This week the Bank of Canada and the ECB cut rates each by 25 basis points. For each, it was the central banks initial cut.

The Bank of Canada announced their interest rate decision on Wednesday. The central bank cut from what is restrictive policy, but acknowledge further cuts are dependent on upcoming data.

BANK OF CANADA RATE STATEMENT REVIEW

• „The Bank of Canada today reduced its target for the overnight rate to 4¾%, with the Bank Rate at 5% and the deposit rate at 4¾%.“
• „The Bank is continuing its policy of balance sheet normalization.“
• „The global economy grew by about 3% in the first quarter of 2024, broadly in line with the Bank’s April Monetary Policy Report (MPR) projection.“
• „In the United States, the economy expanded more slowly than was expected, as weakness in exports and inventories weighed on activity.“
• „Growth in private domestic demand remained strong but eased.“
• „In the euro area, activity picked up in the first quarter of 2024.“
• „China’s economy was also stronger in the first quarter, buoyed by exports and industrial production, although domestic demand remained weak.“
• „Inflation in most advanced economies continues to ease, although progress towards price stability is bumpy and is proceeding at different speeds across regions.“
• „In Canada, economic growth resumed in the first quarter of 2024 after stalling in the second half of last year.“
• „At 1.7%, first-quarter GDP growth was slower than forecast in the MPR.“
• „Consumption growth was solid at about 3%, and business investment and housing activity also increased.“
• „Labour market data show businesses continue to hire, although employment has been growing at a slower pace than the working-age population.“
• „Wage pressures remain but look to be moderating gradually.“
• „Overall, recent data suggest the economy is still operating in excess supply.“
• „CPI inflation eased further in April, to 2.7%.“
• „The Bank’s preferred measures of core inflation also slowed and three-month measures suggest continued downward momentum.“
• „Indicators of the breadth of price increases across components of the CPI have moved down further and are near their historical average.“
• „However, shelter price inflation remains high.“
• „With continued evidence that underlying inflation is easing, Governing Council agreed that monetary policy no longer needs to be as restrictive and reduced the policy interest rate by 25 basis points.“
• „Recent data has increased our confidence that inflation will continue to move towards the 2% target.“
• „Governing Council is closely watching the evolution of core inflation and remains particularly focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.“
• „The Bank remains resolute in its commitment to restoring price stability for Canadians.“

Summary of BOC Macklems press conference:

Bank of Canada Governor Tiff Macklem emphasized that interest rate decisions will be made on a meeting-by-meeting basis, depending on economic data. He said that if the economy continues to perform as expected and inflation eases, further rate cuts can be anticipated. Macklem is determined to bring inflation back to the 2% target but acknowledges that the work is not done and will evolve with the situation.

Macklem noted that the economy has broadly evolved as expected, boosting confidence that inflation will gradually return to the 2% target. However, the timing of any further cuts will depend on incoming data, with recognition of potential risks and bumps along the way.

Macklem stated that their forecasts indicate a gradual move towards the inflation target, but there are limits to how far their policy can diverge from the U.S., and they are not close to those limits. He also mentioned expectations for slower population growth, which has been factored into their forecasts. Population growth has eased employment pressures but increased demand for housing.

HE feells that the economy appears to be heading for a soft landing, with room for growth above potential for a period. While the Bank of Canada is normalizing its balance sheet, the policy remains restrictive due to inflation being above target. Macklem stated that interest rates will not return to pre-Covid levels and acknowledged past periods of significant divergence with the U.S. Federal Reserve.

On Thursday, the ECB also cut rates and like the BOC, the path for rates going forward is dependent on the data.

