volatility

When markets turn volatile, it’s not time to despair. Stephen Dover, Head of Franklin Templeton Institute, offers some judicious perspective on how to turn volatility into opportunity. The resolve of central banks to fight inflation has caused increased volatility across capital markets—particularly in the US Treasury yield curve—owing to considerable uncertainty regarding the outlooks for inflation, growth and a potential US recession.1 Even though the US Federal Reserve (Fed) clearly stated it does not anticipate cutting interest rates later this year, the market has a sharply different view, pricing in significant Fed easing by January 2024. Do market participants “know” what is going to happen more than the central banks? No, quite the opposite. The uncertainty of investors is reflected in the elevated volatility of interest rates in the first half of 2023.  Adding to the “known unknowns” are the recent stresses in the banking sector, which themselves were due in large part to rapidly rising interest rates. That serves as another reminder that when central banks tighten, “stuff happens.” This time, bitter irony compounds the misery of commercial banks. In part, they face potentially large losses on their holdings of US Treasuries (i.e., Silicon Valley Bank) because regulators were keen to see banks remain liquid and safe, and nudged them in that direction over the years. Talk about unintended consequences! In short, monetary policy uncertainty, financial fragility and hard-to-predict outcomes for growth and profits confronted investors. But the solution is not despair. Rather, the appropriate response (at least in our view) is to take advantage of what is on offer—including higher fixed income yields at shorter maturities—and complement that approach with judicious allocations to risk assets, particularly when volatility offers opportunity. Opportunity of (nearly) a lifetime We begin by noting that for the first time in 15 years, investors are offered 5% returns on near-cash instruments, such as money market funds. We believe they can boost that return, with little risk, by investing in high-quality corporate bonds of less than two years’ duration. Those returns easily beat bank deposit rates, which also remain restricted to a statutory US$250,000 deposit insurance cap. Read next: How investors can best position themselves amid unclear Federal Reserve rate outlook?| FXMAG.COM Money market funds and short-duration, high-quality bonds may seem an uninspired choice for many investors, but there are times when they make sense, above all when volatility is high, uncertainty prevails, and fundamental risks (i.e., recession) loom for corporate credit and equity markets. Pounce on opportunity That is not, however, to say that portfolios should be 100% parked in instruments of less than one year in duration. Not only might that be tax inefficient, but it also misses our second key point. Specifically, by holding onto a larger fraction of interest-bearing and highly liquid assets, investors can act nimbly when opportunities present themselves. High volatility and market dislocations, which are historically probable when the Fed and other central banks are tightening aggressively, create more attractive entry points for stocks, government bonds and corporate credit. When bought at discounts, those assets typically offer outsized returns for investors. Moreover, by increasing holdings of (nearly) riskless assets, investors are better placed to take selective risk today. What do we mean by selective? Consider the challenges of buying Treasury bonds. Taking duration risk when the yield curve is inverted (as it is presently) requires high levels of confidence that inflation will rapidly decline to the Fed’s target or that a significant US recession is on its way. That’s because longer-dated bonds offer yields as much as 170 basis points below shorter-dated Treasuries. That means the total returns on long maturity bonds will be lower unless yields fall further. That’s a lot of risk relative to the potential rewards. US Treasury Yield Curve May 12, 2022 versus May 12, 2023 Source: Bloomberg. As noted, within fixed income markets, a tilt toward shorter-dated (1-2 year) baskets of investment-grade corporate bonds seems prudent, with average yields above 5%. This is a way for investors to create steady returns in the face of earnings weakness (investment-grade companies are less likely to be downgraded) without taking unappealing duration risk. When looking at high-yield corporate bonds compared to other fixed income opportunities, risk versus reward looks challenged given headwinds facing corporate profits and cash flows. However, a large proportion of the high-yield universe has increased in credit quality. We believe this creates a reasonable case to swap equity exposure with selected high-yield debt that is facing lower default risk than the asset class in general. This provides the protection of the currently elevated shorter-duration yield (averaging roughly 8.6%) while still providing exposure to the upside to any improvement in underlying company fundamentals.   Through funds, diversification is also a benefit. Similarly, we prefer local currency emerging market debt securities. They should benefit from stronger Chinese growth this year (many emerging economies are exporters to China), as well as from a probable weakening of the US dollar once the Fed has concluded its tightening cycle. Summary Here’s the case we are making in a nutshell. Because of aggressive monetary policy tightening, we believe the Federal Reserve is making short-term money market and shorter-duration fixed income returns attractive, while at the same time creating the conditions in which equities, as well as longer-dated bonds, are unattractive, in our view. We think investors should take what the Fed is offering, and limit broad exposures to the rest. But that’s not the end of the story. By taking refuge in safe, attractive yielding positions at the very front end of the yield curve, investors can also be prepared to seize opportunity when it presents itself. Also worth noting, the recovery of the Chinese economy and a probable peak in the US dollar already offer investors opportunities via measured allocations in emerging market local currency debt. The Fed remains the straw that stirs the drink. When it stirs this vigorously, stuff happens. Investors should take note, seize the more certain returns on offer and be prepared to take more risk when opportunity becomes present. This is a phase, but a phase worth managing well. Stephen Dover, CFAChief Market Strategist,Franklin Templeton Institute Endnote Based on our analysis of data from ICE BofA Indices, the annualized standard deviation of monthly returns attributable to yield curve shifts for the ICE BofA US Treasury Index is 4.74% over the period January 2002 to April 2023, while over the last 12 months ending April 2023 that annualized standard deviation is at 7.80%. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results.   WHAT ARE THE RISKS? All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline. Investments in lower-rated bonds include higher risk of default and loss of principal. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value. High yields reflect the higher credit risk associated with these lower-rated securities and, in some cases, the lower market prices for these instruments. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. China may be subject to considerable degrees of economic, political and social instability. Investments in securities of Chinese issuers involve risks that are specific to China, including certain legal, regulatory, political and economic risks. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio. This is not a complete analysis of every material fact regarding any industry, security or investment and should not be viewed as an investment recommendation. This is intended to provide insight into the portfolio selection and research process. Factual statements are taken from sources considered reliable but have not been independently verified for completeness or accuracy. These opinions may not be relied upon as investment advice or as an offer for any particular security. Source: Quick Thoughts: What to do when stuff happens | Franklin Templeton

On Monday, the GBP/USD pair managed to show even lower volatility than the EUR/USD pair, with only 37 pips. Therefore, there is no point in analyzing the movements because there simply weren't any.     The entire day was characterized by absolute flatness, which is not surprising given the complete absence of fundamental and macroeconomic events, as well as the status of a holiday in the US.   The downward trend remains intact, so nothing has changed for the pound and the dollar: the latter should continue to rise. There are currently no trend lines or channels due to the weak movement, but there is no doubt about the downtrend.     If you tried really hard you could find one signal on the 5-minute chart. At the beginning of the European trading session, the pair technically bounced off the range of 1.2351-1.2367 but failed to move down even by 20 pips, which is not surprising considering the overall volatility of 37 pips.   Beginners could have opened a short position based on this signal, but by the start of the US session, the pair hardly moved, so the trade could have been closed practically anywhere with zero profit. Trading tips on   Tuesday: As seen on the 30M chart, the GBP/USD pair continues to trade lower, but in the past few days, we have observed more low-volatility flatness than trending movement. We continue to expect further decline as we believe that the pound has not fallen sufficiently strong yet.   The key levels on the 5M chart are 1.2171-1.2179, 1.2245-1.2260, 1.2351-1.2367, 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 Tuesday, there are no important events or reports scheduled in the UK or the US.   We are in for another completely dull day. Volatility may be low again, and there may be a lack of intraday trending movement. 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.  

FXMAG.COM: Could you please comment on the US NFP? On Friday, the US will publish the employment data for May 2023. The average forecast suggests NFP growth by 180 thousand after rising to 253 thousand earlier.This is not a confident expectation. After a winter during which the US employment market added over 200 thousand new jobs per month, these statistics look modest. However, in this case, high digits might imply a threat to the US economy. If the Federal Reserve System sees that companies continue to compete for high-skilled workers, it might continue with its tough monetary policy.Strong employment market data will encourage further interest rate hikes to prevent inflation from rising.The situation turns out paradoxical. Good employment reports are no longer seen positively because they could be the basis for a further rise in crediting costs.Data that differs from forecasts will cause increased volatility in the US stock market.

Technical Market Outlook: The EUR/USD pair has been seen getting away from the swing low located at the level of 1.0636 and the recent local high was made at the level of 1.0780, just above the technical resistance seen at 1.0761.   The immediate technical support is seen at the level of 1.0747. On the other hand, the next target for bears is seen at the level of 1.0623 and the down move should resume as soon as the pull-back is done. There is no indication of the down trend to terminate or reverse yet. The market participants await the NFP-Payrolls data release that might trigger an increase in volatility.     Weekly Pivot Points: WR3 - 1.07387 WR2 - 1.07284 WR1 - 1.07229 Weekly Pivot - 1.07181 WS1 - 1.07126 WS2 - 1.07078 WS3 - 1.06975   Trading Outlook: Since the beginning of October 2022 the EUR/USD is in the corrective cycle to the upside, but the main, long-term trend remains bearish. This corrective cycle might had been terminated at the level of 1.2080 which is 61% Fibonacci retracement level. The EUR had made a new multi-decade low at the level of 0.9538, so as long as the USD is being bought all across the board, the down trend will continue towards the new lows.  

On Thursday, the GBP/USD pair grew "out of nowhere" again. And it was an impressive one at that. Take note that there was no significant news from the UK this week. If, for example, the Bank of England had made hawkish statements, the movement would have been understandable.   However, all the data that influenced the market came from overseas, and many of them favored the dollar. The situation with the euro is slightly different, which explains its growth. After all, yesterday and the daybefore that, several important reports were released in the EU, two speeches by European Central Bank President Christine Lagarde took place, and the ECB minutes were published. But it is very difficult to say why the pound is rising again.       However, we did experience a good intraday trending movement yesterday, which made the trading signals strong and profitable. Initially, the pair consolidated below the range of 1.2429-1.2445 and managed to move down by about 20 pips, allowing for setting a stop loss at breakeven and leaving the trade without losses when the pair consolidated above the mentioned range. Based on the buy signal, long positions should have been opened, and the price subsequently surpassed the nearest target level of 1.2520.   The trade should have been manually closed in the evening, resulting in a profit of about 75 pips, which is quite good. But let's reiterate: it is convenient to trade when there is a strong and trend-driven movement. It is necessary to avoid flat markets.     According to the latest report, non-commercial traders closed 8,100 long positions and 7,100 short ones. The net position dropped by 1,000 but remained bullish. Over the past 9-10 months, the net position has been on the rise despite bearish sentiment. 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 has begun. COT reports suggest a bullish continuation. However, we can hardly explain why the uptrend should go on.   Both major pairs are in correlation now. At the same time, the positive net position on EUR/USD shows the end of the uptrend. Meanwhile, the net position on GBP/USD is neutral. 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 57,600 sell positions and 69,200 long ones. We do not see the pair extending growth in the long term.     In the 1-hour time frame, the pair has started an upward movement, surpassing all the lines of the Ichimoku indicator. The pound doesn't exactly have grounds to buy the pound, which remains heavily overbought. However, take note that the market has the right to trade regardless of the fundamental and macroeconomic backdrop. The only thing I can say is that the movement doesn't correspond to the nature of the reports and news.   On June 2, trading levels are seen at 1.2269, 1.2349, 1.2429-1.2445, 1.2520, 1.2589, 1.2666, 1.2762. Senkou Span B (1.2550) and Kijun-sen (1.2375) lines 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. Today, the event calendar is empty in the UK.   On the other hand, the United States will release its highly anticipated Nonfarm Payrolls and unemployment reports. We have no doubt that the market will react to them, and the reaction could be practically anything - it is currently impossible to predict the values of the reports. Indicators on charts:   Resistance/support - thick red lines, near which the trend may stop. They do not make trading signals. The Kijun-sen and Senkou Span B lines are the Ichimoku indicator lines moved to the hourly timeframe from the 4-hour timeframe. They are also strong lines. Extreme levels are thin red lines, from which the price used to bounce earlier. They can produce trading signals. Yellow lines are trend lines, trend channels, and other technical patterns. Indicator 1 on the COT chart is the size of the net position of each trader category. Indicator 2 on the COT chart is the size of the net position for the Non-commercial group of traders.  

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.  

The GBP/USD currency pair calmly continued its upward movement on Thursday. And we are forced to state that the rise of the British currency is once again completely illogical. The market is returning to its favorite activity of the past few months - buying the pound regardless of its fundamental background. And if that's the case, we can do nothing about it. It is worth noting that at the same time, the euro continues to trade below the moving average and shows no signs of growth.   At most, a correction may occur soon due to the CCI indicator entering the oversold area. In other words, the pound and the euro do not correlate this week, which always raises questions. The fundamental background has indeed been very different for these pairs. We have received diverse news, statements, speeches, and reports from the European Union. The market has not yet figured out which of this data is primary and which can be disregarded.       However, at the same time, from the UK, we have only received the report on business activity in the manufacturing sector for May in its final assessment. This secondary indicator could not have caused a strong British currency rise yesterday. What could be the problem? We can only assume one thing. The market believes that the ECB is approaching the end of its tightening cycle. Still, at the same time, it expects several more rate hikes from the Bank of England, which puts the British pound in a more favorable position than the dollar or the euro.   It is worth noting that the probability of an interest rate hike by the Federal Reserve in June has sharply increased this week, as several members of the monetary committee have expressed their readiness to support a "hawkish" decision without pausing. But yesterday, Thomas Jefferson and Patrick Harker, on the contrary, spoke in favor of a pause, which further confused traders. If the market is confused, seeing flat or cautious movements would be more logical. However, the pound is rising again like yeast. Therefore, the issue lies in the CCI indicator entering the oversold area and maintaining a bullish sentiment in the market. The pound should resume its decline, but strong bearish signals are now needed, which are currently lacking.   Nonfarm payrolls and unemployment can pleasantly surprise the market. On the last trading day of the week in the United States, the publication of the nonfarm payroll reports is scheduled. Since the British pound is rising again for unclear reasons, these reports are intended to set everything straight. The dollar may resume growth if they show good values (not below forecasts).   If the values are weak, the pound may rise even stronger in joy. And it doesn't matter that globally, it should decline by another 500-600 points to contemplate new growth. It is worth noting that we did not receive any "hawkish" signals from the United States this week. And if so, there are no strong reasons for the pound to rise.   On Thursday, the ADP report on changes in the number of private sector employees in the United States showed a higher value than expected - 278,000 against the forecast of 170-200. However, this report is rarely perceived by traders as important. They usually prefer to wait for the Nonfarm Payrolls. Moreover, the nature of the ADP and NonFarm reports rarely coincides. Thus, today's NonFarm report may be weaker than the forecasts (180-190 thousand), and the bulls will have a new legitimate opportunity to buy the pound and sell the dollar.   Therefore, the week may end unexpectedly. The fact that the euro and the pound are already trading in different directions causes surprise, but the current week shows that there have been and will be surprised. Volatility has started to rise again, but at the same time, frequent corrections and pullbacks occur. It is worth noting that there are better types of movement for trading in the 4-hour timeframe.     The average volatility of the GBP/USD pair over the past five trading days is 92 pips. For the pound/dollar pair, this value is considered "average." Therefore, on Friday, June 2nd, we expect movement within the channel bounded by the levels of 1.2424 and 1.2608. A downward reversal of the Heiken Ashi indicator will signal a correction against the recent upward trend.   Nearest support levels: S1 - 1.2482 S2 - 1.2451 S3 - 1.2421   Nearest resistance levels: R1 - 1.2512   Trading recommendations: On the 4-hour timeframe, the GBP/USD pair has settled above the moving average line, so long positions with a target of 1.2608 are currently relevant, which should be held until the Heiken Ashi indicator reverses downwards. Short positions can be considered if the price consolidates below the moving average with targets at 1.2360 and 1.2329.   Explanation of illustrations: Linear regression channels - help determine the current trend. If both channels are directed in the same direction, it indicates a strong trend. Moving average line (settings 20.0, smoothed) - determines the short-term trend and direction for trading. 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 region (below -250) or overbought region (above +250) indicates an upcoming trend reversal in the opposite direction.    

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.      

Polish first-quarter GDP shows disinflationary structure, with odds of a rate cut growing. Poland's statistics office has revised the first-quarter GDP estimate to -0.3% year-on-year. In 2023 as a whole, we expect economic growth to be around 1% on the back of the improving foreign trade balance.   Seasonally adjusted GDP rose by a hefty 3.8% quarter-on-quarter in the first quarter of 2023, following a decline of 2.3% QoQ in the fourth quarter of last year. But seasonally adjusted data have shown surprisingly high volatility in recent quarters and should be taken with a pinch of salt.   The composition of the first quarter GDP was also revealed and shows a quite disinflationary picture, with some caveats. Domestic demand contracted by 5.2% year-on-year amid a deepening decline in consumption, which fell by 2.0% YoY, following a drop of 1.1% YoY in the fourth quarter of 2022. Investment activity continues to hold up well, expanding by 5.5% YoY in the first quarter of this year (vs +5.4% YoY increase in the fourth quarter of last year).   As expected, the change in inventories had a negative impact on activity, subtracting 4.1 percentage points from the annual GDP growth rate. This was offset by an improvement in the foreign trade balance. The positive impact of net exports on the change in annual GDP amounted to 4.3 percentage points. The exports of goods and services increased by 3.2% YoY, while imports were 4.6% lower than a year earlier. The GDP deflator reached 15.6%.     With respect to value added, we saw declines in trade and repair (-4.4% YoY), industry (-1.4% YoY) and transport and storage (-1.2% YoY). Most other sectors of the economy recorded increases.   2023 GDP and inflation outlook As expected, the start of 2023 brought a decline in GDP on a year-on-year basis, but on a markedly smaller scale than we had feared. However, this does not mean that the outlook for the year as a whole is markedly better. High-frequency data point to weakness in retail sales, industry and housing construction in the second quarter. At the same time, growth in infrastructure-related construction continues.   This is accompanied by continued elevated levels of inflation, which negatively affects consumers, dragging on the performance of the economy. On the other hand, investment activity will have a positive impact on the economy. Investments will most likely concentrate in large companies and the public sector (including defence spending). We expect that the main driving force of the economy will continue to be the improving foreign trade balance, mainly due to low imports.   The structure of GDP growth should be disinflationary this year due to the weakness of consumption, rising investment and the large role of foreign trade in shaping economic activity. Combined with the eradication of the direct impact of the energy shock, this should favour a further decline in inflation, with its pace being constrained by core inflation. The latter is more sticky than the headline CPI.   One factor in the slower deceleration of core inflation will be a tight labour market and high wage growth. We forecast that by the end of 2023, both the headline CPI and core inflation may moderate to single-digit levels, but the outlook for 2024 is more uncertain.     National Bank of Poland rates outlook Expectations for a cut by the National Bank of Poland (NBP) may rise (we see 30-40% odds in the second half of the year). Theoretically, today's data show an improvement in the inflation outlook: a better GDP structure, month-on-month core CPI slowing, and NBP more vocal on rate cuts.   But the cross-country comparison (especially with the Czech Republic) suggests this could be a premature move.   Moreover, we still see important inflationary risks in the long term: a strong public acceptance of price increases, an election spending race, and strong investment mainly in energy (other sectors are still performing poorly to offset high costs).   In our view, an NBP cut would not help Polish government bonds (POLGBs) with longer maturities.   The premature cut would extend the return of CPI to the target, which is already a distant prospect (in 2025-26).

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.

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.  

The EUR/USD pair sharply fell on Friday. Volatility was high, but the day can be roughly divided into two parts: before Nonfarm Payrolls (NFP) and after. Prior to the release of US data, the market was relatively flat. This is not surprising as there were no significant events or reports in the first half of the day.     After the release of the NFP data, the pair sharply fell, which was logical, as the data exceeded expectations. Moreover, it exceeded forecasts twice as much, which speaks for itself: the US labor market is in excellent condition, despite the high interest rates set by the Federal Reserve.     The increase in the unemployment rate by 0.3% was no longer of particular importance. Trading signals were not the best due to the morning flat. During the European trading session, the pair rebounded from the level of 1.0762 thrice and failed to move up even by 10 pips each time.     After the release of the NFP data, the pair initially started to decline, then returned to the level of 1.0762, and then it fell again. Since the NFP data was very strong, it was reasonable to consider only trades that anticipated the dollar's growth, in other words, selling opportunities.     The last sell signal resulted in a profit of about 40 pips. The morning trade (which was only one) could have been closed at breakeven due to the same flat market conditions.   The COT report for May 30 was delivered on Friday. Over the past nine months, COT data has been in line with developments in the market. The net position (second indicator on the chart) has been on the rise since September 2022. The euro started to show strength approximately at the same time. Currently, the net non-commercial position is bullish and keeps growing further. Likewise, the euro is bullish.   Notably, we may assume by the extremely bullish net position that the uptrend may soon stop. The first indicator shows that, and the red and green lines are far away from each other, which is usually a sign that the end of the trend might be nearing.   The euro attempted to go down several months ago, but those were just minor pullbacks. In the reporting week, long positions of non-commercial traders decreased by 8,200 and short positions fell by 200. The net position dropped by 8,000. The number of long positions exceeds that of short ones by 165,000, a rather big gap. A correction or a new downtrend has started. So, it is clear that the pair will be bearish even without COT reports.     In the 1-hour time frame, the pair surpassed the descending trendline again, clearly indicating its intention to form an uptrend. This should be a correction, and afterwards the downward movement should resume. From a fundamental perspective, there are still no grounds for the pair to rise, but technically it may correct this week.   However, the price is below the Ichimoku indicator lines again, so it may fall again. On June 5, trading levels are seen at 1.0537, 1.0581, 1.0658-1.0669, 1.0762, 1.0806, 1.0868, 1.0943, 1.1092, as well as the Senkou Span B line (1.0785) and the Kijun-sen line (1.0708). Ichimoku indicator lines can move intraday, which should be taken into account when determining trading signals. There are also support and resistance although no signals are made near these levels. Signals could be made when the price either breaks or bounces from these extreme levels. Do not forget to place Stop Loss at the breakeven point when the price goes by 15 pips in the right direction.   In case of a false breakout, it could save you from possible losses. Today, both the EU and the US will release their respective Services PMIs for May. You should pay attention to the US ISM services, since it is more important than "ordinary" business activity indexes. Indicators on charts: Resistance/support - thick red lines, near which the trend may stop. They do not make trading signals. Kijun-sen and Senkou Span B are the Ichimoku indicator lines moved to the hourly timeframe from the 4-hour timeframe.   They are also strong lines. Extreme levels are thin red lines, from which the price used to bounce earlier. They can produce trading signals. Yellow lines are trend lines, trend channels, and other technical patterns. Indicator 1 on the COT chart is the size of the net position of each trader category. Indicator 2 on the COT chart is the size of the net position for the Non-commercial group of traders.    

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

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.    

EUR/USD: Yesterday, the euro and other currencies started trading lower, while volatility was weak. The main reason for the change in sentiment was the weak PMIs in the US. The May ISM Services PMI came in at 50.3, down from April's 51.9. The final Services PMI reading was lowered from 55.1 to 54.9. Factory orders increased by 0.4% in April, below the expected range of 0.8-1.1%. Industrial orders excluding transportation decreased by 0.2%. Market expectations for a Federal Reserve rate hike at the June 14th meeting decreased from 25.3% to 21.8%. The S&P 500 stock index declined by 0.20%.       From a technical standpoint, we see the price returning to the range of 1.0692-1.0738, from which unsuccessful breakouts have occurred in both directions over the past week. Take note that the price has not firmly established itself above or below the limits of the range, which complicates the situation since the next breakout could turn out to be false, particularly on the bullish side, as the global trend is bearish.   We acknowledge that resistance at 1.0804 could be tested if there is an upward breakout. The price may even surpass the level with the MACD line acting as a target, which would constitute a deep correction from the decline since May 4th.   Climbing to 1.0804 represents approximately a 38.2% retracement of the downward move since May 4th. However, as long as the price doesn't breach the 1.0738 level, we'll stick to the bearish scenario with 1.0613 as the target.   The Marlin oscillator has already risen enough (removed negative tension) and may now turn into a new downward wave.   On the four-hour chart, the MACD indicator line is gradually flattening out, and the signal line of Marlin is attempting to merge with the neutral zero line.   The trend is neutral and is likely to remain so for another week until the Fed meeting. However, on the 13th, there will be CPI data released, which could further confuse market participants.        

The GBP/USD pair traded lower for most of Monday, clearly indicating a desire to resume its downtrend. However, the ISM non-manufacturing business activity index in the US spoiled the bearish sentiment. It's worth noting that the volatility today reached 84 pips, nearly double that of the euro.     Therefore, trading the pound was possible today, and we will discuss the signals in more detail below. For now, it should be noted that the downward trend has been broken as the pair recently surpassed two descending trendlines. From a technical perspective, a short-term rise is possible, but from the same technical standpoint, a decline should be expected in the medium term. The current situation is not entirely clear, and the fundamental and macroeconomic backdrop this week is unlikely to assist traders.       There were some trading signals on the 5-minute chart, although they weren't great. The first sell signal was formed overnight, but by the opening of the European session, the pair was at the point of formation. Therefore, a sell trade could confidently be opened.   Later, the price dropped to the level of 1.2386 and bounced off it. It was appropriate to close the shorts (with a profit of about 25 pips) and open long positions. The buy signal turned out to be false, as did the subsequent sell signal. These two signals "ate up" all the profit from the first trade and also forced us to remove the level of 1.2386 and replace it with 1.2372. It was not advisable to trade the last signal around 1.2372 as the first two proved to be false.   Trading tips on Tuesday: As seen on the 30M chart, the GBP/USD pair has ended its downtrend and started a new uptrend in the short-term. We believe that the pound has not fallen enough to form a new strong uptrend, but the market may have a different opinion. There are a couple of important data scheduled for release this week, so we recommend analyzing higher charts to understand the potential direction of the price.   The key levels on the 5M chart are .2171-1.2179, 1.2245, 1.2307, 1.2372, 1.2445, 1.2507-1.2520, 1.2597-1.2616, 1.2659, 1.2697. When the price moves 20 pips in the right direction after opening a trade, a stop loss can be set at breakeven. The UK will release its Construction PMI on Tuesday, which could potentially provoke a market reaction. However, the chances of that are still low. The economic calendar is empty in the US.   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 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.    

1H chart of GBP/USD In the 1-hour time frame, the pair started an upward movement and just as quickly ended it. The market insists on buying the pound, which remains significantly overbought and unjustifiably high. However, take note that the market has the right to trade regardless of the fundamental and macroeconomic backdrop. For now, we will consider the strong correction that we've seen last week and expect a revival of the downward movement.   On June 7, trading levels are seen at 1.2269, 1.2349, 1.2429-1.2445, 1.2520, 1.2589, 1.2666, 1.2762. The Senkou Span B line (1.2395) and the Kijun-sen line (1.2455) lines 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, there are no important events scheduled in either the UK or the US. Therefore, there will be no specific events to react to during the day, and volatility could be low again, and we can't expect trend-driven movements either.     Indicators on charts: Resistance/support - thick red lines, near which the trend may stop. They do not make trading signals. The Kijun-sen and Senkou Span B lines are the Ichimoku indicator lines moved to the hourly timeframe from the 4-hour timeframe. They are also strong lines. Extreme levels are thin red lines, from which the price used to bounce earlier. They can produce trading signals. Yellow lines are trend lines, trend channels, and other technical patterns. Indicator 1 on the COT chart is the size of the net position of each trader category. Indicator 2 on the COT chart is the size of the net position for the Non-commercial group of traders.  

Rates Spark: Worries that more might be needed The Bank of Canada has resumed hiking after a pause, highlighting concerns that elsewhere more might be needed to bring inflation down even as the Fed is mulling a pause of its own. Market rates have adjusted higher again and look vulnerable to more upside in the near term, especially in the US, with supply looming early next week.   The Bank of Canada lends skip narratives globally more credibility If they need any evidence that the current tightening cycle is not of the usual type, rates markets only have to look at the Bank of Canada’s 25bp hike yesterday. It was a move that surprised the majority of economists and came after the bank stood pat since last hiking 25bp in January. The Bank of Canada has led Fed policy in many ways, when it came to starting quantitative tightening or reverting to larger hikes. Now it may well have jumped ahead with the “skip” narrative, just when FOMC members are mulling a pause of their own. While it was previously tempting for markets to read any pause already as the end of the tightening cycle, it shows that an adverse turn of the data can require central banks to tighten the policy screws further.   With regards to the markets’ pricing of the Fed, the implied probability of a hike next week increased moderately to 30%. The probability of a July hike briefly spiked above 90% before falling back to 80%, not far from where it sat before. Yet further out the SOFR OIS forwards for year-end are now back at their highest levels since March at just above 5%.   Inflation concerns and supply add near-term upside to yields   Supply remains a near term factor for rates However, it was longer rates in the 5- to 10-year area that underperformed, with 10Y USTs rising more than 12bp to close in on 3.8%. While the BoC’s decision delivered the decisive push, the rise in yields already started earlier. That may also be owed to the prospect of faster paced Treasury issuance after the lift of the debt ceiling weighing on markets.   True, the rebuild of the Treasury’s cash balance as indicated yesterday to US$425bn by the end of June will mostly come from additional bills issuance, but early next week markets also will face 3Y and 10Y Treasury auctions on Monday and a 30Y auction on Tuesday. It means the bond sales will come around the crucial US CPI release and just ahead of the FOMC decision, volatility events that may warrant additional price concessions.   The US Treasury is about to rebuild its cash account   Upside inflation risks outweigh softer data, also at the ECB In EUR rates markets as well, just ahead of the upcoming ECB meeting, worries about inflation continue to outweigh the impact of softer data. Market have been close to fully pricing a June hike for a while now and see at least one more hike until September. They see a 20% chance that we will have a third hike, reflecting the recent return of speculation that the ECB’s deposit rate could reach the 4% handle.   The ECB’s Schnabel and the Dutch central bank’s Knot were the latest to say more tightening was needed. Schnabel cautioned “given the high uncertainty about the persistence of inflation, the costs of doing too little continue to be greater than the costs of doing too much”. Our own economists also think a hike next week looks like a done deal. More interesting is what the ECB will signal around the further path ahead. Given the current tightening bias evident in minutes of the last meeting and recent commentary as well as the still painfully slow decline in inflation the door should be left open to deliver more. A second hike in July looks likely. A third in September is possible, but not yet the base case.   Today's data and market view The Bank of Canada’s resumption of rate hikes also lends credibility to the skip narrative that Fed officials have increasingly been pushing last week. Despite all positive signs on the inflation front and weaker data, the concern clearly is that central banks may still need to do more. Technical factors like the Treasury supply packed into early next week just ahead of the Fed decision can add a bearish tilt to the market until then, and at least to some added volatility. Main highlight on the data front are the weekly US initial jobless claims. Consensus here is for little change which would indicate a still relatively tight job market. In the eurozone we will get the final first quarter GDP figures. Supply certainly has been a theme in eurozone rates markets, too, especially with Spain printing a €13bn 10Y bond which added to the widening of periphery bond spreads. After recent busy primary markets, only Ireland is scheduled to be active - with two bond taps in the sovereign space today.  

GBP: Sterling steady into jobs data next Tuesday EUR/GBP volatility remains near recent lows and spot trades well within a tight 0.8570-0.8640 range. Second or third-tier UK data has been quite mixed recently, but the main event on the data front will be next Tuesday's release of jobs and wages data. We see that as a negative event risk for sterling, where wage growth could continue to slow and take some of the steam out of the 100bp+ Bank of England tightening expectations still priced in by money markets. GBP/USD to trade well within a 1.2400-1.2500 range.  

