditions, which is contrary to the ECB’s goal. Even if EL currently stands at €4.6tr, TLTRO repayments could make that figure shrink over the next two years to closer to €2.5bn. 2 Balanced threshold (€1.5-2tr) In a more likely scenario where, at the eurozone level, a majority of banks have EL above the tiering threshold, then the main focus should be on country differences. It may well be that some countries find themselves net lenders of reserves (if they are below the threshold and so earn 0% on all their balances) and others net borrowers (if they are above and so earn the deposit rate on any additional reserves). This would mean a fall in effective interest rates in some countries, for example, Italy and Spain, and a rise in others, for instance, Belgium and Luxembourg. This should be reflected primarily in the fall in repo rates in net lender countries if their domestic banks own a large amount of government debt, but also in a relative fall in deposit rates. If, as we expect, the net lender banks are in Italy and Spain, this could go some way towards helping sovereign spreads tighten but could also disrupt the functioning of the repo market. On the whole, we are unsure if this benefit would offset the operational problems caused to banks. The impact on net borrower countries should be less marked as we assume the marginal deposit rate for domestic banks wouldn’t be altogether different from the prevailing deposit and repo rates. Interestingly, the effect could be to ease financial conditions, on a relative basis, in peripheral countries. 3 Low threshold (below €1.5tr) In the case where the vast majority of banks have EL well above the threshold, including within each country, then we expect the risk of a rush to lend out liquidity less likely. This scenario is the most probable in our view as it would result in less money market disruption but would also mean a lower reduction in the ECB’s interest rate payments to banks.   Depending on how it is calculated, especially if as a multiple of required reserves, then a fall in EL would also bring more banks closer to the threshold. This would imply reducing the multiple over time. Greater impact on ESTR only after larger declines of excess liquidity Source: ECB, ING Money market rates and excess liquidity The overnight rate (ESTR) which is the ECB’s starting point to assess whether its key rates are properly transmitted was pushed below the deposit facility rate when large excess reserves became a feature of the ECB’s policy implementation. Historical relationships between the level of overnight rates and the level of excess reserves suggest that the average rate will only very slowly rise from its depo floor as excess liquidity melts away (by about 1.5bp per €1tr reduction) and take off at an accelerated speed when levels drop below €500bn. At €4.6tr, that seems far away, but also keep in mind the Fed’s experience that the market's plumbing has changed in such a way that these levels have likely shifted higher. The most recent push lower in overnight rates and more significantly also longer unsecured rates such as the 3m Euribor fixing came with the large liquidity injections of the TLTROs amid the pandemic. To the degree that they have changed the short-term funding mix of banks affecting the fixing, repayment of these operations could see this effect unwind again. It is one reason why the impact on overnight rates could already occur at still overall higher levels of excess liquidity than past experience would suggest.         Read this article on THINK TagsRepo rate Interest rates ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The USD/JPY Pair Above 150! | Who Will Replace Liz Truss? | The Central Bank Of Turkey Cut Interest Rates

The Markets Are Concentrated On Inflation, Crude Oil Is Down

Swissquote Bank Swissquote Bank 16.09.2022 10:24
US railroad companies and the unions representing their workers reached a tentative agreement early Thursday to prevent a rail strike in the US. Avoiding a rail strike is good news, but not good enough to give a smile to investors. The markets remain too focused on inflation. Increases and decreases The S&P500 closed the session more than 1% lower, as US retail sales and jobless claims – which both hinted that the US economy remains relatively resilient to the Federal Reserve (Fed) rate hikes - didn’t help keeping the Fed hawks at bay. The US 2-year yield spiked to 3.90%, the mortgage rates in the US topped 6%, the US dollar consolidated a touch below the 110 level, Ethereum lost 10% and gold dived to $1660 per ounce. US crude took a good 4% dive. But this time, it wasn’t just the recession talk, it was because the Americans rectified a beginner’s mistake that they have made earlier this week, saying that they will refill their strategic oil reserves if prices fall below $80 per barrel. Waiting For Reports We will likely close this week on a sour note. Next on the economic calendar are the final European CPI read, which will confirm that inflation spiked to 9.1% in August, and the University of Michigan Consumer Sentiment, which will hopefully not print a significantly positive number, because the Fed hawks got strong enough the week before the Fed decision. Watch the full episode to find out more! 0:00 Intro 0:25 US rail strike will likely be avoided! 2:08 But sentiment remains sour on strong US data 3:57 World Bank points at recession 5:04 Crude oil down as Americans understand their mistake 6:41 Strong dollar weighs on major peers 6:55 Joke of the day 7:09 Ethereum down 10% post Merge upgrade 7:51 Adobe dives 17% on Figma acquisition 8:44 Watch EZ final CPI & UoM Consumer Sentiment today! Ipek Ozkardeskaya Ipek Ozkardeskaya has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked at HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist at Swissquote Bank. She worked as a Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020. #US #rail #strike #inflation #USD #EUR #GBP #Gold #XAU #crude #oil #natgas #energy #crisis #Bitcoin #Ethereum #Merge #update #Bitcoin #Adobe #Figma #SPX #Dow #Nasdaq #investing #trading #equities #stocks #cryptocurrencies #FX #bonds #markets #news #Swissquote #MarketTalk #marketanalysis #marketcommentary ___ Learn the fundamentals of trading at your own pace with Swissquote's Education Center. Discover our online courses, webinars and eBooks: https://swq.ch/wr ___ Discover our brand and philosophy: https://swq.ch/wq Learn more about our employees: https://swq.ch/d5 ___ Let's stay connected: LinkedIn: https://swq.ch/cH
Will The US Dollar Continue To Be Strong And To Keep Growing Or Maybe Situation Will Be Reversed

Strong US Dollar Index Driving EUR/USD Down & USD/JPY Up, economists predict that the Pound will continue to decline (EUR/GBP), USD/JPY

Rebecca Duthie Rebecca Duthie 19.09.2022 18:57
Summary: Early trading saw the EUR/USD falling below parity once more. The British Pound dropped to its lowest level against the Dollar on Friday and hit lows against the Euro that haven't been seen since February 2021. Strong US Dollar index driving USD/JPY down. EUR/USD falls below parity once more The market is reflecting bearish signals for this currency pair. Early trading saw the EUR/USD falling below parity once more while failing to surpass Friday's peak. While markets look apprehensive after US President Joe Biden said the US military would defend Taiwan in the case of an invasion by China, we witnessed the USD index open higher and push on, supporting a +/-60 pip loss on EUR/USD and other currency pairs. The downward movement in the EUR/USD rate this morning appears to be driven by the dollar index. Despite numerous investment banks and the World Bank reducing their growth projections for the US economy and issuing a global recession warning, the index kept moving higher. EUR/USD Price Chart Economists predict that the Pound will continue to decline. The market is reflecting mixed signals for this currency pair. Although there is a remote chance the currency would recover by the end of the upcoming week when a Bank of England rate hike and the "mini budget" are announced, economists predict that the Pound will continue to decline. The British Pound dropped to its lowest level against the Dollar on Friday and hit lows against the Euro that haven't been seen since February 2021 before the monetary and fiscal double-header. Following the publication of poor UK retail sales statistics that led economists to warn that the country is already in recession, the pound's losses for 2022 increased. Contrary to estimates, retail sales declined 1.6% in the month of August instead of a somewhat smaller -0.5%. EUR/GBP Price Chart USD/JPY The market is reflecting bearish signals for this currency pair. After failing to break over 145, USD/JPY is still in an ascending trend channel. 144.95 may continue to act as resistance because it is the 161.8% Fibonacci Extension of the late-July decline from 139.39 to 130.39. It has recently been tested, reaching peaks of 144.97 and 144.99, the latter of which is a 24-year high. This region might be crucial for the next significant USD/JPY movement. The Bank of Japan called banks in Tokyo last week as 145 approached, requesting a rate review. The market has interpreted this to mean that the central bank may be considering intervening should the price rise above 145. Of course, if the price trades over that level and they do not act, an aggressive move might be observed. The following potential resistance level to watch could be the ascending trend line that now splits around 145.90. USD/JPY Price Chart Sources: finance.yahoo.com, poundsterlinglive.com, dailyfx.com
Euro to US dollar - Ichimoku cloud analysis - 21/11/22

European Central Bank's (ECB) And Climate Change

ING Economics ING Economics 20.09.2022 09:47
The European Central Bank (ECB) just announced details around incorporating climate change considerations into corporate bond purchases, via the reinvestments expected over the coming years. This indeed looks positive for Environmental, Social, and Governance (ESG) credit, but the devil is in the details and this does raise questions  This tilt adds another element into the expectation for ESG to outperform vanilla credit; the ECB will not publish their scoring of each issuer What does this mean? We are glad to see the tilt details emerge and the start date set at 1 October shows conviction. However, details are few and will be provided on the scoring of the issuers, which leaves the market facing uncertainty and results in assumptions to which issuers are affected and or favoured. It is hard to fully tilt holdings of the complete Corporate Sector Purchase Programme (CSPP) holdings of €345bn without doing so aggressively. Besides, the timespan that the ECB will do reinvestments could be short. As such, reshaping such a large portfolio without being decisive on holdings is difficult, otherwise it will simply fail to move the needle. Hence issuers with low scores or fossil fuel intensive sectors with strong ESG ambitions could still be ignored and see virtually no ECB bids. The tilt to ESG is not clearcut, as it does not look at just green or ESG specifically, but is a more complex look into past and future emissions. As a result, it becomes very issuer orientated rather than sector orientated. Therefore, theoretically future purchases do not explicitly exclude fossil generative sectors or issuers. It is based on an internal model which also makes it a bit of a black box. Market participants will struggle to judge what this means in terms of primary or secondary market performance. All things being equal though, it should be a long-term positive for ESG credit as demand for ESG remains insatiable. The maturity limits imposed on lower scoring issuers may result in steeper curves for these issuers, as the ECB will target shorter dated bonds. A lower scoring issuer may also target the shorter end of the curve. The impact of this tilt could be strongest for issuers with a high issuer-specific climate score with limited further vanilla or green competitive supply.   The methodology the ECB will use for scoring issuers and begin tilting holdings as of 1 October 2022 are: The backward-looking emissions sub-score: based on the past emissions from the issuers, up against sector peers and overall eligible market. The forward-looking target sub-score: based on the expected future emissions and ambitions to reduce. The climate disclosure sub-score: based on the quality of the emissions data provided by the issuer. In all scoring, any issuer that does not provide self-reported emissions data will be assigned the lowest score. This incentivises issuers to provide emissions data, have ambitious targets and provide clear quality data. However, the ECB has not detailed the specific methodology for scoring issuers, thus there will be some guess work involved in reconciling with what will be purchased versus not. Additionally, this will be focussed on tilting the holdings, as such issuers with higher scores will be favoured as CSPP will purchase more bonds from the higher scored issuers and less bonds from the lower scored issuers. Reinvestments are rather low for CSPP and Pandemic Emergency Purchase Programme (PEPP) this year at an average of €1bn per month, but pick up as of January 2023 with an expected average of €2-3bn per month. Therefore, as of January we may start to see the effects of the ESG tilt. Reinvestments pick up in January 2023 and set to average €2-3bn per month Source: ING, ECB   There is very little greenium in the credit space at this particular point in time, in both the secondary spreads and primary market performance. We have seen ESG primary market outperformance in the past couple of years with lower NIPs and higher subscriptions, and we expect this will return. We expect ESG will outperform in the coming years. CSPP's tilt towards green will indeed play a role as demand for ESG credit continues to grow. No ESG outperformance versus Vanilla at this point in time Source: ING, ICE Higher oversubscription of ESG in the primary market in previous years Source: ING Lower new issue premiums of ESG in the primary market in previous years Note: this year saw more real estate and higher beta ESG issues relatively, thus shows a reversal of the trend in 2022. Nonetheless, NIPs are not lower in ESG vs Vanilla in 2022. Source: ING   In addition, we see continuous inflows into ESG funds, adding further demand for ESG products. The two-year accumulation of flows into EUR Investment Grade (IG) ESG funds total a substantial 38% of Assets under Management (AuM) inflows. Meanwhile, EUR IG non-ESG funds have seen accumulated flows over the past two years amount to outflows of 14% of AuM. Inflows into ESG funds are substantial Source: ING, EPFR   The ECB may give preferential treatment to corporate bonds marketed as green in the primary market. However, in the absence of a uniform EU Green Bond Standard (EUGBS), the central bank will base the buying of such bonds on strict criteria, such as a) alignment of the green bond framework with a leading market standard, such as the ICMA’s Green Bond Principles or Climate Bonds Initiative, b) a second-party opinion (SPO) confirming that adherence to that standard has been reviewed and confirmed and 3) a pledge in the bond prospectus that regular third-party assurance on the use of proceeds is foreseen (annual verification by an external auditor) until the funds concerned have been fully deployed. These requirements are mostly in line with common practice, with the exception of the third-party assurance pledge in the bond prospectus. This pledge is generally made in the green bond framework but not so often in the prospectus. To benefit from preferential treatment, issuers of green corporate bonds eligible under for purchases under the CSPP and PEPP would going forward also have to make this pledge explicit in their bond prospectus. That said, with the ECB supportive of the development of the EU Green Bond Standard, we do believe this stricter standard may become the norm for such preferential treatment once the European Green Bond Regulation has been adopted. As this preferential treatment will have a primary focus, it could well be expected to enhance the potential funding cost advantage of green over vanilla issuance foremost in the primary market. How significant the effect would be, will also depend on how strongly the company scores in terms of its issuer-specific climate score at the ECB, and upon the overall new supply from that issuer. After all, according to the ECB, the aggregate purchases of each issuer will continue to follow the tilted benchmark, while bonds that are already held in the CSPP portfolio will not actively be sold. This could well mean that the impact could be strongest for issuers with a high issuer-specific climate score with limited further vanilla orgreen competitive supply. Read this article on THINK TagsMonetary policy ESG Emissions ECB Credit Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Agressive Rate Hikes By The Fed Did Not Lead To A Deeper Recession

EUR/USD Exposed To Fed Interest Rate Decision Risk, BoE Interest Rate Decision Due This Week (EUR/GBP, GBP/CAD)

Rebecca Duthie Rebecca Duthie 20.09.2022 17:34
Summary: EUR/USD exposed to risks related to the Fed interest rate decision on Wednesday. The BoE interest rate decision on Thursday will be crucial. GBP/CAD may now be on the verge of lurching toward all-time lows. Euro is still stronger than some other currencies The market is reflecting mixed market signals for this currency pair. The EUR/USD has been able to maintain its stability recently by simply remaining stable, which isn't really saying much for it. The Euro to Dollar exchange rate began the new week near parity and exposed to risks related to the Federal Reserve's (Fed) interest rate decision on Wednesday, however there is an admittedly remote chance that the latter could spark a firecracker surge by the single currency later this week. The Euro is still stronger than some of the other currencies, but it is expected to keep falling against the Dollar and reach new cycle lows. EUR/USD Price Chart BoE interest rate on Thursday The market is reflecting bullish signals for this currency pair. The exchange rate between the pound and the euro has fallen for seven straight weeks, but it might go considerably further this week and possibly to record lows if the market panics about a probable Bank of England (BoE) decision to sharply raise Bank Rate on Thursday. With the scale of the most recent Bank Rate increase and any hints or guidance regarding the outlook for the benchmark, the BoE interest rate decision on Thursday will be crucial, yet there is a risk that the bank will feel pressured to literally knock the Bank Rate ball out of the park. EUR/GBP Price Chart GBP/CAD How the market could be likely to react to any particularly substantial interest rate rise from the Bank of England (BoE) this Thursday, the Pound to Canadian Dollar exchange rate may now be on the verge of lurching toward all-time lows. Although there is a chance it might fall further if the BoE smashes the Bank Rate ball out of the park on Thursday, sterling crept higher versus the Canadian Dollar to start a holiday-shortened week and remained safely above the 12-year lows reached over a fortnight earlier. A recent increase in core inflation, the BoE's most recent Inflation Attitudes Survey, and the new UK Prime Minister's proposal to freeze or cap household energy costs through public subsidy are reasons to believe it might as well. These factors could influence policymakers to view this as a medium-term inflation risk. GBP/CAD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
The Agressive Rate Hikes By The Fed Did Not Lead To A Deeper Recession

The Fed Interest Rate Decision, Stock/Bond Portfolios, ECB’s Determination To Reach Price Stability

8 eightcap 8 eightcap 20.09.2022 21:12
On Wednesday the Fed is due to make their interest rate decision. A US portfolio that is split 60/40 between stocks and bonds is headed for its worst year since 1937. ECB is determined to deliver price stability through rising interest rates.   In this article: The Fed’s Interest rate hike tomorrow. US Stock/Bond portfolio down. The ECB is determined to fight inflation through rising interest rates. The Fed due to make their interest rate decision on Wednesday The SwissQuote tweeted about the expectations the market has ahead of the Fed’s interest rate hike decision on Wednesday. Fed will likely hike by 75bp ; SNB will likely follow! ▶️ Discover today's market highlights on our #MarketTalk with @IpekOzkardeskay: https://t.co/Lzfate1wod pic.twitter.com/ZnOfnyHVvM — Swissquote (in English) (@Swissquote) September 20, 2022 On Wednesday the Fed is due to make their interest rate decision, this interest rate decision came in the wake of the US CPI inflation results which were released during last weeks trading week. US Stock/Bond portfolio is suffering According to Charlie Bilello a US Stock/Bond portfolio is likely to experience its worse financial performance in 86 years. A 60/40 Portfolio of US Stocks/Bonds is down 16.2% in 2022, on pace for its worst calendar year since 1937. pic.twitter.com/d6gnbohRLw — Charlie Bilello (@charliebilello) September 20, 2022   A US portfolio that is split 60/40 between stocks and bonds is headed for its worst year since 1937. European central bank (ecb) determined to fight inflation The president of the ECB Christine Lagarde makes it clear that the ECB is determined to fight inflation through rising interest rates. We are determined to deliver price stability, and expect to raise interest rates further to achieve 2% inflation, says President @Lagarde. We must settle at a rate that ensures inflation returns durably to our target, as the economic environment evolves https://t.co/d5HvwVEiR0 pic.twitter.com/mCXxS1yk1f — European Central Bank (@ecb) September 20, 2022   The ECB is determined to deliver price stability through rising interest rates. The ECB is willing to settle the rate of inflation at its target.    Sources: twitter.com
The Fed Interest Rate Decision, Stock/Bond Portfolios, ECB’s Determination To Reach Price Stability  - 20.09.2022

The Fed Interest Rate Decision, Stock/Bond Portfolios, ECB’s Determination To Reach Price Stability - 20.09.2022

Rebecca Duthie Rebecca Duthie 20.09.2022 23:00
On Wednesday the Fed is due to make their interest rate decision. A US portfolio that is split 60/40 between stocks and bonds is headed for its worst year since 1937. ECB is determined to deliver price stability through rising interest rates. In this article: The Fed’s Interest rate hike tomorrow. US Stock/Bond portfolio down. The ECB is determined to fight inflation through rising interest rates. The Fed due to make their interest rate decision on Wednesday The SwissQuote tweeted about the expectations the market has ahead of the Fed’s interest rate hike decision on Wednesday. Fed will likely hike by 75bp ; SNB will likely follow! â–¶ï¸Â Discover today's market highlights on our #MarketTalk with @IpekOzkardeskay: https://t.co/Lzfate1wod pic.twitter.com/ZnOfnyHVvM — Swissquote (in English) (@Swissquote) September 20, 2022   On Wednesday the Fed is due to make their interest rate decision, this interest rate decision came in the wake of the US CPI inflation results which were released during last weeks trading week. US Stock/Bond portfolio is suffering According to Charlie Bilello a US Stock/Bond portfolio is likely to experience its worse financial performance in 86 years. A 60/40 Portfolio of US Stocks/Bonds is down 16.2% in 2022, on pace for its worst calendar year since 1937. pic.twitter.com/d6gnbohRLw — Charlie Bilello (@charliebilello) September 20, 2022   A US portfolio that is split 60/40 between stocks and bonds is headed for its worst year since 1937. European central bank (ecb) determined to fight inflation The president of the ECB Christine Lagarde makes it clear that the ECB is determined to fight inflation through rising interest rates. We are determined to deliver price stability, and expect to raise interest rates further to achieve 2% inflation, says President @Lagarde. We must settle at a rate that ensures inflation returns durably to our target, as the economic environment evolves https://t.co/d5HvwVEiR0 pic.twitter.com/mCXxS1yk1f — European Central Bank (@ecb) September 20, 2022   The ECB is determined to deliver price stability through rising interest rates. The ECB is willing to settle the rate of inflation at its target. Sources: twitter.com
EUR/CHF To Go Down? Swiss National Bank Decides On Interest Rate On Thursday!

EUR/CHF To Go Down? Swiss National Bank Decides On Interest Rate On Thursday!

ING Economics ING Economics 21.09.2022 15:23
The Swiss National Bank holds its quarterly monetary policy meeting on Thursday and is expected to hike its policy rate by around 75bp to 0.50%. The SNB has also been using FX policy to fight inflation. We think the SNB will continue to guide EUR/CHF lower at a rate of around 5-7% a year, in order to keep its real exchange rate stable A stable real exchange rate requires a lower EUR/CHF Since June, the SNB has been very clear: after years of fighting deflation, inflation is currently considered too high and the SNB wants to react by raising its interest rate. Inflation reached 3.5% in August, well below the inflation rate of neighbouring countries but above the SNB's target of between 0% and 2%. Since the SNB is no longer fighting an overvalued exchange rate, but rather believes that a strong Swiss franc is favourable, it can now raise interest rates quickly, without necessarily following the ECB's moves. This is why it moved ahead of the ECB by raising rates by 50 basis points in June. There is little doubt that the SNB will raise rates by at least 75 basis points at Thursday's meeting. A 100 basis point hike like the Riksbank did is not out of the question, especially since the SNB only meets once every quarter, unlike other central banks. However, with inflation "only" at 3.5% in Switzerland and the strength of the Swiss franc allowing imported inflation to fall, 100 points might be a bit too much of a move, so a 75 basis point hike remains more likely. Turning to FX matters, EUR/CHF has come steadily lower since June. Driving this trend have been some key statements from the SNB that (i) it wants to keep the real exchange rate stable and (ii) it will intervene on both sides of the FX market. In practice, we think that means the SNB wants to manage EUR/CHF lower. At the heart of the story is a more hawkish SNB and its view that as a small, open economy a weaker real exchange rate is inappropriate right now in that it would be providing additional stimulus at a time when CPI is overshooting its close to, but not over 2% target. What does a stable real exchange rate mean in practice? In the case of Switzerland, where inflation amongst its trading partners is running nearly 5% higher than in Switzerland, it means that a nominal 5% appreciation of the trade-weighted exchange rate is required to keep the real exchange rate stable. Rather conveniently, as we show in our chart below, the recent bout of Swiss franc strength leaves the trade-weighted Swiss franc around 5% stronger on a year-on-year basis. Not being a member of the G20 grouping allows Switzerland a little more latitude with its FX practices. And the above analysis suggests the SNB may be running a managed float here. With huge FX reserves of close to CHF900bn, the SNB remains a major force to be reckoned with and has the firepower to back up this managed float. Hence the remarks from the SNB in June that it planned to intervene on both sides of the market. Like the Czech National Bank (CNB), the SNB has previously experimented with FX floors, but the managed float underway today is more akin to activity undertaken by the Monetary Authority of Singapore (MAS) which more formally uses a managed float in its monetary toolkit. CHF: Real exchange rate stable YoY, nominal exchange rate +5% YoY Source: SNB, ING forecasts What does this mean for EUR/CHF? Away from the arcane concept of a real or nominal trade-weighted Swiss franc, what does this all mean to the more familiar EUR/CHF? First, it is important that the two biggest weights in the trade-weighted Swiss franc are: (i) the euro at 51% and (ii) the dollar at 23%. If the SNB wants a stronger trade-weighted Swiss franc then clearly EUR/CHF and USD/CHF are going to have to play their parts. Secondly, we have said that the SNB wants to keep the real CHF stable. In the chart above, we present our inflation forecasts, which show the inflation differential staying at around 5% into 2Q23 and only dropping back to zero by end 23. The argument then is that the SNB continues to manage the Swiss trade-weighted index firmer at this 5% year-on-year rate into next Spring before slowing the pace of appreciation. Thirdly, there are many moving parts in the trade-weighted exchange rate, but crucially our stronger dollar view means that USD/CHF may not come lower as the SNB wishes. This places a greater burden on the adjustment in EUR/CHF. Assuming USD/CHF stays flat, EUR/CHF would need to fall at around a 7% per annum rate to get the trade-weighted CHF stronger by 5%. Bringing it all together – and assuming that the SNB has the wherewithal to control EUR/CHF – we can argue that to achieve its objective of keep the real exchange rate stable according to our inflation forecasts, the SNB could be managing EUR/CHF on something like the following path… 4Q22 0.93, 1Q23 0.92, 2Q23 0.91 and flat-lining near 0.90 in 2H23. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
US Dollar Pushed Upwards Ahead Of The Fed’s Interest Rate Decision, Russia Not Showing Signs Of Slowing Down On The War (EUR/GBP), GBP/NZD

US Dollar Pushed Upwards Ahead Of The Fed’s Interest Rate Decision, Russia Not Showing Signs Of Slowing Down On The War (EUR/GBP), GBP/NZD

Rebecca Duthie Rebecca Duthie 21.09.2022 19:03
Summary: Euro fell back to its lows from early September below parity with the US Dollar. ECB hawkish tone. Thursday may cause the GBP/NZD to drop to some of its lowest points since the months immediately following the Brexit referendum. Euro weakens as Putin dashed hope for an end to the Russia/Ukraine conflict The market is reflecting bearish signals for this currency pair. On Wednesday, the Euro fell back to its lows from early September below parity with the US Dollar as Russian President Vladimir Putin appeared to dash any remaining hope for a quick resolution to the war in Ukraine. Markets anticipate additional rate increases even if there is optimism that, at least in the US, inflation may finally be under control. The Fed is projected to increase rates by a full percentage point. The war in Ukraine is continuing to drive up the cost of energy and raw materials on a continent that is still recovering economically from the Covid epidemic, so the European Union cannot resort to such solace. EUR/USD Price Chart BoE interest rate decision due on Wednesday The market is reflecting mixed signals for this currency pair. Although the European Central Bank has recently adopted a more hawkish tone, the Fed continues to have significantly more monetary firepower and flexibility to use it, according to the market. This opinion can only be strengthened by indications that the Ukrainian conflict will continue to rage. Great hopes: The markets are anticipating the Bank of England to raise interest rates twice in a row by 75 basis points, which might lead to a massive letdown for the British pound. As of right now, money markets are pricing in 200 basis point increases over the next three decisions, which means the Bank will need to raise rates by 75 basis points at two of those sessions. This is more than any other developed market central bank has requested. EUR/GBP Price Chart GBP/NZD currency pair During the midweek session, the New Zealand Dollar extended a 15-month downtrend against the U.S. Dollar and appeared to be headed for March 2020 lows. However, it may have better chances against Sterling, which could experience significant losses in the wake of Thursday's Bank of England (BoE) policy decision. If the author is correct in believing the BoE will actually raise rates much farther than all forecasts anticipate on Thursday, sterling's historically unfavorable reaction to Bank Rate rises could be doubly relevant for GBP/NZD this week. If this obviously improbable prediction comes true, then the BoE's decision on Thursday may cause the GBP/NZD to drop to some of its lowest points since the months immediately following the Brexit referendum. The decision on Thursday will be made just over a week after the Office for National Statistics reported a new increase in core inflation for August, and shortly after the Bank of England's Inflation Attitudes survey indicated that households' expectations for medium-term inflation remained at potentially alarming levels in July. GBP/NZD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
Did The Federal Reserve Beat Market Expectations During Their Wednesday Interest Rate Announcement?!

Did The Federal Reserve Beat Market Expectations During Their Wednesday Interest Rate Announcement?!

Rebecca Duthie Rebecca Duthie 21.09.2022 20:04
Summary: The markets expected a 75bps hike from the Fed. Fed met expectations with a 75 bps rate hike. Chances of an economic recession persists. The Federal Reserve chose to hike their interest rates The Fed met market expectations by hiking interest rates by 75bps on Wednesday. In the wake of the August US CPI inflation numbers, the market priced in a 75bps rate hike from the Fed. As the Federal Reserve continues on its rate hiking cycle, the markets become increasingly concerned around the likelihood of a global economic recession. The effect of the interest rate hike on the US Dollar and the economy On the strength of another significant Federal Reserve rate hike this Wednesday, the Dollar is anticipated to remain sustained. The August inflation report reaffirmed expectations for another 75 basis point raise and language indicating the Fed will retain a solid commitment to bringing prices down, convincing investors that the Fed cannot yet wind down its rate-hiking cycle. The next "big moment" for the currency markets, and really all financial assets, will be when the Fed finally changes course and indicates the cycle of rate hikes is about to come to an end. The recent trends of Dollar strength and equity market downturn are anticipated to continue up until that point. When members of the Federal Open Market Committee (FOMC) present their forecasts for where they believe interest rates will go in the future, there won't likely be any indications of a pivot (the infamous Dot Plot chart). However, the idea of general resilience in the US economy should continue to be the baseline scenario. Revisions to other economic estimates are anticipated to indicate some signals of a worsening economic outlook. Investors discounting a drop in future corporate earnings and fearing a deeper global recession through the latter part of 2022 and into 2023 would certainly put pressure on global stock markets. Sources: poundsterlinglive.com, investing.com
Did The Bank of England Miss, Meet or Beat Market Expectations?!

Did The Bank of England Miss, Meet or Beat Market Expectations?!

