Initial Claims

FX Daily: Low vol environment continues

US jobs numbers continue to cause ripples in a becalmed summer FX market. Expect more of the same today as the market focuses on the weekly initial claims ahead of tomorrow's big NFP report. In Europe, the focus will be on the eurozone's August CPI release. Expectations of a further hike from the ECB are firming up and justify EUR/USD trading at 1.09-1.10.

 

USD: Thrashing around in a low vol environment

Second-tier US jobs data (JOLTS and ADP) have seen the dollar soften a little this week. However, the data have yet to prove the smoking gun that can mark the end of the Federal Reserve's hawkish stance. Stronger trends will only start to develop should we see a large downside miss on tomorrow's release of the August NFP jobs data or a sharp rise in the unemployment rate. That would undermine the thesis that strong employment consumption can keep the Fed in hawkish mode for a lot longer than most think.

 For today, the focus will again b

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Navigating FX Markets: Late Cycle Dollar Strength Meets Carry Trade Amid Central Bank Battles and Volatility Decline

ING Economics ING Economics 09.06.2023 08:28
FX Daily: Late cycle dollar strength meets the carry trade We see two key themes driving FX markets near term. The first is central banks continuing to battle inflation, yield curves staying inverted, and the dollar continuing to hold gains. The second is cross-market volatility continuing to sink - generating greater interest in the carry trade. Expect these trends to hold into Fed, ECB and BoJ meetings next week.   USD: Late cycle dollar strength continues Yesterday's surprise rate hike by the Bank of Canada (BoC) triggered quite a clean reaction in FX markets. Of course, the Canadian dollar rallied on the view that the BoC had unfinished business when it came to tightening. But the broader reaction was for short-dated yields to rise around the world, for yield curves to invert further, and for the dollar to strengthen. USD/JPY rose about 0.8% after the BoC hiked. The view here was that if both Australia and Canada felt the need for further hikes, in all probability the Fed would too.   This endurance of this late cycle dollar strength is therefore the key story for this summer. For the near term, it looks like the dollar can hold the majority of its recent gains into next Wednesday's FOMC meeting - though the release of the US May CPI next Tuesday will be a big market driver too. Our bigger picture call remains that the dollar will embark on a cyclical bear trend in 2H23 - probably starting in 3Q - though the risk is that this gets delayed.   This brings us to our second key observation which is that declining levels of cross-market volatility continue to favour the FX carry trade. Somewhat amazingly the VIX index - implied volatility for the S&P 500 equity index - has fallen below not just the 22 February pre-invasion levels but also below the March 2020 pre-pandemic levels.   As is the case with low rates and FX volatility, presumably investors believe that policy rates will not be moving too much this year - perhaps a little higher and then a little lower. Lower volatility levels are favouring the carry trade which in the EM world favours the Mexican peso and the Hungarian forint and in the G10 space - as Francesco Pesole points out - favours the Canadian dollar. An investor selling USD/MXN six months forward at the start of the year would have made close to 16% by now.   Expect these core trends to continue for the near term. The data calendar is light today and we suspect a slight pick-up in initial claims will not be enough to move the needle on the dollar. Expect DXY to linger around 104.
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June 29 Macro Calendar: US Jobless Claims Data and Trading Plans for EUR/USD and GBP/USD

InstaForex Analysis InstaForex Analysis 29.06.2023 14:36
June 29 macroeconomic calendar Today, the US will see the release of its weekly jobless claims data. Figures are projected to grow. Continuing claims are forecast to rise to 1,765,000 from 1,759,000 while initial ones are likely to rise to 265,000 versus 264,000. Trading plan for EUR/USD on June 29 The pair may trade horizontally for a while or bounce due to a sharp price change the day before. Should quotes stay firm below 1.0900, we would see a fall in value. Trading plan for GBP/USD on June 29 Due to a sharp price change in the market, an oversold signal could be generated, which would mean that the pair could come to a standstill or bounce. However, should speculators not respond to technical signals, the price would fall to 1.2550.             What's on chart The candlestick chart shows graphical white and black rectangles with upward and downward lines. While conducting a detailed analysis of each individual candlestick, it is possible to notice its features intrinsic to a particular time frame: the opening price, the closing price, and the highest and lowest price. Horizontal levels are price levels, in relation to which a stop or reversal of the price may occur. They are called support and resistance levels. Circles and rectangles are highlighted examples where the price reversed in the course of its history. This color highlighting indicates horizontal lines which can exert pressure on prices in the future. Upward/downward arrows signal a possible future price direction.  
Dollar Dips on Disinflation Trade: Impact and Potential Trends