Rates Spark: Inflation in focus before central bank meetings US inflation will affect the odds of a June Fed hike but should not move longer-dated rates much. A week heavy in supply promises more volatility but we expect curve flattening to persist into the Fed and ECB meetings.   Rolling the inflation dice once again A higher than expected US core inflation print is the last event that could boost the odds of a 25bp hike at tomorrow’s Fed meeting. Currently, these stand at just under 30%, reflecting the importance of, and uncertainty associated with, today’s CPI release. Currently, consensus stands at 0.4% MoM for the core reading, more than twice the rate needed for inflation to go back to the Fed’s 2% annual inflation target. Still, the less than 50% probability assigned by the curve to a 25bp June hike suggests markets collectively think that the Fed will be happy enough with 0.4% monthly core inflation to refrain from hiking.   One reason, we think, is the over-reliance on economic consensus to assess market moves. The second reason is that, even without a June hike, the Fed has dropped some heavy hints that it could hike in July regardless of its decision in June. For rates markets, this means that even if the Fed ‘skips’ the June meeting, odds of a 25bp hike by July, currently standing at around 80%, may not fall much.   The upshot for traded interest rates, such as swaps and US Treasury yields, is that the market reassessing June hike odds lower will not necessarily mean a drop in longer-dated rates. In fact, investors may well draw the logical conclusion that 0.4% core inflation would reinforce the case for a higher Fed dot plot and hawkish tone, regardless of what consensus is for today’s core inflation print.   What is sure is that price action today, and later this week into the Fed and European Central Bank meetings, is set to be choppy. In addition to the US CPI print, there is a heavy supply slate from sovereign issuers on both sides of the Atlantic. This tends to pressure yields higher into the supply and lower afterwards. In addition to, justified in our view, expectations of hawkish ECB and Fed tones, this skews yields higher. Whether this impacts the front-end or long-end the most depends on appetite to absorb this supply but the current market regime suggests that short-dated rates, ie the section most sensitive to central bank policy rates, is in the lead. This means a tendency to flatten when rates rise.     Curve flattening extends on the back of more hawkish central bank reaction functions   Today's events and market view A strong raft of UK employment data is likely to keep upward pressure on sterling front-end rates today although these have already priced more than 100bp of additional hikes as of yesterday's close. Faster wage and employment growth will probably be discussed by new MPC member Megan Greene today. Other Bank of England testimonies include that of governor Andrew Bailey. Today’s Eurozone inflation numbers are final reads and therefore less likely to surprise at the headline level. It will still be interesting to parse through the inflation components for signs of narrowing or broadening inflation pressure. Germany’s Zew survey will be an opportunity to get a (very) early read on June sentiment indicators. Consensus is for a decline as, we think, actually economic data and China’s reopening, are not living up to expectations. Italy is back on primary markets with auctions in the 3Y/7Y/30Y sectors, adding to auctions from the UK (10Y), Germany (5Y), and Finland (10Y/13Y). Later in the day, the US Treasury will auction 30Y T-bonds. Germany also mandated banks for the launch of a 30Y green bond which should take place today. The US release calendar kicks off early with the national federation of independent business’ optimism indicator. The main event, however, with be the publication of the May CPI report. Consensus is for the monthly core inflation print to remain at an elevated 0.4% but most seem to think this will be enough for the Fed to refrain from hiking at this week’s meeting.

Rates Spark: Is it a pause, or is it a skip? A hawkish hold need not be market moving for dollar rates, and a lot of financial tightening is still in the pipeline. Hot UK labour data adds to sterling curve flattening pressure - we think this will continue, especially when compared to dollar and euro rates.   The Fed will hold at this meeting, but expect some tightening from other sources ahead Directionally, a decision to hold rates steady at this meeting should not have a material effect on the level of market rates. What’s more important is the tone and language used by Chair Powell, where a hawkish tilt should prevent yields from seeing this event as a rationale to move lower. A surprise hike would deepen the inversion and likely shift the curve materially higher (by some 10bp in the 10yr, and by 20bp in the 2yr). That said, a hike is highly unlikely given that the market attaches a 90% probability to a hold at this meeting.   We will also get the Fed’s updated forecasts and dot plot chart for individual forecasts for the path of the Fed funds rate. In March, the Fed signalled rates would be left in a 5-5.25% range through to year-end, with rate cuts in 2024. We suspect there will be only minor tweaks in their forecasts – our predictions for what they will say are in the table below. Nonetheless, the big risk is that even if the Fed do hold rates steady it inserts a further hike into their central forecast. This would likely see markets firmly swing in favour of a 25bp move in July.   Even as the Fed holds, there is set to be a material tightening in conditions in the weeks and months ahead. Bills and other bond issues that had been held back are now being accelerated as the US Treasury looks to rebuild its cash balance. To the extent that money market funds buy extra bills, this likely means less use of the Fed’s reverse repo facility. At the same time, as the Treasury’s cash balance is increased there should be an associated fall in bank reserves held at the Fed. This will make things feel that bit tighter.     A combination of extra floating collateral and less liquidity should place some upward pressure on repo rates, adding to the tightening being felt generally. Also, there is an underlying tightening coming from the rises in market rates seen in the past few weeks. This is largely a part reversal of the falls in market rates seen in the wake of the Silicon Valley Bank collapse. But still, this is helping the Fed to do the tightening job that it believes needs doing.     Pitted against that, however, has been a tendency for credit spreads to tighten, volatility to fall and Libor OIS to re-tighten. These act to loosen conditions, but are also a consequence of the reduction in system stress as the debt ceiling was suspended and banking fears have receded, both of which the Fed welcomes.   ING's expectations for what the Federal Reserve will forecast today

FX strategy (with Frantisek Taborsky, EMEA FX & FI Strategist) HUF has been the clear winner YTD in the CEE region thanks to the subsiding energy crisis and very attractive carry due to the extreme high interest rate environment. Despite the first rate cut, HUF did not weaken thanks to the NBH’s transparent communication, which we expect will continue to remain as transparent as it has been so far this year.   We expect that the market will continue to favour the forint, which will continue to maintain a significantly higher carry within the region in the second half of the year. In our view, the playing field for the forint will be in the range of EUR/HUF 368-378 in the coming months and we target 372 for the end of the year.   Thus, we do not see much room for a move lower from current levels, which is supported by the very long positioning of the market. This will prevent further gains in the forint. We can still expect the NBH monetary policy and EU money story to be the main drivers. Higher volatility will remain in the market in the second half of the year and we may see some seasonal FX weakness especially during the summer months. However, market expectations for EU money are rather cautious and so we do not see room for a big sell-off, similar to that at the end of last year over this issue. Moreover, we should see a deal ultimately being agreed between the EC and the Hungarian government. Overall, we continue to like the forint and the NBH normalisation story. We expect investors might use any EUR/HUF spike to build new positions in forint and benefit from the significant carry.   FX – spot and INGF   Evolution of gross external debt (% of GDP)   Fixed income strategy (with Frantisek Taborsky, EMEA FX & FI Strategist and James Wilson, EM Sovereign Strategist)   The market is pricing in a large portion of NBH monetary policy normalisation, but we believe that the region's fastest disinflation and a record strong forint will support further market bets on policy easing. Our bias remains for a lower and steeper curve.. On the bond side, despite fiscal risks, we see this year's funding fully under AKK's control. HGBs post the highest gains within the region YTD, supported by the NBH's successful normalisation story and government measures.   On the other hand, HGBs are getting expensive after the recent rally. In the hard currency space, current valuations look about fair for REPHUN, with spread levels towards the wider end of the BBB tier.   Headline risk remains high amid the ongoing EU fund negotiations and geopolitical noise, which mean there are potential upside and downside catalysts, and volatility will remain elevated. Meanwhile, fundamentals are recovering from last year’s energy shock, in particular on the external accounts. Further FX issuance is likely later in the year, with the AKK guiding for a potential benchmark size EUR issue, in part to prefinance for 2024.   Local curve (%)   Public debt redemption profile (end-Mar 2023, HUFbn)

Outlook for bond yields and the AUD It has been a volatile 12 months for the Australian dollar, which dropped as low as 0.617 intraday against the US dollar in September 2022 and reached as high as 0.716 in February this year. Currently, the AUD is sitting in the upper half of this range. Further volatility is probable. The combination of a turn in global central bank rates, a pick-up in risk sentiment, and China’s reopening, all point to a stronger AUD in the medium term. Still, the long-awaited weakening of the USD is proving very elusive. Global risk sentiment, as proxied by the Nasdaq, which is up more than 25% year-to-date hardly needs any further encouragement and may be due a re-think if analysts’ earnings forecasts finally start to price in recession. And China’s reopening story may prove to be a case of the dog that didn’t bark. That makes the argument for further volatility seem a stronger one than our directional preference.     We feel on stronger ground on bond yields. Australian government Treasury yields track US Treasuries closely, so the broad direction is likely to be driven by those, with local factors (RBA policy, Australian inflation etc) of second-order importance though still useful for considering the direction of spreads. And right now, with US Treasury yields up at around 3.80%, the balance of risks for lower bond yields certainly feels better than it does for higher yields. The current spread of Australian government bond yields over US Treasuries is about 20bp, and this could widen as we think the US inflation story will improve quicker than that in Australia, resulting in a more rapid return to easing in the US.       Summary forecast table

FX Daily: June tells us the dollar is not the only game in town Despite relatively low levels of volatility, June has so far seen some pretty large spot FX moves in both the G10 and emerging market space. These moves seem to reflect a growing conviction of a soft landing in the global economy and a more hawkish view across the G10 central banks outside of the US. Look out for inflation surveys and central bank speakers today.   USD: Two factors weighing on the dollar We have recently been talking about inverted yield curves and late-cycle dollar strength. Looking at USD/JPY, that seems a fair comment given that it is trading not far from its recent highs and the US 2-10 yield curve is inverting even further (now -94bp) on the back of a hawkish Federal Reserve. However, this month in the G10 space, the dollar is only stronger against the yen and is anywhere from 2% (Swiss franc) to 6% (Australian dollar) weaker against the rest of the G10 currencies. This looks like a function of two factors: The first is the increasing hawkishness shown by the rest of the central banks in the G10 space. Inflation forecasts and expected tightening cycles are being revised higher across the board and in some cases more aggressively than in the US. This includes recent surprise hikes from Australia and Canada, a very hawkish ECB meeting yesterday, and very aggressive expectations for Bank of England rate hikes. The second is the bullish global risk environment. Investors are cutting allocations to cash and look to be putting money to work in bonds, equities and emerging markets. Against all the odds the MSCI world equity index is up 14% year-to-date and fund managers are surprisingly suffering from a Fear Of Missing Out (FOMO) on a good rally in benchmark risk assets. Notably, USD/CNH reversed lower yesterday despite the People's Bank of China rate cut – suggesting that investors are instead more interested in the prospect of upcoming Chinese fiscal stimulus.   Of course, data remain crucially important and will determine whether central banks need to keep rates tighter for longer or can perhaps start to consider rate cuts – as is the case in some parts of Eastern Europe and potentially Latin America too. But that is ING's central call for the second half of the year – that US disinflation will become more evident through the remainder of this year and that a less hawkish Fed will allow the dollar to sell off. Back to the short term, the dollar may well stay soft against most currencies except the Japanese yen, with the Bank of Japan remaining resolutely dovish. Here, yen-funded carry trades will remain popular. For today's data, we have the University of Michigan inflation expectations. This occasionally moves markets and any meaningful drop could nudge the dollar lower. Equally, we have three Fed speakers, generally from the hawkish end of the spectrum.  We think the mood to put money to work probably dominates and barring any big upside surprise in US inflation expectations, DXY can probably edge down to the 102.00 area, if not below.

The week kicks off on positive geopolitical vibes as the weekend talks between the US and China went well, and more senior level talks, including Xi Jinping are expected in the next few hours.  Despite this, Asian indices remained mostly sold on Monday, while US futures traded in the negative. It's certainly because last week was a bit confusing in terms of where the Federal Reserve (Fed) is headed to, after the dot plot showed two more possible rate hikes before the year ends, versus a final rate hike expected in July.   Activity on Fed funds futures gives more than 70% for a July hike, and more than 75% for a September hike on fear that inflation wouldn't slow as much as expected, and that the US jobs market will remain too robust to call the end of the US rate hikes. Fed Chair Powell will testify before the Senate this week and will certainly stick to the Fed's hawkish stance.      The S&P500 and Nasdaq both fell on Friday, but the S&P500 ended last week having gained 2.6%. It was the 5th straight week of gains for the S&P500, while Nasdaq closed the week 3.3% higher than where it had started. Both indices are now at the highest levels since last spring, and both are in overbought territory. Volatility continues fading, while any investors questions whether this is the calm before storm.   On good thing is that the Fed's reverse repo operations are trending lower, as a result of a flood of US bond issuance following the debt ceiling agreement and keep market liquidity sustained for equities.   But the US 2-year yield is headed toward the 5% mark – which is negative for equity valuations, whereas upside potential remains contained at the long end of the curve. And the widening spread means that bond investors continue pricing in recession in the foreseeable future, which is, in theory, negative for equity valuations as well.   Big Tech is responsible for around 80% of the gains in the S&P500 this year due to the AI-rally, but Russell 2000 gives signs of willingness of joining the rally as well. And because there is nothing much encouraging happening on the Fed end, the overall direction of the market, and market mood, will depend on the performance of the Big Tech. And they are now in the overbought market.       Soft dollar  The US dollar trades below its 50-DMA, as other central banks are as aggressive as the Fed – if not more! The Bundesbank President Nagel for example hinted that the ECB hikes could extend into autumn and may persist beyond September if core inflation doesn't slow persistently. The EURUSD is back on track for further gains and will likely continue pushing into the 1.10 psychological mark. Price pullbacks are interesting opportunities to strengthen long positions for a further rise toward the 1.12 mark.      Across the Channel, Cable consolidates above the 1.28 mark ahead of the next inflation update, due Wednesday and the next Bank of England (BoE) decision due Thursday. Inflation in Britain is expected to have eased from 8.7% to 8.4%, but the BoE – which has been telling us since a while that these numbers would get smashed by the H2, is now questioning their inflation forecast model – as a clear sign that even they don't believe that inflation will take the direction their model says it will. The BoE expectations remain comfortably hawkish, with another 125bp hike priced in before the end of this year. The latter could help push Cable toward the 1.30 mark.    In Switzerland, the Swiss National Bank (SNB) is also preparing to hike the rates by 25bp this week to follow the European peers, while in Turkey, the central bank, with its new leadership, is expected to hike the one-week repo rate from 8.5% to 20% in an effort to normalize the monetary policy that has been put to coma since around two years. Normalization will be painful, both for the economy and the lira, and the dollar-TRY will be left to float free from time to time to test the strength of the negative pressure from the market. The USDTRY remains – is kept - steady around the 23 mark, while the upside is the only direction that the pair could take even despite a monstrous rate hike that will hit the fan this week.  

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.    

GBP/USD edged down on Monday. This is a classic depiction of how the pound is currently being traded. When it rises, the movement is sharp, but when it falls, it only edges down. It can rise even without macroeconomic or fundamental reasons, but it is reluctant to fall, even when there are corresponding causes.     For example, yesterday there was an excellent opportunity for a correction based on pure technicals. The pair could have fallen simply because it was overbought. However, instead of a significant correction, we saw the pair reverse its course by just 30 pips amidst a low-volume trading day. Throughout the day, neither the UK nor the US had any important events or reports. Speaking of trading signals, there was nothing notable about it. The pair did not even come close to any significant levels or lines.   This is probably a good thing because weak movements bordering on a flat can lead to false signals. Traders have been fortunate with the euro, but there simply hasn't been any signal for the pound. 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.   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. Judging by the technical indicators, we have an uptrend. Yet, it is hard to find the reasons which may push it higher. However, it is naturally not advisable to sell the pair without proper signals. The market can sustain the trend even without a "fundamental" basis.   On June 20, 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 (1.2494) and Kijun-sen (1.2724) 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.   There are no significant events lined up in the UK, and only a few secondary events in the US. We believe that volatility may edge up today, as the Bank of England's meeting and the UK inflation report will be published later this week. The market may start to anticipate and react to this data in advance.  

Monday was uneventful. There are no significant economic reports scheduled for Monday and Tuesday, and all the fundamental events are of secondary importance. Monday was a low volume trading day and both pairs had a slight inclination to correct after a strong rally last week.   The same situation will probably persist today. Among the economic events, the only one worth mentioning is the report on the number of building permits issued in the United States. Even with an empty events calendar, such a report can still provoke a market reaction. But what kind of reaction exactly?   For example, on Friday, when volatility was also quite low, the US Consumer Sentiment Index triggered a 30-point reaction (approximately). We might witness the same reaction today. The main point is that volatility is still low, which makes it difficult to trade, regardless of whether there are reports or not.   Analysis of fundamental events: Among today's fundamental events, the speeches by European Central Bank representatives Andrea Enria, Luis de Guindos, and Elizabeth McCaul stand out. De Guindos has already spoken earlier, and Enria and McCaul clearly carry less weight in the eyes of traders compared to Schnabel and Lane.   Therefore, if traders did not react to yesterday's speeches, it is even less likely that they would today. In the US, you can look forward to the speeches of Federal Reserve officials John Williams and James Bullard. However, Bullard does not have voting rights this year, so his hawkish stance (which is expected) is unlikely to affect morale. As for John Williams, the US central bank held a meeting just last week and we have already heard all the necessary information.   Furthermore, on Wednesday and Thursday, Fed Chairman Jerome Powell's speeches in Congress will attract much more attention. General conclusions: There are few important fundamental and economic events.   You can pay attention to the report on the number of building permits issued in the United States, as it is the only event that can truly provoke a reaction on a potentially low volume trading day. 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.  

Monday was uneventful. There are no significant economic reports scheduled for Monday and Tuesday, and all the fundamental events are of secondary importance. Monday was a low volume trading day and both pairs had a slight inclination to correct after a strong rally last week.   The same situation will probably persist today. Among the economic events, the only one worth mentioning is the report on the number of building permits issued in the United States. Even with an empty events calendar, such a report can still provoke a market reaction. But what kind of reaction exactly? For example, on Friday, when volatility was also quite low, the US Consumer Sentiment Index triggered a 30-point reaction (approximately). We might witness the same reaction today.   The main point is that volatility is still low, which makes it difficult to trade, regardless of whether there are reports or not. Analysis of fundamental events: Among today's fundamental events, the speeches by European Central Bank representatives Andrea Enria, Luis de Guindos, and Elizabeth McCaul stand out. De Guindos has already spoken earlier, and Enria and McCaul clearly carry less weight in the eyes of traders compared to Schnabel and Lane. Therefore, if traders did not react to yesterday's speeches, it is even less likely that they would today. In the US, you can look forward to the speeches of Federal Reserve officials John Williams and James Bullard. However, Bullard does not have voting rights this year, so his hawkish stance (which is expected) is unlikely to affect morale.   As for John Williams, the US central bank held a meeting just last week and we have already heard all the necessary information. Furthermore, on Wednesday and Thursday, Fed Chairman Jerome Powell's speeches in Congress will attract much more attention. General conclusions: There are few important fundamental and economic events.   You can pay attention to the report on the number of building permits issued in the United States, as it is the only event that can truly provoke a reaction on a potentially low volume trading day. 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   

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.  

UK CPI set to tee up tomorrow's Bank of England rate decision    We've seen a lacklustre start to the week for markets in Europe, as well as the US as disappointment over a weak China stimulus plan, gave investors the excuse to start taking some profits after the gains of recent weeks. Weakness in energy prices also reinforced doubts about the sustainability of the global economy as we head towards the second half of this year.   As we look towards today's European open the main focus is on the latest UK inflation numbers for May ahead of tomorrow's Bank of England rate decision.   Today's UK CPI numbers could make tomorrow's rate decision a much less complicated decision than it might be, especially if the numbers show a clear direction of travel when it comes to a slowing of price pressures. Nonetheless, whatever today's inflation numbers are, we still expect to see a 25bps rate hike tomorrow, however what we won't want to see is another upside surprise given recent volatility in short term gilt yields.   When the April inflation numbers were released, there was a widespread expectation that headline inflation would fall back sharply below 10% and to the lowest levels since March last year. That did indeed happen, although not by as much as markets had expected, falling to 8.7%.       It was also encouraging to see PPI input and output prices slow more than expected in April on an annual basis, to 3.9% and 5.4% respectively.   Unfortunately, this is where the good news ended as while we saw inflation fall back in April it wasn't as deep a fall as expected with many hoping that we'd see headline inflation slow to 8.2%. The month-on-month figure was much hotter than expected at 1.2% and core prices surged from 6.2% to 6.8%, and the highest level since 1990.   The areas where inflation is still looking hot is around grocery prices which saw an annual rise of 19.1%, only modestly lower than the 19.2% in March, while services inflation in hotels and restaurants slowed from 11.3% to 10.2%. Since then, food price inflation has slowed to levels of around 16.5%, still very high, while today's headline number is forecast to slow to 8.5%. More worryingly core prices aren't expected to change at all, remaining at 6.8%, however if we are to look for crumbs of comfort then we should be looking at PPI where in China and Germany we are in deflation.   Given that this tends to be more forward-looking we could find that by Q3 headline CPI could fall quite sharply. Both PPI input and output prices are expected to both decline on a month-on-month basis, while year on year input prices are expected to rise by 1.1%.   In the afternoon, market attention will shift to Washington DC and today's testimony by Fed chair Jerome Powell to US lawmakers in the wake of last week's decision to hold rates at their current levels, while issuing rather hawkish guidance that they expect to hike rates by another 50bps by year end.   This was a little surprising given that inflation appears to be a problem that could be subsiding. Powell is likely to also face further questions from his nemesis Democrat Senator Elizabeth Warren who is likely to further press the Federal Reserve Chairman on the costs that further rate hikes might have in terms of higher unemployment.   Her dislike for Powell is well documented calling him a "dangerous man", however despite these comments her fears of higher unemployment haven't materialised despite 500bps of rate hikes in the past 15 months.   We could also get further insights into last week's discussions with a raft of Fed speakers from the likes of Christopher Waller, Michelle Bowman, James Bullard and Loretta Mester this week.          EUR/USD – currently holding above the 50-day SMA at 1.0870/80 which should act as support. We still remain on course for a move towards the April highs at the 1.1095 area, while above 1.0850.     GBP/USD – slipped back from 1.2845/50 area sliding below 1.2750 with the next support at the 1.2680 area. Still on course for a move towards the 1.3000 area, while above the 50-day SMA currently at 1.2510.      EUR/GBP – found support at the 0.8515/20 area with resistance at the 0.8580 level. While below the 0.8620 area bias remains for a move toward the 0.8470/80 area.     USD/JPY – slipped back from just below the next resistance at 142.50 which is 61.8% retracement of the 151.95/127.20 down move. Above 142.50 targets the 145.00 area. Support now comes in at 140.20/30.      FTSE100 is expected to open 4 points higher at 7,573     DAX is expected to open 42 points higher at 16,153     CAC40 is expected to open 3 points higher at 7,297     By Michael Hewson (Chief Market Analyst at CMC Markets UK)

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.  

The Swiss National Bank slowed the pace of its tightening cycle on Thursday, in line with market expectations but signaled there is more to come. While most central banks would dream of 2.2% inflation right now, the SNB has made clear that there will be no complacency. Today's hike likely doesn't mark the end of its cycle, with another 25 basis points expected in September.   Having previously indicated that he believes the neutral rate is around 2%, Chair Thomas Jordan has effectively signaled to the markets that they won't be done until at least this level is reached and today's comments support that. As did the forecasts, which assuming steady rates, had inflation remaining above 2% in two years' time. In other words, more tightening will be necessary, alongside currency interventions, in order to get inflation back below 2%. ​ Despite some initial volatility, the Swiss franc is only a little lower on the day and not far from its pre-release levels. Against the dollar it has been trending sideways for more than a month and today's decision has so far failed to sway it one way or another. A move below 0.8850 could make things interesting, as could a move above 0.91, but with the price sitting almost in the middle of these two levels currently, we may have to wait a little longer yet. Markets are pricing in a strong chance of another hike in the cycle while indicating a small chance that the central bank is done. There is still a long way to go in the global inflation fight and, if the last couple of years are anything to go by, there may be some more twists and turns to come. ​

Russia’s weekend mutiny cast doubts on Putin’s grip on power. No major impact on markets but keep a lookout on Gold, which bounced off the key support zone of US$1,913/1,896 per ounce. Stern FX verbal intervention from Japan’s top currency official. Watch USD/JPY key near-term support at 142.50/25. US banking stocks tumbled ahead of annual key Fed’s banks’ stress test results Before the start of this new trading week, market participants were being jolted from their weekend leisure activities to shift their focus to the internal coup in Russia that may put President Putin’s power grip in jeopardy. Yevgeny Prigozhin, leader of the Wagner Group, a Russian key independent military contractor that has played a significant role in the ongoing Russia-Ukraine territorial conflict voiced displeasure with Russia’s top leadership in handling the Russia-Ukraine situation, took over two Russian cities and order his mercenaries to march towards Moscow on Saturday.   Russia’s weekend mutiny started fast and ended fast Upon reaching 200 km within Moscow, Prigozhin’s troops halted and made a U-turn back to their field camps. In addition, Putin dropped earlier treason charges on the Wagner Group and allowed Prigozhin to head to Belarus, Russia’s western neighbour for exile. In less than 48 hours, the mutiny in Russia is over without any clear details on what has transpired that led to Prigozhin’s retreat as Putin has not made any official speech or press conference yet. US Secretary of State Blinken commented that the weekend’s uprising by Prigozhin, a former Putin royalist has posed a direct challenge to Putin’s grip on power in Russia and provided a battlefield advantage to Ukraine. On the other hand, several geopolitical commenters have analyzed the situation to be in favour of Putin in which Wagner Group’s mutiny may be used as a cover for Putin to remove the top brass in Russia’s Ministry of Defence; Shoigu, the defence minister and Gerasimov, chief of the general staff as they posed a threat to Putin’s rule. Thus, the change of Russia’s military leadership may be part of the “deal” package that the Kremlin and Prigozhin agreed on.   No significant movements in markets but watch gold In today’s Asian session, both the S&P 500 and Nasdaq 100 e-mini futures were up slightly by around +0.20% after posting their worst weekly losses last week in three months. Major Asian stock indices were mixed at this time of the writing, Nikkei 225 (-0.24%), Kospi 200 (+0.60%), Hang Seng Index (-0.14%), Hang Seng China Enterprises Index (+0.13%), and CSI 300 (-0.70%). The US dollar is almost unchanged on average with the US Dollar Index inching down by a meagre -0.1%. Gold, a traditional safe haven asset that tends to benefit in light of major geopolitical risks upheaval in the past has exhibited some interesting price actions movement from a technical analysis perspective.     Gold’s decline has managed to bounce off from a key support zone of US$1,913/1,896 per ounce   Fig 1: Gold (XAU/USD) medium-term trend as of 26 Jun 2023 (Source: TradingView, click to enlarge chart) Last week’s decline seen in Gold (XAU/USD) has led its price actions to hit a crucial medium-term pivotal support zone of US$1,913/US$ 1,896 per ounce (printed an intraday low of US$1,910 last Friday, 23 June) which is being defined by a confluence of elements; the lower boundary of the medium-term ascending channel in place since 3 November 2022 low, 38.2% Fibonacci retracement of the prior medium-term up move from 3 November 2022 low to 4 May 2023 high, and approximately the downside price objective of recent “Descending Triangle” bearish breakdown. Momentum has also improved as the daily RSI oscillator has managed to stage a bounce off the key corresponding support at the 36 level. Watch the US$1,896 key medium-term pivotal support and a clearance above US1,940 intermediate resistance sees the next resistance coming in at US$1,990 (also the 50-day moving average).   FX verbal intervention from Japan After a strong upside movement seen in the USD/JPY that recorded a weekly gain of +1.3% last week which outperformed other major USD crosses, the US Dollar Index only rose by +0.56% over the same period, Japan’s Vice Finance Minister Masato Kanda, a top currency official that has oversight over foreign exchange market matters has sounded the alarm in today’s morning Asian session. Based on a Reuters report, Kanda said that the authorities will respond to any excessive moves in the foreign exchange market, warned that the recent yen moves were rapid and will not rule out any chance of an FX intervention. He said, “Regardless of the direction, it’s generally not good for the economy if exchange rates move excessively in a way that deviates from economic fundamentals.” Today’s verbal intervention was the most pronounced made by any of Japan’s finance ministry officials in the past month when USD/JPY sailed past the prior 141.00 and 142.00 psychological levels “effortlessly”. USD/JPY has shed -0.2% intraday and broke key near-term support at 143.45 at this time of the writing, the next support to watch will be at 142.50/25 (former swing highs of 11/21/22 November 2022).     Fed’s annual banks stress test results out on Wednesday The US Federal Reserve will unveil the results of its annual stress tests on the 23 biggest US banks on Wednesday, 28 June. The key focus will be on a section of the test, labelled as “exploratory market shock”, this is the first time such a test is being conducted on the trading books of the largest US banks. The urgency and significance of the “exploratory market shock” stress test come after the US regional banks’ turmoil. Hence, monitoring of fixed income duration risk is paramount now given that the latest Fed’s hawkish monetary policy guidance is to keep interest rates higher for a longer period. Last week, the US banking stocks shed by -6.80% as indicated by the SPDR S&P Bank exchange-traded fund, its worse weekly performance in seven weeks and underperformed the S&P 500.     Fig 2: S&P 500 major trend with VIX as of 26 Jun 2023 (Source: TradingView, click to enlarge chart) If the “exploratory market shock” stress test results come in unfavourable, it may put more downside pressure on US banking stocks which in turn may trigger a volatility upside breakout in the VIX, a measurement of implied volatility on the S&P 500 as it has compressed to a low level of 13.44 not seen since early February 2020 before the pandemic. A sudden spike in VIX may dampen the current bullish mood for US stock indices.  

Russia’s weekend mutiny cast doubts on Putin’s grip on power. No major impact on markets but keep a lookout on Gold, which bounced off the key support zone of US$1,913/1,896 per ounce. Stern FX verbal intervention from Japan’s top currency official. Watch USD/JPY key near-term support at 142.50/25. US banking stocks tumbled ahead of annual key Fed’s banks’ stress test results   Before the start of this new trading week, market participants were being jolted from their weekend leisure activities to shift their focus to the internal coup in Russia that may put President Putin’s power grip in jeopardy. Yevgeny Prigozhin, leader of the Wagner Group, a Russian key independent military contractor that has played a significant role in the ongoing Russia-Ukraine territorial conflict voiced displeasure with Russia’s top leadership in handling the Russia-Ukraine situation, took over two Russian cities and order his mercenaries to march towards Moscow on Saturday.     Russia’s weekend mutiny started fast and ended fast Upon reaching 200 km within Moscow, Prigozhin’s troops halted and made a U-turn back to their field camps. In addition, Putin dropped earlier treason charges on the Wagner Group and allowed Prigozhin to head to Belarus, Russia’s western neighbour for exile. In less than 48 hours, the mutiny in Russia is over without any clear details on what has transpired that led to Prigozhin’s retreat as Putin has not made any official speech or press conference yet. US Secretary of State Blinken commented that the weekend’s uprising by Prigozhin, a former Putin royalist has posed a direct challenge to Putin’s grip on power in Russia and provided a battlefield advantage to Ukraine. On the other hand, several geopolitical commenters have analyzed the situation to be in favour of Putin in which Wagner Group’s mutiny may be used as a cover for Putin to remove the top brass in Russia’s Ministry of Defence; Shoigu, the defence minister and Gerasimov, chief of the general staff as they posed a threat to Putin’s rule. Thus, the change of Russia’s military leadership may be part of the “deal” package that the Kremlin and Prigozhin agreed on.     No significant movements in markets but watch gold In today’s Asian session, both the S&P 500 and Nasdaq 100 e-mini futures were up slightly by around +0.20% after posting their worst weekly losses last week in three months. Major Asian stock indices were mixed at this time of the writing, Nikkei 225 (-0.24%), Kospi 200 (+0.60%), Hang Seng Index (-0.14%), Hang Seng China Enterprises Index (+0.13%), and CSI 300 (-0.70%). The US dollar is almost unchanged on average with the US Dollar Index inching down by a meagre -0.1%. Gold, a traditional safe haven asset that tends to benefit in light of major geopolitical risks upheaval in the past has exhibited some interesting price actions movement from a technical analysis perspective.   Gold’s decline has managed to bounce off from a key support zone of US$1,913/1,896 per ounce   Fig 1: Gold (XAU/USD) medium-term trend as of 26 Jun 2023 (Source: TradingView, click to enlarge chart) Last week’s decline seen in Gold (XAU/USD) has led its price actions to hit a crucial medium-term pivotal support zone of US$1,913/US$ 1,896 per ounce (printed an intraday low of US$1,910 last Friday, 23 June) which is being defined by a confluence of elements; the lower boundary of the medium-term ascending channel in place since 3 November 2022 low, 38.2% Fibonacci retracement of the prior medium-term up move from 3 November 2022 low to 4 May 2023 high, and approximately the downside price objective of recent “Descending Triangle” bearish breakdown. Momentum has also improved as the daily RSI oscillator has managed to stage a bounce off the key corresponding support at the 36 level. Watch the US$1,896 key medium-term pivotal support and a clearance above US1,940 intermediate resistance sees the next resistance coming in at US$1,990 (also the 50-day moving average).   FX verbal intervention from Japan After a strong upside movement seen in the USD/JPY that recorded a weekly gain of +1.3% last week which outperformed other major USD crosses, the US Dollar Index only rose by +0.56% over the same period, Japan’s Vice Finance Minister Masato Kanda, a top currency official that has oversight over foreign exchange market matters has sounded the alarm in today’s morning Asian session. Based on a Reuters report, Kanda said that the authorities will respond to any excessive moves in the foreign exchange market, warned that the recent yen moves were rapid and will not rule out any chance of an FX intervention. He said, “Regardless of the direction, it’s generally not good for the economy if exchange rates move excessively in a way that deviates from economic fundamentals.” Today’s verbal intervention was the most pronounced made by any of Japan’s finance ministry officials in the past month when USD/JPY sailed past the prior 141.00 and 142.00 psychological levels “effortlessly”. USD/JPY has shed -0.2% intraday and broke key near-term support at 143.45 at this time of the writing, the next support to watch will be at 142.50/25 (former swing highs of 11/21/22 November 2022).     Fed’s annual banks stress test results out on Wednesday The US Federal Reserve will unveil the results of its annual stress tests on the 23 biggest US banks on Wednesday, 28 June. The key focus will be on a section of the test, labelled as “exploratory market shock”, this is the first time such a test is being conducted on the trading books of the largest US banks. The urgency and significance of the “exploratory market shock” stress test come after the US regional banks’ turmoil. Hence, monitoring of fixed income duration risk is paramount now given that the latest Fed’s hawkish monetary policy guidance is to keep interest rates higher for a longer period. Last week, the US banking stocks shed by -6.80% as indicated by the SPDR S&P Bank exchange-traded fund, its worse weekly performance in seven weeks and underperformed the S&P 500.     Fig 2: S&P 500 major trend with VIX as of 26 Jun 2023 (Source: TradingView, click to enlarge chart) If the “exploratory market shock” stress test results come in unfavourable, it may put more downside pressure on US banking stocks which in turn may trigger a volatility upside breakout in the VIX, a measurement of implied volatility on the S&P 500 as it has compressed to a low level of 13.44 not seen since early February 2020 before the pandemic. A sudden spike in VIX may dampen the current bullish mood for US stock indices.    