ECB RATE STATEMENT REVIEW

• „The Governing Council today decided to lower the three key ECB interest rates by 25 basis points.“
• „Based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady.“
• „Since the Governing Council meeting in September 2023, inflation has fallen by more than 2.5 percentage points and the inflation outlook has improved markedly.“
• „Underlying inflation has also eased, reinforcing the signs that price pressures have weakened, and inflation expectations have declined at all horizons.“
• „Despite the progress over recent quarters, domestic price pressures remain strong as wage growth is elevated, and inflation is likely to stay above target well into next year.“
• „The latest Eurosystem staff projections for both headline and core inflation have been revised up for 2024 and 2025 compared with the March projections.“
• „Staff now see headline inflation averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026.“
• „For inflation excluding energy and food, staff project an average of 2.8% in 2024, 2.2% in 2025 and 2.0% in 2026.“
• „Economic growth is expected to pick up to 0.9% in 2024, 1.4% in 2025 and 1.6% in 2026.“
• „The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner.“
• „It will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim.“
• „The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction.“
• „The Governing Council today also confirmed that it will reduce the Eurosystem’s holdings of securities under the pandemic emergency purchase programme (PEPP) by €7.5 billion per month on average over the second half of the year.“
• „The Governing Council decided to lower the three key ECB interest rates by 25 basis points.“
• „The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be decreased to 4.25%, 4.50% and 3.75% respectively, with effect from 12 June 2024.“

Summary of ECB Pres. Lagarde’s press conference said:

In October 2022, inflation peaked at double digits, but by September 2023, it had reduced to 5.2%, and currently, it stands at 2.6%. President Lagarde emphasized the need for more data to confirm the disinflationary path, noting that while restrictive measures were more pronounced in September, various factors such as base effects and wage trends could introduce uncertainties. Wages, particularly in the services sector, play a significant role in inflation. Although wages remain elevated, there are signs of a recent decline, and the ECB must consider wage divergences across countries and the impact on services prices.

The ECB’s policy decisions and data releases are not perfectly synchronized, making it difficult to predict future actions. Lagarde stated that market pricing of rate cuts is independent of ECB decisions, which have resulted in a reduction of anticipated rate cuts from 64 bps to 36 bps for the remainder of the year, totaling ~61 bps. Despite various challenges, including unanticipated bumps in the disinflationary process, the ECB is committed to bringing inflation back to the 2% target in the medium term. The decision to moderate the restrictive stance was almost unanimous, except for one governor. The ECB will continue to take a serious approach to combating inflation, staying restrictive until the 2% target is achieved. Lagarde affirmed that the ECB is far from reaching the neutral rate, which remains a key objective.

The Fed and BOJ are next

Next week the Fed will announce their rate decision on Wednesday while the Bank of Japan will announce its intentions on Friday.

For the Fed, the Fed is expected to keep rates unchanged. Inflation remains sticky and although the most recent CPI and PCE data was encouraging, it remains above the target rate. Many of the Fed officials – including Fed Chair Powell – have expressed the need to keep rates unchanged given solid growth and higher-than-expected inflation in the 1Q. The Atlanta Fed GDPNow growth estimate did decline to 1.8% recently, but has bounced back to 3.1% helped by the US jobs report today.

What will be of interest to the markets on Wednesday will be the projections for GDP, inflation and employment going forward, as well as the dot-plot of rate expectations at the end of 2024, 2025 and 2026 – especially the expectations for the end of 2024 (let’s face it, 2024 is hard enough. To forecast 2025 and 2026 is nice but just a guess). The median of growth, employment and inflation from March’s projections showed GDP at 2.1% in 2024, unemployment at 4.0% and Core PCE at 2.6%. GDP is higher than that currently which may prompt a move higher in their end of year forecast. THe unemployment rate reached 4.0% today and as a result, may be raised as well. The Core PCE may be a touch low given the stickiness.

The dot plot forecast 3 cuts by the end of the year in March (target 4.6%). The market is currently pricing in about 40 basis points by the end of the year. That sounds about right.

Below is the look at the dot plot. It is hard to believe at the end of last year the Fed forecast 6 cuts in 2024.

The Bank of Japan is on a different path as they still maintain expansionary policy. They may look to pull back on bond buying when they announce its rate decision on Friday.

This article was written by Greg Michalowski at www.forexlive.com.