Dollar Dips on Disinflation Trade: Impact and Potential Trends

ING Economics ING Economics 13.07.2023 08:50
FX Daily: Dollar drops on the disinflation trade The downside surprise in US June CPI inflation has seen the dollar drop to new lows for the year. Over recent months we had been speculating that clear signs of US disinflation - and a weaker dollar - may emerge in 3Q23 and yesterday's moves could well be the start of an important market adjustment. Look out for US PPI and US initial claims today.   USD: The start of something It has been a long time coming, but yesterday's surprisingly soft US June CPI numbers may be the first sign this year that sharp Fed rate hikes are finally starting to bite. As our US economist, James Knightley, notes, there were welcome declines in all of the key categories of inflation. He does not think this will prevent another 25bp Fed rate hike at the 26 July meeting, but it will add weight to the view that the July hike may indeed be the last in the cycle. The data could also herald a change in the Fed narrative from frustration that inflation has not fallen as quickly as expected to a more welcoming approach to recent data releases.  We had discussed the potential FX market impact of a soft US CPI print in yesterday's FX Daily and the soft CPI has driven more benign pricing around the world - i.e. bullish steepening of yield curves, higher equities, narrower credit spreads, and a weaker dollar. FX price action has all the hallmarks of a position unwind, where those currencies sold on a bearish/hard landing scenario (e.g. Norway's krone, Sweden's krona, and to a lesser degree some other commodity currencies) have now made a very strong comeback. Indeed, both the NOK and SEK had been extremely undervalued in our medium-term valuation models and are now finding room to breathe. For the big dollar trend, this may be the start of the long-awaited cyclical decline. There are parallels to the dollar sell-off last November and December (when it fell 8% in two months), but the difference now is; i) positioning, where speculators are not as heavily long dollars as they were last October, and ii) the China and European growth stories do not seem due as much of a re-rating as they enjoyed last November. That said, we prefer to run with the dollar bearish story for the time being, where DXY should press big psychological support at 100.00. The next target would be 99.00 on a breakout. For today, look out for US June PPI and the weekly initial claims number. A further decline in PPI and a rise in claims could see dollar losses extend.
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FX Daily: Dollar Bears Urged to Be Patient as Dollar Reconnects with Rate Differentials

ING Economics ING Economics 24.07.2023 09:26
FX Daily: Dollar bears being asked for patience Quiet summer markets are seeing dollar pairs consolidate in new, slightly lower ranges. It will be another quiet session today ahead of a big week for G3 central bank meetings. Dollar bears may find some reassurance from emerging markets, where the PBoC is trying to limit USD/CNY gains and the South African rand is holding up despite the lack of a rate hike.   USD: Dollar reconnects with short-term rate differentials As my colleague Francesco Pesole has been writing this week, the dollar has made a modest comeback as both US yields adjust higher and short-term rate spreads stay in the dollar's favour. In fact, one could argue that the dollar should even be a little higher given that two-year US yields have retraced about 50% of their drop in the first half of July and the DXY has only retraced one-third of its losses. Price action over the past week probably shows that a switch to the disinflation trade will not be easy and will require a constant drip feed of supporting evidence – be it softer price or weaker activity data. Yesterday's drop in US initial claims clearly did not help here. Casting around the world in quiet FX markets we see the People's Bank of China (PBoC) continuing to fight a weaker renminbi by printing lower USD/CNY fixings than model-based estimates suggest. Despite credible calls for a lower renminbi to support growth and battle deflation, it seems Chinese policymakers prefer to keep renminbi losses contained and prevent a 'sell China' mentality building. The PBoC's battle against a stronger USD/CNY is a slight dollar negative in quiet summer markets – especially should it extend to outright dollar sales. Today's session should be a quiet one as the market prepares for US Federal Reserve, European Central Bank and Bank of Japan (BoJ) meetings next week. Regarding the BoJ, expectations of any Yield Curve Control policy tweak seem very low (perhaps too low) given that the 30-year Japanese government bond (JGB) yield is drifting lower and the forward market prices 10-year JGB yields at 50bp in three months and at only 55bp in six months. These 10-year yields should be priced a lot higher were the market expecting a policy change. USD/JPY may well drift to the 141.15/142.00 area before next Friday's BoJ meeting.
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FX Daily: Dollar Bears Urged to Be Patient as Dollar Reconnects with Rate Differentials - 24.07.2023

ING Economics ING Economics 24.07.2023 09:26
FX Daily: Dollar bears being asked for patience Quiet summer markets are seeing dollar pairs consolidate in new, slightly lower ranges. It will be another quiet session today ahead of a big week for G3 central bank meetings. Dollar bears may find some reassurance from emerging markets, where the PBoC is trying to limit USD/CNY gains and the South African rand is holding up despite the lack of a rate hike.   USD: Dollar reconnects with short-term rate differentials As my colleague Francesco Pesole has been writing this week, the dollar has made a modest comeback as both US yields adjust higher and short-term rate spreads stay in the dollar's favour. In fact, one could argue that the dollar should even be a little higher given that two-year US yields have retraced about 50% of their drop in the first half of July and the DXY has only retraced one-third of its losses. Price action over the past week probably shows that a switch to the disinflation trade will not be easy and will require a constant drip feed of supporting evidence – be it softer price or weaker activity data. Yesterday's drop in US initial claims clearly did not help here. Casting around the world in quiet FX markets we see the People's Bank of China (PBoC) continuing to fight a weaker renminbi by printing lower USD/CNY fixings than model-based estimates suggest. Despite credible calls for a lower renminbi to support growth and battle deflation, it seems Chinese policymakers prefer to keep renminbi losses contained and prevent a 'sell China' mentality building. The PBoC's battle against a stronger USD/CNY is a slight dollar negative in quiet summer markets – especially should it extend to outright dollar sales. Today's session should be a quiet one as the market prepares for US Federal Reserve, European Central Bank and Bank of Japan (BoJ) meetings next week. Regarding the BoJ, expectations of any Yield Curve Control policy tweak seem very low (perhaps too low) given that the 30-year Japanese government bond (JGB) yield is drifting lower and the forward market prices 10-year JGB yields at 50bp in three months and at only 55bp in six months. These 10-year yields should be priced a lot higher were the market expecting a policy change. USD/JPY may well drift to the 141.15/142.00 area before next Friday's BoJ meeting.
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FX Daily: Dollar Demand Persists Amidst Waiting Game