EUR: Hawkish comments in Sintra expected Evidence of a deteriorating economic outlook in the eurozone appears to be mounting. Yesterday’s IFO survey in Germany came in on the weak side, with the Business Climate index falling more than expected from 91.5 to 88.5 and the expectations gauge from 88.3 to 83.6. The Current Assessment indicator matched expectations, but still declined in June from 94.8 to 93.5. When adding other forward-looking business surveys (PMIs, ZEW) the case for a negative re-rating of the eurozone growth outlook is clearly strengthening. The euro’s null reaction to yesterday’s IFO was likely due to the rather pronounced post-PMI drop on Friday: in a way, the IFO merely confirmed what PMIs had already flagged last week. Most importantly, the ECB has appeared primarily focused on inflation concerns as opposed to the growth discussion. Sintra was the stage for pivots in the monetary policy message in past editions, but this year, the message may be a reiteration of the hawkish tone we heard after the latest policy meeting: a hike in July is necessary, one in September is up for debate. President Christine Lagarde delivers her introductory speech this morning, and then we’ll hear from Panetta (a dove) and Schnabel (a hawk). Ultimately, EUR/USD may not be trading far from 1.0900 at the end of the Sintra summit. We’ll also be paying attention to Norges Bank Governor Ida Wolden Bache’s speech today in Sintra. NOK has faced huge volatility after the larger-than-expected 50bp hike by Norges Bank last Thursday, with the initial rally proving very short-lived and the krone plunging on Friday. EUR/NOK is now back below 11.70, but we may still hear some attempts to propel the currency higher from the governor.  

It wasn't all one way though... But it would be wise not to get too carried away. Certainly, a number of outsize declines in some components drove today's big fall in inflation. But this was a messy release, with a number of interesting increases as well as decreases. Food and beverages rose 1.05% MoM, much faster than the recent trend increase. Rents, an important contributor to the housing component, continued to rise at a 0.8% MoM pace, and are showing no signs of slowing. And there was a large 1.1% MoM increase in financial prices.    In short, there was a lot of volatility in this release, and a slightly different spread of outcomes could have seen the numbers go the opposite way. So while today's numbers show a welcome moderation in inflation, especially in the core series, it is harder to pull out of this release anything that confirms that the trend in the months ahead will also remain more moderate. Retail gasoline prices in June will average higher than in May, so the transport element of today's fall will likely reverse. And in July, we will have to deal with much higher electricity tariffs (a 20% YoY increase or even more is anticipated), which will push up the utilities part of the housing component.    Base effects will continue to help the year-on-year comparisons, so we see June inflation slipping further to 5.2% YoY.  But inflation in July may go sideways, or even rise slightly, and this could be enough to persuade the RBA of the merits of a further 25bp rate hike at their September meeting, taking the cash rate to 4.35%. That decision will also likely be influenced by developments in housing and the labour market, and if these have softened substantially by then, it won't be such an obvious call.    The AUD dropped sharply on the release, which is a perfectly reasonable response, as markets pared back their expectations for RBA tightening to just over one more rate hike by the end of the year. That has a little further to be reduced in our view and could keep the AUD in this sort of range over the coming months until there is a clearer sign on the direction for US rates. The long-awaited dollar weakness is taking a while to arrive as the US economy doesn't seem to want to lie down despite the best efforts of the Federal Reserve Bank.  

Wall Street awaits Fed Chair Powell and counterparts at ECB forum Mortgage demand rises for a 3rd straight week 10-year Treasury yield down 1.9 bps to 3.745%   The artificial intelligence trade had a major setback after the Wall Street Journal reported that the Biden administration could unveil new restrictions on the exports of AI chips to China. Nvidia, a pivotal mega cap tech trade, gets about 20% of its revenue from China. In Asia, AI related stocks were under significant selling pressure.   Despite a potential headwind for the AI trade, the NASDAQ 100 will likely have a record first half. BlackRock, the world’s largest asset manager is also betting big on AI, coming out with a new overweight call. BlackRock sees a mild recession happening later this year but anticipates a mega force like AI could still help equities outperform, given a weakening macroenvironment.   We should get some volatility going into quarter close as so many traders are starting to become bullish stocks and as so many stocks are near critical option levels. The FOMO trade might be here, but the economy is clearly feeling the effects of the Fed’s tightening cycle and the consumer is weakening but has no trouble getting a job, so it will be interesting how the stock market’s back gets broken.    

SEK: A high wire act for the Riksbank today EUR/SEK remains close to historic highs as the Riksbank prepares to announce a key monetary policy decision this morning. As discussed in our meeting preview, the performance of the krona is a primary source of concern for the Bank, but also a relatively “self-inflicted” pain. The dovish shift at the April meeting – when two Board members voted against a 50bp hike – left the krona unshielded from risk sentiment dynamics and above all, mounting domestic risks (particularly those related to a troubled property market). The key question today is whether the hawkish rhetoric that had supported the krona into April will somehow be rebuilt. Market pricing suggests a 50bp hike had been factored in the weeks leading to today’s announcement (a peak of 40bp was reached last week), and the OIS curve now prices 35bp for today and 46bp in total by the September meeting. We think that the recent financial turmoil hitting property company SBB and the more general fragile state of Sweden’s economy and property outlook would argue against a 50bp hike today, but we cannot fully rule it out. To prevent another SEK drop, a 25bp hike would need to be accompanied by signals in the rate forecasts and in the statement that the bank is ready to hike rates further. Another option – which has actually been hinted at by one of the dovish dissenters – would be to accelerate the pace of quantitative tightening. That should be a preferred solution to the third option - FX intervention – which may prove unsustainable and unsuccessful. We suspect there are limitations to the currency impact of faster QT, which would squeeze the back-end of the SEK curve but may leave the EUR-SEK short-term rate differential too wide (considering how hawkish the ECB is) unless the Riksbank pushes forward some rate hike pledges. Expect EUR/SEK volatility today: we suspect there are some upside risks and a move to the 11.85/11.90 level is possible as the Riksbank may fail to make a structurally SEK-bearish market change its mind. By contrast, should we see a resolutely hawkish tone, EUR/SEK may slide back below 11.70. As we have learned from the April meeting, the spectrum of surprises can be quite wide with the Riksbank.  

Unclear what quicker quantitative tightening means for the krona EUR/SEK has been volatile in narrow ranges after the Riksbank’s announcement today. The positives for the krona are that today’s decision to hike was unanimous and that future rate hikes are promised. What is less certain is what today’s announcement of accelerated quantitative tightening (QT) means for the krona. Recall that back in February the Riksbank announced that it would be shrinking its holding of assets from around SEK800bn to SEK200bn over the next three years. In April, It started reducing its holdings of nominal and inflation-linked government bonds by SEK3.5bn per month. Today it has announced that the pace of sales will increase to SEK5bn per month starting in September. The Riksbank argues that its bond sales will raise yields on government bonds while having little impact on lending and deposit rates. It also argues that by supplying these government bonds back to the market, greater liquidity here will attract foreign investors and support the krona. The hypothesis of QT supporting the krona seems to be untested. So far this year, 10-year Swedish Government Bond (SGB) yields have only traded in a +/- 15bp range against 10-year German Bunds – and serves as a reminder that the ECB is also shrinking its balance sheet at the same time. In all, we suspect that EUR/SEK can stabilise around the current 11.70-11.80 levels. However, with the real estate market proving to be Sweden’s Achilles heel, we doubt that a sustained recovery in the undervalued krona will emerge until much later in the year when there are clearer signs of improvement in global inflation trends. Until that point, domestic risks in Sweden will continue to see the krona trade on a fragile footing.   Riksbank's initial planned sales of government bonds

Renovation less vulnerable to economic sentiment Development of production volumes in Western Europe (EC-15), % YoY     Choppy periods for R&M market From a historic perspective, demand for renovation and maintenance has recently been remarkably volatile. During the first Covid-19 lockdown, people were reluctant to have handymen in their homes. This gradually changed and demand for improvement grew rapidly in 2021 as many people suddenly required a “home office” as remote work became the norm. In addition, consumers had spare money to invest in their homes as they couldn’t spend their savings on holidays during the pandemic. In 2022, skyrocketing energy prices (caused by the Ukraine War) decreased consumers’ purchasing power. This resulted in a downturn in the number of people that wanted to refurbish their homes. In contrast, the demand for energy-efficient investments (eg. solar panels, insulation and heat pumps) has grown as the payback period for these refurbishments has dropped enormously. Many governments also offer subsidies for energy-related renovation projects.   Demand for home improvements has been volatile lately Balance of EU consumers that expect to improve their home over the next 12 months     Stable growth will return in the renovation sector All in all, despite the temporary circumstances caused by the Covid-19 pandemic and the energy crisis, the trajectory for residential energy efficiency upgrades remains promising. Looking ahead, we expect gradual growth in the renovation market due to sustained government regulations and the structural impact of higher energy prices. Therefore, the demand for residential energy efficiency upgrades is likely to continue its upward trend.

German exports disappoint again A minor drop in May exports is another illustration that sluggish exports are not an exception but rather the new normal. German exports remain sluggish. After the severe March plunge and a minor rebound in April, exports dropped in May by 0.1% month-on-month (from 1.0% MoM in April). On the year, exports were up down by 0.7%. Don’t forget that this is in nominal terms and not corrected for high inflation. With imports increasing by 1.7% MoM, from -0.1% MoM in April, the trade balance narrowed to €14.4bn.   Sluggish exports - the new normal Since last summer, German exports have been extremely volatile. However, the general trend is pointing downwards, not upwards. Trade is no longer the strong resilient growth driver of the German economy that it used to be but rather a drag. Supply chain frictions, a more fragmented global economy and China increasingly being able to produce goods it previously bought from Germany, are all factors weighing on German exports. In the first half of the year, the share of German exports to China dropped to 6% of total exports, from almost 8% before the pandemic. At the same time, however, Germany’s import dependence on China remains high as the energy transition is currently impossible without Chinese raw materials or solar panels. In the very near term, the ongoing weakening of export order books, the expected slowdown of the US economy (which accounts for roughly 10% of total German exports), high inflation and high uncertainty will clearly have an impact on German exports. One of the few silver linings for German exports remains the CEE countries, which currently account for more than 11% of total German exports. All in all, today’s export numbers bring no relief. In fact, today's numbers are rather another illustration that sluggish exports are not an exception but rather the new normal.

FX Daily: A hawkish ‘skip’ by the Reserve Bank of Australia The RBA decided to focus on decelerating inflation rather than the strong labour market and kept rates on hold overnight. Still, it reiterated a data-dependent approach and signalled openness to more tightening ahead. In general, it should be a quiet day in FX today due to the US national holiday, but things will get hectic again from tomorrow.   USD: National holiday today, but volatility to pick up from tomorrow The week has started without very clear direction dynamics in dollar crosses, largely due to reduced flows in US markets around the Independence Day holiday: US bond and equity markets are closed and there are no data releases, so expect another quiet day in FX. Yesterday, the ISM manufacturing index was released and came in at 46.0, below consensus expectations. The print was in contractionary territory (i.e. below 50) for the eighth consecutive month and hit its lowest level since May 2020. It’s worth noting that ISM manufacturing has been a historically accurate leading indicator of GDP dynamics and it currently points to a substantial slowdown.   This week, markets will once again need to filter their rate expectations for the evidence offered by data releases in the US. The reaction to the ISM manufacturing index has been limited due to reduced volatility around the US holiday, and also because the ISM services (out on Thursday) has been a bigger market mover. USD-crosses volatility will pick up again tomorrow when the focus will shift to FOMC minutes.

GBP/USD Yesterday, volatility was weak, however, the price has consolidated above the target level of 1.2678 on the daily chart. The Marlin oscillator is trying to rise in the positive area, now the price can reach the target level of 1.2785.     If the pound needs to develop a decline, it should consolidate below yesterday's low, then there will be an opportunity to work out fairly strong levels like 1.2600, 1.2572.   On the 4-hour chart, the price is consolidating above the 1.2678 level, above the balance indicator line. The Marlin oscillator is moving sideways in the uptrend territory. Rising signs prevail. If the price fails to reach 1.2785, a breakout of the MACD line around the 1.2745 mark will still be a good attempt to do so.    

PLN: Record strong zloty day before NBP decision The two-day meeting of the National Bank of Poland starts today in Poland. While we can expect headlines tomorrow, the Polish zloty is once again clamouring for attention. EUR/PLN touched its lowest levels since early 2021 yesterday. We remain positive on the zloty, however, as we estimate that positioning must be extremely long at the moment –most significantly in the CEE region. Moreover, we can expect a dovish report from the NBP tomorrow. The market has priced in a lot of rate cuts for this year over the past week without significant damage to the zloty. Thus, the current account surplus, strong FDI flows and the dampening of volatility through MinFin operations in the market will continue to support the zloty, but we expect further gains to be at a slower pace.

On Tuesday, the EUR/USD currency pair struggled to establish itself above the moving average line, failing to surpass the Murray level of "3/8"-1.0925, resuming its downward trend in the latter half of the day. However, to label this movement as a "decline" would be an overstatement, as the day's total volatility was merely 40 points. As such, the past week better embodies the idea of a "flat" market rather than a trending one. Currently, the currency market is experiencing a tranquil period.   The fundamental and macroeconomic landscapes are intact, but the market appears saturated by them. Time and again, macroeconomic reports are in line with market expectations. Statements by representatives of the Fed and ECB do not offer traders any new or crucial information. The euro continues to maintain a relatively high position but has been static in recent weeks. The subject of interest rates is becoming less pertinent to traders. It's worth noting that when a monetary tightening or easing cycle initiates, the market endeavors to anticipate it. If this happens concurrently in two or more countries, as is usually the case, the market also strives to consider all changes preemptively.     For instance, last year, the Fed began raising rates ahead of the ECB, resulting in an initial surge in the dollar's value (taking geopolitics into account). Subsequently, as inflation in the US began to ease, the euro began to appreciate. It has been on an upward trend for the past ten months, although it has been largely consolidating in the 1.05–1.11 range for the last 5–6 months. Consequently, we do not foresee any significant triggers for a sudden upswing in the value of the euro or the dollar.   The pair will likely continue to consolidate within the outlined range, and it might take considerable time before this process reaches completion. The market has already accounted for 90% of all forthcoming interest rate hikes by the Fed and ECB.   Currently, neither the euro nor the dollar holds a distinct advantage. Many experts have been forecasting a downturn, recession, and deceleration for the US economy, particularly for the labor market. These predictions have been circulating since last year, yet official statistics suggest no signs of a looming recession.   Over the past three quarters, the US economy has grown by at least 2%, significantly more than the growth observed in the European Union or Britain. The labor market continues to demonstrate robust performance month after month, even with the Fed's rate escalating to 5.25%. Unemployment has seen minimal growth, while Nonfarm Payrolls consistently reveal at least 200 thousand new job additions each month.     As such, the Fed can continue its monetary tightening policy as required, especially now that inflation has fallen to 4%. This factor might play against the dollar in the medium term. Since inflation is already approaching the target level, the Federal Reserve will begin to soften monetary policy in 2024. It is unknown when the ECB, dealing with higher inflation, will begin to soften. Nevertheless, inflation in the Eurozone continues to decrease steadily. It initially rose more than in the US. Hence, it needs more time to return to 2%. However, the ECB began raising the rate after the Fed. Thus, everything is in its place. The European regulator may start reducing the rate a few months later than the Fed.   The monetary policy of the Fed and the ECB currently does not imply a strong strengthening of the dollar or the euro. The average volatility of the euro/dollar currency pair for the last five trading days as of July 5 is 70 points and is characterized as "average." Thus, we expect the pair to move between levels 1.0779 and 1.0915 on Wednesday. A reversal of the Heikin Ashi indicator upwards will indicate a new round of upward movement.

The GBP/USD currency pair was traded with low volatility on Tuesday but still managed to move upwards, while the euro currency stood still and decreased more than it grew. Thus, even on a completely empty Tuesday, the pound sterling found reasons to start moving north again.   The price has re-fixed above the moving average and is still very close to its local maximums, which also coincide with the annual maximums. The British currency still cannot correct down properly, which is especially visible in the 24-hour timeframe. Occasionally, there are downward corrections on the 4-hour timeframe, but in most cases, they are purely formal.   The logic of the movements needs to be improved. Two weeks ago, when the Bank of England unexpectedly raised the rate by 0.5% for many, the pound did not grow. But yesterday, when it was a holiday in the States, it added about 40-50 points. The British economy is still weak and is holding out with the last of its strength not to slide into a recession.   US GDP exceeds forecasts by 0.7% and shows a value of +2% q/q. The Bank of England's rate continues to rise but is still lower than the Fed's. The British regulator can raise the rate several times but will likely stay within the Fed's rate. All this suggests that even if the dollar doesn't have strong reasons to grow now, it certainly has no reasons to fall. However, in most cases, we continue to observe the pair's growth. Only business activity indices in the manufacturing sectors can be highlighted for the first two days of the week. In the US and UK, the indices fell synchronously for June and have long been below the "waterline" of 50.0. Again, the pound did not have an advantage over the dollar due to macroeconomic statistics.     Thursday and Friday promise to be "stormy"! The week's most important events are concentrated in its last two days. Today, of course, the Fed's minutes will be published. In the European Union and Britain, the second estimates of business activity indices for June will become known, but all these are secondary data. It is unlikely that the Fed's minutes will surprise traders who are already confident in a rate hike in July, as well as after Jerome Powell's five speeches over the past weeks, in which he laid everything out. Therefore, the main movements are planned for Thursday and Friday, when the ISM, ADP, unemployment benefit claims, the number of job openings, NonFarm Payrolls, and the unemployment rate will be released in the US.   As we can see, almost all reports are related to the labor market, which the Fed continues to monitor closely, and which has a priority for the regulator and the market. However, even if the reports are disastrous (which is currently hard to believe), the Fed will not change its plans to raise the rate.   And for the GBP/USD pair, it doesn't matter at all. The pound grows for a reason and without. If statistics from overseas turn out to be weak, it will merely get a new reason to grow against the dollar. If the statistics from the US turn out to be strong, we will see a new pullback down, a maximum of 100 points, and the Fed's position on the rate will not change. Thus, the market's local reaction could be significant.   In the medium term, these reports will not affect the situation in the market. The average volatility of the GBP/USD pair over the last 5 trading days is 94 points. For the pound/dollar pair, this value is "medium." Therefore, on Wednesday, July 5, we expect movement within the range limited by levels 1.2612 and 1.2800. The Heiken Ashi indicator's reversal down signals a possible new downward movement wave.    

The EUR/USD pair has been rejected from the 50 and 100 MA located at 1.0886 and in the short-term the bulls are under pressure. Currently, the volatility on the market was subdued and the market participants await the fundamental trigger to increase the market movement.   The immediate technical resistance is seen at the level of 1.0883 (100 MA), but the key technical support is seen at 1.0836. Please notice, the momentum is back under the level of fifty, so there is a confirmation of the bearish pressure on the lower time frame charts. Only a sustained breakout above the moving average dynamic resistance would change the outlook to more bullish. Weekly Pivot Points: WR3 - 1.09868 WR2 - 1.09389 WR1 - 1.09120 Weekly Pivot - 1.08910 WS1 - 1.08641 WS2 - 1.08431 WS3 - 1.07952   Trading Outlook: Since the beginning of October 2022 the EUR/USD is in the corrective cycle to the upside, but the main, long-term trend remains bearish. This corrective cycle might had been terminated at the level of 1.2080 which is 61% Fibonacci retracement level. The EUR had made a new multi-decade low at the level of 0.9538, so as long as the USD is being bought all across the board, the down trend will continue towards the new lows. Read more: https://www.instaforex.com/forex_analysis/329986      

Gold pares gains ahead of the Fed minutes Gold is marginally lower on the day after running into resistance around $1,930-$1,940. This was the first big test as part of the recovery we’ve seen over the last week and so far it’s fallen short. We may see another run at it, early profit-taking may have just taken the wind out of the sails, although that in itself isn’t a great sign. It may well be that traders have an eye on the FOMC minutes as a potential catalyst that triggers a lot of volatility in the yellow metal so are taking a more defensive stance in anticipation. The jobs on Friday could be more influential though as the minutes are unlikely to tell us something game-changing, while a weak jobs report could signal a significant shift.  

Price action in energy markets over the past month has been interesting. European natural gas has seen increased volatility, suggesting that the market is still nervous about supply risks, whilst the oil market is stuck in a range despite deeper Saudi supply cuts.   Natural gas disruptions leave the market nervous The European gas market has witnessed plenty of volatility over the last month. TTF rallied from less than €23/MWh in early June to a peak of almost €50/MWh in mid-June, only to fall back to the €30-35/MWh range. The catalyst for this move has been disruptions to Norwegian gas flows due to outages, which led to a significant short-covering rally in the market. Firstly, this shows that market participants are still nervous about potential supply disruptions in the market, and secondly, there was a large segment of the market which was caught short and needed to cover. The fall in Norwegian pipeline flows since mid-May has been significant because of outages. In April, flows out of Norway averaged almost 313mcm/d (9.38 bcm over the month), whilst in June these fell to almost 232mcm/d (6.96 bcm over the month). While most of this gas infrastructure maintenance was planned, some of it has run longer than planned. However, despite the fall in supply from Norway, storage in the EU is still at very comfortable levels and continues to trend higher. EU storage finished June being 77% full, well above the five-year average of 62% as well as the 58% seen at the same stage last year. The lack of demand response to the broader weakness in gas prices has meant that storage continues to fill up at a good pace. In fact, our numbers suggest that the EU only needs to see around 10% demand destruction relative to the five-year average. However, in May it appears as though the EU saw demand around 18% below average. The lack of demand response does raise an important question: how much of the demand destruction since the war is permanent? It will take a while to get a clearer answer on this. In addition, whilst the market has been well within the coal-to-gas switching range, we have not seen a strong demand response for gas from the power sector. This is very likely due to the fact that while it makes more sense to burn gas than coal, spark spreads are still in negative territory. We still expect that the EU will hit full storage before the start of the next heating season – as early as September and possibly even a bit earlier if demand continues to remain as weak as it is. This suggests that we should see renewed pressure on European natural gas prices as we move through the third quarter. Prices will need to trade lower to ensure that liquefied natural gas (LNG) cargoes are redirected elsewhere. Longer term, if we assume a normal 2023/24 winter, storage drawdowns will be stronger through the heating season relative to last year, and we should exit the 2023/24 winter with storage closer to the five-year average. These stronger draws should provide some upside to prices over the winter months. There are upside risks to our view for weaker prices in the short term. This includes prolonged Norwegian outages, lower LNG send-outs – something we have started to see more of recently – and finally, the ever-present risk of disruption to remaining Russian pipeline flows to the EU.

Traders will focus on the upcoming US inflation report. The US will publish key inflation reports that will trigger high volatility among dollar pairs, including the EUR/USD pair. At the end of last week, buyers actively traded as they approached the boundaries of the 10th figure. Traders interpreted June's Non-farms against the US currency, although the report itself was rather contradictory (for example, the wage component came out in the "green").   Inflation reports can restore confidence to the dollar bulls if they reflect an acceleration of the main indicators. But they can also plunge the greenback, enhancing doubts about the interest rate hike within the "post-July" period (the fact of the rate hike at the July meeting is beyond doubt, judging by market expectations). Therefore, traders will focus on the three US inflation reports that will be published during the upcoming week. All other macroeconomic reports will be of secondary importance, although they should not be ignored either.   Consumer Price Index The most important release of the week is the report on the growth of the consumer price index in the US for June (Wednesday, July 12). According to most experts, the indicator will reflect a slowdown in inflation growth. Thus, the general consumer price index in June should decrease quite sharply - to 3.1% y/y (from the previous value of 4.0%). The core index, excluding food and energy prices, should also demonstrate a downward dynamic, slowing down from the May value of 5.3% to 5.0% y/y. Take note that even if the CPI surprises market participants with unexpected growth, this fact is unlikely to fundamentally change the situation in the context of the July FED meeting. According to the CME FedWatch Tool, the likelihood of a rate hike this month is 93%.   That is, traders are practically confident in the hawkish outcome of the July meeting - the "green tint" of the inflation report will maintain (confirm) this confidence, but no more. However, if the consumer price index ends up in the "red", the dollar will be under quite strong pressure.   The fact is that the probability of another rate hike in September is now only 24% (again, according to the CME FedWatch Tool). If inflation indicators decrease at a more active pace, the probability of another increase (after July) by the end of the current year will weaken, and this fact will put pressure on the greenback. Producer Price Index, Import Price Index... and more Interestingly, the other inflation reports to be published in the coming week are also expected to reflect a slowdown in US inflation. For example, on Thursday, July 13, we will learn the value of the producer price index.   Experts believe that the overall PPI in monthly terms will come out at 0.2%, and in annual terms - at 0.4%. In annual terms, the indicator has been consistently decreasing for 11 months in a row, and June will accordingly be the 12th month. If it comes out at the forecast level, it will be the weakest result since August 2020. The core producer price index should show a similar dynamic. In annual terms, it should decrease to 2.7% (from the previous value of 2.8%). In this case, it will be the fifteenth consecutive decrease in the indicator. For comparison, it should be noted that in March of last year the base PPI was at 9.6%. On Friday, July 14, we will learn the dynamics of the import price index.   This indicator can be an early signal of changes in inflation trends, or their confirmation. In this case - more likely a confirmation. According to general forecasts, in monthly terms, the indicator will remain in the negative area, standing at -0.1%. In annual terms, the index has been below zero for three months in a row, and in June it should also remain in the negative area (-6.9%). Certainly, aside from US inflation reports, the economic calendar for the upcoming week is packed with other events: for instance, many Fed representatives (Barr, Bostic, Daly, Mester) will speak on Monday, the ZEW indices will be published on Tuesday, and a speech by Fed Reserve representative Neel Kashkari and ECB governing council member Philip Lane is expected on Wednesday. Also, we have the release of the ECB's June meeting minutes and the initial jobless claims data in the US.   On Friday, the release of the University of Michigan's consumer sentiment index and a speech by Fed Reserve governing board member Christopher Waller is expected. But all these events will serve as a kind of information backdrop. The main focus will be on US inflation. Conclusions The aforementioned inflation reports have the potential to greatly influence the dollar, especially if they end up in the "red", i.e., if the pace of inflation decline in the US accelerates. Amid contradictory Nonfarm, this would mean that the Federal Reserve may limit itself to just one additional rate hike, which will obviously occur at the July meeting.   The July rate hike has already been factored into the market, so any doubts about further tightening of monetary policy will be detrimental to the greenback. In this case, buyers will be the beneficiaries of the current situation: their path will be open not only to the boundaries of the 10th figure, but also to the 1.1080 mark (upper line of the Bollinger Bands on the weekly chart).  

CEE: First sign of recovery The beginning of the week showed that a good mood is returning to the region. However, CEE FX is still not settled and we expect higher volatility in the days ahead. The local calendar is empty today and again the focus will be on the global story. We see the Hungarian forint as the main indicator of recovery in the region, having lost around 5% last week. Yesterday, on the other hand, it showed a 1% appreciation, the biggest daily appreciation since April, and returned to 380 EUR/HUF, which we believe may be a trigger for further inflows. Thus, a move below 380 EUR/HUF will be on the table today and we expect gains for the rest of the region as well if the global story permits. The Polish zloty posted some gains yesterday too and still has room to make up for last week's losses. We see the next level at 4.430 EUR/PLN.

Analyzing Monday's trades: GBP/USD on 30M chart     The GBP/USD pair managed to both rise and fall on Monday. The pound sterling corrected against Friday's decline, but in the second half of the day, it traded higher again, which corresponds to the current trend. There were no important economic reports in the UK or in the US.   Three representatives of the FOMC spoke in the US, and Bank of England Governor Andrew Bailey is usually speaking in the UK around this time. For obvious reasons, Bailey's speech could not have any influence on the pair's movements during the day. And the FOMC members' speeches took place in the evening, so they also could not have provoked either the morning fall or the afternoon rise.   However, volatility was over 100 points, which is quite a lot for a Monday. The uptrend persists, and we have to point out that the growth is groundless, but there's nothing we can do if the market wishes to buy the pair, regardless of the fundamental background.   GBP/USD on 5M chart   Several entry points materialized on the 5M chart. First, the pair bounced twice from the level of 1.2801 (buy signals duplicated each other), but it only rose by 13 pips. It was impractical to work out these signals, as there was a high probability of a flat on Monday, and the Stop Loss on the deal should have been set below the level of 1.2779. When a sell signal was formed in the form of overcoming the area of 1.2779-1.2801, it was already clear that there would be no flat, so the deal could be worked out, but it did not bring profit, it closed at a break-even stop loss. The next buy signal could have been executed, and it would have brought a profit of 30 pips. In general, the pair changed its direction of movement several times on Monday, which is always bad for intraday trading.   Trading tips on Tuesday: As seen on the 30M chart, the GBP/USD pair continues to form a new uptrend. The pound can still rise even on those days when there is no fundamental background. Therefore, purely technically, GBP may extend its upward movement, but fundamental factors are still very doubtful. The key levels on the 5M chart are 1.2538, 1.2597-1.2605, 1.2653, 1.2688, 1.2748, 1.2779-1.2801, 1.2848-1.2860, 1.2913, 1.2981-1.2993. When the price moves 20 pips in the right direction after opening a trade, a stop loss can be set at breakeven. On Tuesday, the UK will release reports on jobless claims, unemployment, and wages. In the US, Federal Reserve official James Bullard will speak. 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.    