Rebecca Duthie Rebecca Duthie 22.09.2022 13:11
Summary: BoE interest rate decision. Any post-decision gains are expected to be sold into and prove fleeting. The BoE missed market expectations on Thursday regarding their interest rate hike decision. The BoE Missed market expectations The Bank of England (BoE) announced they would raise their central bank interest rate 50bps, missing the market's expectation of 75bps. The effect of the BoE interest rate hiking decision It is unclear what the effect of the BoE rising interest rates will have on the pound sterling currency. The exchange rate might increase if the Bank increases interest rates by 75 basis points, which would be the greatest increase since 1989, and shifts its prognosis for the economy. But for a central bank that has a history of falling short of market expectations and emphasizing the downside risks to the economy, this is a huge ask. The most plausible worst-case scenario would involve the Bank raising rates by less than anticipated (say, 50 bps) and cautioning that the economic outlook is still uncertain and subject to downside risks. The odds favor a downside reaction, according to currency market observers, and any post-decision gains are expected to be sold into and prove fleeting. A worldwide energy crisis, deteriorating domestic balance of payments, declining stock markets, an unrelentingly strong dollar, and an uncooperative Bank of England have all contributed to the Pound's bad year. The Bank of England's monetary policy is the one area where decision-makers have the power to provide the Pound with some short-term comfort, despite the fact that many of these challenges are medium- to long-term concerns and global in scope. Some of the pessimism and negative positioning may be challenged if the Bank shocks the markets with a more "hawkish" tone, allowing for a short-term leg upward. A rate increase of 75 basis points plus any improved commentary from the Bank may help the pound that day. Sources: poundsterlinglive.com
EUR/USD Touch 19-year Lows, BoE Interest Rate Decision (EUR/GBP), SNB Signals End Of Its Interest Rate Hiking Cycle (EUR/CHF)

EUR/USD Touch 19-year Lows, BoE Interest Rate Decision (EUR/GBP), SNB Signals End Of Its Interest Rate Hiking Cycle (EUR/CHF)

Rebecca Duthie Rebecca Duthie 22.09.2022 16:16
Summary: The SNB increased its interest rate for a second time on Thursday. BoE increased interest rates on Thursday by 50 basis points. Fed 75bps interest rate hike. EUR/USD touching 19 year lows The market is reflecting bearish signals for this currency pair. In the wake of the Federal Reserve's 75bps interest rate hike the falling wedge, which was keeping the door open for bullish reversal possibilities, is invalidated as the EUR/USD has dropped to a new 19-year bottom and is currently clinging to the swing-low from earlier in September, which is located between.9862 and.9876. As a result, the bearish side of the coin is once again in focus for the EUR/USD pair. Resistance is possible around the previous support level of.9950 as well as at parity if bulls can produce a stronger pullback. EUR/USD Price Chart GBP plummeted in the minutes after BoE interest rate announcement The market is reflecting bearish signals for this currency pair. The Bank of England increased interest rates on Thursday by 50 basis points, which was less than the 75 basis points the market was anticipating, and the British Pound plummeted in the minutes that followed. The pound had a sell-off in response to the boost that was lower than expected, and economists predict greater losses for the UK currency. The exchange rate between the pound and the euro dropped by 0.5 percent to 1.1434 in the 15 minutes after the decision, but it had recovered to 1.1470 by the time the U.S. stock market opened, bringing bank transfer rates to roughly 1.1240 and payment specialist rates to roughly 1.1440. EUR/GBP Price Chart SNB signals the end of their interest rate hiking cycle The market is reflecting bullish signals for this currency pair. The Swiss National Bank (SNB) increased its interest rate for a second time on Thursday, which caused the Swiss Franc to weaken. However, the SNB also warned against expecting future rate hikes through its inflation projections. After the SNB hiked its cash rate from -0.25% to 0.5% in a monetary policy move that echoed the Federal Reserve's on Wednesday, the Swiss Franc fell against a number of other currencies. Even while the Swiss central bank did not rule out future interest rate hikes, September's updated predictions suggested that, given the two increases in borrowing costs announced to date, the Swiss inflation rate will likely return to, if not fall below, 2% at the end of the forecast horizon. This suggests that Swiss authorities may already have done enough to bring inflation back in line with their concept of price stability. EUR/CHF Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
Italian Election 2022: Why Is It Crucial In Terms Of Finance?

Italian Election 2022: Why Is It Crucial In Terms Of Finance?

Jing Ren Jing Ren 23.09.2022 11:43
Italy goes to the polls on Sunday, with results expected through the course of the morning of Monday. Polls are showing a pretty strong lead for Brothers of Italy leader Meloni, so it's unlikely there will be a surprise with the electoral outcome. But, as far as the markets are concerned, a shift in the way Italy's finances are managed and how it relates to the Euro could have an impact on the shared currency. Who is likely to be PM is known, but who will be finance minister is another open question. While the three right-wing parties held a joint rally to close their election campaigns, the leaders put on a show of unity ahead of the polls. But there are still rifts between them, and some rather large egos that have already brought a previous government to a premature end. Negotiations for who will hold which ministers could end up showing the first cracks in the coalition. Possible implications Italy is the third largest economy in the Eurozone, but it's the largest in the so-called "periphery". Italy has had a contentious relationship with Brussels for years now, particularly over the issue of government finance and debt levels. The financial situation has only gotten worse since covid, and accelerated with the gas crisis. For now, the issue of how much money the Italian government is spending has been mostly ignored, but not forgotten. Particularly, apparently, among Italians who seem to be warming to the Euro-skeptic rhetoric of the lead candidate, Meloni. Italy has a debt-to-GDP ratio of 150%, nearly triple the Maastricht criteria. Italy's government deficit last year was 7.2%, well over double the 3% limit of the criteria. Italy's ability to service that debt is increasingly questionable as interest rates rise, particularly in the periphery. Meloni's confrontational attitude towards the EU is likely to further inflame tensions around the issue as well. Will the past repeat? The Euro entered a period of crisis in 2011 driven by a collapse in Greek debt payments. There was substantial worry that it would spread through other periphery countries, such as Spain and Italy. However, a rescue plan was cobbled together, some banks suffered, and the situation was barely averted. The Euro crisis included recessions and talk of a potential breakup of the shared currency. Read next: Cryptocurrency: Bitcoin Up, Ethereum Price Found Support, Ripple Price (XRP) Jumped! | FXMAG.COM Italy's economic situation is worse now than it was then. But not as bad as Greece was at the time. Greek debt lost investor confidence when it was revealed that authorities had misstated economic figures. And the debt-to-GDP ratio was 175%. Greece was not kicked out of the shared currency despite failing almost all the Maastricht criteria, which ultimately allowed more confidence in periphery countries' loose financials. On the other hand, it apparently also meant that the financial leaders of those countries felt they could get away with less fiscal discipline. To the point that even some Italian banks have not been provisioning as much as their American, UK and even German peers under the expectation that if the economic situation gets really bad, they will get a bailout. Just like in 2011. While Meloni might be able to convince voters to support her, getting investors to have confidence in Italy might be a whole different question. And by extension, investors might be worried that at least some of the problems from 2011 might appear again.
The EUR/USD Pair Is Showing A Potential For Bearish Drop

Europe: Eurozone PMI Declined. Is Recession Here? | Euro: Next ECB Move Could Be A 75bp Hike

ING Economics ING Economics 23.09.2022 14:35
The third decline in a row for the eurozone PMI indicates that business activity has been contracting throughout the quarter. This confirms our view that a recession could have already started. At the same time, the August increase in energy prices is translating into stronger price pressures Shoppers in Lubeck, Germany German Composite PMI Reached 45.9 The third quarter clearly marks a turning point in the eurozone economy. After a strong rebound from contractions caused by the pandemic, the economy is now becoming more severely affected by high inflation both at the consumer and producer level. Led by Germany, which saw its composite PMI drop to 45.9 in September, the eurozone saw its composite PMI fall to 48.2. Both services and manufacturing output are well below 50 at 48.9 and 46.2, respectively, signalling broad-based contracting business activity. Read next:  The manufacturing sector is bearing the brunt of the problems. Supply chain problems still disturb production, but weaker global demand has caused backlogs of work to fall as new orders are decreasing quickly. Incidental production stoppages due to high energy costs are also adding to declining production in the sector. But with the tourism season behind us, there are few opportunities left for any marked catch-up effects in the eurozone economy. That has pushed the services PMI deeper into negative territory as consumers are starting to become more cautious in spending as energy bills rise across the monetary union. Overall, the view of a eurozone economy moving into recession seems confirmed by the gloomy September PMI survey. European Central Bank May Hike The Rate By 75bp The surge in gas and electricity prices in August is now leading to further price pressures emerging for businesses in September, even though other costs have been moderating due to weakening global demand. This confirms the stagflationary environment that the eurozone is currently in. The ECB has made clear that it will continue to hike in a determined manner for the short-run, as it tries to battle stubbornly high inflation. A 75 basis point hike in October is therefore definitely on the table, despite a weakening economy. Read this article on THINK TagsInflation GDP Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Analysis Of The US Dollar Currency Index Price Movement

US Dollars Momentum Supported By Fed Interest Rate Hiking Road Map (EUR/USD, USD/CAD), UK & Europe Could Already Be In A Recession (EUR/GBP)

Rebecca Duthie Rebecca Duthie 23.09.2022 19:01
Summary: EUR/USD is close to 20 years lows. The UK and the Eurozone may have already entered recession in the third quarter of the year. Canadian Dollar plunged to its lowest level against the U.S. Dollar since July 2020. US Dollar remains supported The market is reflecting bearish signals for this currency pair. A day after the Federal Reserve approved another sizable hike and promised to keep tightening monetary policy firmly in order to control inflation, the EUR/USD lacked confidence on Thursday, fluctuating between tiny gains and losses. This is probably due to rising U.S. Treasury yields. The exchange rate is very close to one of its lowest points in more than 20 years, having fallen dramatically from the overnight session high of 0.9907 and trading mostly flat on the day at 0.9843. The Fed's hawkish roadmap, which anticipates 150 basis points of additional tightening up to the terminal rate of 4.6% in 2023, as well as its commitment to maintaining a restrictive stance for an extended period of time, should keep U.S. rates biased to the upside and support the dollar's momentum in the FX market. EUR/USD Price Chart Europe & the UK may have already entered recession The market is reflecting bullish signals for this currency pair. According to analyst and economist readings of the data, the latest round of S&P Global PMI Surveys of the manufacturing and services sectors revealed on Friday that the economies of the UK and the Eurozone may have already entered recession in the third quarter of the year. Energy markets and developments in Ukraine, where Russian occupation troops are anticipated to be strengthened following substantial recent setbacks for the invading army at the hands of Ukrainian forces, also attracted attention in Europe. EUR/GBP Price Chart USD/CAD The market is reflecting bullish signals for this currency pair. This week, during another turbulent time for risky assets, the Canadian Dollar plunged to its lowest level against the U.S. Dollar since July 2020; however, updated BMO Capital Markets forecasts suggest that it may be due for one of the most significant recoveries if and when the dollar reaches its peak. The Canadian Dollar lost ground to the Swiss Franc on Friday as it dropped close to 73 cents versus the U.S. Dollar, but it still made significant gains over other currencies, several of which hit new multi-decade lows against the U.S. unit. USD/CAD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
The Bank Of England Is Forced To Act Aggressively

Banks In The Old Continent Are Doing Their Best To Fight Inflation

ING Economics ING Economics 24.09.2022 08:18
The Swiss National Bank’s decision to introduce bank reserve tiering sheds light on similar potential decisions at the Bank of England and European Central Bank. Central banks have to balance monetary policy transmission, interest costs, and incentive structures for banks In this article SNB: actively moving to absorb liquidity BoE: saving money where it can ECB: peering into pandora’s box Source: Shutterstock European central banks are gradually adjusting their policy setting to a world of positive interest rates but with still abundant liquidity. The common theme here is that hundreds of billions, or trillions in the ECB’s case, of bank reserves will be remunerated at positive interest rates, at a cost for their central banks, and ultimately their domestic government treasury. SNB: actively moving to absorb liquidity The Swiss National Bank (SNB) was the first one to actually implement a reserve tiering system at its September meeting. In a nutshell, banks’ sight deposits at the SNB up to a certain threshold will earn the SNB policy rate, currently 0.5%, and 0% on balances above that threshold. This, however, is only part of the story. In parallel, the SNB announced it will conduct liquidity-absorbing operations (Open Market Operations or OMOs). With a threshold set at an elevated 28 times banks required reserves, it won’t take much effort for the SNB to absorb enough liquidity so that all that remains is remunerated at the SNB. In effect, the SNB rate should remain the marginal rate in CHF money markets, and tiering should act as an incentive for banks to participate in liquidity-absorbing operations. The SNB's goal seems to be to make sure higher policy rates are transmitted to the economy The upshot is that the main feature of the new liquidity set-up at the SNB will be to remove liquidity from the system as it tightens policy in order to get inflation under control. There is likely to be only marginal interest rate savings for the central bank on its CHF640bn of sight deposits, if at all, but this doesn’t seem to be the point of the policy change. Rather the SNB's goal seems to be to make sure higher policy rates are transmitted to the economy. Bank reserves at the BoE will decline with QT, but not fast enough to save much interest cost to the BoE   Source:Refinitiv, ING BoE: saving money where it can There have been persistent press reports that the UK is looking to reduce the amount of interest it pays to banks. This is a more pressing issue in the UK because bank reserves now approach £945bn and the swap curve is implying that the Bank Rate could climb to 5% next year. This is something of a worst-case scenario, but this would result in an interest rate bill approaching £50bn per year. In practice, we think that rate hike expectations are exaggerated, and the BoE intends to reduce its bond holdings, and so the amount of reserves, by £80bn per year at least. At a time of large open-ended fiscal support to energy consumers, the Treasury could be forgiven for trying to save on this interest rate bill. The Treasury could be forgiven for trying to save on its interest rate bill Two options present themselves to the BoE. Designing a reserve tiering system akin to the SNB would allow it to gradually reduce the amount of liquidity in the system. Interest cost saving would probably be underwhelming at first, but it could attempt to gradually increase the amount of liquidity withdrawn from the system, thus also supporting its monetary tightening stance. Inversely, it could determine a fixed amount of reserves that is remunerated at 0%, with balances above that threshold earning the Bank Rate. If that threshold is set too high, this measure would incentivise banks to get rid of their liquidity and would push money market rates lower, thus contradicting the BoE’s monetary policy stance. Setting the threshold lower would mean a lower interest rate saving from the BoE but also probably less disruption in GBP money markets. We think this is the option that would likely deliver the best near-term compromise for public finances. Its market impact should be limited at first. The distribution of bank liquidity and TLTRO borrowing is uneven across the eurozone Source: Refinitiv, ING ECB: peering into pandora’s box The European Central Bank’s motivation could be similar to the BoE's. As policy rates rise, the interest banks earn by placing liquidity at the ECB will gradually rise above the rate they are paying on their targeted longer-term refinancing operations (TLTRO) loans, presenting them with an interest rate gain. If this is the sole problem it is intending to solve, one option would be to retroactively change the TLTRO terms by raising its interest rate. This would be detrimental to the predictability, and so attractiveness of future TLTRO operations, however. With the brunt of TLTRO loans due to expire by the middle of next year, one could also question the need to come up with risky solutions to a problem that will disappear in nine months. The ECB has effectively allowed banks to borrow money at a lower rate than they earn when they place it back at the ECB If on the other hand, the goal is to reduce its interest bill over the longer term, it could borrow one of the two designs described above. A set-up similar to the SNB’s, where a fixed amount of reserves earns the policy rate and the amount in excess earns 0%, would imply that it intends to actively withdraw liquidity. This could be achieved if banks rush to repay TLTRO loans, but this is likely to result in at least a temporary drop in money market rates. To prevent this temporary disruption, the ECB could bridge the period until the next quarterly TLTRO repayment opportunity with ad hoc liquidity draining operations, or simply make the tiering apply on the same date as TLTRO repayment. If this is the option retained by the ECB, the reduction in excess liquidity resulting from early TLTRO repayments, and other liquidity draining operations, would push money market rates higher relative to the ECB deposit rate. Interbank lending rates would be the first area where we expect a reaction as banks move to replace TLTRO funding. In time, we'd also expect greater competition among banks to attract wholesale deposits. Both would push Euribor fixings higher relative to euro short-term rate (Estr) swaps. This should also contribute to pushing Estr fixings above the deposit rate, and closer to the refinancing rate. Draining liquidity would eventually push Estr above the ECB deposit rate Source: Refinitiv, ING   A design similar to the one described above for the BoE, where a fixed amount earns 0% and balances above that threshold earn the policy rate, would guarantee some interest rate saving but wouldn’t provide an incentive for banks to repay TLTRO funds if the threshold is set low enough. If the threshold is set high, then the risk is that 0% becomes the marginal interest rate for many banks and that some countries end up being net lenders, and others net borrowers. The result would be a drop in money market rates in some countries, and a rise in others. TagsSNB ECB BoE   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The US Has Again Benefited From Military Conflicts In Other Parts Of The World, The Capital From Europe And Other Regions Goes To The US

The Fed Is Ready To Sacrifice Growth And Employment To Bring Inflation Back To Its Target

ING Economics ING Economics 24.09.2022 08:51
US housing numbers will be the main focus next week. The Federal Reserve's aggressive hiking cycle has already sent the market into recession and more pain lies ahead. In the eurozone, we expect higher inflation at 9.6% while unemployment should remain unchanged In this article US: Housing numbers in focus after Fed's 75bp hike Eurozone: Higher inflation and unemployment rate expect to remain at 6.6% Source: Shutterstock US: Housing numbers in focus after Fed's 75bp hike After the Federal Reserve's 75bp rate hike this week and Jerome Powell's commentary that the Fed is prepared to sacrifice growth and jobs to ensure inflation comes back to target, we will be hearing from many more officials over the coming week. Given the strong clustering of near-term forecasts for rates and the economy, the hawkish comments hinting at another 75bp hike in November are likely to come thick and fast. The data calendar is fairly light with housing numbers the main focus. With mortgage rates now firmly above 6%, more pain is coming in the housing market where a recession is already underway. Eurozone: Higher inflation and unemployment rate expect to remain at 6.6% Inflation figures will be the main focus in the eurozone. Expect higher prices partly due to Germany's decision to end cheap public transport tickets as of 31 August. The key will be to see how much other categories have continued to rise. Separately, unemployment data is out on Friday. We expect the labour market to have remained very tight with the unemployment rate stable at a historic low of 6.6% despite business hiring expectations sliding in recent months. Key events in developed markets next week Source: Refinitiv, ING This article is part of Our view on next week’s key events   View 3 articles TagsFederal Reseve Eurozone   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The S&P500 Rallied Past Its 2022 Bearish Trend Top

Very Dramatic Moves In Forex Markets With The Euro (EUR) And The Pound (GBP)

Swissquote Bank Swissquote Bank 26.09.2022 11:13
The FX markets kick off the week on an extremely chaotic note. Both the pound and the euro are being severely punished for the political decisions that are taken in the UK and in Italy respectively. Elections in Italy As expected, the far-right candidate Giorgia Meloni won a clear majority in Italy at yesterday’s election, with Brothers of Italy gaining more than 25% of the votes. And Meloni’s right-wing alliance with Salvini’s League and Berlusconi’s Forza Italia got around 43% of the votes: the terrible consequence of the pandemic, the war and the energy crisis. Situation the major currency  The EURUSD has been shattered this morning. The pair dived to 0.9550. But it’s almost worst across the Channel, if that’s any consolation. Investors really hated the ‘mini budget’ announced in UK last Friday. Investors were expecting to hear about a huge spending package from Liz Truss government, but the package has been even HUGER than the market expectations. UK’s 10-year yield jumped more than 20% since last week, the FTSE dived near 2% and Cable tanked below 1.0350 in Asia this morning. Elsewhere, the US dollar index took a lift, and the dollar index is just crossing above the 114 mark at the time of talking. Stock market Outlook Gold dived to $1626 on the back of soaring US dollar. US crude oil plunged below $80 per barrel. The S&P500 fell to the lowest levels since this summer, whereas the Dow Jones fell below the summer dip. Happily, the European equities are better bid this morning, but investors remain tense and worried. Watch the full episode to find out more! 0:00 Intro 0:24 Italy turns right, euro gets smashed 4:15 UK assets treated like EM after the ‘MINI’ budget 7:45 USD rallies, XAU, oil under pressure 8:49 US stocks dive to, or below summer lows on Fed fear Ipek Ozkardeskaya Ipek Ozkardeskaya has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked at HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist at Swissquote Bank. She worked as a Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020. #Italy #election #Meloni #UK #mini #budget #EUR #GBP #selloff #USD #rally #crude #oil #XAU #BP #APA #XOM #recession #energy #crisis #SPX #Dow #Nasdaq #investing #trading #equities #stocks #cryptocurrencies #FX #bonds #markets #news #Swissquote #MarketTalk #marketanalysis #marketcommentary ___ Learn the fundamentals of trading at your own pace with Swissquote's Education Center. Discover our online courses, webinars and eBooks: https://swq.ch/wr ___ Discover our brand and philosophy: https://swq.ch/wq Learn more about our employees: https://swq.ch/d5 ___ Let's stay connected: LinkedIn: https://swq.ch/cH
In Italy Private Investment Should Remain A Positive Growth Driver In 2023

Italy: Giorgia Meloni Wins Italian Election. Could Alleged Political Differences Between EU And Italy Affect Market?

ING Economics ING Economics 26.09.2022 12:23
As largely expected, a centre-right coalition led by Giorgia Meloni has secured a clear victory in Italy's election. Meloni will now form a government which will count on a stable majority. For now, concerns about budget decisions and relationships with the EU are quite muted, and both Italian bonds and the euro have bigger short-term issues to deal with Giorgia Meloni secured a clear victory in Italy's election Centre-right got an ample majority in both branches of parliament For once, actual Italian election data broadly confirms what opinion polls had anticipated. According to preliminary data available as we write, the centre-right coalition has got an ample majority (44%), with the centre-left following some way behind (26%). The Five-Star Movement, which runs in isolation, has come third (15%), followed by the centrists of Azione/IV (7.7%). As expected, with the current electoral system attributing a third of seats under a first-past-the-post rule, the ability (or a lack thereof) to form a wide coalition was a decisive factor. The centre-right exploited it very well, mopping up an overwhelming majority of first-past-the-post seats. Based on preliminary data, the centre-right coalition should get a decent majority in both branches of the Parliament.  Meloni to get a mandate to form a government The undisputed big winner in this election was Giorgia Meloni, the leader of Fratelli d’Italia. With 26% of the votes, she prevailed in her coalition by a huge margin over Lega (9%) and Forza Italia (8%). There will be no leadership issue, and she will very likely get the mandate from President Sergio Mattarella to form a new government. This will not happen before mid-October, though, after the first gathering of the houses and the election of their speakers. A new Meloni government could thus be installed by the end of October. Italian election results Source: Italian Ministry of the Interior, ING A tight agenda awaits Meloni, with the budget at the top of the list The scope of Meloni’s lead within her coalition will likely give her the upper hand in many decisions, but we suspect she will be very careful not to humiliate her allies for the sake of stability. Still, on some crucial matters, such as the fiscal stance, she will likely be in a position to effectively oppose calls for more deficit from Matteo Salvini, the leader of Lega, who was a big loser in the polls. As the new budget will have to be approved before year-end, we expect the outgoing Mario Draghi government to set up the macro framework and, possibly, the Planning Document setting the budgetary framework. This should prevent any meaningful deviation from the set track in the short run. More critically, Meloni will over time have to clarify her stance on the international positioning of Italy. If adhesion to the Atlantic Pact seems not at stake, the relationship with Brussels and big eurozone countries will have to be clarified. If participation in the euro project is neatly reaffirmed in the programme, the notion of doing so while defending national interests has yet to be qualified. Not a very short-term issue, but a potential area of conflict for 2023, when the new European fiscal rules will be discussed.   Rates: too early to make long-term calls on policy Italian bonds largely shrugged off the goldilocks result of this weekend’s election: enough votes for the right-wing coalition to ensure stability but not too much so it can change the constitution with a two-thirds majority. Italian spreads tightened into the election in a sign that they have made peace with the prospect of an FdL-led government, for now at least. Focus is now on the early decisions that Meloni’s government will take, including the FinMin appointment, and on the 2023 budget. Longer term, this government’s policies, especially towards Brussels and fiscal discipline, are an unknown quantity. But markets aren’t well equipped to make long-term calls on policy, especially with contradictory near-term signals. Instead, the main driver of Italian bonds over the coming weeks and months is likely to be the broader tone in financial markets. In a context where central banks tighten monetary policy in unison, or even competing with each other in some instances, carry-oriented investors are understandably shy in picking up the additional yields offered by Italy’s bonds. The ECB’s newfound hawkishness is a particular worry, and so is the prospect of it reducing the size of its bonds portfolio through quantitative tightening. FX: Italy is not a short-term concern for the euro The Italian election results seem to have gone mostly unnoticed in the currency market. This is partly due to the predictability of the outcome, but may also denote how markets are giving Meloni the benefit of the doubt after a campaign where she firmly reiterated her intention to respect fiscal rules and maintain Italy’s foreign stance unchanged. Quite crucially, like for government bonds (BTPs), the euro has bigger concerns to deal with – Russia-Ukraine developments and the energy crisis above all – and is now also feeling some spill-over effect from the meltdown in the GBP market over the past two sessions. With the ECB’s hawkishness having blatantly failed to offer the euro any solid support and the dollar staying strong, EUR/USD downside risks remain quite elevated in the near term, even without Italian politics adding any pressure. We think that some Italy-EU confrontation on Meloni’s party's core themes (like immigration) may trigger some adverse market reaction further down the road, and that fiscal decisions may be scrutinised more if she presses forward with tax cut proposals, but it is simply too early for any risk premium to emerge on EUR/USD or even EUR/CHF.   Read this article on THINK TagsItaly elections Italy Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Grains Sector Saw Continued Demand| Acceleration In The Sale Of Gold

The Grains Sector Saw Continued Demand| Acceleration In The Sale Of Gold

Saxo Bank Saxo Bank 26.09.2022 14:41
Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to Tuesday, September 20, a week leading up to the FOMC meeting, Bank of Japan intervention, a Sterling crisis and the dollar surging to levels not seen in decades. Ahead of these events speculators chose to cut their dollar long by one-third, increasing their gold short to a four year high while adding exposure in grains and crude oil Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to Tuesday, September 20. A week that saw financial market adjust positions ahead of the FOMC meeting on September 21. In anticipation of another 75 basis point rate hike, the market sold stocks, bonds and commodities while the dollar was bought. As it turned out, the FOMC was the starting shot to a very volatile end of week that saw heightened recession worries, Bank of Japan intervention to support the yen for the first time in 24 years, and an unfolding crisis in the UK sending the Sterling towards an all-time low.   Commodities The Bloomberg Commodity Index dropped 2.3% during the week to last Tuesday with losses seen across most sectors, the exception being grains and livestock. Selling was particularly felt across the energy sector and in precious metals. Money managers responded to these heightened growth and strong dollar concerns by cutting length in energy and softs while adding to already short positions in precious metals. The only sector continuing to see demand were grains where the speculators have now been net buyers in all but one of the last eight reporting weeks. Energy Money managers raised their combined crude oil net long to a seven-week high despite the recessionary clouds growing ever darker and the dollar continued to strengthen. During the reporting week when oil dropped around 3% the total net long in WTI and Brent was raised by 13.5k contracts to 355k lots. The ICE gas long meanwhile slumped by 30% to a 22-month low while in New York the ULSD (diesel) length was cut by 17% to 15.7k contracts. Despite falling by around 7% only small changes were seen in natural gas. Metals Gold selling accelerated last week with the net short jumping by 225% to 33k contracts to near a four-year low. This the culmination of six consecutive weeks of selling driven by a stronger dollar and rising Treasury yields as well a firm belief the FOMC will successfully manage to bring inflation under control next year. Silver saw no major net change with reductions in both long and short positions offsetting each other. The copper net short was unchanged at 4k contacts, the weakest belief in lower prices since June while platinum’s 3.5% rally supported an 82% reduction in the net short to just 2k contracts, again weakest short bet since June. Agriculture The grains sector saw continued demand with speculators having been net buyers in all but one of the past eight weeks. The increase last week was led by a 16% increase in the soymeal long to 102k contracts, a seasonal high while corn buying extended to an eight week. The wheat market which found support from renewed threats to the Ukraine grain corridor saw net buying of both Chicago and Kansas wheat. Overall however the net exposure remains close to zero with a 16k contracts CBT net short partly offsetting a 19k contracts long in KCB wheat. Renewed selling of sugar cut the net long by 72% to 8.6k contracts, the cocoa net short extended to a fresh 3-1/2 year high while long liquidation continued in both coffee and cotton.   Forex Ahead of the post-FOMC dollar surge to a fresh multi-year high against several major currencies, and the first intervention from the Bank of Japan to support the yen in 24 years, speculators had reduced bullish dollar bets by 35% to $13.9 billion, a six month low. The bulk of the change was driven by the biggest amount of short covering in the euro since March 2020, a change that flipped the position back to a long of 33k lots or €4.2 billion equivalent, up from a €6 billion short three weeks ago.The net short in sterling was reduced by 13k lots to 55k lots just days before tumbling to a 37-year low following the announcement of a historic debt financed tax cuts. The yen meanwhile saw no major changes ahead of Thursday’s USDJPY surge and subsequent    What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming   Source: https://www.home.saxo/content/articles/commodities/cot-specs-sold-dollar-and-gold-ahead-of-fomc-26092022
The GBP/USD Pair Did Not Reach The Nearest Target Level Of 1.2259

US Dollar Dictating Marker Movements (EUR/USD, GBP/USD), BoE Introduce Further Tax Cuts (EUR/GBP)

Rebecca Duthie Rebecca Duthie 26.09.2022 20:17
Summary: The Euro remains a weak currency and appears to be headed for additional declines. GBP attempted to stabilize and recover the majority of its losses from the flash crash. BoE current monetary policy will probably lead to escalating inflation pressures. EUR/USD at lowest level in more than 20 years The market is reflecting mixed signals for this currency pair. According to their most recent research, the German Ifo institute is the latest organization to issue a warning that the nation is likely to experience a recession in the upcoming quarters due to businesses' elevated level of pessimism for those months. The figures released today fell short of forecasts and numbers from the previous month. The Ifo report is the first of many German publications scheduled for this week that will provide a clearer picture of the status of the German economy. Earlier in the session, the US dollar's strength led to the Euro falling to its lowest level versus the US dollar in more than 20 years. The Euro remains a weak currency and appears to be headed for additional declines, while market movements are being dictated by the dollar across the board. EUR/USD Price Chart EUR/GBP bearish The market is reflecting bearish signals for this currency pair. According to a top economic research agency, the Bank of England must take the initiative and raise UK interest rates significantly if the collapse of the British Pound is to be stopped. The Pound has declined in value relative to every other currency in the globe, with the Pound to Euro exchange rate falling below 1.10. The British pound is currently stabilizing and recovering the majority of its losses from the flash crash. The projections for the British pound have been drastically cut by investment firm Goldman Sachs, indicating that additional losses against the Euro and a revisit of recent lows against the Dollar are possible. EUR/GBP Price Chart GBP lost 4.8% The market is reflecting bullish signals for this currency pair. This morning's Asian trading, which is often characterized by low transaction volume and little price volatility, saw an unusually steep decline in the British pound of over 4.8%. The big price change may have been influenced by the low transaction volume (reduced liquidity), but the main driver was the UK's new Chancellor Kwasi Kwarteng's announcement of more tax cuts, the largest in 50 years! Looking at the Bank of England's (BoE) current monetary policy, it is clear that the institution wants to raise interest rates to combat the inflation issue; however, a lax fiscal policy, such as energy price caps, which may benefit consumers in the short term, will probably lead to escalating inflation pressures in the medium and long terms once the fiscal support is removed. The local currency's decline, which makes inflation prone to increases, is a further contributor to the issue. GBP/USD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
The USD/JPY Pair Above 150! | Who Will Replace Liz Truss? | The Central Bank Of Turkey Cut Interest Rates

Chaos And Rising Volatility Are Present In Market Mood

Swissquote Bank Swissquote Bank 27.09.2022 09:52
We had a bearish start to the week on Monday and the price action across several asset classes remains volatile and chaotic - and that’s especially true for the FX markets shaken by the freefall in sterling. FX Market The US dollar remains king, on the back of a heavy sterling meltdown due to irresponsible UK government / lazy Bank of England (BoE), and euro selloff on the back of Italy turning right / cautious European Central Bank. The USDJPY spiked at yesterday’s dollar rally, as if the Bank of Japan (BoJ) never intervened last week. The BoJ head says that he supports intervention in the yen. In vain. Stock Martet  Equities selloff, as investors expect a deeper downside move due to pressured earnings. Tech stocks remain on the chopping block. To reverse sentiment, Amazon throws the second Prime Day sale this year, and Apple hurries out of China. While outlook for equities remains bearish, the rising yields make sovereign markets increasingly appetizing, and an eventual inflows in global sovereign markets could be the first sign of healing from the actual financial crisis. Watch the full episode to find out more! 0:00 Intro 0:27 Bailey is clearly not a good 'adult' in the room… 4:26 Where is the money, and where could it go next? 5:53 Stock mood update 8:20 FX talk Ipek Ozkardeskaya Ipek Ozkardeskaya has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked at HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist at Swissquote Bank. She worked as a Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020. #GBP #EUR #selloff #UK #mini #budget #USD #rally #Apple #Amazon #Google #Netflix #UK #gilt #sovereign #bonds #SPX #Dow #Nasdaq #investing #trading #equities #stocks #cryptocurrencies #FX #bonds #markets #news #Swissquote #MarketTalk #marketanalysis #marketcommentary ___ Learn the fundamentals of trading at your own pace with Swissquote's Education Center. Discover our online courses, webinars and eBooks: https://swq.ch/wr ___ Discover our brand and philosophy: https://swq.ch/wq Learn more about our employees: https://swq.ch/d5 ___ Let's stay connected: LinkedIn: https://swq.ch/cH
Intervention In The Yen (JPY) Still Remains A Far Cry| The Pound (GBP) Is The Weakest Against The Dollar (USD)

