This will be more of a focus as we get closer to the Italian elections in late September. In any case, the ECB has bigger problems to worry about as the latest data out of Europe has been rather abysmal. Can they keep hiking through to year end with a recession looming large?
This article was written by Justin Low at www.forexlive.com.
In any case, the dollar is losing some ground but key technical levels are still holding and they are well worth watching in case we do see traders make any sudden moves before the Fed this week.
EUR/USD is up 0.4% to 1.0250 but is still a bit away from contesting the 50.0 Fib retracement level at 1.0283:
Meanwhile, GBP/USD is also up 0.4% on the day to 1.2050 but is facing some short-term resistance around 1.2033-45 with the Friday high at 1.2063 also potentially limiting an upside push for the time being. But if buyers can push through that, the next key level to watch would be a potential push towards 1.2200.
Another big pair to watch is AUD/USD as it is up 0.4% to just above 0.6950 at the moment:
The 50.0 Fib retracement level at 0.6982 is a key level to watch alongside the 0.7000 handle, with large option expiries also seen at the figure level today. That is likely to keep gains in check but a break above will make for an interesting technical situation with the 16 June high at 0.7069 a potential target before the 100-day moving average above 0.7100 currently.
This article was written by Justin Low at www.forexlive.com.
Let’s take a look at 10-year Treasury yields first.
The Friday drop saw yields fall back below the 100-day moving average (red line) but the previous lows at 2.70% to 2.72% is still very much holding and that will be a key spot to watch in case we see an extension to the bond bid from the end of last week. It’s all down to the Fed now and if there is reason for bonds to rally, a big drop in yields taking out the levels above will materially impact broader markets surely.
At the same time, 10-year German bund yields are also approaching a key level:
The drop on Friday took out the recent lows near 1.07% and saw yields fall to its lowest since the end of May. But more notably, it is approaching a test of the 100-day moving average (red line) again – a level which held in March. A drop back below the 1% mark and the key technical level should coincide with a broader bid in bonds and that may see markets react more strongly.
If we are to see a material drop in yields breaking the key levels as highlighted above, expect yen pairs to feel the gravitational force and be weighed lower as well. If this comes as a result of a Fed fail this week, expect that to drag the dollar down as well.
This article was written by Justin Low at www.forexlive.com.
In turn, that is seeing the dollar slip a little alongside the yen. EUR/USD has moved up from around 1.0200 to 1.0250 while GBP/USD has pulled higher from 1.1980 to 1.2045 and are trading at session highs at the moment.
This article was written by Justin Low at www.forexlive.com.
The main events of the week ahead are:
For the USD, the consumer confidence data, the FOMC Meeting and the Core PCE
Price index q/q; for the AUD, the CPI q/q; and for the JPY, the Japan
(Tokyo) Inflation which is not expected to have a major impact but could give
an insight into how nationwide prices are evolving. The BOJ is not showing
signs of joining the hawkish camp, at least for now.
The political crisis in Italy, the
battle for the next Prime Minister in the UK that’s expected to be over in
early September and the headlines about the war in Ukraine will continue to add
uncertainty in the market over the coming weeks. The unprecedented heat waves
hitting Europe are expected to impact the energy market in particular.
The W.H.O declared monkeypox a global
health emergency and it remains to be seen if the market will react in any way
to this development. And finally, the month end rebalancing is also something
we should keep an eye on.
As we’re heading into the last month of
summer, market conditions could be tricky due to low liquidity. Traders will be
taking a closer look at this week’s FOMC minutes. After Waller recently backed
a 75 bps rate hike the USD entered into a correction, but the market is now
pricing in a 100 bps hike. A lot can happen until Wednesday, of course.
Nomura expects a 100 bps hike, even
though the consensus among analysts is now for 75 bps, as it adjusted its view
after the last CPI print data. Nomura’s main argument is that given the
inflation increase it feels like the Fed could be behind the curve and this
will help them catch up.
This week’s meeting will set the tone
for the USD for the next month as there won’t be another FOMC meeting in
August; just the Jackson Hole Symposium.
