market sentiment

GBP/USD may start moving upward this week, starting from the level of 1.2344 (closing of the last weekly candle) to 1.2499, which is a historical resistance level (blue dashed line). Upon reaching this price, the pair will climb further to 1.2678, which is an upper fractal (red dashed line).   Comprehensive analysis: Indicator analysis - upward Fibonacci levels - upward Volumes - upward Candlestick analysis - upward Trend analysis - downward Bollinger bands - upward Monthly chart - upward       All these point to an upward movement in GBP/USD. Conclusion: Most likely, the pair will have a bullish trend, with no first lower shadow on the weekly white candle (Monday - upward) and a second upper shadow (Friday - downward).   So during the week, pound will rise from 1.2344 (closing of the last weekly candle) to the historical resistance level at 1.2499 (blue dashed line), and then head to the upper fractal at 1.2678 (red dashed line).   Alternatively, the quote could go up from 1.2344 (closing of last week's candle) to the historical resistance level at 1.2499 (blue dashed line), and then turn around and fall down to the 38.2% retracement level at 1.2342 (red dashed line).  

EUR: Can China come to the euro's rescue? EUR/USD has quietly slipped below support at 1.0700/1.0720 and may be gently making its way to the March lows at 1.0515/0530. As we mentioned last week, we think   EUR/USD is relatively cheap given the massive reversal in energy prices over the last year and that, in time, the 1.05/1.07 area will come to be seen as a summer base.   Helping that proposition would be some kind of recovery in China. The release of the China Beige Book has shown some recovery in the China manufacturing sector in May.   Official May Chinese PMI figures are released later this week. A bounceback here, helping to reverse the recent run-up in USD/CNH, could provide the euro with some support.   For today, the eurozone focus will be on the release of industrial and consumer confidence figures for May. Consensus expects some further deterioration here and if so this should keep EUR/USD on the soft side. We will also hear from a raft of ECB speakers today.   Expect more hawkish rhetoric especially in advance of the May eurozone CPI data on Thursday. Consensus expects core eurozone CPI to edge lower to 5.5% year-on-year in May. Another upside surprise here – feeding the sticky inflation narrative – warns that investors could return to pricing a 4.00% ECB deposit rate.   - Chris Turner

Europe set for a mixed open, as debt ceiling deal heads towards a vote. By Michael Hewson (Chief Market Analyst at CMC Markets UK) With both the US and UK markets closed yesterday, there was a rather tepid response to the weekend news that the White House and Republican leaders had agreed a deal to raise the debt ceiling, as European markets finished a quiet session slightly lower. The deal, which lays out a plan to suspend the debt ceiling beyond the date of the next US election until January 1st 2025, will now need to get agreement from lawmakers on both sides of the political divide to pass into law. That could well be the hardest part given that on the margins every vote is needed which means partisan interests on either side could well derail or delay a positive outcome. A vote on the deal could come as soon as tomorrow with a new deadline of 5th June cited by US Treasury Secretary Janet Yellen. US markets, which had been rising into the weekend on the premise that a deal was in the making look set to open higher when they open later today, however markets in Europe appear to be less than enthused. That's probably due to concerns over how the economic recovery in China is doing, with recent economic data suggesting that confidence there is slowing, and economic activity is declining. Nonetheless while European stocks have struggled in recent weeks, they are still within touching distance of their recent record highs, although recent increases in yields and persistent inflation are starting to act as a drag. This is likely to be the next major concern for investors in the event we get a speedy resolution to the US debt ceiling headwind. We've already seen the US dollar gain ground over the last 3 weeks as markets start to price in another rate hike by the Federal Reserve next month, and more importantly start to price out the prospect of rate cuts this year. Last week's US and UK economic data both pointed to an inflationary outlook that is much stickier than was being priced a few weeks ago, with core prices showing little sign of slowing. In the UK core prices surged to a 33 year high of 6.8% while US core PCE edged up to 4.7% in April, meaning pushing back any possible thoughts that we might see rate cuts as soon as Q3. At this rate we'll be lucky to see rate cuts much before the middle of 2024, with the focus now set to shift to this week's US May jobs report on Friday, although we also have a host of other labour market and services data between now and then to chew over. The last few weeks have seen quite a shift, from the certainty that the Federal Reserve was almost done when it comes to rate hikes to the prospect that we may well see a few more unless inflation starts to exhibit signs of slowing markedly in the coming months. In the EU we are also seeing similar trends when it comes to sticky inflation with tomorrow's flash CPI numbers for May expected to show some signs of slowing on the headline number, but not so much on the core measure. On the data front today we have the latest US consumer confidence numbers for May which are expected to see a modest slowdown from 101.30 in April to 99, and the lowest levels since July last year. EUR/USD – has so far managed to hold above the 1.0700 level, with a break below arguing to a move back towards 1.0610. We need to see a rebound above 1.0820 to stabilise. GBP/USD – holding above the 1.2300 area for now with further support at the April lows at 1.2270. We need to recover back above 1.2380 to stabilise. EUR/GBP – currently struggling to move above the 0.8720 area, with main resistance at the 0.870 area. A move below current support at 0.8650 could see a move towards 0.8620. USD/JPY – having broken above the 139.60 area this now becomes support for a move towards 142.50 which is the 61.8% retracement of the down move from the recent highs at 151.95 and lows at 127.20. Further support remains back at the 137.00 area and 200-day SMA. FTSE100 is expected to open unchanged at 7,627 DAX is expected to open 17 points higher at 15,967 CAC40 is expected to open 30 points lower at 7,273

The main news of the weekend was the agreement on the US debt limit, which may serve as a basis for increased risk demand at the beginning of the week. The House of Representatives is expected to vote on Wednesday.   It was reported that the debt ceiling will be approved until the 2024 presidential elections. Non-defense spending will remain at current levels in 2024 and will increase by only 1% in 2025. This is a compromise between Republican demands for sharp spending cuts and Democratic intentions to raise taxes.   The aggregate short position in the US dollar decreased by 3.3 billion to -12.1 billion during the reporting week. Overall, sentiment towards the dollar remains negative, but the trend may have changed.     It is also worth noting a decrease in the long position on gold by 4 billion to -31.7 billion, which is also a factor in favor of the US dollar. The core PCE deflator increased by 0.4% MoM, which is slightly higher than the consensus forecast of 0.3%.   Despite the faster-than-expected price growth, real consumer spending rose by 0.5% MoM, surpassing the expected 0.3%. The rise in the PCE deflator indicates that the fight against inflation is still far from over. In a 3-month annualized expression, the core PCE deflator stands at 4.3%, the same as in April 2022. The combination of higher spending and faster price growth is expected to lead to the Federal Reserve raising rates in June. Cleveland Fed President Loretta Mester, commenting on the released data, stated that "the data that came out this morning suggests that we still have work to do."   The CME futures market estimates a 63% probability of a Fed rate hike in June, compared to 18% the previous week, making the strengthening of the dollar in the changed conditions more than likely. Monday is a banking holiday in the US, so by the end of the day, volatility will decrease, and we do not expect strong movements. EUR/USD The ECB maintains a firm stance on continuing rate hikes as part of its fight against inflation.   On June 1, preliminary inflation data for the Eurozone will be published, and the forecast suggests a slowdown in core inflation from 5.6% to 5.5%. If the data release aligns with expectations, it will lower the ECB rate forecasts and put additional pressure on the euro.   The net long position on the euro decreased by 2.013 billion to 23.389 billion during the reporting week, marking the first significant reduction in the past 10 weeks. The calculated price is moving further south, indicating a high probability of further euro weakening.     EUR/USD has predictably declined to 1.0730, where support held, but we expect another attempt to test its strength, which will likely be more successful. Within a short-term correction, the euro may rise to resistance at 1.0735 or 1.0830, but the upward movement is likely to be short-lived and followed by another downward wave. Our long-term target is seen in the support zone of 1.0480/0520.   GBP/USD The decline in inflation in the UK is once again being called into question. The core Consumer Price Index rose from 6.2% YoY to 6.8% in April, with yields sharply increasing. The retail sales report for April, published on Friday, showed that the slowdown in consumer demand remains more of an aim than a reality. Retail sales excluding fuel increased by 0.8% MoM, significantly higher than the forecast of 0.3%.   If it weren't for the sharp decline in energy demand, both the monthly and annual retail growth would have been noticeably higher than expected. Monday is a banking holiday in the UK, and there are no macroeconomic data expected this week that could influence Bank of England rate forecasts.   Therefore, the pound will be traded more in consideration of global rather than domestic factors. We do not expect high volatility or significant movements. The net long position on the pound slightly decreased by 84 million to 899 million during the reporting week. The bullish bias is small, and the positioning is more neutral than bullish. The calculated price is below the long-term average and is downward-oriented.     The pound has predictably moved towards the support zone at 1.2340/50, but the decline has slowed down at this level. We expect the decline to continue, with the nearest targets being the technical levels at 1.2240 and 1.2134. There is currently insufficient basis for a resumption of growth.  

10Y US Treasury yields are more than 60bp away from the peak they reached in early March, prior to the regional banking crisis. The Fed has been pushing a more hawkish line disappointed by the lack of progress on the inflation front, but end-2023 Sofr futures still price a rate that is 50bp below the early March peak.   At least so far, this doesn’t feel like a wholesale reappraisal of the market’s macro view although a more forceful Fed communication at the 14 June meeting, with potentially a hike and a higher end-2023 median dot, could push us closer to this year’s peak in rates.     ECB pricing is hard to move but markets look to the BoE for guidance In Europe, today’s inflation prints from France, Germany, and Italy will, in addition to yesterday’s Spanish release, give us a pretty good idea of where the eurozone-wide number will fall tomorrow. If the drop in Spain’s core inflation is any guide, EUR markets will struggle to follow their US peers higher.   Add to this that it is difficult for euro rates to price a path for policy rates that materially diverges from their US peers. Even if the Fed hikes in June or July, the EUR swap curve already prices ECB hikes at both meetings. Swaps assign a low probability to another hike in September for now.   That probability may well rise but we think any labour-market induced sell-off in US Treasuries will reflect, in part, in wider rates differentials between the two currencies.   It is difficult for euro rates to price a path for policy rates that materially diverges from their US peers  

The US and UK markets were closed on Monday, but European government bond yields sharply fell, which is a direct consequence of rumors that the Biden administration and the Republican majority in Congress are close to reaching an agreement.   The removal of the US default threat contributes to an increase in risk appetite and, at the same time, a slight decrease in demand for the US dollar as demand for bonds decreases. The dollar is also facing pressure due to the upcoming meetings of the Bank of England and the European Central Bank, where further rate hikes are anticipated, and uncertainty regarding the possible actions of the Bank of Japan at the June 16 meeting.   NZD/USD The Kiwi is facing increasing pressure as the reasons that could prompt the RBNZ to raise rates above the current 5.50% are diminishing, with the main one being the threat of an almost inevitable recession.   Retail sales showed zero growth in April (forecast was +0.2%), a decline of 1.4% in the first quarter, and a decline of 1% in the last quarter of the previous year. This means that consumer activity is declining despite high migration rates. Trade indicators have also deteriorated significantly, with a 3.4% decrease in terms of trade for goods in the first quarter and an expected decline in exports.   While expectations for an increase in the Fed rate are growing and markets are anticipating another hike in either June or July, the Reserve Bank of New Zealand (RBNZ) announced a pause that is expected to last at least until November. Additionally, there is the threat of an economic slowdown amid still uncertain prospects for inflation.   Although inflation is expected to slow down in the second half of the year, it is currently only a forecast, while the threat of a recession is very real, as is the pause taken by the RBNZ.       Overall, based on the data, the demand for NZD is expected to decrease due to worsening trade indicators, pressure on the current account, and an increase in the yield spread in favor of the US dollar.   Positioning on NZD continues to balance at near-zero levels, with slight deviations in either direction. Over the reporting week, the net short position decreased by 107 million to -23 million, reaching a negligible level. The calculated price has shifted downwards.     Last week, we predicted that after the RBNZ decision, the Kiwi would move downwards towards support at 0.6020. This scenario has played out, and it can be assumed that the southward movement will continue. A probable correction will find resistance near 0.6079, where selling may resume.   We expect another test of support at 0.6020 and further movement towards the target of 0.5940/50, and then 0.5900. AUD/USD RBA Governor Lowe, as reported in the Australian media, held a "pessimistic" briefing behind closed doors with the parliamentary economics committee. Sources described the tone as "noticeably more pessimistic due to the emphasis on risks to achieving the bank's forecast targets for inflation and unemployment."   Markets are currently assessing the probability of another rate hike by the RBA and the likelihood of the bank taking a pause approximately equally. The key value will be the tone of Lowe's testimony before the Senate Economics Committee. The NAB Bank estimates the peak rate to reach 4.1%, which will be achieved in August or July.   On Friday, June 2, an important decision will be made regarding the minimum wage. Changes will be announced for two indicators - the minimum wage, which will affect around 200,000 workers, and the volume of bonus payments, which will be significant for 2.4 million workers.   Preliminarily, according to the Treasury, a 7% increase is expected for the first indicator and a 4% increase for the second, which will likely be seen by the markets as a factor fueling inflation. The net short position on AUD decreased by 323 million over the reporting week to -3.244 billion. The positioning remains persistently bearish, with the calculated price below the long-term average and directed downwards.     The bearish impulse we anticipated in the previous review has developed, although the price did not reach the stated target of 0.6466. Nevertheless, there are no grounds to expect a resumption of growth, and any potential upward retracement is likely to be halted in the 0.6560/80 zone, after which selling will resume.   The nearest target is 0.6466, followed by technically significant levels down to the local low of 0.6172.        

Analyzing Tuesday's trades GBP/USD on 30M chart   On Tuesday, the GBP/USD pair displayed a significant rebound, which is difficult to explain from a fundamental or macroeconomic perspective. In addition, a new descending trendline has formed, which clearly passes through the three recent price peaks.   Thus, despite the British currency's growth, the downtrend persists. There was no macro data or fundamental background in either the UK or the US. Therefore, it is quite difficult for us to explain what caused the dollar's decline. However, technical corrections are still relevant, so the sudden growth shouldn't be that surprising. So far, nothing bad has happened to the downtrend.   The pound may fall as early as Wednesday, especially considering that the pair has already started to fall by the end of Tuesday. Moreover, there will be significant events and reports in the last three days of the week, which may prompt traders to buy the dollar again, regardless of their positions.     Several trading signals were formed on the 5-minute chart on Tuesday. The levels 1.2351 and 1.2367 will be removed from the charts. The levels 1.2307 and 1.2386 have been added, but they were not included in the signal formation process. The first sell signal was near the 1.2351 level. The pair managed to move down by only 15 pips, resulting in a loss when the price settled above the 1.2367 level. This same signal should have been executed using long positions, and the pair subsequently rose to the 1.2420 level and settled above it. The long position should have been closed when the price settled below this level. Immediately after that, short positions should have been opened, which should have been manually closed closer to the evening. As a result, the first trade ended in a loss, but the other two were profitable. Overall, novice traders made a profit. Trading tips on Wednesday: As seen on the 30M chart, the GBP/USD pair is generally moving down, but over the past week, we have seen more of a flat than a trend-driven movement. I expect the pound to fall further since it has not fallen enough yet. Breaking the new trendline may temporarily change market sentiment to bullish. The key levels on the 5M chart are 1.2171-1.2179, 1.2245, 1.2307, 1.2386, 1.2420, 1.2470, 1.2507-1.2520, 1.2597-1.2616. When the price moves 20 pips in the right direction after opening a trade, a stop loss can be set at breakeven. On Wednesday, there are no important events or reports scheduled in the UK, while the US will release the JOLTS report on job openings.   The market will only react to this report if the actual value significantly deviates from the forecast. Basic rules of the trading system: 1) The strength of the signal depends on the time period during which the signal was formed (a rebound or a break). The shorter this period, the stronger the signal.     2) If two or more trades were opened at some level following false signals, i.e. those signals that did not lead the price to Take Profit level or the nearest target levels, then any consequent signals near this level should be ignored.     3) During the flat trend, any currency pair may form a lot of false signals or do not produce any signals at all. In any case, the flat trend is not the best condition for trading.     4) Trades are opened in the time period between the beginning of the European session and until the middle of the American one when all deals should be closed manually.     5) We can pay attention to the MACD signals in the 30M time frame only if there is good volatility and a definite trend confirmed by a trend line or a trend channel.   6) If two key levels are too close to each other (about 5-15 pips), then this is a support or resistance area.   How to read charts: Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them. Red lines are channels or trend lines that display the current trend and show which direction is better to trade. MACD indicator (14,22,3) is a histogram and a signal line showing when it is better to enter the market when they cross. This indicator is better to be used in combination with trend channels or trend lines.   Important speeches and reports that are always reflected in the economic calendars can greatly influence the movement of a currency pair. Therefore, during such events, it is recommended to trade as carefully as possible or exit the market in order to avoid a sharp price reversal against the previous movement. Beginners should remember that every trade cannot be profitable. The development of a reliable strategy and money management are the key to success in trading over a long period of time.    

EUR/USD On Tuesday, the euro went through a correction, defined by the convergence with the Marlin oscillator. The price once again tested the target level of 1.0738 and the embedded line of the descending channel. The signal line of the oscillator has entered its own descending channel.     According to the main scenario, the price can now consolidate below the support level of 1.0692 and continue moving towards 1.0620, which is the lower embedded line of the price channel. The alternative scenario is simple - after settling above 1.0738, a test of the target resistance at 1.0804 is possible. This would extend the correction.     On the four-hour chart, the price has returned below the MACD indicator line after a false breakout above it. The Marlin oscillator has moved into the negative territory after briefly staying in the positive area. The trend is bearish.  

Analysis of transactions and tips for trading EUR/USD The price test of 1.0719, coinciding with the significant rise of the MACD line from zero, limited the upward potential of the pair. Even so, market players continue to buy in anticipation of further interest rate hikes despite inflation in the eurozone starting to slow down. Clearly, market players do not expect any changes in the European Central Bank's monetary policy.     The empty economic calendar today will push traders to focus on upcoming US labor market data, as growth in unemployment and disappointing non-farm payrolls will convince the Fed to continue its tight approach to monetary policy. Only a pause in the rate hike cycle will weaken dollar demand and lead to a further rise in EUR/USD.     For long positions: Buy when euro hits 1.0780 (green line on the chart) and take profit at the price of 1.0816. Growth could occur. However, when buying, traders should make sure that the MACD line lies above zero or rises from it. Euro can also be bought after two consecutive price tests of 1.0754, but the MACD line should be in the oversold area as only by that will the market reverse to 1.0780 and 1.0816.   For short positions: Sell when euro reaches 1.0754 (red line on the chart) and take profit at the price of 1.0722. Pressure may return amid very good labor market statistics in the US. However, when selling, traders should make sure that the MACD line lies below zero or drops down from it. Euro can also be sold after two consecutive price tests of 1.0780, but the MACD line should be in the overbought area as only by that will the market reverse to 1.0754 and 1.0722.       What's on the chart: Thin green line - entry price at which you can buy EUR/USD Thick green line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further growth above this level is unlikely. Thin red line - entry price at which you can sell EUR/USD Thick red line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further decline below this level is unlikely. MACD line- it is important to be guided by overbought and oversold areas when entering the market   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.  

On Friday, there will be a few macroeconomic reports, but all of them will be very important. Neither the European Union nor the United Kingdom will issue data today. All the information will come from the US. There will be three reports, two of which are of the highest significance. Nonfarm Payrolls show the number of jobs created in a month outside the agricultural sector. This is a key labor market indicator. It is expected that 180-190 thousand jobs were created in May. Any number lower than this will be considered negative.       The unemployment rate is the second key labor market indicator. It is expected that by the end of May, the rate will increase to 3.5%. However, even 3.6% should not shock traders as it is still a very low value, close to the lowest one recorded 50 years ago. The average hourly earnings is the last report that will be issued today.   This indicator has a direct impact on the inflation rate. The annual increase in wages should not exceed the previous month's value. However, this data is less significant than the first two reports. Analysis of fundamental events:     There are no fundamental events planned for Friday. In recent days, both pairs have been showing a persistent desire to grow, which is not always justified by specific factors. If the growth in the euro makes sense, the pound's appreciation is raising many questions. However, the short-term trend has changed to ascending for both pairs. Thus, further growth can be expected unless the reports from the US are much stronger than the forecasts.   General conclusions: On Friday, there will be two important reports. Both of them will be published at the start of the US trading session. There will be no important events in the first half of the day. Also, yesterday, it was reported that the US House of Representatives approved an increase in the debt ceiling. Thus, there will be no default in the US. Yesterday's fall in the dollar was partially caused by this event. However, it is not logical. The market could have priced in the approval of the increase (since there were no other options, really), and now it could be benefiting from short orders. Nevertheless, we still expect a stronger drop from the euro and the pound.   Basis trading rules: 1) The strength of a signal is judged by the time it took to form the signal (a bounce or overcoming level). The less time it took, the stronger the signal is. 2) If two or more trades were opened around any level based on false signals, then all subsequent signals from this level should be ignored. 3) In a flat market, any pair can form a multitude of false signals or not form them at all. In any case, at the first signs of a flat movement, it is better to stop trading. 4) Trades are opened in the time period between the beginning of the European session and the middle of the US one when all trades should be manually closed. 5) In the 30-minute period, you can trade using signals from the MACD indicator only when there is good volatility and a trend, which is confirmed by a trend line or a trend channel. 6) If two levels are located too close to each other (from 5 to 15 pips), they should be considered as a support or resistance area.     What we see on the chart: Price levels of support and resistance are levels that act as targets when opening buy or sell orders. Take profit levels can be placed near them. Red lines are channels or trend lines that show the current trend and indicate in which direction it is preferable to trade now. MACD indicator (14,22,3) is a histogram and signal line, that is an auxiliary indicator, which can also be used as a source of signals. Important speeches and reports (always included in the macroeconomic calendar) can have a significant influence on the movement of a currency pair. Therefore, during their release, you should trade with maximum caution or exit the market to avoid a sharp price reversal against the previous movement. Beginners should remember that not every trade can be profitable. A clear strategy and money management are key to success in long-term trading.      

FXMAG.COM: Do you expect any radical moves of EUR/GBP price in the near future? What can cause such fluctuations?  As forex traders keenly observe the EUR/GBP currency pair, there is speculation surrounding the likelihood of substantial price movements in the near future. Examining the underlying factors that can trigger notable fluctuations is essential for making informed decisions in the market.   Macroeconomic indicators, including GDP growth, inflation rates, and employment figures, offer valuable insights into the potential for significant moves in the EUR/GBP price.   Based on the latest available data for Q1 of 2023, Eurozone GDP growth experienced a 1.3% increase, while the UK maintained a stable growth rate of 0.10%. Political developments exert a considerable impact on the EUR/GBP exchange rate. Notably, events such as the recent UK election or updates related to Brexit have proven to be catalysts for volatility.   Staying well-informed about key political developments is crucial, as they can significantly influence the price of this currency pair. Central bank policies play a pivotal role in shaping the EUR/GBP exchange rate.   The European Central Bank (ECB) and the Bank of England (BoE) periodically announce monetary policy decisions that affect this currency pair. It is important to keep a close watch on interest rate adjustments, quantitative easing programs, and forward guidance statements.   As of the latest interest rate decision on February 2, 2023, the ECB maintained rates at 3%, while the BoE held rates at 4.5% with a slight increase of 0.25% on May 11, 2023. Global economic trends and market sentiment can also influence the EUR/GBP price.   Trade relations between the Eurozone and the UK, as well as global economic conditions, can cause significant fluctuations. Monitoring geopolitical events, risk appetite indicators, and market sentiment can provide valuable insights into potential radical moves in this currency pair.   Predicting significant shifts in the EUR/GBP price is a complex task. However, analysing key factors such as macroeconomic indicators, political developments, central bank policies, and global economic trends can enhance your understanding of potential fluctuations. As of the latest available data on May 23, 2023, at 12:51, the EUR/GBP exchange rate stands at 0.87057. Stay well-informed about the latest news and events to navigate the market effectively and make informed trading decisions.

Unacceptably high core price dynamics will lend a helping hand to ECB officials pushing for a hawkish line The most likely outcome to this week's inflation releases, still unacceptably high core price dynamics, will lend a helping hand to ECB officials pushing for a hawkish line.   Warnings that hikes may have to continue until September will stand a better chance of pushing longer term rates higher even if a subdued economic outlook, and growing doubts about the strength of China's post Covid recovery, should prevent European rates from rising as quickly as their US peers in the coming weeks. Wider USD-EUR rates differentials should only be a temporary development, however, and one resulting from a rise in global rates.   Market participants who, like us, expect lower rates into year-end, should also consider the possibility of US rates falling faster than their European peers, perhaps to sub-100bp levels for 10Y Treasury-Bund spreads.   This is all the more true since European markets have to contend with another dollop of political uncertainty in the form of early Spanish general elections on 23 July. The prime minister called for a vote after local elections defeat at the weekend and the opposition party PP is on the front foot, although it would likely rely on a coalition with another party due to the fragmented nature of the Spanish political landscape.   Spain’s still wide budget deficit (the European commission forecasts 4.1% of GDP this year and 3.3% next) mean a period of uncertainty is an unwelcome development and could lead to underperformance of Spanish government bonds vs peers such as Portugal and Italy.   Early elections mean Spanish bonds are at risk of underperformance vs Italy and Portugal   Today's events and market view Spain kicks off this week’s inflation releases. This will come on top of Eurozone monetary aggregate data and the European Commission’s confidence indicators for the month of May. One theme in European macro releases has been the softening of survey-based data, such as Germany’s Ifo (see above).   US releases feature house prices, the conference board’s consumer confidence, and the Dallas Fed manufacturing activity index.   Bond supply will take the form of Italian 5Y, 10Y fixed rate bonds, as well as 5Y floating rate bonds.    

GBP/USD Yesterday, the British pound grew (by 0.47% compared to a 0.20% decline in the dollar index) and its upper shadow managed to reach the target level of 1.2443. As the signal line of the Marlin oscillator has already approached the boundary of the growth area, it may start to reverse downwards in the direction of the main trend.   If the reversal occurs and the price establishes itself below the MACD line (1.2400), the first target will be 1.2273 (the April 3 low and the high of February 14). If the price stays above 1.2443, it can rise towards 1.2583. However, the pound may not reach this level, and a reversal could occur from any intermediate resistance.       On the 4-hour chart, the price has settled above the balance and MACD indicator lines, and the Marlin oscillator has shown slight growth in the growth area but is now showing initial signs of a downward reversal.   Since the MACD line is located below the 1.2400 level, overcoming the support level (1.2365) will serve as the final condition for the price to reverse into a medium-term decline.  