Headlines:

• Gold takes a dip on headline that China halts reserves buying after 18-month stretch
• Why gold dropped on the headline about China halting reserves buying?
• ECB’s Holzmann: I was the only one against a rate cut
• ECB’s Centeno: The message is one of confidence in the disinflation process
• ECB’s Villeroy: We will move at appropriate pace on rate cuts
• ECB’s Schnabel: We cannot pre-commit to a particular rate path
• ECB’s Rehn: Inflation will continue to decline
• ECB’s de Guindos: Inflation is to be around 2% next year
• ECB’s Nagel: The decision to cut rates was not premature
• ECB’s Šimkus: It is possible that there will be more than one rate cut this year
• ECB’s Nagel: Policy is not auto pilot when it comes to rate cuts
• Eurozone Q1 final GDP +0.3% vs +0.3% q/q second estimate
• Germany April industrial production -0.1% vs +0.3% m/m expected
• Germany April trade balance €22.1 billion vs €22.6 billion expected
• France April trade balance -€7.58 billion vs -€5.47 billion prior
• UK May Halifax house prices -0.1% vs +0.2% m/m expected

Markets:

• JPY leads, NZD lags on the day
• European equities lower; S&P 500 futures down 0.1%
• US 10-year yields up 1.9 bps to 4.300%
• Gold down 1.7% to $2,334.82
• WTI crude up 0.6% to $76.05
• Bitcoin up 1.0% to $71,395

It was mostly a session waiting on the US jobs report later. But there were a decent number of headlines to keep things moving along. And they were mostly all from the ECB, as policymakers were out en masse to try and justify the decision to cut rates yesterday.

Their commentary added nothing new to the picture though, with July being too soon for the next rate cut. September remains open but will be subject to the data in the next few months.

Major currencies kept more muted as such, with all the anticipation surrounding the non-farm payrolls data later. The dollar is steadier and keeping little changed overall. Dollar pairs are holding within 0.1% change of one another throughout the day. Talk about a snoozefest.

Equities remain more tentative, with European stocks retreating amid the perceived „hawkish cut“ by the ECB yesterday. US futures remain more muted ahead of the main event later.

Instead, precious metals were the big mover on the session. Gold took a dive after China halts buying for its reserves, following an 18-month streak in doing so. Are prices getting a bit too high perhaps? In any case, gold fell from $2,370 to $2,335 now. Meanwhile, silver was also dragged down in a push lower from $31.20 to $30.42 currently.

It’s over to the US jobs report next.

This article was written by Justin Low at www.forexlive.com.

• But we are also maintaining some prudence
• Our forecasts point to no inflation slowdown in June through to August
• We are sensitive to some hiccups in the disinflation process

The point on June to August being no slowdown in price pressures is in other words a mask that they will stay on hold until September at the earliest. Once again, this effectively rules out a move in July.

This article was written by Justin Low at www.forexlive.com.

• We won’t rush or procrastinate rate cuts
• Will move at appropriate pace
• Confident on a soft landing scenario

They have been out en masse today in justifying and reasoning their decision to cut rates yesterday. But overall, there isn’t anything new to add to the picture. A July rate cut can be safely ruled out but one in September is still potentially on the table.

This article was written by Justin Low at www.forexlive.com.

Fundamental
Overview

The Nasdaq this week rallied
strongly following the beat in the US ISM Services PMI where the data showed that the last
month drop was just a blip and overall we have a resilient economy with lower
inflationary pressures. The data continues to reinforce the narrative that the
next move is more likely to be a rate cut, and that inflation is likely to keep
coming back to target. This should keep the market supported amid a positive
risk sentiment.

The main risk today could
come from the US NFP report where bad data across the board could weigh on
sentiment and push the market lower. Overall, the buyers won’t want to see hot
wage growth and a big jump in the unemployment rate as both the outcomes should
be bearish for the market.

Nasdaq Technical Analysis – Daily Timeframe

On the daily chart, we can
see that the Nasdaq rallied to a new all-time high recently following the
strong US data. From a risk management perspective, the buyers will have a much
better risk to reward setup around the 18255 level where we can find the confluence
of the recent swing low and the trendline.
As things stand though, it’s unlikely to see such a big drop without ugly
labour market numbers or a surprising hot inflation report.