Nomura analysts believe that after a
100 bps hike in July, the Fed will likely slow down to a pace of 50 bps in
September’s meeting, then three consecutive 25 bps hikes in November, December
and February.
For the AUD, all eyes will be on the
CPI data which will set the tone for the next RBA meeting on August 2nd. It is
hard to believe the data will be low enough to keep the RBA for hiking rates by
50 bps as expected, but if inflation exceeds expectations considerably, a 75
bps hike could come into play.
USD/CAD expectations
In the short term, the USD/CAD looks
good for selling opportunities targeting 1.2785. On the H1 chart the pair
closed the week near the 1.2945 level of resistance which, if rejected, will
move the next target to the 1.2830 support. On the upside the next resistance
is at 1.3040.
The CAD had a positive week, but it’s
possible that USD selling will see some restraint before this week’s FOMC
meeting. According to analysts from Scotiabank the CAD’s correlation with crude
oil and commodities strengthened in recent weeks. This is a sign that the
commodity market prices are stabilizing following the recent slide, but they
won’t resist the global growth slowdown over the longer term. The CAD might
have the opportunity to gain some ground on the USD over the short term.
It’s worth noting though that the
outcome of the Fed’s meeting could influence the pair direction.
The Dollar Index expectations
While the next FOMC meeting will set
the tone for the USD, there are concerns about the impact the continued USD
strengthening has on vulnerable countries with a considerable portion of their
sovereign debt in USD. Wells Fargo warns about potential repayment issues, sharp
economic slowdown in the developing world and a rise in the probability of
default.
On the H1 chart the DXY is flat and
it’s possible to enter a period of consolidation until Wednesday. From a
technical perspective there are a few levels to watch for: The DXY is near the
106.05 support. If broken, the next level of support is 105.10. On the upside
the next level of resistance is at 107.35 and 108.70.
I believe the USD correction is not
over yet and could continue over next month. In the long run the prospects for
the USD are bullish.
This article was written by Gina Constantin.
This article was written by ForexLive at www.forexlive.com.
„Open your eyes, look up to the skies and see; Europe’s
caught in a landslide: The ECB’s monetary policy matters less, than
President Putin’s gas export strategy. Nordstream 1 came back online
yesterday, but markets aren’t comforted. Not when even the
European Commission President acknowledges that “Russia is using energy
as a weapon; It is a likely scenario that there is a full cut-off of
Russian gas and that would hit the while European Union”. So, the euro’s
pre-ECB euro bounce after failing to break convincingly below parity
with the dollar, wasn’t given further impetus by a 50bp rate hike and
isn’t supported by the market now pricing a 1% discount rate by
Christmas,“ SocGen notes.
„The big issue is that the most optimistic outcome for the rest of
this year is while President Putin keeps the gas flowing, he continues
to use uncertainty about how much will flow as a bargaining tool and as a
means of sowing uncertainty and discord among Europe’s political elite.
That still leaves the Euro, to all intents and purposes,
unbuyable for the time being (probably for the rest of this year given
that the leverage gas supplies afford the Russian President is at its
greatest in the winter),“ SocGen adds.
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This article was written by Adam Button at www.forexlive.com.
However the number classified a symptomatic fell to 129 from 164.
The cases come from two main outbreaks in the northwestern province of Gansu and the southern region of Guangxi. Shanghai reported 3 symptomatic cases compared to 2 a day earlier while Beijing reported no local cases.
This article was written by Adam Button at www.forexlive.com.
Bitcoin technical analysis, failed breakout, for now
This article was written by ForexLive at www.forexlive.com.
NBH ANNOUNCEMENT (TUE): Based on recent commentary the NBH will likely decide to conduct a further hike to their Base Rate which currently stands at 9.75%, at the same level as their One-Week Deposit Rate following a 200bp increase. ING looks for a 1.25% increase given it’s the average of the last two meetings 50bp and 200bp moves; however, caveating that with expectations so high, the bar for a disappointment is low and EUR/HUF could revert back to 410 over the summer. At the last update, Deputy Governor Virag said hikes will continue in determined steps, altering from their prior “gradual” language. Adding, that hikes are set to continue until such a time as when CPI is seen peaking; for reference, the last inflation release was prior to the One-Week’s 200bp move and had the headline YY lifting to 11.7% (prev. 10.7%, exp. 11.5%). The next inflation print is due on August 9th. Elsewhere, at the meeting, Virag added that they will be acting against FX movements which pose a sustained threat to price stability. A pledge that has been followed by days of concerted action from the NBH on this front, providing over EUR 1.5bln of liquidity to banks since at daily swap tenders.