A hawkish hold from the Bank of Canada next week We expect the BoC to leave the policy rate at 4.5% next week, but after stronger-than-expected consumer price inflation and GDP and with the labour data remaining robust we cannot rule out a surprise interest rate increase. The market is pricing a 25% chance of a hike on 7 June, and a hawkish hold should be anough to keep the Canadian dollar supported.   Canadian resilience means a rate hike can't be ruled out The Bank of Canada last raised rates on 25 January and have held it at 4.5% ever since. The statement from the last meeting in April commented that global growth had been stronger than expected and that in Canada itself, “demand is still exceeding supply and the labour market remains tight”. The bank warned that it was continuing to “assess whether monetary policy is sufficiently restrictive and remain prepared to raise the policy rate further” to ensure inflation returns to 2%.   Since then we have had additional warnings from Governor Tiff Macklem that the bank remains concerned about upside inflation risks with the latest CPI report showing a month-on-month increase in prices of 0.7% versus a consensus forecast of 0.4%, resulting in the annual rate of inflation rising to 4.4%. The economy added another 41,400 jobs in April, more than double the 20,000 expected with wages rising and unemployment remaining at just 5%. The resilience of the economy was then emphasised further by first quarter GDP growth coming in at 3.1% annualised, beating the 2.5% consensus growth forecast. Consumer spending was the main growth engine, rising 3.1%.     But we favour a hawkish hold – signalling action unless inflation softens again soon Nonetheless, the BoC accept that monetary policy operates with long and varied lags and continue to believe that “as more households renew their mortgages at higher rates and restrictive monetary policy works its way through the economy more broadly, consumption is expected to moderate this year”. This will help to dampen inflation pressures and with commodity price softening we still believe that inflation can get close to the 2% target by the early part of 2024.   With the US economic outlook also looking a little uncertain, we doubt that the BoC will want to restart hiking interest rates unless it is certain that inflation pressures will not moderate as it has long been forecasting. Consequently we favour a hawkish hold, signalling that if there isn’t clearer evidence of softening in price pressures it could raise rates again in July.     The loonie's resilience can continue The Canadian dollar has been the best G10 performing currency in the past month, largely thanks to its high beta to the US economic narrative and a repricing of Canada’s domestic rate and growth story. These factors have outshadowed crude’s subdued performance in May and some risk sentiment instability.   A hawkish tone by the Bank of Canada at the June meeting is clearly an important element to keep the bullish narrative for CAD alive. As shown below, the recent repricing in Fed rate expectations caused a rebound in short-term USD swap rates relative to most currencies (like the euro), while the USD-CAD 2-year swap rate differential has remained on a declining path also throughout the second half of May.     As long as the BoC does not push back against the pricing for a hike in the summer, we expect CAD to remain supported. Some lingering USD strength in June can put a floor around 1.33/1.34 in USD/CAD, but we expect a decisive move to 1.30 in the third quarter and below then level before the end of the year.  

Market sentiment could change depending on the Fed's final decision at its June monetary policy meeting. This decision, however, could be affected by upcoming economic data from the US. Ahead lies key manufacturing indicators from both the US and Europe, followed by reports on China's export volume, import volume, and trade balance. Equally important will be the meetings of other central banks, where key parameters of monetary policy will remain unchanged. Markets will likely establish equilibrium, as investors expect a 0.25% increase in the Fed's interest rates. However, the recently-released strong US labor market data for May changed the sentiment, pushing market players to opt for a pause. Now, only 19.6% expect a 0.25% increase in rates. Resolving the debt problem, as well as very positive employment data, allow investors to believe that the US will no longer face recession.   As such, the Fed may opt not to raise rates, primarily because they do not want to shake the markets and stimulate another sell-off in the government bond market, given the government's high need for new loans at relatively low interest rates. Most likely, until June 14, consolidation in broad ranges will be observed in the forex market. Similar expectations can be set for stock and commodity markets.   Forecasts for today:     EUR/USD The pair trades above 1.0685. A neutral or weakly positive market sentiment will push the quote between 1.0685 and 1.0825. However, a decline below 1.0685 mark could lead to a `further fall to 1.0540.   XAU/USD Gold trades within the range of 1933.75-1983.75. A pause in the fed's rate hike cycle will push the quote towards 1983.75. Pati Gani Analytical expert of InstaForex © 2007-2023 Back to the list  

The GBP/USD currency pair continued its decline on Monday, which had started on Friday. Recall that on Friday, a single report triggered a strong US dollar. This report is the Nonfarm Payrolls. In recent months, many analysts have regularly claimed that the US labor market is in recession, with the number of jobs created decreasing monthly.   Therefore, the situation is expected to worsen further, which may force the Federal Reserve (Fed) to ease its monetary policy earlier than scheduled. However, every new Nonfarm report proves only one thing: the labor market is in good shape. As previously noted, a normal report value can be considered in the 200-250 thousand range. For several consecutive months, we have been observing precisely such figures. There has not been a report below 200 thousand in the last 12 months.     Therefore, the Fed has the opportunity to maintain the rate at its maximum level and to continue tightening its monetary policy. And this combination of factors should support the dollar, not the pound. Now let's look at the technical picture. The British pound has been confidently rising for the past nine months. Moreover, it has been challenging to pinpoint the reasons for its growth in the last three months.   As a result, it has become overbought and unreasonably expensive. What kind of movement can we expect from a pair that is not only overbought and lacks factors for new growth but also faces fundamental and macroeconomic pressures for its decline? That's why we have advocated and continue to advocate for the decline of the British currency. The first target we still see is the level of 1.2170, which corresponds to the Senkou Span B line. The Fed can raise the rate in both June and July. According to the FedWatch tool, the current rate hike probability at the June meeting is only 22%.   Just a week ago, the probability exceeded 50%. We believe that the market has not paid due attention to a whole series of "hawkish" comments from members of the Fed's monetary committee. Or perhaps it paid too much attention to the words of other Fed officials about "raising the rate once every two meetings." However, the market believes the next tightening can be expected in July. The probability of a July hike is currently at 54%.     Either way, we are talking about an unplanned rate hike. The market did not factor in a dollar exchange rate increase above 5.25%. However, the current labor market state allows the US regulator to raise the rate one or two more times.     And this, in turn, supports the dollar, which should grow even without this factor. Separately, it should be noted that the situation with the US debt ceiling has been resolved. Joe Biden signed the relevant document, so we can put a bold period in this saga.     The US dollar did not react much to this saga and had been rising more than falling in the past month, which is at least illogical for a country's currency on the brink of default. This influence on market sentiment is neutralized, so nothing should prevent the dollar from rising now.   We can still expect 1-2 rate hikes from the Bank of England, but the market has already priced them in. No matter how you look at it, the pound has no grounds for further growth. The market quickly worked off the oversold condition of the CCI indicator, which occurred accidentally on May 11th, and now the decline can continue. It failed to consolidate above the critical line in the 24-hour time frame, so the decline can continue. There will be few macroeconomic statistics this week, so nothing should hinder the decline.     The average volatility of the GBP/USD pair for the past five trading days is 109 points. For the pound/dollar pair, this value is considered "average." Therefore, on Tuesday, June 6th, we expect movements within a channel bounded by the levels of 1.2327 and 1.2545. A reversal of the Heiken Ashi indicator upwards will signal a possible resumption of an upward movement.   Nearest support levels: S1 - 1.2421 S2 - 1.2390 S3 - 1.2360   Nearest resistance levels: R1 - 1.2451 R2 - 1.2482 R3 - 1.2512   Trading recommendations: The GBP/USD pair on the 4-hour timeframe has settled back below the moving average line, so short positions with targets at 1.2360 and 1.2329 are currently relevant. This should be opened if the price bounces off the moving average from below. Long positions can be considered if the price stabilizes above the moving average with targets at 1.2512 and 1.2543.   Explanations for the illustrations: Linear regression channels - help determine the current trend. It indicates a strong current trend if both are directed in the same direction. Moving average line (settings 20.0, smoothed) - determines the short-term trend and direction in which trading should be conducted. Murray levels - target levels for movements and corrections. Volatility levels (red lines) - the probable price channel in which the pair will move the next day based on current volatility indicators. 0000 CCI indicator - its entry into the oversold zone (below -250) or overbought zone (above +250) indicates an approaching trend reversal in the opposite direction.    

The GBP/USD currency pair failed to continue its upward movement for the third consecutive time on Tuesday after consolidating above the moving average line. It is worth noting that last week the pair showed significant growth, but there were hardly any solid reasons behind such a movement. Just looking at the calendar of fundamental events and the movements of the EUR/USD pair during the same period confirms this.   Currently, the pound is trying to figure out its next move. It remains close to its local peaks, which are too high for its current conditions. Remember that there are no substantial reasons for it to be that high. One of the reasons for the pound's strong rally in recent weeks could have been the oversold condition of the CCI indicator on May 11.     But it has already been accounted for and worked out in this case. It's time to head down again. There were no important publications or events in the UK or the US on Tuesday. Overall, this week will have a limited number of important events and news.     Therefore, the pair may continue to swing sideways. However, in the medium term, we expect it to decline in almost any case. Whether it will happen remains an open question because the market has shown us in recent months that it can buy when 80% of the factors suggest selling. In the 24-hour timeframe, the price rebounded from a critical line, and this signal is the main hope for a decline soon.     The Kijun-sen line is strong, so a decline can be expected after the rebound. Additionally, there won't be any significant reports or events soon to shift the market sentiment to "bullish" again suddenly. No matter how you look at it, the word "decline" is evident everywhere. There is no fundamental background, only sell signals. Regarding the fundamental background, there is nothing new to say after Tuesday.     There weren't even any minor speeches from the Bank of England or Fed officials. The next Federal Reserve meeting will occur on June 13-14, so the "quiet period" has already begun. This means there will be no speeches by Fed representatives until the meeting.   The same applies to BoE members. The topic of US government debt is closed. There is no news. Therefore, the pair may trade chaotically and flatly or swing back and forth over the next few weeks. Be prepared for any outcome. By the way, the CCI indicator almost entered the overbought zone again. If that had happened, the probability of a new decline would have increased significantly. Without that, we can only wait for a decline and be wary of another illogical rally.       We have already discussed the Fed rates in the article on EUR/USD; there is nothing new about the Bank of England's rates. It will undoubtedly increase by 0.25% at the next meeting, the thirteenth consecutive hike. Inflation in the UK remains high, and there is no guarantee it will slow down at the same pace as in April. Thus, the British regulator cannot ease its monetary pressure, but at the same time, the rate has already risen to 4.5%. This is not the maximum possible value. The rate could increase by another 0.25-0.5%, but GDP has remained near zero growth for three consecutive quarters. According to Andrew Bailey, each subsequent rate hike could harm the British economy, which will not enter a recession this year.   But it's uncertain. Let's mention the "head and shoulders" pattern forming between May 30 and June 6. If it is indeed forming, it provides another sell signal. Two shoulders are around the level of 1.2451. The head is around the level of 1.2543. The average volatility of the GBP/USD pair over the past five trading days is 98 pips. For the pound/dollar pair, this value is considered "average."   Therefore, on Wednesday, June 7, we expect movements between 1.2322 and 1.2518. Reversal of the Heiken Ashi indicator back upward will signal a new upward movement phase.     Nearest support levels: S1 - 1.2421 S2 - 1.2390 S3 - 1.2360   Nearest resistance levels: R1 - 1.2451 R2 - 1.2482 R3 - 1.2512   Trading recommendations: On the 4-hour timeframe, the GBP/USD pair has settled below the moving average line, so short positions are currently relevant, with targets at 1.2360 and 1.2329. These positions should be held until the Heiken Ashi indicator reverses upward. Long positions can be considered if the price consolidates above the moving average line with targets at 1.2482 and 1.2512.   Explanations for the illustrations: Linear regression channels - help determine the current trend. The trend is strong if both channels are directed in the same direction. Moving average line (settings 20,0, smoothed) - determines the short-term trend and the direction in which trading should be conducted.   Murray levels - target levels for movements and corrections. Volatility levels (red lines) - the probable price channel in which the pair will move the next day based on current volatility indicators. CCI indicator - its entry into the oversold area (below -250) or overbought area (above +250) indicates an upcoming trend reversal in the opposite direction.  

What events may affect market sentiment on June 7? Analysis of fundamental data for beginners. On Wednesday, there will be very few macroeconomic reports. We can mention the US balance of trade report, but I can't even remember the last time this report provoked any market reaction. Therefore, we should probably expect the market to go into a "half-holiday" state again today. Volatility could range from 50 to 70 pips for both instruments, which makes it challenging to trade.   But there's nothing we can do if there are no news and reports, the market has no reason to be active. Analysis of fundamental events: Among the fundamental events, the only notable one is the speech by European Central Bank Vice President Luis de Guindos. As we approach the June ECB meeting, his comments may help traders understand the central bank's plans for this month. However, traders are already aware of these things.   The probability of a new quarter point rate hike is 100%, and there are simply no other options. Therefore, even if de Guindos hints at further tightening, it will not support the euro or create pressure on it. It would be different if de Guindos outlines the future prospects for the ECB rate, as there has been recent information suggesting that the June hike may be the last in the tightening cycle. But for now, it's only rumors.     General conclusions: On Wednesday, there will be hardly any significant events, so we expect low volatility and weak intraday movements. Theoretically, de Guindos' speech could turn out to be interesting, but in reality, we have witnessed a large number of speeches by ECB committee members in the last two weeks. It is unlikely that de Guindos will reveal anything fundamentally new today.     Basic trading rules: 1) The strength of the signal depends on the time period during which the signal was formed (a rebound or a break). The shorter this period, the stronger the signal. 2) If two or more trades were opened at some level following false signals, i.e. those signals that did not lead the price to Take Profit level or the nearest target levels, then any consequent signals near this level should be ignored. 3) During the flat trend, any currency pair may form a lot of false signals or do not produce any signals at all. In any case, the flat trend is not the best condition for trading. 4) Trades are opened in the time period between the beginning of the European session and until the middle of the American one when all deals should be closed manually. 5) We can pay attention to the MACD signals in the 30M time frame only if there is good volatility and a definite trend confirmed by a trend line or a trend channel. 6) If two key levels are too close to each other (about 5-15 pips), then this is a support or resistance area.   How to read charts: Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them. Red lines are channels or trend lines that display the current trend and show which direction is better to trade. MACD indicator (14,22,3) is a histogram and a signal line showing when it is better to enter the market when they cross. This indicator is better to be used in combination with trend channels or trend lines. Important speeches and reports that are always reflected in the economic calendars can greatly influence the movement of a currency pair.   Therefore, during such events, it is recommended to trade as carefully as possible or exit the market in order to avoid a sharp price reversal against the previous movement. Beginners should remember that every trade cannot be profitable. The development of a reliable strategy and money management are the key to success in trading over a long period of time.    

The Commodities Feed: China's imports recover China’s crude oil and natural gas imports recovered strongly in May, which could help improve market sentiment. For copper, China’s concentrate imports jumped to a fresh high, while unwrought copper imports remain soft.   Energy – China's crude oil imports recover China’s crude oil imports recovered to 51.44mt or around 12.16MMbbls/d (up 17% month-on-month and 12% year-on-year) in May 2023, as some of the refineries increased their utilisation rate after concluding maintenance. Demand slowdown from China has been a major concern for the crude oil market recently, and a recovery in oil imports is likely to provide some comfort to the oil market. Higher refinery utilisation has also increased refined product supplies in the Chinese market, with China reverting to being a net exporter of refined products last month. Among other energy products, natural gas imports into China increased 17.3% YoY to 10.6mt in May as lower gas prices in the Asian market supported demand for storage.   In its latest short-term energy outlook report, the Energy Information Administration (EIA) revised higher domestic oil production estimates, as the decision by OPEC+ to extend output cuts could push oil prices higher and bring more investments into exploration.   The administration revised higher the production estimates to 12.61MMbbls/d for 2023 compared to earlier estimates of 12.53MMbbls/d and output of 11.88MMbbls/d in 2022. For 2024, production estimates are revised higher to 12.77MMbbls/d compared to earlier estimates of 12.69MMbbls/d. On the other hand, US demand for crude oil is revised down from 20.47MMbbls/d to 20.42MMbbls/d on slow demand for distillates – although this is still higher than the 20.28MMbbls/d of consumption in 2022.   Meanwhile, the American Petroleum Institute (API) reported that the US crude oil inventories decreased by 1.71MMbbls over the last week, in contrast to market expectations for the addition of around 350Mbbls. Cushing crude oil stocks are reported to have increased by 1.53MMbbls. On the products side, API reported that gasoline and distillates inventories rose by 2.42MMbbls and 4.5MMbbls respectively over the week ending 2 June. The more widely followed EIA report will be released later today.     Metals – Chinese copper concentrate imports at record highs China released its preliminary trade data for metals this morning, which shows total monthly imports for unwrought copper fell 4.6% YoY to 444kt in May, largely on account of higher domestic production of the refined metal. Cumulatively, unwrought copper imports fell 11% YoY to 2.14mt in the first five months of the year.   Meanwhile, imports of copper concentrate rose 16.7% YoY to a fresh record of 2.56mt last month, with year-to-date imports up 8.8% YoY to 11.31mt from January to May this year. In ferrous metals, iron ore monthly imports rose 3.9% YoY (+6.3% MoM) to 96.17mt last month, while cumulative imports are up 7.7% YoY to 480.7mt from January to May.   On the exports side, China’s unwrought aluminium and aluminium products shipments fell 29.7% YoY to 475.4kt last month while year-to-date exports declined 20.2% YoY to 2.32mt in the first five months of the year. Exports of steel products jumped 41% YoY to 36.4mt from January to May this year.   Meanwhile, data from the Mines and Geosciences Bureau shows that nickel output in the Philippines rose 5.4% YoY to 3.9dmt in 1Q23 despite only a few mines being in production. The bureau reported that only 13 out of the nation’s 33 operating mines reported output for the above-mentioned period, as some were impacted by unfavourable weather conditions while few were undergoing scheduled maintenance.   However, the bureau remains optimistic about the outlook for the mining industry over the long term, following the expected recovery of the global economy and strong demand for nickel ore.     Agriculture – Chinese soybean imports surge The latest trade numbers from Chinese Customs show that soybean imports in China rose 24.3% YoY (+65.6% MoM) to a record high of 12.02mt in May. The imports surged sharply as the delayed cargoes (due to last month's strict inspections) were finally unloaded at ports. Cumulatively, soybean imports rose 11.2% YoY to 42.3mt over the first five months of the year.   Weekly data from the European Commission show that soft wheat shipments from the EU reached 28.9mt for the season as of 4 June, up 11.4% compared to 25.9mt from the same period last year. Morocco, Algeria, and Nigeria were the top destinations for these shipments. Meanwhile, the EU’s corn imports stood at 24.6mt, compared to 15.3mt reported a year ago.

While the Fed and ECB sound hawkish, the BoJ continues to remain dovish    While European markets underwent a rather subdued and negative finish yesterday, US markets continued their recent exuberant run, with the S&P500 and Nasdaq 100 both closing higher for the 6th day in a row. This was a little surprising given that the Federal Reserve and the European Central Bank both delivered very hawkish outcomes in the space of 24 hours of each other, as well as painting very cautious outlooks for growth and inflation over the course of the next 12 months. While the Federal Reserve kept rates unchanged, they upgraded their terminal rate forecast for this year by indicating that they expected to deliver another 2 rate hikes by the end of this year. This was a little surprising even with the fact that the labour market continues to exhibit significant tightness.     This is because a lot of the main inflation indicators, particularly the forward-looking ones, are showing increasing evidence of disinflation. If they are showing these signs now then the signs will be much more evident in the next few weeks, which means that for all the Fed's jawboning today its highly unlikely they will be able to follow through on it.     Quite simply markets aren't buying it with US 2-year yields below the levels they were prior to Wednesday's Fed meeting. In essence the market thinks the Fed is done as far as rate hikes are concerned.     Yesterday's economic data also cast doubt on the Fed's forward guidance for rates this year with US import prices for May plunging by -5.9% year on year, close to levels last seen in April 2020. Export prices on the other hand fell even more sharply, falling to a record low of -10.1%   While the ECB did deliver a rate hike, they also revised upwards their core inflation forecasts for this year from 4.6% to 5.1%, which was quite punchy given that core inflation has already fallen back to 5.3% in this month's flash numbers, down from 5.6% in April, and just below the record high of 5.7% set in March. This core number is expected to be confirmed in data scheduled to be released later this morning.   ECB President Christine Lagarde even went as far as more or less pre-committing to another 25bps rate hike in July, which in turn helped to push European yields sharply higher. They may well be able to deliver on this, however there is room for scepticism when it comes to any rate moves beyond that.   This is because their core inflation expectations for the end of this year come across as way too high. Does anyone at the ECB seriously believe that core prices won't have fallen below 5% from where they are now by the end of this year, when producer price inflation is already slowing sharply. If they do, they need to have another look at their economic models.   This morning the Bank of Japan delivered their own assessment of the outlook for the Japanese economy, with traders and investors increasingly scratching their heads as to why new Bank of Japan governor Kazuo Ueda seems so reluctant to even consider starting to look at paring back their own easy monetary policy, when core CPI is at 4.1% and the highest level since the 1980's. The BoJ seems to be of the opinion that current levels of core inflation aren't sustainable and that prices will fall back towards 3.5%, before accelerating modestly again.      The central bank is due to update its economic forecasts in July, while Governor Ueda is due to speak in a couple of hours' time when he might offer further insights as to why the Bank of Japan is reluctant to alter its policy settings quite yet.   EUR/USD – pushed above the 50-day SMA at 1.0880, as well as pushing through 1.0920/30 opening the prospect for a return to the April highs at 1.1095. We now have support back at the 1.0820/30 break out level.     GBP/USD – broken above previous highs this year at 1.2680 and kicked on above the 1.2760 area which is 61.8% retracement of the 1.4250/1.0344 down move. This puts us on course for a move towards the 1.3000 area. We now have support at 1.2630.      EUR/GBP – continues to hold above the 0.8530/40 area rallying back to the 0.8600 area before slipping back. The key day reversal from earlier this week is just about still valid, however the lack of a rebound is a concern. A break below 0.8530 targets a move towards 0.8350. Resistance at 0.8620.     USD/JPY – pushed up to 141.50 yesterday, before slipping back, with the next resistance at 142.50 which is 61.8% retracement of the 151.95/127.20 down move. Support now comes in at 140.20/30      FTSE100 is expected to open 7 points higher at 7,635     DAX is expected to open 15 points higher at 16,305     CAC40 is expected to open unchanged at 7,290     By Michael Hewson (Chief Market Analyst at CMC Markets UK)  

The current situation in the financial markets has been a topic of great interest and speculation. To shed light on this matter, we had the opportunity to speak with an analyst from RoboForex, who provided valuable insights. Starting with the FOMC decision, the US Federal Reserve opted to maintain the interest rate at 5.25% per annum, aligning with expectations. However, the regulator's comments presented a mixed outlook. While it acknowledged the possibility of further interest rate hikes, it is anticipated that any future increases will be more modest, with a shift from 50 basis points to 25 basis points.   The Federal Reserve also indicated its intention to continue reducing the volume of assets on its balance sheet, with potential sales of securities starting in 2024. Despite the neutral nature of the recent statements and decisions, there are concerns about the negative impact on the US capital market due to potential future lending cost increases. The risks of a recession are expected to persist until the end of 2023.   Moving on to the ECB decision, the European Central Bank raised all three interest rates at its recent meeting. The deposit rate increased by 25 basis points to 3.25% per annum, while the key rate and marginal rate were lifted to 4.00% and 4.25% per annum, respectively. The ECB made it clear that its interest rate hike campaign is not yet over, as it aims to bring rates to sufficiently restrictive levels for inflation to reach the target of 2% in the medium term. It is anticipated that there will be at least two more rate hikes of 25 basis points each, followed by a possible pause for data analysis.     FXMAG.COM: Could you please comment on the FOMC decision? The decision of the US Federal Reserve turned out to be as expected. The interest rate was kept at the level of 5.25% per annum. The regulator's comments came out mixed.For example, the Fed believes it is reasonable to consider further interest rate hikes. This means that the pause will probably not last long. There may be one or two rate hikes ahead. The nuance is that the rate increase will be more modest, at 25 basis points and not at 50 bp as before.The Fed will continue to reduce the volume of assets on its balance sheet as announced earlier. Since May this year, the indicator has fallen to 8.4 trillion USD from 8.5 trillion USD. The Committee refuses to reinvest funds generated from matured securities. Sales of securities from the Fed's balance sheet might start in 2024.Locally, all statements and decisions are of a neutral nature. In the medium term, this can have a negative impact on the US capital market due to the possibility of a further increase in the cost of lending. The risks of a recession persist until the end of 2023.   FXMAG.COM: Could you please comment on the ECB decision? The European Central Bank raised all three interest rates at its meeting on Thursday. The deposit rate rose by 25 basis points to 3.25% per annum. The key rate increased to 4.00% per annum, and the marginal rate was lifted to 4.25% per annum.The ECB made it clear in its comments that its unprecedented interest hike campaign is not over yet.As stated by the CB, rates must be brought to levels that will be sufficiently restrictive for a timely return of inflation to the 2% medium-term target. Rates will be kept high for as long as necessary.Everything happened exactly as expected. The ECB will likely further raise the rates at least twice by the same interval of 25 basis points each time. Thereafter, a pause will probably be needed to collect data and analyse it. This will not necessarily indicate that the series of hikes has come to an end, but that the ECB has received signals that its monetary strategy is working.   FXMAG.COM: Could you give as your point of view about how the gold prices would behave in next weeks? Is there a chance that there will be new ATH? Gold is currently not in demand as a safe-haven asset. At the same time, physical demand for the precious metal is low, which does not provide any support for gold.Gold has declined to 1,946 USD per troy ounce. This year's high was recorded on 3 May, when gold was priced at 2,071.30 USD.There are a lot of risks for gold associated with the prospects of the monetary policy of the US Federal Reserve. While investors were expecting a pause in the series of interest rate hikes by the Fed, they now received indications of a probable further tightening of monetary policy. If gold can cope with this statement, it could trigger price increases.The crux of the matter is that the Fed is on the verge of altering its monetary policy stance. Everyone understands that. The question remains about the timing of when the regulator will begin lowering rates. While there is a lot of uncertainty here, there is almost no doubt that this could happen in the next 6-8 months.A shift in the Fed's monetary framework will be a vital support for gold from a long-term perspective. In the medium term, a sideways trend has formed within the range of 1,935-1,985 USD, while a decline is the most likely scenario in the short term.     Visit RoboForex

The EUR/USD currency pair did not show high volatility on Monday and started a weak downward correction, as we anticipated. In principle, the market sentiment was not influenced by the planned fundamental events (we will discuss them below). And perhaps they were not supposed to. Recall that the EUR/USD pair is in a strong upward correction after its monthly decline. Corrections can vary. Those that are truly worth highlighting range from 30% to 100%. This time, the euro could have corrected by 60–70%, and there is nothing strange or surprising about that. We have mentioned many times in recent months that the euro currency is significantly overbought and is positioned too high, given the fundamental backdrop at its disposal.     Therefore, we expect only one thing - a decline. Lately, the interest rate factor has come to the forefront again. The markets received new information from the Fed and the ECB, and it unexpectedly turned out that both central banks are willing to tighten monetary policy more aggressively than was previously thought a couple of months ago.   The ECB believes that the rate may continue to rise in the autumn, while the Fed has stated that the rate may increase one or two more times. However, in any case, both central banks are ready to continue tightening beyond the "planned" levels. Thus, there are no advantages for the euro currency over the dollar after it has already risen by 1550 points in the past three quarters. Furthermore, the Fed's rate is higher than the ECB's rate and will remain so because the ECB does not have the same capabilities as the US regulator. Additionally, the Eurozone economy has shown a 0.1% contraction in the last two quarters, unlike the US economy, which still exists although its growth rates are decreasing. Not to mention the state of the labor market and unemployment.   In the United States, these indicators are in good order, while unemployment in the EU stands at 6.5%. Thus, the path for the euro currency is only downward if the fundamental backdrop has any significance. ECB Chief Economist Philipp Lane stated on Monday that a rate hike in July would be appropriate. With this statement, he certainly did not reveal anything groundbreaking. We have mentioned many times that we should expect three more rate hikes after slowing down the pace of monetary policy tightening to a minimum.   Therefore, the rate will rise to 4.25%. This is not news or an intensification of the regulator's "hawkish" stance, so the market did not react to this statement. Similarly, the statements made by Luis de Guindos and Isabel Schnabel should have been addressed. Mr. Lane stated that inflation in the Eurozone would fall to 2% in the coming years, which speaks to the regulator's need for more urgency. In other words, he is not striving, like the Fed, to return inflation to 2% in the shortest possible time (they even started raising rates six months later).   Indirectly, this indicates that the rate will only rise for a short time. And if so, it will rise to 4.25% or a maximum of 4.5%. In other words, one or two more times. That's how many times the Fed's rate can rise this year. And if inflation in the EU continues to decrease at normal rates, it will not make sense to continue tightening monetary policy, driving its economy into a recession.   After all, what is the ECB's calculation? Even a few quarters of negative growth are fine. The rate will decrease when inflation approaches 2%, and the economy will accelerate. However, the higher the rate rises in 2023, the stronger the economy will fall. It may take a long time to solve the recession problem.   The conclusion is that the euro currency has no grounds for further growth against the US dollar. The average volatility of the euro/dollar currency pair for the past five trading days, as of June 20th, is 77 points and is characterized as "average." Therefore, we expect the pair to move between the levels of 1.0843 and 1.0977 on Tuesday. A reversal of the Heiken Ashi indicator back upwards will indicate a resumption of the upward movement.    