5M chart of GBP/USD   The GBP/USD jumped solidly upwards on Monday, with volatility exceeding the 100-point mark. A speech by Bank of England governor Andrew Bailey was scheduled in the UK yesterday, but it was planned for the evening, so it couldn't have any influence on the pair's movement during the day. Nevertheless, in the second half of the day, the dollar slumped, which we can associate with the upcoming US inflation report, which already suggests a sharp slowdown to 3.1%. If the forecasts come true, then this report is already accounted for, and the likelihood of two more rate hikes in 2023 will drastically decrease. Theoretically, the broad US dollar weakness is logical, but let's also remember that this pattern is not always observed.   The market still uses any excuse to buy the pair. The momentum persists. There was only one entry point yesterday. At the beginning of the US session, the pair bounced off the 1.2762 level and the Kijun-sen line of the Ichimoku indicator, afterwards it rose to the 1.2863 level. The long position should have been closed manually closer to the evening, so the profit on it was about 70 points. An excellent trading day!   COT report:     The GBP/USD jumped solidly upwards on Monday, with volatility exceeding the 100-point mark. A speech by Bank of England governor Andrew Bailey was scheduled in the UK yesterday, but it was planned for the evening, so it couldn't have any influence on the pair's movement during the day. Nevertheless, in the second half of the day, the dollar slumped, which we can associate with the upcoming US inflation report, which already suggests a sharp slowdown to 3.1%.   If the forecasts come true, then this report is already accounted for, and the likelihood of two more rate hikes in 2023 will drastically decrease. Theoretically, the broad US dollar weakness is logical, but let's also remember that this pattern is not always observed. The market still uses any excuse to buy the pair. The momentum persists.   There was only one entry point yesterday. At the beginning of the US session, the pair bounced off the 1.2762 level and the Kijun-sen line of the Ichimoku indicator, afterwards it rose to the 1.2863 level. The long position should have been closed manually closer to the evening, so the profit on it was about 70 points. An excellent trading day!       In the 1-hour chart, GBP/USD maintains a bullish bias. The ascending trend line serves as a buy signal. So, traders are opening new long positions. However, the pound sterling is overbought. It is likely to decline in the medium term. Yet, it surpassed the descending trend line. Hence, it could move to new highs.   Yet, it surpassed the descending trend line. Hence, it could move to new highs. According to the technical analysis, the pound sterling has drivers for a further increase. And the market is happy to take any opportunity to sell the dollar. On July 11, trading levels are seen at 1.2349, 1.2429-1.2445, 1.2520, 1.2598-1.2605, 1.2693, 1.2762, 1.2863, 1.2981-1.2987. Senkou Span B (1.2714) and Kijun-sen (1.2719) lines can also provide signals, e.g. rebounds and breakout of these levels and lines. It is recommended to set the Stop Loss orders at the breakeven level when the price moves in the right direction by 20 pips.   The lines of the Ichimoku indicator can move during the day, which should be taken into account when determining trading signals. There are support and resistance levels that can be used to lock in profits. On Tuesday, the UK will publish at least three reports that could stir some market reaction. Jobless claims, unemployment and payrolls. We believe that the unemployment data may have an impact on the traders' mood. If they turn out to be optimistic, the pound will receive a new opportunity to extend its upward movement. Indicators on charts: Resistance/support - thick red lines, near which the trend may stop. They do not make trading signals. The Kijun-sen and Senkou Span B lines are the Ichimoku indicator lines moved to the hourly timeframe from the 4-hour timeframe.   They are also strong lines. Extreme levels are thin red lines, from which the price used to bounce earlier. They can produce trading signals. Yellow lines are trend lines, trend channels, and other technical patterns. Indicator 1 on the COT chart is the size of the net position of each trader category. Indicator 2 on the COT chart is the size of the net position for the Non-commercial group of traders.    

Italian industrial production rebounds in May, but it could prove temporary The distribution of holiday days in April could be one explanation behind the reason behind recent volatility in Italian industrial production. We continue to see industrial weakness, at least in the short run.   Recent strength may be short-lived After contracting by 1.9% month-on-month in April, Italy's industrial production beat expectations and rebounded by 1.6% in May. We had anticipated a sound rebound – but we're also mindful that this could be heavily affected by the distortive effect of the distribution of holiday days in April that could have induced temporary plant closures. Under these circumstances, we prefer to look at the 3m rolling change. This shows the quarterly change in the February to May average to November to January remaining a negative 1.8% quarter-on-quarter. When looking at yearly changes by sector, we're seeing clear indications of an improving trend for those who had been more exposed to supply chain disruptions related to chip shortages (automotive, computer and electronics) and of persisting difficulties in those more vulnerable to the energy price crisis (chemicals, refined products, paper, metal products). In year-on-year terms, all aggregates – aside from the production of investment goods – were in contraction. This was not immediately obvious, considering existing delays in implementing the recovery and resilience plan. Looking forward, we believe that industry looks set to flatline at best – at least in the short run. Manufacturing business confidence deteriorated further in June, as did the relevant PMI. Faced with softening orders and stable stock of finished products, production plans aren't likely to be stepped up – and declining energy prices are not yet providing a powerful enough supply incentive. Industry looks set to act as a drag on value added creation in the second quarter, but services should prove strong enough to allow for positive GDP growth.

No price test occurred in EUR/USD this morning due to low volatility and empty macroeconomic calendar. But ahead lies the latest consumer price index in the US, which will likely force many market players to review their positions on risky assets. Demand for euro may drop, which could lead to a decline in the pair.   There will be an increase only when inflation drops more than expected. Markets will also pay attention to the speeches of FOMC members Neel Kashkari and Raphael Bostic. For long positions: Buy when euro hits 1.1036 (green line on the chart) and take profit at the price of 1.1075. Growth will occur amid weak US inflation.   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 1.1017, but the MACD line should be in the oversold area as only by that will the market reverse to 1.1036 and 1.1075. For short positions: Sell when euro reaches 1.1017 (red line on the chart) and take profit at the price of 1.0981. Pressure will increase in the case of another jump in US inflation. 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 1.1036, but the MACD line should be in the overbought area as only by that will the market reverse to 1.1017 and 1.0981.       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.  

The test of 1.2942, coinciding with the decline of the MACD line from zero, prompted a sell signal that led to a price decrease of around 20 pips. The latest CPI data in the US lies ahead, and this will likely cause market players to review their positions on risky assets. Demand for pound may drop, which could lead to a decline in GBP/USD. There will be an increase only when inflation drops more than expected. Markets will also pay attention to the speeches of FOMC members Neel Kashkari and Raphael Bostic.   For long positions: Buy when pound hits 1.2946 (green line on the chart) and take profit at the price of 1.3014 (thicker green line on the chart). Further growth will be seen in the case of weak US inflation data. However, when buying, make sure that the MACD line lies above zero or rises from it. Pound can also be bought after two consecutive price tests of 1.2895, but the MACD line should be in the oversold area as only by that will the market reverse to 1.2946 and 1.3014.     For short positions: Sell when pound reaches 1.2895 (red line on the chart) and take profit at the price of 1.2844. Pressure will increase in the event of further growth in US inflation. However, when selling, make sure that the MACD line lies below zero or drops down from it. Pound can also be sold after two consecutive price tests of 1.2946, but the MACD line should be in the overbought area as only by that will the market reverse to 1.2895 and 1.2844.         What's on the chart: Thin green line - entry price at which you can buy GBP/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 GBP/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.  

UK economy more resilient than expected in May Despite an extra bank holiday in May, the UK economy shrank by only 0.1%. Over the next few months, the economy should benefit from the improving real wage story, though rising interest rates will ultimately drag on growth over coming quarters.   The UK economy performed better than expected in May, with GDP falling by just 0.1% across the month. We had been expecting a more tangible hit from the King’s Coronation and the extra bank holiday, given last year’s royal events saw temporary declines in activity worth 0.7% of GDP in June and September. In reality, we shouldn’t be drawing too many conclusions from this better-than-expected data, other than perhaps that the nature of the modern economy means it’s more adaptable to these kinds of events than it might have been 10-20 years ago. The upshot is that the economy is no longer likely to contract in the second quarter, and we now expect modest 0.1% growth for the three-month period as a whole. But given that most/all of May’s lost output, had it fallen more sharply, would have been regained in June, the knock-on effect on the third quarter and beyond is minimal.   The real wage story means the worst is behind us for retail   Away from the month-to-month volatility in these GDP figures, we think the UK economy should grow modestly over the next quarter or two. It should benefit from the improving real wage story, especially now that electricity/gas bills are down roughly 20%. As time goes on the impact of higher mortgage rates will bite, but the high prevalence of fixed-rate mortgages and the fact that only 28% of households have a loan on the property they live in, means it is going to be a gradual pass-through. The impact of higher rates on corporates – particularly small businesses – may become more noticeable, given these firms are typically on floating-rate debt. For the Bank of England, the focus is still very much on the CPI and wage numbers, and not a lot else for the time being. Tuesday’s higher-than-expected regular pay figure bolsters the chance of a second 50bp hike, though much hinges on next week’s inflation figures.

EUR/RON: Unstable line in sand     EUR/RON touched 4.98 in May, then returned to 4.96 in June and is back to 4.95 in July, the earlier central bank line in the sand. Higher volatility does not indicate a central bank presence in the market, however the high liquidity surplus in the market indicated by the May numbers would suggest that the NBR should be open to market activity. The new temporary range is likely to be 4.94-4.98 EUR/RON for now. We can expect at least one more upward shift this year and we maintain our 5.02 estimate for year-end.  

Analyzing Friday's trades: GBP/USD on 30M chart     On Friday, the GBP/USD pair traded flat with a slight bearish bias. The new, upcoming, ascending trend line has not been broken. At the moment, the price has only tested it. However, since the market has entered a flat phase, breaking this trend line will not be a strong signal for a trend reversal.   Of course, the British currency cannot continue to rise indefinitely, especially considering the lack of reasons and grounds for such a move. A correction should start sooner or later, but it is extremely difficult to predict when it will start because the market is currently hardly reacting to fundamental and macroeconomic factors, as confirmed by the entire week.   There was only one report on Friday, and it was the consumer sentiment from the University of Michigan in the US. This indicator unexpectedly showed a much stronger increase than forecasted and... triggered a 20-25 point rise in the dollar. As before, all reports in favor of the dollar were ignored, while any reason to buy the British pound was used to its fullest extent, resulting in a 200% increase.   GBP/USD on 5M chart A huge number of signals materialized on the 5M chart, while the movement was sideways and volatility was only 55 pips, which is very low for the pound. Therefore, almost any level that the price encountered automatically became a source of false signals. Thus, beginners could attempt to execute one or two signals during the European trading session. It is highly likely that the first one resulted in a small loss, while the second one was closed at breakeven when the stop loss was triggered. It was quite challenging to expect other results in a flat market. Trading tips on Monday: As seen on the 30M chart, the GBP/USD pair continues to show strong growth despite the Friday flat. Even if the price consolidates below the trend line, it does not mean that a downtrend is brewing, as traders remain bullish, and crossing the trend line during a flat phase is not a strong signal. The key levels on the 5M chart are 1.2779-1.2801, 1.2848-1.2860, 1.2913, 1.2981-1.2993, 1.3043, 1.3107, 1.3145, 1.3210, 1.3241, 1.3272. When the price moves 20 pips in the right direction after opening a trade, a stop loss can be set at breakeven.   On Monday, there are no important events lined up in the UK or the US, but it is extremely difficult to predict the price movement in conditions of extreme overbought levels and without any news. It could be a correction, a continuation of the rise, or a flat market.     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.

GBP: Softer into the CPI risk event The pound has continued to show more vulnerability than most of its G10 peers at the start of this week. EUR/GBP has crept higher in the past few sessions, back to the 0.8600 gauge as volatility in global central bank tightening expectations after the US CPI slowdown seems to have asymmetrically hit those curves that had more room for a dovish repricing, like the GBP one. We are also observing some positioning ahead of tomorrow’s key release of the UK inflation numbers. As discussed by our colleague James Smith here, CPI data will make or break a 50bp August rate hike by the Bank of England. Markets continue to lean on the hawkish side with their pricing: 44bp for August, 116bp in total. Still, peak rate expectations have remained volatile and were scaled back by nearly 15bp yesterday. Today, the UK calendar is empty. We suspect EUR/GBP can remain broadly supported into tomorrow’s CPI.

ZAR: Rand withstands the SARB skipping a rate hike In a mark of how far the mood in the FX market has changed, the South African rand only dropped around 0.5% on yesterday's decision from the South African Reserve Bank (SARB) to keep the policy rate unchanged at 8.25%. The market had widely expected a 25bp rate hike. Barely a few months ago a decision like this would have caused heavier losses for one of the most volatile emerging market FX pairs in USD/ZAR. The vote was close – three to two in favour of unchanged rates – but now the market thinks that the SARB has concluded its tightening cycle and will be easing policy in the first half of next year. The fact that the rand did not sell off more shows that investors feel calmer about inflation prospects and increasingly like high-yield EMFX ahead of a possible cyclical dollar decline later this year. The rand of course has its challenges such as weak growth, a widening current account deficit, and the geopolitical headwinds of its relationship with Russia. However, if we are right that portfolio flows to EM rebound later this year, the rand should do well given South Africa's large weighting in EM bond and equity benchmarks.  As for most other high-yield EM currencies, we think the rand can outperform the steep USD/ZAR FX forwards curve.

USD/JPY  Yen dives on reports BOJ sees little need to adjust YCC   Central bank-a-palooza was supposed to start next week, but traders got a head start after reports surfaced that the BOJ saw little urgency to adjust their yield curve control program (YCC).  It looks like FX traders are expecting the BOJ to maintain their ultra-loose monetary policy and for the Fed to deliver a quarter-point rate rise and to have a wait-and-see approach about the September meeting.  The Japanese yen is the weakest major currency and that could remain the case if risk appetite remains healthy.  It seems that while the BOJ stands pat, the other major central banks are tightening and that should continue to drive that interest rate differential trade. Soft landing hopes are not getting derailed by earnings season so far, in fact market breadth in the stock market continues to improve which could help keep the rally going strong.   Initial Rate Decision Expectations The Fed will raise rates by 25bps and likely signal a wait-and-see approach for the September meeting (saving that decision for the end of August at Jackson Hole). Analysts are unanimously expecting the ECB to raise all three key rates by 25bps but are unsure what will happen in September The BOJ is expected to keep rates steady, no change to YCC, and revise up its inflation forecasts for this year alone.     Soft stochastics suggest euro pullback       The EUR/USD weekly chart shows a bearish bias could be emerging as the slow stochastics overbought conditions is seeing a tentative drop below the 200-week SMA.  If bearish momentum accelerates key support will come from the 1.1080 level, with major support eyeing the heavily tested 1.1030 price level.  Intraday resistance resides at the 1.1150 level, with major resistance be provided by the psychological 1.1200 handle.   Nasdaq Friday Volatility The Nasdaq could see excessive volatility at the close as a special rebalancing will address overconcentration in the index by redistributing the weights.  In addition to this special rebalancing, traders will have to deal with options expiration. Three mega-cap tech giants (Apple, Nvidia and Microsoft) make up almost 30% of the weight in the fund, which is not diverse enough for a key index.  Some profit-taking might occur ahead of busy next week that contains handful of market moving events that include three big rate decision, several key earnings, and key GDP, ECI , and PCE data.  

Crypto Bitcoin’s consolidating trading has seen price action reside closer to the lower boundaries as volatility disappears. Short-term support from the $29,500 level broke this early this morning and if bearish momentum builds, key support could target the $27,500 region.  The crypto news flow has been uninspiring, with many traders focusing on OPENAI’s Sam Altman’s Worldcoin crypto project. It will take a fresh catalyst to excite Bitcoin traders and right now it seems the price action is destined for a broadening formation, potentially targeting the $27,500 and $31,500 zone.  

Earnings give stocks one last boost before the FOMC decision Consumer Confidence surges to a 2-year high Dow eyes longest winning streak in six years Volatility should be elevated this week as we have a key FOMC meeting and peak earnings season.  So far, the trade has been for the money flow to continue go into small stocks, with some lowering their exposure to mega-cap tech trade.  This earnings week has the potential to drive the recession-based pullback that seems to have evaded us this year. US stocks have had an interesting run here as relentless Nasdaq rally has cooled, the Dow Jones Industrial Average winning doesn’t want to stop, the Russell 2000 tries to play catchup, and the S&P 500 nears record high territory. After more than a year of Fed unity in raising rates to combat inflation, the end of the rate hiking campaign will start to see some dissent from the hawks, centrists, and doves. The voting hawks Waller, Bowman, and Logan might argue that the Fed needs to keep optionality about more tightening on the table.  The voting doves are Cook and Goolsbee, who both will probably remain supportive for raising rates on Wednesday, but might show support for a long pause, that might eventually become the peak in rates. Powell and the centrists have the luxury of not overcommitting a position about the future path of rates, potentially setting up the Jackson Hole Symposium as the time to signal that they are most likely done raising rates. US stocks are entering a consolidation phase ahead of massive earnings (Microsoft, Alphabet, Meta, and LVMH) and three big rate decisions by the Fed, ECB, and BOJ.  Stocks have been mostly posting a short-term advance heading into these major market moving events and that could extend to an attempt at record highs if the Fed shows confidence that the disinflation process is firmly intact and if the mega-cap tech earnings deliver better-than-expected earnings with promising outlooks.  A lot needs to go right for a longer-term rally to unfold, which might suggest we could see the Dow Jones Industrial Average and Russell 2000 outperform the Nasdaq over the short-term.  If after this week, Wall Street becomes worried that the Fed is still leaning towards delivering one more rate hike, that could spook a lot of investors, which would see that as a policy mistake. If odds for a September 20th meeting rate hike end up becoming a coin flip, that could see a good portion of the recent rally with market breadth trade come undone.    

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

Top 10 Stocks to Watch: August 2023 BY:RYAN SULLIVAN Our list of hot summer stocks includes ecommerce, auto, gambling, entertainment, retail and AI S&P 500 E-Mini Futures reached a year-to-date high of about $4,600, with potential for new all-time highs if it surpasses resistance at $4,630 and $4,700.  The $4,500 support level could be tested if the current bull run ends, possibly triggering another push toward all-time highs.  Stock options can be beneficial after earnings reports to dodge binary volatility but exploit short-term fluctuations.  Market update: S&P 500 e-mini futures up 18% year to date  The S&P 500 e-mini futures—electronically-traded futures and options contracts on the Chicago Mercantile Exchange (CME)—pushed to new year-to-date highs this month on July 12. Since then, we have continued higher to $4,600. We are currently retesting this year-to-date (YTD) high. As I type, the S&P is ticking into $4,600. The next key resistance level above current price action is around $4,630, and the next stop after that is around $4,700.  If price action breaks through $4,630 with force, look for bulls to target $4,700. If that happens as we roll into August, and we do tag $4,700, it would not be too surprising if we try to push to new all-time highs in the S&P 500.    It is also possible that this is the last leg up for the current bull run that started at the end of May this year. If that is the case, the next thing the bears are going to want to test is the $4,500 level support. If $4,500 support holds, we could then see a push to all-time highs anyway.   If the market doesn’t want to record an all-time high yet, it is likely that price action bounces around $4,500 looking for either buyers or sellers to take control.  A quick note on the stock picks in this article; you can put on an options position right after an earnings report, so that you can avoid the binary volatility event but still take advantage of short-term volatility.    Year-to-date price percent change chart for SPY, QQQ, SLV and TLT     Top 10 stocks to watch in August 2023   UBER – 8/1 - Before the Open  AMD – 8/1 - After the Close  PYPL - 8/2 - After the Close  SHOP – 8/2 - After the Close  AMZN – 8/3 - After the Close  DKNG – 8/3 - After the Close  RIVN - 8/8 - After the Close  DIS – 8/9 - After the Close  TGT - 8/16 - Before the Open  NVDA – 8/23 - After the Close  1) Uber Technologies Uber (UBER), a multinational ride-hailing company, disrupted traditional taxi services. Beyond transportation, Uber has diversified into new verticals like food delivery with Uber Eats and freight logistics with Uber Freight. It operates in numerous cities globally and primarily makes money by taking a commission from each ride or delivery.  Uber stock is trading at $47.28, an 86.34% increase from its 2023 opening price of $25.37. The current implied volatility rank (IVR) on the tastytrade platform is 34.5, with the implied volatility (IV) in the next two monthly contracts above 47. Uber has reported positive net income in one of the last five quarterly reports.  Uber’s options market in August and September contracts is a couple pennies wide and offers a field to craft almost any assumption you might have. The product is small enough for a strangle position in smaller accounts. Iron Condors and spreads will also set up well. August and September contracts can be used for earnings plays. It may be helpful to play earnings in August and roll out to September if you need to.     2) Advanced Micro Devices Advanced Micro Devices (AMD), a leading global semiconductor company, designs and builds processors and graphic cards for computers and professional systems. AMD is known for its consumer- and professional-grade CPUs (central processing units) under the Ryzen, Threadripper and EPYC brands, as well as Radeon GPUs (graphic processing units). The company competes directly with Intel (INTC) in the CPU market and Nvidia (NVDA) in the GPU market.  AMD is trading at $112.36, up 70.25% from its opening price of $66.00 in 2023. The IVR on the tastytrade platform is 45.4, with IV in the next two monthly contracts above 49. AMD has reported positive net income in four of the last five quarterly reports.  This options market in August and September is pennies wide and offers the opportunity to form almost any options position you’d like to put on. Five- and 10-dollar wide iron condors and spreads set up well. Make your earnings play in August and roll out to September if you need to.    3) PayPal Holdings PayPal (PYPL), an American company operating a worldwide online payments system, supports online money transfers. PayPal serves as an electronic alternative to traditional paper methods like checks and money orders, enabling users to make payments or hold funds in 25 currencies. The company also offers services like credit product offerings and has business solutions that help merchants collect payments.  PayPal is trading at $73.42, a -0.37% change from its 2023 opening price of $73.69. The IVR on the tastytrade platform is 25.3, and the IV in the next two monthly contracts is above 42. Paypal has reported positive net income in four of the last five quarterly reports.  Paypal’s options market in August and September is pennies wide. An eighteen-delta short Strangle sets up well in August and September with a decent premium to buying power requirement ratio. Short thirty-delta Spreads also set up well if you have a directional assumption.    4) Shopify  Shopify (SHOP), a Canadian e-commerce company, provides a platform for businesses to create their own online stores. Shopify offers tools for managing products, inventory, payments and shipping, which are used by businesses of all sizes. Shopify's platform is subscription-based, and it also generates revenue from its payment processing system, Shopify Payments, as well as other merchant solutions.  Shopify is trading at $65.26, up 82.9% from its opening price of $35.68 in 2023. The IVR on the tastytrade platform is 32.6, with the IV in the next two monthly contracts above 58. Moreover, SHOP has reported positive net income in one of the last five quarterly reports.  Short 17-delta Strangles set up well in August and September, with a good premium collected to buying power required ratio. Iron condors and spreads will also set up well if you’d like to define your risk going into an earnings play.    5) Amazon  Amazon (AMZN), an American multinational technology company that started as an online marketplace for books, but has expanded to a wide variety of products and services. It is known for its disruption of well-established industries through technological innovation and mass scale. It is now the world's largest online marketplace, AI assistant provider, live-streaming platform and cloud computing platform, with various other operations in areas like digital streaming, brick-and-mortar retailing and more.  Amazon is trading at $129.10, reflecting a 51.06% increase from its opening price in 2023. The IVR on the tastytrade platform is 30.3, and the IV in the next two monthly contracts is above 38. Amazon has reported positive net income in three of the last five quarterly reports.  Amazon’s options market is very liquid and pennies wide in August and September. A liquid market like Amazon's offers the opportunity to craft almost any type of options position you’d like create. Calendar spreads are available if you’d like to take advantage of the difference in volatility between monthly contracts. Strangles, iron condors and spreads also set up well.     6) DraftKings  DraftKings (DKNG), a digital sports entertainment and gaming company, provides daily fantasy sports, sports betting and iGaming. DraftKings enables users to enter daily and weekly contests and win money based on individual player and team performances in five major American sports, Premier League and UEFA Champions League soccer, NASCAR auto racing, Canadian Football League, mixed martial arts, and tennis.   DraftKings is trading at $31.50, marking a significant increase of 170.15% from its 2023 opening price of $11.66. The IVR on the tastytrade platform is 28.2, while the IV in the next two monthly contracts stands above 60. However, DKNG has not reported positive net income in any of its last five quarterly reports.  DKNG is a small enough product and has liquid enough markets for smaller accounts to consider an undefined risk position. However, be cautious because smaller underlyings tend to make bigger moves when they get going. At-the-money spreads also set up well for directional assumptions.   Read more

Metals – Risk-off sentiment weighs on the complex The overall risk-off sentiment across the financial markets weighed on the industrial metals yesterday. Rising US treasury yields along with a stronger dollar further soured the sentiments in the complex. LME copper extended the declines for a third straight session yesterday, while nickel led the decline amongst the base metals. Recent data from the Chilean copper commission Cochilco show that Codelco’s total copper production stood at 120.3kt in June, the highest since the start of the year. However, cumulative output fell by 12.7% year-on-year to 642kt over the first half of the year, primarily due to delays in structural projects. Codelco also trimmed its annual production guidance to the lowest in 25 years. However, BHP’s Escondida copper mine reported gains of 8.7% YoY (32.8% month-on-month) to 111.4kt (the biggest monthly output in at least 3.5 years) last month, while year-to-date production rose by 5.5% YoY to 558.8kt in the first half of the year. Meanwhile, officials from the China Iron and Steel Association (CISA) are proposing the cancellation of night-time trading of futures for metals, which includes iron ore and steel futures. The recommendation came primarily to ease the volatility and to facilitate stable prices and trading for major metals.

CEE: No change in rates or tone in Romania Another busy week in the CEE region. Today, the Czech Republic's industrial production, foreign trade, and construction numbers will be released. Industry is showing signs of recovery. However, the only growing sector is automotive. Later today, we will see a decision from the National Bank of Romania. A rate change is not on the table, however, a new forecast will be published and we would like to hear some comments on the current inflation and leu developments. Inflation and budget numbers will be released tomorrow in Hungary. We expect a massive drop in July inflation from 20.1% to 17.3% YoY. The central bank expects 17.5% and the market 17.7% YoY. We don't expect much change from June for the state budget, which would be good news for Hungarian bonds. Then on Thursday, the Czech Republic's July inflation will be released. We expect a further decline from 9.7% to 8.7% YoY, in line with the market. The Czech National Bank expects 8.9% here. In the FX market, we have seen high volatility and weakness in the region driven mainly by the US dollar and we do not expect much change this week. EUR/CZK has moved to 24.25 after the CNB intervention regime ended and the market does not seem to want to test higher levels for now. However, we think Thursday's inflation release has the potential to surprise to the downside, which should raise the bets for a central bank rate cut, and the market may test weaker CZK levels again. In the meantime, we expect a rather stable CZK of around 24.25 EUR /CZK. The Hungarian forint finally rebounded and erased some losses on Friday. However, the main driver still seems to be the US dollar, which cannot offer much positive for EM FX this week either. So maybe we can see some recovery in the forint today, but a strong USD and a big jump in inflation down for HUF is not a positive factor.

Because the CCI indicator managed to break down its three main levels and is now stuck at level 0 which indicates a resistance on the daily chart of the main USD/CHF currency pair, as long as USD/CHF is not corrected upwards beyond the 0.8804 level then in the next few days the currency pair This currency will try to go down to test the 0.8551 level as its main target and if the momentum and volatility are sufficiently supportive then the 0.8458 area level will be the next target to go.  

FX Daily: Currencies starting to detach from bond dynamics Volatility in long-dated sovereign bonds has remained elevated, but that has almost only been mirrored in a weaker yen in FX since the start of the week. The currency market is starting to detach from short-term bond swings, but the dollar’s newfound resilience could still consolidate into Thursday’s US inflation numbers.   USD: Wait and see It’s been a slow start to the week in the currency market, with the dollar being mixed but generally supported yesterday and in today’s Asian session. We continue to observe rather elevated volatility in bond markets, with long-dated Treasury yields rising again: unsurprisingly, the only notable move in FX since the weekend has been another leg higher in USD/JPY. With the Bank of Japan normalisation still looking too remote to temper bearish pressure on the yen, USD/JPY is the most exposed G10 pair to the ongoing bond market instability, especially given some signs of resilience in US equities, which limited losses in high-beta currencies. The US data calendar only includes second-tier releases until Thursday’s CPI figures. Today, the key highlights are the NFIB Small Business Confidence Optimism Index – which is expected to rise very marginally from June – trade balance figures from June, and final wholesale inventory numbers. It will be interesting to hear what FOMC members Patrick Harker and Thomas Barkin say about the economy in two separate speeches today, especially following last week’s slightly weaker-than-expected headline payroll figures. With the exception of the yen, it appears that most G10 currencies are losing their direct exposure to swings in US bond yields. At this stage, it would probably take a larger swing in yields to cause a substantial spill-over into FX than it did before the US credit downgrade by Fitch. Still, we expect some consolidation of the dollar around current levels into Thursday’s inflation numbers.

Analyzing Monday's trades: EUR/USD on 30M chart   On Monday, EUR/USD corrected against Friday's correction. As a reminder, on Friday, the pair started an upward movement after breaking the descending trendline three times. Since the upward movement on that day was strong and sharp, a correction was expected, which we saw on the "quiet" Monday.   From a technical standpoint, the pair has been moving in an ideal manner in the last couple of days. The main question now is whether a new short-term uptrend will begin. Take note that in the medium-term perspective, the euro does not have any reason to rise. The short-term uptrend may simply be a correction on higher time frames. Therefore, the euro could still rise. But in the next couple of months, we believe that it should continue its downward movement.   EUR/USD on 5M chart   On Monday, there were two trading signals on the 5-minute chart and volatility was 54 pips, which is very low. It was quite inconvenient to trade due to such low volatility, but we were lucky to get such trading signals, as they turned out to be false only based on the fact that the pair did not reach the nearest target level. However, with such low volatility, it did not make sense to expect it to reach the target level anyway. The price bounced twice from the area of 1.0971-1.0977. In the first case, it moved up by 12 pips, so the trade should not have been closed at the time when the second signal was being formed. In the second case, the pair moved up by 20-25 pips. Beginners could have made such a profit by closing the trade manually closer to the evening.   Trading tips on Tuesday: On the 30M chart, the pair started to correct, but we still expect it to fall since it is significantly overbought in the long term and also lacks significant reasons to enter a new rally. The key levels on the 5M chart are 1.0835, 1.0871, 1.0901-1.0904, 1.0971-1.0977, 1.1038, 1.1091, 1.1132-1.1145, 1.1184, 1.1241, 1.1279-1.1292. A stop loss can be set at a breakeven point as soon as the price moves 15 pips in the right direction. On Tuesday, Germany will release the second estimate of its inflation report for July. In addition to that, Federal Reserve officials will speak. All of these events are considered secondary of importance.   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.  

GBP: Good GDP numbers no game-changer for the BoE June’s growth numbers in the UK beat expectations, helping to cement a 0.2% quarter-on-quarter figure for the second quarter. Digging into the details of the release, it appears that the surprise is entirely explained by a substantial jump in manufacturing production (up 2.4%), apparently related to pharma and car production. Anyway, the rest of the economy clearly showed signs of resilience too. Our UK economist believes that the implications for the Bank of England are probably quite limited, given the numbers are not far from its forecasts and the focus is firmly on services inflation and wage growth, which are both out next week. The pound is stronger this morning, shrugging off some recent softish momentum possibly related to news that the UK housing market was slowing more rapidly. Next week is a key one for the pound, expect some pre-CPI positioning to dominate in GBP trading and volatility to pick up.

Analyzing Tuesday's trades: GBP/USD on 30M chart   On Tuesday, GBP/USD went through low volatility and messy movements. In general, the pound's movements were the same as those of the EUR/USD pair. The market reaction to the reports was also similar, except that the European ZEW indexes were not related to the British pound. However, it had its own data in the form of reports on unemployment, wages, and unemployment benefit claims. In our opinion, the pound should have fallen not risen in response to the British reports in the first half of the day, as two of the three reports turned out to be worse than forecasts. Unemployment increased, and the number of benefit claims was higher than expected. However, the wage report, which showed a sharp growth rate, tipped the balance. As a result, the pair continued to correct after rebounding from the 1.2620 level, but before that, it was in a sideways channel for two weeks and simply returned to it. We don't expect the pound to start an uptrend. GBP/USD on 5M chart   Several trading signals were formed on the 5-minute chart. The pair spent the entire day between the levels of 1.2688 and 1.2748, regularly rebounding from them. Volatility was 78 points. There is no point in analyzing each individual signal, as they were almost identical. Beginners had to decide for themselves whether they wanted to scalp between levels, the distance between which is 30-35 points. As we can see, the price regularly bounced from these levels, which means that none of them was unnecessary. We witnessed such a movement on Tuesday. Since most of the signals turned out to be right, it was possible to earn a decent amount, but we do not see much sense in opening 10 trades with a potential profit of 10 points each.   Trading tips on Wednesday: On the 30-minute chart, the GBP/USD pair may be in a flat position. However, we insist that the pound fall, as we still believe it is overbought and unreasonably expensive. Not all of this week's reports may support the dollar, so we may see messy movements in the sideways channel. The key levels on the 5M chart are 1.2499, 1.2538, 1.2605-1.2620, 1.2653, 1.2688, 1.2715, 1.2748, 1.2787-1.2791, 1.2848-1.2860, 1.2913. Once the price moves 20 pips in the right direction after opening a trade, you can set the stop-loss at breakeven. On Wednesday, the UK is set to release an inflation report, and this is the main item for the day. If it turns out that inflation is rising or falling more slowly than expected, the pound may jump.   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.  