Intervention In The Yen (JPY) Still Remains A Far Cry| The Pound (GBP) Is The Weakest Against The Dollar (USD)

InstaForex Analysis InstaForex Analysis 27.09.2022 11:04
Summary:  Havoc has spread to the markets, not just with the Fed staying the hawkish course, but with the collapse in confidence in the UK economy after a fiscal policy and lack of monetary policy response adding into the mix with a massive bond selloff. Meanwhile, the surge in the US dollar continued taking its toll on several currencies, and the effect of Japan’s intervention from last week has also faded. Earnings pressure may be the next shoe to drop, and recession concerns also still need to be priced in more broadly. Fed’s high-for-longer message is now being taken seriously The September FOMC meeting was not precisely a pivot point for the Fed, but more so for the markets which finally understood the Fed’s message on inflation. The dot plot, particularly, conveyed two key messages as listed below. Even though the accuracy of the dot plot remains in doubt, given a very weak correlation with what actually transpired previously, it is a great signalling tool to understand the intentions of the FOMC members. Terminal rate is seen at ~4.6%, which was above what Fed funds futures were pricing in before the meeting. Even slower growth and higher unemployment levels, as conveyed by the Fed’s projections, would not deter the central bank from hiking rates There was some pushback on premature easing, with the dot plot showing a 4.5-5.0% rate even at the end of December 2023. Alongside that commitment to tighten, the Fed is now at the full pace of its quantitative tightening program, which is sucking liquidity out of financial markets at a rapid pace. The aim is to shrink the Fed’s balance sheet by $95bn a month — double the August pace. While quantitative tightening strongly influences liquidity conditions and asset markets, it is less useful in directly impacting inflation. While systemic risks from QT may remain contained, it ramps up the rise in Treasury yields as the Fed’s balance sheet shrinks and the amount of Treasuries in private hands increases. Trussonomics pushing UK to an emerging market status Sterling has fallen close to 10% on a trade-weighted basis in a little under two months, and has surpassed the Japanese yen to be the weakest against the US dollar year-to-date. An immediate response from the Bank of England may have saved some face, but remember that last week’s BOE decision was a pretty split vote as well with two members voting for 75bps rate hike and one calling for a smaller 25bps rate hike as well. So, it remains hard to expect a prudent policy response from the BOE, and a parity for GBPUSD in that case may not prove to be the floor. UK’s net forex reserves of $100bn are also enough to only cover two months of imports, or roughly equal to 3% of GDP as compared to Japan’s 20% and Switzerland’s 115%. But it’s not just about the sterling crisis in the UK, but more generally a crisis of confidence. Not to forget, inflation forecasts for end of the year are already at 10%+ levels and the market is now pricing in over 200bps of rate hikes by the end of the year, with two meetings left. The central bank will need to deliver this massive tightening simply to keep the sterling where it currently is and that won’t reverse the impact of the government’s decisions on UK markets. The scale and speed of the hikes could also do significant damage to the economy. The iShares MSCI United Kingdom ETF (EWU:arcx) traded lower by another 1.8% on Monday and is now down 7.3% over the last one week. Bank of Japan’s patience will keep getting tested We wrote earlier about what will need to change to call it a top in the US dollar, and nothing seems to be in order yet except some of the non-US officials starting to get concerned about currency weakness. Still, the intervention from Bank of Japan didn’t have long lasting effects on USDJPY, even as it helped to strengthen the yen against some of the other currencies such as the EUR, GBP or AUD. It may have also helped to stop some speculative shorts. But a coordinated intervention in the yen still remains a far cry, with the weakness in the Japanese yen being BoJ's own-doing due to the yield curve control policy. Japanese government bonds will likely continue to test the patience of Bank of Japan with its yield curve control policy. Downside for Japanese government bonds (JGB1c1) will potentially spike exponentially if the BOJ pivots at some point. Earnings pressure may be next While the Q2 earnings season proved to be more resilient than expectations, intensifying inflation concerns have turned corporates more cautious on the outlook and less optimistic for the near-term earnings performances. We have seen some downward revision of EPS estimates for the third quarter in July and August, and we still cannot rule out further grim outlook and margin pressures. Estimates for S&P 500 earnings in 2022 stood at $226.15 per share as of August 31, according to FactSet. This is down 1.5% from the $229.60 per share estimate as of June 30. For 2023, analysts now expect EPS of $243.68, down 2.8% from the June estimate of $250.61. So far, companies dealt with rising inflation by passing on increased costs to consumers, given the pandemic-era fiscal support measures underpinned strength in the consumer side. These increased pass-through was also visible in higher CPI prints. But with the economic outlook getting duller by the day, there is bound to be some pushback from the consumers and that will likely show up in the earnings report card. From a sectoral perspective, tech stocks will likely be battered as tight corporate budgets weigh and the US 10-year yields are in close sights of 4%. Semiconductors, a barometer of global economic health, could also face further pressure. Meanwhile, the oil and gas sector was the saviour of the Q2 earnings season, but would also likely see some pressure in Q3, unless the outlook starts to look slightly more upbeat with improving capex plans. Dollar pivot is the next key catalyst to watch The majority of the market downfall we have seen so far has come from a rapid shift in cost of capital and correcting peak valuation. The next leg, as discussed above could be the earnings recession. Still, economic recession risks remain and history suggests that the market lows do not come until after the recession begins (see chart below). Still, with the US 10-year yields approaching 4% - which maybe a likely ceiling – the focus turns to a reversal in the US dollar as the next pivot, not the Fed. Testing those key levels could mean a short-term bounce in equities which may be favourable for building new short positions as the trend still remains down. Alternatively, for investors, it would rather be optimal to look for signs of selling exhaustion to accumulate long positions, such as VIX above 40. Historically, a decline in stocks of the order of 20% makes it buying stocks after they have been down 20% from record highs has been a good risk/reward proposition for longer-term investors.     Source: https://www.home.saxo/content/articles/macro/macro-insights-approaching-a-breaking-point-but-not-without-more-pain-first-27092022
Eurozone: On Thursday, September 29th, Germany Releases Its Inflation Print And It's Quite Important To Keep An Eye On It

Eurozone: On Thursday, September 29th, Germany Releases Its Inflation Print And It's Quite Important To Keep An Eye On It

Jing Ren Jing Ren 27.09.2022 13:09
The ECB has only two more meetings for the rest of the year. Which means that the space to get inflation under control by the end of December is getting tight. The common bank is behind other major central banks in raising policy, which has kept the shared currency relatively weak. Therefore, there is a lot of expectation on what will happen with inflation. Though, it should be noted that the next ECB meeting isn't until late October, meaning that there is still another round of CPI data coming out before they meet. So, that is likely to have a much bigger impact on what the bank actually decides to do. On the other hand, the series of CPI figures expected later in the week are expected to shape interest rate expectations. And that, in the end, is the main driver of the currency. Restoring credibility A series of ECB officials have come out to talk in a way that suggests potentially stronger action. Rumors of a 75bps hike in October are starting to grow. This is because of the going theory among central bankers that inflation is shaped by the "credibility" of the central bank. That is, it's how confident the market is that it will raise rates as needed to get inflation down. Both Nagel and de Cos made comments to that effect yesterday. But they need to be contextualized within the ECB's Chief Economist Lane's views expressed also yesterday. That is, expecting a significant decrease in inflation through the course of next year. In other words, the ECB might be coalescing around the idea of a sharp rate hiking through the next couple of months to force CPI figures to turn around. It's out of their hands The thing is, while the ECB did expand the monetary base by around 10% during the pandemic, a larger chunk of the inflationary effects come from external factors. Higher energy costs, and increased cost of imported goods from China due to lockdowns, are the two main ones. That isn't something monetary policy can fix. On the other hand, China is seen relaxing some of the covid restrictions, and energy prices have been falling (although over fears of a pending global recession). That could contribute to lower inflation next year regardless of what the ECB does. So, it might come down to a matter of whether the ECB thinks it can control prices. What to look out for On Thursday, Germany reports Inflation figures, which are expected to set the tone for the rest of the shared economy. German September monthly inflation is expected to accelerate to 1.1% from 0.3% prior. That would contribute to annual inflation jumping to 9.5% compared to 7.9% prior. Then on Friday we get EuroZone headline inflation rate expected to move up to 9.6% from 9.1% in August. Of course what the ECB pays the most attention to is the core rate, which is also expected to accelerate, though not as sharply. Core September inflation is forecast at 4.7% compared to 4.3% prior.
The Agressive Rate Hikes By The Fed Did Not Lead To A Deeper Recession

EUR/USD Close To 20-year Lows, IMF Criticizes The UK Government (EUR/GBP, GBP/USD)

Rebecca Duthie Rebecca Duthie 28.09.2022 19:15
Summary: The Euro is looking down at a 20-year low against the US Dollar. A BoE statement said that it would interfere in the bond markets. Federal Reserve could be obliged to speed up the rate at which it raises interest rates. US Treasury 10-year note exceeds 4% The market is reflecting mixed signals for this currency pair. As a result of a mix of Fed and White House rhetoric that puts the brakes on a shift in market conditions, the Euro is looking down a 20-year low against the US Dollar. Overnight, St. Louis Federal Reserve President James Bullard reiterated the determination of the Fed to stare down price pressures when he said, “There’s a lot of tightening in the pipeline,” and “we have a serious inflation problem in the US.” Evans and Kashkari, two additional Fed board members, backed up his aggressive remarks. Treasury rates in some areas of the curve have increased to levels unseen in decades as a result of all this talk. For the first time since 2008, the yield on the 10-year note exceeded 4%. Government bond yields in developed markets around the world are escalating. The probable disruption of three Russian gas pipelines has made the situation in the Euro worse and driven up prices. EUR/USD Price Chart British pound to dropped quickly on Wednesday The market is reflecting mixed signals for this currency pair. The UK government's fiscal stimulus program, which was revealed last Friday and over the weekend, has received harsh criticism from the International Monetary Fund. Huw Pill, the chief economist at the Bank of England, said that the monetary policy should react appropriately to the fiscal policy. The Bank of England's statement that it would interfere in the bond markets caused the British pound to drop quickly, but a recovery later in the day indicated that markets are generally supportive of the central bank's decision to settle the bond markets. The Bank said unexpectedly that it would purchase long-dated UK assets in order to limit their yields. EUR/GBP Price Chart Pound has a strong inverse relationship with risk The market is reflecting mixed signals for this currency pair. The publication of better-than-expected statistics out of the U.S. overnight caused a decline in global markets, which in turn led investors to wager that the Federal Reserve could be obliged to speed up the rate at which it raises interest rates. Stock markets were affected by expectations of rising rates, which also helped the dollar and put pressure on other weaker currencies like the pound. The Pound has a strong inverse relationship with risk and tends to decline as the world markets decline. The announcement of new orders for durable goods data, which showed a dip of 0.2% in August but was better than the average expectation for a decline of 0.3%, was what first caused the decline in Sterling and other risk-sensitive assets. GBP/USD Price Chart Sources: finance.yahoo.com, poundsterlinglive.com, dailyfx.com
In Italy Private Investment Should Remain A Positive Growth Driver In 2023

Italy: Could GDP (Gross Domestic Product) In Q4 Decline?

ING Economics ING Economics 28.09.2022 22:26
There has been a marked deterioration in confidence across most sectors of the Italian economy. In our view, a GDP contraction might just be avoided in the third quarter, but it is almost inevitable in the fourth  September confidence data points to a broad-based deterioration in the Italian economic picture Consumers are getting gloomy again Data from Italy's National Institute of Statistics (ISTAT) shows that in September, consumer confidence fell back to July’s level, which was the lowest level since May 2020 during the peak of the pandemic. Consumers are increasingly concerned about economic developments and expect a deterioration in household economic conditions. Combined with growing concerns about future unemployment, this translates into a reduced willingness to purchase durable goods. Further fall in manufacturing confidence Confidence in the manufacturing sector fell for the third consecutive month, recording the lowest level since February 2021, driven by weakening demand for consumer and intermediate goods, where orders fell for the third month in a row. The fall was much more contained in the investment goods sector, possibly reflecting the ongoing support of the European Recovery Fund. Production expectations fell markedly across the board, pointing to a further deterioration in industry’s supply-side push over the fourth quarter of 2022. Construction was the only sector to post a monthly gain, partially recouping August’s lost ground. The impact of generous tax incentives on building construction is clearly still at play, and firms’ rising employment expectations seem to reflect confidence that favourable conditions will remain in place. Services no longer a safe haven, as the re-opening effect fades away Today’s release seems to mark a break in developments in the service sector. After stabilising over the summer, confidence in the service sector fell abruptly in September, reaching the lowest level since February 2022. This involved all subsectors, suggesting that the re-opening effect, helped by revamped tourism flows, is fading away. This seems to be confirmed by the decline in retailer confidence. Read next: Tim Moe (Goldman Sachs) Comments On USD And Turbulent Times For Markets In General, Ole Hansen (Saxo)Talks Nord Stream | FXMAG.COM A GDP contraction in the fourth quarter looks inevitable All in all, September's confidence data points to a broad-based deterioration in the Italian economic picture. The jury is still out about whether the third quarter of this year will mark the start of a recession: we still believe that, notwithstanding a very likely manufacturing drag, services and construction might have managed to generate a minor GDP expansion. However, the combined effect of budget-constrained consumption and softer industrial production will make a GDP contraction in the fourth quarter almost unavoidable, marking the start of a technical recession. The new Italian government is set for a tricky start: in a no-growth environment, it will immediately have to craft a budget in which electoral promises will have to come to terms with evaporating fiscal space. Read this article on THINK TagsItaly GDP Italy Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Spain: Price Pressures Higher Up The Production Chain Are Starting To Ease

Macroeconomics: Eurozone - September Spanish Inflation Print May Catch You By Surprise!

ING Economics ING Economics 29.09.2022 12:29
Spanish inflation fell in September to 9% from 10.5% in August, marking the second consecutive month of decline. These figures fuel hopes that the peak in inflation is now behind us While inflation in Spain is falling, it will nevertheless remain high until the end of the year Spanish inflation falls for the second consecutive month Spanish inflation fell to 9.0% in September from 10.5% a month earlier. This is now the second month in a row in which inflation has fallen. Core inflation, excluding more volatile energy and food prices, also fell slightly to 6.2% from 6.4% last month. The decline in headline inflation is mainly due to base effects that are starting to kick in. We are now comparing energy prices to a period when energy prices started to rise in 2021. Increasing base effects will further weaken year-on-year comparisons. Encouragingly, core inflation has also cooled slightly, suggesting that the strength of second-round effects is waning, mitigating the risks of entering a wage-price spiral. In the coming months, the cooling demand will ease inflationary pressures as it will become more difficult for companies to pass on new price increases to the end customer. Nevertheless, inflation will remain high until the end of the year. For the whole of 2022, we forecast inflation to come out around 9%. In 2023, inflation will gradually start to come down, reaching 4.5%. From 1 October, the Spanish government will reduce VAT on gas from 21% to 5% to soften the inflation shock. However, this will have only a marginal effect on the CPI. According to our calculations, the VAT cut on gas will reduce inflation by only 0.1 percentage point in October. Despite cooling off, ECB will continue its policy of interest rate hikes Despite the cooling trend, inflation remains historically high across the eurozone. Therefore, the current high inflation figures are unlikely to prompt the ECB to ease its monetary tightening policy. Judging from ECB officials' latest speeches, their first priority is to reduce inflation as soon as possible, rather than looking at inflation expectations or medium-term inflation. A 9% inflation rate is still well above the ECB's 2% target. Even with an upcoming recession, we think it likely that the ECB will opt for another 75 basis point rate hike in November as well. Read this article on THINK TagsSpain Inflation Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Euro to US dollar - Ichimoku cloud analysis - 21/11/22

Macroeconomics: Eurozone Economic Sentiment Went Down! Let's Check How Much

ING Economics ING Economics 29.09.2022 14:26
The drop from 97.3 to 93.7 in the eurozone economic sentiment indicator indicates a likely contraction in the economy in the third quarter. Selling price expectations have been on the rise again, increasing the risk of a longer period of stagflation in the eurozone economy Selling price expectations are increasing again as businesses face higher energy costs Is Recession Already Here, In The Eurozone? The eurozone economy is slowing rapidly as high prices reduce business activity and dampen consumer demand. We expect that a recession could, therefore, have already started. For industry, production expectations dropped sharply in September. Backlogs of work have fallen as new incoming orders disappointed in recent months and in some industries production is reduced as high energy costs impact the profitability of production. With energy costs still at unsustainably high levels for some industrial sectors, this is adding to the bleaker outlook for industrial production. For the services sector, confidence fell even more as the post-pandemic catch-up demand is fading and the purchasing power squeeze is starting to bite. The services indicator dropped from 8.1 to 4.9 as businesses indicate that demand has recently weakened and they are becoming gloomier about demand in the months ahead. Read next: Tim Moe (Goldman Sachs) Comments On USD And Turbulent Times For Markets In General, Ole Hansen (Saxo)Talks Nord Stream | FXMAG.COM  Despite the clear slowing of the economy, selling price expectations are increasing again as businesses face higher energy costs again due to the spike in prices in August. This is particularly worrisome as it could prolong a period of stagflation in the eurozone economy. For the ECB, the path is already quite clear: the central bank is set to hike in the coming meetings regardless of a slowing economy. The increase in selling price expectations will only strengthen that view for the October meeting. Read this article on THINK
"A notable risk facing credit markets next year is the potential for the European Central Bank (ECB) to reduce the size of its balance sheet via the tapering of the asset purchase programme"

Eurozone: German Inflation Shocks! What Could It Mean For The Euro And European Central Bank?

ING Economics ING Economics 29.09.2022 15:00
German inflation reached another peak in September, providing more ammunition for the ECB to hike by 75bp at the October meeting The inflation peak in Germany could be around 13%   German inflation just reached unprecedented double-digit levels coming in at 10.0% year-on-year in September, from 7.9% YoY in August. The HICP measure increased to 10.9% YoY, from 8.8% YoY in August and 8.5% in July. The fact that monthly inflation (1.9% month-on-month) is far above the historical average for September also illustrates that inflation is running red hot in Germany. Inflation will continue to increase We knew that the September numbers would be the first inflation reading without the dampening effect of the government’s energy relief package over the summer months. The end of the so-called €9 ticket for public transportation and the end of a gasoline rebate alone would have pushed up inflation. But inflationary pressure is all over the economy. Looking ahead, the only way for German inflation is up. With high wholesale gas prices now reaching people’s homes and pockets as well as more inflationary pressure in the industrial pipeline – with producer price inflation at 45% YoY – inflation will test even higher levels. It will take until next Spring before headline inflation could start to move down as negative base effects kick in. Based on today's numbers, peak inflation could come in at around 13%. ECB to hike by 75bp in October and more to come For the ECB, today’s German inflation data will add to the long list of arguments in favour of a 75bp rate hike at the October meeting. Since the late summer and probably marked by Isabel Schnabel’s Jackson Hole speech, the ECB’s reaction function has clearly changed. Following in the Fed’s footsteps, the ECB has increasingly focused on actual inflation and to a lesser extent on inflation expectations. It is hard to see how the ECB cannot move again by 75bp with headline inflation still on the rise. In this context, the discussion on whether or not the ECB can actually bring down headline inflation is no longer relevant for the central bank. Even if the unfolding recession is not enough to slow down the ECB’s process of rate normalisation. It clearly is an experiment with a risk of becoming a policy mistake, but for the time being the ECB looks fully determined to continue on the path of aggressive rate hikes. The first real test of how sustainable the consensus within the ECB is will only come at the December meeting. Then, a new round of staff projections is likely to show further downward revisions to growth and could show 2025 inflation at 2%, tempting some of the newly self-declared tough inflation fighters to blink. Unless we see more central banks performing a major U-turn as the Bank of England had to do this week, we expect the ECB to hike rates by some 150bp until early 2023 and the risk is currently rather tilted to more rather than fewer rate hikes. Still, it is not the ECB that can provide short-term relief against inflation, but governments. However, the idea that governments can completely offset all inflationary pressures should also be discarded after this week's developments in the UK. Read this article on THINK TagsInflation Germany Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The ECB President Christine Lagarde's Speech Could Bring Back Risk Appetite

Forex: Euro To US Dollar (EUR/USD) - Let's Have A Technical Look - 29/09/22

InstaForex Analysis InstaForex Analysis 29.09.2022 16:02
  Euro To US Dollar - Technical outlook: EURUSD rose through the 0.9750 highs during the New York session on Wednesday after testing the levels close to the 0.9535 lows earlier. The daily chart has confirmed a Morning Star bullish reversal pattern, which could push prices through 1.0200 at least. The potential remains for a push towards 1.0600 which is the Fibonacci 0.382 of the earlier bearish drop between 1.2350 and 0.9535. EURUSD has hit major Fibonacci support close to the 0.9550-0.9600 area as projected on the daily chart here. A significant target has been met just above the 0.9500 handle and the price could also produce a sharp bullish reversal. The bulls are now looking poised to hold prices above the 0.9535 mark and push through the 1.0200 initial resistance at least. Read next: Tim Moe (Goldman Sachs) Comments On USD And Turbulent Times For Markets In General, Ole Hansen (Saxo)Talks Nord Stream | FXMAG.COM EURUSD has interim support just above 0.9500 while resistance is seen at 1.0200, followed by 1.0365. Looking at the daily chart, a break above 1.0200 would signify that the bulls are under control and are looking to push through 1.0600. Only a consistent break below 0.9535 from here will bring back bears into the picture. Trading idea: Potential rally towards 1.0200 and up to 1.0600 against 0.9500 Good luck! Relevance up to 13:00 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/294851
US Dollar May Strengthen As A Result Of The US PCE Update (EUR/USD, USD/CAD) GBP Seeks To Strengthen Against The Euro

US Dollar May Strengthen As A Result Of The US PCE Update (EUR/USD, USD/CAD) GBP Seeks To Strengthen Against The Euro

Rebecca Duthie Rebecca Duthie 29.09.2022 19:06
Summary: Consumer confidence figures from the Eurozone decreased by 3.8 points. GBP seeks to continue strengthening against the Euro. Eurozone forecast looks dismal The market is reflecting bullish signals for this currency pair. The final consumer confidence figures from the Eurozone decreased by 3.8 points to -28.8 in September 2022, which was in line with initial projections and the lowest reading since the series' inception in 1985. The majority of factors, such as householders' appraisals of their past financial situations, outlooks on their future financial situations, plans to make significant purchases, and expectations regarding the state of the economy as a whole, all had a role in the sharp fall. A minor improvement in industrial mood could be fleeting given the future energy issues. The eurozone's forecast for the remaining months of the year is still dismal. The geopolitical tension surrounding the alleged sabotage of Nord Stream has made matters worse, and the eurozone is currently debating its ninth round of penalties as a result. However, restrictions on Russian gas continue to be a divisive matter inside the EU, with the commission advising countries that a combination of measures is needed rather than merely market intervention. The eurozone would have wanted to avoid this additional anxiety as it gets ready for an uncertain winter. EUR/USD Price Chart Markets awaiting German inflation release The market is reflecting bearish signals for this currency pair. In spite of easing pressures on UK bond markets and ongoing weakness in the Euro-Dollar exchange rate, the British Pound seeks to continue strengthening against the Euro. The inflation rate in North Rhine Westphalia, the most populated state in Germany, increased by 10.1% year over year in September, marking the highest increase since the early 1950s. This caused a decline in the value of the euro. The information raised concerns that German inflation data, which would be released later in the day, would confirm that the UK's stagflationary crisis is gripping Europe's largest economy as well. Separately, Germany’s network authority said gas use was well above average last week and urged homes and companies to make greater savings to avert a shortage this winter. EUR/GBP Price Chart US PCE update due The market is reflecting bullish signals for this currency pair. As the Relative Strength Index (RSI) retreats from an extreme reading, the recent rally in USD/CAD appears to be coming to an end after clearing the high of July 2020 (1.3646). The core reading, the Fed's preferred measure of inflation, is forecast to increase to 4.7% in August from 4.6% per year in July, and signs of persistent price growth may force the Federal Open Market Committee (FOMC) to maintain its approach to combating inflation as the central bank pursues a restrictive policy. This could cause the US dollar to strengthen as a result of the US PCE update. As a result, the US Dollar may continue to perform better than its Canadian counterpart because the Summary of Economic Projections (SEP) show a steeper path for the Fed Funds rate, and USD/CAD may show a bullish trend for the rest of the year because the Bank of Canada (BoC) appears to be on track to implement smaller rate hikes in the upcoming months. USD/CAD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
The Euro Will Strengthen, But Questions Remain About What To Do Next

The Euro Will Strengthen, But Questions Remain About What To Do Next

InstaForex Analysis InstaForex Analysis 30.09.2022 09:00
The euro has strengthened its position against the dollar and continues to grow amid repeated statements by European politicians this week that the European Central Bank should raise interest rates by another 75 basis points at the next meeting, which is scheduled for October this year. Data on inflation in the eurozone will be released today, which will surely confirm the correct attitude of European politicians to the current situation, it was just necessary to act a little earlier – the Federal Reserve went too far, which led to such a gap in interest rates and a strong weakening of the euro against the US dollar. In his recent speech, member of the Board of Governors Martins Kazaks stated: "In the current situation, we can still do much more. The next step still needs to be quite large, because we are far from the rates corresponding to 2% inflation. I would support a 75 basis point increase — let's take a bigger step and raise rates." European Central Bank and rate The Latvian official said that this does not mean that 75 basis points are now the "golden mean", and that, probably, as soon as rates will be more in line with the inflation target, future steps need to be done more carefully. His calls for decisive action are supported by other officials from the Baltic region. European Central Bank President Christine Lagarde and other officials from the board of governors told us about something similar this week. The surge in prices caused by Russia's military special operation in Ukraine and the resulting energy crisis prompted ECB officials to start raising rates for the first time in more than a decade — this month rates were raised immediately by a historic three-quarters of a point. Now they are weighing how to proceed, as the price increase is accompanied by ever-increasing forecasts of a recession. Lagarde told European Union lawmakers this week that officials will start considering cutting trillions of euros worth of bonds it accumulated during recent crises only after rates reach that point. Traders estimate the probability of another 75 basis point move next month at 40%. An increase in this amount will double the deposit rate to 1.5% — the highest level since 2009. The opinion of a Latvian politician As for Kazaks' speech, in his opinion, the cost of borrowing will reach a "neutral" level, which does not stimulate or limit the economy by the end of the year. "Of course, we should discuss all the tools so that when it is necessary to make a tough decision, we are ready," Kazaks said. "The ECB should delay its balance sheet reduction program, or quantitative tightening, until next year." According to the Latvian politician, this will prevent the European crisis from flowing into recession. Given that the main source of inflation is the crisis in the energy market, which is of a geopolitical and structural nature, an extremely rapid tightening of monetary policy will simply push the economy into recession. The Technical Outlook  As for the technical picture of EURUSD, the bulls have regained their advantage and the market under their control, which they lost at the beginning of the week, and are now aiming to break through the nearest resistance of 0.9840. It is necessary to do this if they expect the upward correction to continue at the end of this month. A breakdown of 0.9840 will take the trading instrument even higher to the area of 0.9890 and 0.9950. But despite the good upward prospects, protecting the nearest support of 0.9780 is still an important task for the bulls. Its breakthrough will push the euro to a low of 0.9730, but there will be nothing critical in this situation either, since there is the lower boundary of the new ascending channel. Only after missing 0.9730 will it be possible to start getting nervous, as the pair will easily fall into the area of 0.9680 and 0.9640. The Pound (GBP) The pound continues to win back positions one by one thanks to the support of the Bank of England. Now bulls are focused on the 1.1200 resistance, the breakthrough of which will open up prospects for further recovery in the area of 1.1260 and 1.1320. It will be possible to talk about the return of pressure on the trading instrument only after the bears take control of 1.1070, but this will not cause serious damage to the bull market observed since the middle of the week. Only a breakthrough of 1.1070 will push GBPUSD back to 1.1010 and 1.0950.   Relevance up to 08:00 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/323100
Analysis Of The AUD/JPY Currency Pair Scenarios

RBA Missed Market Expectations With Their Interest Rate Decision

Rebecca Duthie Rebecca Duthie 04.10.2022 12:59
Summary: AUD declines in the wake of the RBA interest rate decision. 25bps interest rate hike from the RBA. AUD weaker. RBA 25bps interest rate decision The Australian Dollar fell when the Reserve Bank of Australia (RBA) announced a 25 basis point increase in interest rates, indicating that the peak in Australian interest rates was approaching. Markets anticipated another 50bp increase, but the action caught them off guard. The RBA stated in a statement that additional interest rate hikes were still necessary to reduce inflation, although economists now believe only one more increase is now expected. The 'dovish' outcome resulted in a weaker Australian Dollar relative to the bulk of G10 currencies. The Pound to Australian Dollar rose by a third of a percent to 1.7480, its highest level since early August. "AUD is a significant underperformer after the RBA hiked 25bp against a consensus for a 50bp move," says Adam Cole, Chief Currency Strategist at RBC Capital Markets. Effect of interest rate hiking on the AUD The cash rate has now increased six times in a row by the RBA, reaching 2.60%, which Governor Philip Lowe described as a "substantial" rate of tightening. The Australian Dollar may no longer receive rate support as a result of the RBA's rate hike cycle, but one expert claims that the prognosis for the currency is actually positive. According to ANZ, in order to guarantee that inflation does reach its goal level, the cash rate will need to increase to obviously restrictive territory above 3%. "The slower pace of rate hikes now points to the tightening cycle extending into 2023," says Plank. Plank observes that the 25bp decision and overall tone of the statement have significantly reduced market expectations for future interest rate increases. In the wake of the decision, three-year ACGB futures are trading at an implied yield of 3.3%, which is over 40 bps lower than Monday's closing. Sources: investing.com, poundsterlinglive.com
USD Falls 3.3% From Wednesday's High (EUR/USD), UK Chancellor Moves Up Fiscal Plan (EUR/GBP), RBA Missed Market Expectations (GBP/AUD)

USD Falls 3.3% From Wednesday's High (EUR/USD), UK Chancellor Moves Up Fiscal Plan (EUR/GBP), RBA Missed Market Expectations (GBP/AUD)

Rebecca Duthie Rebecca Duthie 04.10.2022 20:40
Summary: The US dollar has fallen by as much as 3.3%. GBP supported in the wake of Kwarteng plans to move up the publishing of his fiscal plan. RBA interest rate announcement. Investors wonder if the USD has peaked The market is reflecting bullish signals for this currency pair. Since the high of last Wednesday, the US dollar has fallen by as much as 3.3%, and many are wondering if the USD has peaked. Given how severely overbought the dollar had been, this retreat appears to be a trend correction without any indication of anything bigger. Price is getting close to some important support, though, and how it performs around those levels will be crucial for deciding on a short-term course of action. EUR/USD Price Chart GBP supported on Tuesday In an effort to restore market confidence, Chancellor of the Exchequer Kwasi Kwarteng announced he was moving up the publishing of his fiscal plan, which gave the British Pound another lift. Originally slated for distribution on November 23, the plan will instead be given later this month, according to a story published late Monday. Importantly, a complete set of estimates from the Office for Budget Responsibility will be included with the proposal (OBR). The developments ensured a late-session rise in the pound sterling on Monday, resulting in a 1.15% increase in the pound's value relative to the euro. The improvements coincide with the pound's larger resurgence as markets restore their faith in UK assets after a turbulent time. EUR/GBP Price Chart RBA weaker in the wake of interest rate announcement The Australian Dollar fell when the Reserve Bank of Australia (RBA) announced a 25 basis point increase in interest rates, indicating that the peak in Australian interest rates was approaching. Markets anticipated another 50bp increase, but the action caught them off guard. The RBA stated in a statement that additional interest rate hikes were still necessary to reduce inflation, although economists now believe only one more increase is now expected. GBP/AUD Price Chart Sources: finance.yahoo.com, poundsterlinglive.com, dailyfx.com
French Gross Domestic Product went up slightly. ING points to "strong business investment following the easing of supply chain tensions"

Eurozone: France - Oh My! Check Out August Print Of French Industrial Production!