Analysis of transactions and tips for trading EUR/USD The test of 1.0929 on Monday afternoon, coinciding with the significant rise of the MACD line from zero, limited the upward potential of the pair. The Bundesbank report dealt no impact on market sentiment yesterday, allowing EUR/USD to rise, albeit briefly.     This momentum may extend to today as the data on ECB's balance of payments will not affect the pair's direction, while the speech of ECB Vice President Luis de Guindos, which will undoubtedly maintain a hawkish tone, will sustain demand for euro even under current conditions. Market volatility will most likely return today.     For long positions: Buy when euro hits 1.0935 (green line on the chart) and take profit at the price of 1.0964. Although a strong growth may not appear today, buyers will start returning to the market, leading to the strengthening of the pair. However, when buying, traders should make sure that the MACD line lies above zero or rises from it. Euro can also be bought after two consecutive price tests of 1.0911, but the MACD line should be in the oversold area as only by that will the market reverse to 1.0935 and 1.0964.   For short positions: Sell when euro reaches 1.0911 (red line on the chart) and take profit at the price of 1.0878. Pressure may return in the event of inactivity at the daily highs. However, when selling, traders should make sure that the MACD line lies below zero or drops down from it. Euro can also be sold after two consecutive price tests of 1.0935, but the MACD line should be in the overbought area as only by that will the market reverse to 1.0911 and 1.0878.   What's on the chart: Thin green line - entry price at which you can buy EUR/USD Thick green line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further growth above this level is unlikely. Thin red line - entry price at which you can sell EUR/USD Thick red line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further decline below this level is unlikely. MACD line- it is important to be guided by overbought and oversold areas when entering the market   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.  

Oil remains choppy but flat and in lower range Oil prices are relatively flat today, mirroring yesterday’s session which was broadly choppy but ultimately directionless. Crude has rebounded strongly since falling toward its 2023 lows early last week but remains in its lower range, roughly between $70-$80 per barrel and it’s showing little sign of breaking that in the short term. While some believe the market will be in deficit later in the year, aided by the Saudi-driven OPEC+ cuts, which could support prices closer to what we saw late last year and early this, the economy remains one significant downside risk to this amid an adjustment in the markets toward higher rates for longer.   Gold drifting as we await more data Gold has started the week slightly softer but very little has changed, in that it remains in the $1,940-$1,980 range that it has spent the vast majority of the last month. It was a very quiet start to the week which is why gold has basically continued to drift and that may continue until we see a significant change in the data. The Fed last week made it perfectly clear that it doesn’t believe it’s done and its commentary this week, including Chair Powell’s appearing in Congress on Wednesday, isn’t likely to change in any significant way from that. It will be interesting to see if we get any response to UK inflation data as a potential signal of stickiness more broadly but then, there’s every chance it could be viewed as a UK issue, rather than an indication of something more, considering how much more the country has struggled until now.  

GBP/USD extended its downward movement on Tuesday, but in general, it remains stable. After a three-day correction, the pair barely managed to test the critical line without surpassing it. Thus, the uptrend persists ahead of an important inflation report in the UK, the Bank of England's meeting, and two speeches by Jerome Powell in the US Congress.   It is evident that these events will impact market sentiment, but it is currently impossible to determine how exactly. We need to be prepared for any developments. We believe that in the medium term, the pound should fall rather than rise, but the market currently holds a different opinion. We do not see any signs of the upward trend coming to an end. There were several trading signals on Tuesday. Initially, the pair bounced off the level of 1.2762, providing a buy signal. Following this signal, the price moved up by about 26 pips, which was enough to set the stop-loss at breakeven. Subsequently, there was a consolidation below the level of 1.2762, after which the pair dropped to the critical line but failed to surpass it. Consequently, it was advisable to close the short position at that point. The profit amounted to approximately 20 pips. The last buy signal formed quite late, but it could have been attempted. It resulted in an additional profit of 10-20 pips. Since the volatility was relatively low, such a level of profit was acceptable.   COT report: According to the latest report, non-commercial traders closed 5,200 long positions and 4,500 short ones. The net position dropped by 700 but remained bullish. Over the past 9-10 months, the net position has been on the rise despite bearish sentiment. In fact, sentiment is now bullish, but it is a pure formality. The pound is bullish against the greenback in the medium term, but there have been hardly any reasons for that. We assume that a prolonged bear run may soon begin even though COT reports suggest a bullish continuation. However, we can hardly explain why the uptrend should go on. The pound has gained about 2,300 pips. Therefore, a bearish correction is now needed.   Otherwise, a bullish continuation would make no sense even despite the lack of support from fundamental factors. Overall, non-commercial traders hold 52,500 sell positions and 65,000 long ones. We do not see the pair extending growth in the long term. 1H chart of GBP/USD In the 1-hour chart, GBP/USD maintains a bullish bias, although it is correcting at the moment. The ascending trend line serves as a buy signal but I believe that further growth of the British currency is groundless. The pound sterling has been climbing for too long and downward corrections are short-lived (like in the last three days). Judging by the technical indicators, we have an uptrend. It is not advisable to sell the pair without proper signals. The market can sustain the trend even without a "fundamental" basis. On June 21, trading levels are seen at 1.2349, 1.2429-1.2445, 1.2520, 1.2589, 1.2666, 1.2762, 1.2863, 1.2981-1.2987. The Senkou Span B (1.2532) and Kijun-sen (1.2739) may also generate signals when the price either breaks or bounces off them. A Stop Loss should be placed at the breakeven point when the price goes 20 pips in the right direction. Ichimoku indicator lines can move intraday, which should be taken into account when determining trading signals. There are also support and resistance which can be used for locking in profits. On Wednesday, the UK has the most important inflation report, and in the US - Federal Reserve Chairman Jerome Powell's first address to the Congress. Thus, it could be an interesting and volatile day. We think that the fall is more likely, but the pair also maintains a bullish bias and the market can start buying the pound again on any background.  

For short positions on EUR/USD: Sellers capitulated, and today their hopes are dwindling. The divergent policies of the Fed and the ECB, as well as aggressive statements from European officials regarding further inflation fighting measures, maintain demand for the euro, which is used by the big players. The only thing the bears do is to protect the new resistance level at 1.0997. I will go short on this mark after a rise and a false breakout. It may give a sell signal, pushing EUR/USD to a major support level at 1.0956, formed yesterday.   A decline below this level as well as an upward retest could trigger a downward movement to 1.0911. A more distant target will be the 1.0862 level where I recommend locking in profits. If EUR/USD rises during the European session and bears fail to protect 1.0997, the bullish trend will continue. In this case, I would advise you to postpone short positions until a false breakout of the resistance level of 1.1029. You could sell EUR/USD at a bounce from 1.1029, keeping in mind a downward intraday correction of 30-35 pips.   COT report: According to the COT report (Commitment of Traders) for June 13, there was a drop in long and short positions. However, this report was released even before the Federal Reserve's decision on the interest rate. The regulator decided to skip a rate hike in June this year, which significantly affected market sentiment. For this reason, one should not pay too much attention to the report. Demand for the euro remains high as the ECB remains committed to aggressive tightening. The euro is likely to maintain a bullish bias. The best medium-term strategy is to go long on the decline. The COT report showed that long non-commercial positions decreased by 9,922 to 226,138, while short non-commercial positions fell by 3,323 to 74,316. At the end of the week, the total non-commercial net position dropped and amounted to 151 822 against 158 224. The weekly closing price increased and amounted to 1.0794 against 1.0702.  

The Commodities Feed: Oil dips following hawkish comments from Fed Chair Powell The oil market has been unable to escape the pressure from a more hawkish Federal Reserve. And this is despite a supportive inventory report from the Energy Information Administration (EIA)   Energy – Fed talk pressures the energy complex The oil market buckled yesterday as a result of further hawkish comments from Federal Reserve Chair Jerome Powell during his second day of congressional testimony. ICE Brent fell almost 3.9% on the day towards US$74/bbl. And this weakness has continued this morning. A more hawkish Fed overshadowed what was a fairly constructive EIA report. US commercial crude oil inventories fell by 3.38MMbbls over the last week, more than the 1.2MMbbls draw the American Petroleum Institute (API) reported the previous day and more than the market was expecting. Crude oil exports played a part in this draw, rising by 1.27MMbbls/d WoW to 4.54MMbbls/d. On the product side, small builds of 479Mbbls and 434Mbbls were seen in gasoline and distillate fuel oil respectively. In addition, implied US oil demand (total product supplied) hit 20.93MMbbls/d over the week – the highest number seen since December. Middle distillates remain well supported with the prompt ICE gasoil crack remaining above US$20/bbl, whilst the prompt time spread remains in deep backwardation. The latest data from Insights Global show that gasoil inventories in the Amsterdam-Rotterdam-Antwerp (ARA) region continue to decline with them now standing at 2.04mt, which is below the five-year average and levels not seen since the start of the year. Refinery outages appear to be driving this tightness, which should continue to support middle distillates at least in the short term. There is very little on the calendar today for energy markets. Baker Hughes will release rig count data and if it continues to follow the trend seen so far this year, we can expect a further decline in drilling activity. Higher costs have likely contributed to slower drilling activity. The latest Dallas Fed Energy Survey shows that 60% of producers see drilling and completion costs per well to end this year higher than where they ended 2022. Today's other regular release on the calendar is the latest positioning data from the Commodity Futures Trading Commission (CFTC) and ICE. Given the move in the oil market over the last reporting week and the increase in open interest, we could see the net speculative long in ICE Brent having grown over the week. This is even more the case for ICE gasoil, where open interest has increased from a little under 706k lots to more than 720k lots over the reporting week.  

According to the CME FedWatch tool, markets are currently seeing a ~74% probability that a hike will not take place at the Fed monetary policy committee meeting in June. In addition, expectations of future rate cuts closer to the end of 2023 and continued rate cuts through 2024 are increasing, further boosting investor sentiment, supporting valuations of technology companies, growth sectors in general and contributing to the upward trajectory of the market.   Lower inflation has also played a role in the positive market performance. Inflationary pressures continue to fall, allowing consumers to maintain their purchasing power and businesses to plan for the future with greater certainty, removing uncertainty about inflation. This favourable inflation environment has strengthened investor confidence in the resilience of the economy in the 2nd half of the year, given the expected policy shift from the Fed. Moreover, the US economy has demonstrated its resilience, continuing to show growth despite relatively high interest rate levels. Key economic indicators such as GDP growth, employment figures, labour market strength and consumer spending are showing signs of stability, indicating sustained and balanced economic growth. Expectations of a soft economic landing have allayed fears of a prolonged recession and laid a solid foundation for market recovery.

As markets factor in interest rate hikes by the Federal Reserve until the end of 2023, gold prices remain under pressure. In its latest gold price forecast, ABN AMRO's Senior Economist Sustainability Research, Georgette Boele, has lowered her long-term gold forecast. She projects prices to reach $2,000 by the end of this year and 2024 instead of the $2,200 previous forecast for 2024.   According to her, investors are not eager to buy gold at current levels, likely because prices are close to historical highs. She added that market expectations shifted after the Federal Reserve's statement about continuing its aggressive policy, even though the tightening cycle is nearing completion, marking the most aggressive tightening cycle in the last 40 years.   According to the CME FedWatch Tool, there is an 80% probability of a rate hike in July.   Boele stated that the Dutch bank expects the Federal Reserve to cut interest rates by 175 basis points only next year, as the economy slipped into a recession in the first quarter. Consequently, the bank anticipates a global bullish impulse for gold only in the following year, which could push prices towards.  

After over 7 months without new contracts DataWalk informed that it signed three new agreements for a delivery of its analytical platform: (i) with Northern California Regional Intelligence Center, (ii) with selected units of Polish public administration, and (i) with Ally Financial (American bank) which is a contract extension actually. All 3 contracts will probably be settled in 2Q23, albeit this may not be enough to show a yoy improvement of revenues (2Q22 demanding base with 7 new contracts signed) and we forecast an 11% yoy decline of revenues in 2Q23.   On the other hand, during last conferences and in 1Q23 financial report the Company admitted that it managed to overcome most of the obstacles that hindered its growth last year. In particular, the Company’s engineers implemented the majority of drawn-out contracts signed in 2020 or 2021 which means that they will be able to handle the implementation of new pilot (pre-sales) and full (post-sales) projects. Additionally, the Company has already 4 fully trained system architects which should also expedite the implementations of the subsequent projects. This coupled with the sales funnel growth should translate into increasing dynamics of new contracts acquisition and implementation starting already from 2H23. Thus, we keep our revenue growth forecasts for 2023/ 2024/ 2025 at c. 20%/ 50%/ 70% implying that 2H23 revenues should grow c. 60% at least which we deem attainable given the relatively low base.   It is worth noting that the market sentiment for the growth companies operating in the field of data analysis has improved considerably in recent months thanks to the investors’ positive approach to AI issues and lower inflation expectations (and lower cost of money).   Since May when we issued DataWalk our last report, the Company’s peers median of EV/Sales multiples for 2023-25 has grown by 70% on average, which with the financial forecasts kept intact affects our 12M EFV assessment that rises by 67% to PLN 122 (from PLN 73) per share implying a c. 90% upside.   We would like also to indicate that DataWalk’s share price has not been the beneficiary of the above mentioned sentiment improvement yet. Given positive news from the Company, including an increase of engineering capacity, dynamic sales funnel growth, and new contracts signed we expect to see rising volumes and value of contracts in the near future and return of the Company’s sales to strong growths starting from 3Q23. Besides, we also assume that along with the inflow of news about new contracts DataWalk will experience the beneficial impact of the investors’ sentiment improvement for growth companies and the valuation gap will recede. Thats why we upgrade our recommendations: LT fundamental to Buy (from Hold) and ST relative to Overweight (from Neutral).   Financial forecast We keep our revenue growth forecasts for 2023/ 2024/ 2025 at c. 20%/ 50%/ 70% implying that 2H23 revenues should grow c. 60% at least which we deem attainable given the relatively low base. We also assume that DataWalk is able to deliver a revenue growth expected for 2024 with the current employment level, however in the subsequent years a dynamic increase in employment should follow to support further growth, therefore, we raise our costs estimates (and thus forecast higher ND) in 2023.   Dynamic growth of sales funnel value In 1Q23 financial report the Company informed that as of the day it was issued (May 18, 2023) the total value of sales funnel stood at US$ 41 million (up 11%/ 60% qoq/ yoy), which is the record high. We would like to note that a high level of the sales funnel may be to some extent related to current low revenues (as the Company is not completing the contracts that would have left the sales funnel otherwise). However, such a high dynamic of a sales funnel growth cannot be explained solely by this negative factor. In our view, a sales funnel growth confirms high interest in DataWalk’s product and also brings hope for a revenue growth in 2H23 (at the moment we assume it at c. 60% yoy after a slight decline in 1H23).   Valuation and recommendation Since May when we issued our last report, the Company’s peers median of EV/Sales multiples for 2023-25 has fallen by 70% on average, which with the financial forecasts kept intact affects our 12M EFV assessment that rises by 67% to PLN 122 (from PLN 73) per share implying a c. 90% upside. Given recent positive news from the Company, including an increase of engineering capacity, dynamic sales funnel growth, and new contracts signed we expect to see rising volumes and value of contracts in the near future and return of the Company’s sales to strong growths starting from 3Q23.   Besides, we also assume that along with the inflow of news about new contracts DataWalk will experience the beneficial impact of the investors’ sentiment improvement for growth companies and the valuation gap will recede. Thats why we upgrade our recommendations: LT fundamental to Buy (from Hold) and ST relative to Overweight (from Neutral).        

US dollar slides below critical support.   The week started on a cautious note as European and US stocks eked out small gains, but appetite was limited appetite on news that the new capital requirements for the US banks would be tougher. And mega caps didn't give much support. Tesla lost up to 2% during the session, while Amazon closed the session more than 2% lower before its Prime Day – which now became an industrywide shopping day and will give us a hint on how much US consumers are ready to up their spending online. Meta, on the other hand, advanced 1.23%, as Threads already amassed 100 mio users since its launch last week, while internet traffic data from Cloudflare showed that Twitter use 'tanked'.   Tougher rules Michael Barr said yesterday that he will recommend tougher capital rules for banks with $100 billion or more in assets, as opposed to those that have $700bn and more so far concerned with the tough rules. More importantly, unrealized losses (and gains) on security portfolios will be considered when calculating regulatory proposal, a thing that could've helped avoiding Silicon Valley Bank's (SVB) collapse, but that will also put a bigger pressure on banks that bought tons of US treasuries and that are now sitting on significantly discounted portfolios. The good news is that big banks like JP Morgan and Citi didn't react aggressively to the news, and even more reassuring news is that the smaller, regional bank stocks tempered the news quite well as well. Pacwest for example lost only around 1% and Invesco's KBW index even closed the session slightly higher. What's less reassuring, however, is the fact that the Federal Reserve (Fed) will continue pushing the interest rates higher, and that will put an extra pressure on lenders, and the regional lenders are the most vulnerable to rate changes.   By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank

China growth disappoints. US earnings in focus The Chinese economy grew 6.3% in Q2 and that's faster than a 4.5% growth in Q1 but lower than the market estimate of 7.3%. Now don't be blindsided by the strong look of these numbers, because the latest figures were distorted by a low base effect last year when Shanghai and other big cities were in lockdown and life in China was running at a very low speed. If we look at a seasonally adjusted basis, the Chinese economy grew by only 0.8%, slowing sharply from a 2.2% rise in Q1.   Market sentiment regarding the weakening growth numbers is mixed. In one hand, weak growth means that the government and the People's Bank of China (PBoC) will step up efforts to further ease the financial conditions and pave the way for a quicker recovery. On the other hand, supportive policies put in place so far have had little impact. The Chinese property downturn, risk of disinflation, and falling exports have been difficult to reverse. As a result, the kneejerk reaction in markets was unenthusiastic. American crude extended retreat below the $75pb, after hitting and bouncing lower from the 200-DMA, that stands near $77pb last week. The rejection was expected, and the selloff could deepen toward the 100-DMA, near $73.50 level. Copper futures are also down this morning and testing the 100-DMA following a 7% rebound since the start of the month. Iron ore futures remain under pressure, and the Aussie is down nearly 1.30% against the US dollar, after forming a double top near the 69 cents level last week, on the back of a broad-based dollar weakness.   Zooming out, the US dollar is not further sold across the board this Monday, but the dollar index consolidates near the lowest levels since April 2022, and is below the 100 mark and is expected to further cool down. The softer dollar is good for cooling inflation elsewhere than the US, it could be good for boosting the revenues of US companies, including the Big Tech, which suffered from a rapid appreciation of the greenback last year, and it's good for boosting the US exports – which should support the US economic growth.   So, all eyes are now turning toward the US companies' earnings this week. The first earnings from the bis US banks came in better-than-expected last Friday and added to the overall investor enthusiasm after the US inflation data confirmed an encouraging easing in the US inflation, which in return softened the hawkish Federal Reserve (Fed) expectations and fueled a rally in both stock and bond markets.   JPMorgan Chase, Citigroup, and Wells Fargo all reported stronger-than-expected earnings last quarter due to rising interest rates. Deposits in Citigroup were nearly flat, Welss Fargo for saw its deposits fall 1% compared to Q1, and 7% compared to a year ago, and the average interest rates that the banks had to pay on deposits to prevent them from evaporating and going toward higher-yielding investments, rose 1-3% and their interest expenses climbed significantly. But still, JP Morgan's net interest income rose 44%, Citi's 16% and Wells Fargo's nearly 30%! Some smaller banks like Silicon Valley Bank, Signature Bank, and First Republic struggled with the effects of higher interest rates, as well. And deposit levels at major banks have been declining, with growth turning negative and reaching -6%, its lowest level in April. Blackrock amassed some good inflows and closed the quarter just shy of $10 trillion under management. The mix of the good and the bad led Citigroup shares 4% down. Wells Fargo first rallied before closing the day in the negative on Friday. The upcoming earnings reports from Bank of America, Morgan Stanley, and Goldman Sachs will be closely watched, among other big names.  On the list of companies that are due to release earnings this week, we find Netflix, Tesla, IBM, TSM, American Airlines and American Express. Overall, analysts project that S&P 500 companies will see the biggest contraction in earnings growth during the second quarter, where profits are expected to fall by 7-9% year-over-year. That doesn't really match what we see in the S&P500 chart, as the index advanced to a fresh high since April 2022 and is up by around 24% since last October dip. But the reality is that, with just over 5% of companies in the index having reported, profit growth for the period is on track to have contracted by 9.3% thus far, according to Bloomberg. It's too early to call of course because the tech is what carried the S&P500 this high over the past half-a-year and their earnings should be the ones to confirm the nice rally we saw on index level, but we could come down to earth with less shinier figures on that end. Yes, AI boosts revenue, and revenue expectations but Taiwan's exports of chips fell for the 6th consecutive month in June due to weaker global demand. Exports decreased more than 20% from a year earlier to a four-month low and when  you think that the island is home to some big and loved names like Apple and Nvidia's go-to chipmaker, TSMC, you question whether the biggest annual decline in Taiwan's chip exports since March 2009 isn't a warning that equity investors may have gone ahead of themselves when rushing to these stocks.     By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  

EUR: ECI to the rescue Thursday proved a bad day back in the office for EUR/USD. The ECB press conference proved a negative for the euro as ECB President Lagarde backed away from a September rate hike and seemed to acknowledge both softer activity data and welcome disinflation. This was not really a bloodbath for the euro – indeed the trade-weighted euro did not move too much, nor did two-year rate differentials. It just so happened that we had some strong US data coming out at the same time. If we are right today with our call for a soft ECI number, we could see EUR/USD breaking back above 1.1000 and starting to trace out the kind of 1.1000-1.1150 range over the coming sessions. Chris Turner As usual this week, the calendar in the CEE region doesn't have much to offer. But still, like yesterday, CEE will have to consume the global story, which brought a lot of new news again. The main news here is of course the lower EUR/USD, which complicates the positive picture we described yesterday for CEE FX. But on the other hand, positive market sentiment is going full speed ahead with the end of the global hiking cycle in sight. Thus, FX in the region has every right to be confused about which direction to go now. We are leaning more on the bullish side again, but EUR/USD will be a problem and hold back further gains for CEE FX today.

NOK: Look out for FX purchases today At 1000CET today, Norges Bank announces its daily FX purchases for the month of August. We had felt in the past that these were contributing to the krone's underperformance. These had been cut back from NOK1.1mn to NOK1mn between June and July. Given oil prices are doing well and that the trade-weighted krone has rallied 4.5% this month, presumably we should not see these purchases cut much further. But the market might take any increase in the FX purchase as a mild krone negative.   CEE: Polish inflation one step closer to single-digit territory After two light weeks and a strong global story, attention returns to the region. Today sees the release of July inflation in Poland and 2Q GDP numbers in the Czech Republic. In Poland, we expect inflation to have fallen again from 11.5% to 10.9% year-on-year, slightly below market expectations. As we move closer to single-digit territory, which may warrant the first rate cut, we think the market will be watching closely to see if we get below 11% today. GDP in the Czech Republic is the first 2Q number in the region and monthly indicators point to a stagnant economy or only modest growth. Tomorrow, PMI numbers will be released across the region and the decline in Germany and the eurozone indicates a drop in sentiment in the region as well. Later tomorrow, budget numbers will be released in the Czech Republic. On Thursday, the Czech National Bank (CNB) will meet. Rates are expected to remain unchanged and the main focus will be on the new forecast and the board's view on the first rate cut and the weak CZK. Then on Friday, industry and retail sales data in Hungary and the Czech Republic for June will be released. The FX market is dominated by the US dollar, which drove CEE FX to weaker levels last week. It is hard to see new positive momentum in the region stemming from the dollar this week, but a stable EUR/USD would at least be positive news. However, other factors are still playing in CEE's favour. Market sentiment remains positive after the Fed and ECB signalled they are nearing the end of their hiking cycles. Gas prices, key for the forint and the koruna, hit their lowest level in two weeks on Friday after spiking earlier. Locally, rates rebounded and interest rate differentials improved visibly in the Czech Republic and Poland. The Polish zloty hit its strongest levels since September 2020 late last week and today's inflation could determine the direction going forward. The zloty remains the most long currency in the region in our view, however, the best current account picture in CEE and MinFin transactions in the market should prevent any sell-off. Therefore, we see more of a further slide in EUR/PLN to the downside. The Czech koruna returned below 24.00 EUR/CZK on Friday and of course, the Czech National Bank will be a major player this week. We expect hawkish words of support given that FX is an important pillar of monetary policy these days. Therefore, we could see further recovery towards 23.90 EUR/CZK.