Japanese yen rebounds, but intervention worries remain Japan releases July inflation on Friday The Japanese yen has bounced back on Thursday after failing to post a winning day since August 4th. In the North American session, USD/JPY is trading at 145.92, down 0.30%. USD/JPY has been the worst performer among the major currencies over the past month, declining about 7%. The yen dropped below the 146 line on Wednesday which marked a new nine-month low. The Japanese currency lost ground in the aftermath of the Federal Reserve minutes, in which members expressed concern about high inflation. The sharp depreciation of the Japanese currency is raising concerns that Japan’s Ministry of Finance (MOF) could respond by intervening in the currency markets in order to prop up the yen. The yen is now trading at levels at which the MOF shocked the markets last September and instructed the Bank of Japan to sell billions of dollars in support of the yen. The MOF and the BoJ have stated in the past that they are more concerned with sharp swings in the exchange rate and not so much with a particular value for the yen. The yen has plunged about 800 points since late July which means that another intervention cannot be ruled out. The US/Japan rate differential has been widening, with the yen depreciating as a result. The economic troubles in China have led to a sharp drop in the Chinese yuan, which is another factor weighing on the ailing yen. Japan releases the July CPI inflation report on Friday. Headline CPI is expected to fall from 3.3% to 2.5%, while the core rate is projected to dip from 3.3% to 3.1%. The ‘core-core’ rate, which excludes food and energy items, is projected to rise to 4.3%, up from 4.2%. Any surprises from the inflation report could mean volatility for the Japanese yen.   USD/JPY Technical There is resistance at 146.74 and 147.31 USD/JPY tested support at 145.71 earlier. Below, there is support at 144.92  

Overview of macroeconomic reports There are hardly any important reports on Friday. The euro area will release its final assessment of inflation for July, which is unlikely to differ from the preliminary assessment. Therefore, we do not expect any reaction to this data. The UK will publish a retail sales report, which is not that important. Therefore, we do not expect a strong market reaction to this report. Therefore, there will be no important events on Friday, and both pairs will likely continue their relatively weak movements. The pound is in a sideways channel, and the euro is in a weak downtrend.   Overview of fundamental events There is absolutely nothing to highlight among the fundamental events. No speeches by officials of the Federal Reserve, Bank of England, or the European Central Bank. Therefore, the market will focus on the macro data, but there are hardly any of those as well. It seems that we are in for another muted day.   Bottom line On Friday, we are expecting rather boring trades. We don't expect strong movements from either the pound or the euro, but that does not mean that they will not happen. Take note that the market can trade without reference to the fundamental and macroeconomic background. Main rules of the trading system: The strength of the signal is calculated by the time it took to form the signal (bounce/drop or overcoming the level). The less time it took, the stronger the signal. If two or more trades were opened near a certain level due to false signals, all subsequent signals from this level should be ignored. In a flat market, any currency pair can generate a lot of false signals or not generate them at all. But in any case, as soon as the first signs of a flat market are detected, it is better to stop trading. Trades are opened in the time interval between the beginning of the European session and the middle of the American one when all trades must be closed manually. On the 30-minute timeframe, you can trade based on MACD signals only on the condition of good volatility and provided that a trend is confirmed by the trend line or a trend channel. If two levels are located too close to each other (from 5 to 15 points), they should be considered as an area of support or resistance. Comments on charts Support and resistance levels are levels that serve as targets when opening long or short positions. Take Profit orders can be placed around them. Red lines are channels or trend lines that display the current trend and show which direction is preferable for trading now. The MACD (14,22,3) indicator, both histogram and signal line, is an auxiliary indicator that can also be used as a source of signals. Important speeches and reports (always found in the news calendar) can significantly influence the movement of a currency pair. Therefore, during their release, it is recommended to trade with utmost caution or to exit the market to avoid a sharp price reversal against the previous movement. Beginners trading in the forex market should remember that not every trade can be profitable. Developing a clear strategy and money management is the key to success in trading over a long period of time.  

Metals - Gold struggles The gold market remains under pressure, with spot prices now trading below US$1,900/oz. The realisation that we are unlikely to see the Fed start cutting rates this year has weighed on gold. In fact, recent US macro data suggests that there is still the possibility that the Fed may have more work to do when it comes to monetary tightening. We could see some volatility later this week in gold prices with Jerome Powell set to talk at Jackson Hole on Friday, possibly providing some insight on Fed policy for the remainder of the year. Higher rates have seen 10 year real yields hit their highest levels since 2009 recently, and they continue to edge closer towards 2%. The stronger rate environment combined with USD strength is certainly not proving supportive for gold. ETF holdings in gold have seen 12 consecutive weeks of outflows - over this period we have seen outflows of around 4moz, leaving total ETF gold holdings at around 90moz. Speculators also reduced their net long in COMEX gold by  29,042 lots to 46,540 lots over the last reporting week. The latest trade data from China Customs show that imports of unwrought aluminium and products rose 20% YoY to 231.5kt in July. This leaves cumulative imports over the first seven months of the year at 1.43mt, up 12.2% YoY. On the export side, alumina exports jumped by 266% YoY to 130kt last month, while YTD exports have risen by 16% YoY to 700kt. This increase is driven largely by stronger flows to Russia.

Metals - Gold struggles The gold market remains under pressure, with spot prices now trading below US$1,900/oz. The realisation that we are unlikely to see the Fed start cutting rates this year has weighed on gold. In fact, recent US macro data suggests that there is still the possibility that the Fed may have more work to do when it comes to monetary tightening. We could see some volatility later this week in gold prices with Jerome Powell set to talk at Jackson Hole on Friday, possibly providing some insight on Fed policy for the remainder of the year. Higher rates have seen 10 year real yields hit their highest levels since 2009 recently, and they continue to edge closer towards 2%. The stronger rate environment combined with USD strength is certainly not proving supportive for gold. ETF holdings in gold have seen 12 consecutive weeks of outflows - over this period we have seen outflows of around 4moz, leaving total ETF gold holdings at around 90moz. Speculators also reduced their net long in COMEX gold by  29,042 lots to 46,540 lots over the last reporting week. The latest trade data from China Customs show that imports of unwrought aluminium and products rose 20% YoY to 231.5kt in July. This leaves cumulative imports over the first seven months of the year at 1.43mt, up 12.2% YoY. On the export side, alumina exports jumped by 266% YoY to 130kt last month, while YTD exports have risen by 16% YoY to 700kt. This increase is driven largely by stronger flows to Russia.

  The GBP/USD currency pair exhibited no noteworthy movements on Friday. The price continues to correct both in the global and local senses. After a double rebound from the level of 1.2634, the pair is aiming for the upper boundary of the sideways channel, i.e., the level of 1.2787. This level has already been reached, so a new round of downward movement within the same channel may begin soon. Since we are currently in a range, trading the pair is inconvenient and inadvisable. While we mentioned that it's better to trade the euro on higher timeframes, in the case of the pound, trading on higher timeframes is not profitable since the pair is not showing any trend movement. Overall, the situation could be more pleasant. A consolidation above the level of 1.2787 could trigger a continuation of the upward correction, which will not break the established concept. Let us remind you that the concept involves a prolonged decline in the British currency. Corrections are integral to any trend, so a slight upward move would not hurt. However, there is still a risk of resuming an illogical and unjustified upward trend that was difficult to explain several months ago. On the 24-hour timeframe, we still do not see a breakthrough of the Ichimoku cloud, so even after the last month's decline, the upward trend has not changed to a downward one. There was virtually no macroeconomic data on Friday, and there will be none today. Volatility for the pound did not exceed 100 points last week, and any value below this level is considered "average." The pound is certainly moving more actively than the euro (which is historically the case), but the range spoils everything.   ECB rhetoric is more important than the Fed This week, there will be even fewer significant events than last week. What can we highlight? Business activity indices? The Jackson Hole symposium, which only starts on Friday? A few speeches by Fed representatives? The U.S. durable goods orders report? All of these are interesting, but what matters is the market's reaction to them. All business activity indices and the durable goods orders report could only provoke a reaction if the actual values differ significantly from the forecasts. Fed representatives' speeches – we observe quite a few of these almost every week. The Fed's policy is currently clear and understood, and it is unlikely that Bowman or Gulsbee will report anything extremely important.   The market does not believe in a rate hike in September or the end of the tightening cycle. A few months ago, Jerome Powell indicated that the regulator was shifting to a "one hike every two meetings" approach, so there should be a pause in September. However, the latest inflation report, showing an acceleration in inflation, suggests we may see at least one more rate hike. And if the August report also shows an acceleration, tightening may occur as early as September. More questions are now being posed to the ECB, for which a brief pause is also expected. If signals start coming from the ECB about even slower tightening, it may be a reason for the European currency to accelerate its decline against the dollar.     The average volatility of the GBP/USD pair over the last five trading days is 84 points. For the pound/dollar pair, this value is considered "average." Therefore, on Monday, August 21, we expect movement within the range limited by levels 1.2646 and 1.2816. A downward reversal of the Heiken Ashi indicator will signal a downward spiral within the lateral channel.   The nearest support levels: S1 – 1.2726 S2 – 1.2695 S3 – 1.2665   The nearest resistance levels: R1 – 1.2756 R2 – 1.2787 R3 – 1.2817   Trading Recommendations: The GBP/USD pair in the 4-hour timeframe has secured itself above the moving average, but we are still in a flat market overall. You can trade now based on rebounds from the upper (1.2787) or lower (1.2634) boundaries of the sideways channel, but reversals may occur without reaching them. The moving average may be crossed very often, but it does not signify a change in trend.   Explanations of illustrations: Linear regression channels - help determine the current trend. If both are directed in one direction, the trend is strong. Moving average line (settings 20.0, smoothed) - determines the short-term trend and the direction to trade now. Murrey levels - target levels for movements and corrections. Volatility levels (red lines) - the probable price channel in which the pair will spend the next day, based on current volatility indicators. CCI indicator - its entry into the oversold area (below -250) or the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.  

Analysis of GBP/USD 5M   On Friday, GBP/USD, unlike EUR/USD, snapped higher. Volatility was slightly higher than for the euro, but it doesn't matter, as the pair has been trading in a flat for several weeks. This is evident on all timeframes, so the macroeconomic and fundamental backdrop is currently taking a back seat. To be precise, there was no fundamental backdrop last week, and most reports did not support the British pound. Therefore, the pair could have extended the decline that began a month and a half ago, but the market clearly took a break, so we did not see any interesting movements. The UK released its retail sales report, which doesn't require much discussion. The pair dipped lower as sales undershot forecasts. In the second half of the day, the market received a technical signal to grow, so by the end of the day, the pound had offset all morning losses. As already mentioned, one trading signal was formed. At the beginning of the US session, the price rebounded from the area of 1.2693-1.2700, and the pair rose by 30 pips. Traders could earn these 30 pips since there were no more signals until the end of the day. Therefore, the deal had to be closed manually. At least, the loss on the EUR/USD pair was offset. COT report:     According to the latest report, the non-commercial group of traders opened 7,300 long positions and 3,300 short ones. Thus, the net position of non-commercial traders increased by 4,000 positions in a week. The net position has been steadily growing over the past 11 months as well as the pound sterling. Now, the net position has advanced markedly. This is why the pair will hardly maintain its bullish momentum. I believe that a long and protracted downward movement should begin. COT reports signal a slight growth of the British currency but it will not be able to rise in the long term.   There are no drivers for opening new long positions. Slowly, sell signals are emerging on the 4-hour and 24-hour charts. The British currency has already grown by a total of 2,800 pips, from its absolute lows reached last year, which is a significant increase. Without a downward correction, the continuation of the uptrend will be illogical. However, there has been no logic in the pair's movements for quite some time. The market perceives the fundamental background one-sidedly, ignoring any data in favor of the dollar. The Non-commercial group of traders has a total of 90,500 long positions and 39,500 short ones. I remain skeptical about the long-term growth of the pound sterling, and the market has recently begun to pay attention to short positions.   Analysis of GBP/USD 1H On the 1H chart, the pound/dollar pair continues to trade within a sideways channel. The channel has slightly expanded, so the flat hasn't ended. The lines of the Ichimoku indicator are currently weak, but from time to time they still work well with the market. Due to the flat, we have recorded the last values of the Senkou Span B and Kijun-sen lines. However, false and inaccurate signals can still form around them. The pair reached the upper band of the channel on Thursday, so now we can expect the pound to fall. On August 21, traders should pay attention to the following key levels: 1.2520, 1.2605-1.2620, 1.2693, 1.2786, 1.2863, 1.2981-1.2987, 1.3050. The Senkou Span B (1.2807) and Kijun-sen (1.2700) lines can also be sources of signals, e.g. rebounds and breakout of these levels and lines. It is recommended to set the Stop Loss orders at the breakeven level when the price moves in the right direction by 20 pips. The lines of the Ichimoku indicator can move during the day, which should be taken into account when determining trading signals. There are support and resistance levels that can be used to lock in profits. On Monday, no important events or reports lined up in the UK or the US. Thus, traders will have nothing to react to, so we will probably see weak and mixed up movements.   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. Read more: https://www.instaforex.eu/forex_analysis/352147 Read more: https://www.instaforex.eu/forex_analysis/352147 Read more: https://www.instaforex.eu/forex_analysis/352147 Read more: https://www.instaforex.eu/forex_analysis/352147  

Stocks rebound, but volatility rises.  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank       Stocks rebounded on Monday, in a move that looked more like a correction than a reaction to fresh news, as there was no fresh news that went against the slowing China rhetoric, nor against the fear that we will hear something sufficiently hawkish this Friday from Jerome Powell's Jackson Hole speech. At this point, the hawkish Federal Reserve (Fed) expectations are mostly priced in, leaving room for some up and down moves. So yesterday's session was not only marked by a rebound in the S&P500 from the October to July ascending baseline, but also by a visible rise in volatility. Nasdaq 100 jumped 1.65% as well, but the US 2-year yield returned well above 5%, and the 10-year yield pushed to a fresh high since 2007.     One interesting thing is, in 2007, when the US 10-year yield was at these levels, the positioning in the market was deeply negative – meaning that investors expected the yields to rebound, while today the positioning is deeply positive, meaning that investors expect the yields to bounce lower. And that's understandable: the US 10-year yield was on a steady falling path in 2007, so there was a reason for investors to expect a rebound – which did not happen. In a similar way, today, we are just coming out of a long period of near zero rates, so for our eyes, the actual levels seem very high. That explains why many asset managers expect the yields to fall. There is also a growing interest in US 10-year TIPS – which are protected against inflation, and which hit the 2% mark for the first time since the GFC as well. But there is not much reason other than our low comparison levels that gives reason to an imminent reversal in market direction. The US data is strong, the labour market is tight, and inflation is slowing but 'significant upside risks' prevail. A recent study warned that unless the monthly CPI stays below the 0.2%, inflation is headed higher in 2024. So there is a chance that we won't see a downside correction in the US 10-year yield, and if that's not the case, the selloff could extend until the 10-year yield settles somewhere between 5-5.50%.     Anyway, the market mood got significantly better yesterday. Tech stocks fueled the rally in the US, as Nvidia jumped 8.5% yesterday, a day before the release of its Q2 results. Nvidia'd better meet its $11bn sales forecast for last quarter, otherwise, there is a chance that we will see a sizeable downside correction.     In Europe, oil stocks shouldered yesterday's rally, as the barrel of US crude made an attempt above the $82pb, on lower OPEC+ exports and on the back of a golden cross formation on a daily chart where the 50-DMA crossed above the 200-DMA. But yesterday, that wasn't the case. Oil's positive attempt remained short-lived, on the contrary, and the barrel of crude is preparing to test the $80pb support to the downside again this morning. The market is driven by two major forces: the supply tightness and the Chinese demand expectations. These days, the Chinese demand expectations are very much in focus, which could help the oil bears take advantage for selling the recent rally in oil prices. But tighter OPEC rhetoric will remain a major support into the 200-DMA, near $76pb.  

The net short position in USD grew by $490 million to -$16.272 billion over the reporting week after a strong correction a week earlier. The decline is largely related to long positions on the euro, and in terms of other major currencies, the notable trend is selling across all significant commodity currencies (Canadian, Australian, New Zealand dollars, and also the Mexican peso). The yen and franc are slightly doing better, i.e., there is demand for safe-haven currencies and a sell-off in commodity currencies. Since long positions in gold have decreased by $4.5 billion, we can expect increasing demand for the US dollar.     PMIs for the eurozone, the UK, and the US will be published on Wednesday, which can significantly influence the rate forecasts of the European Central Bank, the Bank of England, and the Federal Reserve. Last week, we witnessed a clear uptrend in bond yields, suggesting increased demand for risk amid more upbeat economic reports. At the same time, we see a sharp deterioration in China's economy, which, on the contrary, points to slowing demand. This dilemma may be resolved after the release of the PMIs, so we can expect increased volatility.   EUR/USD The final estimate confirmed that the euro area annual inflation rate was 5.3% in July 2023, with core inflation unchanged at 5.5%. Since there are no seasonal factors that could explain the price increase at the moment, it would be best to assume the most obvious explanation - price growth is supported by broad price pressures in the growing services sector. Stubborn inflation supports market expectations that the ECB will raise rates in September, and this increase is already reflected in current prices. The strong labor market is also in favor of a rate hike. After a sharp decrease a week earlier, the net long position in the euro grew by $1.275 billion, putting the bearish trend into question. The settlement price is below the long-term average, giving grounds to expect a continuation of the euro's decline, but the momentum has noticeably weakened.   A week earlier, we assumed that the bearish trend would continue. Indeed, the euro consistently passed two support levels, but did not reach the 1.0830 level. The resistance at 1.0960, which the euro can reach if a correction develops, is still considered in the long term. We assume that the trend remains bearish, and the 1.0830 level will be tested in the short term. GBP/USD Inflation in July fell from 7.9% to 6.8%. This is mostly due to the fall in the marginal price of OFGEM (Office of Gas and Electricity Markets) from 2500 pounds to 2074. Without this decline, inflation would have still fallen, but much less - to 7.3%. Despite the sharp decline, inflation remains at a very high level, and further falls in the marginal price of energy carriers are unlikely. The NIESR Institute suggests that, among the possible scenarios for future inflation behavior, we should choose between "very high", assuming an average annual inflation of around 5% over 12 months, and "high persistence", which is equivalent to an annual level of 7.4%. Needless to say, both scenarios imply inflation higher than in the US, so the likelihood of a higher BoE rate remains, leading to a yield spread in favor of the pound. These considerations do not allow the pound to fall and support it against the dollar, while against most major currencies, the dollar continues to grow. After three weeks of decline, the long position in GBP grew by $302 million to $4.049 billion. Positioning is bullish, the price is still below the long-term average, but, as in the case of the euro, an upward reversal is emerging.       In the previous review, we assumed that the pound would continue to decline, but UK inflation pressure remains stubborn, which changed the rate forecast and supported the pound. A correction may develop, and the nearest resistance level is 1.2813. If the pound goes higher, the long-term forecast will be revised. At the same time, we still consider the bearish trend, and the chances of restoring growth are high, with the nearest target being the support area of 1.2590/2620.  

The Commodities Feed: Iranian oil flows edge higher The oil market continues to face headwinds, both on the macro front and on the back of expectations of supply increases. Meanwhile, the natural gas market could see further volatility over the coming days with a deadline for labour talks at some LNG facilities approaching.   Energy - Deadline Day for some Australian LNG talks The rally in oil appears to have run out of steam for now. China's macro issues, along with a growing expectation that maybe the US Fed is not done with its tightening cycle have weighed on oil more recently. In addition, the broader strength in the USD will be providing some headwinds. Fundamentally, the outlook for the market is still constructive with large deficits to persist for the remainder of the year. However, there is some noise around growing supply, specifically from Iran. Iran has quietly increased its output by around 400Mbbls/d over the last year to a little over 2.9MMbbls/d, which is the highest level since late 2018. Iran has said that it will look to increase output to around 3.4MMbbl/d by the end of summer, which would leave it close to pre-sanction levels of 3.8MMbbls/d. Given much of the focus has been on Russian flows since the war, Iran has taken advantage of this to increase oil exports. This comes against the backdrop of apparently greater willingness between the US and Iran to improve diplomacy, evident with a recent deal for a prisoner swap and the release of frozen Iranian funds. There is also further noise around the potential restart of Iraqi oil flows via the Ceyhan export terminal in Turkey. The flows were halted back in March after a court ruled in favour of the Iraqi government, which claimed that these oil flows from the Kurdish region were happening without its consent. Iraqi and Turkish officials have been meeting this week with the hope of resuming the roughly 500Mbbls/d of crude oil that flows via this route. API numbers released overnight show that US crude oil inventories fell by 2.4MMbbls, slightly less than the roughly 3MMbbls draw the market was expecting. Crude oil stocks at Cushing continue to decline, having fallen by 2.1MMbbls over the week. For refined products, gasoline inventories grew by 1.9MMbbls, while distillate stocks edged lower by 153Mbbls. The more widely followed EIA report will be released later today. Natural gas markets should get more clarity around Australian LNG supply over the next 24 hours, given that end-of-day Wednesday is the deadline that workers at Woodside’s North West Shelf gave to come to a deal. As a result, we could see further volatility in natural gas prices for the remainder of the week. We should also get more clarity on how negotiations at Chevron’s Gorgon and Wheatstone are developing later this week.  

GBP: Volatile pricing ahead of PMIs Bank of England rate expectations have been quite volatile since the upside surprise in wages and CPI last week. The miss in retail sales on Friday saw peak Bank rate expectations as measured in the Sonia rate drop more than 10bp. Markets are currently looking at 5.95-6.0%, but today’s PMI release in the UK may well move pricing again. Consensus is expecting some slowdown in both manufacturing (already in contraction territory) and services (to 51.0). The Bank of England will also look at the details of the survey searching for evidence that price pressures are abating. EUR/GBP can make another attempt at breaking 0.8500 today, although the sustainability of sub-0.8500 levels is questionable unless markets price in more rate hikes in the UK or price out tightening in the eurozone.

  Yesterday, the EUR/USD currency pair rose to its moving average line but almost immediately rebounded and began a stronger decline. This decline eloquently demonstrated who currently dominates the market. Traders shouldn't be misled by the movement toward and potentially beyond the moving average – this line is close to the price (due to low volatility) and can touch it almost daily. However, as we can see, the first attempt to rise above the moving average failed. Importantly, this cannot be blamed on strong macroeconomic data for the dollar or the fundamental backdrop. Technically, nothing has changed. The pair updated its local minimum yesterday, meaning the downward trend remains.   Thus, expecting the European currency to fall is the most logical under the current circumstances. As we have repeatedly stated, there have been no reasons for the euro to grow for a long time. The ECB increasingly signals a potential pause in tightening, and some experts do not anticipate more than one rate hike in 2023. This means the ECB rate will remain much lower than the Federal Reserve. Demand for the dollar will increase since, at present, one can earn much more from bank deposits and treasury bonds in the US than from similar instruments in the European Union. Additionally, inflation in the EU is higher, while it has already dropped to 3.2% in the US. Besides, it should be noted that the Federal Reserve can also raise its rate again.   It has far better opportunities for tightening than the European Union. However, we mentioned several months ago that the ECB is constrained in its monetary moves as it needs to consider the interests of all 27 member countries, some of which are economically weak and cannot withstand overly strict monetary policies. Lagarde is unlikely to protect the euro from falling. At this time, the macroeconomic background is irrelevant. It might lift the euro, but we advocate continuing the pair's decline. On Friday, speeches from Christine Lagarde and Jerome Powell are scheduled. If we are mistaken in our assessment of rate changes in the US and EU, the chairpersons of both central banks can convey the true information to the market. However, the symposium in Jackson Hole is not where Lagarde and Powell will be candid and make sensational announcements. However, a few hints might suffice for the market. The Fed's position is now even less critical than the ECB. If the Fed's rate doesn't increase in September, it will in November. On the other hand, if the ECB pauses in September, it will find itself in a much less favorable position since its rate is significantly lower than the Fed. Hence, ultra-hawkish rhetoric is required from Lagarde for the European currency to start growing again. On the 24-hour TF (Time Frame), the price has settled below the Ichimoku cloud, but this isn't the case. We are looking at the Senkou Span B line at the 1.0862 level, and there needs to be a clear and confident consolidation below this level. Nonetheless, we also didn't witness a strong upward recoil after this level was tested, meaning the quote decline might continue at a moderate pace.     The average volatility of the EUR/USD currency pair over the last five trading days as of August 23 is 64 points and is characterized as "average." Consequently, we expect the pair to move between the levels of 1.0794 and 1.0922 on Wednesday. A reversal of the Heiken Ashi indicator upwards will indicate a new upward correction phase. Near Support Levels: S1 – 1.0803 S2 – 1.0742 S3 – 1.0681   Near Resistance Levels: R1 – 1.0864 R2 – 1.0925 R3 – 1.0986   Trading Recommendations: The EUR/USD pair currently maintains a downward trend. For now, staying in short positions with targets at 1.0803 and 1.0794 is advisable until the Heiken Ashi indicator turns upwards. Long positions can be considered if the price consolidates above the moving average, with targets at 1.0986 and 1.1047.   Illustration Explanations: Linear regression channels help determine the current trend. The current trend is strong if both are pointing in the same direction. Moving average line (settings 20.0, smoothed) determines the short-term trend and the direction in which trading should proceed. Murray levels are target levels for movements and corrections. Volatility levels (red lines) are the probable price channel in which the pair will operate over the next day, based on current volatility indicators. CCI Indicator – Its entry into the oversold area (below -250) or the overbought area (above +250) indicates an impending trend reversal in the opposite direction.  

EUR/USD Yesterday, the euro broke through the key support level at 1.0834. By the end of the day, the euro had risen by 17 points. The nature of this movement suggests that this breakthrough was false. This morning, the price continues to rise above the 1.0865 level. The Marlin oscillator continues its upward turn. Market participants are concerned that tomorrow, Federal Reserve Chairman Jerome Powell will confirm the idea of a strong American economy and hint at another rate hike(possibly by 0.50%).   The concern arises from the fact that seemingly obvious things might be interpreted differently by the Fed itself, implying that there might be no further tightening. Generally, the Jackson Hole conference doesn't discuss specific issues, such as a rate hike in a month or two, so there will be opportunities for speculation in interpreting Powell's words. Considering the increased volatility of the EUR/USD pair, it might reach the target range of 1.0924/42 regardless of the tone set by the Fed chair. The question is about the euro's medium-term perspective.   On the four-hour chart, following the false downward movement, the price returned above the MACD line, and the Marlin oscillator entered the positive territory. An uptrend in the short-term, and the target range of 1.0924/42 is in sight. Consolidating above this range will open up the next target at 1.1012.  

Overview of macroeconomic reports   On Thursday, no significant reports lined up for the UK, the European Union, or Germany. The US will publish reports on initial jobless claims and durable-goods orders. Unemployment claims is a relatively weak indicator simply because it is published weekly, and deviations from forecasts are rare. Since there are no deviations, there is no market reaction. Durable goods orders are more important as it reflects the change in purchase volumes of expensive category goods, such as cars, real estate, or major appliances. But the same thing applies here, it is important for the values to deviate from forecasts. If there is none, there's also no reaction. If there is, then we can expect a strong market reaction.   Overview of fundamental events There is absolutely nothing to highlight among Thursday's fundamental events. There are no speeches from officials of the Federal Reserve, European Central Bank, and the Bank of England. However, the Jackson Hole Symposium is about to begin. Nonetheless, all the most important speeches are scheduled for Friday, and today, there's not much to focus on.     Bottom line On Thursday, beginners might only focus on the two US reports. We don't know if they will trigger a market reaction, but at the same time, there are no other events. The movement patterns of the two main currency pairs are unlikely to change. For the euro, it's a downtrend, and for the pound, it's a flat trend. Main rules of the trading system: The strength of the signal is calculated by the time it took to form the signal (bounce/drop or overcoming the level). The less time it took, the stronger the signal. If two or more trades were opened near a certain level due to false signals, all subsequent signals from this level should be ignored. In a flat market, any currency pair can generate a lot of false signals or not generate them at all. But in any case, as soon as the first signs of a flat market are detected, it is better to stop trading. Trades are opened in the time interval between the beginning of the European session and the middle of the American one when all trades must be closed manually. On the 30-minute timeframe, you can trade based on MACD signals only on the condition of good volatility and provided that a trend is confirmed by the trend line or a trend channel. If two levels are located too close to each other (from 5 to 15 points), they should be considered as an area of support or resistance. Comments on charts Support and resistance levels are levels that serve as targets when opening long or short positions. Take Profit orders can be placed around them. Red lines are channels or trend lines that display the current trend and show which direction is preferable for trading now. The MACD (14,22,3) indicator, both histogram and signal line, is an auxiliary indicator that can also be used as a source of signals. Important speeches and reports (always found in the news calendar) can significantly influence the movement of a currency pair. Therefore, during their release, it is recommended to trade with utmost caution or to exit the market to avoid a sharp price reversal against the previous movement. Beginners trading in the forex market should remember that not every trade can be profitable. Developing a clear strategy and money management is the key to success in trading over a long period of time.    

  The GBP/USD currency pair fell by almost 150 points yesterday following the release of business activity indices in the services and manufacturing sectors of the European Union and the United Kingdom. While only the European indices affected the euro, the pound was influenced by both the European and British indices. This explains the pound's more significant drop, which offset all its losses by the end of the day. Now, if you look closely at the illustration above, you'll see that despite the sharp decline on Wednesday, the pair still sits within the lateral channel of 1.2634–1.2787. Yesterday, it touched the lower boundary of this channel for the third time, predictably rebounding from it, and now it may rise back to the 1.2787 level. Notably, this movement doesn't necessarily require any specific fundamental or macroeconomic background - the pair is in a flat trend, which means the movements are random. Thus, the technical outlook remains unchanged from the previous day despite the high volatility. However, one thing does concern us.   The CCI indicator entered oversold territory yesterday, dropping quite deep. Such signals are typically strong. Although the pair might rise to the mentioned level of 1.2787, it won't remain flat forever, and the chances of a more significant upward movement are slightly higher than yesterday. On the 24-hour time frame, there's no change. The pair still hasn't settled below the Ichimoku cloud, so the upward trend remains intact, and an upward move could resume anytime. As on many previous occasions, the pound may see a minor pullback. Even though we see no reason for the British currency to continue its rise, we must admit that there are still no strong signals indicating a trend change in the long term. The August UK manufacturing business activity index dropped from 45.3 points to 42.5.   The corresponding index for the services sector fell from 51.5 points to 48.7. Consequently, all business activity indices are now below the "waterline" – the 50.0 mark. Hence, we can anticipate further deterioration in other macroeconomic indicators and expect the Bank of England to take a pause. As we've repeatedly stated, the position of the British regulator is unenviable. Inflation remains very high, economic indicators continue to decline, and rates are rising. However, they can't rise indefinitely. The market seems to interpret the macroeconomic backdrop very one-sidedly, seemingly believing in the perpetual tightening of monetary policy in the British Isles. In our opinion, this is a mistake, but as they say, one cannot argue with the market. This week, there are virtually no significant events left. Today, a more or less important report on orders for durable goods in the US will be released, and tomorrow, Jerome Powell will speak. In essence, there's only one question regarding the head of the Federal Reserve, and we won't get an answer.   After inflation in the States accelerated for the first time in 14 months, the rate will be raised in September. However, speaking confidently about it without the August inflation report doesn't make sense.     The average volatility of the GBP/USD pair for the last five trading days is 90 points. For the pound/dollar pair, this value is considered "average." Thus, on Thursday, August 24, we expect movement within the range limited by levels 1.2634 and 1.2814. A reversal of the Heiken Ashi indicator upwards will signal a new upturn in the lateral channel.   Nearest support levels: S1 – 1.2695 S2 – 1.2634 S3 – 1.2604   Nearest resistance levels: R1 – 1.2726 R2 – 1.2756 R3 – 1.2787   Trading recommendations: The GBP/USD pair in the 4-hour timeframe remains above the moving average, but overall the trend is flat. It is possible to trade now on a rebound from the upper (1.2787) or lower (1.2634) boundaries of the lateral channel, but reversals may occur before reaching them. The moving average can be crossed frequently, which doesn't signify a trend change.   Illustrations explanations: Linear regression channels – help determine the current trend. The trend is currently strong if both are pointed in the same direction. Moving average line (settings 20.0, smoothed) – determines the short-term tendency and the direction in which trading should be conducted. Murray levels – target levels for movements and corrections. Volatility levels (red lines) – the likely price channel the pair will spend the next day, based on current volatility indicators. CCI indicator – its entry into the oversold area (below -250) or the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.  