ING Economics ING Economics 05.10.2022 14:19
Industrial production rebounded more than expected in August, by 2.4% over the month, thanks to the easing of supply constraints. As a result, economic activity could narrowly avoid a contraction in the third quarter, but a recession remains more than likely for this winter A broad rebound After falling by 1.6% over a month in July, French industrial production rebounded in August, increasing by 2.4% over the month. Over a year, the increase was 0.4%. Manufacturing output rose by 2.7% (after -1.6% in July). All branches of industry saw their production increase over the month, except for construction. The rebound was particularly dynamic in automotive production, which increased by 15.6% over the month, thanks to the easing of supply constraints. The August rebound allows industrial production to erase the losses accumulated during 2022 and return to its pre-war level. Nevertheless, output remains 3.5% below its pre-pandemic level. August's strong performance gives hope that industrial production will make a positive contribution to economic growth in the third quarter, which could narrowly avoid a contraction in activity. Headwinds are too strong for the rebound to last Nevertheless, looking ahead, it is to be feared that the effect of reduced supply constraints will not be sufficient to allow the French industry to continue to rebound. In fact, further contractions in industrial activity can be expected. Indeed, the sharp decline in global growth, the contraction in order books since February, the high level of finished goods inventories, high uncertainty, high energy and raw material prices and potential disruptions in energy supply clearly point to a deterioration in the outlook for the French industrial sector in the coming months. The business climate indicator for the sector fell further in September. Since the beginning of the year, it has lost more than 10 points, falling back to the level of spring 2021, thus erasing all its post-lockdowns gains. Moreover, the outlook is not much better in the services sector, which is weighed down by worsening purchasing power, declining consumer confidence and the fading positive effects of the post-pandemic reopening. There is therefore little doubt that France, like its European neighbours, is heading straight for recession. Given the developments of the last few weeks, it is to be feared that French GDP growth will move into negative territory in the fourth quarter, after a probable stagnation in the third quarter. The recession is likely to last throughout the winter, and the prospects for a rebound in the spring of 2023 are fading by the day. We therefore expect growth of 2.4% for the whole of 2022 and -0.4% for the whole of 2023. Read this article on THINK  
The Outlook Of EUR/USD Pair For Long And Short Position

Today ECB Meeting Minutes Are Released. UK: Jonathan Haskel (Bank Of England) Speaks

ING Economics ING Economics 06.10.2022 12:13
Central banks are still far from bailing markets out. There is no evidence that financial stability concerns are distracting them from their inflation fight. Their inflexibility is why we see more upside for rates and spreads Risks remain to the upside for rates BoE and ECB let markets fly on their own If financial stability no doubt registers on central banks’ consciousness, it is doubtful that they see policy implications. The Bank of England (BoE) balking at buying long-end gilts for the second day in a row clearly confirmed that it sees its operation as a temporary backstop, and not something that should dilute its monetary policy stance. Along the same lines, the European Central Bank’s (ECB) reluctance to support peripheral bond markets in August and September 2022 by using PEPP reinvestment flexibility sends a similar message. In the BoE’s case, the gilt long-end received the message loud and clear. 10s30s is racing back towards the levels prevailing before the mini budget and subsequent BoE intervention. If the shape of the curve is the best sign that markets are pricing out BoE intervention, it is the speed of the sell-off that should keep investors up at night. 30Y yields are up almost 40bp this week. Let us hope that pension funds and other structural swap receivers managed to reduce their exposure, or found funding sources for inevitable collateral calls. Markets are forward-looking, and there are no ECB purchases for them to look forward to The glass half full take on European Central Bank (ECB) intervention, or lack thereof, is that spreads remained contained without its help. This is particularly notable in a context of rising core rates and rates volatility. The problem with this take is that markets are forward-looking, and that there are no ECB purchases for them to look forward to. It seems, the bar for purchases is higher than previously thought and could get even higher as hawks seem intent on pushing discussions on quantitative tightening (QT). Read next: RBNZ “Hawkish” Move Offers NZD Support, Australian Retail Sales Rose 0.6% During August| FXMAG.COM Gilt 10s30s is steepening back to its pre-BoE intervention level Source: Refinitiv, ING Central banks can't afford to be complacent on financial stability A look at wider market stress indicators in rates and credit yields a similar conclusion. For the most part, peripheral and core rates are already at crisis levels, but not yet at a breaking point. This is hardly encouraging. A bright spot so far has been short-term funding and money markets but, each time, it is clear that the ECB’s heavy hand is responsible. This is all well and good but the expiration of TLTRO loans, tiering, and the looming QT discussion means markets cannot count on ECB support going forward. Expect to see new highs in yields and spreads as a result of central bank intransigence We think it would be wrong to take comfort in still (barely) functioning markets and that central banks should pay greater attention to financial stability. Balance sheet reduction programmes are adding to financial instability and could ultimately make their fight against inflation harder, not easier, if they are forced to choose between rescuing financial institutions and cooling the economy. Despite the BoE’s intervention last week, we keep a cautious outlook on bond markets. We expect to see new highs in yields and spreads as a result of central bank intransigence. The ECB barely intervened to support spreads in August/September 2022 Source: ECB, ING Today's events and market view European data releases today comprise German and UK construction PMIs and eurozone retail sales, but the minutes of September ECB meeting are likely to steal the limelight. We’re unlikely to get much discussion on QT but we might see some on reserve tiering. Even if this isn’t the case, it is possible that officials discuss in the press the content of yesterday’s ‘non-policy’ meeting discussions on either topics. In the minutes proper, the extent of the ECB’s inflation worries and reasons for a change in reaction function should be the main focus. Jonathan Haskel, of the BoE, is on today’s list of speakers. Bond markets have to absorb supply from Spain (7Y/8Y/10Y/30Y) and France (10Y/30Y/44Y). Today’s US job data menu includes jobless claims and Challenger Job Cuts but this will merely be an appetiser to tomorrow’s employment report. Charles Evans, Lisa Cook, Neel Kashkari, Christopher Waller, and Loretta Mester are all lined up to give their spin on the latest economic, and perhaps financial, developments. Read this article on THINK TagsRates Daily Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Eurozone: German Exports Went Up, But The Trade Surplus...

Eurozone: German Exports Went Up, But The Trade Surplus...

ING Economics ING Economics 06.10.2022 12:30
German exports rebounded somewhat in August but high energy prices continue to shrink what was, until recently, still a notoriously high trade surplus Source: Shutterstock   German exports (seasonally and calendar-adjusted) rebounded in August, increasing by 1.6% month-on-month. On the year, exports were up by more than 18%. Imports also decreased, by 3.4% month-on-month, further lowering the trade surplus to €1.4bn. The war in Ukraine has succeeded in delivering what nothing else had managed before: letting the notorious German trade surplus disappear. However, unfortunately, it is not a ‘good’ disappearing of the trade surplus, driven by stronger domestic demand but rather a ‘bad’ disappearing, driven by high energy prices and structurally weaker exports. Also, when interpreting these trade data, don’t forget that they are seasonally and calendar-adjusted but not price adjusted. Even a weaker euro hardly helps Trade is no longer a growth driver but has become a drag on German growth. Since the second quarter of 2021, the growth contribution of net exports has actually been negative. In the past, the current weakness of the euro would at least have brought some smiles to German exporters’ faces. Like almost no other, German exports have often seen an asymmetric reaction to exchange rate developments. The negative impact of a stronger currency is cushioned by inelastic demand and high product quality, while the full price impact of a weaker currency normally adds to export strength. Not this time around. Export order books have weakened significantly in recent months as the global economic slowdown, high inflation and high uncertainty leave clear marks on (not only) German exports. Even if transportation costs have started to come down and global supply chains have improved somewhat, the outlook for the German export sector remains mixed, at best. Read this article on THINK TagsGermany Export Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
U.S Dollar Remains Supported (EUR/USD), High Inflation Could Drive UK Economy Into A Recession (EUR/GBP, AUD/GBP)

U.S Dollar Remains Supported (EUR/USD), High Inflation Could Drive UK Economy Into A Recession (EUR/GBP, AUD/GBP)

Rebecca Duthie Rebecca Duthie 06.10.2022 18:55
Summary: Ongoing devaluation of other currencies by the U.S. Dollar. Decreased predictions for UK economic growth. Australia's trade surplus decreased in August despite an increase in imports. U.S Dollar remains in high demand The market is reflecting mixed signals for this currency pair. According to International Monetary Fund (IMF) data, the ongoing devaluation of other currencies by the U.S. Dollar consumed more than $500BN of official reserves in the second quarter, and it can be inferred reasonably from this that the reserve cost of the Dollar rally exceeded $1 trillion in September. The dollar was again in demand throughout the trading afternoon on Wednesday, but noticeably more so after the Institute for Supply Management (ISM) Services PMI for September tended to portray the key sector of the American economy as being more resilient than forecasts had predicted. EUR/USD Price Chart Predictions for UK economy looks poor The market is reflecting mixed signals for this currency pair. According to economists, a worse recession would result in larger losses for the pound. They are also decreasing their predictions for UK economic growth. Economic experts predict that high inflation will cause the UK economy to enter a recession, but rising interest rates due to external reasons and the market's response to the "mini budget" will widen the extent of the slump. "The cost of living crisis will be exacerbated by a cost of borrowing crisis," explains Capital Economics in a new note in which they say they now expect a deeper recession than previously forecast. EUR/GBP Price Chart Australian Trade Surplus decreased Another data release confirming Australia's continued trade surplus helped the Australian dollar gain strength, but analysts warn that a peak in commodity prices and challenges to the global economy raise the possibility of underperformance. According to the ABS, Australia's trade surplus decreased in August despite an increase in imports. A positive trade surplus suggests that a nation is generating more foreign currency than it is spending, which provides a fundamental source of support for a currency. Australia's trade surplus has increased over the past few months as the value of its commodities exports has soared and amid a fall in demand for imports brought on by the Covid-induced economic slowdown. However, the trade surplus is shrinking due to indications that commodity prices have peaked, a continued post-covid recovery, the increase in the price of other significant imports, and these factors together. AUD/GBP Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
CPI In The US Slowed Down Further, Falling To 6.5% y/y  With Expectations

Another Busy Week: Fed Speeches And Inflation Data Ahead

Craig Erlam Craig Erlam 08.10.2022 08:34
US It is now all about inflation data.  The focus was temporarily on the labour market but everyone knows that the Fed is primarily concerned with what is happening with inflation.  Wall Street will first get a look at producer prices on Wednesday and then CPI the next day. August data showed high inflation remains well-entrenched as shelter and food prices surged, while gas prices softened. Expectations for the September inflation report are for inflation pressures to remain hot.  The consumer price index is expected to increase by 0.2% for the month and 8.1% over the past year.    Traders will also pay close attention to the FOMC minutes that should show a consistent hawkish stance to fight persistently high inflation. It will also be another busy week of Fed speak as seven FOMC members will be making appearances.  Evans and Brainard speak on Monday. On Tuesday, Mester speaks to the Economics Club of NY.  Wednesday sees Kashkari and Barr speak before the minutes are released. Cook makes the last Fed appearance on Friday.  Earnings season also begins with the big banks.  This earnings season will likely be filled with hiring freezes/layoff announcements, cost-cutting saving measures, and mostly downbeat outlooks.  The health of the consumer is weakening, and Wall Street will want to see how bad banks assess the health of the consumer.   EU  Three weeks to go until the next ECB meeting and it’s still not clear whether the central bank will opt for 75 basis points or 100. The decision to super-charge the tightening cycle is not an easy one as policymakers are desperately concerned about the economic ramifications and the risk of going too far too quickly. Final inflation readings combined with various ECB appearances – including President Christine Lagarde – could shed further light on which way the central bank is currently leaning. UK  Where do we begin? The key event next week may well be the expiry of the BoE’s gilt-buying intervention on 14 October which some fear could spark another exodus from UK government bonds as the backstop is removed. Those fears may be overblown but investors may only be able to relax again once successfully removed. We’ll hear from a variety of BoE policymakers next week, all of whom will likely face a barrage of questions related to its bond-buying, the government and its mini-budget and of course the economy. On top of that, there’s a selection of economic data including the jobs report on Tuesday, and GDP and industrial production on Wednesday.  Another week of question dodging and scripted “answers” is on the cards for the government as it desperately scrambles to clear up the mess it so rapidly created.  Russia The focus remains on Ukraine as Russia continues to lose ground in territories it previously captured. Meanwhile, the West is working towards fresh sanctions and potential caps on Russian energy prices in response to the illegal annexation of four regions it currently partially controls in Ukraine.  South Africa Another quiet week with only tier three data scheduled for release. Turkey It’s that time of the week when I rant about Turkey’s ridiculous monetary policy experiment and its damaging consequences at a time of global tightening. Inflation rose above 83% in September, a victory for President Erdogan no doubt as forecasts put it closer to 85%. Next week we’ll get labour market figures on Monday and current account on Tuesday (spoiler, it hasn’t been fixed by soaring inflation and the weakest ever exchange rate). Switzerland Further rate hikes are coming, the question is when and how much. Markets are pricing in a coin flip between 50 and 75 basis points but will the SNB wait until 15 December to pull the trigger? Inflation eased to 3.3% in September, a level Chairman Thomas Jordan suggested the central bank won’t tolerate (anything above target, in fact). We’ll hear from him again on Tuesday.  China Next Friday, China’s CPI data will be released and is expected to be around 2.5%, comfortably within target. Against the backdrop of a sharp correction from a recent peak in the US dollar, USD/CNH fell by 3.44%, easing pressure on the currency. The 20th National Congress of China will be held next Sunday, 16 October. The market generally expects that adjusting the pandemic prevention and control policy may be one of the important themes of this meeting. India WPI inflation data for September is expected to show price pressures easing next week, which could enable the RBI to consider slowing its tightening cycle.  Australia A quiet week following the RBA decision to slow the pace of tightening last week with a 25 basis point hike. This was below market expectations of 50bps and made the RBA the first major central bank to ease off the brake. Consumer inflation expectations on Thursday may be of some interest. New Zealand In New Zealand the central bank did not ease off the brake, opting instead to maintain its pace with another 50bps hike, taking the cash rate to 3.5%. The market expects the central bank’s final interest rate target for this round to be around 4.5% according to the Refinitiv rate probability tracker. A tight labour market and lower immigration are creating more sustained domestic inflation pressures and the RBNZ believes there’s still more work to do. On the data front, the BusinessNZ manufacturing index will be released on Thursday. Japan Japanese FX intervention is a hot topic once more as it trades around 145 to the dollar. This is just shy of where the Ministry of Finance intervened a couple of weeks ago and around the level the BoJ conducted a rate check the week prior. Another hot US jobs report on Friday may have made intervention more likely. The BoJ is unlikely to tweak its yield curve control policy any time soon. Governor Haruhiko Kuroda said it would continue to adhere to the easing policy and keep the yield curve ceiling at 0.25% and the benchmark interest rate at -0.1 %. No changes are expected until after Kuroda’s term ends in March 2023. Still, PPI data on Thursday may be of interest.  Singapore GDP data on Friday is the only notable economic release. Growth is seen slowing to 3.4% in Q3. Economic Calendar Sunday, Oct. 9 Economic Data/Events China aggregate financing, money supply, new yuan loans expected this week Austria holds its presidential election Monday, Oct. 10 Economic Data/Events US bond market is closed in observance of Columbus Day/Indigenous People’s Day. The stock market will be open. Norway CPI Greece CPI Australia foreign reserves Singapore MAS monetary policy statement, GDP Canadian financial markets are closed in observance of Thanksgiving China’s financial markets open after Golden Week Holiday The 2022 annual meetings of the International Monetary Fund and World Bank kick off in Washington. Through Oct. 16 Fed’s Brainard and Evans speak at the NABE annual meeting in Chicago ECB chief economist Lane gives opening remarks at the online ECB Conference on Monetary Policy ECB’s Centeno speaks at a meeting in Lisbon of central banks from Portuguese-speaking countries Scotland’s First Minister Sturgeon delivers the keynote speech to Scottish National Party’s National Conference in Aberdeen Tuesday, Oct. 11 Economic Data/Events Australia consumer confidence, business conditions, household spending China FDI Italy industrial production Japan BoP current account Mexico international reserves New Zealand truckometer heavy traffic index, card spending South Africa manufacturing production Turkey current account UK jobless claims, unemployment IMF publishes its World Economic Outlook and Global Financial Stability Report Fed’s Mester speaks at a webinar hosted by the Economic Club of New York BOE Governor Bailey speaks at the Institute of International Finance annual meeting in Washington. Deputy Governor Jon Cunliffe speaks on a panel on global payments at the IIF meeting ECB chief economist Lane delivers the keynote speech at the 7th SUERF, CGEG, EIB and Societe Generale conference on “EU and US Perspectives: New Directions for Economic Policy” in New York SNB President Jordan delivers the annual O. John Olcay Lecture at the Peterson Institute in Washington The Bretton Woods Committee International Council meeting begins. Through Oct. 14 BOJ announces the outright purchase amount of government securities Wednesday, Oct. 12 Economic Data/Events US PPI, FOMC minutes, mortgage applications Eurozone industrial production India CPI, industrial production Japan machinery orders Mexico industrial production New Zealand home sales, net migration Thailand foreign reserves, forward contracts Turkey industrial production UK industrial production, trade, monthly GDP IMF publishes its Fiscal Monitor report The OPEC Monthly Oil Market Report is published EU energy ministers meet in Prague Fed’s Bowman speaks at a Money Marketeers event in New York Fed’s Kashkari participates in a town hall discussion at an economic development summit in Rhinelander, Wisconsin ECB’s Christine Lagarde, de Cos and Knot speak at the IIF annual meeting in Washington. Knot also speaks at the IMF meeting in Washington BOE’s Haskel delivers the keynote speech at the 7th World KLEMS conference in investment and productivity at the University of Manchester BOE’s Mann speaks at a webinar hosted by the Canadian Association for Business Economics titled “Global Macro Conjuncture and Challenges Facing Small Open Economies.” BOE chief economist Pill speaks at an event hosted by the Scottish Council for Development and Industry in Glasgow RBA’s Ellis speaks at Citi Australia & New Zealand Investment Conference in Sydney Hong Kong Chief Executive John Lee delivers the opening keynote speech at the two-day BritCham Hong Kong Summit Bloomberg Invest New York two-day conference begins Thursday, Oct. 13 Economic Data/Events US CPI, initial jobless claims Germany CPI Sweden CPI Australia inflation expectations  China medium-term lending Japan PPI New Zealand food prices Mexico central bank releases minutes from its Sept. 29 meeting ECB’s de Guindos speaks at the “Mercado de Fusiones y Adquisiciones en España y Europa” conference organized by PwC and Expansión Riksbank’s Breman speaks in a roundtable on the economic outlook for Sweden at the Citi Macro Forum in Washington G-20 finance ministers and central bankers meet in Washington Italy’s newly elected parliament convenes for the first time IEA publishes its oil market report EIA oil inventory report Friday, Oct. 14 Economic Data/Events US retail sales, business inventories, University of Michigan consumer sentiment US banks kick off earnings season: JPMorgan, Wells Fargo, and Morgan Stanley report China CPI, PPI, trade France CPI Poland CPI  Canada existing home sales, manufacturing sales India wholesale prices, trade Japan money stock New Zealand PMI Philippines overseas remittances UK RICS home prices BOE emergency bond buying is set to end BOE publishes its quarterly bulletin ECB’S Holzmann speaks at a conference hosted by the OECD and Austrian National Bank in Vienna Australia ends mandatory Covid-19 isolation requirements Sovereign Rating Updates Czech Republic (S&P) This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
Euro: Current Financial Supply Is Still Running Slightly Ahead Of Previous Years

Euro: Current Financial Supply Is Still Running Slightly Ahead Of Previous Years

ING Economics ING Economics 09.10.2022 13:47
Corporate supply was €25bn in September, lower than in previous years • Corporate supply amounted to €25bn in September. This is much lower than the average €45bn of recent years. We don’t expect much more supply to come in the ensuing months as much higher funding costs, combined with a volatile market is leaving a rather unattractive environment for issuers. For the coming months, there should be brief windows of opportunity when the markets offer a period of stability. • Corporate supply is now sitting at €202bn thus far this year. We expect no more than €250bn for the year. This will leave supply €100bn short of what was issued last year. Redemptions this year are pencilled in at €223bn. As such net supply will be very low this year. When the purchases of CSPP (and PEPP) and coupon payments are included, net supply is negative, and this leaves the technical picture very strong. • On a YTD basis, the Utilities sector still has the largest credit supply with €43bn followed by Industrial & Chemicals at €35bn, while the Healthcare sector has seen the lowest credit supply with €18bn. In terms of maturity, the 2-6yr maturity bucket has seen the most credit supply with €8bn in September but the 6-9yr maturity bucket remains the one with the highest YTD figure of €57bn. • Corporate Reverse Yankee supply is now at €25bn YTD, after €4bn was issued in September. This is significantly lower than previous years. Limited primary market activity due to the volatile markets and higher funding costs has resulted in supply being concentrated in local currency, and thus relatively lower Reverse Yankee supply. Financials supply still running ahead of previous years • Financials supply amounted to €25bn in September, matching that of August. This is lower than last year’s €37bn figure. Banks senior supply accounted for €19bn of last month’s supply. Financial supply is now sitting at €221bn YTD, still running slightly ahead of previous years. • Another €22bn in covered bond supply in September, following €16bn in August. Covered bonds remain a fan favourite for banks to issue. YTD supply is now at €174bn, up considerably compared to the €101bn full year figures seen in 2020 and 2021. Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Eurozone: Germany - annual GDP growth is forecasted to reach 1.8%

Supply Chain Issues And Rivers Status Affect German Industry Sector. Retail Sales Down (07/10/22)

ING Economics ING Economics 09.10.2022 17:23
Weak industrial production and retail sales provide further evidence that the German economy continues to slide into recession Industrial production declined... Germany continues to descend into recession. In August, production in industry in real terms was down by 0.8% on the previous month on a price, seasonally and calendar-adjusted basis, from an upwardly revised stagnation in July. Over the year, industrial production was up by 2.1%. Ongoing supply chain frictions as well as the low water levels in German rivers were the main reasons behind this drop in industrial activity. To make things worse, production in the energy sector was down by 6.1% month-on-month and the construction sector by 2.1%. According to the statistical office, production in the energy-intensive sectors was down by 2.1% MoM and by 8.6% compared with February this year. Retail sales in August were down by 1.3%, from an increase of 0.7% in July. Read next: Great Britain Expects Positive Results For Its Economy | FXMAG.COM More to come German industry and the entire economy have not come to an abrupt stop but are rather in the middle of a long and gradual slide into recession. Some examples? At the start of the year, production expectations were close to all-time highs but since the start of the war in Ukraine they have gradually come down, with no end currently in sight. Order books were richly filled at the start of the year and companies were filling inventories. Since then, new orders have dropped in almost every single month, and actual production has weakened since the summer. We don't need a crystal ball to see a further weakening of German industry in the coming months. The full impact of higher energy prices will only be felt in the last months of the year. It is not only the price effect putting a burden on German industry but also the lack of industrial input goods (including industrial gas). Today’s data are like a sneak preview of more to come. High energy prices will increasingly weigh on private consumption and industrial production, making a contraction of the economy inevitable. The only question is how severe such a contraction or recession will be. Read this article on THINK TagsIndustrial Production Germany Eurozone Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The EUR/USD Pair Maintains The Bullish Sentiment

Be Like Federal Reserve: Would European Central Bank Introduce Quantitive Tightening?

ING Economics ING Economics 10.10.2022 14:10
The European Central Bank looks determined to follow in the Federal Reserve's footsteps. After the start of aggressive rate hikes, and with no end in sight yet, the next milestone is a reduction of its bond portfolio. However, we think the ECB's hawkishness might be premature. Quantitative tightening will come but not now QT is on the ECB's radar but still a distant prospect The minutes of the ECB's September meeting delivered a couple of interesting insights: the decision to hike rates by 75bp was not taken unanimously, so 75bp increments should not be the new normal. However, the ECB was clearly determined to continue hiking rates significantly. Also, looking beyond the configuration of the key ECB interest rates, the minutes underlined that the Eurosystem's large balance sheet was continuing to provide significant monetary policy accommodation by compressing term premia. The Governing Council felt it appropriate to reiterate that it stood ready to adjust all of the instruments within its mandate to ensure that inflation returned to its medium-term target of 2%. This is a clear signal that reducing the ECB's balance sheet has become an issue. Quantitative tightening (QT) - how to reduce the size of the balance sheet - was also apparently on the agenda at this week's non-monetary policy meeting in Cyprus. However, so far, no information has been leaked from this meeting. Bond yields have already increased significantly in recent months without any quantitative tightening A discussion is one thing, an actual decision another. Just a little more than a week ago, ECB President Christine Lagarde said that the ECB would only start to consider QT when the ECB had completed its monetary policy normalisation. At the same time, bond yields have already increased significantly in recent months without any QT. Also, given the very uncertain economic outlook and more pressure on governments to deliver additional fiscal stimulus, QT at the current juncture could trigger an unwarranted widening of bond spreads, a.k.a, a new euro crisis. This is something the ECB clearly does not want. A premature QT decision also has other risks. It could raise the bar for triggering the Transmission Protection Instrument (TPI) even higher, a development that could actually spark a new euro crisis. As such, an actual decision on QT is very unlikely as it would add to financial stress and uncertainty. However, it's good to at least have a plan for when this is really needed.             How the ECB's QT could work Though quantitative tightening currently looks unlikely, it will come eventually. Given the complicated structure of the ECB's bond purchases across countries, sectors and durations, an outright selling of the bond portfolio will not be an easy one without disturbing markets. Also, don't forget that the ECB's balance sheet not only comprises the bond portfolio but also the series of liquidity operations to support bank lending. These bank lending operations (TLTROs) will be repaid by banks, automatically reducing the balance sheet. Still, when financial markets think of QT, they think of reversing the ECB's asset purchases. In this regard, the option of gradually and more passively reducing its asset portfolio looks the most attractive.   The option of gradually and more passively reducing its asset portfolio looks the most attractive A possible first step would be to (gradually) stop the reinvestments of the Asset Purchase Programme (APP). One way to phase in QT would be to first cap APP reinvestments at 50% of their normal amount during, say, the second and third quarters before ending them in the fourth. In this scenario, the resulting balance sheet reduction would be a manageable €155bn in 2023, doubling to €300bn in 2024. The next step would be to end the reinvestments under the Pandemic Emergency Purchase Programme (PEPP). These would add to the balance sheet reduction in 2025, leading to a total reduction of €388bn (along with the APP reductions). In addition, the ECB could speed up the process with outright sales but we doubt peripheral bond markets would be able to stomach the impact (see next sections). In terms of timing, we take Christine Lagarde's recent comments for granted and expect a gradual end to the APP reinvestments between 2Q and 4Q next year. PEPP reinvestments will stop by the end of 2024. QT could reduce the ECB's balance sheet by €155bn in 2023 and €300bn in 2024 Source: Refinitiv, ING   Whenever it happens, we expect QT to be felt across three dimensions of rates markets: duration, credit (and sovereign) premia, and money markets (through the price of liquidity).  Impact on core yields: moderate at the start One of the channels through which QE influenced markets was by suppressing the compensation for a certain number of risks, including duration risk. At face value, this means that, when the ECB reduces its balance sheet, long-dated yields will rise. So far so good. There is empirical evidence for that. For reference, we find that a €155bn reduction in the ECB's bond portfolio size in 2023 would push 10Y Bund yields up by only 7bp, and a €300bn reduction in 2024 would reduce them by 14bp. If this sounds unimpressive, note that without the €5tn of ECB purchases, 10Y Bund yields would be 230bp higher by this, admittedly rough, estimate. Note also that QT would add to the amount of debt that private markets would have to absorb if European governments were to significantly increase their borrowing to finance energy support packages. This is another argument for a delayed start to QT. A €155bn reduction in the ECB’s bond portfolio size in 2023 would push 10Y Bund yields up by only 7bp What is much more difficult to track is the impact this will have on the shape of the yield curve. On paper, the longer the maturity point, the more QE suppresses yields. We're not expecting a re-steepening as a result of QT, however. The experience of the US and UK has shown that yield curves can invert even in the context of QT. The reason is that other factors have a greater influence, namely that base rates are going above their long-term neutral levels. In short, we're still expecting a German curve inversion next year irrespective of QT. Without QE 10Y German Bund yields would be over 200bp higher Source: Refinitiv, ING Sovereign spreads: adding fuel to the fire When one moves away from so-called ‘risk-free’ markets, the main impact of QE is suppressing credit compensation. In the case of sovereign bonds, QE was instrumental in suppressing eurozone break-up risk in the sovereign crisis of 2010-12, and in subsequent periods of market stress. Our analysis of German yields above implies that the stock, rather than the flow of purchases is the relevant variable to assess market impact. This isn’t so simple for sovereign spreads, where both variables matter. In plain English, we think the impact of QT on sovereign spreads will occur a lot faster than on core yields, once flows turn negative. This explains why spreads already started widening before QT was even discussed, as QE purchases drew to a close in mid-2022. We fear the ECB following through with QT would compound the worries of already stressed financial markets. We struggle to see how peripheral markets would cope with rising interest rates and QT at the same time We struggle to see how peripheral markets would cope with rising interest rates and QT at the same time. This is a key reason why we expect QT to start only once the phase of rising base interest rates is over. Additionally, the ECB keeping spread-support programmes, such as the TPI, at hand would go some way to reassuring markets. It would also mean a slower reduction in the ECB's bond portfolio if it is forced to temporarily buy peripheral bonds. QT will reduce excess liquidity and help widen money market spreads, such as Euribor Source: Refinitiv, ING Money markets: taking away the comfort blanket A large chunk of money market rates also has a credit and duration component, which we covered in the sections above. But the compensation in money markets is even more heavily suppressed by the tide of ECB Excess Liquidity (EL) introduced during successive rounds of QE and loans to banks (TLTROs). As QT begins, EL will shrink by the same amount. In 2023, the estimated €155bn reduction in excess liquidity from QT will pale in comparison to the nearly €2tn reduction coming from targeted longer-term refinancing operations (TLTRO) loan repayments. Each incremental reduction in liquidity will make money market rates more sensitive to other risk factors After that date, however, each incremental reduction in liquidity will make money market rates more sensitive to other risk factors. The widening of money market spreads, for instance Euribor fixings compared to overnight index swaps (OIS), is not linear. The first €2tn reduction will probably have little effect. After that, at the latest after mid-2023, the impact of EL reduction will accelerate. This effect could even be magnified if the ECB decides to effectively lock away a portion of EL using tiered bank reserve remunerations (see our article on that topic). Read this article on THINK TagsQuantitative tightening Interest Rates ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Eurozone: What Can We Expect From Belgian Construction Sector?

Eurozone: What Can We Expect From Belgian Construction Sector?