In a recent interview with FXMAG.COM, we had the opportunity to speak with Michael Stark, an experienced analyst from Exness, about the current state and future prospects of the oil market. With oil prices experiencing notable fluctuations in recent times, the question on everyone's mind is how long can the oil price rise and what factors are likely to influence its trajectory. Stark begins by sharing his insights on the potential for an extended uptrend in oil prices, particularly with Brent crude. He highlights the importance of market sentiment and the avoidance of recession fears as key factors that could drive oil prices higher. Drawing attention to oil's unique characteristic of being able to trend for prolonged periods compared to other popular CFDs, Stark suggests that if the current uptrend is indeed a new main trend, it might carry on well into the fourth quarter.   FXMAG.COM:  How long can the oil price rise? Michael Stark:  It’d be quite possible to see an extended uptrend with Brent retesting $97 later this year if sentiment in markets remains generally positive and fears of recession don’t clearly return. Oil can often trend for quite a long time compared to other popular CFDs, so if this is indeed a new main uptrend it might continue into the fourth quarter. However, sentiment will almost certainly change to some degree when significant activity returns to markets in September. Negatives for crude fundamentally include weaker economic data from China in recent months combined with Russia’s avoidance of sanctions by exporting through Saudi Arabia, though the latter specifically and OPEC+ generally seem to be determined to keep prices high. Equally, January’s high around $88.40 might be an important resistance which could resist testing. The main goal as a trader of oil during seasonally low volume is usually to avoid entries at extremes while trying to use support, moving averages and others to determine when a retracement becomes short-term downtrend.  

Late Friday US sell-off set to weigh on European open    By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets managed to eke out some modest gains on Friday, at the end of what was a negative week overall as concerns over earnings guidance downgrades and rising long term yields weighed on broader market sentiment. A mixed US jobs report looked to have stabilised sentiment, pulling the DAX and FTSE100 off their lows of the week after another slowdown in jobs growth in July and downward revisions to previous months, spoke to the idea that central bank rate hikes have done their job, and that no more are coming. This uplift only lasted until just after European markets had closed with all the signs that US markets would be able to end a 3-day losing streak, however the early gains that we saw in the early part of the day soon evaporated with the Nasdaq 100 and S&P500 both posting their worst weekly performances since March.     In essence there was something for everyone in Friday's jobs report, weaker jobs growth, the unemployment rate inching lower, and robust wage growth. Ultimately it spoke to a resilient US economy, as well as a possible Fed pause in September, ahead of this week's CPI report, although there are some on the FOMC who are still on the "more rate hikes to come" line. One of these members is Governor Michelle Bowman who at the weekend expressed her view that more rate hikes were likely to be needed to return inflation to target. While this may now be starting to become a minority view on the FOMC, it merely serves to highlight the growing uncertainty that is not only starting to permeate central bank thinking but also investor sentiment more broadly, as well as raising broader questions. Has the Fed managed to engineer a soft landing, and should they cause a pause to allow more time to assess any lag effects on consumers as well as the broader economy. Or do they carry on hiking on the basis that we could have seen a short-term base when it comes to prices slowing down? While markets are still pricing in a 40% chance of one more rate hike before the end of the year, this figure could swing either way in the event of a hot CPI print later this week. If next month's jobs report is of a similar "goldilocks" variety then a pause seems the most likely outcome from the next Fed rate decision. Whichever way we go with the data in the coming weeks, a pause still seems the most plausible outcome. For the most part bond markets drove most of the price action in financial markets last week with sharp increases in longer term yields, despite the sharp falls on Friday, as the yield curve steepened sharply. Yields could be the main driver this week with the US set to issue $103bn across a range of maturities this week, in the wake of last week's credit rating downgrade by Fitch.   It's also worth keeping an eye on this week's China trade data for July, due tomorrow, and inflation date on Wednesday, against a backdrop of an economy that appears to be struggling with weak domestic demand, and where economic activity has been struggling. We also have preliminary Q2 GDP economic numbers for the UK at the end of the week as well as industrial and manufacturing production numbers for June.       EUR/USD – rallying off last week's lows just above the 1.0900 area, closing above the 50-day SMA in the process we need to see a move back above 1.1050 to have any chance of revisiting the July peaks at 1.1150.   GBP/USD – drifted down the 1.2620 area last week before rebounding strongly, but we need to see a back above the 1.2800 area to ensure this rally has legs. Below 1.2600 targets 1.2400. Resistance at the 1.2830 area as well as 1.3000.     EUR/GBP – feels like it wants to retest the 100-day SMA at 0.8680, having drifted back from the 0.8655 area last week. Support now comes in at the 0.8580 area, with the bias for a retest of the July highs at 0.8700/10. Below 0.8580 retargets the 0.8530 area.   USD/JPY – failed just below the 144.00 area last week, and has now slid back below the 142.00 area, which brings a move towards the 140.70 area into focus. Main resistance remains at the previous peaks at 145.00.   FTSE100 is expected to open 31 points lower at 7,533   DAX is expected to open 54 points lower at 15,898   CAC40 is expected to open 29 points lower at 7,296

FX Daily: Temporary and contrasting drivers Short-term drivers of market sentiment are piling up ahead of tomorrow’s US CPI. Some clarification from the Italian government on the bank windfall tax is pairing with welcoming signs from yesterday’s UST 3-year auction to help sentiment and offset deflationary news from China. Today, all eyes will be on the $38bn 10-year UST auction.   USD: Treasury auctions in focus Headlines about the Chinese economy are centre stage amid the lack of market-moving US data releases before tomorrow’s July inflation report. The plunge in Chinese exports reported yesterday was followed by a widely-anticipated fall into deflationary territory overnight: June CPI contracted by 0.3% (consensus was -0.4%), and PPI failed to ease back substantially (-4.4% from 5.4% in June). It is the first time since the pandemic peak that both CPI and PPI have contracted. Evidence of combined consumer and producer price deflation undoubtedly endorse the notion of a broad-based economic slowdown in China, but a big chunk of the China growth re-rating appears to have already hit markets and we are actually observing little spill-over of today’s numbers as investors tentatively re-enter high-beta positions after yesterday’s risk-off unwinding. The dollar had found substantial demand at the start of this week, but the prevalence of temporary drivers while Fed-related pricing has been put on hold ahead of key data releases continues to prevent a sustainable dislocation from recent ranges. What may have helped to throw some cold water on the dollar rally yesterday was the result of the 3-year US Treasury note auction, which resulted in a slightly lower yield than pre-auction trading, a welcoming sign given recent concerns of dwindling demand for bonds. Today’s $38bn auction of 10-year notes and tomorrow’s $23bn of 30-year notes, which are both larger by $2-3bn than the previous corresponding offering, will be watched quite closely. Today’s 10Y UST auction is likely the only real highlight given a very light US calendar and no scheduled Fed speakers. Should we see more welcoming signs from today's Treasury debt sale, the dollar can keep paring recent gains into tomorrow’s pivotal CPI read.

US CPI expected to edge higher in July    By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets saw a decent rebound yesterday after the Italian government clarified the details around its windfall tax bombshell from earlier in the week. The gains were also helped by a belief that deflation in China could lead to the end of further rate hikes from central banks here in Europe as well as the US.     US markets on the other hand, underwent another negative session as nervousness crept in ahead of today's US inflation numbers, with Nasdaq 100 leading the falls, at the same time as US 2-year yields finished the day higher.  The slowdown in China does raise the risk that central banks might over play their hand when it comes to further rate hikes, while any indication that inflation might start to baseline and turn higher could well complicate matters further as the Federal Reserve decides as to whether it has done enough, or whether they need to hike again in September. This makes today's US CPI for July and tomorrow's PPI numbers extremely important in the decision-making process.     In the last 12 months we've seen US CPI fall from a peak of 9.1% in June last year, slowing to 3% in June, with the slowdown in prices being very much a one-way process. If we do see a move higher to 3.3% which is what is expected there is a concern that might prompt some concern that we've bottomed. Core CPI slowed to 4.8%, in June which was more encouraging, and it is here that the Fed may well choose to focus its attention. With the Federal Reserve having hiked rates by another 25bps in July, there is this sense that further rate hikes beyond July could be a big ask, especially with PPI inflation on the cusp of going negative, when the July numbers get releases tomorrow. That said anyone expecting a straight-line process when it comes to slowing inflation could find that further weakness towards 2% might not be such a straightforward process. Expectations for July are for headline CPI to tick higher to 3.3%, while core prices are expected to slow to 4.7%.      Any indication that we might be at a short-term base when it comes to headline inflation could prompt some concern that the Fed might think about another rate hike at its September meeting, with the next key focus likely to be on the annual Jackson Hole Symposium at the end of the month. US weekly jobless claims are expected to remain steady at around 230k.     EUR/USD – finding support just above the 50-day SMA, with resistance at the 1.1050 area which we need to break to have any chance of revisiting the July peaks at 1.1150. Support at the 1.0900 area.     GBP/USD – remains capped just below the 1.2800 area. We need to see a move back above the 1.2800 area to ensure this rally has legs. We have support at the 1.2620 area. Below 1.2600 targets 1.2400. Resistance at the 1.2830 area as well as 1.3000.         EUR/GBP – continues to struggle near the 0.8650 area but we need to see a move below the 0.8580 area to signal a short-term top might be in and see a return to the 0.8530 area. Also have resistance at the 100-day SMA at 0.8680.     USD/JPY – continues to edge back towards last week's high just below the 144.00 area, having rebounded from the 141.50 area. While below the 144.00 area the risk is for a move towards the 140.70 area. Main resistance remains at the previous peaks at 145.00.     FTSE100 is expected to open 9 points lower at 7,578     DAX is expected to open 92 points higher at 15,944     CAC40 is expected to open 45 points higher at 7,367  

All eyes on US inflation!  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   US equities fell, while yields pushed higher in the run up to today's most important US inflation data. Inflation in the U.S. is expected to have rebounded from 3 to 3.3% in July and core inflation may have steadied at around 4.8%. Any bad surprise on the inflation front could revive the Federal Reserve hawks, but we are far from pricing another hike in September just yet; activity on Fed funds futures assesses more than 85% chance for pause in September FOMC meeting. Rising oil, crop and rice prices are the major upside risks, while potential downside pressure on shelter could counter higher raw material prices. According to a latest publication from SF Fed shelter prices could see significant disinflation or deflation in the months ahead. They wrote that their 'baseline forecast suggests that year-over-year shelter inflation will continue to slow through late 2024 and may even turn negative by mid-2024', and that we could see 'the most severe contraction in shelter inflation since the Global Financial Crisis of 2007-09'.  The idea of further Fed hikes is not helping sentiment in bond markets, especially since Fitch downgraded the U.S. credit rating from AAA to AA+. That's bad news for two reasons. First a lower credit rating means that the US should compensate for the higher risk investors take while buying the US government bonds so it's an additional upside pressure on yields. And combined to Fed hikes, the US interest payments will become an increasingly growing burden. In numbers, the US spends $1.8 bn interest payments every day. According to Peter Peterson foundation this number will double in the next decade and interest payments will become the fastest growing part of the federal budget. And if that's not enough, Moody's downgraded credit ratings for 10 small and midsize US banks, citing higher funding costs, potential regulatory capital weaknesses and risks tied to commercial real estate loans. And speaking of banks, Italian banks also sold off earlier this week on news of a new windfall tax. The latter triggered some risk averse inflows into bonds until Italy issued a clarification of its new tax on banks' windfall profits, saying that the impact may be limited for some banks and the levy won't exceed 0.1% of a firm's assets. Banks that have already increased the interest rates they offer to depositors 'will not have a significant impact as a consequence of the rule approved yesterday'. Phew....  The U.S. 2-year yield rebounded past 4.80%, while the 10-year yield is back to around%, after a spike to 4.20% on Fitch downgrade.  Troubled China  Chinese indices are up and down. Up, thanks to measures that the Chinese government announced to support the economy, down because of plunging export/import, deflation worries following another round of soft trade, CPI and PPI numbers since the start of the week, and the jitters that the US could limit investments to China. One interesting point is that the Chinese stock market shows decorrelation from the stock markets of developed countries. KraneShares CSI China Internet ETF saw $342.23 million inflows last week, the biggest weekly inflow in 14 months. Yet impressive growth numbers are probably not in China's near future as the population is shrinking, the real estate crisis fuels the local debt crisis with Country Garden's potential default on its debt now making the headlines, investor and consumer confidence in Chinese government will take time to be restored, and further restrictions of US investments in China, especially in cutting-edge sectors like AI and quantum computing could further dampen appetite.   

FX Daily: More volunteers to support the US dollar Data confirms the strength of the US economy and today's industrial production and FOMC minutes can only add fuel to the fire. The US dollar is the clear winner here and we are hardly looking for firepower in the eurozone to defend the euro. In the CEE region, Poland returns from holidays and the Czech koruna is the only one able to resist negative global factors.\   USD: FOMC minutes and a strong economy should offer further support Another nudge coming from the positive surprise in US retail sales did not last long and the US two-year yield slipped back down after touching the 5% level. This kept the US dollar index near 103.00, however, another hawkish test may come again today. Industrial production, after a 0.5% month-on-month drop in June, should show a return to 0.3% MoM growth in July in our view, in line with market expectations. Retail sales already indicate 3% GDP growth in the third quarter in our view and estimates for industrial production are also supportive of another positive surprise, confirming the strength of the US economy, which would be more positive news for the US dollar, of course. Later today, the July Federal Reserve minutes will come into play, which should reflect the FOMC's hawkish efforts to combat dovish expectations. This should be the last big event from the Fed until next week's Jackson Hole symposium. For now, this strategy is working perfectly. The implied policy rate has moved up roughly 50-60bp over almost the entire curve in the last month alone, with the exception of the super-short horizon. However, it is just a matter of time before the Fed uses up its ammunition and the market stops buying more hawkish news. For now though, we remain in this mode for at least the next few days, which combined with the positive surprises from the economy, should continue to support the US dollar. Thus, DXY should remain above 103.00 and test higher levels closer to 103.50 today as well.

EUR: Hard to find forces to defend the euro The calendar doesn't have much to offer in the eurozone today, resulting in a lack of impetus to defend the euro. The second-quarter GDP estimate and the headline industrial production number are unlikely to change the picture much and so the ball remains in the US court today. At least the 2y rates differential against the USD has flipped in support of the euro or at least should not push EUR/USD any further down. However, if the strong condition of the US economy is confirmed, it will be hard for EUR/USD to resist breaking 1.090. That should be the line in the sand today as well.

Rates Spark: Risk-off as a contributor Firm US retail sales were enough to cause the risk-off theme to sustain itself. And should we morph to risk-on, market rates are likely to come under upward pressure. Damned if you do, damned if you don't for market rates, at least for now.   Risk-off is managing to temper room to the upside for yields just for now The risk-off mode of late has become a central containment factor for US Treasuries. Had it not been for that, US Treasury yields would most likely have hit higher levels in the past few weeks. We also know there have been some solid inflows into Treasuries as a theme in the past month or so. There have also been ongoing and material inflows into money market funds. Against that backdrop there has been the build of a risk-off preference in both credit and equities. It’s not been severe, but it’s been there. US data released on Tuesday was all over the place. Yes, there was manufacturing survey weakness, but that’s not new. We’ve had that practically for a year now, and still no macro-wide recession. There was also a fall back in the housing market index. This had shown a remarkable tendency to rise in recent months, but then snapped back to its long-run average at around 50 for August. The big surprise though was retail sales, which were strong for July. Too strong for the Fed to consider easing up just yet. Hence the risk-asset heaviness. This week is shaping up as one that will likely see the US 10yr consolidate at comfortably over 4%. It’s been in the 4.15% to 4.20% area in the past couple of days, with mild breaks above. It may well consolidate a bit from here. Unlikely to break back below 4.1% for now, and more likely to trek up to the 4.25% area and then 4.3%. At that point the issue is whether it gets bought into enough to manifest in a rally, or whether it pushes on towards 4.5%. It’s still to early to look that far, but the odds currently remain in favour of the latter.   A drag on the latest leg higher in yields   FOMC minutes against the backdrop of brewing inflation expectations Officials’ views on what the next steps of the Fed ought to be had been more diverse of late, with some seeing the need for more hikes, others stressing a lot had been done already. But given the resilience of the US economy, especially the consumer, and the brewing of longer-term market inflation expectations over recent weeks, the discussion of whether enough has been done to tackle inflation may gain more traction. Yesterday, it was the Fed’s Neel Kashkari who posed that question more explicitly. A pause in September still remains the base case also for markets, especially after the latest benign inflation print. Rather than pricing in hikes, the question now is more about how long that pause will last. Obviously all eyes are on the upcoming Jackson Hole symposium starting on 24 August for the next policy directives. Today, we will get the minutes of the July FOMC meeting, in which the Fed hiked by 25bp and retained a bias to do more. If that hawkish sentiment is reflected in the minutes it may well resonate with current market sentiment.      Markets price a Fed on hold, followed by cuts starting in the first half of 2024 Today's events and market view Poor risk sentiment finally caught up with rates, but it also looked like investors were covering their short positions. Initially, yesterday's upside surprise in UK wage growth data set the bearish tone for rates, but dynamics switched after the strong US retail sales data. This morning's UK CPI figures surprised slighly to the upside again, but it appears the market's focus is shifting - with China risks top of mind and the recent rating agency warnings around US banks, this time from Fitch. Ahead of this evening's FOMC minutes, markets will also have US housing starts as well as industrial production data to digest. In Europe, we will see 2Q GDP readings and also industrial production data.  In primary markets, the focus is on Germany’s €2.5bn 30Y bond auctions

FX Daily: Quiet G10 markets despite Chinese turmoil Beijing continues to fight the recent turmoil on multiple fronts: real estate, financial, and the FX market. Overnight, the PBoC set the CNY fixing with the largest gap to estimates in order to curb bearish speculation. Despite all the turmoil in China, G10 volatility has remained capped, and this is probably why Japanese authorities are not intervening.   USD: Chinese authorities go all in to defend the yuan Developments in the distressed Chinese financial and property sector are emerging as the most prominent driver for market sentiment, especially after the Fed minutes proved to have limited implications for central bank expectations and developed market calendars are quite light. Overnight, Chinese authorities turned their focus on the FX market, deploying what is now regarded as the biggest defence of the yuan via fixing guidance on record. The People's Bank of China (PBoC) fixed USD/CNY at 7.2006, significantly below the average estimate of 7.305, which marks the largest gap compared to the estimate since the poll started in 2018. Today’s PBoC move follows yesterday’s reports that state-owned banks were asked by Chinese authorities to step up yuan interventions to reduce FX volatility. We could also see a cut in FX reserve requirements, often considered as a tool to avert sharp CNY depreciation. So far, the spillover into G10 currencies has been limited. The highly exposed AUD is down 1.4% this week, a relatively contained slump considering the amount of bad news that has piled up in the past few days. This is probably a signal of how AUD was already embedding a good deal of negatives related to China and how markets are expecting government intervention to avert black swan scenarios. This morning, the emergency yuan fixing has left FX markets quite untouched, with the exception of USD/JPY trading on the soft side, likely due to Japan’s service inflation hitting 2% for the first time in 30 years overnight. Incidentally, the pair is well into FX intervention territory but is probably missing enough volatility to worry Japanese officials. Still, the oversold conditions of JPY and the threat of interventions are likely going to exacerbate any USD/JPY downside corrections. The US calendar is empty today and the focus will likely be on bond market dynamics after back-end yields touched fresh multi-year highs yesterday. The combined effect of high yields and growing risks in China suggests the balance of risks is moderately tilted to the upside for the dollar. A return to 104.00 in DXY remains a tangible possibility in the coming days.

China rate cuts remain short of expectations, focus on Jackson Hole, BRICS  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The week starts with weak appetite as Chinese banks cut loan rates less than expected; the 1-year LPR was cut by 10bp to a record low versus 15bp cut expected by analysts, while the 5-year LPR was left unchanged despite pressure from Beijing. Chinese banks' decision to keep the 5-year rate steady is confusing for investors, in the middle of a property crisis. The Hang Seng index sank further into bear market, and the global risk sentiment is less than ideal as healthy economic data from the US, and darker clouds over China cast shadow on both stock and bond markets.   The US 10-year yield approached the highest levels since 2007, as the US 30-year yield hit the highest levels advanced towards levels last seen in 2011. The rising yields weigh on major stock indices. The S&P500 closed last week around 2% lower, and Nasdaq 100 lost 2.6% last week. Interestingly, the S&P500 has been down by around 3% since the beginning of this earnings season – while the earnings season was not that bad. Nearly 80% of the companies announced better-than-expected results and Refinitiv highlighted that the Q2 of 2023 had the highest rate of companies beating expectations since Q3 2021, and the earnings expectations rebounded to the highest levels since last October, when the major US indices bottomed out. This picture simply means that the fear of a further Fed tightening, prospects of higher interest rates, combined to the set of bad news from China simply didn't let investors enjoy the better-than-expected earnings.  

It seems that August this year will remain the worst August month in history. Since early 2023, positive sentiment in the markets has increased significantly on a wave of expectations that inflation this year will fall in the US to the target level of 2% and, in turn, the Federal Reserve will stop further rate hikes. In practice, it became clear by August that such expectations are still not justified. What is the underlying reason for the deterioration of market investor sentiment? The theme of inflation in the US, which is projected onto other countries and financial hubs, and the Federal Reserve's future monetary policy proceeding from this, remains the crucial negative factor.   Recently, a slight rebound was recorded in the annual rate of the consumer price index (CPI) from 3.0% in June to 3.2% in July that assured the US central bank to raise interest rates by another 0.25%. Then, in Fed Chairman Jerome Powell and some policymakers of the rate-setting committee signaled another increase in the federal funds rate, although before that the regulator had refrained from raising rates. Of course, investors could not ignore such prospects in monetary policy, which led to a protracted downward correction in the stock markets and enabled growth in Treasury yields. At the same time, the ICE dollar index continues to move in a sideways channel, albeit slightly declining since the beginning of this year. Since mid-July, the index has notably recovered after a local breakout of a strong support level of 100 points. So, the investor community lack understanding about what will happen to inflation in America, whether it will continue to grow or resume its decline. Besides, investors are discouraged by regular threats from Fed policymakers about the possibility of further interest rate hikes.   Therefore, a fog of uncertainty descended on the markets, which set the stage for the decline in local and global stock indices. We believe that until the publication of August data on consumer inflation, which will serve as a benchmark for the Federal Reserve, the current market environment will not change. In this case, we expect a lower corrective decline in the US benchmark stock indices.   Treasury yields are likely to continue their growth. However, but at the same time, the ICE US dollar index may remain in a rather narrow range of 101.00-105.00 until the end of the month, unless, of course, Powell will not tell the markets anything new regarding the prospects for monetary policy at the symposium in Jackson Hole, Wyoming, which will be held later this week. An unexpected message may come as a big surprise for investors, since in general they do not foresee anything from the Federal Reserve's leader yet.     Intraday outlook USD/JPY The currency pair is consolidating above the level of 145.00. If the price falls below this level, there is a possibility of a limited decline towards 144.20. XAU/USD The price of gold remains under pressure due to the general negative market sentiment and expectations of another Fed rate hike, but the instrument may grow locally if it does not slip below 1,884.00. In this case, we should expect gold to rise to 1,900.50. 8

Expect the US dollar rally to extend    The US dollar broadly weakened across the board, helping majors to take some breather. The dollar index fell back towards its 200-DMA, the EURUSD settles above the 1.09 mark this morning, while Cable bulls eye a further rise toward the 50-DMA, which stands a touch below the 1.28 level. But looking at the US dollar and the real yields, the end of last year's dollar really coincides with a peak in 10-year real yield. Both started retreating in Q3 of last year. The dollar retreated relatively faster. And now that the real yields are on the rise again, there is little reason to keep the USD on a bearish trend for the months ahead.   The dollar rally which started by mid-July should further develop, and there is significant room for further correction before we could technically call the end of the dollar's bearish trend. In numbers, the dollar index will still be in a bearish trend below the 105.40 mark. Until that level is reached, investors don't have much to lose for jumping on the back of a bull.  

Rates Spark: Kicking off with new highs The week has started with new yield highs for the cycle, with 10Y USTs having topped 4.34%. The bearish set-up with a waning Fed cut discount prevails, and with the 20Y Treasury sale and the Jackson Hole symposium looming large later this week, the appetite to take the other side is small.   The bearish set-up for rates persist The week has kicked off with rates selling off again. The 10Y UST yield has in fact hit a new cycle high of 4.35%, surpassing the previous peak seen last October. One now has to look back to November 2007 to find yields at similar levels. It is not clear where the impulse came from this time around. There were no data releases of note, although risk assets had stabilised somewhat. There is of course the anticipation of the Jackson Hole symposium, which may be the reason for market participants' reluctance to take the opposite side of the trade. The general consensus appears to be for a slightly hawkish leaning tone from the Fed Chair, not necessarily with regards to where the terminal rate should be, but with a pushback against the discount of rate cuts further out. We have cautioned for some time now that the waning discount of Fed cuts with the Fed funds strip pricing a trough not materially below 4% would even support 10Y UST yields at 4.5% accounting for a term premium. Looking to Europe, we note that Bunds also sold off, but the 10Y Bund yield has not managed to rise beyond last week’s highs, holding around 2.7%. The expectations of weaker flash PMIs tomorrow may provide some tailwind to Bunds. However, we did see the 30Y push to new cycle highs at 2.8%. With the macro outlook bleak, the eurozone narrative for higher rates is still more centred around inflation risks. Energy, and in particular gas prices, remain volatile. And more generally the German Bundesbank yesterday warned in its monthly bulletin that inflation could stay above target for longer. The Bundesbank presented a survey that showed the European Central Bank’s 2% target has gradually lost relevance in wage negotiations, and highlighted the risk of higher inflation expectations becoming entrenched.     