Yesterday, the pair formed several good signals to enter the market. Let's analyze what happened on the 5-minute chart. In my morning review, I mentioned the level of 1.2726 as a possible entry point. A breakout and subsequent retest of this range generated a great sell signal, resulting in a 35-pip drop. A similar scenario with 1.2689, following weak PMI reports, produced a sell signal and the pair fell by 40 pips. During the US session, protecting the monthly low around 1.2627 and weak US reports generated a great buy signal. As a result, the pair rose by 50 pips. Selling from 1.2679 turned out to be a failure, but a breakout and a downward retest of 1.2679 was another buy signal, making it possible to gain 40 more pips.     For long positions on GBP/USD: Today brings some mid-tier data from the Confederation of British Industry, which is unlikely to have a significant impact on market volatility, so I expect the pair to remain under pressure. For this reason, I am not in a hurry to open long positions: only after a false breakout near the new support level at 1.2706, formed at the end of yesterday, will generate buy signal in hopes of updating the nearest resistance at 1.2733, also formed at the end of yesterday's European session. A breakout and consolidation above this range will reinforce the pound sterling, allowing it to reach the 1.2761 high. The ultimate target remains the area of 1.2797 where I will be locking in profits. If GBP/USD declines and there is no buying activity at 1.2706, the pound will be under pressure, but will continue to trade within the sideways channel. In this case, only the defense of the 1.2679 area and its false breakout would give a signal for opening long positions. I will open long positions immediately on a rebound from the monthly low of 1.2646, keeping in mind a daily correction of 30-35 pips.   For short positions on GBP/USD: The sellers lost all their advantage yesterday and now they need to start from scratch. Only an unsuccessful consolidation at 1.2733 after UK data will produce a sell signal with a prospect of falling to the intermediate support level at 1.2706, which was formed yesterday. A breakout of this level and its upward retest would significantly dent the bulls' positions, offering a chance for a more substantial decline towards the low of 1.2679. The ultimate target is the low at 1.2646 where I will be locking in profits. In this case, buyers can try to build the lower band of the new ascending channel. If GBP/USD moves upward during the European session and lacks bearish activity at 1.2733, which is possible given how aggressive the buyers were even after such a large sell-off yesterday, only a false breakout near the next resistance at 1.2761 would provide an entry point for going short. If there is no downward movement there, I would sell the pound right on a rebound from 1.2797, keeping in mind an intraday correction of 30-35 pips.   COT report: The Commitments of Traders (COT) report for August 15 recorded an increase in both long and short positions. Traders built up positions after the UK GDP report, which was better than economists' expectations. US inflation cooling also had an impact on the balance of power, supporting the pound, as well as persistent core pressure in the UK. Federal Reserve officials will hold their annual Jackson Hole symposium later this week, which could lead to even more strengthening of the British Pound in the short term. The focus will be on Fed Chair Jerome Powell's speech about US monetary policy. As before, the optimal strategy is to buy the pound on dips, as the difference in the policies of the central banks will affect the prospects of the US dollar, putting pressure on it. The latest COT report indicates that long positions of the non-commercial group of traders rose by 7,302 to 90,541, while short positions jumped by 3,334 to 39,553. As a result, the spread between long and short positions narrowed by 607. The weekly closing price dropped to 1.2708 compared to the prior value of 1.2749.     Indicator signals: Moving Averages Trading is taking place around the 30-day and 50-day moving averages, indicating a sideways market trend. Please note that the time period and levels of the moving averages are analyzed only for the H1 chart, which differs from the general definition of the classic daily moving averages on the D1 chart. Bollinger Bands If GBP/USD falls, the indicator's lower border near 1.2646 will serve as support.   Description of indicators: • A moving average of a 50-day period determines the current trend by smoothing volatility and noise; marked in yellow on the chart; • A moving average of a 30-day period determines the current trend by smoothing volatility and noise; marked in green on the chart; • MACD Indicator (Moving Average Convergence/Divergence) Fast EMA with a 12-day period; Slow EMA with a 26-day period. SMA with a 9-day period; • Bollinger Bands: 20-day period; • Non-commercial traders are speculators such as individual traders, hedge funds, and large institutions who use the futures market for speculative purposes and meet certain requirements; • Long non-commercial positions represent the total number of long positions opened by non-commercial traders; • Short non-commercial positions represent the total number of short positions opened by non-commercial traders; • The non-commercial net position is the difference between short and long positions of non-commercial traders.    

GBP: Broadbent speaks tomorrow at Jackson Hole Ben Broadbent is the only Bank of England member speaking at Jackson Hole, but his remarks are scheduled for tomorrow, so we’ll need to wait for Monday to see any impact on sterling. The recent volatility in the BoE peak rate expectations on the back of data releases (wages, inflation, retail sales, PMIs) means the return of some BoE comments after a long period of silence can definitely move the market. It’s worth noting, however, that UK markets are closed on Monday for a national holiday so volumes will be thinner. For today, the pound will be moved by Powell and Lagarde. We think Cable should find good support around 1.2500 in the event of more USD strength, while EUR/GBP can extend its rally beyond 0.8600 if we are right about Lagarde sounding hawkish today.

Australian dollar slides close to 1% The Australian dollar continues to show strong volatility for a second straight day. In the North American session, AUD/USD is trading at 0.6426, down 0.84%. After a sleepy start to the week, the Aussie is showing some life. AUD/USD jumped 0.90% on Wednesday but has pared practically all of those gains today. The pair’s upswing on Wednesday was more a case of US dollar weakness than Aussie strength, as US PMIs pointed to deceleration in the manufacturing and services sectors. The US Manufacturing PMI fell to 47.0 in August, down from 47.0 in July and well below the consensus estimate of 49.3. The manufacturing sector has been unable to find its footing, with declines in ten of the last eleven months. New orders are down and weaker demand has meant a decrease in output. The services sector in the US is in better shape and posted a seventh straight month of growth in August. However, the Services PMI slowed to 51.0 in August, weaker than the July reading of 52.3 and the estimate of 52.2. Business activity in services has been falling and the August read was the lowest in six months. Consumer spending is down due to the usual suspects – high interest rates and broad-based inflation. Interestingly, business confidence improved in August, likely due to expectations that US interest rates are close to their peak. Weakness in manufacturing and services is not unique to the US, as we saw this week in PMI reports from Europe, the UK and Australia. Manufacturing and services continued to contract in Australia, as the August PMIs remained below the 50.0 level, which separates contraction from expansion. The weak PMIs are further signs of weaker economic activity, and the alarming slowdown in China will make it even more challenging for the Reserve Bank of Australia to guide the economy to a soft landing and avoid a recession.   AUD/USD Technical AUD/USD is testing support at 0.6431. Next, there is support at 0.6339 There is resistance at 0.6588 and 0.6653

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.    

Tokyo Core CPI gains 2.8%, less than expected Powell and Ueda to speak at Jackson Hole symposium USD/JPY has posted small gains on Friday, enough to push above the symbolic 146 line. On the data calendar, Tokyo Core CPI dipped lower and Fed Chair Powell addresses the Jackson Hole Symposium later today.   Tokyo Core CPI eases to 2.8% Japan released the Tokyo Core CPI earlier today. This is the first inflation release of the month, making it a key event. In August, Tokyo Core CPI rose 2.8% y/y, down from 3.0% in July and just under the consensus estimate of 2.9%. Despite the drop in inflation, the indicator has remained above the Bank of Japan’s 2% target for some fifteen months. Earlier in the month, the so-called “core-core index”, which excludes fresh food and energy, remained at 4.0%. This points to broad inflationary pressure and raises questions about the BoJ’s insistence that inflation is transient. The BoJ has said it will not exit its ultra-loose monetary policy until wage growth rises enough to keep inflation sustainable around 2%. Still, the markets have been burned before by the BoJ making unexpected moves and are on guard for the BoJ tightening policy, especially with the yen at very low levels. The markets are keeping a close eye on the Jackson Hole symposium, with Fed Chair Powell and BoJ Governor Ueda both attending. Powell delivers a key speech on Friday and Ueda will participate in a panel discussion on Saturday. If either one provides insights into future rate policy, it could mean some volatility from USD/JPY on Monday. What does the Fed have planned? That depends on which Fed member is addressing the media. Philadelphia Fed President Patrick Harker said on Thursday that he didn’t see a need to raise rates further, absent any unexpectedly poor data, but added that the Fed wouldn’t be lowering rates anytime soon.  However, Boston Fed President Susan Collins said that rate increases might still be necessary. The Fed is likely to pause at the September meeting, but what happens after that is unclear.       USD/JPY Technical USD/JPY is facing resistance at 146.41, followed by 147.44 There is support at 145.54 and 144.51  

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. 

Erased prior two weeks of consecutive losing streaks to trade a current year-to-date closing high of US$86.31 per barrel printed on last Friday, 1 September. Price actions are oscillating within short-term and medium-term uptrend phases. Hourly technical indicators (RSI & Bollinger Bands Bandwidth) are suggesting the risk of an imminent minor pull-back in price actions after last week’s strong upside reversal. Watch the key short-term pivotal resistance at US$87.25 per barrel. This is a follow-up analysis of our prior report, “WTI Oil Technical: Potential bullish reversal to resume medium-term uptrend” published on 21 August 2023. Click here for a recap. The price actions of West Texas Oil (a proxy of WTI crude oil futures) have managed to snap its prior two weeks of consecutive losing streak and cleared above the US$84.90 resistance as highlighted in our previous report. Also, it recorded a weekly gain of +7.35% for the week ended last Friday, 1 September.     Rallied to a 10-month high Fig 1:  West Texas Oil medium-term trend as of 4 Sep 2023 (Source: TradingView, click to enlarge chart) In addition, last Friday’s bullish momentum has allowed it to surpass its recent medium-term swing high of US$84.92 per barrel printed on 10 August 2023 and notched a current year-to-date closing high of US$86.31 on last Friday, also its highest level since 15 November 2022. In addition, current price actions have managed to trade above their respective 20, 50, and 200-day moving averages which indicates that West Texas Oil is oscillating within short-term and medium-term uptrend phases. Risk of an imminent minor pull-back in price actions Fig 2:  West Texas Oil minor short-term trend as of 4 Sep 2023 (Source: TradingView, click to enlarge chart)       However, the current up move of +10.7% from its 23 August 2023 low of US$78.03 to its 1 September 2023 high of US$86.36 seems overstretched which suggests that the current short-term uptrend phase is due for a potential minor pull-back/setback. Two key technical conditions are advocating this potential minor pull-back/setback scenario for West Texas Oil within its ongoing short to medium-term uptrend phases. Firstly, the hourly RSI oscillator has exploded to an extreme overbought condition of 84.53, its highest level since 2 April 2023. Secondly, the hourly Bollinger Bands Bandwidth (%) has increased to a two-week high which indicates a significant expansion in short-term volatility. An expansion in short-term volatility as indicated by the widening of the hourly Bollinger Bands Bandwidth (%) tends to lead to a normalization of such a heightened level of volatility in the next few trading sessions which supports an imminent potential minor pull-back/setback for price actions. Watch the US$87.25 key short-term pivotal resistance to maintain the potential minor pull-back/setback scenario for West Texas Oil towards the intermediate supports at US$84.90 and US$83.60. However, a clearance above US$87.25 invalidates the minor bearish tone for a continuation of the bullish impulsive up move sequence to see the next resistance at US$89.10 (Fibonacci retracement/extension cluster; 38.2% Fibonacci retracement of the major downtrend from 7 March 2022 high to 4 May 2023 low & 0.618 Fibonacci extension of the medium-term uptrend from 28 June 2023 low to 10 August 2023 high projected to 23 August 2023 low). Content

We see an increased chance for a stark repricing On rates, the 6x9 month FRA rose 8bp in the immediate aftermath of the August meeting, although we acknowledged that this is still relatively modest, so we saw some room for further correction. However, the market has ignored the hawkish message and continues to price in a more dovish monetary policy with the three-month implied rate at 10.1% at the end of the year. In our view, investors need evidence of hawkishness, and, like the central bank, the market is becoming data-dependent, just like the National Bank of Hungary. The next test will be the incoming August inflation print on 8 September. If we see a higher-than-consensus inflation reading - and we see a fair chance of upside risk here, mainly on food, services and fuel - then it could really reverse the market's pricing of an aggressive easing cycle.   Hungarian sovereign yield curve   The Hungarian government bond (HGB) market went through a bull steepening in August as a result of the ongoing rate cut cycle, the strengthening disinflation and some risk reversal which was also visible in HUF gains. As the summer lull comes to an end and the market deepens, we may see more interest in forint bonds. The only limitation here could be the expected budget review. However, the retail bond market is doing well and we see the Government Debt Management Agency filling the gap with FX debt issuance, so we believe that HGBs will remain attractive. The fastest disinflation in the region should also be supportive. A big red flag here is the possibility of another negative sovereign credit rating outcome. Tactically, investors need to be quick because of the volatility, while strategic market players need to have nerves of steel.   Forecast summary

Erased prior two weeks of consecutive losing streaks to trade a current year-to-date closing high of US$86.31 per barrel printed on last Friday, 1 September. Price actions are oscillating within short-term and medium-term uptrend phases. Hourly technical indicators (RSI & Bollinger Bands Bandwidth) are suggesting the risk of an imminent minor pull-back in price actions after last week’s strong upside reversal. Watch the key short-term pivotal resistance at US$87.25 per barrel. This is a follow-up analysis of our prior report, “WTI Oil Technical: Potential bullish reversal to resume medium-term uptrend” published on 21 August 2023. Click here for a recap. The price actions of West Texas Oil (a proxy of WTI crude oil futures) have managed to snap its prior two weeks of consecutive losing streak and cleared above the US$84.90 resistance as highlighted in our previous report. Also, it recorded a weekly gain of +7.35% for the week ended last Friday, 1 September.     Rallied to a 10-month high   Fig 1:  West Texas Oil medium-term trend as of 4 Sep 2023 (Source: TradingView, click to enlarge chart) In addition, last Friday’s bullish momentum has allowed it to surpass its recent medium-term swing high of US$84.92 per barrel printed on 10 August 2023 and notched a current year-to-date closing high of US$86.31 on last Friday, also its highest level since 15 November 2022. In addition, current price actions have managed to trade above their respective 20, 50, and 200-day moving averages which indicates that West Texas Oil is oscillating within short-term and medium-term uptrend phases. Risk of an imminent minor pull-back in price actions Fig 2:  West Texas Oil minor short-term trend as of 4 Sep 2023 (Source: TradingView, click to enlarge chart)   However, the current up move of +10.7% from its 23 August 2023 low of US$78.03 to its 1 September 2023 high of US$86.36 seems overstretched which suggests that the current short-term uptrend phase is due for a potential minor pull-back/setback. Two key technical conditions are advocating this potential minor pull-back/setback scenario for West Texas Oil within its ongoing short to medium-term uptrend phases. Firstly, the hourly RSI oscillator has exploded to an extreme overbought condition of 84.53, its highest level since 2 April 2023. Secondly, the hourly Bollinger Bands Bandwidth (%) has increased to a two-week high which indicates a significant expansion in short-term volatility. An expansion in short-term volatility as indicated by the widening of the hourly Bollinger Bands Bandwidth (%) tends to lead to a normalization of such a heightened level of volatility in the next few trading sessions which supports an imminent potential minor pull-back/setback for price actions. Watch the US$87.25 key short-term pivotal resistance to maintain the potential minor pull-back/setback scenario for West Texas Oil towards the intermediate supports at US$84.90 and US$83.60. However, a clearance above US$87.25 invalidates the minor bearish tone for a continuation of the bullish impulsive up move sequence to see the next resistance at US$89.10 (Fibonacci retracement/extension cluster; 38.2% Fibonacci retracement of the major downtrend from 7 March 2022 high to 4 May 2023 low & 0.618 Fibonacci extension of the medium-term uptrend from 28 June 2023 low to 10 August 2023 high projected to 23 August 2023 low).  

Refined products: Middle distillate tightness to persist Refinery margins have been volatile in recent months due to tight inventories and a number of outages over the summer. We expect margins to remain volatile and relatively elevated given the tightness in middle distillates, along with the lack of new refining capacity.   Volatile and elevated refinery margins likely to remain Refined product markets witnessed significant strength over the northern hemisphere summer, which helped to drive refinery margins to their highest levels since last year. Strength was seen across the board, although it has predominantly been middle distillates which have pushed margins higher. More recently, however, margins have started to give back a lot of these gains. Weakness has been largely driven by gasoline as we come to the end of the summer driving season. Middle distillates have also come under some renewed pressure more recently. The latest release of Chinese export quotas would likely have put some pressure on cracks.   Longer-term, refined product markets remain vulnerable. Inventories are mostly tight and global refining capacity has remained largely unchanged since 2019, with new capacity offset by longer-term closures. This is happening at a time when demand continues to grow, leaving markets tight. While there is spare capacity in China, the ability for significantly more refined products to make it onto the world market is restricted by export quotas. This suggests that refinery margins are likely to remain relatively elevated and volatile for the foreseeable future.   China releases further export quotas A delay in the release of the third batch of refined product export quota from the Chinese government initially provided some support to refined product markets. Uncertainty over when we would finally see this released and the volume of the third tranche were supportive. Recently, the government finally issued the third batch, which amounted to 12 million tonnes, more than the 10 million tonnes the market was expecting. This also means that export quotas released to date total 39.99 million tonnes, above the 37.25 million issued over the whole of 2022. The increase in refinery run rates this year has allowed for a higher quota allocation. However, what is not clear is whether the government will release a fourth batch of export quotas. Much will likely depend on how domestic demand evolves over the remainder of the year. Even if we see further releases, it does not guarantee that further quotas will have to be used before the end of the year. As we saw last year, the government may allow some of these to be rolled over into early next year. Higher export quotas have obviously translated into higher export volumes of refined products. Over the first seven months of the year, refined product exports totalled 36.62 million tonnes, up 46% year-on-year. Diesel exports have seen the largest increase with 8.4 million tonnes exported, compared to just 2.4 million over the same period last year.   China refined product export quota releases exceed 2022 levels (m tonnes)

CAD: Jobs prints are volatile, but BoC should be done anyway Canadian jobs figures for the month of August will be released today. The headline employment number has been quite volatile, with the past four months having seen two very strong prints (April and June) and two sub-zero ones (May and July). However, the unemployment rate has ticked up in each of the past four months, from 5.0 in April to the current 5.5%. The consensus numbers are 17.5k and 5.6% for today. Outside of the initial reaction for CAD, the implications of today’s figures beyond the very near term should not be very significant, barring a very strong read. As discussed in our Bank of Canada meeting review note, we think rates have peaked in Canada, in particular following the dismal 2Q GDP reading (-0.2% quarterly, annualised). USD/CAD is expensive, trading around 2.3% above its near-term fair value, according to our calculations, but any decisive turn lower remains tied to a turn in US activity data rather than domestic inputs on the Canadian side. 

US weekly jobless claims drop to lowest levels since February Apple shares slide as China’s crackdown on iPhone use grows; Losing over $200 billion in market value BOJ’s Nakagawa reiterates stance that BOJ and gov’t are monitoring FX rates and impact on economy The US dollar index hit its highest level since March as risk aversion runs wild on higher interest rate fears and as global growth concerns spread to the US.  The dollar is poised to have an eight straight week of gains, but that is somewhat capped against the Japanese yen.  US stocks are falling on concerns that the Fed might not be done tightening and over uncertainty over how far China’s iPhone ban will extend into other parts of American technology.  Also weighing on sentiment is the global growth story that remains uninspiring following slightly better-than-expected China trade data and as fears grow for German industrial output.  For the US economy, the labor market is not softening quickly enough and that makes the Fed stick to the hawkish script that they might not be done raising rates.  The yen got a minor boost after BOJ Nakagawa stated that the central bank will closely coordinate with the government in monitoring foreign exchange rates and paying due attention to any impacts on the economy. Japanese officials will remain consistent with this messaging, but markets won’t react that much unless we significantly more yen weakness. Apple The Nasdaq is sinking as one bad Apple spoils a bunch of mega-cap tech stocks.  Apple’s growth story is heavily reliant on China and if the Beijing crackdown intensifies that could pose a big problem to the bunch of other mega-cap tech companies that rely on China.  The WSJ reported that China is banning iPhone use for government officials at work.  China is delivering some harsh restrictions on overseas technologies, and this could really hamper Apple’s revenue outlook as China is their largest foreign market.  The mega-cap tech trade appears ripe for pullback, but most investors will likely be eyeing the early AI winners and not so many companies that are still in the early stages of their investment.  Microsoft and Nvidia will likely outperform their peers.    USD/JPY Daily Chart     Earlier verbal intervention might have helped stall the dollar’s rally against the yen, but this latest pressure on tech stocks is significantly weighing on sentiment, which could help keep the yen supported. Japan officials are getting unexpected support from a bad Apple outlook, which help support a dollar-yen dip back to the lows seen earlier in the month.  The dollar temporarily surged after jobless claims fell to the lowest levels since February, but some are expecting that to influenced by the impact of Hurricane Idalia. The key levels for dollar-yen remain 145.80 and 148.00, with volatility expected to remain elevated given a breach of either the 145 or 150 levels.  If the broader dollar strengthening cycle remains that will eventually tip the scales of the massive divergence in central bank policy. One more Fed rate hike getting fully priced in might not be enough to get USD/JPY back to last October’s high, so you might start to see some bearish positioning.    

The Commodities Feed: Oil remains well supported Energy markets remain well supported. ICE Brent is holding above US$90/bbl as the market tightens, whilst extended maintenance in Norway has supported European gas prices.   Energy - Middle distillate strength The oil market ended little changed yesterday with ICE Brent still hovering above US$90/bbl. The tightness in the market and expectations that this will continue through until the end of the year suggest that prices will remain well supported. However, where there is even more strength in the oil market is in middle distillates, where the prompt ICE gasoil crack is trading above US$40/bbl, whilst the outright price is back above US$1,000/t. Although to be fair, this is the Sep-23 contract, which expires today. However, there is strength along the curve with the market deeply backwardated, highlighting the tightness in the market at the moment. Reports that Russia will cut seaborne exports of diesel by around 25% in September due to refinery maintenance and to ease domestic fuel prices have only provided further upside. The concern for the market is that in most regions inventories are tight as we head closer to the Northern Hemisphere winter - a period where we usually see stronger demand for middle distillates. Therefore, we believe that middle distillates are likely to remain well supported in the coming months, whilst this tightness suggests that the market will also be volatile. European gas prices remain well supported with TTF settling close to 3.9% higher yesterday. Australian LNG strike action will be supportive, however, extended maintenance at Norwegian fields is likely the bigger driver. Maintenance work at the Troll field has been extended yet again, which is impacting around 125mcm/day. This work is expected to go on until 13 September and then capacity will be brought back gradually in the coming days and weeks. Norwegian flows are currently around 135mcm/day, down from around 330mcm/day in mid-August. Looking at the calendar day today, OPEC will release its monthly oil market report, which will include August production numbers for the group, along with their latest outlook for the oil market. The report will likely continue to show expectations that the market will tighten for the remainder of the year. Then later in the day, the EIA will release its Short Term Energy Outlook, which will include their latest US oil production estimates for this year and 2024. Given the downward trend in US drilling activity, it is difficult to see any large upward revisions in output estimates

US stock futures trade steady after a tech share led rise on Monday, while European stock futures trade higher ahead of UK jobs data and EU and German sentiment surveys. The dollar has stabilised after falling by the most in two months after Japan and China signaled willingness to take steps that would support their currencies. Elsewhere, US Treasuries hold steady following Friday’s slump with focus on a heavy issuance calendar and Wednesday’s CPI which is expected to show a monthly acceleration to 0.6% amid higher energy prices. Crude near the highs of the year with traders awaiting monthly reports from OPEC and EIA while gold continues to test support. The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events. Equities: The Nasdaq 100 index led US stocks higher on Monday with Tesla jumping 10% after Morgan Stanley upgraded the stock. Key events in equities this week to watch are Arm IPO (Wednesday), Adobe earnings (Thursday), ECB rate decision (Thursday). The US inflation report on Wednesday is also a potential market mover if inflation surprises to the upside. FX: The retreat of the US dollar brought strong gains across the G10 board although dollar gains came back slowly overnight. The Japanese yen saw strong gains on the back of weekend Ueda comments that brought forward expectations of policy normalization. USDJPY dropped to lows of 145.91, coinciding with fresh recent peaks in JGB yields, before a rebound back to 146.50+ levels as US CPI is awaited. Yuan also strengthened with USDCNH briefly dropping below 7.30 from highs of 7.36+ amid verbal warnings from authorities, better-than-expected credit data as well as the continued appreciation bias in PBoC’s daily fixings. Commodities: Crude extended its rally on Monday as the dollar softened, and the fuel sector recorded strong gains amid continued tightness. Focus on monthly oil market reports from OPEC and EIA with gains being led by the fuel products. Strong performance in metals led by iron ore up 3.5% and copper up close to 2.5% with China credit data and a stronger yuan boosting sentiment. Gold trades in a tight range between the 200- and 50-day moving averages with moves in the dollar and yields the focus ahead of US CPI on Wednesday. Finally, a harvest pressured grains sector awaits a monthly supply and demand report from the US government. Fixed-income: This week, the bond market will focus on inflation data, US Treasury auctions, and the ECB rate decision. Yesterday’s 3-year Treasury note sale attracted little demand, with indirect bidders falling to the lowest since October 2022. The auction tailed by one basis point for the first time since June as investors expect the Federal Reserve to keep rates higher for longer. Today, the Treasury will sell $35 billion 10-notes. Overall, we remain cautious, favoring the front part of the yield curve over a long duration. Bonds will gain as the economy starts to show signs of deceleration. Still, larger coupon auction sizes and a hawkish BOJ will support long-term yields unless a tail event materializes. We still see 10-year yields rising further to test strong resistance at 4.5%. Volatility: Options volumes on Tesla have been exceptionally high over the last 2 trading days. With volumes of over 3 million option contracts per day it’s almost double of the normal volumes, while the implied volatility of Tesla is also rising, building up towards its earnings release next month. The broader market saw another day of decline in the VIX, currently at 13.80, and the VIX futures having touched their lowest since January 2020. Macro: US NY Fed inflation expectations rose higher for one-year to 3.6% from 3.5%, while the long-term five-year also rose 0.1ppt to 3.0% from 2.9%. However, the three-year expectations dipped to 3.8% from 3.9%. In the news: China’s PBoC asks banks to get approval for dollar purchases over USD50 million (Reuters), EU Commission cuts euro zone growth forecast as Germany in recession (Reuters), Representatives from eight core member institutions of the China National Forex Market Self-regulatory Mechanism met on Monday to discuss about maintaining the stability of the renminbi (Xinhua), Strong demand pushes Arm to close IPO order book early (FT), Qualcomm strikes new Apple deal on 5G chips (FT), US and Vietnam unveil billions in semiconductor and AI deals (FT) Technical analysis: The author is away Macro events: UK jobs report (Aug) est. 30k vs 97k prior (0600 GMT), Ger ZEW Survey (Sep) est –15 vs -12.3 prior (0900 GMT), US 10-year T-note auction ($35 billion) Commodities events:  EIA’s Short-term Energy Outlook (1600 GMT), USDA’s World Agriculture Supply and Demand Estimates (1600 GMT), OPEC’s Monthly Oil Market Report (During the day), API’s Weekly Crude and Fuel Stock Report  

 In our new series "from zero to hero" we explain option techniques and strategies and make them accessible for everybody. This article specifically provides an introduction to selling options, often called premium selling and how to make money with them, as well as the associated risks involved. From zero to hero: selling options Introduction In our previous from-zero-to-hero guide, we unraveled the intricacies of buying options, laying a foundation in the vibrant world of options trading. Yet, as the saying goes, it takes two to tango. While buying options is one side of the story, there is another pivotal character in this narrative — the seller.   So, who are these sellers? Could you potentially step into their shoes? How does selling options work, and what does it entail in terms of risks and rewards?   In this guide, we will delve into the other half of the options trading dance — selling options. It's about time we answer these pressing questions, helping you explore the avenues of generating potential profits as an option seller, while understanding the ropes to manage the associated risks adeptly.   Basics of selling options What does it mean to sell options? Ever wondered who is on the other side of the transaction when you buy an option? It's the options sellers, individuals or entities selling you the rights that come with the option contract. When you sell an option, instead of acquiring the right to buy or sell an asset at a predetermined price, you are granting that right to someone else. Essentially, you are creating an options contract and selling it to a buyer in exchange for a premium - a fee that the buyer pays upfront.   Why sell options? Selling options can be a strategic move to generate income. Each time you sell an option, you receive a premium from the buyer, which is yours to keep, regardless of whether the option gets exercised. Here are some reasons why investors choose to sell options:   Income through premiums: Regularly selling options can create a consistent stream of income from the premiums collected. Potential ownership at a lower price: If there's a particular stock you have your eye on and would consider buying at a reduced price, selling put options might be a strategy to explore.   Types of options you can sell: call and put  You've learned about buying call and put options in the previous guide; now let's flip the perspective and explore the inverse strategy:   Selling a Call Option: When you sell a call option, you're essentially taking the opposite viewpoint of a call buyer, who is bullish on the stock. Let's take an imaginary company, BigCompany, as an example, which is currently trading at $50 per share. You believe that in the short term, the stock will not appreciate significantly, and therefore you decide to sell a call option with a strike price of $55 for a premium of $1.50 per share (or $150 in total, as one contract typically controls 100 shares).In this case, your break-even point at expiration is $56.50, which is obtained by adding the premium received to the strike price ($55 + $1.50). You would retain the entire premium if the stock price remains below $55. However, if the stock price surges above $56.50, you'd start experiencing losses, since you would be obligated to sell the shares at $55, even though they are trading at a higher market price.Below is a screenshot that visualizes this concept (it uses other prices, but the principles remain the same). In bullets 1, 2 and 3 the outcome of selling the call is profitable, only bullet 4, a steep rise contradictory to the assumption, is negative.   2. Selling a Put Option: Conversely, selling a put option means you're taking a stance contrary to a put buyer, who is bearish on the stock. Going back to our imaginary BigCompany scenario, if you speculate that the stock will not decrease much from its current $50 price point, you might choose to sell a put option with a strike price of $45, earning a premium of $1.50 per share or $150 in total. Here, your break-even point is $43.50, which is the strike price minus the premium received ($45 - $1.50). You are essentially betting that the stock won't fall below $45 before the option expires. If the stock remains above $45, you get to keep the entire premium, which turns into your profit. Conversely, if the stock falls below $43.50, you will incur losses as you have a commitment to buy the shares at $45 each, even if the current market price is lower.       Below is an screenshot, showing the concept of selling a put (using different prices, same principles). In bullets 1, 2 and 3 the outcome of selling the put is profitable, only bullet 4, a steep decline against your assumption, is negative for your P&L.       In both scenarios, selling options allows you to earn a premium, which can either cushion potential losses or enhance your profits if the market moves sideways or slightly in your anticipated direction. It introduces a strategy where you can benefit from the market's stability or slight movements, contrasting with buying options, which generally necessitates substantial price swings to turn a profit.       How to profit and manage risk while selling options   Making money through premium collection The primary way to profit from selling options is by collecting premiums. When you sell an option, the buyer pays you a premium, which is credited to your account. This premium is yours to keep, irrespective of whether the option is exercised. Let’s delve into how this works:   Premiums as a Safety Net: When you sell options, the premiums you collect can serve as a safety net, adding some cushion to your financial endeavors. Here's how:  Selling a Call Option: If you are selling a call option, you are agreeing to sell the underlying asset at a specified price within a set period. If you own the underlying asset and are willing to sell it at the strike price, the premium you collect can help cushion any potential decrease in the asset's market value. Essentially, it provides a buffer, securing you some earnings irrespective of the asset's market movements. Selling a Put Option: Conversely, when you sell a put option, you are agreeing to potentially buy the underlying asset at a predetermined price. If you intend to buy the asset at the strike price, the premium you collect can offset a potential rise in the market price, acting as a safety cushion that mitigates the higher purchase price. 2. Utilizing Time Decay: Options lose value over time, a phenomenon known as "time decay." As an options seller, time decay works in your favor. The closer the option gets to its expiration date without being in the money, the more its value decreases, potentially allowing you to buy it back at a lower price than what you sold it for, pocketing the difference. Understanding and managing the risks   While selling options can be profitable, it is not without risks. Here, we outline some of the risks involved and how you might manage them:   Potential for Large Losses: Selling options can potentially lead to substantial losses, especially if the market moves sharply against your position. It is essential to be aware of the potential losses and to manage your risk appropriately. Margin Requirements: When you sell options, you are required to maintain a margin account. This means that you need to have a certain amount of capital in your account as a security. Being aware of the margin requirements is vital to manage your risk effectively. Early Assignment Risk: There is always a risk of early assignment when selling options. Early assignment happens when the buyer of the option chooses to exercise their right to buy or sell the underlying asset before expiration. This risk can be managed by keeping an eye on the intrinsic value of the option and being prepared to take action if necessary.   Strategies to mitigate risks   While the risks are present, there are strategies that you can employ to mitigate them:   Setting Stop Losses: One strategy is to set stop losses to limit potential losses. A stop loss is an order placed to buy or sell once the stock reaches a certain price. Spreading: Another strategy is to use spreads to limit potential losses. In a spread, you sell one option while simultaneously buying another, helping to cap both the potential profits and losses. Spreads is what is called a "options strategy", which we will cover in future "From zero to hero"-articles. Hedging: Though we are keeping it simple in this guide, know that there are advanced strategies like hedging that can further help in managing risks, which you might explore as you become more comfortable with options trading.   Crafting a strategy and identifying opportunities   Analyzing Market Conditions To identify lucrative opportunities for selling options, it's crucial to have an understanding of the broader market landscape and the specific conditions surrounding the assets you're interested in. Here are some aspects to consider:   Volatility: Understanding the volatility of a stock can help in determining the potential premium you might receive from selling an option. Typically, higher volatility leads to higher premiums. Economic Indicators: Keeping an eye on economic indicators and news can provide insights into the potential movements of the stock market, helping you to make informed decisions. Company Performance: Before selling options on a company’s stock, consider the company’s performance, financial stability, and future prospects.   Developing a Strategy Once you have a grasp of the market conditions, the next step is to develop a strategy that suits your financial goals and risk tolerance. Here are some strategies commonly employed by options sellers:   Covered Calls: If you own shares of a stock, you might consider selling call options on that stock to generate additional income. This strategy is known as writing covered calls. Cash-Secured Puts: Another strategy is selling put options while having the necessary cash to purchase the underlying stock if it gets assigned. This strategy, known as cash-secured puts, allows you to potentially buy the stock at a lower price while earning a premium. Naked Options: For the more adventurous investor, there's the strategy of selling naked options. This involves selling options without owning the underlying asset, a strategy that comes with higher risk but also higher potential rewards.   Tools and Resources As you embark on your journey into the world of selling options, having the right tools and resources at your disposal can be a game-changer. Here are a couple of suggestions:   Trading Platform: SaxoInvestor and SaxoTraderGo are excellent platforms to start your options-journey. SaxoTrader Pro is our top of the line platform for advanced trading and research. Educational Resources: Continuously educating yourself through reliable resources aids in making informed decisions. Plenty of high quality content can easily be found via search engines, Youtube and others.       Venturing into the world of selling options can feel like discovering a secret garden in the financial landscape. It's a space where you can find new ways to grow your savings and secure a little extra for the future.   Imagine having a toolkit where you not only benefit when stock prices go up but have strategies to pocket gains even when the markets are not on your side. Selling options offers this toolkit, allowing you to play a different game where the moves are more in your control.   With selling options, there's a whole new world of possibilities, from earning through premiums to exploring strategies that can be beneficial in various market scenarios. It's all about understanding and making choices that align with your financial goals.   Dipping your toes into the realm of selling options can provide a unique perspective on managing and diversifying your investments.  