ING Economics ING Economics 10.10.2022 15:02
Activity in the Belgian construction sector is starting to slow. Although order books are still well filled, new orders are coming in more slowly. For this year, we forecast 2.5% growth for the Belgian construction sector, but next year growth will come to a halt Belgian construction activity still 6.1% below its pre-pandemic level Construction activity in Belgium in the first seven months of this year was 0.4% lower than during the same period last year. The war in Ukraine has put activity under pressure even more. In July, construction activity was 1.1% lower than in February before the outbreak of war in Ukraine. In the European Union, construction activity was still up 3.7% for the first seven months of this year, thanks to a strong start to the year. Yet the European average has also been under strong pressure since the war in Ukraine. Construction activity in the EU has declined by 2.2% since February. Rising costs due to sharply increased energy and construction material prices, combined with growing uncertainty due to the war in Ukraine, are weighing on construction activity. As a result, it will take longer to fully recover from the Covid-19 hit. Construction activity in Belgium fell more sharply than the European average during the first lockdown. The recovery afterwards was also weaker. In July 2022, construction volume in Belgium was still 6.1% lower than in July 2019, the same month before the pandemic, while activity in the European Union was already 1.9% above its pre-pandemic level. Fig. 1. Construction production index (July 2019 = 100) Source: Eurostat Construction business confidence down sharply since start of Ukraine war According to the European Commission's confidence indicator, sentiment in the construction sector has fallen sharply since the start of the war. Rising costs and problems in global supply chains have weighed on profitability and caused a lot of construction sites to experience delays. Although pressure on supply chains is still high, it is beginning to normalise. While the pressure on building material prices seemed to ease somewhat during the summer, the prices of energy-intensive building materials rose sharply again in September. Unlike the situation in the spring, this further increase in building material prices is no longer due to higher commodity prices on international markets, but due to higher energy costs, which make the production process of building materials more expensive. From a survey by Embuild, eight in 10 respondents expect further price increases for these materials over the next three months. A number of Belgian producers have already reduced or halted production, which in turn could affect the availability and delivery time of these materials. Falling demand will also make it more difficult to pass on price increases, putting pressure on the industry's profitability. Fig. 2. Evolution of confidence in the construction industry Source: European Commission More companies planning to raise prices again These cost hikes are again increasing sales prices. The European Commission's business survey shows that the net balance of construction companies planning to increase their selling prices rose again in September. Price pressure seemed to have eased somewhat recently, but once again more contractors feel compelled to raise their prices further. However, as demand begins to decline, it is becoming increasingly difficult to pass on these higher costs to the end customer which is putting pressure on profitability. In a survey by Embuild, half of the construction companies already said they were having trouble paying their invoices in the short term. For now, the volume of work is still decent, but the industry is concerned about shrinking order books. Fig. 3. Sales price expectations in the Belgian construction sector Source: European Commission Alongside increased material costs, the sector faces other headwinds In addition to the sharply increased cost of building materials, the construction industry is also struggling with a number of other problems, including shortages of labour and building materials. Although pressure on global supply chains has improved somewhat since early summer, there are still many delays and difficulties in obtaining certain materials. The number of contractors reporting that a lack of materials is hindering production is still quite a bit higher than before the Covid-19 pandemic. In addition, the industry is also struggling to find suitable labour which is holding back activity. Although this figure has come down somewhat recently due to declining demand, this continues to hamper the sector. Fig. 4. Factors hindering activity Source: European Commission Higher mortgage rates weigh on residential market Higher interest rates on a mortgage loan will dampen demand for new residential projects. Mortgage rates on a 20-year term have already doubled this year from 1.4% at the beginning of the year to nearly 3% by the end of September. This translates into a declining number of applications for new mortgage credit for new construction projects. The number of mortgage loans registered in August was 24% lower than in the same month last year. Although it's important to say that the number was exceptionally high last year, partly because many homeowners took advantage of low interest rates to refinance their mortgage loans. We expect these mortgage rates to continue to hover at these higher levels. On top of that, the ongoing war in Ukraine is creating additional uncertainty that may cause people to postpone new construction and renovation projects. All of these factors are translating into declining demand for new projects. Thus, there are fewer new construction projects in the pipeline. The number of licensed new residential buildings decreased by 3.4% in the first five months of 2022 compared to the same period in 2021. Moreover, economic uncertainty is making more households postpone their renovation projects. The European Commission's latest consumer survey shows that the intentions of Belgians to carry out improvement works on their own homes in the next 12 months fell to the lowest level in 12 years in the third quarter. Fig. 5. Belgian's intention to carry out improvement works on own home in the next 12 months Source: European Commission Belgium's residential construction sector likely to hold up better than other countries' On the other hand, purchasing power in Belgium is holding up much better than the European average. According to the Federal Planning Bureau, purchasing power will decline only 0.1% this year thanks to automatic wage indexation and strong job creation. For next year, it predicts a 0.7% increase in purchasing power. As a result, the Belgian residential real estate market, and thus the residential construction sector, is likely to hold up better than in neighbouring countries. In addition, uncertainty due to the ongoing war in Ukraine combined with sharply increased prices for energy and building materials will cause many households to postpone non-urgent beautification and renovation projects. As we expect the Belgian economy to head towards a recession in the winter months, residential construction activity will also weaken further in the second half of the year. The start of 2023 will be difficult. It is likely that the residential construction market will only recover from the second quarter of next year. Negative business sentiment will further dampen the non-residential sector The outlook for the non-residential sector is strongly dependent on the economic context of the companies that need these types of properties. There is little optimism on their part. In September, business confidence fell for the sixth consecutive month. The decline was strongest in manufacturing, but confidence also crumbled further in the service sector. Energy-intensive companies are particularly hard hit by high energy prices. Given the likelihood of the economy slipping further into recession, we expect business confidence to weaken further. The negative sentiment will encourage companies to invest less in non-residential real estate. In September, the component measuring confidence in the construction sector for non-residential buildings (such as commercial spaces, job stores, bank offices, sports complexes, office buildings, etc.) improved slightly but is still strongly negative. Sentiment also fell sharply for government projects in September Public construction projects held up a little better, but confidence also fell sharply in September. Many public clients have had to postpone plans in recent months due to the sharp increase in the cost of building materials and increased operating costs due to high inflation. Notwithstanding, public investments are usually less cyclical and the need for more investment in public infrastructure is still very high. We expect this branch to suffer less from the upcoming recession. Rising headwinds will put brakes on growth in 2023 Although the construction industry started the year well, the sector is facing increasing headwinds. Supply problems have improved but are not yet completely gone. Higher mortgage rates and declining consumer confidence are making builders hesitant about new projects. On top of that, the industry is facing new price increases for energy-intensive building materials. For now, contractors still have plenty of work as they are still catching up due to the supply problems caused by the Covid crisis. Therefore, we still expect the sector to grow by 2.5% this year. For 2023, we expect stagnation, or possibly even a slight contraction in activity. Read this article on THINK TagsReal estate Construction Belgium Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Bestway Might Have Larger Designs On The UK's Second Biggest Supermarket

UK Results Higher Than Expected And The Day Is Full Of Speeches

Kamila Szypuła Kamila Szypuła 11.10.2022 09:21
There will be few reports today, but they are important. We are also awaiting the speeches of many bank representatives. Reports form United Kingdom UK reports showed positive results and were higher than expected. The results for August with Average Earnings ex Bonus reached 5.4% and were 0.1% higher than expected, and increased compared to the previous reading. The unemployment rate also turned out to be positive and was lower than expected. The current reading of the unemployment rate was at 3.5% and it was expected to keep the previous level of 3.6%. Despite positive results, the change in the number of unemployed people in the U.K. during the reported month turned out to be much higher than expected. The current Claimant Count Change reading is 25.5K. The last reading was at the level of 1.1K, which means a significant increase in jobseekers. Read more: UK Results Higher Than Expected And The Day Is Full Of Speeches| FXMAG.COM The Brazilian Consumer Price Index (CPI) Today Brazil publishes inflation data for September. YoY's CPI is expected to hit 7.10%, a decline from the previous reading of 8.73%. If the forecast is correct, it means that the index has been falling since July. As for the MoM CPI, it is also expected to decline from -0.36% to -0.34%. And just like CPI YoY will decline from July. Speeches of the day In addition to UK earnings data and Brazilian inflation data, we expect a lot of speeches. We are waiting for two speeches from a German bank. The first at 14:00 CET, which also starts with all the speeches today. The speaker will be Burkhard Balz Member of the Executive Board of the Deutsche Bundesbank. The next speech will be German Buba Wuermeling Speaks which is set at 17:00 CET, traders may see the immediate global market impact. There will also be speeches by representatives of the European Central Bank (ECB) today. The first is scheduled for 14:45 CET. The speaker will be Philip R. Lane, member of the Executive Board of the European Central Bank. The next one will take place a quarter of an hour later, with a speech by Andrea Enria, Chair of Supervisory Board of the European Central Bank. The last speakers from the old continent will be representatives of a British bank. Bank of England (BOE) Monetary Policy Committee (MPC) Member Sir Jon Cunliffe will speak at 17:00 CET. Andrew Bailey, head of the BOE's Monetary Policy Committee will speak at 20:35 CET. This speech will be the most important of the day because it will have the greatest impact on the currency of the country (British Pound, GBP) and thus on the entire currency market. Today also FOMC members will take the floor. Federal Reserve Bank of Philadelphia President Patrick Harker is set to speak at 17:30 CET. His public engagements are often used to drop subtle clues regarding future monetary policy. Another speech will be made half an hour after this with Loretta J. Mester. Summary 8:00 CET UK Average Earnings Index +Bonus (Aug) 8:00 CET UK Claimant Count Change (Sep) 8:00 CET UK Unemployment Rate (Aug) 14:00 CET German Buba Balz Speaks 14: 00 CET Brazilian CPI (YoY) (Sep) 14:45 CET ECB's Lane Speaks 15:00 CET ECB's Enria Speaks 17:00 CET BoE MPC Member Cunliffe Speaks 17:00 CET German Buba Wuermeling Speaks 17:30 CET FOMC Member Harker Speaks 18:00 CET FOMC Member Mester Speaks 20:00 CET ECB's Lane Speaks 20:35 CET BoE Gov Bailey Speaks Source: https://www.investing.com/economic-calendar/
Italy: ING Economics expect quarter-on-quarter GDP in the fourth quarter may contract by 0.2%

ING Economics: Italy - Even If In Q3 Gross Domestic Product (GDP) Will Avoid A Decline, Q4 May Be Worse

ING Economics ING Economics 11.10.2022 18:27
Volatile August production data should be taken with a pinch of salt as underlying developments continue to point to more accentuated weakness over 4Q22, when industry will very likely be confirmed as a drag on growth Car production line in Turin, Italy   According to Istat data, Italy's seasonally-adjusted industrial production increased a surprisingly strong 2.3% month-on-month in August (from an upwardly revised 0.5% in July). The working day adjusted measure posted a 2.9% year-on-year change (from -1.3% YoY in July). "August effect" possibly at play, in 3Q22 industry should remain a drag on GDP growth The broad aggregate breakdown shows that consumer and investment goods were the main drivers of the acceleration while the production of energy contracted. To be sure, this is a positive reading, but it should be taken with a pinch of salt, as the August release is often affected by marked volatility due to firm closures and their impact on seasonal adjustments. In order to get a sense of the underlying developments, we look at the moving quarter and note that over the June-August period, production contracted by 1.2% from the previous three months. Confidence and PMI data point to a deterioration in September While the August reading can still be partially interpreted as evidence that Italian industry continues to be relatively more resilient to international supply chain disruptions and to ballooning energy prices, we expect the picture to get gloomier over the coming months. The manufacturing PMI has been in contraction territory since July and business confidence plunged in September, with the expected production subcomponent down to levels not seen since November 2020. The set of measures recently put in place by the outgoing government to weather the energy inflation shock will help limit the damage for businesses but is unlikely to stop industry from becoming a drag on growth in both 3Q22 and 4Q22. The European Central Bank's tightening mode will not make things any easier over the next few months, possibly weighing on the investment component. A GDP contraction could still be avoided in 3Q22, not in 4Q22 After today’s reading we are mildly comforted in our view that the Italian economy might manage to avoid a contraction in 3Q22 (we expect a minor 0.1% GDP expansion) but remain convinced that this will not be possible in 4Q22, when we project a 0.5% quarter-on-quarter contraction, which should mark the start of a recession. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The Agressive Rate Hikes By The Fed Did Not Lead To A Deeper Recession

Eurozone Confidence Declining (EUR/USD), GBP Under Pressure (EUR/GBP)

Rebecca Duthie Rebecca Duthie 11.10.2022 16:38
Summary: The Euro continues its battle with the US Dollar. UK's trillion-pound debt markets are buckling under the weight of further Bank of England interventions. Sterling found support early in the new week against the CAD. Euro on the decline as recession fears persist The market is reflecting bearish signals for this currency pair. The Euro's battle with the dollar continued into the new week as a risk-off mindset and increasing yields put the dollar in the lead. We witnessed a spike in geopolitical tensions between Russia and Ukraine as a result of a number of missile attacks that Russian President Vladimir Putin said were in response for the bombing of a bridge that connects Russia to the Crimean Peninsula. As recession fears persist, confidence in the Eurozone keeps declining. Another 75bp increase from the European Central Bank (ECB) is still anticipated later this month, which is necessary given the most recent double-digit inflation reading. Regarding the rate hike path required to control inflation, US Fed policymakers last week seemed to be singing from the same hymn book. Lael Brainard and Charles Evans, two well-known doves, yesterday broke with the rhetoric and used a tad more dovish language. EUR/USD Price Chart GBP is under pressure The market is reflecting mixed signals for this currency pair. The British pound is under pressure amid indications that the UK's trillion-pound debt markets are buckling under the weight of further Bank of England interventions. The Bank of England said on Tuesday that index-linked gilts will now be a part of its expanded gilt purchasing program. Given that UK RPI inflation was 12.3% in August, these gilts (UK government bonds) are understandably becoming more expensive for the government. But considering that the new administration decided to spend a lot of money on subsidizing family energy costs while simultaneously lowering taxes, the UK's bond market has suffered more than others. EUR/GBP Price Chart GBP supported against the CAD The rise in the Pound to Canadian Dollar exchange rate that began in the month of October has since experienced a corrective decline, but Sterling found support early in the new week just above the 1.51 handle and may now be expected to temporarily consolidate its recovery. If Sterling continues to accept the most recent developments in the UK government bond market, where the Bank of England (BoE) has been providing emergency liquidity to address issues related with some pension funds, it may find more support this week around the latter level. GBP/CAD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
Great Britain: According to BRC, food inflation reached 13.3% in December

Bank Of England (BoE) And Its Gilts, European Central Bank's Balance Sheet

ING Economics ING Economics 11.10.2022 21:27
The approaching end to the Bank of England’s purchases has sent gilts into a tailspin, a repo facility would help deal with margin financing but won’t solve the underlying problem. Joint EU debt issuance could compound fears of a more hawkish European Central Bank The Bank of England The end of BoE gilt buying looms large The Bank of England (BoE) tried – and failed – to reassure markets about the end of its gilt-buying program on 14 October. Despite a greater buying capacity of £10bn at each of the remaining operations, offers were limited and the BoE only managed to buy less than £1bn on Monday. The underlying concern is that even as its intervention draws to a close, not enough deleveraging has been achieved by pension funds, and that another wave of forced selling will emerge into next week. Volatility could well force the BoE back to the gilt market, maybe as early as today As the BoE itself has said, the aim of the buying facility was to buy pension funds time to shore up their liquidity position. Concerns remain about whether the last week-and-a-half was enough to achieve this in distressed market conditions. Eventually, the gilt sell-off could force the BoE back into the market. As we wrote at the time, we think a longer period of support for gilts will be necessary to restore market confidence. 30Y gilts traded at 4.7% yesterday, just 30bp below their pre-intervention peak, and their weakness dragged the pound lower. Volatility could well force the BoE back to the gilt market, maybe as early as today. And indeed, the Bank just announced that it will extend its purchases to inflation-linked gilts, adding one buying operation of up to £5bn each day this week to the already scheduled conventional gilt purchases. Helpfully, the announcement came alongside the launch of a repo facility accepting a broader range of assets as collateral. The idea is that instead of being forced sellers of, say, corporate bonds due to growing margin requirements, pension funds could instead pledge them as collateral to obtain financing. The facility will be in place for one month. In our view, this should be viewed as a complement to support the gilt market, not as a replacement, as a gilt sell-off (30Y yields have risen 110bp since their post-intervention through, for 30Y inflation-linked gilts, that figure is over 150bp) could still generate margin calls that exceed the fund’s funding capacity. In a further sign of its concern for market stability, the BoE also temporarily suspended its corporate bonds' quantitative tightening (QT) sales for two days. Long-end gilts are back in the danger zone Source: Refinitiv, ING The multi-headed fiscal hydra is back Of course, the difficulties facing the UK are not unique. The Fed’s tightening cycle and the rising dollar are thorns in the side of many central banks already grappling with inflation, including the ECB. In that context, Bloomberg reporting that Germany is dropping its opposition to joint EU borrowing to finance the energy support package is unlikely to be greeted kindly by bond investors. If confirmed, it would mean more issuance in already nervous markets (have a look at today’s supply slate in the last section), but investors would also worry about the inflationary impact and the ECB’s reaction. Markets can find solace from the contradictory sources cited by Reuters late yesterday. The concern however is that the reports come after Germany unveiled an up to €200bn package, drawing criticism from other countries with insufficient bond market liquidity to finance a commensurate package. Joint issuance would be bad news for core bonds which would nervously await the ECB’s reaction. For sovereign spreads, however, this is good news, as EU loans would lower pressure on peripheral bond markets. The prospect of ECB balance sheet reduction also casts a long shadow on bond markets. Klass Knot suggested that QT could begin at the earliest in early 2023. We still doubt QT could start in such a short timeframe but, if it does, we could see phased-out asset purchase programme (APP) redemptions in 2023, followed by pandemic emergency purchase programme (PEPP) redemptions in 2025. The strongest impact should be felt in peripheral debt markets, while it could also compound the tightening of money market spreads (eg rising Euribor vs Estr or Estr vs ECB deposit rate) due to targeted longer-term refinancing operations (TLTROs) repayments. The reduction in ECB purchases has already sent bond yields up Source: ECB, ING Today's events and market view Italian industrial production is the main item on today’s economic calendar but it is fair to say that the attention will be on the heavy bond supply slate after yesterday's gilt-led, long-end sell-off. The EU and Germany have both mandated banks for the sales of 7Y/20Y and 30Y bonds, respectively, via syndication. This will come on top of 2Y and 7Y auctions already scheduled by Germany and the Netherlands. The aftermath of the sales could see relief in the sector provided the gilt sell-off doesn’t accelerate. In that respect, the results of the sale of £0.9bn of 30Y inflation-linked gilts, the epicentre of yesterday's market rout, and the focus of newly announced purchases operations, will be key. In the afternoon, the main flashpoint will be US small business optimism. Our economics team flagged the pricing intention component as an important indicator to watch for declining inflation. The US Treasury kicks off this week's supply slate with a 3Y T-note auction for $40bn. Central bank speakers will also be plentiful. From the ECB, Philip Lane and François Villeroy are on the schedule. We’ll look closely for comments on QT or on the risk of more fiscal spending (see above). Andrew Bailey, of the BoE, will also be closely watched as the Bank’s response to the jitter in the gilt market is coming under greater scrutiny. Read this article on THINK TagsRates Daily Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Federal Reserve: Back to 25bp hikes as slowdown fears mount

The Actions Of The US Central Bank (Fed) Continue To Guide The Market

InstaForex Analysis InstaForex Analysis 12.10.2022 08:26
The attention of markets is now riveted not to the ECB or the Bank of England, but to the Fed. This is because even though the UK was the first to start raising interest rates, much more importance is paid to the Fed than other banks. That is why it is not surprising that the actions of the US central bank continue to guide the market, especially since at this time there is not a single hint that Fed rates will stop increasing in the foreseeable future. Of course, rates will decrease sooner or later, but it is unlikely to happen before the figure hits 4.5%. Almost all FOMC representatives agree that monetary policy needs to be tightened further in order to curb inflation. Yesterday, Fed Vice President Lael Brainard delivered a speech, confirming the fact that the bank will continue to do everything to stabilize prices. In particular, Brainard said that inflation is a serious problem and requires a clear, balanced approach. Supply remains fairly low and demand high, creating imbalances that are still pushing inflation higher. The labor market is likely to remain in a weaker state than before the pandemic. The economy may face a new shock associated with rising food and fuel prices due to the military conflict in Ukraine. Brainard also noted that the risks of a new rise in inflation remain due to OPEC's actions to reduce oil production, which could cause a new rise in prices in the energy market. The Fed is yet to consider easing the pace of rate hike as it intends to closely monitor economic data in order to clearly understand how the rate increase affects the economy and inflation. Selling securities off the Fed's balance sheet is a good way to raise rates in the end goal. These are the main statements of Lael Brainard, from which only one thing can be understood: the Fed will raise interest rates for at least a few more months, which could lead to a new increase in demand in dollar. Together with the difficult geopolitical situation in the world, which in itself increases the demand for dollar, these factors may be enough for euro and pound to fall further. And even though the ECB and the Bank of England will raise rates at the same time, the market will react to it very reservedly. Little will also depend on the US inflation report this Thursday as the value of the indicator is still too high for the Fed to even slow down the pace of monetary policy tightening. Based on this analysis, it is likely that the downward trend in EUR/USD will continue, but could end at any time. There may be an upward corrective wave, so it is best to sell up to the 423.6% retracement level of 0.9397. There is also need for caution as it is not clear how much longer the decline in euro will continue.   Relevance up to 06:00 2022-10-13 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/324047
The Outlook Of EUR/USD Pair For Long And Short Position

"Central banks that can print money can never fall short of money."

ING Economics ING Economics 12.10.2022 14:13
A look at monetary policy’s paradigm shift and the impact on central bank balance sheets Source: Shutterstock   Around the world, central banks have aggressively hiked interest rates in an attempt to tackle record-high inflation and to bring inflation expectations back to where they were at the start of the Covid-19 pandemic. In Europe, this shift in monetary policy implied a shift from negative interest rates to positive interest rates but still with abundant liquidity. As central banks are moving into a more ‘normal’ world for monetary policy, this also means that bank reserves will again be remunerated at positive interest rates. Some market participants might have forgotten about this, but this new normal has always been the reality. It is not that banks are suddenly getting remunerated for their deposits at central banks – they always have and there has hardly ever been any speculation about central banks going bankrupt because they only pay interest rates on bank reserves. Admittedly, the current situation is different from anything we have seen in the past as excess liquidity as a result of quantitative easing (QE) and negative interest rates is extremely high. In the period of asset purchases and negative interest rates, national central banks (NCBs) did not hedge their interest rate risk but built reserves to address these risks. Still, with the unexpectedly sharp rise in policy rates, potential losses are arriving faster and exceeding existing buffers. Eurozone central banks running down their buffers, and their equity turning negative, has now become a possible scenario for the years ahead.  Central banks that can print money can never fall short of money. Central banks can make losses but they don’t go bust. Instead, central banks can roll over losses into the next year, have reserves or need to be “bailed out” by the governments via capital injections or an increase in their own capital.  In the eurozone, losses by the European Central Bank (ECB) can first be absorbed by a strategic reserve. If this is not enough, losses will have to be paid by the national central banks according to their share in the ECB’s capital. The ECB’s capital can also be increased, as was the case during the euro crisis when it was increased from €5bn to €10bn. National central bank losses do eventually end up with taxpayers as they transfer their net profits to national Treasuries. In its June 2022 Convergence Report, which covers EU member states that are not yet members of the monetary union, the ECB states that “any situation should be avoided whereby for a prolonged period of time an NCB's net equity is below the level of its statutory capital or is even negative... Any such situation may negatively impact the NCB’s ability to perform its European System of Central Bank (ESCB)-related tasks but also its national tasks. Moreover, such a situation may affect the credibility of the Eurosystem’s monetary policy. Therefore, the event of an NCB’s net equity becoming less than its statutory capital or even negative would require that the respective Member State provides the NCB with an appropriate amount of capital at least up to the level of the statutory capital within a reasonable period of time so as to comply with the principle of financial independence.” A clear hint at how the ECB probably looks at the current situation with national central banks running the risk of negative equity. Credibility is obviously key when talking about potential negative capital cases of central banks. Particularly in a situation in which central banks are trying hard to restore their credibility as inflation fighters, negative equity would be counterproductive. Even more as in a phase of policy rate hikes, printing their own money will not work. The option to print money in order to offset central bank losses would mean purchasing assets while hiking rates. A combination that hardly works. What can be done to reduce excess liquidity Reversed reserve tiering. The ECB introduced a reserve tiering system to deal with the impact of negative deposit rates on banks. Banks were only required to put a fraction of their reserves in the ECB’s deposit facility, the rest could be parked at a zero interest rate in the ECB’s current account facility. Now, a reversal of such reserve tiering makes sense as it allows central banks to not remunerate all reserves. My colleagues Antoine Bouvet and Benjamin Schröder have written an excellent piece on the recent developments of excess liquidity and central banks' options for how to deal with it in the UK, Switzerland and the eurozone. Read it here: Tiers of joy: European central banks adjust their liquidity settings As mentioned in the piece, the Swiss National Bank (SNB) was the first European central bank to actually implement a reserve tiering system at its September meeting. In a nutshell, banks’ sight deposits at the SNB up to a certain threshold will earn the SNB policy rate, currently 0.5%, and 0% on balances above that threshold. This, however, is only part of the story. In parallel, the SNB announced it will conduct liquidity-absorbing operations (Open Market Operations or OMOs).  The question is how to determine the threshold. This could be done by either determining a fixed amount or a multiplier of the reserves (as the ECB did for its first tiering). ECB could change the terms of targeted longer-term refinancing operations (TLTROs). As policy rates rise, the interest banks earn by placing liquidity at the ECB will gradually rise above the rate they are paying on their TLTRO loans, presenting them with an interest rate gain. If this is the sole problem it is intending to solve, one option would be to retroactively change the TLTRO terms by raising the applied interest rate. The ECB would then ‘earn’ a higher interest rate than it has to pay on banks’ deposits. However, such a change in terms would be detrimental to the predictability and attractiveness of future TLTRO operations. With the brunt of TLTRO loans due to expire by the middle of next year, one could also question the need to come up with risky solutions to a problem that will disappear in nine months' time. A design similar to the one described above for the Bank of England, where a fixed amount earns 0% and balances above that threshold earn the policy rate, would guarantee some interest rate saving but wouldn’t provide an incentive for banks to repay TLTRO funds if the threshold is set low enough. If the threshold is set high, then the risk is that 0% becomes the marginal interest rate for many banks and that some countries end up being net lenders, and others net borrowers. The result would be a drop in money market rates in some countries and a rise in others. Reducing excess liquidity is the first step in avoiding negative central bank equity All in all, the rapid transition from negative to positive interest rates comes with unwarranted side effects, particularly as it (intently) coincided with ample liquidity. These side effects are losses for central banks which have triggered the first central banks to quickly withdraw excess liquidity and others are likely to follow. For the ECB, the easiest and least controversial way forward is a reversed tiering of the deposit facility. This option would not be as counterproductive to further rate hikes as offsetting potential losses by printing new money or asking governments for capital injections would be. Read this article on THINK TagsMonetary policy Eurozone ECB Central banks Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Chart of the Week - Gold Miners vs Energy Producers - 20.04.2022

German CPI Inflation Data Met The Markets Expectations

Rebecca Duthie Rebecca Duthie 13.10.2022 08:15
Summary: German CPY (YoY) CPI inflation data met market expectations. Looming european energy crisis. Initial market reactions. German CPI inflation data comes in at 10% Preliminary estimates showed that in September 2022, Germany's consumer price inflation spiked to 10 percent year-over-year, the highest level ever and significantly more than the 9.4 percent market projection. Following a worsening energy crisis in the biggest economy in Europe and ongoing supply chain disruptions, consumer prices have been rising. The German CPI inflation data was forecasted at 10% and came in at 10%, in addition the German CPI (MoM) data also met market expectations and remained equal to the previous months at 1.9%, this indicates that the largest European economy has not worsened despite fears. With the war in the Ukraine continuing, and the sanctions placed on Russia by the European Union, it is no secret that the European economies are facing problems, driven by a looming energy crisis. With winter approaching and a shortage of gas forecasted, prices have been rising. The European Central Bank’s (ECB) interest rate hawkish interest rate hiking cycle is showing no signs of slowing down, Inflation data from Europe's largest economy tends to be a clear indication of the performance of the rest of the European Economies. In the wake of the previous German CPI inflation data release, separate statistics revealed that previously, consumer and business expectations for greater inflation and a worsening financial situation caused the euro zone's economic mood to decline significantly and more than anticipated. The effect of the CPI Inflation Data on the Markets As CPI inflation continues to rise, consumer confidence continues to fall, the actual figures set up a strong case for the European Central Bank to continue on their interest rate hiking cycle path. The initial effect of the released data caused the EUR/USD to strengthen slightly, the EUR/GBP had the same effect, strengthening as the German Inflation rate remained high, yet stable. Sources: investing.com, reuters.com, dailyfx.com
The German CPI Reached The Forecast Level, The Inflation Report From America Ahead

The German CPI Reached The Forecast Level, The Inflation Report From America Ahead

Kamila Szypuła Kamila Szypuła 13.10.2022 09:26
Today, mainly important reports from the United States will appear. The report on inflation and the number of requests for unemployment insurance may significantly affect traders and give a picture of the condition of the US economy. On the old continent, we will mainly focus on the result of the German CPI. German CPI The monthly change and the annual consumer price index met expectations. The monthly change in the German CPI reached 1.9% and rose from 0.3%. Similarly, there was an increase in the annual change of the CPI from the level of 7.9% to the level of 10.0%. Switzerland Producer Price Index There were no forecasts for the Switzerland Producer Price Index. The monthly price of the change in the price of goods sold by manufacturers rose from -0.1% to 0.2%. After weak readings in July and August, this is a positive signal for this sector. On the other hand, the PPI YoY fell by 0.1%, thus reaching the level of 5.4%. BOE Credit Conditions Survey The Bank of England (BoE) will published the results of their Credit Conditions Survey for Q3, 2022. The bank conducts such research every quarter. As part of the Bank of England mission to maintain monetary and financial stability, the bank conducts research to understand credit trends and changes. Today's quarterly survey of construction banks and lenders contributes to this work. The survey covers: Secured and unsecured loans to households. Loans for non-financial corporations, small businesses and non-bank financial companies. Speeches of the day At 8:00 CET the first speech of the day was the speech from Germany. The speaker was President Nagel. He is also voting member of the ECB Governing Council. He's believed to be one of the most influential members of the council. For this reason, his speech may significantly affect the monetary situation of the euro zone. The next speech will be from the Bank of England which is set at 13:00 CET. Dr Catherine L Mann serves as a member of the Monetary Policy Committee (MPC) of the Bank of England. Her public engagements are often used to drop subtle clues regarding future monetary policy. US Core CPI The Core Consumer Price Index (CPI) measures the changes in the price of goods and services, excluding food and energy. The current reading of the indicator is expected to decline by 0.1% to 0.5%. The previous reading was at 0.6% and it was an increase from the July drop (0.3%). On the other hand, the annual change in the index is forecasted at 6.5%. And it may mean an increase from the level of 6.3%. US CPI Today the US inflation report will be published. This report can significantly impact the foreign exchange market. Read more about forecasts for the current level: https://www.fxmag.com/forex/inflation-report-ahead-what-might-it-look-like-in-the-united-states-u-s-cpi US Initial Jobless Claims There will also be a weekly report on the number of unemployment insurance applications today. The previous reading was negative as it rose to a higher level than expected. Current forecasts show a further increase in this number from 219K to 225K. The expected further negative results in a row may translate into deterioration of the economy in this sector. Crude Oil Inventories The weekly report about change in the number of barrels of commercial crude oil held by US firms will be published at 17:00 CET. Forecasts for this period show an increase from -1.356M to 1.750M. The increase in crude inventories is more than expected, it implies weaker demand and is bearish for crude prices. Summary 8:00 CET German Buba President Nagel Speaks 8:00 CET German CPI (YoY) (Sep) 8:00 CET German CPI (MoM) (Sep) 8:30 CET Switzerland PPI (MoM) (Sep) 10:30 CET BOE Credit Conditions Survey 13:00 CET BoE MPC Member Mann 14:30 CET US Core CPI (MoM) (Sep) 14:30 CET US Core CPI (YoY) (Sep) 14:30 CET US CPI (MoM) (Sep) 14:30 CET US CPI (YoY) (Sep) 14:30 CET US Initial Jobless Claims 17:00 CET Crude Oil Inventories Source: https://www.investing.com/economic-calendar/
Both The US CPI & Core CPI Inflation Beat Market’s Forecasted Figures