Nasdaq Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that the price recently surged to a new all-time high and consolidated
right around the previous all-time high level. This is where the buyers are
stepping in with a defined risk below the level to position for a continuation of
the trend. The sellers, on the other hand, will want to see the price breaking
lower to gain some control and target the 18255 level.

Nasdaq Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that we have a resistance
now at 19108 and a trendline acting as support around the 19000 level. The red
lines define the average
daily range for today, although the price can extend beyond these levels
when there are strong catalysts like today’s NFP report.

The buyers will want to see
the price breaking higher to increase the bearish bets into new highs. Alternatively,
they can lean on the trendline with a defined risk below it. The sellers, on
the other hand, will want to see the price breaking lower to pile in and target
the 18700 level.

Upcoming
Catalysts

Today we conclude the week with the US NFP report where the consensus sees
185K jobs added in May and the unemployment rate remining unchanged at 3.9%.
Moreover, the average hourly earnings are seen at 3.9% for the Y/Y figure and
0.3% for the M/M measure.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

Gold sold off on the headline that China halted reserves buying after an 18-month stretch. In my opinion, this has a lot more to do with the prevailing market narrative than a real fundamental reason. In fact, we’ve been hearing lots of talk about gold surging because of China and Russia buying, so the risk of that flow stopping triggered a negative reaction.

I would also point out that the selloff could have been exacerbated by algos and the price is now near the lower bound of the average daily range. Generally, the price doesn’t extend much beyond these levels unless there’s a very strong catalyst. Therefore, this might be a good opportunity for dip-buyers to fade the reaction.

In the bigger picture, gold is inversely correlated with real yields as it „competes“ with bonds. The opportunity cost of holding gold rises when real yields rise and falls when real yields fall. Therefore, the inverse relationship. You can see it in the chart below.

In the past two years people pointed out to the decoupling of the correlation, but they never really decoupled. It’s the magnitude that changed. In fact, when real yields have been rising, gold has been falling much less, and when real yields have been falling, gold has been rising much faster.

I’ve never really bought the narrative that gold has been rising due to China. If you look at the chart below which shows China’s gold reserves vs. gold, you will notice that gold has been rising in the past without China buying, and has been falling with China buying a lot. The main reason for the change in the magnitude might be related to the US fiscal profligacy.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

After much anticipation, registration is now live for Finance Magnates Pacific Summit 2024 (FMPS:24), the year’s largest professional event in the Asia-Pacific region. The premium event looks to bridge the B2B and B2C space, taking place in Sydney, Australia on August 27-29. Prospective attendees can expect to meet, network, and engage with the industry’s leading talent and brokers, while connecting with regional and local providers.

FMPS:24 is all about expanding one’s global reach or footprint through unique networking opportunities. Nowhere else in APAC will attendees have the chance to speak to so many different parties, speakers, and talent, all under one roof. This is one event you cannot afford to miss this August!

Register Today for FMPS:24

FMPS will be held at the world-famous International Convention Centre (ICC) in downtown Sydney. ICC Sydney is not only one of Australia’s leading venues but a locale renowned for its conventions, exhibitions, and entertainment. As one of the world’s greatest business event centers, ICC promises to be the perfect setting for FMPS:24, conveniently located next to the premium waterfront location at Darling Harbour.

Attendees can expect to take a deep dive into multiple verticals represented at length, such as the online trading, payments, digital assets, and fintech space. With only a few months to go until the doors of this event swing open, the time to reserve your seat is now and can be done by accessing the following link.

What Can Attendees Expect from FMPS:24?

FMPS:24 is APAC’s can’t miss event of 2024 that starts with professionalism and includes a diverse range of individuals available for doing business with. Attendees can expect to network, engage, and connect face-to-face with the following participants:

• Forex/CFD Brokers
• Institutional Brokers
• Affiliates & IBs
• Traders & Investors
• Educators & Market Experts
• Fintech & Payments Brands
• Crypto & Digital Assets Businesses
• Technology & Liquidity Providers
• Press/Media
• Regulators
• Start-ups
• Investors/VCs

In terms of content, FMPS:24 will take a explore the latest topics and trends with actionable insights, engaging conversation, and an eye on the future. This includes an entire content slate of discussions, webinars, workshops, keynote speeches, and much more.