Tomorrow’s US August CPI is the pick of the week’s data releases and, after two years of heightened volatility in this data, we can say with some confidence that an upside surprisewould be USD-positive and vice versa. But how much is a surprise “worth” andis thereaction instantaneous? As the cleanest play on US rates prospects, we focus ontheUSD/JPY reaction here.     The two charts above show the difference between the core CPI outcome andtheBloomberg consensus forecast (horizontal axis) and the change in USD/JPY (vertical axis) after five minutes and after one hour. Data are from January 2021 up to last month’s July2023 data. As expected, almost all of the data points for non-zero surprises are inthebottom left and top right quadrants. Several observations are worth making Firstly, the beta reported on the first chart implies that on average a 0.1%pt surprise, either upside or downside, is associated with a 25pt move in USD/JPY after five minutes. We would stress that there is a wide range of outcomes around the average, but this gives an idea of what a “normal” market response would be to a given surprise in the data.   If we exclude the two upside outliers (0.5pt and 0.6%pt surprises), the initial reactionrises to 40pts for a 0.1%pt surprise, which may be a fairer estimate as both of theseobservations were very early in the current inflation cycle and were clearly treatedwithsome scepticism by markets. Secondly, because the beta in the second chart (the move after one hour) is larger thanthe beta in the first chart, the initial USD/JPY move tends to extend an hour later, rather than reverse. Again this is on average and will not always hold. But with that caveat inmind, the rightstrategy is generally to trade with the initial market reaction, rather thanto fade it.

The ECB meeting on Thursday is not likely to be as straightforward as many have seemed over the last year. Even before we get to the new economic forecasts and what that means for monetary policy over the remainder of the year, there isn’t much of a consensus in the markets around what the decision on interest rates will be tomorrow. Markets are pricing in a little more than a 60% chance of another rate hike – probably the final one – and almost a 40% chance of a pause, with around a 70% chance that one will still follow at one of the upcoming meetings.   ECB Interest Rate Probability     How are markets positioned? Obviously, with every currency pair, both components have to be taken into consideration but it’s interesting that EURUSD slipped below the 200/233-day simple moving average band a couple of weeks ago and has neither recovered or accelerated lower.   EURUSD Daily Source – OANDA on Trading View   Perhaps this is a result of some apprehension ahead of the ECB meeting – and today’s US inflation report which triggered some initial volatility but didn’t ultimately swing the pair one way or another – or some slightly dovish positioning in case the ECB opts for its first pause? That should become clearer tomorrow but with the pair already seeing some resistance around the prior lows – 1.0765 – a dovish outcome could see the pair accelerate lower. A significant move (initial volatility can produce big swings that don’t turn out to be significant) below 1.07 and the most recent lows would be very interesting and may suggest that dovish, and bearish, outcome has occurred.    

ECB rate decision expected to be a close call US to release retail sales and producer prices The euro is showing limited movement on Thursday, ahead of today’s ECB rate decision. In the European session, EUR/USD is trading at 1.0736, down 0.06%. Will she or won’t she? All eyes are on ECB President Christine Lagarde, who will decide whether the ECB will increase rates by a quarter-point or hold off and take a pause after nine straight increases. Interest rate futures have priced in a hike at 65% but there is a lot of uncertainty among economists and the decision is expected to be a close call, as the Governing Council appears split on the issue. There are strong arguments on both sides, and Lagarde could end up with a type of compromise that ends up being a ‘hawkish hold’ or a ‘dovish hike’. The latest development was a report in Reuters on Wednesday that the ECB inflation forecasts will be increased at today’s meeting, which raised expectations for a hike. Traders should be prepared for volatility from the euro after the decision, which is a binary risk event for the euro. A rate hike would likely boost the euro while a hold could weigh on the currency. Still, any swings in EUR/USD could be immediate and short-lived. The markets will be paying close attention to the policy statement and whether the Governing Council decision was a close call. It’s a busy day in the US as well, with the release of retail sales and producer prices for August. Retail sales are expected to ease to 0.2% m/m, down from 0.7% m/m, while PPI is forecast to rise to 1.2% y/y, up from 0.8% m/m. The releases could trigger volatility from EUR/USD in the North American session.   The US inflation report on Wednesday was a mix, as headline inflation rose in August from 3.2% to 3.7%, while core CPI eased to 4.3%, down from 4.7%. The jump in headline inflation may have attracted media attention, but the Fed will be pleased with the drop in core CPI, which is a better gauge of underlying inflation. The inflation report has cemented a pause at next week’s meeting, with the future markets pricing in a pause at 97%, up from 93% prior to the inflation release. . EUR/USD Technical EUR/USD is testing resistance at 1.0732. Above, there is resistance at 1.0777 There is support at 1.0654 and 1.060        

Our latest calls on the National Bank of Hungary Based on the latest information, we're revising our previous forecasts for the National Bank of Hungary's upcoming rate-setting meeting.   The annual congress of the Hungarian Economic Association took place on 21-22 September, where members of the National Bank of Hungary (NBH) made important comments on the monetary policy outlook. The information that came to light contradicts our calls in our previous NBH note (published before the congress). As a result, we are now revising our call. What remains unchanged is that at the September rate-setting meeting the effective interest rate and the key interest rate will be merged at 13%, and that monetary policy will thus enter the second phase of normalisation. The National Bank of Hungary announced that, as a result of the simplification of the monetary policy toolkit in September, the effective interest rate will become a "deposit-like" instrument. At the same time, the central bank made it clear that it will pay the base rate on excess reserves as of 1 October. These signals suggest that the overnight deposit tender will be lowered to 13% as the effective rate at the rate-setting meeting, but will be phased out from 30 September. From October, the effective rate will become the policy rate, as most of the excess liquidity will flow into reserve accounts. This effect is the result of the other important announcement: that the central bank sees the symmetry of the interest rate corridor as part of the normalisation, with the corridor being plus/minus 100bp around the key rate. In this context, we expect the Monetary Council to lower the overnight deposit rate (the floor of the corridor) to 12%, and the overnight lending rate (the ceiling of the corridor) to 14%. With these changes, excess liquidity is expected to flow into reserve accounts as excess reserves after the quick deposit tender is phased out, making the base rate the effective interest rate again. The biggest challenge in this major overhaul of the monetary policy framework is communication. The central bank needs to make it crystal clear that the effective interest rate will remain at 13% after the quick deposit facility is withdrawn. With this new setup, we also change our forecast for the interest rate path in such a way that we still see the year-end base (and effective) rate at 12%, but the path to getting there will be different. Rising volatility and market uncertainty in the coming months (changing monetary policy set-up, EU funds and fiscal policy uncertainties) could lead the NBH to be overly cautious, resulting in only 25-25bp of rate cuts in October - November. After that, the expected positive outcome of the EU debate and the possible avoidance of rating downgrades in December set the stage for a series of 50bp rate cuts.   Our market views The National Bank of Hungary's monetary policy is approaching a turning point, and the Hungarian forint will continue to be a key variable. The central bank seems committed to maintaining positive interest rates and a high carry for Hungarian assets, which should sustain market demand. Implied FX yields remain almost double in Hungary compared to the rest of the CEE region. Given the dovish market expectations, we see room for upward repricing here when the market realises that NBH is not going to continue the set pace of rate cuts in previous months. Overall, we remain positive on the HUF despite higher volatility and lower EUR/USD. In fixed income, we see that the market has fully switched into dovish mode, and the coming months may be disappointing for the market. With the IRS curve almost fully normalised and the 2s10s close to CEE peers for the first time since the middle of last year, we see a chance for some upward correction, especially at the short end of the curve. Moreover, the massive carry for payers at the short end of the curve could attract market attention if this is the case. On the Hungarian government bond (HGBs) side, we have heard a lot of noise in recent weeks due to the fiscal risk, as in other countries throughout the region. On the positive side, we believe that the increase in borrowing needs should cover at least most of the state budget problem. After the increase in needs, we estimate that the debt management agency has already covered around 77% of the planned issuance of HGBs. The supply side should therefore remain under control. On the other hand, excessive dovish expectations, the EU money issue expected to return to the table in the coming weeks, and the uncertain fiscal picture all create an uncomfortable mix of risks. Most of this year's positive Hungary story has already been played out in our view, and with current valuations with 10y trading at ROMGBs level, HGBs do not have too much to offer at the moment.

The EUR/USD currency pair continued its downward movement throughout Tuesday. Volatility remained relatively weak, and the decline was not too strong. Nevertheless, it is very stable and raises no questions. We have repeatedly mentioned in recent weeks that such a movement is expected from the European currency, even if it seems illogical at first glance. For example, on Monday and Tuesday, there were no significant events or publications to justify the continued decline of the European currency. Last week, we expected an upward correction, which has yet to materialize. However, this market situation is the most logical one after the euro either rose unjustifiably in the first half of the year or simply held at a very high level without a correction. We believe that this factor is crucial for the euro and the dollar right now.   Consider this: if the Federal Reserve has raised and is raising interest rates more aggressively than the ECB, why have we seen the euro currency rise over the past year? Assume that the market has already set prices for all rate increases in the United States. In that case, why weren't rate hikes in the European Union priced the same way? The European economy has been struggling for several quarters, while in the US, we have seen quarterly growth of 2-3%. Based on all these factors, we have constantly stated that it's time for the pair to move downward. Significantly and for the long term. We do not rule out the possibility that, by the end of the year, the euro currency will return to parity with the dollar. In the 24-hour timeframe, the pair has breached the important Fibonacci level of 38.2% (1.0609) and is now almost guaranteed to drop to the 5th level. Remember that we have long referred to level 1.05 as the target. However, the movement to the south may not end there. We fully consider the possibility of a drop to the next Fibonacci level of 23.6% (1.0200). Muller and de Cos are once again pushing the euro lower. There have been no significant macroeconomic publications in the past few days. Only today in the United States will the report on durable goods orders be published, which can be considered more or less significant. However, over the past few days and the entire last week, we have witnessed speeches by representatives of the ECB's monetary committee. Several times a day. In principle, it became clear last week that the ECB is on the home stretch and will raise rates at most one more time. As we have mentioned, in the case of the ECB or the Federal Reserve, such actions can be considered logical, as the central banks have raised (or will raise by the end of the year) rates to almost 6%. Further rate hikes would be risky for the economy. But the situation is different with the ECB. The rate is slightly above 4%, which is clearly insufficient to bring inflation back to the target level in the near future.     But we are not here to judge the ECB; we are merely stating a fact: the ECB's rate has increased too weakly compared to the Federal Reserve's rate, and the euro currency has risen for too long based on expectations of a strong tightening of monetary policy in the European Union. The European currency may continue to decline peacefully because a wave of disappointment has now covered the market. On Tuesday, Madis Muller from the ECB stated that he does not expect a new rate hike. De Cos and de Galhau, the heads of Spain's and France's central banks, as well as Vice President de Guindos, had previously made similar statements. In one way or another, all ECB representatives have indicated that further tightening will only be possible in the event of accelerated inflation. However, the market is not too satisfied with this formulation because everyone understands that the European Union will be battling high inflation for several years to come. Just like the United Kingdom, but at least with Britain, it can be said that the central bank has done everything it could.   The average volatility of the EUR/USD currency pair over the last 5 trading days as of September 27th is 65 points and is characterized as "average." Thus, we expect the pair to move between the levels of 1.0495 and 1.0625 on Wednesday. A reversal of the Heiken Ashi indicator upwards will indicate a new attempt to make a slight correction. The nearest support levels are: S1: 1.0498 Nearest resistance levels: R1 = 1.0620 R2: 1.0742 R3: 1.0864     Trading recommendations: The EUR/USD pair maintains a downtrend. Short positions can be held with targets at 1.0510 and 1.0495 until the price consolidates above the moving average. Long positions can be considered if the price consolidates above 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, it means the trend is strong right now. The moving average line (settings 20.0, smoothed) determines the short-term trend and the direction in which trading should be conducted at the moment. Murray levels: target levels for movements and corrections. Volatility levels (red lines): the probable price channel in which the pair will move in the next day based on current volatility indicators. CCI indicator: its entry into the overbought region (above +250) or oversold region (below -250) indicates that a trend reversal in the opposite direction is approaching.  

US and European equity futures trade mixed following Tuesday's US technology stocks led weakness after consumer confidence dropped to a four-month low and the expectations index fell below a level that in the past has signaled an incoming recession. The S&P 500 dropped to a June low as the Fed’s higher for long message drove US 10-year yields to a fresh 16-year high while the Dollar index reached a fresh year-to-date high. Overnight equities in Hong Kong gained with those on the mainland cooling after sharp gains earlier as China reported improved industrial profits Crude oil prices remain elevated adding to inflation concerns while gold trades soft near $1900. The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events. Equities: The relentless rise in long-end US Treasury yields saw selling accelerate across US stocks on Tuesday with the S&P 500 dropping 1.5% to hit the lowest level since June 7. Technology stocks, which led the rally earlier this year, has been challenged all month on concerns the Fed’s higher for longer message is starting to hurt consumer confidence. A message that was strengthened after the Consumer Expectations Index declined below 80, the level that historically signals a recession within the next year. The S&P 500 will be looking for support around 4,200, the 50% correction of the March to July rally and the 200-day moving average. FX: The DXY dollar index broke higher to fresh YTD highs, having taken out the 105.80 resistance, as long-end Treasury yields continued to rise. Data remained soft, helping keep the short-end yields capped but Fed member Kashkari, who is usually a dove, noted he puts a 40% probability on a scenario where Fed will have to raise rates significantly higher to beat inflation and a 60% probability of a soft landing. USDCAD rose to 1.3528 while GBPUSD slid below 1.2150 and next target at 1.20. EURUSD plunged further to lows of 1.0556 while USDJPY is hovering close to the 150-mark as verbal jawboning continues to have little effect. Commodities: Crude oil remains rangebound with tight market conditions, as seen through the highest premium for near-term barrels in more than a year, being offset by a stronger dollar and the general risk-off tone. API inventory data showed a crude build of 1.6m barrels vs expectations of a 1.7m drop. Gold trades below $1900 on continued dollar and yield strength with focus on $1885 support while China property market concerns sees copper traded near a four-month low. Meanwhile in agriculture, El Nino has been confirmed, and it could be a strong one, potentially impacting food inflation from rising risks of droughts in Southeast Asia, Australia and Brazil-Columbia. Fixed Income. The Federal Reserve’s higher-for-longer message reverberates through higher long-term US Treasury yields. Unless there is a sign that the job market is weakening significantly, or that the economy is slowing down quickly, long-term yields will continue to soar. With 10-year yields breaking above 4.5% and selling pressure continuing to mount through an increase in coupon supply, quantitative tightening and less foreign investors demand, it’s not unlikely to see yields to continue to rise towards 5% until something breaks. This week, our attention turns to US PCE numbers and Europe CPI data and US Treasury auctions. Yesterday’s 2-year notes auction received good demand while offering the highest auction yield for that tenor since 2006. Yet, our focus is on the belly of the yield curve with the Treasury selling 5- and 7-year notes today and tomorrow. If demand is poor, it might mean that the yield curve is poised to bear-steepen further. Overall, we continue to favour short-term maturities and quality. Volatility: The CBOE Volatility Index jumped 2 on Tuesday to close at 18.94%, a four-month high after the underlying SPX index lost 1.5% to settle at the lowest level since June Macro: US consumer confidence fell for a second consecutive month to 103.0 from 108.7 (upwardly revised from 106.1) and beneath the expected 105.5. Present Situation Index marginally rose to 147.1 (prev. 146.7), while the Expectations Index declined further to 73.7 (prev. 83.3), falling back below 80 - the level that historically signals a recession within the next year. Inflation expectations for the 12 months ahead were unchanged at 5.7% in September. New home sales in the US fell 8.7% to 675k from 739k (upwardly revised from 714k), shy of the consensus 700k. Fed's Kashkari has published an essay where he says there is a 60% chance of a soft landing with a 40% chance the Fed will have to hike 'significantly higher'. In the news: FTC Sues Amazon, Alleging Illegal Online-Marketplace Monopoly (WSJ), Foreign brands including Tesla to face scrutiny as part of EU probe into China car subsidies (FT), Senate leaders agree on a short-term spending bill, aiming to avert a shutdown, extending government funding until November 17, pending House approval (CNN). What ‘peak oil’ will mean for China (FT), Americans finally start to feel the sting from the Fed’s rate hikes (WSJ), Exclusive: German economic institutes forecast 0.6% GDP contraction this year – sources (Reuters) Technical analysis: S&P 500 downtrend support at 4,200. Nasdaq 100 support at 14,254. DAX downtrend support at 14,933. EURUSD downtrend support at 1.05. GBPUSD below support at 1.2175, oversold, next support 1.2012. USDJPY uptrend stretched but could reach 150. Gold bearish could drop to 1,870. Brent and WTI Crude oil resuming uptrend. US 10-year T-yields uptrend expect minor correction Macro events: US Durable Goods Orders (Aug) est –0.5% vs –5.2% prior (1230 GMT), Feds Kashkari Speaks on CNBC (1200 GMT), EIA’s Weekly Crude and Fuel Stock Report (1430 GMT)

FX Daily: Back to the status quo The quarter-end flows effect has faded. Markets are steadily back on a short-bond/long-dollar track, helped by an improvement in US ISM manufacturing and hawkish Fed comments. EUR/USD and GBP/USD look on track to test the 1.0400 and 1.2000 support levels. Meanwhile, the RBA's new governor sent a message of continuity and added pressure on AUD.   USD: Reclaiming the crown We had pointed at quarter-end flows as the likely cause for dollar weakness into the end of last week, and yesterday’s price action set markets back on the short-bonds/long-USD track that has been the norm since mid-July. Two factors have helped this narrative re-consolidate along with the quarter-end effects fading: an improving ISM manufacturing and hawkish Fedspeak. US September ISM manufacturing beat expectations yesterday, climbing to 49.0 from 47.6. S&P Global Manufacturing PMIs for September were also revised higher to 49.8. As discussed in this note, this is the 11th consecutive ISM manufacturing read in contractionary territory (sub-50). Still, the improvement to the 49.0 level and the close correlation with GDP means we might see a very respectable 4.0% annualised growth print for the third quarter. That would surely boost the Federal Reserve's soft-landing view for the economy. In the past few days, we have also heard FOMC hawks becoming increasingly vocal about the prospect of more rate hikes in what appeared to be a 'rate protest', with markets only pricing in a 50% implied probability of another rate increase to a peak despite that being part of the dot plot projections. Loretta Mester hit the headlines with a call for another hike this year, following Michelle Bowman’s suggestion that multiple hikes are still needed. Michael Barr struck a more moderate tone but did not rule out another hike. The USD 2-year swap rate climbed back above 5.0% yesterday, which might now work as a floor with the Fed sending hawkish messages and barring a turn for the worst in US data in the near term. The residual gap between the dot plot projections and market pricing for 2023 and 2024 also indicates good chances that USD short-term rates can build some support. Expect markets to focus primarily on August JOLTS job openings figures today, the only highlight in the US data calendar. Raphael Bostic – a fairly dovish voice as of late – is the only scheduled Fed speaker. Volatility in back-end yields should continue to determine the direction of FX moves. Another bearish leg to 4.75%+ in US 10-year bonds can probably keep DXY on track to hit 108.00 in the near future.    

Services PMIs in focus as stock markets struggle By Michael Hewson (Chief Market Analyst at CMC Markets UK)   Yesterday saw another day where rising US yields and a strong US dollar continued to exert downward pressure on stock markets with the DAX sinking to a fresh 6-month low, while the FTSE250 fell below its July lows to its lowest levels this year.   US markets also fell back with the S&P500 closing just above its 200-day SMA, as well as at a 4-month low. The Nasdaq 100 also had a poor day after the latest numbers for job openings jumped sharply in August by 600k, while the Dow slipped into negative territory for the year. The sharp rise in long term rates relative to short term rates suggests investors think that US interest rates are likely to remain higher for longer due to the continued resilience of the US economy. Consequently, this bear steepening is slowly unwinding the inversion of the 2/10s from the -105bps we saw at the end of June and where we are now at -35bps. If this trend of rising long-term rates continues, then stock markets could well be in for even more volatility in the days and weeks ahead. Let's not forget 2-year yields are still above 10-year yields, a situation which is far from normal. Under normal circumstances long term rates would be above short-term rates, which means this yield adjustment still has some way to go. How it plays out will be key to how stock markets perform over the next few weeks.     Also weighing on US markets was the voting out of US House speaker Kevin McCarthy, by fellow dissident Republicans on disappointment over the weekend agreement of a deal to avert a US government shutdown until November 17th. With the House now without a majority leader, a new leader will need to be appointed, a time-consuming process if the McCarthy experience is any guide, which could complicate the prospect that we might get a new deal when the current deal expires next month. If you thought UK politics was dysfunctional, then the US runs it a close second.       The weak finish in the US looks set to translate into a weak European open, with Asia markets falling sharply this morning with the focus today on the services sector and the latest US ADP jobs report.     The recent flash PMIs for France, Germany and the UK suggest further economic weakness in the services sector in September. France especially has seen a sharp slowdown despite hosting the Rugby World Cup with the flash services number falling to 43.9 from 46. Germany, on the other hand, saw a modest pickup from 47.3 to 49.8. In the UK we also saw a modest slowdown from 49.5 to 47.2, as concerns about a Q3 contraction across Europe continued to gain strength.       The weak flash readings from France and Germany make it even more puzzling as to why the ECB felt it necessary to raise rates at its last meeting, although one suspects it may well have been its last. In the US the services sector is proving to be more resilient at 50.2, while the ISM services survey has tended to be more resilient and is expected to come in at a fairly solid 53.5. Yesterday the latest JOLTS numbers for August showed a big jump in vacancies to 9.6m in a sign that the US labour market remains surprisingly resilient driving long term US yields to new multiyear highs. Today's ISM as well as ADP payrolls report could add further fuel to that yield fire with another set of strong numbers, ahead of Friday's September payrolls report. ADP payrolls saw 177k jobs added in August, falling slightly short of forecasts of 195k. Slightly offsetting that was sizeable upward revision to July from 324k to 371k, but overall, the main gains have been in services. Expectations are for 150k jobs to be added.        EUR/USD – has slipped below the 1.0480 lows of last week, opening up the potential for a return towards parity, with the next support at 1.0400 which is 50% pullback of the 0.9535/1.1275 up move, followed by 1.0200. The main resistance remains back at the 1.0740 area, which we need to get above to stabilise and minimise the risk of further weakness.       GBP/USD – looks set for a test of the 1.2050 area with a break targeting the 1.1835 area which equates to a 50% retracement of the move from the record lows at 1.0330 to the recent peaks at 1.3145. Only a move back above the 1.2430 area and 200-day SMA stabilises and argues for a return to the 1.2600 area.         EUR/GBP – appears range bound with resistance at the 0.8700 area and resistance at the 200-day SMA at 0.8720, which is capping the upside. A break of 0.8720 targets the 0.8800 area, however while below the bias remains for a move back to the 0.8620 area.     USD/JPY – made a 12-month high of 150.16 yesterday before plunging to 147.35 on the back of possible intervention from the Bank of Japan. With no confirmation at the time of writing that intervention took place, any further moves higher could be choppy. Below 147.30 signals the top is in.     FTSE100 is expected to open 6 points lower at 7,464     DAX is expected to open 33 points lower at 15,052     CAC40 is expected to open 12 points lower at 6,985  

Whoever is driving the sell-off in US Treasuries – be it 'bond vigilantes' protesting against fiscal policy or just a market view for structurally higher policy rates – the outcome is a dollar-positive tightening in financial conditions. Higher volatility warns of a further unwind in carry trade strategies. Undervalued currencies can stay undervalued. The rising tide of global bond yields – especially US bond yields – is becoming the dominant theme in global FX markets. Whether it is views of structurally higher policy rates or ‘bond vigilantes’ demanding governments take fiscal responsibility more seriously, the net result is tighter financial conditions. This is normally a dollar positive. Concerns over the ‘erosion of governance’ of the US budget trajectory look unlikely to be soothed any time soon. Additionally, it looks as though the Fed may keep its hawkish bias for a little longer. This means that despite November and December typically being weak months for the dollar, the dollar may in fact hold recent gains into year-end. As always, the dollar is the currency of the United States and everyone else’s problem. Here we expect Chinese and Japanese officials to keep battling to support their currencies at 7.30/$ and 150/$ respectively. EUR/USD does not look particularly undervalued and in addition to weak eurozone growth, we are concerned that the re-introduction of the Stability and Growth Pact next year could keep the euro soft.  The ING view remains that three quarters of US contraction and a 200bp Fed easing cycle will take its toll on the dollar – hence our bearish 12-month forecasts.   In terms of the broader environment, tighter financial conditions have driven volatility levels higher and sparked an unwind of the FX carry trade. That may well continue this month and is a negative for most EM currencies. Additionally contentious elections in Poland and Argentina this month could add to volatility in the EMFX complex.

Analysis of transactions and tips for trading GBP/USD Further growth became limited because the first test of 1.2176 coincided with the sharp rise of the MACD line from zero. As for its second test, it occurred when the MACD line went into the overbought area, providing a signal to sell. This resulted in a price decrease of over 20 pips. The remarks of Bank of England member Huw Pill did not help pound rally, unlike the soft statements from Fed representatives, which led to an upward movement in the pair towards the end of the US session. However, the price remained within the sideways channel, so sellers have a good chance of returning the market to its lower boundary today. Waiting for data on the UK's unemployment rate and speech by Bank of England member Swati Dhingra.     For long positions: Buy when pound hits 1.2190 (green line on the chart) and take profit at the price of 1.2229 (thicker green line on the chart). Growth will occur after the breakdown of the upper boundary of the sideways channel. However, when buying, the MACD line should be above zero or just starts to rise from it. Pound can also be bought after two consecutive price tests of 1.2157, but the MACD line should be in the oversold area as only by that will the market reverse to 1.2190 and 1.2229. For short positions: Sell when pound reaches 1.2157 (red line on the chart) and take profit at the price of 1.2113. Pressure will increase since the chances of a decline seem much higher than those of a breakout. However, when selling, the MACD line should be below zero or drops down from it. Pound can also be sold after two consecutive price tests of 1.2190, but the MACD line should be in the overbought area as only by that will the market reverse to 1.2157 and 1.2113.   What's on the chart: Thin green line - entry price at which you can buy GBP/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 GBP/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.  

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.

EUR: Unsustainable gains Yesterday was a volatile session for EUR/USD. Eurozone headline inflation dropped more than expected to 2.9%, but markets might have focused on core staying relatively high at 4.2% by looking at the positive EUR/USD reaction. Anyway, the rally was very short-lived. Above-consensus US employment costs and consumer confidence, Canada entering a technical recession, and sustained USD/JPY demand all prompted a dollar comeback and EUR/USD is now trading closer to its 1.0550 anchor. Today, the direction of travel for EUR/USD will be set by US data releases first and the FOMC then. As discussed in the USD section above, we might see a dollar correction, but our base case is that it would follow the pattern of the one we saw yesterday, with gains above 1.0650 in EUR/USD proving hardly sustainable. Most of Europe is on holiday today, so European calendars are quite empty.

US yields spike, equities fall, oil rebounds By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Bad. Yesterday's 30-year treasury auction in the US was bad. And this time, the bad auction got the anticipated reaction. The US Treasuries saw a sharp selloff - especially in the 20 and 30-year papers. The US 30-year yield jumped 22bp, the 20-year yield jumped more than 20bp, while the 10-year yield jumped 18bp to above 4.60%.   Then, the Federal Reserve (Fed) Chair Jerome Powell's speech at an IMF event was hawkish. Powell repeated that the FOMC will move 'carefully' and that the Fed won't hesitate to raise the interest rates again, if needed. The US 2-year yield is back above the 5% level.   Of course, the sudden jump in US yields hit appetite in US stocks yesterday. The S&P500 fell 0.80%, and Nasdaq fell 0.82%. The US bond auction brought along a lot of volatility, questions, and uncertainty.  At 5%, the US 2-year yield is still 50bp below the upper limit of the Fed funds target range. Therefore, if the Fed could convince investors that the rates will stay high for long, this part of the curve has potential to shift higher. On the longer end, we could reasonably expect the US 10-year yield to remain below the 5% mark – and even ease gently if economic growth slows and the job market loosens. A wider inversion between the US 2-10-year yield should boost the odds a higher of US recession. But hey, we are used to the inverted yield curve, and we believe that it won't necessarily bring along recession. Goldman sees only a 15% chance of US recession next year. 