Both The US CPI & Core CPI Inflation Beat Market’s Forecasted Figures

Rebecca Duthie Rebecca Duthie 13.10.2022 15:19
Summary: US CPI inflation beat market expectations. US Core CPI inflation beat market expectations. Initial market reaction. US CPI & Core CPI Inflation beat market expectations After breaking out last week, the US dollar is maintaining its recent highs. The primary US catalyst for this week is the release of CPI data today. According to economists surveyed by Reuters, the CPI is anticipated to have risen by 8.1% in September compared to the same month a year prior, which is only slightly less than the 8.3% annual increase seen in August. The actual US CPI inflation (YoY) came in at 8.2%, beating market expectations. For the White House and legislative Democrats, the continued high inflation has been a major political concern, overshadowing the coronavirus pandemic's quick recovery and the creation of millions of jobs since Joe Biden took office. The Core CPI is anticipated to rise for a second consecutive month, with the rate rising to 6.5% in September from 6.3% in August. Additionally, the Summary of Economic Projections (SEP) shows a higher path for US interest rates, which could fuel anticipation for another 75bp Fed rate hike. The actual US Core CPI inflation (MoM) came in at 6.6%, also beating market expectations. Effect on the markets The market will probably jerk in either direction after the September CPI report is released. The bar remains very high to change the perception surrounding a 75 basis point rate hike from the FOMC in November, despite the possibility of volatility across asset classes. The Federal Reserve may face pressure to maintain its approach to battling inflation if the core CPI increases once again, according to the minutes from the September meeting that revealed “many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action.” The initial reaction from the EUR/USD was bearish, USD/JPY was bullish as the dollar strengthened in the wake of the news, the S&P500 also jumped and Bitcoin remained on a downward trend. Sources: investing.com, financialtimes.com, finance.yahoo.com, dailyfx.com
The Turkish Central Bank Cut Its Policy Rate by150bp | Credit Suisse Outflows Benefit UBS

Turkey's Central Bank Is Expected To Cut Rates Again | An Active Week Is Coming For China

Craig Erlam Craig Erlam 16.10.2022 09:13
US After a hot inflation report, the focus shifts to how policymakers will change their tune on how aggressive the Fed should now be. On Tuesday, we will hear from the Fed’s Bostic and Kashkari. Wednesday contains the release of the Beige Book and an appearance by Kashkari again, as well as speeches from Evans and Bullard.  On Thursday, we will hear from Jefferson, Cook, and Bowman, while Friday brings an appearance from Williams.       Wall Street will pay close attention to the latest round of Fed regional surveys.  Both the Empire Manufacturing Survey and Philly Fed business outlook are expected to remain in contraction territory and possibly signal some easing of price pressures, but that might be limited as energy costs have rebounded. Another round of housing data should show the market is cooling as mortgage rates surge to the highest level in 20 years. Earnings season heats up as we hear from Bank of America, Goldman Sachs, Netflix, and Tesla. After this round of results, we will have a good handle on how healthy the consumer is and if we are starting to see further signs inflation is easing.   EU  Christine Lagarde will speak at the IMF/World Bank event over the weekend which could shed some light on what we can expect on 27 October. Markets are pricing in a high chance of a 75 basis point rate hike which suggests the possibility of Lagarde saying anything groundbreaking is slim. Final inflation data next week could change things but it’s probably not going to as revisions are not common and when they do come, they’re typically very marginal. UK There’s an abundance of drama in the UK right now and unsurprisingly the markets are not embracing it. In sacking Kwasi Kwarteng and replacing him with Jeremy Hunt as Chancellor, Prime Minister Liz Truss may have been hoping to regain some faith in the markets and take the heat off herself but neither of those has happened. The vultures are circling and Truss faces the near-impossible task of restoring confidence and trust in her leadership. There are also some pretty significant economic data releases next week including inflation on Wednesday which is expected to confirm annual price rises are back into double digits. Retail sales will also be released on Friday. Andrew Bailey is in attendance at the IMF/World Bank meeting and is due to speak on Saturday. Russia No major economic or monetary events next week so the focus will remain on the war in Ukraine. PPI data on Wednesday may be of some interest. South Africa Inflation and retail sales data on Wednesday will be of interest, with the central bank previously hiking by 75 basis points and some policymakers even favouring 100. The tightening cycle is clearly not over yet; the question is how aggressive they still need to be.  Turkey A new “disinformation” law adds a bit of extra spice to writing about Turkey’s economic situation and the unconventional approach of the central bank. With inflation running above 80% – as per official data – the central bank is expected to cut rates by another 100 basis points next week to 11%, as it continues to refuse to accept responsibility for soaring prices. The currency continues to trade near record lows amid these policy moves, with inflation expected to remain extraordinarily high barring a sudden and unlikely change of heart on interest rates.   Switzerland No economic data of note next week but markets are very focused on the next monetary policy meeting on 15 December, with 50 basis points almost fully priced in. The question is whether they’ll wait that long. Chairman Thomas Jordan speaks in Washington on Tuesday. China The focus will shift to the 20th National Congress of the Chinese Communist Party, which starts this weekend. The conference is held every five years and is the most important forward-looking guidance of the Chinese government on economic development, COVID strategies, tech ambitions, and people’s livelihood planning. The PBOC is also expected to keep its one-year medium-term lending facility rate steady at 2.75%.  It will be a busy week with Chinese activity data. Production data is expected to steady, investments to improve, and retail sales to be sluggish.    India No major economic releases or speeches are expected. Australia & New Zealand Australia’s September labour report should show employment trends are moderating.  Expectations are for 20,000 jobs to be created, lower than the prior month’s 35,000 gain.   In New Zealand, the focus will be on third-quarter inflation data that is expected to ease to 6.5%, as gasoline prices declined.  Inflation trends are somewhat mixed as coal and gas prices posted increases.  Price pressures are still high and the RBNZ is expected to remain aggressive with rate increases at the November 23rd policy meeting.    Japan Japan may need to intervene in the FX market again as the yen depreciation continues. Core inflation data is expected to rise, but is unlikely to change the BOJ’s easing stance.    Singapore Markets will continue to digest the MAS tightening and recentering of the currency band.  It will be mostly a quiet week, with the exception of one economic release, domestic export data, which is expected to improve.    Economic Calendar Saturday, Oct. 15 Economic Events The annual meetings of the International Monetary Fund and World Bank continue   Fed’s Bullard and ECB Chief Economist Lane discuss inflation on a panel hosted by the Reinventing Bretton Woods Committee in Washington BOE Governor Bailey gives opening remarks at the Group of 30’s international banking seminar in Washington Sunday, Oct. 16 Economic Events China’s Communist Party kicks off its twice-a-decade Congress in Beijing World Health Summit begins with appearances by German Chancellor Scholz and French President Macron  Monday, Oct. 17 Economic Data/Events US empire manufacturing China medium-term lending Italy CPI Japan tertiary index, industrial production, capacity utilization New Zealand performance services index Singapore trade Turkey budget balance UK Rightmove house prices ECB’s de Guindos gives a speech on the 20th anniversary of the euro, organized by the Consejo General de Economistas in Madrid ECB’s Chief Economist Lane participates in a discussion, “For a New European Fiscal Framework,” organized by Bocconi University and Deutsche Bank in Milan EU foreign ministers meet in Luxembourg   Tuesday, Oct. 18 Economic Data/Events US industrial production, NAHB housing market index, cross-border investment Minutes of RBA policy meeting Canada housing starts China Q3 GDP, retail sales, industrial production, surveyed jobless Eurozone new car registrations Germany ZEW survey expectations Italy trade Mexico international reserves New Zealand CPI Philippines BoP South Korea money supply Spain trade balance Thailand car sales Turkey house prices RBA Deputy Governor Bullock speaks at the Australian Finance Industry Association annual conference in Sydney Fed’s Kashkari discusses the economy at a Women Corporate Directors Minnesota Chapter event Earnings Reports from Goldman Sachs and Netflix Wednesday, Oct. 19 Economic Data/Events US MBA mortgage applications, building permits, housing starts, Fed Beige Book Australia leading index Canada CPI China new home prices Colombia trade Eurozone CPI Russia weekly CPI/monthly PPI South Africa CPI, retail sales UK CPI, PPI, RPI, retail price index, house price index EIA crude oil inventory report Hong Kong Chief Executive John Lee delivers his first policy address BOJ’s Adachi speaks at a meeting with local leaders in Toyama Fed’s Kashkari takes part in a moderated Q&A hosted by Travelers Fed’s Evans discusses the economic outlook during an event hosted by the Jefferson Scholars Foundation in Charlottesville, Virginia Fed’s Bullard gives welcome remarks at the Homer Jones Memorial Lecture hosted by his bank  Thursday, Oct. 20 Economic Data/Events US existing home sales, initial jobless claims, Conference Board leading index Australia unemployment, business confidence China loan prime rates, Swift global payments Germany PPI Hong Kong jobless rate Japan trade Russia FX/gold reserves Taiwan export orders Turkey rate decision: Expected to cut one-week repo rate by 100bps to 11.00% UK GfK consumer confidence European Union leaders summit in Brussels through Friday Norges Bank Governor Wolden Bache speaks at the Centre for Monetary Economics, BI Norwegian Business School Friday, Oct. 21 Economic Data/Events Japan CPI  Canada retail sales Euro area consumer confidence Italy Bank of Italy quarterly economic bulletin New Zealand trade, credit card spending Thailand foreign reserves, forward contracts Turkey consumer confidence UK retail sales Sovereign Rating Updates Czech Republic (Fitch) Germany (Fitch) Greece (S&P) Italy (S&P) Netherlands (S&P) United Kingdom (S&P) United Kingdom (Moody’s) This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
The EUR/USD Pair May Announce A New Bullish Momentum

The Eurozone Economy Looks Worse Than The American One

InstaForex Analysis InstaForex Analysis 16.10.2022 09:43
Trading in the financial markets in the second half of the year is pure pleasure. The stock indices of the US and EURUSD step on the same rake with enviable frequency, counting on a dovish reversal where it does not even exist. Even the acceleration of US core inflation to 6.6% in September, the highest mark in 40 years, was seen as a command to euro fans. Where, where are you heading, fools? When the probability of a 75 bps hike in the federal funds rate in December jumps from 35% to 65%, and its ceiling rises from 4.5% to 5%, selling the US dollar is absolutely the wrong strategy. The US currency is enjoying well-deserved popularity in 2022 due to the aggressive tightening of the Federal Reserve's monetary policy and high demand for safe-haven assets due to recurrent stresses. Why get rid of it if the rate of monetary restriction is increasing, and there is no end in sight to the problems? The same crisis in the British debt market that has swept through global bonds in waves is far from over. Bond yield dynamics The government of British Prime Minister Liz Truss decided to turn it into a farce. They say that it is not the mini-budget that is to blame for the shocks, but the Bank of England, which raised rates more slowly than the Fed. In fact, as European Central Bank President Christine Lagarde says, during a period of monetary policy normalization, care must be taken to shift the focus of fiscal policy towards measures that keep debt sustainable. And what about Germany, which has announced a €200 billion stimulus package to support households hit by the energy crisis? A new fire could break out in the eurozone debt markets. So it turns out that problems arise in the eurozone, and investors flee from them to America. This leads to the strengthening of the US dollar no less than the monetary policy of the Fed. Which, by the way, does not think to slow down. What did the financial markets come up with amid the acceleration of US inflation, but their next campaign against the Fed will most likely end in another fiasco. Of course, EURUSD's paradoxical rise in response to strong core inflation figures can be blamed on the "buy the dollar on the rumor, sell on the facts" principle, but smart people don't do that. They prefer to wait until the bears throw away the ballast, unsure of the continuation of the downward trend of traders, and then move down again. In the end, nothing has changed. The eurozone economy looks worse than the American one, the Fed is already wrapping up the balance sheet, while the ECB is going to start doing this only in 2023, the armed conflict in Ukraine is not over, and there is no end in sight to the energy crisis. Technically, on the EURUSD daily chart, the bulls are trying to start a correction. Their failure to do so will result in the pair closing below the moving average near 0.978. If this happens, the euro will need to be sold on a break of the fair value of 0.97.   Relevance up to 15:00 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/324375
The Markets Still Hope That The Fed May Consider Softer Decision

The Double-Digit Inflation In The Eurozone Is Here! (European CPI)

Kamila Szypuła Kamila Szypuła 16.10.2022 11:21
After a hot US inflation report, the focus shifts in the coming week on the inflation result in the euro zone. The figures are published by Eurostat, the statistical office of the European Union. This reading is specific because we see the results for the euro area and not for the whole union. Previous data Inflation has been in an upward trend since the beginning of the year. At first, it went down a tenth of a percent. March grew rapidly by 1.7%, largely due to the start of the war in Ukraine. Later it increased successively, until in August it exceeded the threshold of 9.0%. The euro area annual inflation rate was 9.1% in August 2022, up from 8.9% in July. A year earlier, the rate was 3.0%. European Union annual inflation was 10.1% in August 2022, up from 9.8% in July. The result for the European Union was higher than for the euro area, because in the union there are more countries that have an impact on the final result. The lowest annual rates were registered in France (6.6%), Malta (7.0%) and Finland (7.9%). The highest annual rates were recorded in Estonia (25.2%), Latvia (21.4%) and Lithuania (21.1%). We can observe that the highest inflation results appeared in the countries of Eastern Europe, especially Baltic countries. These countries are closest to Russia and Ukraine, where war is currently being fought, and economically they will suffer the most from it, including high inflation. Source: eruostat.eu Forecast In the euro area, inflation is expected to reach 10.0% Due to the tense situation on the European gas markets, the experts also maintain their forecast of a recession in the euro area. However, the economic slowdown is supposed to be mild. In August, the highest contribution to the annual euro area inflation rate came from energy. It is forecasted that the last quarter of this year will be energy-hard for Europe. For this reason, we can assume that it is the energy sector that will play an important role in the rise in inflation. The price increase in this sector will be significant. According to Eurostat on its Twitter account, energy prices increased by + 40.8%. Another sector that will see significant growth is food, alcohol & tobacco + 11.8%. The prices of many commodities - crucially including food - have also been rising ever since COVID-19 pandemic lockdowns were first introduced two years ago, straining global supply chains, leaving crops to rot, and causing panic-buying in supermarkets. The war in Ukraine again dramatically worsened the outlook, as Russia and Ukraine account for nearly a third of global wheat and barley, and two-thirds of the world's exports of sunflower oil used for cooking. The smallest increase will be in other goods + 5.6% and services + 4.3%.   Euro area #inflation up to 10.0% in September 2022: energy +40.8%, food, alcohol & tobacco +11.8%, other goods +5.6%, services +4.3% - flash estimate https://t.co/6PNYzrCwCS pic.twitter.com/NlnZGeoewp — EU_Eurostat (@EU_Eurostat) September 30, 2022 In the euro area, Estonia will still have the highest inflation (24.2%) and the lowest in France (6.2%). As we can see, the prospects for European economies are bleak. Moreover, with Europe driving up prices, gas is becoming too expensive in other parts of the world.
The Bears Of The EUR/USD Pair Are Still Poised To Be In Control

The Trend Of The Euro To US Dollar Pair (EUR/USD) Is Again Downward

InstaForex Analysis InstaForex Analysis 17.10.2022 08:02
On Friday, the EUR/USD currency pair began a new round of downward movement, during which it again consolidated below the moving average line. Thus, the price did not spend even one day above the moving average, and the trend is again downward. Both linear regression channels are still directed downwards, so almost all indicators now support a new fall in the European currency. Also, recall that on the 24-hour TF, the price continues to be below the critical line. Therefore, according to all indicators, the European currency should continue to slide down. Of course, sooner or later, the downward trend will be completed. Still, we are asking one very simple question for the umpteenth time: what has changed over the last week (month/day) in the fundamental/geopolitical background so that now we can count not on an ordinary pullback up by 200-400 points, but a new upward trend? Answer: nothing. Consequently, the European currency is still at risk. Moreover, after several statements by Fed representatives last week, they assured us that the increase in the Fed's key rate would continue for some time, and then a high rate would remain for quite a long time. Recall that, at the beginning of this year, statements were repeatedly made that the rate would rise as much as possible to start slowing inflation (at that time, it was a 3.5% rate). And then (next year), a rate cut would begin so the economy could avoid a shock and recession. As you can see, there is no question of any rate reduction in 2023. Inflation is declining so slowly at a 3% rate that it is completely unclear at what level it will have to be raised. Is it worth saying again that any Fed rate hike is just fine for the dollar? The market could already consider future rate increases (planned at the beginning of the year), but did it consider the rate increase to 4.5%? Moreover, the European currency remains 200 points from its 20-year low. If the pound has made at least one serious upward leap, then the euro has not. Inflation in the European Union will be at least 10% in September. By and large, there will be only one more or less significant publication in the new week in the European Union—this is the inflation report for September. However, this report cannot be called "important" upon closer examination. First of all, what does European inflation change now? The ECB, just like the Fed, has set a course for an aggressive rate hike, so until inflation shows a serious slowdown, the regulator will not go off this course. Second, the reaction to European inflation has always been weaker than American inflation. A vivid example of this was last week when both major pairs "flew" in different directions after the publication of the CPI in the USA. Third, this is only the second final inflation value for September; the market is already aware that the indicator has risen to 10%. What else will be interesting in the European Union? Speeches by Luis de Guindos, Isabel Schnabel, and Christine Lagarde. Moreover, the speech of the head of the ECB is scheduled for Saturday, so it will not be able to have any impact on the euro currency during the week. Well, de Guindos and Schnabel are likely to remain true to their previous rhetoric, which implies a further tightening of monetary policy. Thus, nothing will be interesting regarding macroeconomics or foundations in the EU this week. But, unfortunately for the euro currency, there is also geopolitics. As several experts have warned, October will be very "hot." In November, the G-20 summit is due to take place, in which both Vladimir Putin and Vladimir Zelensky can participate. So far, no one understands how this can restore peace in Europe since Moscow and Kyiv have officially stated that they will not negotiate with each other. However, in any case, this event is a landmark, and maybe something will be decided on it. The average volatility of the euro/dollar currency pair over the last five trading days as of October 17 is 103 points and is characterized as "high." Thus, on Monday, we expect the pair to move between 0.9618 and 0.9825. A reversal of the Heiken Ashi indicator upwards will signal a new round of upward correction. Nearest support levels: S1 – 0.9644 S2 – 0.9521 Nearest resistance levels: R1 – 0.9766 R2 – 0.9888 R3 – 1.0010 Trading Recommendations: The EUR/USD pair made an upward leap, which ended very quickly. Thus, now it is necessary to stay in short positions with targets of 0.9644 and 0.9618 until the Heiken Ashi indicator turns up. Purchases will become relevant again no earlier than fixing the price above the moving average with goals of 0.9825 and 0.9888. Explanations of the illustrations: Linear regression channels – help determine the current trend. The trend is strong if both are directed in the same direction. The moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which trading should be conducted now. Murray levels are target levels for movements and corrections. Volatility levels (red lines) are the likely price channel in which the pair will spend the next day, based on current volatility indicators. The CCI indicator – its entry into the oversold area (below -250) or into the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.   Relevance up to 02:00 2022-10-18 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/324417
Short-term analysis - Euro to US dollar by InstaForex - 31/10/22

ING Economics Think Inflation Is Already There In The Eurozone. Q3 GDP May Decline By 0.2%

ING Economics ING Economics 17.10.2022 12:34
Looking at all the evidence available so far, it looks like the eurozone fell into a shallow recession in the third quarter. For the European Central Bank, this is unlikely to be enough to prompt an immediate dovish pivot given its determination to hike interest rates in the face of double-digit inflation. We still expect another 75bp hike in October   A recession in the eurozone has now become the near-consensus view, with the IMF being the latest international institution to predict a contraction in the eurozone economy in 2023. The only question seems to be how severe this winter recession will be and when it will start. We take a look at whether the economy actually started to shrink in the third quarter. Soft data suggests that a recession is likely to have started During the pandemic, we developed a nowcast indicator that gave us insight into how the eurozone economy was performing during lockdowns. While it was designed to perform well in the specific circumstances of the pandemic, there is merit in looking at it once again. The big caveat is that electricity use is an important driver of the index, which has of course been subject to large productivity gains as the energy crisis has unfolded. Nevertheless, we see that the direction for most underlying variables is slightly negative at the moment, corresponding to a view that the economy fell into a mild contraction at the end of the third quarter. Nowcast tracker suggests that activity has been moderately declining recently For more on how this index is constructed, read here: https://think.ing.com/articles/introducing-the-ing-weekly-economic-activity-index-for-the-eurozone/ Source: ING Research   Mobility indicators are an important part of the nowcast index. When the economy reopened earlier in the year, we saw a strong increase. But except for workplace activity, most mobility indicators normalised during the spring and have remained at these levels over the course of the third quarter. Our average of the Google mobility indicators shows that the second quarter still saw large mobility gains, while the third quarter was flat. While seasonal factors may understate the performance in this regard, it does seem fair to assume that most, if not all, of the post-lockdown rebound is now behind us. Adding to meagre nowcast data, surveys suggest that a recession is likely to have started already. The composite PMI was below 50 – signalling contraction – for all three months of the third quarter. In fact, it gradually worsened as the quarter progressed, with September showing more serious signs of contraction as the summer months ended. Both services and manufacturing activity are now well below 50. This is a broader indicator of activity, which adds to signs that a shallow recession began in 3Q. Still, some evidence from data not collected from surveys would be useful so as not to miss out on positive surprises. Retail sales are weak and tourism is not expected to make up for it When looking at consumer spending, we see a clear downward trend in retail sales. November last year was the recent peak in sales activity after which a steady decline set in. This is because of the sharp decline in purchasing power that households have experienced since then, but will also be related to the reopening of certain services. With people returning to restaurants and bars and starting to take holidays again, spending patterns have shifted away from goods. The latter seems to be a smaller part of this though. As chart 2 shows, people are spending more than ever in retail, but volumes are down. So the impact of inflation is that people are forced to spend more and more at the store but take home less for it. Interestingly, car sales have been increasing in August, coming from a very low base. Consumers pay more in retail, but take home lower volumes than late last year Source: Eurostat, ING Research   The ECB put a lot of emphasis on the positive impact of tourism on third-quarter growth. This is a bit of a blind spot in terms of more frequent data and could indeed add to positive activity this quarter. Looking at overnight stays in the eurozone, we see that July and August were very close to pre-pandemic levels which suggests continued 3Q strength, but businesses are less optimistic. Surveys suggest that the peak in tourism activity was in June and that the summer may have slightly disappointed. Still, tourism is likely to have added positively to the third quarter GDP growth number. All in all though, it looks like the summer was not strong enough to have kept consumption growth positive overall. Industry limits losses so far due to improving supply chains, but trend is down When looking at industry, we see a divergence between the survey and hard data so far. While surveys suggest a sizable weakening in activity, August data was better than expected. It seems that the improvement in supply chain problems and the availability of inputs to production are allowing businesses to catch up on backlogs of orders. Still, new orders are falling and survey data suggests a weaker September. Particularly in energy-intensive sectors, production seems to have dropped again in September. The German statistical office has started to release a new times series for energy-intensive industry, showing that production in these sectors dropped by more than 8% between February and August. If September was indeed weaker than August, industrial production will have been negative on the quarter, adding to expectations that the economy was already in a shallow contraction in 3Q. Production recovered a bit in August, but energy-intensive sectors look problematic in September Right chart shows total manufacturing and the most energy-intensive sectors Source: Eurostat, Macrobond, European Commission DGECFIN, ING Research   Interestingly enough, trade is very difficult to judge at the moment. Data on volumes is hard to come by and strongly rising prices for energy have caused nominal imports to soar. It looks like real export growth weakened over the summer, but imports could have fallen even more as energy is such an important component and energy use is down due to high prices. This means that net exports could have actually contributed positively to GDP growth last quarter. If this makes growth positive, it would mean that a recessionary environment saw positive growth. Just as the US went through a technical recession in the first half of this year when the economy contracted but no real signs of recession were visible, so the eurozone could be in a technical expansion, where the economy expands in a recessionary setting. Contraction in 3Q, but no smoking gun for a dovish pivot from the ECB Taking this all together, we find enough weakness in recent data to believe that a recession has already started and stick to our forecast of a -0.2% quarter-on-quarter contraction in 3Q. But shallow negative growth – still held up by temporary recovery factors – is also unlikely to give the ECB the smoking gun for a dovish pivot. In fact, at the next ECB meeting on 27 October, there won’t be any new staff projections, nor will there be hard data for September, allowing the ECB to announce another hike by 75 basis points. It will take until the December meeting before the ECB has a better view on the severity of the recession, which should then be enough to embark on a dovish pivot. Read this article on THINK TagsGDP Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Federal Reserve Remains Hawkish (EUR/USD), Political Uncertainty In Westminster Circus (EUR/GBP, GBP/USD)

Federal Reserve Remains Hawkish (EUR/USD), Political Uncertainty In Westminster Circus (EUR/GBP, GBP/USD)

Rebecca Duthie Rebecca Duthie 17.10.2022 20:24
Summary: Fedspeak is back in the spotlight this week. EUR/GBP reached one-month highs last week. Fedspeak is back in the spotlight after strong CPI inflation The market is reflecting bearish signals for this currency pair. As markets process the strong CPI number from last week, Fedspeak is back in the spotlight this week. Given the lack of significant new data this week, market players will probably give Fed speech and corporate earnings more weight. Recent Federal Reserve speakers have kept up the "hawkish drum," with the majority seeing the lack of inflation progress as justification for continuing with aggressive rate hikes. Since recent remarks suggest the Fed is seeking some pain in both housing and employment in order to reduce inflation, the persistent tightness in the domestic labor market continues to be a talking topic for Federal Reserve officials. Chair Jerome Powell's hawkish comments at Jackson Hole, when Powell threw a warning shot across the financial markets' bow, abruptly shifted the atmosphere surrounding a soft landing. Market investors are still firm in their desire to price in a Fed policy reversal, but with inflation where it is, such a turnabout for the central bank is all but unthinkable. EUR/USD Price Chart EUR/GBP reached one month highs The market is reflecting bearish signals for this currency pair. The exchange rate between the pound and the euro reached one-month highs last week, but it may now find it difficult to rise much further in the days to come and even be at risk of new selling as the Westminster Circus once again devolves into the type of farce most typical of one of those vintage Carry On movies. With political instability and uncertainty once again at the top of the agenda, the pound surged strongly last week amid rumors that HM Treasury would withdraw some of the spending commitments made in the late-September budget. EUR/GBP Price Chart GBP/USD recovered slightly The market is reflecting bullish signals for this currency pair. The Pound to Dollar exchange rate has recently recovered significantly, but it may take a setback for the Dollar to advance further this week, in part because Sterling faces dangers related to the possibility of another Prime Minister in the Banana Republic of Westminster being booted from power. The news that HM Treasury would be able to postpone some of the spending promises made public in the late-September budget statement helped the value of the pound last week. However, political instability and uncertainty are once again at the forefront of this week's events. GBP/USD Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
Two Small Caps Listed On Euronext Paris Have Faced Severe Financial Difficulties, The Q4 GDP Will Be Released In The US Today

The Economic Outlook In Euroland And Germany Is Getting Worse

Kamila Szypuła Kamila Szypuła 18.10.2022 10:21
Today the market will be calmer as I do not have very important data that could be confusing. Mainly, the eyes of traders will be focused on the results of the ZEW Economic Sentiment in Germany and in Euroland as well as the statements of bank criminals in these regions. From the American economy, we are only waiting for the report on Industrial Production. The Reserve Bank of Australia (RBA) events As the day started, events from Australia arrived. The first event took place at 2:05 CET, and it was a speech. The speaker was Michele Bullock, who is an Assistant Governor of the Reserve Bank of Australia. Her public engagements are often used to drop subtle clues regarding future monetary policy. The RBA minutes provide a detailed record of the discussions held between the RBA’s board members on monetary policy and economic conditions that influenced their decision on adjusting interest rates and/or bond buys, significantly impacting the Australian Dollar (AUD). ZEW Economic Sentiment German ZEW Economic Sentiment According to the report on the six-month economic outlook, the mood is currently pessimistic. Another decline is projected from -61.9 to -65.7. Since March, the indicator has been below 0, which means negative results. In June it looked like the situation could improve, but the next results quickly showed that it was a temporary change and that the downward trend has been consistently maintained since then. Source: investing.com Eurozone ZEW Economic Sentiment In the euro zone, the outlook is also negative. It is expected to drop from -60.7 to -61.2. Contrary to Germany, the situation in the euro zone deteriorated only in May. The downward trend has continued since then. The higher results than the German index are due to the fact that 19 Member States have an influence on the European one. Source: investing.com Speeches Also today, representatives of the central banks of Europe and Germany will take the floor. The speeches will be held in the evening. The first one at 18:00 CET and the speaker will be a member of the Executive Board of the European Central Bank, Isabel Schnabel. One hour later at 19:00 CET, Joachim Nagel, who is Deutsche Bundesbank President and voting member of the ECB Governing Council, will speak. Canada Housing Starts The annualized number of new residential buildings that began construction during the reported month will published today. It is expected to drop to 263K from 267.4K. At the beginning of the year, the trend was exemplary, with the highest level recorded in May (287.3K). After this reading, the trend changed to a downward trend. The positive fact is that since the April reading the result was higher than expected. Source: investing.com Canada Foreign Securities Purchases The overall value of domestic stocks, bonds, and money-market assets purchased by foreign investors in Canada is expected to increase compared to the previous month. Canada Foreign Securities Purchases is expected to reach 17.32B. Purchase by foreign investors will provide new money to the Canadian economy and will also demonstrate its attractiveness. During the year, the appearance of the indicator varied considerably. At the beginning of the year it was in a downward trend, then the readings for January and February were downward. After these negative results, the highest reading was recorded at 46.94B. This very positive result was followed by a shift to a downward trend. A rebound after a negative reading in June could mean an improvement. US Industrial Production There are no forecasts for the change in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities. Observing the last result, the trend is downward, and the last reading was 0.13% lower than the previous reading (3.81%). We can only expect it to decline slightly. Summary 2:05 CET RBA Assist Gov Bullock Speaks 2:30 CET RBA Meeting Minutes 11:00 CET German ZEW Economic Sentiment (Oct) 11:00 CET ZEW Economic Sentiment (Oct) 14:15 CET Housing Starts (Sep) 14:30 CET Foreign Securities Purchases (Aug) 15:15 CET US Industrial Production 18:00 CET ECB's Schnabel Speaks 19:00 CET German Buba President Nagel Speaks Source: https://www.investing.com/economic-calendar/
Saxo Bank And JP Morgan's Negative Views On The Outlook For British Economic Growth