The Japanese yen faced considerable losses on Monday as USD/JPY surged to 146.23 during the North American session, marking a 0.57% increase for the day. The US dollar's strength has propelled it dangerously close to pushing the yen below the critical 146 line, a scenario witnessed last week when the robust US dollar drove the struggling yen to a nine-month low. Once synonymous with deflation, the Japanese economy has undergone a significant transformation in the era of high global inflation. With Japan's inflation hovering slightly above 3%, a level that many major central banks would eagerly welcome, the landscape has shifted. Notably, inflation remains relatively high by Japanese standards, as both headline and core inflation have consistently outpaced the Bank of Japan's (BoJ) 2% target. Japan's inflation data is closely scrutinized as the prospect of elevated inflation sparks speculations that the BoJ might need to tighten its lenient policy stance. Although the central bank has maintained that the high inflation is transitory, it's worth remembering that other central banks have made similar claims only to backtrack later. The Federal Reserve (Fed) and the European Central Bank (ECB) come to mind as examples. In the previous week, July's Consumer Price Index (CPI) remained steady at 3.3% year-on-year, while Core CPI experienced a slight dip to 3.1% year-on-year from the previous 3.3%. Looking ahead, Tuesday brings the release of BoJ Core CPI, the central bank's favored inflation metric, which is projected to decrease to 2.7% for July, down from June's 3.0%.   USD/JPY pushes above 146 line Bank of Japan’s Core CPI is expected to ease to 2.7% The Japanese yen has posted significant losses on Monday. USD/JPY is trading at 146.23 in the North American session, up 0.57% on the day. The US dollar has looked sharp and is within a whisker of pushing the yen below the 146 line, as was the case last week when the strong US dollar pushed the ailing yen to a nine-month low. The Japanese economy was once synonymous with deflation, but that has changed in the era of high global inflation. Japan’s inflation is slightly above 3%, a level that other major central banks would take in a heartbeat. Still, inflation is relatively high by Japanese standards and both headline and core inflation have persistently been above the Bank of Japan’s 2% target. Japan’s inflation reports are carefully monitored as higher inflation has raised speculation that the BoJ will have to tighten its loose policy. The central bank has insisted that high inflation is transient, but the BoJ wouldn’t be the first bank to make that claim and then backtrack with its tail between its legs. Remember the Fed and the ECB? Last week, July’s CPI remained unchanged at 3.3% y/y. Core CPI dropped to 3.1% y/y, down from 3.3%. On Tuesday, Japan releases BoJ Core CPI, the central bank’s preferred inflation gauge, which is expected to dip to 2.7% in July, down from 3.0% in June. China’s economic troubles have sent the Chinese yuan sharply lower, with the Chinese currency falling about 5% this year against the US dollar. A weak yuan makes Chinese exports more attractive, but this is at the expense of other exporters including Japan. As a result, there is pressure in Japan to lower the value of the yen in order to compete with Chinese exports.   USD/JPY Technical USD/JPY pushed above resistance at 145.54 earlier today. The next resistance line is 146.41 There is support at 144.51 and 143.64    

Canadian Dollar Experiences Biggest Intra-day Gain Since End of July. The Canadian dollar has been experiencing a steady weakening against the US dollar since mid-July. The ongoing bullish uptrend of USD/CAD is meeting resistance as foreign exchange traders speculate on the possibility of the Fed and BOC being close to completing their tightening cycles with one more rate hike. Major resistance at the 1.36 level could hold, potentially leading to a pullback targeting the 1.3454 level, the current 200-day SMA. The upcoming week might bring a hawkish stance from Fed Chair Powell, which could revive the king dollar trade. Oil Market Rally Fizzles Amid Strong Dollar Trade and Rising Real Yields Crude oil prices initially rallied in the morning, driven by expectations of a tight oil market due to current backwardation trends. However, the surge in real yields and a potential strong dollar resurgence after Jackson Hole are contributing to the reversal of the oil price rally. While risks to crude demand are emerging, the oil market's tightness should provide some support.     Dollar supported as 10-year Treasury hits 4.34%, highest levels since financial crisis Oil market to remain tight, but so far offers little help for the loonie Loonie was having biggest intra-day gain since end of July   The Canadian dollar has been steadily weakening against the greenback since the middle of July.  The USD/CAD bullish uptrend appears to be facing some resistance as FX traders anticipate both the Fed and BOC are possibly one more rate hike away from being done with tightening. It appears that major resistance from the 1.36 level might hold, so if a pullback emerges, downside could target the 1.3454 level, which is currently the 200-day SMA.  If markets get a very hawkish Fed Chair Powell this week could see the return of the king dollar trade.   Oil The morning oil price rally is fizzling as the strong dollar trade might be back given the surge in real yields.  Crude prices were much higher in early trade on expectations that the oil market would remain tight given the current backwardation. Risks to the crude demand outlook are growing, especially after China disappointed with last night’s easing, but for now a tight market should keep oil supported. The biggest risk for energy traders is if we see a massive wave of dollar strength after Jackson Hole. Right now there are so many oil drivers and most support higher prices. Heating oil prices are elevated and that might continue.  Iran nuclear talks won’t be having any breakthroughs anytime soon. Gulf of Mexico oil production could be at risk as a few formations build on the Atlantic.     Gold Gold’s worst enemy is surging real yields.  It was supposed to be a quiet start to the week for gold with China coming to the rescue and some calm before Friday’s Jackson Hole speech by Fed Chair Powell.  There is a little bit of nervousness from the long-term bulls as gold futures are getting dangerously close to the $1900 level, which could trigger a wave of technical selling.  It seems gold needs some disorderly stress in financial markets for it to rally and that doesn’t seem like it is happening anytime soon. The outlook for the next few quarters is cloudy at best, but it seems that there is still too much strength in the economy that is dampening safe-haven flows for gold.  It doesn’t help that hedge funds are throwing in the towel for gold, which now has net-long positions at a five month low.        

13:00BST Tuesday 22nd August 2023 Paying an ARM and a leg? By Michael Hewson (Chief Market Analyst at CMC Markets UK)   UK chipmaker ARM, which is owned by SoftBank has finally pulled the trigger on its US IPO, snubbing London, and testing the appetite of the market for new issues at a time when sentiment remains cautious as well as a little fragile given current trends of rising interest rates.   Having originally been listed here in the UK as well as on the Nasdaq back in 1998, ARM Holdings was delisted in 2016, when SoftBank acquired it for $32bn. Now looking to list the business for a price tag which could be as high as $70bn, SoftBank hopes to draw a line under an acquisition that has undergone mixed fortunes over the past few years, as well as trying to raise cash at a time when a lot of the value of its recent investments has declined sharply, prompting a loss of $29.5bn in last year's accounts.    Softbank still needs to buy back the 25% of the business it doesn't own to push the IPO through, and having posted such a huge loss, appears to be looking to free up some cash, after 5 quarters of losses. SoftBank initially tried to sell the business to Nvidia for about $40bn back in 2020, but that deal faced regulatory issues particularly when it came to national security, as well as fears it could give Nvidia too much of an advantage when it came to controlling the IP for chip designs in everything from mobile phones to data centres.    The UK based chipmaker could certainly do with a greater degree of autonomy, its performance under the stewardship of SoftBank has been mixed, swinging to a $65.5m loss in Q1. Total net sales declined 10.8% in the quarter ended 30th June, coming in at $641m, with most of the fall being down to a 19.3% fall in royalty revenues.    ARM generates a lot of its revenues from licensing its IP and the slowdown in mobile phone and other electronic device sales impacted its revenues in the most recent quarter. As the chip sector becomes even more strategically important with the development of AI, ARM is looking to develop new chipsets targeted at machine learning.   Earlier this year it introduced two new products, a CPU called Cortex-4, and a GPU called G720, which uses 22% less memory bandwidth than the chip it is replacing as well as better performance. There are risks and these were outlined in the proposal document including its China business which it has little control over.   As a fully functioning business there appears little risk that the company won't do well when it comes to generating cashflow, with the roadshow set to get underway in early September. The bigger question is what appetite there is for a company that is coming to market at a time when revenues have declined, and stock markets look toppy.   Investors will certainly want a piece of a business that could see its revenues grow quickly, as the enthusiasm for AI increases. The key factor will be getting the price right, as new investors may not want to pay an ARM and a leg for it.           

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

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

Medium-term downtrend phase of AUD/USD has reached an oversold condition with downside momentum easing. Key short-term support to watch will be at 0.6385. Intermediate resistance at 0.6490. The price actions of AUD/USD have been oscillating in a medium-term downtrend phase in place since the 17 July 2023 high which has been reinforced by the bearish breakdown of its former medium-term ascending trendline support from 13 October 2022 low on 9 August 2023. So far, the AUD/USD has plummeted by -530 pips from its 17 July 2023 high to its 17 August 2023 low of 0.6365, and the recent four weeks of decline have led to an oversold condition in terms of price actions     Fig 1:  AUD/USD medium-term trend as of 28 Aug 2023 (Source: TradingView, click to enlarge chart) The daily RSI oscillator of the AUD/USD, a gauge that measures momentum, oversold, and overbought conditions on price actions reached an oversold condition recently on 17 August 2023 and shaped a bullish divergence condition (a higher low) thereafter on last Friday, 25 August. These observations suggest that the downside momentum of the ongoing medium-term downtrend of AUD/USD may have eased which supports a potential imminent minor countertrend/consolidation phase. These positive elements have also occurred at a key support of 0.6385 that coincided with the 10 November 2022 low and the 76.4% Fibonacci retracement of the prior medium-term up move from 13 October 2022 low to 2 February 2023 high.     Fig 2:  AUD/USD minor short-term trend as of 28 Aug 2023 (Source: TradingView, click to enlarge chart) Since its 17 August 2023 low, the price actions of AUD/USD have started to evolve into a minor range configuration with its key short-term pivotal support at 0.6385 and respective minor range resistance at 0.6490 (also the 20-day moving average). A clearance above 0.6490 sees the next resistances coming in at 0.6510 and 0.6600 (5 August/10 August 2023 minor swing highs areas, pull-back resistance of the former medium-term ascending trendline support from 13 October 2022 low & the 50-day moving average). However, failure to hold the 0.6385 key short-term support invalidates the minor countertrend rebound scenario for a continuation of the impulsive down move sequence of the medium-term downtrend phase towards the next supports at 0.6310 and 0.6270 in the first step.

Rates Spark: Different focus, different outcomes US data disappointments are still putting downward pressure on yields, and a busy calendar suggests more volatility ahead. EUR rates may detach from US dynamics as inflation data and European Central Bank minutes sharpen the focus on the upcoming ECB meeting.   The resilience narrative has driven US rates on the way up, and now down US Treasury yields remain under downward pressure as 10Y yields are trying to get a foothold at around 4.1% – early last week they had hit a high at 4.35%. Bund yields, on the other hand, have managed to bounce off the 2.5% level and as a result, the 10Y UST/Bund spread has tightened to 157bp. The narrative that has driven the wedge between the US and EUR rates is now narrowing it. That is also illustrated when looking at the market moves in real rates. They had been the driver of US rates going up and are now mostly the driver on the way down. 10Y real OIS rates have dropped some 17bp from the recent peak, although inflation swaps also slipped 8bp.       Real rates were the driver the UST/Bund gap, and also the latest retightening   Inflation remains the main preoccupation of EUR rates In Europe, the concerns have been more centred around inflation. Longer real rates never picked up and stuck to a tight range, reflecting the outlook for a longer period of stagnation that was also confirmed by the latest PMIs. Instead we had a slow grind higher in longer-term inflation expectations, picking up pace again with the second quarter. While the often cited 5y5y forward inflation has come off its recent highs, the market remains sensitive to the inflation topic, with the ECB now calibrating the final stage of its tightening cycle. The somewhat slower-than-anticipated decline in German inflation yesterday was important in keeping Bund yields off the 2.5% mark. It provided the ECB’s hawks with arguments for further tightening. Never mind that it could be the last burst of German inflation for a while, as our economist thinks – with the ECB’s current mindset being more focused on actual data than forecasts, that may well be all the more reason for the hawks to push for a hike in September and not wait any longer. It may be the last opportunity. Market pricing now sees the chances for a hike next month a tad above 50%, and 90% that we will see a hike by the end of the year.    Dynamics of inflation expectations played a larger role for EUR rates   Today's events and market view US data disappointments are still putting downward pressure on yields, having stalled any attempt to move these higher over the past sessions. A busy slate of US data featuring Challenger job cuts data, initial jobless claims, personal income and spending data, as well as the Federal Reserve's preferred inflation measure – the PCE deflator, which is seen slightly up this time – means there is plenty in store to push yields around again. EUR rates, however, may manage to detach from the US rates again as the focus turns to the flash eurozone CPI release and the ECB minutes of the July meeting. The latter may provide some more insight into any changes to the balancing of inflation versus macro risks and of course the growing debate between the Council’s hawks and doves. With Isabel Schnabel, there is also a prominent hawk slated to speak in the morning – she gives the opening remarks at a conference titled “Inflation: drivers and dynamics” and may well set the tone for the day. 

Rates Spark: Different focus, different outcomes US data disappointments are still putting downward pressure on yields, and a busy calendar suggests more volatility ahead. EUR rates may detach from US dynamics as inflation data and European Central Bank minutes sharpen the focus on the upcoming ECB meeting.   The resilience narrative has driven US rates on the way up, and now down US Treasury yields remain under downward pressure as 10Y yields are trying to get a foothold at around 4.1% – early last week they had hit a high at 4.35%. Bund yields, on the other hand, have managed to bounce off the 2.5% level and as a result, the 10Y UST/Bund spread has tightened to 157bp. The narrative that has driven the wedge between the US and EUR rates is now narrowing it. That is also illustrated when looking at the market moves in real rates. They had been the driver of US rates going up and are now mostly the driver on the way down. 10Y real OIS rates have dropped some 17bp from the recent peak, although inflation swaps also slipped 8bp.       Real rates were the driver the UST/Bund gap, and also the latest retightening   Inflation remains the main preoccupation of EUR rates In Europe, the concerns have been more centred around inflation. Longer real rates never picked up and stuck to a tight range, reflecting the outlook for a longer period of stagnation that was also confirmed by the latest PMIs. Instead we had a slow grind higher in longer-term inflation expectations, picking up pace again with the second quarter. While the often cited 5y5y forward inflation has come off its recent highs, the market remains sensitive to the inflation topic, with the ECB now calibrating the final stage of its tightening cycle. The somewhat slower-than-anticipated decline in German inflation yesterday was important in keeping Bund yields off the 2.5% mark. It provided the ECB’s hawks with arguments for further tightening. Never mind that it could be the last burst of German inflation for a while, as our economist thinks – with the ECB’s current mindset being more focused on actual data than forecasts, that may well be all the more reason for the hawks to push for a hike in September and not wait any longer. It may be the last opportunity. Market pricing now sees the chances for a hike next month a tad above 50%, and 90% that we will see a hike by the end of the year.    Dynamics of inflation expectations played a larger role for EUR rates   Today's events and market view US data disappointments are still putting downward pressure on yields, having stalled any attempt to move these higher over the past sessions. A busy slate of US data featuring Challenger job cuts data, initial jobless claims, personal income and spending data, as well as the Federal Reserve's preferred inflation measure – the PCE deflator, which is seen slightly up this time – means there is plenty in store to push yields around again. EUR rates, however, may manage to detach from the US rates again as the focus turns to the flash eurozone CPI release and the ECB minutes of the July meeting. The latter may provide some more insight into any changes to the balancing of inflation versus macro risks and of course the growing debate between the Council’s hawks and doves. With Isabel Schnabel, there is also a prominent hawk slated to speak in the morning – she gives the opening remarks at a conference titled “Inflation: drivers and dynamics” and may well set the tone for the day. 

EUR/USD upside potential remains sizable Our economics team remains of the view that markets are underestimating the downside risks facing the US economy and that the Fed will need to implement significant rate cuts from the first quarter of 2024. Despite a deteriorating outlook for the eurozone economy, we only expect the ECB to begin to ease policy in the summer of 2024. Based on that, we anticipate the EUR/USD two-year real rate gap narrowing to zero by the end of 2024, allowing the pair to comfortably trade above 1.15. A broad-based dollar decline should translate into a recovery in the currencies hit most during the period of Fed tightening. We expect Scandinavian currencies to rebound from next quarter, although the Swedish krona’s grim domestic outlook means the road should be bumpier compared to its Norwegian peer. The Australian and New Zealand dollar need to wait for some recovery in Chinese sentiment before unlocking “recovery mode”, while the pound remains tied to market expectations for Bank of England tightening that we still deem too hawkish. USD/JPY should remain the barometer of market sentiment on US yields: a turn lower is long due on the overbought pair, but may need to wait later this year given the Bank of Japan’s lingering easing bias. As for emerging market currencies, monetary stimulus will keep the renminbi soft and will also see Asian currencies lag in any rebound against the dollar later this year. Better positioned remain some currencies in the CEE space and Latam (eg Hungary, Brazil) where real rates remain deeply positive despite the start of easing cycles this year.  

Remember that 'back to school' feeling at the end of summer? A tedious car journey home after holiday fun, knowing you'll be picking up where you left off? I'm afraid we've got a very similar feeling about the global economy right now. 'Are we nearly there yet?'. No. Very few reasons to be cheerful Lana del Rey's Summertime Sadness classic comes to mind as we gear up for autumn. And I'm not just talking about chaotic weather or even, in my case, disappointing macro data. Most of us have had the chance to recharge and rethink over the past couple of months. and I'm afraid all that R&R has done little to brighten our mood as to where the world's economy is right now. Sure, the US economy has been holding up better than we thought. And yes, the eurozone economy grew again in the second quarter. Gradually retreating headline inflation should at least lower the burden on disposable incomes. And let's be thankful for the build-up of national gas reserves in Europe, which should allow us to avoid an energy supply crisis this winter unless things turn truly arctic. But that's about as upbeat as I can get. We still predict very subdued growth to recessions in many economies for the second half of the year and the start of 2024. The stuttering of the Chinese economy seems to be more than only a temporary blip; it seems to be transitioning towards a weaker growth path as the real estate sector, high debt and the ‘de-risking’ strategy of the EU and the US all continue to weigh on the country's growth outlook. In the US, the big question is whether the economy is resilient enough to absorb yet another potential risk factor. After spring's banking turmoil, the debt ceiling excitement, and more generally, the impact of higher Fed rates, the next big thing is the resumption of student loan repayments, starting in September. Together with the delayed impact of all the other drag factors, these repayments should finally push the US economy into recession at the start of next year. And then there's Europe. Despite the weather turmoil, the summer holiday season seems to have been the last hurrah for services and domestic demand in the eurozone. Judging from the latest disappointing confidence indicators, the bloc's economy looks set to fall back into anaemic growth once again   Little late summer warmth This downbeat growth story does have an upbeat consequence; inflationary pressure should ease further. It's probably not going to be enough to bring inflation rates back to central banks’ targets, but they should be low enough to see the peak in policy rate hikes. Central bankers would be crazy to call an end to those hikes officially; they don't want to add to speculation about when the first cuts might come, thereby pushing the yield further into inversion. And there's also the credibility issue - you never know, prices might start to accelerate again. So, expect major central bankers to remain hawkish at least until the end of the year. In our base case, we have no further rate hikes from the US Federal Reserve and one final rate rise by the European Central Bank.   However, in both cases, these are very close calls, and the next central bank meetings are truly data-dependent. Sometimes, a Golden Fall or Indian Summer can make up for any summertime sadness. But it doesn’t look as if the global economy will be basking in any sort of warmth in the coming weeks. The bells are indeed ringing loud and clear. Vacation's over; school is here. And while I'm certainly too old for such lessons, I'm taken back to that gloomy, somewhat anxious feeling I had as a kid as summer wanes and the hard work must begin once again.   Our key calls this month: • United States: The US confounded 2023 recession expectations, but with loan delinquencies on the rise, savings being exhausted, credit access curtailed and student loan repayments restarting, financial stress will increase. We continue to forecast the Federal Reserve will not carry through with the final threatened interest rate rise. • Eurozone: The third quarter may still be saved by tourism in the eurozone, but the latest data points to a more pronounced slowdown in the coming months. Inflation is falling, but a last interest rate hike in September is not yet off the table. The European Central Bank will be hesitant to loosen significantly in 2024. • China: The latest activity data has worsened across nearly every component. Markets have given up looking for fiscal stimulus, and have started making comparisons with 1990s Japan. We don’t agree with the Japanification hypothesis, but clearly a substantial adjustment is underway, and we have trimmed our growth forecasts accordingly. • United Kingdom: Uncomfortably high inflation and wage growth should seal the deal on a September rate hike from the Bank of England. But emerging economic weakness suggests the top of the tightening cycle is near, and our base case is a pause in November. • Central and Eastern Europe (CEE): Economic activity in the first half of the year has been disappointing, leading us to expect a gloomier full-year outlook. Despite this, we see a divergence in economic policy responses, driven by countryspecific challenges. • Commodities: Oil prices have strengthened over the summer as fundamentals tighten, whilst natural gas prices have been volatile, with potential strike action in Australia leading to LNG supply uncertainty. Chinese concerns are weighing on metals, but grain markets appear more relaxed despite the collapse of the Black Sea deal. • Market rates: The path of least resistance is for longer tenor rates to remain under upward pressure in the US and the eurozone and for curves to remain under disinversion (steepening) pressure. We remain bearish on bonds and anticipate further upward pressure on market rates from a tactical view. • FX: Stubborn resilience in US activity data and risk-off waves from China have translated into a strengthening of the dollar over the summer. We still think this won’t last much longer and see Fed cuts from early 2024 paving the way for EUR:USD real rate convergence. Admittedly, downside risks to our EUR/USD bullish view have grown.     Inflation has only been falling for a matter of months across major economies, but the debate surrounding a possible “second wave” is well underway. Social media is littered with charts like the ones below, overlaying the recent inflation wave against the experience of the 1970s. These charts are largely nonsense; the past is not a perfect gauge for the future, especially given the second 1970s wave can be traced back to another huge oil crisis. But central bankers have made no secret that nightmares of that period are shaping today's policy decisions. Policymakers are telling us they plan to keep rates at these elevated levels for quite some time.

Rates Spark: When the hawks seem dovish Rates remained under downward pressure, only this time it wasn't the US. The Bund curve bull-steepened as eurozone inflation was less hot than feared and the European Central Bank's Schnabel was seen as dovish. We are less certain that the odds of another hike in September can be dismissed as easily. But for today the focus is on US jobs.     Rates remain under downward pressure US rates were still under moderate downward pressure, but for a change relatively quiet with the data yesterday largely falling in line with expectations. But markets were probably also gearing up for today’s payrolls release, one data point that has had the ability to shift market sentiment in the past.   More bullish action was seen in Sterling rates and Bund yesterday. In the case of Sterling rates a reassessment of especially front-end rates was caused by the Bank of England Chief Economist Pill being unusually explicit about his preference for a “Table Mountain” profile – he was speaking in Cape Town –  for policy rates, rather than a “Matterhorn”. EUR rates were also under downward pressure. Some of that was a relief that the aggregate eurozone inflation data did not come in as hot as feared after prior country releases had suggested upside risks. In then end the headline rate proved stable, but more importantly the core rate came down to 5.3% year-on-year. Mind you, that is still way above comfortable levels for the ECB.   When a hawk sounds dovish a closer look is warranted Therefore, it was all the more surprising that ECB’s arch hawk Isabel Schnabel struck a more balanced tone than many would have expected of her. She continued to highlight the uncertainties surrounding the inflation outlook, but at the same time acknowledged that growth prospects had also deteriorated in the meantime. With regards to upcoming policy decisions she would not commit to any outcome, and rather stressed the data dependent approach. In more geographic terms: it’s elevated terrain but one can only look about 100m – it could be South Africa or the Alps. The market went for the dovish interpretation, though we think that some of Schnabel’s assessments still point to her hawkish nature. For instance, she pointed out that under certain circumstances a hike could also “insure against the continued elevated risk of inflation remaining above [the ECB’s] target for too long”. Yes, she refrained from making any prediction on rates. But she highlighted that the ECB not being able to pre-commit to any future action also means policymakers “cannot trade off a need for a further tightening today […] against a promise to hold rates at a certain level for longer”. This would close off one possible avenue for bargaining between the doves and hawks as the next steps are debated. Finally, she also stressed the importance of real interest rates as a measure of the ECB’s effective policy stance. More specifically she cautioned that the recent decline in real interest rates “could counteract our efforts to bring inflation back to target in a timely manner”. In the end Schnabel is but one voice, although an important one. The ECB minutes of the July meeting eventually also conveyed a slightly changed tone within the Governing Council – still very much concerned about inflation, but with doubts about one's own still very optimistic growth outlook starting to creep in. The market's pricing for the September meeting has slipped from previously discounting a greater than 50% probability for a hike to now around 25%.    The effective policy stance is not as restrictive as desired   Today's events and market view The US payrolls report takes the spotlight today, but those forecasting the numbers do not have much to go on given that the ISMs are only published after the jobs data this time around and that the ADP has proven of limited value as a predictor. The consensus is looking for more signs of a cooling labour market, expecting a 170k payrolls increase – with individual forecasts ranging from 120k-230k – and wage growth decelerating somewhat to 4.3%. At the same time the unemployment rate is expected to stay at 3.5%. After the jobs data we will then see the ISM manufacturing index which is seen improving only marginally to 47, meaning that the index will continue languishing in the contraction area. 

FX Daily: Peso too strong, renminbi too weak, dollar just right FX markets await today's release of the August US jobs report to see if we've reached any tipping point in the labour market. Probably not. And it is still a little too early to expect the dollar to embark on a sustained downtrend. Elsewhere, policymakers in emerging markets are addressing currencies that are too weak (China) and too strong (Mexico).   USD: The market seems to be bracing for soft nonfarm payrolls data Today's focus will be the August nonfarm payrolls jobs release. The consensus expects around a +170k increase on headline jobs gains, although the "whisper" numbers are seemingly nearer the +150k mark. Importantly, very few expect much change in the 3.5% unemployment rate. This remains on its cycle lows, continues to support strong US consumption, and keeps the Fed on its hawkish guard. We will also see the release of average hourly earnings for August, which are expected to moderate to 0.3% month-on-month from 0.4%. As ING's US economist James Knightley notes in recent releases on the US economy and yesterday's US data, there are reasons to believe that strong US consumption cannot roll over into the fourth quarter and that a recession is more likely delayed than avoided. But this looks like a story for the fourth quarter. Unless we see some kind of sharp spike higher in unemployment today, we would expect investors to remain comfortable holding their 5.3% yielding dollars into the long US weekend. That is not to say the dollar needs to rally much, just that the incentives to sell are not here at present. If the dollar is at some kind of comfortable level, policy tweaks in the emerging market space over the last 24 hours show Beijing trying to fight renminbi weakness and Mexico City trying to fight peso strength (more on that below). We suspect these will be long, drawn-out battles with the market. DXY can probably stay bid towards the top of a 103-104 range.