ING Economics ING Economics 07.08.2023 08:50
FX Daily: Waiting game keeps the dollar in demand Another mixed US jobs report on Friday has maintained choppy conditions in FX markets. While consensus expects the dollar to edge lower through the year, we are yet to see both the decline in inflation and activity (particularly jobs data) that would cement this trend. Key inputs to FX markets this week will be Thursday's CPI data and the Treasury refunding.   USD: CPI and quarterly refunding will be the highlights Friday's release of a mixed US July jobs report was enough to deliver some calm to the US bond market. Recall that the sharp sell-off at the long end of the curve had upset benign market conditions on Wednesday and Thursday last week. Lower headline employment in July saw 10-year Treasury yields drop nearly 15bp on Friday and investors jump back into their preferred high-yielding currencies such as the Mexican peso.  Looking ahead, we see two key US highlights this week. The main event will be Thursday's release of July CPI figures. Despite base effects nudging the YoY rate higher, MoM readings should deliver another benign 0.2% outcome at the core level and provide another piece of disinflation evidence for the Fed. The problem for FX markets is that it seems that disinflation is not enough to get the dollar lower. Instead, we also need to see signs of softening activity - especially in the labour markets. Unless initial claims spike on Thursday or consumer sentiment falls sharply on Friday, there are few real signs of softer activity coming through just yet. The second highlight of the week will be the US Treasury's quarterly refunding, where a collective $103bn of three, ten, and thirty-year US Treasuries are auctioned Tuesday through Thursday. It is very rare to have a bad Treasury refunding - e.g. consistently low bid to cover ratios or other such metrics. But the risk is that dealers build concessions into bond prices ahead of the auctions - keeping US yields firm and the investment environment mixed. On the face of it then, this week looks unlikely to trigger the kind of benign dollar decline around which the Rest of the World currencies can rally.  Additionally, events in the Black Sea and what they could mean for food and energy prices could keep investors nervous about embracing disinflation trends. For today, we doubt Fed speakers will have a meaningful impact on the dollar and can see DXY trading well within a 101.80-102.80 range.
FX Daily: Low Volatility Persists Amidst US Jobs Data Ripples

FX Daily: Low Volatility Persists Amidst US Jobs Data Ripples

ING Economics ING Economics 31.08.2023 10:30
FX Daily: Low vol environment continues US jobs numbers continue to cause ripples in a becalmed summer FX market. Expect more of the same today as the market focuses on the weekly initial claims ahead of tomorrow's big NFP report. In Europe, the focus will be on the eurozone's August CPI release. Expectations of a further hike from the ECB are firming up and justify EUR/USD trading at 1.09-1.10.   USD: Thrashing around in a low vol environment Second-tier US jobs data (JOLTS and ADP) have seen the dollar soften a little this week. However, the data have yet to prove the smoking gun that can mark the end of the Federal Reserve's hawkish stance. Stronger trends will only start to develop should we see a large downside miss on tomorrow's release of the August NFP jobs data or a sharp rise in the unemployment rate. That would undermine the thesis that strong employment consumption can keep the Fed in hawkish mode for a lot longer than most think.  For today, the focus will again be on some second and third-tier jobs data in the form of the weekly initial claims read. We will also see personal income, spending, and the core PCE deflator for July. Consensus actually sees the core PCE deflator rising to 4.2% year-on-year from 4.1% – so hardly a reason for markets to add to dollar short positions. In general, cross-asset market volatility remains low and there is not much to argue against the Japanese yen or Chinese renminbi-funded carry trade. As we have noted before, 5.30% overnight rates mean the dollar can hold gains in a carry trade environment. Currencies outperforming remain the EM high-yielders, such as those found in the CEE3 region and also Latam. Here, the Mexican peso continues to hold gains and offer near 12% implied yields. The peso should also be helped by the latest remarks from Banxico that, unlike Brazil and Chile, it is not considering rate cuts anytime soon. Unless we see a sharp spike in the weekly initial claims data today, we suspect DXY does not break too far from a 103.00-103.50 range.

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