ECB Seems To Have Limited Options (EUR/USD), Concerns In UK Bond Market (EUR/GBP), JPY Drops To 1990 Lows (USD/JPY)

Rebecca Duthie Rebecca Duthie 18.10.2022 15:31
Summary: Markets are betting on a 90% chance that ECB will enforce another 75bp hike. GBP's impressive run came to an abrupt end. JPY dropped to lows last seen in August 1990. ECB seems limited in their options The market is reflecting bullish signals for this currency pair. The European Central Bank (ECB)'s are limited in their options in light of the most recent CPI reading. The ECB's case for continuing to raise rates in pursuit of its 2% target may be strengthened by today's stronger ZEW statistics. The concern is that by doing this, the central bank could risk sending the economy back into a recession, which would be indicated by the dropping ZEW current conditions print. On the other hand, if the central bank does nothing, the euro may lose further ground to the dollar. The final CPI report on Wednesday and today's data print will be crucial as the ECB begins its pre-meeting blackout period on Thursday. As the central bank works to achieve its 2% target, markets are putting in a 90% chance that there will be another 75bp increase at the meeting next week. We will hear from ECB policymaker Isabel Schnabel later in the day. She is anticipated to maintain the rhetoric of rate increases despite the fragility of the Eurozone economies. EUR/USD Price Chart Concerns in UK bond markets The market is reflecting mixed sentiment for this currency pair. Following some fresh concern in the UK bond markets on Tuesday, the British Pound's impressive run came to an abrupt end. Following the Bank of England's forced denial that it would further delay its program of quantitative tightening, UK gilts declined and the yield they offered increased. After the recent instability in the bond market, The Financial Times reported on Tuesday that the Bank was prepared to postpone the program. After reaching a high of 1.1576 earlier in the day, the exchange rate between the British pound and the euro dropped to 1.1490. This brings the rates for bank transfers to around 1.1260 and the prices provided by payment specialists to around 1.1450. EUR/GBP Price Chart JPY continues to lose against the USD The market is reflecting bullish signals for this currency pair. Earlier in the session, the Japanese Yen dropped to lows last seen in August 1990 as it continues to lose value against the US dollar. Little has changed for the Yen as Japanese authorities appear ready to allow the currency to continue to decline by controlling bond yields. The yield on 10-year JGBs is restricted to 0.25%. In contrast, as the Fed keeps raising interest rates, US Treasury yields continue to trade at or close to multi-year highs. The benchmark 10-year UST is quoted with a yield of 4.00%, which is approximately 375 basis points higher than the comparable JGB. The rate-sensitive 2-year UST trades with a yield of about 4.45%. USD/JPY Price Chart Sources: finance.yahoo.com, poundsterlinglive.com, dailyfx.com
The GBP/USD Pair Did Not Reach The Nearest Target Level Of 1.2259

GBP CPI Inflation (YoY) Came In Hotter Than Expectations

8 eightcap 8 eightcap 19.10.2022 08:25
Summary: GBP September 2022 YoY inflation, beat market expectations. Affect on the GBP. GBP CPI Inflation The market has predicted a CPI YoY inflation figure of 10%, the actual data came in at 10.1%, which was hotter than expected by the market. The inflation reading is likely to set off expectations on the future interest rate hiking path of the Bank of England (BoE). The higher than expected inflation reading is likely to set investor confidence in the direction of a continuing hawkish BoE interest rate hiking cycle, causing investor confidence in the GBP to increase and therefore strengthening the pound sterling currency. Following some fresh concern in the UK bond markets on Tuesday, the British Pound's impressive run came to an abrupt end. Following the Bank of England's forced denial that it would further delay its program of quantitative tightening, UK gilts declined and the yield they offered increased.  This is the procedure through which it sells the gilts it acquired as part of its quantitative easing strategy back to the market. A crucial element of the Bank's strategy for normalizing monetary policy as it battles inflation is quantitative tightening. After the recent instability in the bond market, The Financial Times reported on Tuesday that the Bank was prepared to postpone the program. Effect of the CPI reading on the GBP It is no secret that the pound sterling has had a tough year on the forex markets. The near-term outlook for the pound has significantly improved, according to foreign exchange strategists at BMO Capital, and more gains are possible if the UK leadership is changed in the next two weeks. The Kwarteng catastrophic "mini-budget" in September, which offered the largest tax cuts in 50 years at a time when the U.K. economy is already experiencing significant inflation, is blamed by the government for the turmoil the pound sterling is currently experiencing. The Bank of England had to step in to prevent the collapse of a significant portion of the U.K. pension system after Kwarteng's actions drove the pound to an all-time low against the dollar and set off a sell-off in government bonds. The initial market reaction showed a weakening in the GBP/USD currency pair, and a strengthening in the EUR/GBP currency pair as investors weigh GBP prospects. Sources: poundsterlinglive.com, investing.com
The EUR/JPY Pair Is Likely To Approach The Uptrend Line

Warnings From Japanese Officials About The Intervention Kept Investors Aside

TeleTrade Comments TeleTrade Comments 19.10.2022 09:18
EUR/JPY has pursued consolidation ahead of possible BOJ intervention. Japan officials have warned risks of deflation due to global demand shock. According to a Reuters poll, the ECB is set to announce a 75 bps rate next week. The EUR/JPY pair is hanging around 147.00 after a mild correction from a fresh seven-year high at 147.25. The asset is expected to pursue a rangebound structure as investors are awaiting fresh developments on the Bank of Japan (BOJ)’s intervention plans in the currency market to support yen against speculative forex moves. Continuous warnings from Japan’s officials of potential intervention have kept investors on the sidelines as the supportive move for Japan will trigger volatility in the yen-linked FX pair. Chatters over possible BOJ’s intervention heated after the Japanese yen fell to its record lows near 150.00 against the dollar in the past 32 years. On Wednesday, Japan’s Finance Minister Shunichi Suzuki, and BOJ’s Governor Haruhiko Kuroda crossed wires, citing that Japan's economy is vulnerable to external demand shock, which could tip it back to deflation. This clears the fact that the concept of policy tightening is far from thought. This week, Japan’s Consumer Price Index (CPI) data will remain in the spotlight. As per the projections, the headline CPI could move to 3.1% vs. the prior release of 3.0%. While the core CPI could accelerate to 2% against the former print of 1.6%. On the Eurozone front, the odds for a bigger rate hike by the European Central Bank (ECB) are skyrocketing. A Reuters poll on ECB’s rate hike extent states that ECB President Christine Lagarde will step up the interest rates by 75 basis points (bps) on October 27. As the European Harmonized Index of Consumer Prices (HICP) is trading at 5x than the targeted rate of 2%, efficiency in policy tightening is highly required.
TEST

Dow Jones Increased Overnight, GBP Could Rally If UK Leadership Changed

Rebecca Duthie Rebecca Duthie 19.10.2022 11:27
Summary: Dow Jones futures all increased overnight as investors focused on Netflix (NFLX). The near-term outlook for the pound has significantly improved. Dow Jones Index Rally The S&P 500, Nasdaq, and Dow Jones futures all increased overnight as investors focused on Netflix (NFLX) subscriber growth and anticipated Tesla earnings. The effort at a stock market rally extended advances on Tuesday, but the session ended well below highs. Although the market rise is still going strong, nothing yet has been proven. Investors should exercise caution and pay great attention. In Q3, Netflix's subscriber growth was substantially stronger than anticipated, and the leader in streaming TV is optimistic about Q4 subscribers. Earnings also exceeded expectations. The rise in Netflix's shares suggested a breakout. Overnight, Roku (ROKU) and Disney (DIS) both increased. In comparison to fair value, Dow Jones futures gained 0.6%, with DIS stock contributing a slight gain. Futures for the S&P 500 rose 0.7%. Futures for the Nasdaq 100 rose 1.4%. United Airlines and NFLX stock both make up the S&P 500 and Nasdaq 100. DJI Price Chart GBP could rally in the wake of UK leadership change The near-term outlook for the pound has significantly improved, according to foreign exchange strategists at BMO Capital, and more gains are possible if the UK leadership is changed in the next two weeks. They claim that such a development is very plausible. The call follows the dramatic about-face in UK fiscal policy that newly-installed Chancellor Jeremy Hunt revealed. In order to fully restore market confidence in the UK government and finances, Hunt undid all of his predecessor's tax cuts. This was followed by a decline in UK gilt yields and a rise in the value of the pound. The reversal was unavoidable given that the world markets recoiled at the generosity of the new prime minister Liz Truss' economic plans, which called for large tax cuts that would be paid for by borrowing.
The EUR/USD Pair Is Showing A Potential For Bearish Drop

Eurozone Inflation Hits 9.9%, It's The Highest Level In More Than 25 Years!

Conotoxia Comments Conotoxia Comments 19.10.2022 15:26
While consumer inflation seems to be slowing down in the United States, looking at the CPI measure, the opposite is true in the Eurozone or the United Kingdom. Price growth continues to accelerate, according to data released today. What is the inflation rate in Europe? The annual inflation rate in the eurozone rose to 9.9 percent in September 2022, up from 9.1 percent a month earlier. This is the highest inflation rate since measurements began in 1991. Inflation has thus moved further away from the European Central Bank's 2 percent target, which may cause policymakers to continue tightening monetary policy despite the risk of recession. The main upward pressure for eurozone prices came from the energy sector (40.7 percent versus 38.6 percent in August), followed by food (11.8 percent versus 10.6 percent), services (4.3 percent versus 3.8 percent) and non-energy industrial goods (5.5 percent versus 5.1 percent). Annual core inflation, which excludes volatile energy, food, alcohol and tobacco prices, rose to 4.8 percent in September. On a monthly basis, consumer prices rose 1.2 percent, Eurostat reported. Source: Conotoxia MT5, EUR/USD, H4 Prices in the UK are also rising The UK's annual inflation rate rose to 10.1 percent in September 2022 from 9.9 percent in August, returning to the 40-year high reached in July and beating market expectations of 10 percent, trading economics reported. The biggest contributor to the increase was food, which became more expensive by 14.8 percent. Costs also rose sharply for housing and utilities, as they rose by as much as 20.2 percent, mainly, due to soaring electricity or gas prices. In contrast, core inflation on an annualized basis, which excludes energy, food, alcohol and tobacco, rose to a record 6.5 percent, compared to expectations of 6.4 percent, according to data from the Office for National Statistics. Source: Conotoxia MT5, GBP/USD, H4 High inflation in Europe - central banks with no way out? High inflation may not give much room for further action by central banks in the context of executing the so-called pivot, i.e. a turnaround in the current monetary policy, which consists mainly of interest rate hikes. Further price increases could seal further interest rate hikes in the Eurozone or the UK, which in turn could affect household budgets, but also company valuations. Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
The EUR/USD Pair: There Are Still No Sell Signals

It's Unbelievable That Eurozone Inflation Is That Close To The Level Of 10%

ING Economics ING Economics 19.10.2022 15:48
The final estimate of eurozone inflation has been adjusted down from 10% to 9.9%. When looking at the details there's little to be optimistic about. But the chances of peak inflation happening soon are increasing Monthly developments in inflation are concerning Inflation of 9.9% in the eurozone in September marks a huge jump from the 9.1% seen in August. We discussed our first thoughts on the reading here. Now that more detail has been released, let’s see whether there are any positive signs of inflation turning around. Let’s look at monthly developments, which we judge on a seasonally-adjusted basis to allow for month-on-month comparisons (seasonal adjustments are our own). The one bright spot was goods inflation, which fell on a seasonally-adjusted monthly basis from 0.8% to 0.3%. Other than that, jumps in services and food inflation stand out. Energy inflation continues to be too high as well, so the broad conclusion is that inflation remains far too high across all broad categories. Monthly inflation came in hot again as most categories saw prices grow faster than in August Seasonal adjustment from ING Research Source: Eurostat, Macrobond, ING Research   Looking somewhat deeper under the hood, we see that the jump in September was mainly driven by the end of the German €9 ticket for public transport as most other services saw stable price growth compared to last month. Package holidays’ inflation was elevated over the summer but dropped back in August and September, while other categories have been fairly stable (albeit at rates that are far too high). So, next month is likely to see slower services inflation on a monthly basis. Services inflation was driven by the reversal of the €9 public transport ticket in Germany Seasonally adjusted by ING Research Source: Eurostat, Macrobond, ING Research It's far too early to call peak inflation, but chances of a peak soon are increasing Energy inflation saw another uptick in both fuel and electricity and gas categories on a monthly basis due to the bounce back in oil prices and pass-through to the consumer of the August peak in gas prices. For the months ahead, the energy price declines of recent weeks are very welcome for the overall economy, but the question is how quickly that feeds through to consumer prices. Do expect some relief of course as year-on-year growth in spot prices for natural gas has turned negative this month, while it was still 192% in September and 425% in August. We also see declining futures prices, albeit at a slower pace. Annual growth in fuel prices is also steadily dropping, from 15% in September to 11% in October. Energy inflation remains high, but drop in market gas prices should provide some relief Base effects will be more favourable in October and November. The monthly increase in the index last year was strong at 0.7% and 0.8%, which will drop out of the calculations this month. That should add to some relief. But on the other hand, steady increases in food and core inflation are unlikely to be reversed quickly so not too much is expected from the upcoming inflation reading. While we see encouraging news from the energy side, there is too much uncertainty about key drivers of price, such as geopolitical developments and weather, to call peak inflation at this point. Also, core inflation drivers show only modest improvements at this point, so we’re cautious about an immediate peak there too. Still, the current improvements on the energy side should provide some relief for the moment and as strong base effects are fading and price caps are discussed, chances of an inflation peak soon are increasing. Read next: Apple’s New Products | Goldman Sachs’ Results | In Amazon Rejected A Unionization| FXMAG.COM Read this article on THINK
ECB Likely To Remain Hawkish (EUR/USD), U.K CPI Inflation Returns To Double Digits (EUR/GBP), BoJ Unbothered By Weak Yen (USD/JPY)

ECB Likely To Remain Hawkish (EUR/USD), U.K CPI Inflation Returns To Double Digits (EUR/GBP), BoJ Unbothered By Weak Yen (USD/JPY)

Rebecca Duthie Rebecca Duthie 19.10.2022 18:54
Summary: Eurozone CPI inflation missed double digits. UK inflation increased from 9.9% to 10.1%. USD/JPY has positive carry. Eurozone inflation beat market expectations The market is reflecting mixed signals for this currency pair. The data, which narrowly avoided the 10% inflation mark as compared to September of last year, would undoubtedly support the recent hawkish stance taken by senior ECB members. Centeno and Visco, two ECB members, will get the chance to comment on the most recent inflation data later today as ECB talk is expected to slow down before the required blackout period prior to Thursday's rate decision. There is a new significant market driver in town as the US is currently in earnings season. This will highlight a variety of subjective factors because what US company executives say can start to shape expectations for future quarters' results. The key question at this time is how the sudden and sharp spike in rates has affected businesses. EUR/USD Price Chart EUR/GBP limped temporarily The market is reflecting bullish signals for this currency pair. After Office for National Statistics data indicated that inflation increased more than anticipated in September, the Pound Sterling temporarily limped against the Dollar and the Euro. However, this outcome does little to deter the Bank of England (BoE) from raising interest rates aggressively in November. In September, UK inflation increased from 9.9% to 10.1%, defying the expectation of economists who had expected the annual rate of price growth to exceed 10% for the previous month. EUR/GBP Price Chart USD/JPY remains positive The market is reflecting mixed signals for this currency pair. The carry is still positive for the USD/JPY currency pair, and it will continue to be so as long as US interest rates are still rising and Japanese monetary policy is as it is. A weak Yen isn't all that awful for Japan, and it doesn't seem to be causing much concern at the central bank, according to BoJ Governor Kuroda. However, since the intervention was requested by the Ministry of Finance late last month, the same cannot be stated there. There is a new significant market driver in town as the US is currently in earnings season. This will highlight a variety of subjective factors because what US company executives say can start to shape expectations for future quarters' results. USD/JPY Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
Euro to US dollar - Ichimoku cloud analysis - 21/11/22

ECB Is Said To Hike The Rate By 75bp Next Week, But The Decision Isn't Everything

ING Economics ING Economics 20.10.2022 09:24
A 75bp hike looks like a done deal but the European Central Bank has a lot on its plate at its October meeting. Quantitative Tightening talks are premature but it will seek to mop up bank liquidity. Rates, sovereign and money market spread upside dominates with the 10Y Bund set to test 2.5%. None of this should be enough to support the EUR President of the European Central Bank (ECB) Christine Lagarde Source: Shutterstock Too optimistic growth forecast no obstacle to a 75bp hike When the ECB meets again next week, it looks as if the entire Governing Council could start humming the old Depeche Mode song “I just can’t get enough” as a choir. The hawks have clearly convinced the few doves left of the necessity to go big on rate hikes again. Contrary to the run-ups to the July and September meetings, there hasn’t been any publicly debated controversy on the size of the rate hike. In fact, ECB President Christine Lagarde seems to have succeeded in disciplining a sometimes very heterogeneously vocal club. The hawks have clearly convinced the few doves left of the necessity to go big on rate hikes again The economic backdrop of next week’s meeting has hardly changed from September. Confidence indicators have continued to drop, while hard data points at a very mild contraction of the eurozone economy in the third quarter. If anything, the ECB’s September growth projections that looked already very optimistic six weeks ago have become even less likely. Needless to say that the outlook for the eurozone economy is surrounded by an extremely high degree of uncertainty. The precise pass-through of higher energy and commodity prices on growth and inflation and the precise fiscal policy reaction are crucial but also very unclear determinants of eurozone growth and inflation in the coming months. A lot on the ECB's plate besides hikes At the current juncture, the ECB has turned a blind eye on recession risks but is highly determined to bring down inflation and inflation expectations. To this end, it is hard to see how the ECB cannot move again by 75bp at next week’s meeting. As the 75bp rate hike looks like a done deal, all eyes will also be on other, more open, issues: excess liquidity, quantitative tightening and the terminal interest rate. As regards excess liquidity, this seems to be the most pressing topic for the ECB and a solution could already be announced next week. Basically there are two possible options: reinstating a tiering multiplier or an ex post change of the terms of the targeted longer-term refinancing operations (TLTROs) in order to trigger early repayments. We think that reinstating a tiering multiplier would be the easiest option. Changing the TLTRO terms could hit the ECB’s credibility and would lead to reluctance of banks to ever make use of the TLTROs in the future again. As regards quantitative tightening, we think that markets have got ahead of themselves. Even if the discussion might have started at the ECB, with current financial stability risks, the recent UK experience and a very uncertain macro outlook, QT is still some way out. Christine Lagarde mentioned several times that interest rates would first have to be brought to their normal or neutral levels before any QT could start. Any QT would rather be an end to reinvestments than actively selling bonds. As we still see that end of the ECB’s rate hike cycle in the first quarter of next year, a gradual phasing out of the reinvestments under the Asset Purchase Programme (APP) could start in Spring 2023, at the earliest. As regards the level of the terminal rate, French central bank governor Francois Villeroy de Galhau said in an interview with the Financial Times that the ECB could “go quickly” to a deposit rate of 2% by year-end. ECB chief economist Philip Lane made similar comments, indicating that the ECB currently sees the neutral interest rate slightly above the common range of between 1% and 2%. We don’t expect a clear communication on where the terminal interest rate could be but see a growing consensus at the ECB that at least the neutral rate is currently a deposit rate of around 2%. This fits into our ECB call of another 50bp rate hike in December and 25bp in February before pausing as there is a high likelihood that already at the December meeting the ECB’s inflation forecasts for 2024 and 2025 will point to a return to price stability. Interestingly, since the start of the year, the ECB surprised to the hawkish side at every single meeting. Next week’s meeting could be the first one without such a surprise as the ECB has finally managed to guide market expectations. A 75bp rate hike looks like a done deal and the reinstatement of a tiering multiplier could be the first answer to tackle excess liquidity. The ECB can simply not get enough of hiking rates aggressively. 10Y Bund and swap rates won't turn before inflation starts declining Source: Refinitiv, ING Rates: upside risk dominates for now High rates volatility, and the underlying uncertainty about the growth and inflation outlooks, don’t allow investors to focus on the long-term picture. We think there is sympathy with the view that the ECB’s hiking cycle will be stopped in its tracks by the looming recession, we doubt many market participants are able to position for it. All this is to say, near-term upside risk dominates and will dominate as long as investors haven’t seen tangible evidence of a downtrend in inflation. This puts 10Y Bund and EUR swaps within touching distance of 2.5% and 3.4% respectively before year-end. 10Y Bund and EUR swaps are within touching distance of 2.5% and 3.4% respectively before year-end With talk of QT, withdrawing bank liquidity, and front-loaded hikes, the ECB is piling risks on financial markets. The debacle in the gilt market in recent weeks should serve as a cautionary tale and is another reason for investor caution. Sovereign spreads have remained relatively stable in a context of elevated rates volatility and QT chatter, all this as Pandemic Emergency Purchase Programme (PEPP) bi-monthly data showed minimal market intervention in August and September. An accelerated timetable for QT would provide the impetus needed for the 10Y Italy-Germany spread to break above the fateful 250bp line. Even with all that’s going on in long-dated interest rates, the action will probably be in money markets after the meeting. Whatever option the ECB retains to cause a repayment of TLTRO loans, the result will at least be a reduction in liquidity and greater sensitivity of money market rates to credit and sovereign spreads. Tiering, the most likely of these options, could have longer-lasting effects, ranging from easing collateral pressure in the best of cases, to differentiated pass-through of interest rates if not designed properly. Money market and sovereign spreads aren't pricing ECB balance sheet reduction yet Source: Refinitiv, ING A strong euro is a welcome – but unlikely – development While it’s true that the ECB has consistently surprised on the hawkish side in the past few meetings, the positive impact on the euro have been null. As shown in the table below, EUR/USD mostly weakened in the six hours following the last five ECB announcements.   Source: ING, Refinitiv We doubt there will be much support to the euro after the October announcement, even if the ECB attaches a hawkish message to a 75bp rate hike, as: 1) EUR/USD beta to short-term rate differentials has remained low; 2) markets have remained structurally pessimistic on the eurozone’s domestic outlook despite the recent drop in gas prices; and 3) the Fed’s hawkishness continues to fuel a strong dollar. Attempts by the ECB to lift the euro through more tightening should still be unsuccessful in the near term and we continue to target 0.92 as a year-end value in EUR/USD, with any upside correction proving only temporary. Read this article on THINK TagsInterest Rates Foreign exchange ECB meeting Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
The CNY Is Expected To Strengthen Against The Dollar As The Economy Picks Up And The US Enters A Recession

People's Bank of China Loan Prime Rate Stays Unchanged | A Softer Labour Market In Australia |Eyes On The US - Philly Fed Manufacturing Index

Kamila Szypuła Kamila Szypuła 20.10.2022 10:56
This morning, reports from Asia and the Pacific appeared. Traders also are now looking at macro data from the US - Philly Fed Manufacturing Index, the usual weekly data on initial unemployment claims, and data on existing home sales. Japanese Trade Balance (Sep) Japan provided data on exports and imports, and thus on its balance sheet, at the start of the day. The current reading is positive and shows an improvement in the trading result. The current reading is higher than the pronosed -2.167.4B and is at the level of -2.094.0B. For more than a year, Japan has been importing more than exporting, and since May the situation has worsened significantly. The balance then decreased from the level of -842.8B to the level of -2,384.7B. In the following months, the result was above the level of 1,000.0B. This situation is unfavorable for the country, so the current positive reading has a significant impact on the Japanese currency (JPY). Source: investing.com This positive trade result was largely influenced by the positive export performance. The published report shows that exports increased from 22% to 28.9%. He was taller than expected. This is the lowest result during the year. Source: investing.com Australia labor maket reports Australia today presented the result on the appearance of the labor market. The number of employees and the unemployment rate are instances of the country's conditions in this sector. Despite a rebound from the negative area in the previous reading, the number of people employed in September fell to 0.9K. The index scores for the year are generally in a downward trend. The decline will begin in the first half of the year, and the lowest level was in April at 4.0K. It then doubled and the annual peak was at 88.4K. The unexpected drop below zero occurred in the month following the highest score. Therefore, the positive reading from the previous period was significant for the economy. The current reading may weaken not only the economy but also the Australian dolar (AUD). Source: investing.com People's Bank of China Loan Prime Rate The positive news for the Australian labor market is that the unemployment rate remains at 3.5%. Another reading showed that this indicator holds up once again. People's Bank of China Loan Prime Rate will remain at 3.65% for the third time. EU Leaders Summit The most important event of the day for europe is Leaders Summit . The Euro Summit brings together the heads of state or government of the euro area countries, the Euro Summit President and the President of the European Commission. This meetings provide strategic guidelines on euro area economic policy. The comments made at this meeting may give a signal about future decisions, which at the moment are very important not only for the economy but also for the market. US Initial Jobless Claims Every weekly report on the number of individuals who filed for unemployment insurance for the first time during the past week will appear at 14:30 CET. Another increase is expected. The projected number of applications is at the level of 230K. This means that the indicator will be in an uptrend for the second week in a row. Philadelphia Fed Manufacturing Index The Philadelphia Federal Reserve Manufacturing Index rates the relative level of general business conditions in Philadelphia. The last picture of conditions is negative. It has been at a very low level since May, falling below zero levels. The latest reading was at -9.9, expected to rise to -5.0. This is a small but important improvement in conditions. The general appearance is negative. US Existing Home Sales Another important report for the US market is the change in the annualized number of existing residential buildings that were sold during the previous month. The outlook for this indicator is pessimistic. The number is expected to drop from 4.80M to 4.70M. Despite the economic situation, the index remained above 5.0M for a significant part of this year. The first drop below this level took place in July (4.81M). In August, it fell slightly to the level of 4.80M. Another decline may signal a deepening of the downward trend. This means that home sales deteriorate significantly. Source: investing.com Summery 1:50 CET Japan Exports (YoY) (Sep) 1:50 CET Japan Trade Balance (Sep) 2:30 CET Australia Employment Change (Sep) 2:30 CET Australia Unemployment Rate (Sep) 3:15 CET PBoC Loan Prime Rate 12:00 CET EU Leaders Summit 14:30 CET US Initial Jobless Claims 14:30 CET Philadelphia Fed Manufacturing Index (Oct) 16:00 CET US Existing Home Sales (Sep) Source: https://www.investing.com/economic-calendar/
The Fed Needed To Get Rates Above 5% Sooner Rather Than Later

Rising Fed Fund Rates Offer US Dollar Support (EUR/USD), UK Retail Sales Data Came In Hotter Than Expected (EUR/GBP, GBP/JPY)

Rebecca Duthie Rebecca Duthie 21.10.2022 19:30
Summary: Rising Fed funds rate estimates have benefited the dollar. U.K retail sales data. JPY rallied on Friday. USD supported by hawkish fed The market is reflecting bullish signals for this currency pair. Throughout the past week, the EUR/USD pair has struggled to find any definitive direction, and this morning was no exception. As bulls and bears continue their conflict, the pair has stayed largely range bound because next week will bring a number of important data events. Since last week's US CPI reading, the pair had experienced a rally, but this week's return of the dollar bulls has stopped any effort at an upward rise. Rising Fed funds rate estimates have benefited the dollar, with markets now projecting a peak rate of roughly 5%, up from 4.75% last week. As a result of this as well as rising Treasury yields, investors have continued to view the dollar as their favorite haven, keeping it strong. EUR/USD Price Chart GBP struggles as UK Retail Data misses market expectations The market is reflecting bullish signals for this currency pair. After Office for National Statistics (ONS) statistics revealed that UK retail sales collapsed in September, the pound fell into the week's final session, effectively wiping out more than two years of gains made since the first coronavirus-inspired closure of the economy in 2020. When measured by the number of products purchased, retail expenditure declined by 1.4% in September. This was a far worse decline than the -0.5% consensus estimate and came along with a downward revision to the ONS estimate for August sales growth, which was restated as -1.7%. EUR/GBP Price Chart JPY rally supporting GBP The market is reflecting bullish signals for this currency pair. A stunning Japanese Yen surge that seemed to be the catalyst for a market-wide decline in Dollar exchange rates, which was then followed by rumors of direct involvement from the Tokyo government and Bank of Japan (BoJ). The Yen appreciated by over five huge figures versus the dollar, which had previously run roughshod over all other currencies, while the Pound Sterling, which had been mired in the red, saw a notable rally against it late on Friday. GBP/JPY Price Chart Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com
Interest Rates In Eurozone Will Continue To Increase In The Coming Meetings

Will The European Central Bank’s (ECB) Interest Rate Decision Meet Market Expectations?