GBP: Table top mountain The UK rates curve softened by 9-10bp yesterday on comments by Bank of England Chief Economist Huw Pill, that the policy rate profile would look more like a "table mountain" – the inference here is that high rates would be kept for longer than the need to take rates much higher per se. However, the market still prices another 50bp of tightening into next year, which is 25bp too much in our opinion. The risk of re-pricing looks greater for the BoE than the ECB curve and keeps us positive on EUR/GBP. Levels in the 0.8500/8550 area should be good for corporates to hedge GBP receivables or EUR payables.  

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

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

Flash HICP in August 5.3% (5.1% expected, 5.3% in July) Flash core HICP in August 5.3% (5.3% expected, 5.5% in July) Key moving average provides resistance once again   Eurozone economic indicators this morning have been something of a mixed bag, although traders seem enthused on the back of them rather than disappointed. We’ve seen regional data over the last couple of days which gave us some indication of how today’s HICP report would look and a drop in the core reading in line with expectations combined with no decrease in the headline seemed to make sense. Unemployment, meanwhile, remained at a record low despite an increase in the number of those unemployed. Perhaps there’s some relief that the headline HICP rate didn’t tick a little higher while the core did decline which combined with expectations for the coming months gives the ECB plenty to debate. Another hike in September still strikes me as more likely than not but on the back of this release, markets are swinging the other way, pricing in a near 70% chance of no increase.   ECB Probability   That’s helped the euro to slide more than 0.5% against the dollar this morning – similar against the yen and a little less against the pound while regional markets are seemingly unmoved and continue to trade relatively flat.   Further bearish technical signals following the eurozone data While the fall against the pound was a little less significant, it has enabled it to once again rotate lower off the 55/89-day simple moving average band, reinforcing the bearish narrative in the pair. EURGBP Daily   Source – OANDA on Trading View It’s run into resistance on a number of occasions around the upper end of this band, with the 100 DMA (blue) arguably being a more accurate resistance zone over the summer. Regardless, that still leaves a picture of lower peaks and relatively steady support around 0.85. While that may simply be consolidation, the lower peaks arguably give it a slight bearish bias, a significant break of 0.85 obviously being needed to confirm that.    

Asia Morning Bites Higher for longer US rates trade takes its toll on Asian FX. Australia and China trade reports out.   Global Macro and Markets Global markets:  Market sentiment turned sour again yesterday, with stocks across the board dropping. The S&P 500 opened down and went lower over yesterday’s session, falling 0.7% from the previous day. The NASDAQ fell 1.06% and equity futures today are showing no respite. Chinese stocks also fell, though only slightly. The Hang Seng fell 0.04% and the CSI 300 fell just 0.22%. US bond yields pushed higher yesterday as the market continued to take out easing previously priced in for 2024/25. 2Y US Treasury yields rose 5.6bp while 10Y yields rose  2bp to 4.28%. EURUSD stayed at the low end of 1.07 on Wednesday. The AUD was also flat at about 0.6380 despite better-than-expected GDP data, as was the JPY at 147.71 despite comments from officials saying they would take action amid speculative market moves. Sterling dropped below 1.25 on suggestions from Governor Bailey that the rate tightening cycle in the UK was done, or if not, nearly done.  Asian FX sold off against the USD yesterday. The SGD unusually propped up the bottom of the list, weakening 0.27% to 1.3639. The CNY rose above 7.30 to reach 7.3180, and we would anticipate a forceful response from the PBoC at this morning’s fixing. G-7 macro:  The US services ISM index unexpectedly rose yesterday, rising to 54.5 from 52.7 (52.5 expected). There were also gains in the prices paid index, employment, and new orders. This is what drove the market to price out further easing next year, helping to lift the USD. The Fed’s latest Beige Book was somewhat downbeat given the ISM numbers. Today, there isn’t too much to look out for. US non-farm productivity and unit labour costs are both residuals from earlier GDP data and don’t really add to the sum of knowledge on the US economy. Weekly jobless claims are the only other US data of note. The Eurozone releases final GDP figures for 2Q23. No revisions are expected. China:  August trade figures will likely show a slight moderation in the pace of contraction, though it would be generous to describe this as a bounce. A trough might be a more accurate description. Still, that’s better than what has gone before, so it could buoy sentiment. The trade balance may shrink slightly despite this, from the $80.6bn figure from July. Australia:  A slight contraction in Australia’s AUD11.3bn trade surplus for July is also expected for the August figures published later this morning. This is unlikely to have any meaningful impact on the AUD, whose current weakness is more a function of broad USD strength.    What to look out for: China and Australia trade balance Australia trade balance (7 September) China trade balance (7 September) Malaysia BNM policy (7 September) US initial jobless claims (7 September) Japan GDP (8 September) Philippines trade balance (8 September) Taiwan trade balance (8 September) US wholesale inventories (8 September)

Tesla fuels market rally By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank    Tesla jumped 10% yesterday and reversed morose mood due to the Apple-led selloff. Tesla shares flirted with the $275 per share on Monday, thanks to Morgan Stanley analysts who said that its Dojo supercomputer may add as much as $500bn to its market value, as it would mean a faster adoption of robotaxis and network services. As a result, MS raised its price target from $250 to $400 a share.   Tesla rally helped the S&P500 make a return above its 50-DMA, as Nasdaq 100 jumped more than 1%. Apple recorded a second day of steady trading after shedding almost $200bn in market value last week because of Chinese bans on its devices in government offices, and Qualcomm, which was impacted by the waves of the same quake, recovered nearly 4%, after Apple announced an extension to its chip deal with the company for 3 more years. Making chips in house to power Apple devices would take longer than thought.   Speaking of chips and their makers, ARM which prepares to announce its IPO price tomorrow, has been oversubscribed by 10 times already and bankers will stop taking orders by today. The promising demand could also encourage an upward revision to the IPO price, and we could eventually see the kind of market debut that we like!    Today, at 10am local time, Apple will show off its new products to reverse the Chinese-muddied headlines to its favour before the crucial holiday selling season. The Chinese ban of Apple devices in government offices sounds more terrible than it really is, as the real impact on sales will likely remain limited at around 1%.   In the bonds market, the US 2-year yield is steady around the 5% mark before tomorrow's much-expected US inflation data. The major fear is a stronger-than-expected uptick in headline inflation, or lower-than-expected easing in core inflation. The Federal Reserve (Fed) is torn between further tightening or wait-and-see as focus shifts to melting US savings, which fell significantly faster than the rest of the DM, and which could explain the resilience in US spending and growth, but which also warns that the US consumers are now running out of money, and they will have to stop spending. So, are we finally going to have that Wile E Coyote moment? Janet Yellen doesn't think so, she is on the contrary confident that the US will manage a soft landing, that the Fed will break inflation's back without pushing economy into recession. Wishful thinking?   But everyone comes to agree on the fact that the Eurozone is not looking good. The EU Commission itself cut the outlook for the euro-area economy. It now expects GDP to rise only 0.8% this year, and not 1.1% as it forecasted earlier, as Germany will probably contract 0.4% this year. The slowing euro-area economy has already softened the European Central Bank (ECB) doves' hands over the past weeks. Consequently, the EURUSD gained marginally yesterday despite the fresh EU commission outlook cut and should continue gently drifting higher into Thursday's ECB meeting. There is no clarity regarding what the ECB will decide this week. The economy is slowing but inflation will unlikely to continue its journey south, giving the ECB a reason to opt for a 'hawkish' pause, or a 'normal' 25bp hike. 

ECB cheat sheet: Is a hike hawkish enough? Markets are torn. Will the ECB hike this week or not? We think it will, but we look at how different scenarios can impact rates and FX. Even in our base case, we suspect that convincing markets that this is not the peak will be very hard, and dovish dissenters may get in the way. The upside for EUR rates and the euro may not be that big and above all, quite short-lived.       As discussed in our economics team’s European Central Bank meeting preview, we narrowly favour a rate hike this week. The consensus of economists is slightly tilted towards a hold, and markets also see a greater chance of no change (60%). In the chart above, we analyse four different scenarios, including our base case, and the projected impact on EUR/USD and 10-year bunds. We expect to see a more fragmented than usual Governing Council at this meeting. Whichever direction the ECB decides to take, the debate will likely be fiercer than in previous meetings, as lingering core inflationary pressure is being counterbalanced by evidence of rapidly worsening economic conditions in the euro area. Accordingly, expect the overall messaging by the ECB to be influenced not only by the written communication but also by: a) how much President Christine Lagarde manages to conceal growing division and disharmony within the Governing Council during the press conference and; b) any post-meeting “leaks” to the media, which could be used by dissenters to influence the market impact.        

ECB may be a lifeline not a trampoline for EUR/USD September’s ECB meeting will be a binary risk event for the euro. Our baseline scenario sees a rate hike, which would translate into a stronger euro in the aftermath of the announcement, as market pricing is leaning in favour of a hold. But with EUR/USD having been on a steady bearish path since the 1.12 July peak, the real question is whether a hike would invert the trend. The short answer is probably not, but there are some important considerations to make. First of all, it’s worth explaining why we think the FX impact of an ECB hike will be short-lived. One key reason is pricing: markets have doubted the ability of the ECB to hike this week (9bp priced in), but are still factoring in a total of 17bp of tightening to the peak by year-end. Arguably, the ECB hawks won’t have much interest in delivering one hike this week and striking a dovish tone, as the effective tightening via rates would be limited, so they should accompany a hike with openness to do more. However, with economic conditions deteriorating fast in the eurozone and dovish dissent within the ECB growing, it will be hard to convince markets to price in any additional tightening. When we look at the 2-year swap rate spread between the euro and the dollar, an important driver of currency fluctuations, we can tell that it has recently approached the -125bp support level (five central bank “lengths” between the Federal Reserve and ECB). Let’s remember that the swap rate tells us the expected average rate for the next two years, so includes expectations for the final moves in the tightening cycle (if any) and rate cuts. What has really driven the recent widening of the spread in favour of the dollar has not been any repricing higher in Fed rate hike expectations, but a downsizing of easing bets in the US for next year.   EUR/USD and short-term swap spread     With rate hike cycles coming to an end, swap rates are increasingly sensitive to expectations about the timing and pace of easing cycles. Those expectations are, however, far less controllable by central bank communication, and much more dependent on data. But can the ECB at least show signs of a united hawkish front and convincingly push back against rate cut speculation? (The first ECB cut is priced in for July 2024). If it can, then you have a trampoline for a sustainable EUR/USD rebound, otherwise – and we really think this will be the case – the best President Lagarde can do for the euro is to offer a lifeline. One way the ECB could, however, end up having a longer-lasting FX impact is via an acceleration in quantitative tightening. However, that obviously comes with non-negligible risks to peripheral spreads, and policymakers may want to tread quite carefully in that sense.   After the short-term impact, EUR/USD should revert to being driven primarily by the dollar leg, or in other words by Fed rate expectations and US data. We still expect a turn higher in the pair, but patience is the name of the game for EUR/USD bulls like us, and more downside corrections even after a potential ECB hawkish surprise are a very tangible risk.

Despite lingering uncertainties and negative sentiment toward Chinese stocks, they offer attractive valuations, with the Hang Seng Index trading at 9x earnings and CSI300 at 12x earnings for 2023. Last week it started strong, bolstered by eased property regulations and a resurgence in manufacturing PMI. However, concerns over the services sector, U.S.-China tech tensions, and market performance dimmed sentiment. CPI rebounded, while PPI improved. Notably, August saw a substantial increase in new Yuan loans and government bond financing, indicating economic support. Key data to watch this week include industrial production, retail sales, and fixed asset investment trends.   Key Highlights from the Article Chinese stocks offer potentials for a tradable rally Market sentiment fluctuated due to concerns over tech tensions and PMI data. August saw a significant increase in new Yuan loans and government bond issuance. CPI rebounded, while PPI showed signs of improvement in China's economy. Key data this week includes industrial production, retail sales, and fixed asset investment.   Attractive Valuation and Light Positioning Amidst an Upcoming Cyclical Recovery Despite a series of regulatory measures aimed at revitalizing the property and mortgage markets, market responses have remained somewhat subdued. Nevertheless, we are optimistic that these initiatives will contribute to a surge in mortgage loan growth, building on the rebound witnessed in August aggregate social financing data (see below). Our outlook suggests the likelihood of a cyclical recovery in the Chinese economy, particularly in Q4, even though the medium-term prospects remain uncertain and riddled with challenges. Notably, Chinese stocks bear a significantly below-average weight in institutional investors' portfolios, compounded by prevailing negative sentiments. Additionally, a series of economic and earnings growth downgrades by analysts has set a relatively low bar for the Chinese and Hong Kong equity markets to surpass. As of the latest data, the Hang Seng Index is currently trading at around 9x earnings for 2023 or 6x operating cash flows. Meanwhile, the CSI300 is trading at 12x earnings for 2023 or 8x operating cash flows. These valuation multiples present attractive opportunities for investors seeking a potential tradable rally in the context of the upcoming cyclical recovery.     Recap of Key Developments from the Previous Week The week commenced on a robust note, driven by a series of measures aimed at easing regulations in the property market and mortgage sector. These initiatives were particularly designed to reduce costs for prospective homebuyers, especially those eyeing properties in first-tier cities. For a more comprehensive discussion of these policies, please refer to our Weekly Market Pulse from last week. The market rally received an additional boost from the resurgence of the Caixin China Manufacturing PMI, which returned to expansionary territory, registering at 51.00—the highest level since the 51.6 reading in February. Furthermore, semiconductor stocks and other companies within Huawei's supply chain witnessed increased demand after Huawei unveiled its Mate 60 Pro mobile phone, showcasing impressive 5G capabilities. This development implied a significant breakthrough in its processor supplier, SMIC, which has apparently entered commercial production of 7nm chips. However, as the week progressed, market sentiment began to wane in response to a significant drop in the Caixin Services PMI, which fell to 51.8 in August from July's 54.1. This decline reignited concerns about the challenges facing the Chinese economy. Moreover, investor anxiety mounted over the rising risks of the United States tightening semiconductor technology restrictions on China, with the House of Representatives' Committee for China advocating an end to all technology exports to Huawei and SMIC. Fears of escalating tensions between China and the U.S. in the technology sector were further fueled by reports in foreign media outlets suggesting that Chinese authorities were restricting government and state-owned enterprise employees from bringing iPhones to their workplaces. While it has long been the case that officials working in sensitive government departments were not allowed to use iPhones for work purposes, anecdotal events and social media discussions indicated an increase in government departments urging officials to abstain from using iPhones. However, a nationwide directive imposing widespread restrictions on iPhone use in government departments and state-owned enterprises has yet to be confirmed and in our opinion tends to be unlikely. These concerns surrounding the intensification of the technology war between China and the U.S. cast a shadow over market sentiment, resulting in negative market performance. The Hang Seng index was down nearly 1% during a rainstorm and flooding-shortened week, while the CSI300 experienced a 1.4% decline.   CPI Bounces Back to Positive Territory in August, Indicating Encouraging Signs China's Consumer Price Index (CPI) rebounded moderately, rising by +0.1% year-on-year, as expected, after July's deflationary reading of -0.3%. This upturn was supported by a low base effect from the previous year. Notably, non-food inflation accelerated to +0.5% year-on-year in August, up from 0.0% in July, while the Core CPI, which excludes food and energy components, remained steady at +0.8% in August. On a monthly basis, the CPI increased by +0.3% in August, compared to +0.2% in July. In contrast, the Producer Price Index (PPI) continued to contract, but at a less severe rate, declining by -3.0% year-on-year, showing improvement from July's -4.4%. This improvement was attributed to both a low base from the previous year and the recovery in domestic and global commodity prices.   Sharp Increase in New Yuan Loans and Government Bond Issuance in August Released on Monday, China witnessed a significant surge in new Yuan loans during August, surpassing expectations, reaching RMB 1,360 billion, compared to RMB 346 billion in the previous month and RMB 1,250 billion in August of the previous year. This surge can be attributed to increased regulatory encouragement for banks to extend loans and favorable seasonal factors. Corporate loans played a significant role in this increase, surging to RMB 949 billion in August, up from RMB 238 billion in July, surpassing the previous year's RMB 875 billion. Notably, the medium to long-term portion of new household loans, primarily mortgage loans, rebounded to RMB 160 billion, reversing a net repayment of RMB 67 billion in July. The growth rate of outstanding RMB loans remained steady at +11.1% year-on-year, mirroring the previous month's figure. Additionally, new government bond financing surged to RMB 1,180 billion in August, up from RMB 411 billion in the previous month and RMB 305 billion a year ago. With robust loan growth and the front-loading of local government bond annual issuance quotas, the aggregate social financing data for August reached RMB 3,120 billion, a substantial increase from July's RMB 528.5 billion. The year-on-year growth of outstanding aggregate social financing slightly increased to +9.0% in August, compared to 8.9% in July.   Key Data to Watch This Week This week, keep an eye on the upcoming activity data releases. According to Bloomberg consensus forecasts, we can expect several notable trends: Industrial Production: In August, industrial production is projected to rise by 3.9% Y/Y, an increase from July's 3.7%. This uptick is a reflection of robust manufacturing PMI data, indicating a strengthening industrial sector. Retail Sales: August is expected to bring a 3.0% Y/Y growth in retail sales, outpacing the 2.5% growth seen in July. This growth is anticipated to be driven by increased auto sales and catering services. Fixed Asset Investment: While infrastructure construction was likely supported by the front-loading of local government bond issuance in August, there are factors to consider. The comparison with a high base from the previous year and continued weakness in property construction may restrict the growth of fixed asset investment for August. Consequently, the Bloomberg consensus suggests a year-to-date slowdown in fixed asset investment, declining to 3.3% Y/Y from the previous rate of 3.4%.

HUF: NBH to stress caution for the rest of the year There is only one event on the agenda in the CEE region today and that is the meeting of the National Bank of Hungary. Today's meeting seems like a done deal – the effective interest rate and the key interest rate will be merged at 13%, and monetary policy will thus enter the second phase of normalisation. The question is what to expect in October and how much today's press conference will indicate. In any case, a cautious and hawkish tone can be expected. This goes against the dovish market expectations, which have priced in rate cuts in the 75-100bp range at the following meetings and high EUR/HUF levels at 390. Thus, the hawkish tone should be an impetus for the market to reassess expectations, especially at the short end of the curve, and support the forint back to levels safely below 390 EUR/HUF.

As mentioned in previous updates, the reason why gold in our opinion has been holding up well despite the mentioned headwinds, is likely to be a market in search for a hedge against the current negative market sentiment and most importantly, the FOMC failing to deliver a soft, as opposed to a hard landing. A hard landing or stagflation may occur if the Fed keeps the Fed funds rate too high for too long or in the unlikely event the economy becomes too hot to handle. Other drivers can be rising energy prices keeping inflation elevated while hurting economic activity or a financial of geopolitical crisis erupts. Demand for gold as a hedge against a soft-landing failure is unlikely to go away as the outlook for the US economic outlook in the months ahead looks increasingly challenged. With that in mind, we maintain a patiently bullish view on gold while wondering whether the yellow metal in the short-term will continue to be able to withstand additional yield and dollar strength. The timing for a fresh push to the upside will remain very US economic data dependent as we wait for the FOMC to turn its focus from rate hikes to cuts, and during this time, as seen during the past quarter, we are likely to see continued choppy trade action. Spot gold, in a downward trending channel since May, is currently stuck in a $1900 to $1950 range with additional dollars and yield strength raising the risk of a short-term break below which may see $1885 being challenged. A close back above the 200-day moving average, last at $1927, is likely to coincide with a break of the mention downtrend, opening for a fresh attempt to challenge resistance in the $1950 area.  

ECB still rather safe than sorry on inflation, Italian spreads recover on retail bond sale The European Central Bank’s Vice President Luis de Guindos basically confirmed this position in an interview yesterday. Starting to talk about rate cuts was premature, he argued. While (headline) inflation has been brought down from over 10% to 4.3%, the final stretch will be the most difficult one. And he also pointed to the increased oil price posing a potential challenge if it feeds through to inflation expectations for households and corporates. We would note that, as far as market expectations are concerned, there has been some easing in longer dated inflation swaps. The 5y5y inflation forward has dropped to the lowest levels since July. While he also suggested the ECB was content with the level in interest rates it had reached he alluded to ending the reinvestments of the pandemic emergency purchase programme (PEPP) portfolio as a next step. While there has not been a formal discussion in the Council, this “will arrive sooner or later”.  But the ECB is aware of the backstop the flexible reinvestments of the PEPP still pose for sovereign spreads as a first line of defence, and the temporary widening of the key 10Y spread of Italian government bonds over Bunds to over 200bp will have had ECB officials looking up. That said, Italian government bond spreads have recovered over yesterday's session despite overall market rates rising, thus budging the recent directionality of the spread. The spread fell below 190bp, tightening close to 6bp versus Friday’s close. One reason cited is the strong showing of the BTP Valore sale on its first day, attracting demand of close to €5 billion, which suggests the overall size could rise towards €15 billion over the course of the next few days   Today's events and market view The bear-steepening momentum seems unbroken and is only accelerated by better-than-expected data, such as yesterday's ISM manufacturing. Today's main data release is the US job opening numbers (JOLTS), an important gauge for the health of the labour market. There is no data of note to be released in the eurozone, but we will have public appearances by ECB officials Philip Lane and Francois Villeroy de Galhau. Note that Germany also observes its reunification national holiday. In government bond primary markets, Austria sells 10Y and 30Y bonds today, while the UK sells 30Y green gilts.

Analysis of transactions and tips for trading USD/JPY Further growth became limited because the test of 149.04 coincided with the sharp rise of the MACD line from zero. The second test, on the other hand, took place when the MACD line returned from the overbought area, providing a signal to sell. This led to a price decrease of over 50 pips. The Bank of Japan's intervention holds significant importance for the currency market. But for today, the pair's decline will be influenced by data from the US labor market, where unemployment figures will decrease to 3.7%. A sharp reduction in the number of new jobs in September could also weaken dollar, leading to an active sale of USD/JPY. Otherwise, if the data surpass forecasts even by a small margin, the pair will continue to rise, once again reaching 150 yen per dollar. Data on average hourly earnings in the US could also influence market sentiment, unlike the interview with FOMC member Christopher Waller.   For long positions: Buy when the price hits 149.04 (green line on the chart) and take profit at 150.03. Growth will only be possible amid very strong data from the US labor market, continuing the bullish trend. When buying, ensure that the MACD line lies above zero or just starts to rise from it. Also consider buying USD/JPY after two consecutive price tests of 148.65, but the MACD line should be in the oversold area as only by that will the market reverse to 149.04 and 150.03. For short positions: Sell when the price reaches 148.65 (red line on the chart) and take profit at 147.77. Pressure will return in the event of a sharp reduction in jobs in the US and weak statistics. When selling, ensure that the MACD line lies below zero or drops down from it. Also consider selling USD/JPY after two consecutive price tests of 149.04, but the MACD line should be in the overbought area as only by that will the market reverse to 148.65 and 147.77.     What's on the chart: Thin green line - entry price at which you can buy USD/JPY Thick green line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further growth above this level is unlikely. Thin red line - entry price at which you can sell USD/JPY Thick red line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further decline below this level is unlikely. MACD line- it is important to be guided by overbought and oversold areas when entering the market   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.  

GBP/USD Amidst a general increase in risk appetite and a weak US dollar, the British pound gained 73 pips, surpassing the resistance of the nearest embedded price channel line. On the daily chart, the Marlin oscillator has entered the uptrend territory.     The price currently has the potential to rise toward a strong level around 1.2444, where linear resistances converge with the MACD indicator line. Levels 1.2307 and 1.2367 serve as intermediate ones.   On the 4-hour chart, the price has stayed above the MACD line, and the Marlin oscillator is approaching the border of the bullish territory. However, until it overcomes this mark, the price may start a sideways trend in the short-term, appearing as a form of consolidation before the pair grows further. The price channel line at 1.2170 (daily) acts as support for this consolidation. If the price settles below this level, it may create problems for the bulls, and there is a possibility of the price falling even further to 1.2070.    

Analysis of transactions and tips for trading EUR/USD Further growth became limited because the test of 1.0554 coincided with the sharp upward move of the MACD line from zero. After a short period of time, another test took place, but the MACD line went in the overbought area, leading to a signal to sell. This resulted in a price decrease of over 30 pips. The European Central Bank kept interest rates unchanged, announcing a softer approach to future monetary policy based on data that will be received in the future. However, they also did not rule out the possibility of another rate hike, similar to the Federal Reserve. Strong US GDP data for the third quarter did not particularly help dollar. And most likely, today, the empty macroeconomic calendar will give euro bulls the chance for an upward correction.     For long positions: Buy when euro hits 1.0582 (green line on the chart) and take profit at the price of 1.0604. Growth will occur as part of an upward correction, following the update of the weekly low. However, when buying, make sure that the MACD line lies above zero or rising from it. Euro can also be bought after two consecutive price tests of 1.0562, but the MACD line should be in the oversold area as only by that will the market reverse to 1.0582 and 1.0604. For short positions: Sell when euro reaches 1.0562 (red line on the chart) and take profit at the price of 1.0531. Pressure will increase in the event of a breakdown of the important support level of 1.0562, which will lead to a continuation of yesterday's bearish trend. However, when selling, make sure that the MACD line lies under zero or drops down from it. Euro can also be sold after two consecutive price tests of 1.0582, but the MACD line should be in the overbought area as only by that will the market reverse to 1.0562 and 1.0531.  