Our favourite currency in 2024, however, is the Australian dollar. High US rates and weak Chinese growth have repressed it and made it the most undervalued currency in the G10 space. The release valve of lower US rates should allow the Aussie dollar to lead the currency recovery against the US dollar. A hawkish Reserve Bank of Australia should not hurt either. We are also bullish on the NZD/USD and are interested in whether the new government changes the Reserve Bank of New Zealand’s remit – a potentially bullish factor for NZD. USD/CAD should come lower too, and while Canada’s high yield helps, its proximity to the US may be more of a burden in 2024. On the subject of carry, lower volatility favours the carry trade and also the yen as a funding currency. However, we have some quite aggressive forecasts for a lower USD/JPY on the back of a weaker dollar and finally a proper Bank of Japan exit from ultra-loose policy. Big policy changes in Japan can have a big impact on USD/JPY as in 2013. Let’s see how the start of 2024 progresses and whether the BoJ is prepared to make its move after all.  

The Commodities Feed: OPEC+ meeting delayed Oil prices came under pressure yesterday as this weekend’s scheduled OPEC+ meeting has been delayed. Disagreement between members leaves uncertainty over the group’s output policy for 2024.   Energy - OPEC+ meeting delayed Disagreement has returned to the OPEC+ alliance, which has seen the group’s scheduled meeting to discuss 2024 output policy delayed. Unsurprisingly, this news weighed heavily on the market - Brent was down as much as 4.9% at one stage yesterday. However, the market managed to claw back some of these losses to settle just 0.59% lower on the day. OPEC+ was scheduled to meet on 26 November. However, the meeting has been pushed back to 30 November. Several members are reportedly unhappy about their production targets for next year, levels which were announced back in June. This is specifically the case for Angola, Congo and Nigeria, who had their production targets cut since they struggled to hit their 2023 targets. These members were unhappy back then, and it was agreed that their targets would be revisited before the end of this year and possibly revised higher. Clearly, this has not happened. Angola’s output target was cut from 1.46MMbbls/d in 2023 to 1.28MMbbls/d in 2024, Congo’s target was reduced from 310Mbbls/d to 276Mbbls/d, whilst Nigeria’s target was cut from 1.74MMbbls/d to 1.38MMbbls/d. While Angola and Congo are currently producing below their 2024 production targets, Nigeria has managed to increase output recently and is pumping around 1.49MMbbls/d - above its target for next year. Disagreement between members will likely increase volatility within the market over the course of the next week. It is unclear how this will affect broader policy, or whether it could have any impact on Saudi Arabia extending its additional voluntary cut of 1MMbbls/d into early 2024. The EIA’s weekly inventory report was fairly bearish with US crude oil inventories growing by 8.7MMbbls over the week. This leaves total US commercial crude oil inventories at a little over 448MMbbls - the highest level since July. Despite refinery utilisation remaining below average levels for this time of year (following a fairly heavy maintenance season), gasoline stocks still increased by a marginal 750Mbbls. However, the distillate market continues to tighten. Distillate fuel oil inventories fell by a little over 1MMbbls, which leaves stocks at a little under 106MMbbls- the lowest since May 2022 and at the lowest level in at least 20 years for this time of year. We continue to believe that middle distillates will remain well supported.

Analysis of GBP/USD 5M   GBP/USD also experienced a minor downward correction on Wednesday, while overall volatility reached 100 pips. This is already something to talk about. Unfortunately, during the European session, movements left much to be desired. In general, we witnessed a flat, and the pair only started to move normally during the U.S. session when three more or less significant reports were published in America. As we mentioned before, reports on durable goods orders and the University of Michigan's consumer sentiment turned out to be weaker than expected. However, the third report on initial jobless claims was better than the market's expectations. In our opinion, one positive report could not outweigh two negatives, so we believe that the British pound fell on Wednesday due to the pair's overbought condition. Speaking of trading signals, the flat condition during the European session did not bring any profit. During the first half of the day, four signals were formed around the level of 1.2520, and they were all false signals because the pair, essentially, stood still. Therefore, when the fifth signal was formed around the level of 1.2520 during the U.S. session, it should not have been executed. And the best movement of the day began at this time. Traders could open 1-2 trades in the morning, incurring a small loss, and could then work out the rebound from the level of 1.2445, which allowed them to offset this loss. However, there was no substantial profit.

New Zealand retail sales expected to decline by 0.8% US markets closed for Thanksgiving The New Zealand dollar is in positive territory on Thursday. Early in the North American session, NZD/USD is trading at 0.6042, up 0.34%. Will New Zealand retail sales continue declining? Retail sales are a key gauge of consumer spending and the New Zealand consumer has been holding tightly to the purse strings. In the second quarter, retail sales fell 1% q/q, with most retail industries showing lower sales volumes. This marked a third consecutive losing quarter. The markets are bracing for another decline for Q3, with a consensus estimate of -0.8%. The soft retail sales data isn’t really surprising as consumers are being squeezed by high inflation and elevated borrowing costs. The decrease in household purchasing power has meant a decline in spending. High interest rates are still filtering through the economy, which could further dampen consumer spending in the fourth quarter. The Reserve Bank of New Zealand has put a pause on rates for three straight times, which has naturally raised speculation that the central bank has completed its tightening cycle, which has brought the cash rate to 5.5%. Inflation in the third quarter eased from 6.0% to 5.6% y/y in the third quarter and this decline means that there is a strong likelihood that the RBNZ will hold rates at the November 27th meeting. US markets are closed for the Thanksgiving holiday, which means we’re unlikely to see much movement today with the US dollar. That could change on Friday, with the release of US manufacturing and services PMIs. The consensus estimates for November stand at 49.8 for manufacturing (Oct: 50.0) and 50.4 for services (Oct. 49.8). If either of the PMIs miss expectations, that could translate into volatility from the US dollar.   NZD/USD Technical NZD/USD is putting pressure on resistance at 0.6076. The resistance line 0.6161 There is support at 0.5996 and 0.5885    

FX Daily: Don’t chase the dollar bear trend At the start of a quiet week for data, the dollar is hovering near recent lows. However, we do not think this is yet the start of the big, cyclical turn lower in the dollar we expect for next year. Instead, falling volatility and firm short-dated US yields can probably see the dollar hold onto current levels. Highlights this week include OPEC+ and key speakers. USD: Too soon The DXY dollar index is down around 3.5% from its highs seen in October. The drop looks largely down to the view that the Federal Reserve's tightening cycle is over and that portfolio capital can now be put back to work in bonds, equities, and emerging markets. While acknowledging that November and December are seasonally soft months for the dollar, our view is that this dollar sell-off has come a little early. We are bearish on the dollar through 2024 but expect the core driver to be a bullish steepening of the US Treasury curve – which has not happened yet. Indeed, US two-year Treasury yields remain firm near 5%. We thus urge caution in chasing this dollar decline much further. In terms of what this week has to offer, we pick out three themes: the Fed, OPEC+ and US data. Fed communication this week will come from the release of the Fed's Beige book and also some key speakers, including Fed Chair Jay Powell, on Friday. Remember that the Beige Book paints a picture of the economy to prepare the FOMC for its meeting on 13 December. It certainly is not clear that the Beige Book will paint a soft enough picture to support the 80bp of fed easing already priced for next year.  In terms of the OPEC+ meeting, our commodities team believe that the Saudis will extend their voluntary supply cut and that the oil market can find some support - a mild dollar positive. In terms of US data, the highlight should be some stable (0.2% MoM) core PCE inflation data for October and the ISM Manufacturing data on Friday.  Thursday's US inflation data is probably the largest bearish risk to the dollar this week. However, with cross-market volatility falling, it seems investors are once again interested in carry trade strategies. We have seen this theme several times this year already, and it is not a dollar negative. It is a negative for the funding currencies like the Japanese yen and the Chinese renminbi. Until we get some clear dovish communication from the Fed or US data is materially weak enough, we think this dollar drop might have come far enough for the time being and suspect that the 103.00/103.50 support area could well hold the DXY this week.

CEE: Rates should drive FX to further gains This week we start today in the Czech Republic, where wage numbers, key to the central bank, will be released. Markets expect real wages to fall 0.7% YoY in Q3, while the central bank expects 1.0% YoY. The National Bank of Poland (NBP) has a press conference scheduled today after the MPC published a statement on Friday on the incoming government's intention to suspend the governor. On Wednesday and Thursday, we will have some hard economic data across the region including industrial production or retail sales in the Czech Republic, Hungary and Romania. Also on Wednesday, we will see a decision from the NBP. We expect interest rates to be unchanged in line with market expectations. So the main event here will be the press conference on Thursday. On Friday, we will see inflation numbers in Hungary, where we expect another jump down from 9.9% to 7.9% YoY, slightly below market expectations. Also on Friday, S&P will publish a rating review of Hungary. The agency cut the rating down earlier this year, so we can't expect much new here. CEE FX remains volatile following the global story. However, if EUR/USD stabilises this week, rates should take over as the main driver again. Here, the picture for CEE remains positive. With core rates falling and lower beta of local rates in the region, interest rate differentials have improved in favour of CEE across the board. We expect more gains from PLN, which should be supported by the NBP's hawkish turn. EUR/PLN briefly touched lows of 4.320 on Friday, and we expect further testing of lower levels later. EUR/HUF, despite wild moves last week, should head lower after HUF rates stabilised. On the other hand, we expect EUR/CZK to move up towards 24.40 after the dovish data expected this week.

OPEC+ unofficially agree to 2.2 million barrel per day cut Full compliance with cuts already looks unlikely Brent continues to consolidate near recent lows Oil prices remain quite volatile but more importantly, not too far from their recent lows after traders judged yesterday’s announcement from OPEC+ with some skepticism. The lack of an official announcement, with details gradually appearing from individual member states indicated there’s no firm commitment to the 2.2 million barrel per day cut. And Angola insisting straight after it won’t comply further solidified that view. Saudi Arabia will be hoping that others will, in the main comply, after it committed to extending its one million barrel cut until the end of March, while Russia increased its export reduction from 300,000 to 500,000. But it seems traders either aren’t buying that members will be compliant or don’t view it as being sufficient. Or, of course, that the lack of formal commitment hints at fractures within the alliance which could impact its ability to hit its targets, let alone cut further if necessary. If Brent breaks below its November lows, it will be perfectly clear what markets think of the deal.   rent was testing a big area of resistance ahead of the OPEC+ announcement but has since headed lower creating a very interesting setup. Brent Crude Daily Source – OANDA on Trading View An imperfect inverse head and shoulders appears to be forming with the neckline around the 200/233-day simple moving average band (red). It was also an important area of support over the last few months. A move below the recent lows around $77 though would be a very bearish development, especially against the backdrop of the OPEC+ deal.

Optimising Floating Exposure: Efficient Frontier Analysis for US SOFR Borrowers tend to have both fixed and floating rate debt. Floating rate debt averages at a lower cost over time. But its more volatile than fixed rate debt (including mark-to-market). Fixed rate debt is more certain. But adding floating rate debt to the mix gets to a better risk/return outcome, and a lower cost. But how much floating is optimal?   Calculating Optimal Floating Rate Exposure Cutting to the chase, we find that 17.5% floating exposure acts to minimise interest rate volatility when compared with a reference of 10yr Fixed. Interest rate costs are also reduced, from 4.5% to 4.2%. This should be viewed as a minimum floating exposure (we explain in the section below how we come to this). Adding more floating exposure helps bring down rate costs. The cost in terms of higher volatility is not dramatic once it does not stray too far from the bottom of the hook on the efficient frontier. Having 32.5% floating exposure in fact results in the same volatility as being 100% Fixed. And it reduces interest rate costs by a further 25bp, to 3.95%. Tolerance for slightly more volatility can reduce rate costs further. We can find the tipping point on the efficient frontier before the trade-off between increased volatility and lower rate cost begins to really slip. At 45% floating, volatility is tolerably low (just before the tipping point), and interest rate costs are cut further to 3.75%. One important point to make is this analysis is based off not timing the market. It contrasts rolling 10yr exposures with rolling 3mth ones. Clearly a 10yr lock-in has zero volatility for that trade alone, but it still has volatility in terms of mark-to-market.   Efficient Frontier Analysis In the past 35 years, the average interest cost when 100% fixed has been 4.5%, while the average cost when 100% floating has been 2.9%. The respective standard deviations are 2.3% and 2.6%. Lower volatility fixed rate exposure comes at a higher rate cost. Volatility should a priori be higher for floating rate exposures. And the data confirm that interest rate costs have tended to be lower for rolling floating rate exposure, by some 1.6% on average, reflecting the tendency for the term structure to be upward sloping. The question is how to determine an optimal ratio of floating to fixed rate debt. We map out an efficient frontier between interest rate cost and volatility, based off SOFR rates stretching from the 3mth to the 10yr tenors (spliced to Libor adjusted rates).   Efficient Frontier - Minimum Volatility       The derived efficient frontier confirms that 100% fixed rate exposure is sub-optimal. By moving down the efficient frontier away from 100% fixed, we find that volatility can be reduced by adding some floating rate exposure. We find that volatility is minimised with about 17.5% of floating rate exposure (above chart). At this point, the average interest rate cost is 4.2%, some 30bp lower than the 4.5% achieved when 100% Fixed. Average rate costs can be reduced further by adding more floating rate exposure, but at the cost of higher volatility. But the question is how far to push floating rate exposure, while remaining within a tolerant band of volatility. Below is one possibility (below chart).   Efficient Frontier – Match volatility of 100% Fixed   At 100% Fixed, certainty is maximised. At 82.5% fixed, volatility is minimised (first chart). Moving further along the efficient frontier from left to right we can hit a point where volatility is the same as at 100% Fixed, but at lower interest rate cost (second chart). Here, a tolerable increase in uncertainty is introduced, as volatility is still quite low (as low as it would be if 100% Fixed). Floating rate exposure increases to 32.5%, and the average interest rate cost falls to just under 3.95%, compared with 4.5% if 100% Fixed. We could make a further push to the right along the efficient frontier by finding the point where the trade-off between volatility and interest rate cost hits a tipping point. We illustrate this below (below chart). At 45% Floating, the average interest cost is cut to around 3.75%, and the rate cost versus volatility ratio is not too far from the bottom of the hook on the efficient frontier.   Efficient Frontier – At turn of volatility vs interest rate cost trade-off   The following table has a summary of the exercise (below chart). As a technical note, the standard deviation as a proportion of the average interest rate cost rises as average interest rates fall (right-hand column). Not an issue as it is driven by lower rate costs.   Efficient Frontier Summary (based off data back to 1988)   Alternative Analysis (back to 2008) Some might object to using data through a relativity high rates regime (1980s and 1990s) and then a low rates regime (post GFC and pandemic). But we’d argue that this is the best way to do an unbiased long-run analysis. That said, if interested in how things would look if we took the last 15 years, it’s done below. Observations show the average 10yr SOFR rate is 2.3% since 2008, and the average 3mth SOFR rate is 0.9%. Rates volatility is lower but much higher in the 3mth rate when calculated as standard deviation as proportion of mean. Volatility is minimised with 10% floating, and up to 37.5% floating is doable before the 'tipping point'.   Efficient Frontier – Based off data back to 2008   Efficient Frontier Summary (based off data back to 2008)   Bottom line, floating rate exposure should be no less than 17.5% to achieve lowest volatility. At 32.5% floating, volatility is in fact equal to that of being 100% Fixed. Stretching to 45% floating is volatility tolerable, sitting at the vol tipping point. This full sequence moves from a rate cost of 4.5% to 3.75% (vs 2.9% floating) on data back to 1988. This all assumes not timing the market, and setting rolling 3mth versus 10yr exposures over time.    

Yen rebounds after two-day slide US inflation expected to drop to 3.0% The Japanese yen has ended a two-day slide, in which it dropped 1.4% against the US dollar. In Tuesday’s European session, USD/JPY is trading at 145.21, down 0.66%. Yen volatility continues The yen has been showing sharp swings since last Thursday, when signals from the Bank of Japan of a possible tightening in policy sent the yen soaring over 2% on Thursday. The yen then reversed directions and gave up much of those gains but has bounced back on Tuesday. The BoJ meets on December 18-19 in what has become a hotly anticipated event due to recent comments from Governor Kazuo Ueda and BoJ Deputy Governor Ryozo Himino. Ueda spoke of “an even more challenging situation” coming up for the BoJ and Himino mused about the consequences if rates were to rise into positive territory. On Monday, a report that Ueda was not referring to possible changes in rate policy sent the yen sharply lower. The takeaway is that the yen is very sensitive to talk about rate tightening and public comments from BoJ policy makers about rate policy ahead of the December meeting could have a strong impact on the yen’s movement. US inflation expected to decline to 3.0% The US releases November CPI later today, with a consensus estimate of 3.0% y/y, down from 3.2% in October. Monthly, CPI is expected to remain flat, unchanged from October. Core CPI, which has been running higher than the headline rate, is projected to remain unchanged at 4.0% y/y. Monthly, the core rate is expected to inch higher to 0.3%, up from 0.2% in October.   It’s a virtual certainty that the Fed will hold rates at a range of 5%-5.25% on Wednesday, but today’s inflation release could be a key factor as to what the Fed does in the upcoming months. There is a major disconnect between the markets, which have priced in four rate cuts in 2024, and the Fed, which is insisting that the door remains open to further hikes. A strong inflation report could temper market expectations for rate hikes next year, while a soft inflation release will provide support for the market stance and could force the Fed to reconsider its hawkish position. . USD/JPY Technical USD/JPY is putting pressure on support at 145.12. Below, there is support at 144.68 There is resistance at 145.85 and 146.89

How much floating rate debt should you have? We see the US as the key reference for identifying the optimal mix between fixed and floating rates. But other markets are worth looking at, as they throw up differing circumstances. The eurozone and Australia have an extreme horse-shoe efficient frontier. The UK has a linear trade-off between risk and cost, while Japan's is inversed. Recently, we published a short report that sought an optimal fixed versus float rate mix for a liability portfolio. We identified 17.5% as an optimal proportion of floating rate debt, one that managed to minimise volatility and achieve a 30bp reduction in interest rate costs relative to being 100% fixed. We also showed how further rate cost reductions could be considered by adding more floating exposure while not moving too far from the bottom of the hook of the efficient frontier. Efficient Frontier between rate cost and volatility for the US Employs data back to 1988 and contrasts 3mth versus 10yr SOFR (spliced to Libor) Note: This is based on not timing the market and comparing a rolling 3-month exposure to a rolling 10yr one. In reality, the 10yr exposure would be more mark-to-market in effect. As the global benchmark, we believe that US circumstances best represent the interest rate versus volatility trade-off over the long term. The Federal Reserve sets the global risk-free rate, and the US rates market has a dominating influence on other markets. That being said, what about those other markets? We’ve made some selections, and they all have their own stories. We find some quite stark differences but also find differing circumstances. The eurozone efficient frontier has an extreme horseshoe profile, as does Australia In the eurozone, some unusual circumstances occur. Being 100% fixed has come with both the highest funding costs and the highest volatility. The lower volatility for floating rate debt is unusual. It can be rationalised by the stability brought to the front end from extreme ECB policy and a pre-pandemic lost hope that the ECB would ever move away from the anchor of near-zero rates. Hence, being 100% floating resulted in the lowest average funding costs and lower volatility compared with being 100% fixed. But diversification benefits are also clear from the efficient frontier, where a combination of 60% floating and 40% fixed resulted in the lowest volatility. At the inflection point, there is a 75bp reduction in funding costs relative to being 100% fixed (2.8%), and funding costs are only 40bp higher compared with 100% floating (1.6%).     Efficient Frontier between rate cost and volatility for the eurozone and Australia     Australia is an interesting one. Its efficient frontier has a similar profile to that of the eurozone, but without the extended zero interest rate policy that helps to explain the unusual look. The overall averages for Australia are higher versus the eurozone (both the average rate cost and volatility). Gleaning from the efficient frontier, we find that something close to a 50:50 fixed versus floating rate mix has acted to minimise volatility. By doing so, there is a 50bp reduction in interest rate costs relative to being 100% fixed (5.2%). And at that inflection point, the interest rate cost is 70bp higher than being 100% floating (3.95%). There is value to diversification.   No efficiency on the UK frontier, just a straight trade-off. In Japan, it's even inversed Now, we move to two contrasting and unusual outcomes for differing reasons. First Japan. We see here an extreme example of the control that the Bank of Japan (BoJ) has had on keeping front-end rates on the floor (or through it) for an extended period of time. Funding costs from being 100% floating are exceptionally low. And that has come with minimal volatility. So, being 100% fixed has been higher in both funding costs and volatility. At the same time, the level of funding costs and volatility are lower than being 100% floating or fixed versus any other centre. We also find that while there is a clear but perverse trade-off between interest rate cost and volatility, in the sense that fixed-rate debt and higher funding costs come with higher volatility. The efficient frontier is practically a line slanted the “wrong” way and identifying no efficiencies; it’s just a straight-line frontier. Factor past BoJ policy as the chief influencer here.   Efficient Frontier between rate cost and volatility for the Japan and the UK Employs GBP swap data back to 1993, AUD bank data back to 1996 and contrasts 3-month versus 10yr     Then we move to UK circumstances. Here, we also find a straight-line frontier. It almost looks stereotypical in the sense that fixed-rate funding is more expensive and higher in volatility versus floating. However, the frontier fails to “hook” at the high rate / low volatility area and thus fails to identify an efficient inflection point. So, we don’t get to a lower volatility outcome through diversification. We can force an inflection through the choice of data periods, but we prefer to present the full dataset and observe the results. Here, there is a trade-off between floating and fixed-rate debt, but no answer as to how much is in each bucket.   If in doubt, use the US efficient frontier as the 'go to' reference So, where does this leave us? While the centres identified have interesting and contrasting outcomes, we view these as mostly a function of unique circumstances. It is certainly the case for Japan, and likely for the eurozone too. It is possible they get repeated and thus reflect the future. But it is more probable, in our opinion, that the US outcome will prove a more valid reference when making choices on the fixed versus floating choice set going forward. The UK efficient frontier is closest to the US one but misses the key hook that identifies the benefits of diversification. We'd override that by imposing the US frontier outcome on UK liability portfolios. Australia is a bit of an enigma, though. Of the markets considered, it has the greatest chance of deviating from the US-styled outcome that we favour as the central reference. But if in doubt, follow the US efficient frontier outcomes when planning for the future.  

  From what we can see on the daily chart of USD/CAD commodity currency pairs, there is the Loonie which is move down below where this is marked by the Alligator's mouth wide open and the Awesome Oscillator moving below level 0, meaning it is the Seller who dominates on the daily USD/CAD chart but a reversal signal appears, namely the first Wiseman Bullish Divergent Bar so that in the next few days USD/CAD has the potential for a turning point to occur strengthens upwards to level 1.3415 if volatility and momentum are supportive after breaking above that level then level 1.3618 will be the next target to be achieved but all the scenarios described above will become invalid and cancel automatically if before reaching the target levels mentioned above Previously, USD/CAD suddenly weakened again until it penetrated below the level of 1.3176.  

GBP/USD exhibited quite chaotic movements during the last trading day of the previous week, month, and year. The price constantly changed direction, but at the end of the day, it stayed above the trendline that has suggested an uptrend for the past couple of months. Therefore, the pair could resume its upward movement as early as Tuesday.   However, at the same time, the euro has settled below the trendline, indicating a good chance for a downward move. Take note that the euro and the pound often (almost always) trade in the same direction. Therefore, it wouldn't be surprising if the pound also settles below the trendline today. This would open up possibilities for the pound to fall towards the Senkou Span B line. Of course, any downward movement can easily come to an end near this line since the dollar is still weak, and market participants are not eager to buy it. However, this week will bring plenty of important information from the U.S., and if it turns out to be positive, the dollar could significantly strengthen its positions, especially amid a three-month decline and oversold conditions. Therefore, we believe that the pair could potentially start a downward movement as early as tomorrow, which we could work with. The main condition is for the pair to breach the trendline. Speaking of trading signals, there were quite a few on Friday, but volatility was weak, and the movements were chaotic. On the last day of the year, hardly anyone wanted to enter the market, especially since last week's movements were absolutely unpredictable. Therefore, we believe that the year has ended and it's best to leave it in the past.  

The bearish trend, a significant aspect of Forex trading, plays a crucial role in shaping investment decisions. This article aims to elucidate the characteristics of the bear market and its implications for traders. Understanding the Downtrend As discussed in our previous articles, a trend represents the direction in which the price of a currency pair is moving. A fundamental trading principle is to align investments with the trend rather than against it. Therefore, comprehending the downtrend is essential. The identification of a downtrend can be facilitated by analyzing charts that reflect past price values. Analyzing the Downtrend In the chart, the descending peaks and troughs, marked in red, signify a downtrend. Connecting the peaks forms a clear trend line. The strength of the trend is proportional to the distance between the peaks, with a larger gap indicating a more robust trend. While charts may not always vividly display trend lines, recognizing a general downward price trend can serve as a signal to temporarily exit the market. Bear Market Dynamics A bear market, synonymous with a downtrend, occurs when prices consistently decline. In the long term, it signifies a bearish market. Adhering to the popular adage "the trend is your friend," in such scenarios, traders usually contemplate selling. Bear markets often exhibit greater volatility compared to bullish trends, attributed to the accompanying unease amid declining prices. Support and Resistance Lines Support and resistance lines denote potential reversal points in the price movement of a currency pair. In a downtrend, support comprises the successive troughs, each lower than the previous one. These levels represent the depths of prior downward movements, acting as points where the price resisted further decline. Conversely, resistance surfaces when there is a visible level at which the price resisted further upward movement. Referring to the "change of poles" principle, if a resistance level is breached, it transforms into a support level. This pivotal moment often prompts seasoned traders to enter the market. Understanding the dynamics of a bear market is crucial for Forex traders. By recognizing the signs of a downtrend, interpreting charts, and comprehending the roles of support and resistance lines, traders can navigate the complexities of bearish markets more adeptly.

The Commodities Feed: US natural gas prices spike higher Spot US natural gas prices spiked higher on Friday on the back of cold weather across large parts of the US. Meanwhile, tensions in the Middle East remain elevated following US and UK airstrikes in Yemen last  Energy- US natural gas prices spike higher The oil market saw a fairly choppy trading session on Friday with ICE Brent trading within a US$2.79/bbl range. Brent briefly broke above US$80/bbl amid ongoing tension in the Middle East, specifically the Red Sea, following US and UK airstrikes against the Houthis in Yemen. However, the market was unable to hold on to these earlier gains. While geopolitical risks are certainly building, we are still not seeing a reduction in oil supply as a result of developments in the region. But, the more escalation we see in the region, the more the market will have to start pricing in a larger risk of supply disruptions.   Speculators boosted their positions in ICE Brent over the last reporting week, increasing their net long by 38,905 lots, leaving them with a net long of 208,748 lots as of last Tuesday - the largest position they have held since October. The move was predominantly driven by fresh longs with the gross long increasing by 29,942 lots over the period. Speculators also increased their net long in NYMEX WTI, with the net long increasing by 21,799 lots to 111,129 lots as of last Tuesday. For WTI, the move was largely driven by short covering, with the gross short falling by 20,138 lots. European gas storage has now broken below 80% with colder weather over the last week seeing the largest daily withdrawals from storage so far this winter. However, storage remains above the 5-year average of 68% for this time of year. For now, we are still assuming that European storage will finish this heating season at around 52% full, which suggests limited upside for European gas prices. The US natural gas market has seen increased volatility in recent days and Friday saw a significant jump in spot prices. While front-month Henry Hub futures settled almost 7% higher on Friday, spot prices jumped more than 300% to over US$13/MMBtu due to freezing weather conditions across large parts of North America. Colder weather will lead to stronger heating demand. But there are also supply risks. Freezing conditions expected in Texas could lead to disruption to natural gas infrastructure. Front-month futures have given back a lot of Friday's gains in early morning trading today. There is plenty on the energy calendar this week. On Wednesday, China will release its industrial production numbers for December, which will include output data for crude oil and refinery activity. OPEC will also release its latest monthly market report on the same day, which will include its 2024 outlook for the oil market. On Thursday, the International Energy Agency will release its latest oil market report, while China will release its second batch of trade data, which will include more detailed energy trade numbers. Also, given today is a public holiday in the US, the usual weekly inventory numbers from the API and EIA will be delayed by a day.   Agriculture – larger US corn and soybean supplies The USDA revised up its 2023/24 US corn production estimates by 108m bushels to a record 15.34bn bushels on account of rising yields. As a result, ending stocks are now projected to hit 2.2bn bushels, up 31m bushels from previous estimates. For the global balance, 2023/24 ending stock projections were revised up from 315.2mt to 325.2mt primarily due to larger supplies. Global corn production was revised up by 13.7mt to 1,235.7mt, with supply increases from the US (+2.7mt), and China (+11.8mt). For soybeans, the USDA raised its 2023/24 US production estimate from 4,129m bushels to 4,165m bushels, on the back of stronger yields. Ending stock estimates were revised up by 35m bushels to 280m bushels as a result. Given marginal adjustments in global production and usage compared to last month, ending stock projections for 2023/24 increased by just 0.4mt to 114.6mt. The USDA decreased its US wheat ending stocks estimate for 2023/24 from 659m bushels to 648m bushels following a reduction in beginning stocks. For the global wheat market, the USDA increased 2023/24 ending stock estimates from 258.2mt to 260mt, largely on account of higher stocks at the start of the year. Global wheat production estimates were increased by around 1.9mt to 784.9mt. In addition to the WASDE monthly update, the USDA also released its quarterly grains stocks report which showed that US corn and soybean stocks stood above market expectations as of 1 December 2023. US corn stocks totalled 12.2bn bushels, up 12.5% YoY and above market expectations of 12bn bushels. Meanwhile, US soybean stocks came in at 2.99bn bushels, down 0.7% YoY, but higher than the average market expectation of 2.97bn bushels. Finally, for US wheat, stocks were up 7.5% YoY to total 1.4bn bushels, largely in line with market expectations of 1.39bn bushels.

We remain in the midst of a rather quiet period of macroeconomic news out of New Zealand, with no tier-1 reports out yet in 2024. The New Zealand dollar instead continues to trade on global risk sentiment and news out of China. The PBoC’s surprise decision to hold its 1-year MLF rate unchanged today has triggered a bout of selling in both AUD and NZD this morning, with the New Zealand dollar slipping to its lowest level since mid-December amid fears over the health of Asia’s largest economy. Domestic activity should begin to pick up pace in the next few weeks, with a handful of economic data releases likely to ramp up volatility in the New Zealand currency. Q4 business confidence (Monday) and the December PMIs (Thursday) will be closely watched by investors. Market participants will also likely have one eye on next Tuesday’s Q4 inflation report, which will be key in determining the direction and timing of RBNZ interest rate changes in the coming few months.

CEE: FX looking for hard ground The calendar in the region is basically empty today but it seems that financial markets can find their own entertainment without it. CEE assets continue in higher volatility mode. After Tuesday's sell-off, Local currencies found some ground yesterday. From our perspective, we continue to see the Czech koruna as the most stable in this risk-off environment. Positioning was already short before the sell-off and the CZK seems to be firmly anchored to rates, which are not going anywhere for now thanks to the CNB's cautious approach. Therefore, we continue to see the 24.700-800 range as an anchor for EUR/CZK. Poland's zloty remains the only currency supported by higher market rates, improving the interest rate differential. On the other hand, market positioning here supports more selling pressure. Moreover, the political situation has only temporarily calmed down, in our view, and we are likely to see more noise in the near term. Therefore, we expect to see 4.400 EUR/PLN levels again soon -  rather next week than this. However, the key now will be mainly EUR/HUF, which is moving up fast ahead of next week's National Bank of Hungary meeting. We expect a 100bp cut on Tuesday but a still-weak forint is the risk to our call. We see 390 as a pain threshold where NBH will start to be more cautious and 395 as a hard stop for a 100bp rate cut and switch to the previous 75bp pace. We turned negative on HUF before the start of this sell-off due to FX and rate divergence, discussed here earlier. But now we believe this gap has closed in the last few days and the pressure on HUF should stop. However, the risk-off sentiment and long positioning is a clear risk here, which may further threaten the forint.

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.