Kamila Szypuła Kamila Szypuła 22.10.2022 10:18
In the current situation, the ECB turns a blind eye to the risk of recession, but is very determined to bring down inflation and inflation expectations. To that end, it is hard to imagine how the ECB could not raise rates again. The economic outlook The economic situation is not looking very good in Europe and the euro area. Recent data showed a worsening picture of the situation. Many experts believe that the region may face a serious recession in the near future. Also the attempts by the ECB to raise the euro exchange rate through further tightening should continue to be ineffective in the near future. The economy is expected to stagnate in the first quarter of 2023. Very high energy prices reduce the purchasing power of the population's income. Moreover, Russia's unjustified aggression against Ukraine continues to undermine the confidence of entrepreneurs and consumers. The steady rise in prices in Europe is making households and businesses prepare for even greater pressure in the coming months. Previous date Economic difficulties have arisen since the start of the covid-19 pandemic. The persistent threats caused by the pandemic continue to pose a threat to the smooth transmission of monetary policy. Nevertheless, the European Central Bank did not manage to raise interest rates at that time and for a long time the rate was at 0.0%. The situation regarding interest rates changed after the second quarter of 2022. Inflation rose sharply, and other macroeconomic data were also not optimistic. For this reason, the ECB decided to raise rates by 50 bp. The first rate hike was expected to be milder, the forecast was at 0.25%. Another hike was also hawkish. And now the rate is 1.25%. It’s true that the ECB has consistently surprised on the hawkish side in the past few meetings, but the positive impact on the euro have been null. Source: investing.com What to expect? The economic background has hardly changed since September. Confidence indicators continue to decline, while data for the third quarter point to a very mild contraction in the eurozone economy. Needless to say, the outlook for the euro area economy is surrounded by an extremely high degree of uncertainty. Price pressures across the economy continued to strengthen and widen, and inflation may increase further in the near term. It is believed that the peak of inflation is close, but the economic situation will depend on the situation related to Russia's invasion of Ukraine. The Governing Council stands ready to adjust all instruments to ensure that inflation stabilizes at the 2% target. Finally, the ECB managed to lead the market expectations and next week's meeting may be the first without such a surprise. According to the minutes from the previous meeting, policy makers at the European Central Bank (ECB) were concerned that inflation might be stuck at a high level, so aggressive tightening was necessary. We can expect that this mood will also replicate at the next week's meeting. The September hike of the ECB by 75bp was expected by the markets, and now it expects that its next move in politics, planned for October 27, will be similar. Contrary to the preparations for the July and September meetings, there was no public controversy about the size of the rate hike. Source: investing.com, ecb.europa.eu
US Dollar Index May Confirm A Potential Bullish Trend Reversal

Without US Support, Currency Interventions Are Doomed To Failure

InstaForex Analysis InstaForex Analysis 23.10.2022 09:44
What doesn't kill makes us stronger. No matter what the Federal Reserve's rival central banks try to rein in the US dollar, it still blooms. It would seem that high inflation-induced rate hikes in other countries outside the US should have cooled the ardor of the bulls on the USD index. It wasn't there! One piece of information about the acceleration of consumer prices in New Zealand, Britain and Canada was enough for the greenback to launch a new attack. The same can be said about foreign exchange interventions. In conditions of low external demand and the highest inflation in decades, the interest in reverse currency wars, thereby strengthening rather than weakening the national currency, is understandable. As well as the dissatisfaction of governments with the fall of its exchange rate. Alas, intervention in the life of Forex does not help. Large-scale long positions on the yen managed to stop the USDJPY pair at 146 for just a few days, after which it rose to 151. At the same time, the experience of foreign exchange interventions with USDJPY in 1998 and 2011, with EURUSD in 2000, with GBPUSD in 1992 was also negative. A coordinated intervention is required, like the Plaza Accord in 1985. Dollar pairs react to coordinated intervention The problem is that the conditions then and now are significantly different. In those years, the Fed defeated high inflation and could afford the weakening of the US dollar. Today, the central bank still has a lot to do before consumer prices begin to move confidently towards the target. In addition, Finance Minister Janet Yellen notes that market-determined exchange rates are the best regime for the US dollar. Its strengthening is the result of differences in economic policies and the shocks that countries face. Without US support, currency interventions are doomed to failure. You don't need to go far for an example. Japan threw money to the wind, trying to support the yen diving into the abyss. Its interference in the life of Forex only made the situation worse. Gold and foreign exchange reserves were used to sell USDJPY. It was necessary to get rid of US Treasury bonds, which led to an increase in their yields and further strengthened the dollar. Dynamics of US Treasury Bond yields Rates on 10-year securities have reached the highest level since 2007. The situation resembles the events of those years, and investors are beginning to argue that only an increase in profitability to 5-5.25% will allow the indicator to reach a plateau. Until this happens, the US dollar will continue to sweep away everything in its path. No matter how hard its opponents try, raising rates or using currency interventions. Only the European Central Bank is able to suspend the fall of EURUSD. Its meeting is rightly regarded as a key event of the economic calendar in the last full week of October. Technically, the EURUSD peak continues on the daily chart. We hold the short positions formed from the 0.9845 and 0.9815 levels and increase them on the breakout of support at 0.97. The initial target is the 0.95 mark.     Relevance up to 15:00 2022-10-26 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/324997
The Outlook Of EUR/USD Pair For Long And Short Position

The Eurozone Economy Is Facing A Deep Recession

InstaForex Analysis InstaForex Analysis 23.10.2022 09:49
The USD/JPY pair was storming the 151.00 mark (we wrote about this in our previous review), gold is falling in price, and the dollar continues to advance. When this article was written the DXY dollar index was near 113.34, remaining in the upper part of the range formed between the local support and resistance levels of 114.74 and 109.96. At the same time, the general upward dynamics of the dollar remains, pushing the DXY index towards more than 20-year highs near 120.00, 121.00. The breakdown of the local round resistance levels of 114.00, 115.00 will be a signal that the DXY index will return to growth. On Thursday, the dollar received support from statistics on the labor market: in its weekly report, the US Department of Labor reported a decrease in the number of initial applications for unemployment benefits (for the week of October 14) to 214,000 thousand (from 226,000 a week earlier ), which is better than economists' expectations of an increase to 230,000. The state of the labor market (together with data on GDP and inflation) is a key indicator for the Federal Reserve in determining the parameters of its monetary policy. The drop in the indicator (the number of initial and secondary claims for unemployment benefits) and its low value is a sign of a recovery in the labor market and has a short-term positive impact on the USD. There were no important macro statistics for the US on Friday. It will appear next week (for more details, see Key economic events of the week 10/24/2022 – 10/30/2022). Also next week, meetings of the three largest world central banks will be held at once: Japan, Canada, the eurozone. As for the latter, its leaders are, in general, set up for another interest rate hike. As expected, at a meeting on Thursday, European Central Bank leaders will again raise the level of key interest rates, by 0.50% or even 0.75%. According to the final estimate, annual inflation in the eurozone in September amounted to 9.9% (below the first estimate of 10.0%). Core annual CPI rose by +4.8%, which is in line with the forecast and the previous 4.8%. According to Eurostat, annual inflation fell in six of the bloc's member states, remained stable in one and rose in twenty. A recent media poll of economists showed that they expect the ECB to raise its deposit and refinancing rates by 75 bps (deposits to 1.50% and the refinancing rate to 2.00%) at the October 27 meeting to contain inflation exceeding the target level by five times. By the end of the year, deposit and refinancing rates are forecast to be 2.00% and 2.50%, respectively. At the same time, the ECB is in a difficult situation as the eurozone economy is facing a recession, with the probability of its onset within a year, and the nature of the recession can be deep and long, given the military conflict in Ukraine and confusion in the European energy market. Despite information from the previous EU leaders' summit, which "managed to reach a common agreement on energy security" with the prospect of creating a cartel of European gas buyers that would deal with the purchase and subsequent distribution, the shortage of gas and oil in Europe will continue to drive inflation. Whether the ECB, which is moving so far with cautious steps, will be able to cope with it is a question that remains open. As for the EUR/USD pair, at the time when this article was written on Friday morning, it was trading near the 0.9740 mark, in the area of a stable bear market. From a fundamental point of view, we should expect at least a strong bearish momentum in the EUR/USD pair, and at a high, a further fall of the pair towards 20-year lows, when it was trading near 0.8700, 0.8600. In general, the downward dynamics of EUR/USD remains.   Relevance up to 13:00 2022-10-26 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/324985
The Upward Trend Of The EUR/USD Pair Is Still Present

Geopolitics And The Euro (EUR) Situation Are Expected To Deteriorate

InstaForex Analysis InstaForex Analysis 23.10.2022 09:57
Long-term perspective. The EUR/USD currency pair gained 140 points during the current week. We can say that this is one of the best weeks for the euro in recent times, although this growth is very difficult to consider on a 24-hour TF. But on this TF, a global downward trend immediately catches the eye, within which strong corrections are still rare. However, it would be correct to say there are none. As we have already said, over the past 1.5–2 years, the euro currency has shown corrections of a maximum of 400–450 points. And the whole downward trend already exceeds 2500 points. And, of course, it is worth noting that it has been three weeks since the price last updated its 20-year lows, and the pair is still close to these lows. The beginning of an upward trend does not even "smell." Thus, the technical picture does not change. Therefore, it can be assumed that the fundamental and geopolitical backgrounds do not change either. And this is not just an assumption. It is an objective reality since the "foundation" now remains the same as it was a month ago, two months ago, and three months ago. The Fed is also raising interest rates aggressively and is prepared to do so "to the bitter end." The ECB is also simply raising the rate and is already thinking about reducing it because many EU countries may be unable to cope with tight monetary policy. The Fed rate has long been higher than the ECB rate, and the gap between their values may only increase in the coming months. When the Fed ends the rate hike cycle, a "high rate period" will begin, during which monetary policy will not change. Thus, the Fed's monetary policy may remain much tougher than the ECB for another year or two or three. Naturally, this state of affairs will support the dollar. It may not grow all this time, but it will be extremely difficult for the European currency to show tangible growth. COT analysis. COT reports on the euro currency in 2022 can be entered into the textbook as a vivid example. For half the year, they showed a frank "bullish" mood of professional players, but at the same time, the European currency was steadily falling. Then they showed a "bearish" mood for several months, and the euro currency also steadily fell. The net position of non-profit traders is bullish again, and the euro continues to fall. This is happening, as we have already said, because the demand for the US dollar remains very high against the backdrop of a difficult geopolitical situation. Therefore, even if the demand for the euro currency is growing, the high demand for the dollar does not allow the euro currency itself to grow. During the reporting week, the number of buy-contracts from the non-commercial group increased by 6.5 thousand, and the number of shorts decreased by 4 thousand. Accordingly, the net position increased by about 10.5 thousand contracts. This fact does not matter much since the euro remains "at the bottom" anyway. Professional traders still prefer the dollar to the euro currency at this time. The number of buy contracts is higher than sell contracts for non-commercial traders by 48 thousand, but the European currency cannot extract any dividends from this. Thus, the net position of the "non-commercial" group can continue to grow, but it does not change anything. If we look at the general indicators of open longs and shorts for all categories of traders, then sales are 22 thousand more (586k vs. 564k). Thus, according to this indicator, everything is logical. Analysis of fundamental events. There is nothing to note in the European Union this week except for the banal inflation report, which was released in the second assessment for September. Traders expected an increase of 10.0%, but in reality, prices rose only by 9.9% y/y. However, the epithet "only" hardly applies to an ever-growing index. We cannot say that traders were upset about this or, on the contrary, happy. This indicator does not change anything because it cannot affect the ECB's plans in a cardinal way. The European regulator cannot look at the current inflation and decide to raise the rate at each next meeting by 1% to deal with high price growth and not just pretend. There was practically no geopolitical news this week either. Perhaps that is why the euro currency has avoided a new fall. But again, there is no difference since it continues to be near its 20-year lows. Trading plan for the week of October 24–28: 1) In the 24-hour timeframe, the pair resumed their movement to the south. Almost all factors still support the long-term growth of the US dollar. The price is below the Ichimoku cloud and the critical line, so purchases are irrelevant now. It would be best if you waited at least for consolidation above the Senkou Span B line and only considered long positions. 2) The euro/dollar pair sales are still more relevant now. The price formally went above the critical line, but it did not go higher, but the line itself declined, so we expect the fall to continue with a target below the 0.9582 level (161.8% Fibonacci). In the future, if the fundamental background for the euro currency does not improve and geopolitics continues to deteriorate, the euro currency may fall even lower. Explanations of the illustrations: Price levels of support and resistance (resistance/support), Fibonacci levels – target levels when opening purchases or sales. Take Profit levels can be placed near them. Ichimoku indicators (standard settings), Bollinger Bands (standard settings), MACD (5, 34, 5). Indicator 1 on the COT charts is the net position size of each category of traders. Indicator 2 on the COT charts is the net position size for the "Non-commercial" group.   Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/325028
GBP/USD Pair: The Most Active Movements Are Still Ahead

The British Pound To US Dollar (GBP/USD) Pair Maintained A Long-Term Towntrend

InstaForex Analysis InstaForex Analysis 23.10.2022 09:59
Long-term perspective. The GBP/USD currency pair has increased by 40 points during the current week and remained above the critical line on the 24-hour TF. Thus, certain chances of a new upward trend are also preserved. We have already said earlier that the pound has more reasons for growth - technical. At least because it overcame the Kijun-sen line sharply and strongly moved away from its absolute lows. However, this is a double-edged sword. The last fall in the pound sterling might not have happened if not for the tax initiatives of former British Prime Minister Liz Truss. In general, her resignation turned out to be very unexpected since, at the beginning of the week, in an interview with Bloomberg, she said she was going to fight and did not intend to leave her post. We did not believe that she would leave voluntarily, and even so quickly, and we still could not announce a vote of no confidence in her in the near future. Thus, most likely, political pressure was exerted on her. However, all this is history and generally not interesting. Now I wonder who will become the new prime minister. And good old Boris Johnson can become one, as he is currently leading in the amount of support from the Conservatives, according to opinion polls. From the same conservatives who dismissed him a few months ago. The political pun in the Kingdom continues. We need to wait for new elections, but the situation will not change dramatically for the pound sterling. Politics is, of course, interesting and important. As we have seen, the Prime Minister's short-sighted decision can collapse the financial markets. However, Johnson is unlikely to make the same mistake as Truss. And even more so, Rishi Sunak, who served as finance minister under Johnson, will not allow it. But in any case, the pound still has big problems with the grounds for growth. Technically, it can show an upward movement, but will one "technique" be enough for market participants? COT analysis. The latest COT report on the British pound showed a new strengthening of the "bearish" mood. During the week, the non-commercial group closed 8,600 buy contracts and opened 3,400 sell contracts. Thus, the net position of non-commercial traders fell by 12.9 thousand, which is quite a lot for the pound. The net position indicator has been growing slightly in recent weeks, but this is not the first time it has been growing. Still, the mood of major players remains "pronounced bearish," and the pound sterling maintains a downward trend in the medium term. And, if we recall the situation with the euro currency, there are big doubts that, based on COT reports, we can expect strong pair growth. How can you count on it if the market buys the dollar more than the pound? The non-commercial group has now opened a total of 91 thousand contracts for sale and 40 thousand for purchase. The difference, as we can see, is still very big. The euro cannot show growth in the "bullish" mood of major players, and the pound will suddenly be able to grow in a "bearish" mood. As for the total number of open buy and sell orders, the bulls have an advantage of over 25 thousand. But, as we can see, this indicator also does not help the pound much. We remain skeptical about the long-term growth of the British currency, although there are certain technical reasons for this. Analysis of fundamental events. During the current week, only one really important report was published in the UK - on inflation. The consumer price index rose by 10.1% y/y and, as we can see, continues to grow, despite the seven increases in the key rate. Many experts suggest that the rate in the UK should be raised to at least 5% to count on a significant reduction in inflation. But is there an opportunity for BA to raise the rate so high with the current financial and economic problems? From our point of view, no, and the ECB, together with BA, will stop tightening monetary policy in the near future. Or they will greatly slow down its pace. Both can create additional pressure on the pound, as the Fed will continue to accelerate its pace at the same time. In general, the prospects for the pound are bad as usual, and rising inflation does not mean that the British regulator will increase the aggressiveness of the monetary approach. Trading plan for the week of October 24–28: 1) The pound/dollar pair as a whole maintains a long-term downward trend but is located above the critical line. Therefore, small purchases can now be considered as long as they are located above the Kijun-sen. The target is the Senkou Span B line, which runs at 1.1843. There are some reasons for the pair's growth, but there are still many reasons for a new fall. Be careful with your purchases. 2) The pound has made a significant step forward but remains in a position where it is difficult to wait for strong growth. If the price fixes below the Kijun-sen line, the pair's fall can quickly and cheerfully resume with targets of 1.0632–1.0357. Explanations of the illustrations: Price levels of support and resistance (resistance /support), Fibonacci levels – target levels when opening purchases or sales. Take Profit levels can be placed near them. Ichimoku indicators (standard settings), Bollinger Bands (standard settings), MACD (5, 34, 5). Indicator 1 on the COT charts is the net position size of each category of traders. Indicator 2 on the COT charts is the net position size for the "Non-commercial" group.     Relevance up to 10:00 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/325030
An Even More Complex Correction Of The EUR/USD Pair Could Take Place

Recent Reports Have Not Helped The Euro To US Dollar Pair (EUR/USD)

InstaForex Analysis InstaForex Analysis 23.10.2022 10:04
  The US dollar index showed contradictory dynamics this week. Initially, at the start of the five-day trading period, it dropped sharply, returning to the area of the 111th figure. The market unexpectedly increased interest in risk, amid quarterly reports of the largest US banks (in particular, Bank of America and Bank of New York Mellon), which exceeded the expectations of most analysts. After that, the main Wall Street indexes went up, while the safe greenback came under pressure. In addition, on Monday it became known that British Prime Minister Liz Truss canceled the key points of her odious anti-crisis plan, which included large-scale tax cuts. And although this step subsequently did not help her stay in the chair of the head of government, directly "in the moment" it increased interest in risky assets. Against this background, the EUR/USD pair reached 0.9875 (one and a half week price high). However, bulls on the pair were unable to develop an upward trend. On Tuesday, the US dollar index turned around and headed upward again. Throughout the week, including on Friday, the pair had been trading within a wide price range, actually circling in the area of 97-98 figures. Traders reacted reflexively and are reacting to contradictory macroeconomic statistics, mainly from the United States. For example, the greenback reacted positively to the published report in the real estate sector: the volume of construction permits issued in America increased by 1.4% in September after a serious decline in August (-8.5%). At the same time, the volume of housing sales in the secondary market (the release was published the next day) unexpectedly decreased, and immediately by 1.5% (with a forecast decline of 0.8%). The Federal Reserve-Philadelphia Manufacturing Index also turned out to be disappointing, which came out at -8.7 in October. While the growth rate of initial applications for unemployment benefits was at the level of 214,000 (a three-week low). The above-mentioned macroeconomic reports (generally of a secondary nature) could not help – neither the EUR/USD bears nor the bulls. Of course, traders reacted to these reports accordingly, but only formally – literally after a few hours, the downward/upward momentum faded away. Obviously, traders need a more powerful informational occasion that will allow them to either approach the parity level or break through the defense at the base of the 96th figure. For the development of the upward corrective movement, EUR/USD bulls need to settle above the 1.0000 mark, and for the continuation of the downward trend, bears need to go below the 0.9600 target. Current macroeconomic statistics are not able to cope with such tasks. In my opinion, EUR/USD traders can only pin their hopes on larger-scale information campaigns. The vector of price movement will be determined primarily by the level of anti-risk sentiment. By the way, Friday's dynamics of the dollar index eloquently illustrated the current situation. So, during the day, the greenback steadily strengthened its positions throughout the market, but at the start of the US session it weakened sharply: it became known that Russian Defense Minister Sergei Shoigu held telephone talks with US Defense Minister Lloyd Austin. According to Russian media, the parties discussed "topical issues of international security, including the Ukrainian issue." These are the second talks between the heads of defense departments this year (the first were in May). Amid general geopolitical tensions, this news was received by the market "with a bang". However, the growth of the EUR/USD pair was limited. Almost immediately, the press secretary of the president of Russia Dmitry Peskov said that following the conversation of the ministers, "there are no plans for a telephone conversation between Vladimir Putin and Joe Biden." However, this moment highlighted the main idea: traders react sharply to news of a geopolitical nature. A decline in anti-risk sentiment can put significant pressure on a safe greenback - and vice versa, an increase in panic will allow dollar bulls to open a second wind. Also, the tone of trading can be set by representatives of the Fed. But, to the disappointment of the EUR/USD bears, the members of the Fed have not yet decided to voice "ultra-hawkish" comments. In particular, many representatives of the central bank spoke this week – Philip Jefferson, Lisa Cook, Michelle Bowman, Patrick Harker, James Bullard, Charles Evans. In one form or another, they made it clear that the Fed is ready to continue taking steps to curb inflation in the United States. In one form or another, they hinted that they are ready to support a 75-point rate hike in November. But the thing is that even before their speeches, the probability of a 75-point rate hike at the November meeting was estimated at 95%! That is, the market has already largely played this fundamental factor. While the members of the Fed are not yet ready to "increase the degree of heat", allowing, for example, a 100-point increase. They are also not ready to talk about more distant prospects (regarding the November meeting) – according to them, further decisions will be made taking into account incoming data, primarily in the field of inflation and the labor market. Thus, traders of the EUR/USD pair in the medium term will continue to trade in the 100-point price range of 0.9750-0.9850. In my opinion, the downward dynamics will resume over time, but at the moment it is impossible to talk about prioritizing short or long positions. Given the current uncertainty, it is advisable to take a wait-and-see attitude for the EUR/USD pair.     search   g_translate       Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/325008
The ECB Has No Other Options But To Keep Tightening The Monetary Policy

Today There May Be Confirmation Of The Bearish Sentiment Of The EUR/USD Pair

InstaForex Analysis InstaForex Analysis 24.10.2022 08:10
On Friday, the head of the San Francisco Federal Reserve, Mary Daly, said that the high pace of rate hikes is slowing down the economy, this pace needs to be slowed down. As a result, yields on government bonds fell, stock indices rose, and the euro closed the day up 75 points. The quote of the single currency again reached the resistance of 0.9864 and the MACD indicator line. The European Central Bank raises rates on the 27th, but we still doubt the market's willingness to switch so quickly from the Fed's leading role in pricing the euro to the ECB's leading position. Eurozone business activity indicators for October will be released today, and a recession is predicted for them. On the technical side, in order to consolidate the euro in the green, the price needs to go above the descending price channel, marked in green on the daily chart, that is, above the level of 0.9950. Price development above 0.9864 (September 6 low) before breaking 0.9950 in this situation is considered as a false exit above the MACD indicator line. Consolidation below this line may bring the price back to support 0.9724. The Marlin Oscillator is already turning down and does not share the optimism of the price. The price is already forming a divergence with Marlin on the H4 chart. As long as it's weak. A decline below the MACD line (0.9797) will set the bearish mood for the euro.       Relevance up to 04:00 2022-10-25 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/325066
The Loonie Pair (USD/CAD) Bounces Off An Upward-Sloping Support Line

The Future Of The USD/CAD Exchange Rate Will Depend On The Decision Of Bank Of Canada (BOC)

TeleTrade Comments TeleTrade Comments 24.10.2022 08:40
USD/CAD has accelerated to near 1.3680 amid a stellar recovery in the DXY. The 10-year US Treasury yields have extended their losses to near 4.17% amid soaring market mood. The BOC may trim the extent of the rate hike to 50 bps this week. The USD/CAD pair sensed buying interest after dropping to near the round-level support of 1.3600 in early Tokyo. The loonie bulls have retreated after the US dollar index (DXY) defended the intervention rumors of the Bank of Japan (BOJ) recovered its entire intraday losses. The asset has extended its gains to near 1.3680. The DXY has recaptured its intraday high at 112.26 and is expected to behave critically ahead as the returns on US government bonds have dropped sharply. The 10-year US Treasury yields have extended their losses by 4.17% after displaying jaw-dropping gains to near 4.34% on Friday. Market sentiment is extremely cheerful and S&P500 futures are holding their gains. On Monday, the US S&P PMI data will be keenly watched. The Manufacturing PMI is expected to decline to 51.2 vs. the prior release of 52.0 while the Services PMI may drop to 49.2 from 49.3 reported earlier. This week, the interest rate decision from the Bank of Canada (BOC) will determine the further direction of the asset. A Reuters poll on projections for BOC’s interest rate claims that BOC Governor Tiff Macklem will announce a rate hike of 50 basis points (bps). The extent of the rate hike seems lower than their current pace of hiking interest rates. It is worth noting that the headline inflation rate in Canada was recorded at 6.9% for September. On the oil front, oil prices have dropped below the crucial support of $85.00 amid mounting global recession fears. In addition to the BOC, the BOJ and the European Central Bank (ECB) will announce their monetary policies. The BOJ may continue its ultra-loose stance while the ECB could tighten its monetary policy. An expectation of a fresh rate hike spell is weighing pressure on oil prices.
Prices Of Gold Rose For The Third Straight Session

The Decision Of The ECB May Threaten The Gold Rate (XAU/USD)

TeleTrade Comments TeleTrade Comments 24.10.2022 08:46
Gold price prints mild losses while reversing from one-week high. DXY pares the first weekly loss in three amid geopolitical, market meddling concerns. Fed speakers’ absence, likely hawkish outcome from ECB could test XAU/USD bears. Preliminary readings of US PMI for October, Q3 GDP are also important for near-term directions. Gold price (XAU/USD) remains pressured around the intraday low of $1,652, keeping the week-start pullback from a fortnight top, during early Monday morning in Europe. In doing so, the yellow metal justifies the firmer US dollar, as well as the market’s cautious mood. US Dollar Index (DXY) rises 0.30% intraday to 112.25 by the press time amid chatters surrounding Japan’s meddling in the market to defend the yen, as well as challenges to the risk appetite. That said, the news that both North and South Korea have exchanged warning shots near their disputed western sea boundary, published on Monday, also seemed to have favored the US dollar buyers of late. On the same line could be the fears that China President Xi Jinping won’t hesitate to escalate geopolitical matters with the US when it comes to Taiwan. The reason could be linked to Jinping’s dominating performance at the annual Communist Party Congress after winning the third term in a row. Additionally, ABC News quoted Ukrainian General Oleksandr Syrskiy citing fears of Nuclear war, which in turn might have recalled the US dollar buyers. Recently, news that China announced covid lockdown in the factory hub Guangzhou weigh on the market sentiment and the XAU/USD prices. The latest jump in the market’s bets over the Fed’s 75 bps move in November, from 88% to 95%, also seemed to have drowned the gold prices. Amid these plays, S&P 500 Futures print 0.50% intraday gains while the US 10-year Treasury yields remain offered around 4.17%, extending Friday’s losses from the 14-year high. That said, the US equities posted the largest weekly gains in four months in the latest amid previously receding fears of the Fed’s aggressive rate hike. On Friday, the gold price rose heavily while portraying the first weekly gain in three as the hawkish Fed bets retreat after a mixed Fedspeak. That said, St. Louis Fed President James Bullard said, “I want rates that put significant downward pressure on inflation.” On the same line, Chicago Fed President Charles Evans stated that they will need to raise rates further and hold them for a while. However, Nick Timiraos, Chief Economics Correspondent at The Wall Street Journal (WSJ) wrote that the Federal Reserve officials are barreling toward another interest-rate rise of 75 bps at their meeting in November and are likely to debate then whether and how to signal plans to approve a smaller increase in December. Looking ahead, gold traders should expect further weakness amid dicey markets and challenges to sentiment. However, the absence of the Fed speakers and a likely hawkish outcome from the European Central Bank (ECB) could challenge the XAU/USD downside. Technical analysis Gold price retreats from the 21-DMA hurdle amid bearish MACD signals and sluggish RSI, which in turn suggests the metal’s further declines towards the resistance-turned-support line from October 06, around $1,630 by the press time. However, monthly horizontal support near $1,620, quickly followed by the yearly bottom of $1,614, could challenge the gold bears afterward. In a case where the metal prices drop below $1,614, the $1,600 threshold and the 61.8% Fibonacci Expansion (FE) of June-October moves, near $1,565, lure the XAU/USD bears. Alternatively, the 21-DMA and the 50-DMA, around $1,665 and $1,694 in that order, guard the short-term recovery of gold price. Following that, the $1,700 round figure and the monthly high near $1,730 might be interesting to watch for further upside. Gold: Daily chart Trend: Limited downside expected
China's Position On The Russo-Ukrainian War Confirmed At The G20 Meeting

Asia Stock Markets Are Not Positive, Chinese Markets Have Met An Intense Sell-Off

TeleTrade Comments TeleTrade Comments 24.10.2022 09:23
The third-term leadership of China’s XI Jinping has messed up Chinese and Hang Seng indices. S&P500 futures have extended their gains after an upbeat Friday. Oil prices have dropped amid escalating recession fears. Markets in the Asian domain are not tracking positive cues from S&P500 futures and are displaying terrible price movements. The risk-on sentiment has extremely firmed as 10-US Treasury yields have trimmed further to near 4.15%. Meanwhile, the US dollar index (DXY) is attempting to establish above 112.00 after a roller-coaster move. At the press time, Japan’s Nikkei225 gained 0.57%, ChinaA50 nosedived 2.93%, and Hang Seng witnessed a bloodbath. The index has erased 5.53%. Indian markets are closed on account of Diwali-Balipratipada. Chinese markets have witnessed an intense sell-off after the announcement of China’s XI Jinping's third leadership term.  Investors have dumped equities significantly amid soaring fears of economic slowdown as the Chinese leader could prefer ideology-driven policies even at the cost of economic growth. Apart from that, upbeat Gross Domestic Product (GDP) and Trade Balance data have failed to fetch optimism for investors. Blood has spilled over the roads as indices in Hang Seng have witnessed a bloodbath. The continuation of China’s XI Jinping leadership has strengthened fears of an economic downturn. In Japan, gains in Nikkei225 are weak against the run-up recorded in S&P500. Potential intervention chatters from the Bank of Japan (BOJ) in the currency markets against disorderly yen moves have restricted the upside in Japanese equities. On the oil front, oil prices have dropped below the crucial support of $85.00 amid mounting global recession fears. In addition to the BOC, the BOJ and the European Central Bank (ECB) will announce their monetary policies. The BOJ may continue its ultra-loose stance while the ECB could tighten its monetary policy. An expectation of a fresh rate hike spell is weighing pressure on oil prices.
The Outlook Of EUR/USD Pair For Long And Short Position

Eurozone PMI hits 47.1, one point less than the consensus | ING Economics expects two hikes of 50 and 75bp this year

ING Economics ING Economics 24.10.2022 11:08
A weaker-than-expected PMI confirms that the eurozone is now in recession. While pipeline price pressures are gradually abating, it seems too soon to give the all-clear on consumer price inflation. The European Central Bank (ECB) will therefore remain in tightening mode until the first quarter of 2023 Downturn confirmed The eurozone composite PMI flash estimate fell to a lower-than-expected 47.1 in October, from 48.1 in September. This is not only a 23-month low but is also the fourth consecutive month that the PMI has been below the 50 boom-or-bust level, clearly suggesting negative GDP growth. The manufacturing PMI came out at 46.6, while the services sector PMI is now at 48.2. The steepest downturns were seen in the most energy-dependent industries, such as chemical and plastics and basic resource sectors. Industrial powerhouse Germany saw the fastest decline in activity, while in France growth merely stalled. Forward-looking components of the survey don’t herald any improvement in the coming months – on the contrary. New orders for goods and services fell for the fourth month in a row. Excluding the Covid-19 pandemic, manufacturing orders saw the biggest drop since April 2009, while the decline in new business inflows into service sector companies was the strongest since June 2013. No wonder that backlogs of orders fell for a fourth consecutive month, especially in manufacturing. While there was still modest employment growth in October, there seems to be job cutting at some firms and hesitancy to hire in the wake of the uncertain economic outlook. This means that the job market is likely to be less of a support for consumption in the coming quarters. Too soon to give the all-clear on inflation In this rapidly weakening economic environment, supply chain delays have eased to the lowest in just over two years. Manufacturers also bought fewer inputs, reflecting lower production plans and inventory reduction policies in the wake of weakening sales. Easing raw material supply constraints were partially offset by rising energy costs and upward wage pressures, keeping the overall rate of input cost inflation elevated. This still translated into a high rate of increase in prices charged for goods and services, with rates of selling price inflation cooling only marginally in both manufacturing and services. While it seems obvious that upstream price increases are now softening, it still seems a bit too soon to give the all-clear on consumer price inflation. This is one of the last important economic data the ECB disposes of in the run-up to the meeting of the Government Council on Thursday. While in our view today’s figure clearly confirms that the eurozone economy is already in recession, the ECB has made it clear that a downturn would not deter it from tightening monetary policy, as long as inflation is not brought under control. With inflation hovering around 10%, the bank surely wants to restore its credibility. We therefore pencil in another 75bp hike this week and 50bp in December. As inflation is likely to start to come down in the first quarter of 2023 and signs of recession will become more prominent, we think the ECB will stop tightening after the February meeting when we expect the deposit rate to have reached 2.25%. Read this article on THINK TagsInflation GDP Eurozone ECB Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
Key events in developed markets next week - 28.01.2023

It Will Be Busy Week, Central Bank's Decisions Ahead (BoC, ECB, BoJ), Softer US yields Could Play In Favour Of Gold And More

Swissquote Bank Swissquote Bank 24.10.2022 14:13
Last week ended on a strong positive footage, on hints that some Federal Reserve (Fed) officials have started talking about pausing the interest rate rises to avoid going too far. BoC, ECB & BoJ to decide Softer Fed expectations pulled US yields lower and sent equities higher.On the earnings front, 70% of the S&P500 companies that reported earnings so far did better than earnings expectations, and big US tech companies and oil giants will be reporting earnings this week. In politics, Boris Johnson announced yesterday evening that he will not be running for the PM role this week. That makes the British ex-Chancellor of Exchequer Rishi Sunak the front runner in the contest. Sterling kicked off the week on a positive note, but bumped into 50-DMA resistance. In central banks, the Bank of Canada (BoC) is expected to raise interest rates by another 50bp when it meets this week, the European Central Bank (ECB) will certainly raise its rates by 75bp, while the Bank of Japan (BoJ) is expected to stay pat. The BoJ intervened again in the currency markets on Friday to pull the USDJPY lower, after the pair flirted with the 152 level last week. The pair eased to 145.50 following the intervention and is back to almost 149 at the time of video. Commodities In commodities, US crude trades around $85per barrel level, and gold is better bid. Softer US yields could play in favour of gold if we really start seeing material easing in Fed expectations. But the latter is data dependent. Due this week, investors will closely watch the US la