The currency pair EUR/USD showed absolutely no movements on Thursday—no reaction to important events. In our previous articles, we've already mentioned that people can have different opinions about what happened yesterday. On one hand, it's not uncommon to see meetings where no significant decisions are made, but the pair starts moving in different directions afterward. On the other hand, there were no significant decisions made yesterday, and Christine Lagarde's rhetoric was maximally bland and uninteresting. Therefore, the market had nothing to react to, and it all seems logical. However, this week, there is very little logic in the pair's movements. On Monday and Tuesday, there were movements of such strength that it feels like the ECB meeting actually happened on Monday, not on Thursday. In other words, the market considered business activity indices much more important than the ECB meeting and the US GDP report. The technical picture over the past day, of course, has not changed. How could it change when there were essentially no movements? The price is once again below the moving average, but that doesn't stop it from resuming its rise today and forming a third corrective wave. The fact that we didn't see further depreciation of the pair on strong statistics from across the ocean could indicate the market's mood for a new corrective wave. However, we want to note that the current area where the pair is located is quite dangerous for traders. Both buy and sell signals are forming in this area. The pair seems like it should be falling, but it may correct a bit more. On the 24-hour time frame, the price is "dancing" around the important level of 1.0609 and the critical line. On the 4-hour time frame, it crosses the moving average about once a day. All of this just confuses traders. The ECB didn't evoke any emotions in the market. In principle, there was no intrigue regarding the ECB meeting.     Market participants were 100% sure that the key rate wouldn't change, and therefore, the other two rates wouldn't change either. Expecting strong statements from Christine Lagarde, who spoke twice this week, was very difficult. What could Lagarde say? "We are tightening monetary policy again!"? Or "We are lowering the key rate!"? Neither the first nor the second option had anything to do with reality. In the end, Ms. Lagarde stated that "rate cuts were not discussed at the meeting," and in the future, rate decisions will be made based on incoming information. The ECB will continue to closely monitor GDP, inflation, and core inflation indicators and regularly assess the impact of current monetary measures on the economy. In essence, we didn't hear anything new. The market already knew all of Lagarde's statements by heart. And the statement about not considering rate cuts sounds like mockery. How can there be any easing when inflation exceeds the target level by more than double? As for the market's reaction, it could have provided insights into how the market perceives the received information. However, the reaction was practically non-existent, so we can't draw any conclusions here either. We believe that the strengthening of the dollar will continue in the medium term, especially after yesterday's strong package of statistics from across the ocean. We believe that the Federal Reserve has a much better chance and real opportunities to raise rates one or two more times than the ECB. Perhaps the market is not yet ready to resume selling the pair, and it may require one or even two more correction cycles, but we don't even consider the scenario of a new upward trend at the moment. We expect the dollar to rise to 1.0200. Read more: https://www.instaforex.eu/forex_analysis/358692

FX Daily: Immobile Fed to give a nod to higher yields We expect the Fed to pause today, in line with expectations. There is a mild risk of a dollar correction, but that should be short-lived. Japanese authorities are stepping up efforts to contain unwanted volatility in rates and FX, but we suspect markets will keep pushing USD/JPY higher and into the new intervention level.   USD: A quiet Fed meeting The Federal Reserve is in a desirable position as it prepares to announce policy this evening thanks to the combined effect of rate hikes and higher Treasury yields keeping pressure on prices. The economy has proven resilient so far. In the art of central banking, inaction is action, and inaction is broadly what we expect from the Fed today as we discuss in our preview. A pause is widely expected by markets and economists, as numerous FOMC members signalled higher Treasury yields were adding enough extra tightening of financial conditions to stay put. One question for today is to what extent the statement and Fed Chair Jerome Powell will acknowledge this non-monetary tightening of financial conditions. It’s unlikely the Fed wants to drop any dovish hints at this stage, but a market that is well positioned for a broadly unchanged policy message could be rather sensitive to the wording on this topic and may interpret an “official” recognition of tighter financial conditions as an implicit signal more tightening is off the table. The typically cautious Powell may anyway try to mitigate any dovish interpretation of the statement during the press conference. After all, the Fed dot plot still says one more hike by year-end and has a strong commitment to higher rates for longer. The first of these two statements was never taken at face value, but the latter is what is contributing to higher yields. Expect no divergence from it. The Fed isn’t the only event in the US calendar today, and markets will likely move on the ADP payrolls release (although these are unreliable), JOLTS jobs openings and the ISM manufacturing figures for October. There is room for a short-lived dollar correction today as markets will be on the hunt for implicit admissions that another hike is actually off the table with higher yields. Positioning adjustments have favoured some dollar slips recently but they have not lasted, as the overall message by the Fed has been one of higher for longer with a hawkish bias. That message won’t change today (barring any great surprises) and we think that buying the dips in any dollar correction will remain a popular trade, especially given the more and more unstable ground on which other major currencies (JPY, EUR) are standing.

FX Daily: EMFX surfs in a sea of green It seems investors are starting to think that the Fed is done with rate hikes and are now starting to reduce underweight positions in risk assets, including emerging market currencies. This is dollar negative. Today's US jobs data will be a key determinate of whether this week's new trend has legs or will be quashed by strong hiring or wage numbers.   USD: Will NFP can feed into the Fed pause narrative? European investors face a sea of green as they survey global equity markets this morning. Decent 1-2% rallies in global equity benchmarks have been seen right through Europe, the US and Asia. Underpinning that move undoubtedly has been the drop in US rates, where investors are shifting away from the higher-for-longer Fed narrative which dominated in September and October. They now seem to be exploring the Fed pause/Fed peak story. For reference, pricing of 1m OIS USD rates in two years' time rose from just above 3% in June to a peak of 4.75% last month and has since dropped back to 4.17%. The move in rates has surely seen investors scale back some paid USD rates/long dollar positions and prompted an unwind of some favourite short currency positions in the EM and commodity space. That is why we think the Australian dollar is doing so well and we continue to see upside for a relative value trade in the region, long AUD/CNH. We also note with interest a big drop in USD/KRW overnight. The Korean won typically has a high beta on global equities (but not an attractive yield) and its sharp rally is a good barometer for the mood in the market. With Korean FX reserves falling for a third month in a row it seems Korean FX authorities have been supplying the market with FX liquidity, as have the likes of China and India – presumably along with Japan shortly too. We think the drop in USD/KRW helps define a broadly risk-on, soft dollar environment today. Whether this environment has further to run will be determined by today's October US jobs data. Despite the ridiculous inverse correlation with ADP (which might point to a +350k NFP number today) consensus is around +170/180k. Investors will also want to see whether last month's +336k figure gets revised lower. Consensus also sees a 0.3% month-on-month average earnings figure, but that should still bring the year-on-year down to 4.0%, the lowest since June 2021. Assuming no upside surprises today, we favour the dollar handing back a little further of its gains, especially against the high yielders (e.g., Mexico and Hungary) given the renewed interest in the carry trade.  DXY could drop to the 105.50/55 area today as long as the US jobs data is not too strong.  

Discover insights on top DeFi projects as Morgan Stanley predicts a crypto market upswing, Injective (INJ) collaborates with Google Cloud, and VC Spectra (SPCT) presents lucrative investment opportunities, with a special spotlight on Cosmos' (ATOM) innovative Bitcoin bridge integration. Read on as we unravel the top cryptocurrencies worth investing in ahead of the Bull Run.   >>BUY SPCT TOKENS NOW<<   Morgan Stanley Foresees End of Crypto Winter; Predicts Upcoming Bitcoin Bull Run In a recent analytical report on October 17, 2023, Wall Street titan Morgan Stanley has expressed a belief that the prolonged crypto winter might be coming to an end and a new Bitcoin bull run could be on the horizon.  The bank’s wealth management division delved deep into the cryptocurrency cycle, emphasizing the significant impact of Bitcoin’s halving events on the market. Morgan Stanley’s insights come at a crucial time as investors and enthusiasts in the cryptocurrency space seek signs of market recovery.  The bank’s positive outlook adds a credible voice to the ongoing discussions about the future trajectory of the crypto market, potentially influencing investor sentiment and fostering renewed interest in the digital currency space.   Injective Integrates with Google Cloud’s BigQuery to Enhance Web3 Accessibility On October 24, 2023, Injective (INJ), a decentralized finance (DeFi) platform, integrated with Google Cloud’s BigQuery through the launch of Injective Nexus.  Nexus aims to bridge Injective’s (INJ) blockchain data with the broader developer community, offering datasets for various applications, including DeFi, machine learning, and institutional trading.  This makes Injective (INJ) part of a select group of significant blockchains integrated with BigQuery, joining Bitcoin and Ethereum. The significance of this collaboration for the Injective (INJ) ecosystem is to foster potential growth in traditional finance and institutions.  The collaboration positively impacted Injective’s (INJ) price as INJ moved from $10.94 to $15.24 between October 24 and November 2, 2023. This bullish movement saw the Injective’s (INJ) price surge by 39.32%, a profitable move for investors.  Market experts speculate that the Injective token, INJ, will continue in this bullish momentum, possibly reaching $17.31 by December 22, 2023.   VC Spectra's (SPCT) Profitable Investment Opportunities Set the DeFi Project Apart Morgan Stanley’s insights have sparked some level of hope in the crypto market, as Injective (INJ), Cosmos (ATOM), and VC Spectra (SPCT) have been positively influenced.  VC Spectra (SPCT), a new and promising DeFi token, has been making waves in the crypto market, rapidly climbing the ranks to position itself among the top altcoins.  With a starting price of $0.008, VC Spectra (SPCT) has soared to $0.055, delivering a whopping 587.5% profit to its early investors participating in Stage 1 of its public presale. As the crypto community buzzes with opinions on Morgan Stanley's insight, VC Spectra (SPCT) continues to attract attention to its ecosystem, offering profitable investment opportunities. Amidst the impressive price movement, VC Spectra (SPCT) operates as an asset management protocol and trading platform. VC Spectra (SPCT) aims to promote sustainable investments in fintech and blockchain, democratizing access for experienced and novice investors. However, market experts predict a potential rise to $0.080 before the end of the public presale. Such an increase would provide a staggering 45.45% return for potential investors. This outstanding performance points VC Spectra (SPCT) out as a top cryptocurrency to invest in.   >>BUY SPCT TOKENS NOW<<   Cosmos (ATOM) Revolutionizes DeFi with Native Bitcoin Bridge: nBTC Launches On October 31, 2023, Cosmos (ATOM), one of the top DeFi projects, successfully launched a bridge to bring native Bitcoin (BTC) into its DeFi ecosystem without the need for wrapping.  This bridge, created by the project Nomic, enables the creation of nBTC, an IBC-transferrable token on Cosmos ATOM chains. The goal of this integration with Cosmos ATOM is to provide Bitcoin holders with an easy way to participate in DeFi while maintaining the decentralized nature of Bitcoin.  Following the announcement, Cosmos crypto has been on a bullish trajectory, moving from $6.223 to $7.845 between October 19 and November 2, 2023. This price action marks a 26.07% surge in Cosmos ATOM. Furthermore, experts predict that ATOM will continue to $8.91 by December 15, 2023.   To learn more about VC Spectra (SPCT) and its presale, visit: Buy Presale: https://invest.vcspectra.io/login Website: https://vcspectra.io   Telegram: https://t.me/VCSpectra   Twitter: https://twitter.com/spectravcfund This article is provided for informational purposes only and is not intended as investment advice. The content does not constitute a recommendation to buy, sell, or hold any securities or financial instruments. Readers should conduct their own research and consult with financial advisors before making investment decisions. The information presented may not be current and could become outdated.  By accessing and reading this article, you acknowledge and agree to the above disclosure and disclaimer.  

EUR/USD On Thursday, the euro tried to break lower. However, just like its previous efforts, it was stopped by the MACD indicator line on the daily chart. Today it opened below the descending green channel line, increasing the risk of the price settling below this mark.   If today's closing candle remains black, the next week will likely be dedicated to moving towards the magnetic point at 1.0488. If it closes with a white candle, the upward movement could resume and the price could move towards the Fibonacci level at 1.0763, with the goal of advancing to 1.0834.   The Marlin oscillator is decreasing and is currently working in favor of the bears. There is also speculation that, amid ongoing disagreements in the US Congress regarding next year's budget, another temporary government funding bill may be passed, which weakens the pressure on the dollar.     On the 4-hour chart, the price stopped falling at the MACD line. The reversal pattern from the indicator line of different timeframes significantly increases the chances of a price reversal. Conversely, a synchronous breakthrough of the line on such timeframes will strengthen subsequent declines. However, the Marlin oscillator is in a suppressed state here as well, which slightly increases the bears' chances. We'll have to wait for the situation to unfold.  

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

On the hourly chart, the GBP/USD pair reversed in favor of the US currency on Wednesday, consolidating below the corrective level of 38.2% (1.2477). However, this closure has not given bears anything, as today, the pair has returned to the zone between 1.2477 and 1.2513. If a rebound occurs from this zone, there is a high probability that the quote decline will resume toward the corrective level of 23.6% (1.2321). Closing above this zone will allow traders to expect a resumption of growth towards the Fibonacci level of 50.0% (1.2603).     The wave situation has become simpler and clearer. Waves still have a relatively large size, which adds inconvenience to trading. However, the trend is currently "bullish," and a breakthrough of the last low at 1.2372 is required to complete it. In this case, there will be signs of the pair transitioning to a "bearish" trend, which is more logical after a fairly strong rise. However, at the moment, the "bullish" trend persists, and bears cannot firmly establish themselves on the hard-won positions.   Late Tuesday evening in the US, the minutes of the last FOMC meeting were released. The report stated that the regulator would continue to make decisions based on incoming information. FOMC members almost unanimously agreed that tightening monetary policy should only continue in the case of unsatisfactory inflation dynamics. Not all policymakers are confident in a sufficiently restrictive policy to return inflation to 2%. None of the FOMC members voted for an increase or decrease in the interest rate. Thus, the Fed has again "left the door open" but has not provided any signals about future decisions. Inflation in the US decreased in October, which may further weaken the "hawkish" sentiment.   On the 4-hour chart, the pair reversed in favor of the pound and a new consolidation above the level of 1.2450. Thus, the growth process can be continued toward the next level at 1.2620. The upward trend corridor characterizes traders' sentiment as "bullish," and the "bullish" divergence on the CCI indicator warns of a possible continuation of the rise. Commitments of Traders (COT) Report:   The sentiment of the "Non-commercial" trader category for the last report is slightly less "bearish." The number of long contracts in the hands of speculators decreased by 6180 units, and the number of short contracts decreased by 10299 units. The overall sentiment of major players has long changed to "bearish," between the number of long and short contracts, the gap is increasing, but now in the opposite direction: 57 thousand versus 74 thousand. There are still excellent prospects for the pound to continue falling. I do not expect a strong rise in the pound soon. Over time, bulls will continue to get rid of buy positions, as is the case with the European currency. The growth we have seen in recent weeks is corrective. News Calendar for the US and the UK: UK - Manufacturing Purchasing Managers' Index (PMI) (09:30 UTC). UK - Services Purchasing Managers' Index (PMI) (09:30 UTC). On Thursday, the economic events calendar contains only two fairly interesting entries. The impact of the information background on market sentiment today may be weak. Forecast for GBP/USD and Trader Tips: I recommend selling the pound this week on a rebound from the zone of 1.2477– 1.2513 on the hourly chart with a target of 1.2321. Or on a rebound from the level of 1.2603. I advised buying the pair on a consolidation above the level of 1.2513 with targets of 1.2603 and 1.2620, but such deals look excessively risky to me. They should be closed at the first sign of doubt.

Fed policymakers encouraged by recent data but won’t get complacent BoE interest rate expectations barely changed after UK Autumn Statement GBPUSD reverses near key resistance The two big events of the last 24 hours haven’t really packed the punch they occasionally can which perhaps explains why we aren’t seeing big moves today.   Fed determined to “proceed carefully” The FOMC minutes were arguably slightly on the dovish side, with the committee now seemingly of the view that no further hikes will be needed, with the language instead focusing on the need to proceed carefully. While we probably will still hear more of the higher for longer mantra from policymakers in public ahead of the December meeting, it’s clear now that the FOMC is pleased with the recent progress it’s seen and as long as it doesn’t go into reverse, rate hikes are a thing of the past. The question now is how long before the rate-cutting conversations begin. Markets are pricing in the first reduction around June but I can’t imagine policymakers will acknowledge that possibility for some time. The late pivot still looks highly likely as the Fed seeks to avoid underestimating inflation again. Markets still pricing in a possible UK rate cut in June The UK Autumn Statement wasn’t a big market-moving event today and perhaps in the current environment, that’s a good thing. Given the speculation in recent days around what measures Chancellor Jeremy Hunt would announce due to the additional fiscal headroom and proximity to the election, there have been some concerns that measures could run counter to the Bank of England’s goal of getting inflation back to 2%. The fact that the pound was fairly steady during today’s event and markets are still pricing in a 50% chance of a rate cut by June suggests investors are not concerned about any inflationary implications on the back of today’s announcements.   GBPUSD pulls back near key resistance The pair had rallied in recent weeks towards 1.26 which only recently had been a major technical level. GBPUSD Daily Source – OANDA on Trading View   Not only does it represent the 50% retracement of the move from the July highs to the October lows, but it coincides with the neckline from the head and shoulders it broke below in early September. Yesterday it was looking a little short of momentum which could be a red flag near such a potentially important technical level. It’s now rotated lower which doesn’t necessarily mean it’s failed and heading lower, but it may suggest the market views it as an important level.  

Around 9 a.m., BoE member Dave Ramsdey shared his comments in a press conference, providing insights into the current UK macroeconomic scenario. Ramsdey's key comments indicated constraints on growth due to monetary policy, unexpected resilience in the British economy for 2023, weak productivity growth, signs of increased unemployment, and the challenge of addressing domestic inflation, particularly in services. Despite signs of a cooling economy, inflationary forces, especially in services, continue to exert influence, presenting a challenging backdrop.Considering the implications for the British pound and the GBPUSD pair, the pivotal factor shaping the long-term trend might be predictions regarding interest rate cuts in 2024. The current market expectation is for the BoE to reduce rates by just over 50 basis points by November 2024 while the Federal Reserve is anticipated to implement nearly three cuts within the same timeframe, totaling 75 basis points. BoE's current interest rates stand at 5.25% as the Fed's rates range between 5.25% and 5.50%. The daily chart of the GBPUSD pair shows the ongoing session involving a retest of the support zone defined by the previously breached barrier. Successful defense of this support and a potential upward breakout could lead to a move toward the zone around 1.27, while a downward breakout may find major support around the 1.25-1.24 barrier. 

GBP: ECB vs. BoE story dominates Dovish commentary from the ECB has now seen investors pricing ECB rate cuts several months ahead of the Bank of England (BoE) next year and expectations build of a deeper easing cycle in the Eurozone than in the UK. We disagree with that pricing and think the BoE will deliver more hikes than the ECB next year. This probably means that EUR/GBP does not need to spend too much time below 0.8600. Indeed, 0.8500 represents very strong support and we remain happy with our forecasts of EUR/GBP edging up to the 0.88/0.90 area into next year. The UK data calendar is very quiet this week, with just Friday's release on inflation expectations of note. The bigger driver of EUR/GBP this week will be any ECB pushback against dovish pricing of their 2024 policy cycle.

Energy – OPEC crude oil production softens in November Sentiment in the oil market remains negative this morning, with both ICE and WTI futures trading almost 1% lower after the announcement from the OPEC+ meeting failed to convince the market about a tighter oil balance in the immediate term. Pessimism over compliance with the new deal remains one of the major concerns for the market for now. Initial data shows that OPEC crude oil production dropped to around 28.05MMbbls/d in November 2023 compared to 28.19MMbbls/d in October 2023, according to a Bloomberg survey. The BBG survey estimates that supply from Iraq and Nigeria dropped by 50Mbbls/d each, while Iran and Kuwait also lowered production by 40Mbbls/d each. Higher production from Saudi Arabia and Libya helped offset some of the production losses for the month. Weekly data from Baker Hughes shows that the US added five oil rigs over the last week, taking the total oil rig count to 505, whilst the gas rigs fell by 1, taking the total rig count (oil & and gas combined) to 625 for the week ended 1 December. US oil rigs have now increased to their highest level in nearly two months, although the recent weakness in oil prices could weigh on further rig additions over the coming weeks. The Al-Zour refinery in Kuwait is now fully operational as the third of the three mini refineries was brought online on Sunday. This will gradually increase the refining capacity of the facility to 615Mbbls/d from the current capacity of 410Mbbls/d. The plant halted its operational activities last month after a fuel gas feed was halted. Al-Zour is one of the largest oil-processing facilities in the Middle East and it is expected to boost the nation’s refining capacity to about 1.5MMbbl/d. The latest positioning data from CFTC shows that speculators decreased their net long position in NYMEX WTI by 6,408 lots for a ninth straight week over the last week, leaving them with net longs of 98,137 lots as of 28 November 2023, the lowest since the week ending on 4 July 2023. In contrast, money managers increased their net longs in ICE Brent by 11,630 lots over the last week after reporting five consecutive weeks of decline, leaving them with a net long position of 166,735 lots as of last Tuesday.

EUR: Not easy to pick a bottom Shorting the euro appears to be one of the most popular bets in FX at the moment. Comments by hawkish hardliners like Isabel Schnabel yesterday – who suggested that another hike is now off the table and essentially moved the discussion to rate cuts – have added further pressure on the euro. We continue to point to how the current downward correction in EUR/USD is not out of line with short-term rate differentials; when taking the two-year swap rate gap (-130bp) as a driver, a further leg lower to the 1.06 area would not be an aberration. That makes us reluctant to call for the bottom in EUR/USD just yet, and even more so in EUR-crosses, especially against the likes of AUD and NZD. A catalyst for an idiosyncratic euro rebound is not in sight, at least for today, when there are no scheduled European Central Bank speakers and the eurozone’s data calendar only includes the October retail sales – hardly ever a market mover in the region. The big slump (7.3% YoY) in Germany’s factory orders for October (data released this morning) is likely to keep the negative euro narrative alive at the start of the European session. EUR/USD is now trading very close to the 1.0770 100-day MA support, and a break lower can further fuel the bearish momentum. A test of 1.0700 before the weekend is entirely possible if the dollar remains bid.

December’s ECB cheat sheet: A reality check for ultra-dovish expectations The ECB will almost surely keep rates on hold at the December meeting. The question is to what extent it will align with the market's aggressive pricing for rate cuts in 2024. We suspect it will fall short of endorsing ultra-dovish expectations. There is some upside room for EUR rates and the battered euro.       Heading into the European Central Bank's December meeting, there is growing evidence that the Governing Council is split about the messaging being presented to markets. The generally arch-hawk Isabel Schnabel dropped strong dovish hints by ruling out rate hikes this week, and markets are now pricing in 135bp of cuts in the next 12 months. We see a good chance that the overall message at this meeting will fall short of endorsing aggressive rate cut expectations. Above are the market implications in various scenarios. Our full ECB preview can be found here. A still-cautious ECB may not validate aggressive front end pricing A reassessment of inflation expectations has been in the lead in driving rates lower and raising the expectations of first rate cuts at the end of the first quarter next year. From next summer onwards, market indications point to anticipated headline inflation fixes below 2%. Indeed, the 2Y inflation swap has dropped to 1.8%. It is easy to overlook that at the same time, core inflation is currently still running at an elevated 3.6% year-on-year, giving the ECB enough reason to remain cautious. However, the pushback against aggressive market pricing has been half-hearted at best, with officials’ remarks having put cuts in the first half of next year clearly into the realm of possibility. But whether they're likely is a different question. The ECB may well decide to let the data be the judge – but at the same time, it remains more reluctant to extrapolate to the extent that the market does. Its own inflation forecast may come down next week, but potentially not to the degree that markets are discounting. We see a good chance that the rally in front end rates – which currently discounts a 75% probability of a cut next March – stalls, if not unwinds to some extent. The longer end may see less upward pressure, though. In the extreme, the Governing Council coming across as overly hawkish and brushing off the faster disinflationary momentum could push markets into the belief that a policy mistake is in the making.   ECB rate expectations   Lagarde can throw a lifeline to the unloved euroThe idiosyncratic decline of the euro has been one of the key themes in FX lately, with the common currency being the worst-performing currency so far in G10. The aggressive dovish repricing of ECB rate expectations has been the main driver, and the comments by Isabel Schnabel right before the pre-meeting quiet period have fuelled the bearish narrative further. With 125bp of cuts priced in by October and markets actively considering a start to the easing cycle already in March, it's difficult to see a bigger dovish repricing happening at this stage. That would suggest the euro does not have to fall much further from the current levels. Still, if only short-term rate differentials are taken into account, a decline to the 1.06 area in EUR/USD would not be an aberration. What is already halting the euro slump is the upbeat risk sentiment, which favours pro-cyclical currencies like the euro and caps the upside for the safe-haven dollar. We expect the ECB to continue its transition to a dovish narrative, but that will – in our view – happen at a slower pace than what markets are implying. We see tangible risks that the the central bank will push back against aggressive dovish speculations at this meeting, and the market may be forced to unwind some of those rate cuts bets, offering room for a EUR/USD rebound. That said, a EUR/USD recovery would struggle to extend much longer after the meeting due to the short-term EUR-USD swap spreads still pointing to a lower exchange rate.

The day has come By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Yesterday was finally the day that most FX traders have been waiting for since at least a year: the day where the Bank of Japan (BoJ) gave a hint that it will finally exit its negative interest rate policy. Precisely, the BoJ Governor said, after his meeting with the Japanese PM - that handling of monetary policy would get tougher from the end of the year. Indeed, the BoJ is buying a spectacular quantity of JGBs to keep the YCC intact at absurdly low levels compared with where the rest of the developed markets yields are following an almost 2-year long of aggressive monetary policy tightening campaign. At its highest this year – after the BoJ relaxed the rules on its YCC policy – the 10-year JGB flirted with the 1% mark, whereas the 10-year yield German bund yield hit 3%, the 10-year British gilt yield advanced to 4.70% and the US 10-year yield hit 5%. Certainly, inflation in Japan lagged significantly behind inflation in Western peers, yet inflation in the US is now exactly where inflation in Japan is: near 3%.   The BoJ's negative rate is the last souvenir of the zero/negative rate era and any small hint that things will get moving over there could move oceans. And this is what happened yesterday. The speculation that the BoJ will hike rates as soon as this month spiked to 45% soon after Mr. Ueda's words reached investors ears. The 10-year JGB yield spiked to 0.80% from around 0.62% reached earlier this week in parallel with the falling DM yields. The USDJPY fell from 147 to 141 in a single move, and the pair is consolidating gains a touch below 144 this morning, as traders argue whether a December normalization is too soon or not. Fundamentally it is not: in all cases, the BoJ will start normalizing policy two years after the Bank of England (BoE) hiked its rate for the first time after a long period. And the BoJ will be normalizing its rates when all major central banks plateau their tightening policy and when investors are out guessing when the normalization – toward the other direction – will begin. So no, fundamentally, it is not too early for the BoJ to start hiking its policy rate. But it would be a sudden move – that's for sure!   The Day of Anticipation: BoJ's Hint at Exiting Negative Rates Sparks Market Reaction"In any case, it is more likely than not that the fortunes of the Japanese yen turned for good this week. In the short run, consolidation is the immediate answer to yesterday's kneejerk rally – which took the USDJPY immediately into the oversold market conditions as the move was also amplified with many traders covering their short positions. But from here, yen traders will be looking to sell the tops rather than to buy to dips. A sustainable move below 142.60 – the major 38.2% Fibonacci retracement on this year's bullish trend – will confirm a return to the bearish consolidation zone, then the pair will likely take out the next major technical supports: the 200-DMA near 142.30, the next psychological support at 140 and should gently head back to – at least around 127 – where it started the year. But these forecasts will hold only, and if only, the BoJ doesn't make a sudden U-turn on its normalization plans. Remember, the BoJ didn't say it would normalize. It just said that it will be hard to handle the actual policy for longer. If one were to imagine, Governor Ueda maybe spent last night looking at the ceiling and wondering 'what have I said!'. Funny thing is, the BoJ's rate normalization speculation comes a few hours before the country revealed a 2% fall in its GDP; obviously, the global policy tightening has been hard on the world economy, and Japan can't avoid the global slowdown winds. If it turns out, Japan might normalize its monetary policy when its economy begins to slow down.    