These informative sessions provide the ideal forum and platform for traders and industry professionals to learn and gain valuable perspective into new trading techniques, technologies, and trends in Australia, APAC, and the broader financial services space.

Look for the event to attract upwards of 2,000+ attendees, 70+ exhibitors, and 50+ speakers, making FMPS:24 one of the largest events in Australia in 2024. Stay tuned over the next month for more updates on FMPS:24, including the rollout of the detailed agenda, and more!

This article was written by Jeff Patterson at www.forexlive.com.

US-based employers announced 63,816 job cuts in May this year, which is a roughly 20% decline compared to the same month a year ago. The number of layoffs is little changed compared to April, but this still represents the third-highest January-to-May total since 2009. Looking at the details, tech continues to lead job cuts overall but is significantly lower (60%) compared to the same period last year.

This article was written by Justin Low at www.forexlive.com.

The common
saying is that 90% of traders lose 90% of their money in the first 90 days.
That’s not an encouraging statistic for someone who wants to start trading, but
there are some common reasons why most beginner traders fail and knowing them
can help you to avoid the same mistakes and increase your chances of success.

KNOWLEDGE

The first
mistake is to jump into the markets without enough knowledge. That’s like
gambling and if you don’t know what you are doing and why, then you won’t
survive for long. Just look at how many retail traders jumped into the markets
during the covid pandemic and eventually lost all the gains. There are
stories of lucky people changing their lives yeah, but they are very rare, and
the chances are the same as winning the lottery.

EDUCATION

The second
mistake is getting the wrong education from social media influencers whose
goals are just to sell courses and signals. You have to be careful when you
invest in education because “an investment in knowledge pays the best interest”
but an investment in the wrong education can be deadly.

CAPITAL

Once you
have some knowledge, you need capital. The rule of thumb is to trade only the
money you can afford to lose. DO NOT trade money you need to pay bills or to
live off of in general. If you do that, you will already set yourself up for
failure because the psychological pressure will be so high that you will easily
make all kind of emotional mistakes, from fearing of missing out to revenge
trading.

EXPERIENCE

Even if you
get the knowledge, skills and capital, the last thing you need to get is
experience. Real life experience can’t be taught, it’s something you acquire
through practice and mistakes. It’s the best teacher for anything in life. Yes,
you can learn from other people’s mistakes, but nothing can substitute your
own.

In fact,
many successful traders study the past experiences to better forecast the
future. A famous saying by Mark Twain goes like “history doesn’t repeat itself,
but it often rhymes” and that happens in the financial markets as well. The
business cycle repeats many times and the market most of the time follows the
same pattern of booms and busts.

UNREALISTIC EXPECTATIONS

The last
mistake is setting unrealistic expectations. Beginner traders think that they
can become rich quickly with trading.
Unfortunately, this is a lie that comes from social media influencers
and marketers who need to sell a dream to make money.

Just to put
things in perspective, the best traders/investors in history average around 30%
yearly returns in the long run. This includes traders like Druckenmiller and
Soros who once bet 200% of their fund on one single trade.

On the
other hand, we have social media influencers talking about things like 1% per
day or 10% per month consistently. You can see the huge discrepancy here. In
general, if you can consistently beat the S&P 500 returns over the long run,
then you are good.

FINAL WORDS

You should
approach trading/investing as a skill that will help you grow your wealth over
time, not something that will make you a millionaire overnight. It’s not a way
out of poverty or way out of your job.

Fall in
love with the process, learn every day, give yourself time to understand things,
don’t rush and enjoy the ride. Trading can teach you a lot of stuff, from
geography to history, from politics to economics. All of this will make you a
better person both in the markets and in your life.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

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This article was written by FL Contributors at www.forexlive.com.