FOMC ANNOUNCEMENT (WED): The FOMC is largely expected to raise its Fed Funds target range by 75bps to 2.25-2.50%, a territory considered to be ’neutral‘, to which it will guide smaller hikes ahead as policy becomes restrictive. Some signs/expectations of a cooling growth outlook (as evidenced by survey data and corporate commentary), and a lack of deterioration in inflation gauges post-June CPI (UoM inflation expectations fell), have taken the heat off of a 100bps rate hike that gained traction after the headline Y/Y consumer inflation print in June rose again to a multi-decade high of 9.1% from 8.6%. The consensus for 75bps was emboldened in the wake of comments from Fed hawks, Waller and Bullard, after the CPI, indicating their preference remaining for 75bps despite the speculation for a larger hike. Money markets now imply just a 10% chance of a 100bps move, as opposed to the greater than 70% implied in the immediate aftermath of CPI. With no SEPs at this meeting, traders will look to the statement and Powell’s presser for guidance on the rate path/terminal rate, with expectations for smaller hike increments at a ‚measured‘ pace now that the Fed Funds rate is being lifted above neutral (2.5% according to June median Dot Plot). Markets are currently pricing in a year-end Fed Funds rate at 3.25-3.50%, which also now happens to be the market-implied terminal rate with rate cuts priced in Q1 ’23. When June FOMC Dots were released they implied a terminal of 3.75-4.00%, so there is a disconnect between markets and the Fed’s forecasts as the former prices in risk of a growth/employment slowdown later this year while Fed officials are conducting policy on the knowns: solid job growth and consumer spending that is fueling consecutive increases in inflation. The Fed has said it will remain undeterred in its tightening path until inflation shows signs of returning to target, so to expect anything otherwise at the June FOMC appears unlikely.
CHINESE INDUSTRIAL PROFITS (WED): There are currently no forecasts for the June Industrial profit figures, but again, the metrics will likely be affected by the targeted tightening of COVID restrictions in some Chinese districts. As a reminder, the May data saw profits of industrial firms falling at a slower pace vs April as manufacturing resumed. May’s improvement was led by surging profits in coal, oil and gas – commodities which saw prices fall in recent weeks.
AUSTRALIAN CPI (WED): Q2 inflation is expected to tick lower to 1.9% Q/Q from 2.1%, whilst the Y/Y rate is seen accelerating to 6.3% from 5.1%. The Trimmed Mean metrics are both expected to rise, to 1.5% from 1.4% Q/Q, and 4.7% from 3.7% Y/Y. The Weighted Means are also forecast to rise, to 1.4% from 1.0% Q/Q and to 4.2% from 3.2% Y/Y. Desks flag significant unknowns regarding the supply distribution impact on downstream goods such as food, clothing & footwear, as well as household goods. Analysts suggest the recent drop in crude should provide some reprieve for Q3, “The surge in domestic energy prices is set to have a significant impact on retail electricity prices, and thus the CPI, but we don’t expect it to appear until the second half of the year, and even then state government rebates will offset this in the September quarter so the full impact will not appear until the December quarter.”, analysts at Westpac say, as they forecast that another 50bps hike in August seems highly likely.