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

German business confidence weaker than expected The euro has started the week in positive territory on Monday. In the European session, EUR/USD is trading at 1.0914, up 0.18%. It was a week of sharp swings for the euro, which posted strong gains during the week but reversed directions on Friday and declined 0.88%. Still, the euro posted a winning week, rising 1.2% against the US dollar. German business confidence dips Germany’s Ifo Business Climate was softer than expected, dropping to 86.4 in December. This was down from a revised 87.2 in November and missed the market consensus of 87.8. Business conditions and business expectations also eased in December and were shy of the forecast, as companies remain pessimistic about the German economy. The lack of confidence mirrors the prolonged weakness in the German economy. December PMIs indicated contraction in both the services and manufacturing sectors. Germany, the largest economy in the eurozone, also reported a decline, with the PMI falling to 48.4, down from 49.6 in November and short of the consensus estimate of 49.8. The servicaes industry has contracted for five straight months while manufacturing has been mired in contraction since June 2022. ECB stays hawkish The European Central Bank held the benchmark rate at 4.0% for a second straight time on Thursday. This move was expected but the central bank pushed back against market expectations for interest rate cuts next year, sending the euro soaring over 1% against the US dollar after the announcement. There is a deep disconnect between the markets and the ECB with regard to rate policy. The ECB remains hawkish and Reuters reported on Friday that ECB governors are unlikely to cut rates before June. The markets are marching to a very different tune and have priced in at least in around six rate cuts in 2024, with the initial cut expected around March. Lagarde has insisted that the central bank’s decisions will be data-dependent rather than time-dependent and she may have to join the rate-cut bandwagon if inflation continues to fall at a brisk pace. . EUR/USD Technical EUR/USD is putting pressure on resistance at 1.0929. Above, there is resistance at 1.0970 1.0855 and 1.0814 are providing support        

Analysis of transactions and tips for trading EUR/USD The test of 1.0948 took place at a time when the MACD line moved downward from zero, provoking a sell signal. As a result, the pair fell in price by more than 30 pips. Meanwhile, purchases on the rebound from 1.0917 did not bring much profit, as the pressure on the pair persisted. Weak business activity data in the eurozone's service and manufacturing sectors put pressure on euro in the morning, leading to a price decline. This continued in the afternoon, as similar indicators from the US caused a surge in dollar demand, resulting in further sell-offs in EUR/USD. Today, interesting data from Germany will come out, namely the IFO's indices on business climate, present situation, and economic expectations. Disappointing numbers will keep euro under pressure. Statements from ECB Executive Board members Isabel Schnabel and Philip Lane will also affect market sentiment.     For long positions: Buy when euro hits 1.0928 (green line on the chart) and take profit at the price of 1.0966. Growth will occur after strong data from the Eurozone and the firm position of the ECB. When buying, make sure that the MACD line lies above zero or rises from it. Euro can also be bought after two consecutive price tests of 1.0907, but the MACD line should be in the oversold area as only by that will the market reverse to 1.0928 and 1.0966. For short positions: Sell when euro reaches 1.0907 (red line on the chart) and take profit at the price of 1.0876. Pressure will return if indicators from Germany come out weaker than expected. When selling, make sure that the MACD line lies under zero or drops down from it. Euro can also be sold after two consecutive price tests of 1.0928, but the MACD line should be in the overbought area as only by that will the market reverse to 1.0907 and 1.0876. What's on the chart: Thin green line - entry price at which you can buy EUR/USD Thick green line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further growth above this level is unlikely. Thin red line - entry price at which you can sell EUR/USD Thick red line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further decline below this level is unlikely. MACD line- it is important to be guided by overbought and oversold areas when entering the market 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.

On Thursday, the EUR/USD pair continued its strong upward movement, reaching the Murray level "2/8" (1.0986) on Friday and bouncing off it. We expected the start of a downward correction (at least) on Thursday, but the outcomes of the ECB and Bank of England meetings influenced our plan.     The ECB and BoE took a rather hawkish stance on Thursday, triggering a new strengthening of the European currency and the pound. However, on Friday, with a weakened macroeconomic background and a complete absence of fundamentals, the pair showed volatility no less than on Wednesday and Thursday, but in the opposite direction. The correction we witnessed is not just regular; it can and should be the beginning of a prolonged decline. Of course, the pair can move in the opposite direction for quite some time, completely contradicting fundamentals, macroeconomics, and common sense. We have repeatedly listed all the reasons why the euro has no grounds to continue rising. Have we witnessed a two-month appreciation of the euro? This should be the end of it. This is if we talk about justified movement. If we talk about inertia, the euro can rise to $1.50 or even higher. Why is that impossible? The market can continue buying European currency for any reason, even if there is none because the market is made up of people. And people are not obliged to follow technicals, macroeconomics, or fundamentals. So, what we are warning about is that, in a more logical scenario, there is still a decline in the pair. This remains true despite Powell being less hawkish than desired and despite Lagarde's more hawkish stance than desired. Nothing changes because of that. Also, note that a "double top" pattern has formed on the euro at the moment, which is visible on almost any chart. Such a pattern is a sign of a trend reversal. Adding to this, there have been four entries into the overbought territory for the CCI indicator. What does this result in? It means that the euro has no other choice but to continue falling. Lane's speech is the most interesting event of the week in the EU. What can we expect next week? It can be said right away that all the most interesting things in December have already passed. The market is preparing for the Christmas and New Year holidays, so volatility may decrease again, although sharp emotional spikes and volatility are still possible in a "thin" market. In the EU, there will be a few important events next week. On Monday, the IFO Institute indices in Germany will be noteworthy. Business expectations, the current situation index, and the business climate index will be published. We do not consider these indices important, and the market's reaction to them may be extremely limited. On Tuesday, the EU will release the second, final assessment of inflation for November. We all understand that the second assessment rarely differs from the first, so traders are likely to have nothing to react to. On Wednesday, ECB Chief Economist Philip Lane will speak, but what can he tell the market after Christine Lagarde spoke first last week, and on Friday, both Holzmann and de Guindos spoke? Nothing is interesting in the events calendar in the EU and Germany on Thursday and Friday. It turns out that there will be no really important macroeconomic or fundamental events this week. Of course, there will be American events and reports, but even there, things are quite scarce. Therefore, we expect a correction against the rise on Wednesday and Thursday, as well as low volatility. The average volatility of the Euro/USD currency pair over the last 5 trading days as of December 17 is 97 points and is characterized as "high." Thus, we expect movement between levels 1.0797 and 1.0991 on Friday. The reversal of the Heiken Ashi indicator back upward will indicate a possible resumption of the upward movement. Nearest support levels: S1 - 1.0864 S2 - 1.0742 S3 - 1.0620 Nearest resistance levels: R1 - 1.0986 R2 - 1.1108 R3 - 1.1230 Trading recommendations: The EUR/USD pair has settled above the moving average line, but we do not believe that the rise can continue. The price perfectly reached the targets of 1.0974 and 1.0986, after which it began to fall. Buying the pair can be done on a bounce from the moving average, but we believe that a further decline is more likely. The new overbought condition of the CCI indicator indicates a much more probable decline. Short positions can be opened with a re-fixing below the moving average with a target of 1.0742. Explanations for the illustrations: Linear regression channels - help determine the current trend. If both are pointing in the same direction, the trend is strong. The moving average line (settings 20.0, smoothed) - determines the short-term trend and direction in which trading should currently be conducted. Murray levels - target levels for movements and corrections. Volatility levels (red lines) - the likely price channel in which the pair will spend the next day, based on current volatility indicators. CCI indicator - its entry into the overbought area (below -250) or the oversold area (above +250) indicates that a trend reversal in the opposite direction is approaching.  

Indices trying to end 2023 on a high note Global stock markets seem to be headed for an end-of-year 'Santa rally' as traders and investors return to their desks after the Christmas break, gearing up for the final push into 2024. The ongoing optimism surrounding the prospect of central banks initiating interest rate reductions in 2024, with multiple cuts expected next year, continues to propel shares higher after the US stock market experienced gains in light trading, bringing the S&P 500 index to its highest intraday level in nearly two years.   This positions the S&P 500 just below 1% of its closing all-time high of 4,796.56 recorded in January 2022 with this rally reflecting investors' growing confidence in the ability of US policymakers to engineer a 'soft landing,' effectively curbing inflation without precipitating a recession with this sentiment gaining further traction after the recent US PCE index data revealed a deceleration in inflation last month. However, it is important to note that the situation in the UK is significantly more troubling after recently released data continues to indicate inflationary and economic issues in the economy as the Bank of England may have run out of moves.    

Cryptocurrencies kick off the new year with a strong performance, with Bitcoin surging by over 5% today, surpassing the $45,000 mark and resulting in a notable week-to-date and year-to-date gain for Bitcoin, reaching almost 9%. While the exact catalyst for this upward movement remains unclear, the overarching narrative in the cryptocurrency market centers around spot Bitcoin ETFs with the U.S. Securities and Exchange Commission (SEC) currently evaluating multiple applications and with unconfirmed reports suggesting that a decision to approve these applications and facilitate the listing of spot Bitcoin ETFs could be imminent, possibly within the week. A Reuters report from December 29, 2023, hinted at the possibility that the US regulator might clear some spot Bitcoin ETFs either today or tomorrow, paving the way for the ETF launch on January 10, 2024. The authenticity of this report and the likelihood of the green light being imminent remain uncertain, but the cryptocurrency markets have been responsive to any positive news, even those with vague details. Bitcoin is currently trading at its highest level since April 2022, marking a daily high just below the $46,000 threshold and from a technical standpoint, the situation appears bullish, as BITCOIN has broken above the upper limit of the $41,000-44,300 trading range and continues to gain momentum. As optimism grows in the crypto space, It seems almost certain that a Bitcoin ETF will be approved and the main doubts are now about timing rather than anything else.     

COT reports on the British pound show that the sentiment of commercial traders has been changing quite frequently in recent months. The red and green lines, representing the net positions of commercial and non-commercial traders, often intersect and, in most cases, are not far from the zero mark. According to the latest report on the British pound, the non-commercial group closed 10,000 buy contracts and 4,200 short ones. As a result, the net position of non-commercial traders decreased by 5,800 contracts in a week. Since bulls currently don't have the advantage, we believe that the pound will not be able to sustain the upward movement for long . The fundamental backdrop still does not provide a basis for long-term purchases on the pound.   The non-commercial group currently has a total of 58,800 buy contracts and 44,700 sell contracts. Since the COT reports cannot make an accurate forecast of the market's behavior right now, and the fundamentals are practically the same for both currencies, we can only assess the technical picture and economic reports. The technical analysis suggests that we can expect a strong decline, and the economic reports have also been significantly stronger in the United States for quite some time now.   On the 1H chart, GBP/USD is making every effort to correct lower, but the uptrend remains intact. We believe that the British pound doesn't have any good reason to strengthen in the long-term. Therefore, at the very least, we expect the pair to return to the level of 1.2513. However, there are currently no sell signals, so the uptrend is still intact. On Tuesday, there are few reasons for the pair to show volatile movements. We may see a flat phase, a downtrend, or an uptrend (intraday), so we need to purely rely on technical analysis. We expect the pound to consolidate below the trendline, and in that case, we can consider selling while aiming for the Senkou Span B line. A n upward movement is theoretically possible today, but we see no reason for it, so you shouldn't consider buying at the moment. As of January 2, we highlight the following important levels: 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2513, 1.2605-1.2620, 1.2726, 1.2786, 1.2863, 1.2981-1.2987. The Senkou Span B line (1.2646) and the Kijun-sen (1.2753) lines can also be sources of signals. Don't forget to set a breakeven Stop Loss to breakeven if the price has moved in the intended direction by 20 pips. The Ichimoku indicator lines may move during the day, so this should be taken into account when determining trading signals. Today, the UK and the US will release their second estimates of business activity indices in the manufacturing sector for December. These are not significant reports so it is unlikely for traders to react to them. Description of the chart: Support and resistance levels are thick red lines near which the trend may end. They do not provide trading signals; The Kijun-sen and Senkou Span B lines are the lines of the Ichimoku indicator, plotted to the 1H timeframe from the 4H one. They provide trading signals; Extreme levels are thin red lines from which the price bounced earlier. They provide trading signals; Yellow lines are trend lines, trend channels, and any other technical patterns; Indicator 1 on the COT charts is the net position size for each category of traders; Indicator 2 on the COT charts is the net position size for the Non-commercial group.  

UK wages/UK CPI (Dec) – 16/01 and 17/01 Since March of last year headline CPI in the UK has more than halved, slowing from 10.1%, with November slowing more than expected to 3.9%, prompting speculation that the Bank of England might be closer to cutting rates in 2024 than had been originally priced. The decline in headline inflation is very much welcome, however most of it has been driven by the falls in petrol prices over the past few weeks. Inflation elsewhere in the UK economy is still much higher although even in these areas it has been slowing. Food price inflation for example is still much higher, slowing to 6.6% in December, while wage growth is still trending above 7% at 7.2%. Services inflation is also higher at 6.3% while core prices rose at 5.1% in the 3-months to November.   This week's wages and inflation numbers are likely to be key bellwethers for the timing of when the Bank of England might look at starting to reduce the base rate, however the key test for markets won't be on how whether we see a further slowdown in inflation at the end of last year, but how much of a rebound we see in the January numbers. Whatever markets might look to price as far as rate cuts are concerned the fact that wages are still trending above 7% is likely to stay the Bank of England's hand when it comes to looking at rate cuts. It's also important to remember that at the last rate meeting 3 members voted for a further 25bps rate hike. That means it will take more than a further slowdown in the headline rate for these 3 MPC members to reverse that call, let alone call for rate cuts. Expectations are for wages to slow to 6.7% and headline CPI to come in at 3.8%.  

The modest upward surprise in the December CPI report did not sway markets to revise their expectations of a Federal Reserve cut as early as March. The key monthly increase in core prices seems to have stabilised at a level of just below 4%, which is too high for comfort and seems to confirm that the ‘last mile’ of the fight against inflation will be tougher than markets expect. By the end of the week, markets appeared to have almost completely forgotten about this upside beat, instead placing greater emphasis on the soft PPI inflation report, released on Friday. High-frequency labour market indicators continue to suggest little or no loosening, and the most reliable indicators suggest that wages are growing at an above 5% rate amid solid growth and very tight labour markets. We continue to expect that hopes of a March rate cut will be dashed, and therefore think the dollar will stay well supported against European currencies in the short-term.  

The pivotal question we aim to answer is who should consider such instruments and who might be better off exploring alternatives. Given the diverse array of tools available for exposure to stock indices, it's worth exploring various options. Let's begin by addressing what a stock index truly is. An index, in itself, isn't a financial instrument, security, or derivative. It's essentially synthetic information about the market or specific segments and slices within it. In simpler terms, a stock index is a collection of components (in our case, listed companies) used to calculate its value. Each index has its portfolio, where each company is responsible for a specific percentage weight. Most indices use weights based on market capitalization – the higher the market value of a component, the greater its percentage value in the index portfolio. Additionally, the liquidity of a given company over a specific period (usually 6 months to a year) is often considered when determining portfolio weights. In essence, an index is like a portfolio comprised of a specific number of listed companies (in our case, not limited to just companies) in specific percentage proportions. Its value and price movements depend on the behavior of the components it holds. Explore more: Mastering Requoting in CFD Trading: Navigating Uncommon Market Scenarios In this segment, we'll focus on prominent stock indices from major exchanges. In the USA, the three key indices are the S&P500, Nasdaq-100, and Dow Jones Industrial Average (US30). In Germany, we have the DAX (DE30), once a favorite among traders; in the UK, it's the FTSE-100; in Japan, the Nikkei-225; and in Poland, the WIG20. Of course, this is just a small glimpse of the market, as each stock exchange has dozens, if not hundreds, of sector-specific, thematic, and smaller company-focused indices. However, leading indices are considered benchmarks for the mood and condition of a given exchange, although not always accurately. Investing in Stock Indices: How to Do It? Since a stock index isn't a financial instrument on its own, is it possible to "buy" it? There are numerous ways to gain exposure to index price movements, with the most popular being the purchase of an Exchange-Traded Fund (ETF) replicating a specific stock index. These ETFs construct their portfolios based on the composition of the underlying index, essentially buying shares of selected companies in the appropriate proportions. By investing in such a fund, we gain exposure to the stocks within the index using a single instrument. ETFs boast several advantages, including relatively low management costs, simplicity, convenience, and often high liquidity. However, standard ETFs are typically medium-term instruments, less suitable for speculation due to the lack of leverage and the ability to only take long positions. Of course, there are also synthetic ETFs in the market with double or even triple leverage, and some with inverse positions (short). On the XTB xStation platform, you'll find ETFs on all major stock indices, including their synthetic, leveraged, and inverse versions. Importantly, these can be purchased without any commission, and if you have a currency account, you won't incur any fees for currency conversion – the only cost is the annual management fee charged by the fund provider. If you prefer not to invest in an entire index through an ETF, you can independently create a portfolio of specific companies in predetermined proportions. On the xStation platform, you won't incur any commission fees for such transactions (up to a monthly turnover of 100,000 EUR). However, this approach is more time-consuming, although it exempts you from management costs charged by ETF providers. For more advanced investors, derivative instruments are available, including futures contracts, structured certificates on the Warsaw Stock Exchange, and, of course, Contracts for Difference (CFD), where stock indices serve as the underlying asset. Derivatives offer financial leverage and the ability to take both long and short positions, but they come with higher risk. CFD Market on Indices: Specification and Trading Conditions CFD contracts on stock indices are now offered by almost every broker, covering primarily popular American indices and leading indices from major global stock exchanges. According to the regulations of the European Securities and Markets Authority (ESMA), CFD contracts on indices provide a maximum leverage of 20:1, meaning a 5% margin requirement. Given the volatility of indices themselves, this is sufficient leverage even for intraday speculation. Depending on the broker, CFDs on some indices may have lower leverage – for instance, with XTB, this is the case for the Italian FTSE ITA40 and Reuters Russia 50 (RUS50), where the leverage is 10:1. Read more: Mastering Forex Markets. A Comprehensive Guide to Navigating Sideways Trends and Consolidation Patterns When holding positions overnight, be prepared for negative swap points, although XTB exempts CFDs on indices (excluding cash versions) from swaps, eliminating additional costs for maintaining positions over time. As for the lot value for CFD contracts on indices, it should ideally be equivalent to the multiplier for futures contracts (which are the underlying instruments for CFDs). However, some brokers may apply a multiple of the multiplier. For the most popular CFD indices, the lot values are: S&P500: multiplier 50 (e-mini) Nasdaq-100: multiplier 20 (e-mini) DAX: multiplier 25 (Mini-DAX) WIG20: multiplier 20 (similar to FW20) In the case of CFDs, you can open a position with a minimal volume of 1 micro lot (1/100 of a lot), allowing you to engage with the market without committing significant capital. Who Should Consider CFD Contracts on Indices? When it comes to CFD contracts on indices, as mentioned earlier, they are certainly not suitable for everyone. Leading stock indices themselves exhibit considerable volatility, and with CFDs, this volatility is further amplified by a maximum leverage of twenty times, introducing significantly higher risk. Therefore, these instruments primarily serve a speculative purpose, typically in the short term. Nevertheless, for those comfortable with the risk and desiring to capitalize on prevailing trends, CFD contracts can serve as a more accessible and considerably lower-capital alternative to index futures. It's crucial, however, to employ risk management measures, such as trailing stop-loss orders, especially given the inherent risks associated with these instruments. CFDs can also present a more accessible and significantly lower-capital alternative to index futures.

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

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

CZK: Changing our central bank call to a 50bp rate cut The blackout period for the Czech National Bank (CNB) began yesterday and we will therefore probably not hear anything more. Deputy Governor Jan Frait really moved the market when he said he was open to a larger rate cut, even more than 50bp at the 8 February meeting. We do know that the deputy governor was one of two board members who voted for a rate cut back in November when the CNB left rates unchanged. So the new statements aren't exactly a game changer, but we have confidence that at least two members will push for a 50bp rate cut at next week's meeting. In addition, the board will have a new forecast which we think should show very low inflation of below 3% for the upcoming months. Overall, this leads us to reassess our call from a 25bp to 50bp rate cut next week. The acceleration of the rate cut is bad news for the CZK. However, we believe positioning has been heavily short here for some time and should not be so damaging. Moreover, the market is already pricing in a large portion of the rate cuts. Therefore, we do not expect significant weakness from this, but of course a short trip above 25.0 EUR/CZK is likely next week.

The cryptocurrency market is well-known for its volatility, meaning that prices can experience substantial fluctuations in a short period. Given the significant unpredictability and inherent risks associated with the cryptocurrency market, insider advice can provide invaluable assistance to investors. Additionally, individuals who possess insider information may have access to early information regarding upcoming developments, partnerships, or regulatory changes that could impact the market. Individuals who have inside information often enjoy the benefit of having access to secret knowledge, industry expertise, and analytical tools. These resources are valuable in understanding market trends, essential project details, and potential investment opportunities. Utilizing their evaluations and recommendations can help investors navigate the complex and volatile world of cryptocurrency more effectively. This article explores the techniques insiders use to evaluate the market and the strategies they use to predict the next big cryptocurrency coin.  How Insiders Evaluate The Next Big Cryptocurrency Experts who have inside information use the following factors to identify which cryptocurrencies are likely to be profitable and have long-term growth. This method of analyzing the basics provides a detailed framework for assessing the true value and future potential of a cryptocurrency project. It's also helpful for determining the investment worth of the next big hitting cryptocurrency coin.   Technological Innovation  Analysts and investors, who have access to privileged information, will evaluate a cryptocurrency project based on its innovation and technical capabilities. They will examine its scalability, security features, and effectiveness in solving real-world issues. A crypto coin that uses advanced technology and groundbreaking solutions is expected to gain traction that might explode resulting in sustained success in the long run. Let’s say you are assessing a new cryptocurrency project for the Sponge V2 meme coin, for example. For instance, you would examine whether Sponge V2 brings in innovative technology, such as a distinct consensus mechanism or enhanced privacy features, that effectively resolves an issue that other cryptocurrencies have not addressed.  In the case of the Sponge V2 meme coin, it provides faster transaction speeds since it operates on the Polygon Blockchain network, which could attract individuals looking for faster payment alternatives. Team Expertise and Execution The skills and accomplishments of the development team can have a substantial impact on the success of a project. Insiders who are well-versed in the project's intricacies typically assess the team members' expertise, background, and previous achievements. A team that is both experienced and competent excels in overcoming challenges, materializing the project's vision, and delivering on its commitments.   Use Case and Utility Case and utility refers to evaluating the practicality and market value of the cryptocurrency project by studying its application in real-world scenarios. Experts assess whether the project addresses a genuine issue or fulfills a specific purpose and determine if it offers unique attributes or benefits compared to existing alternatives. A cryptocurrency that possesses a unique purpose and adds tangible value is expected to attract users and attain wider acceptance. Using the Sponge V2 as a prime example, the case and utility for this digital currency intends to improve the way the community interacts and participates. It distinguishes itself from other cryptocurrencies by prioritizing meme culture and community-led initiatives.   Market Demand and Performance Insiders will analyze the level of demand in the market and assess the project's performance metrics in order to determine its likelihood of success. These factors include: Market capitalization which represents the collective worth of all coins that are currently in circulation.  The trading volume which is the level of activity in trading.  Real-world adoption that refers to the practical usage of cryptocurrencies for transactions or other objectives. Pro tip: A cryptocurrency with high demand and positive performance indicators typically stands a better chance of achieving success in the market.   Trends and Predictions A market analysis based on the trends and predictions is conducted in the field to gain insight into the future direction of cryptocurrency projects. The assessment involves determining whether the project aligns with emerging trends in the cryptocurrency industry and its potential for sustained expansion. Right now, crypto experts are indicating that Sponge V2 meme coin holds promise for substantial success. The reason behind this is the rising enthusiasm for decentralized finance applications, and if Sponge V2 establishes itself as a prominent participant in this field, it could gain advantages from this expanding trend.  Additionally, analysts also forecast that the value of Sponge V2 meme coin will grow owing to its solid foundational principles and the dynamics of the market. All of these factors collectively contribute to the optimistic perspective regarding this particular cryptocurrency. 6 Effective Insider Strategies  Here are 7 pro tips to help you analyse the market and gain insight into the next big crypto coin: 1. Check the Total Supply and Circulation The value and potential growth of a cryptocurrency depend on its total supply and the amount currently being used. When the total supply is low and there is a reasonable circulation, it can result in scarcity. This scarcity can boost demand and cause the price to rise. If there is a high total supply and a large portion is already circulating, it may indicate less scarcity and affect the cryptocurrency's price movement. 2. Monitor the Price and Volume Monitoring the price and quantity of transactions provides valuable insights into market sentiment and investor involvement. When trading volume significantly increases and prices rise, it can indicate growing enthusiasm and a potential upward market trend. On the other hand, decreased trading volume or stable prices may suggest declining interest or a lack of buying pressure. 3. Pay Attention to Bitcoin Halving The Bitcoin halving event, happening in April 2024, reduces the rate at which new Bitcoins are created by half. Historically, Bitcoin halving has been associated with bull markets and significant price increases due to decreased supply and increased scarcity. By carefully reviewing the timing and impact of Bitcoin halvings, you can acquire valuable information about potential market trends and the beginning of a new phase of price escalation. 1. Regularly Review Market Analysis and Expert Insights In order to accurately predict the next prominent cryptocurrency, it is vital to conduct thorough research and analyze market trends. Gathering knowledge from experienced individuals and using strategies based on data is vital. Understanding the dynamics of the market, upcoming events, and technological advancements can assist investors in identifying promising opportunities and assessing the possible risks associated with various cryptocurrency ventures. 2. Follow Community and Social Media Closely Monitoring discussions on social media sites and online communities can provide valuable insights into future trends and potential investment opportunities. Engaging in conversations with the crypto community helps investors stay informed about emerging digital currencies, project developments, and market sentiment, allowing them to identify promising projects before they gain popularity among the general public. 3. Avoid Frequent Token Unlocks Projects that regularly release tokens, thereby making a significant number of tokens accessible for buying on the market, can diminish the cryptocurrency's worth and hinder its price. It is crucial for investors to be cautious when engaging with projects that have an excessive number of token unlocks, as this may significantly impact the cryptocurrency's long-term potential for growth. Conclusion Being able to predict the next major cryptocurrency coins requires a combination of informed analysis and a keen understanding of the market. Those who are knowledgeable in this area use various strategies to identify promising opportunities. However, it is important to understand the risks associated with investing in digital currencies and conduct thorough research before making any investment decisions.