EZ FLASH CPI (FRI): Headline Y/Y CPI is expected to rise to 8.8% in July vs. the 8.6% rate seen in June with the super-core metric seen rising to 3.8% from 3.7%. The prior report was once again characterised by a combination of rising energy and food prices, whilst remarks from President Lagarde at the most recent ECB press conference saw the policy chief note that price pressures are spreading across more and more sectors, in part owing to the indirect impact of high energy costs across the whole economy. Accordingly, the ECB expects inflation to remain „undesirably“ high for „some time“ with upside pressures also a by-product of EUR depreciation. On a more positive footing, the July S&P Eurozone PMI survey stated that „rates of inflation of both selling prices and input costs moderated amid an easing of supply constraints and weakened demand“. GDP metrics for Q2 will also be released alongside the CPI report whereby Q/Q growth is seen coming in at 0.2% vs. the 0.6% expansion observed in Q1, with the Y/Y rate expected at 3.4% vs. prev. 5.4%. Given that the ECB has already pulled the trigger on rates and the outturn for the September meeting is likely to be more guided by the inflation backdrop, the GDP figures are unlikely to shift the dial for the ECB. From a growth perspective, greater attention has been placed on the recent S&P Global PMI release which saw the Eurozone Composite metric slip to 49.4 from 52.0 with the report noting that „The eurozone economy looks set to contract in the third quarter as business activity slipped into decline in July and forward-looking indicators hint at worse to come in the months ahead“
US PCE (FRI): Core PCE M/M, the Fed’s main inflation gauge, is seen rising 0.5% in June compared to the 0.3% rise in May, while the Core Y/Y figure is seen rising 4.7%, the same pace as the prior. Bank of America’s economists are on the softer side, calculating a +0.4% M/M core PCE rise (+0.44% unrounded) after the June CPI and PPI M/M prints rose by 1.3% and 1.1%, respectively. They suggest the gap between core PCE and CPI to persist after forecasting the third consecutive month where the former comes in around 0.3ppts below the latter, „The wedge is mainly driven by the differences in weights and scope of the two measures.“
US ECI (FRI): The Q2 Employment Cost Index is seen falling to +1.2% from +1.4%. The Fed will be hoping for a fall in the index after the Q1 figure ramped up to 1.4%, the highest since the early 1990s; Powell has previously touted the index as a key gauge he watches. A sustained high figure will only deepen concerns around second-round inflation effects and affirm a „higher for longer“ outlook among the FOMC.
BOJ SOO (FRI): The BoJ will release the Summary of Opinions from the July meeting on Friday in which the central bank kept its policy settings unchanged, as expected, with rates at -0.10% and QQE with yield curve control maintained to target 10yr JGB yields at around 0%. The BoJ reiterated it will offer to buy 10yr JGBs at 0.25% every business day unless it is highly likely that no bids will be submitted and repeated its guidance on policy bias that it will take additional easing steps without hesitation as needed with an eye on the pandemic’s impact on the economy, as well as keeping forward guidance for short- and long-term rates to remain at present or lower levels. Furthermore, it stated that it must be vigilant to financial and currency market moves and their impact on Japan’s economy and prices, while it lowered the Real GDP growth forecast for the current fiscal year to 2.4% from 2.9%, but raised the Real GDP view for the two years after and increased CPI projections through to FY24. The policy announcement lacked any major surprises and the adjustment to the current fiscal year’s projection was previously flagged by source reports, while Governor Kuroda made it clear in the post-meeting press conference that there is no intention to raise interest rates under Yield Curve Control and no plan to widen YCC’s 0.25% cap range, as well as noting that increasing rates a little bit would not stop JPY weakness and a large hike would be needed to stop JPY weakness which would bring substantial damage to the economy and he does not believe such a policy is rationally feasible.
This article originally appeared on Newsquawk
This article was written by Newsquawk Analysis at www.forexlive.com.
Bloomberg (gated) have polled analysts, finding that eight of the nine economists surveyed said Sunak would handle the economy better than Truss:
Truss has promised immediate reductions in taxes on companies and personal income, a measure that would probably stimulate the economy and boost inflation. The central bank, economists say, would probably respond by hiking rates, which are already at their highest point since 2009.
And, in the other corner:
Sunak has said he’d cut taxes only when the public finances are strengthened
—
I’m not picking sides, but Sunak’s time as Chancellor, doing the bidding of current PM Johnson, was not impressive.
Liz Truss and Rishi Sunak are slugging it out. There is around 7 weeks of voting ahead. This will give the UK a new PM just in time for another winter of discontent; high inflation & high rates are a bleak backdrop.
This article was written by Eamonn Sheridan at www.forexlive.com.