A further drop in the average rate of the most popular US home loan sparked a big jump in refinancing activity in the past week. And that led to the surge in mortgage applications, also helped by a slight bump in purchases activity. Recovery time?
This article was written by Justin Low at www.forexlive.com.
Heavy is the head that wears the crown. The Fed has a very, very big decision to make today. A rate cut is all but confirmed but the major question is by how much? They’ve been suggesting a likelihood of moving by 25 bps since Jackson Hole but market players aren’t listening all too intently. Even if that is what is „expected“ according to estimates from economists, traders are still pricing in considerable odds of a 50 bps move.
So, what will the Fed do later today?
Either way, someone, somewhere is bound to get disappointed. And as is the case when such emotion seeps into markets, expect there to be plenty in the reaction and some significant moves in the aftermath.
The case for moving by 25 bps has been one that Fed policymakers have been outlining since Jackson Hole. The disinflation process is starting to take hold but still moving rather gradually. And there is some softening in labour market conditions but it still largely fits with their soft landing narrative.
So, why the need to push for a 50 bps move?
Well, this is very much markets trying to signal to the Fed they are behind the curve and get policymakers to do their bidding. They tried kicking and screaming in early August and that didn’t work. So, there is a tail risk the carry trade unwind episode could reemerge if the Fed does disappoint certain quarters in the market.
Fed watcher Timiraos contributed to the indecisiveness in markets with his piece last week here. And he added more colour to things yesterday here.
The case in point for a 50 bps move is that the Fed might feel more comfortable in starting off with a bit of a bigger move.
For one, it’ll alleviate suggestions that they are behind the curve and need to do more. Secondly, if economic data is to worsen in the weeks ahead, they’ve at least shown that they are trying to address that in a prompter manner. That as opposed to moving by 25 bps and then not providing much hints about the next move in November.
Nonetheless, the Fed has plenty of ammunition still in the tank. So, to say that they’ve missed the boat in not moving by 50 bps today and that it is all doom and gloom would be misplaced.
I mean, let’s be real. Labour market conditions in the US have shown signs of cooling with some noticeable hiccups or two recently. But other economic data are not screaming out for a significant downturn or recession. As such, a soft landing scenario is still very much valid by all accounts.
If the Fed does stick to its guns, I reckon there will be plenty of kicking and screaming before the week is over. But even if they do make a decision to try and pacify markets, there will be discontent but perhaps not as much given the current pricing. If anything, it’ll be dollar bulls that will be cursing their luck in thinking that the Fed has the cojones to step up when it matters.
But we’ll see what they do later on in the day. Either way, there will be disappointment no matter what the outcome is.
This article was written by Justin Low at www.forexlive.com.
Yesterday, we got some more
positive US data releases as the US retail sales came out a touch better than
expected and the industrial production data beat forecasts erasing the
hurricane related weakness in July.
Despite that, the market is
still pricing a 63% probability for a 50 bps cut at today’s decision. What’s
more important is that the Fed is cutting into a resilient economy which should
lead to better growth expectations and support the stock market.
Russell 2000
Technical Analysis – Daily Timeframe
On the daily chart, we can
see that the Russell 2000 eventually rallied back above the major trendline and extended the gains into the
previous high around the 2250 level. The next target for the buyers should be
the 2300 level where we can expect the sellers to step in to position for a
drop back into the trendline.
Russell 2000 Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can
see that we had a very strong rally from the lows as the market looks forward
to the Fed rate cuts and the pickup in economic activity. From a risk
management perspective, the buyers will have a better risk to reward setup
around the 2185 support
zone. The sellers, on the other hand, will want to see the price breaking lower
to pile in for a drop into the 2120 level.
Russell 2000 Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, we can
see that we have upward minor trendline defining the current bullish momentum. The
buyers will likely keep on leaning on it to position for new highs, while the
sellers will want to see the price breaking lower to position for a drop into
the 2185 support. The red lines define the average daily range for today.
Upcoming
Catalysts
Today we have the FOMC rate decision, while tomorrow we get the latest US
jobless claims figures.
This article was written by Giuseppe Dellamotta at www.forexlive.com.
Oil Technical Analysis: Failed Breakout and Market Sentiment Shift
The oil market has recently experienced significant volatility, as illustrated in the Light Crude Oil Futures (CL1!) chart. Traders were caught off guard by a failed breakout and a subsequent bearish momentum, which reflects a shift in market sentiment. Here’s a breakdown of the key technical events unfolding.
Failed Breakout and Bull Trap
The chart shows a failed breakout from a bull flag pattern, a bearish signal that typically indicates a reversal in price momentum. After an attempted breakout above the upper resistance, bulls were trapped with the breakout proving short-lived. This led to a swift price reversal, disappointing those who were expecting further upward movement.
The contract rollover to the November futures (CLX2024) adds another layer of complexity to this technical setup. As the contract switched, bullish traders were trapped in their positions, unable to capitalize on expected gains. This failure often creates a scenario where traders rush to close long positions, fueling bearish pressure.
Downward Price Channel
Since mid-August, oil prices have been trending within a descending channel. This sustained downtrend is highlighted by lower highs and lower lows, indicating that bears are currently in control of the market. The recent failed breakout attempt suggests that the downward pressure remains strong, with bulls unable to break free from the prevailing bearish momentum.
At the time of writing, oil prices are hovering around $68.85, representing a 3.29% decline. The failed breakout at $71.19 marked the peak of this brief rally attempt, but the market quickly reversed, confirming resistance at this level.
Bears in Control: Gap Down Confirms Sentiment
The most recent action saw bears taking advantage of a gap down, further solidifying their hold on the market. This gap reinforces the bearish sentiment, with the price now struggling to maintain a foothold around the $68-$69 range. Given the failure to maintain support above $71, traders may expect additional downside movement, potentially targeting previous lows around $65.27.
Moving Forward: Key Levels to Watch
Support at $68.85: The current price is testing this support zone. A break below could open the door for further downside, with the next major support seen near $65.27.
$65.27 Support Level: This represents a critical psychological level that, if broken, could accelerate the downward trend in the oil market.
Conclusion: Bearish Outlook Continues
With the failed breakout from the bull flag pattern and a significant bearish gap down, the current outlook for Light Crude Oil Futures remains bearish. Bulls are struggling to regain control, and until they can break above the key resistance at $71.19, the downward trend will likely persist.
Traders should watch for further downside tests of the support levels mentioned, and any bounce attempts should be monitored for potential short-term trading opportunities.
In this environment, risk management is crucial, as the market remains highly volatile and prone to sudden shifts, particularly with contract rollovers and macroeconomic factors influencing oil prices.
This article was written by Itai Levitan at www.forexlive.com.
Markets:
It’s been a
quiet session with no major news releases. The only economic report was the
German ZEW which missed expectations by a big margin.
In the
markets, the mood is tentatively positive as risk assets continue to gain as we
head into the FOMC decision tomorrow. The probability for a 50 bps cut stands
now around 65%.
In the
American session, we get the US Retail Sales and the US Industrial Production
data. If we get weak readings, then the market will likely seal the 50 bps cut
with a 70%+ probability. In case the data comes out strong though, it’s
unlikely that we will see much change in the pricing although we should get closer to a 50/50 chance.
This article was written by Giuseppe Dellamotta at www.forexlive.com.
Last month, July retail sales nudged up by 1.0% and beat estimates here. Ten out of the thirteen categories showed an increase, so that helped. But this time around, the estimate is for headline retail sales to show a 0.2% decline. That said, ex-autos is estimated to increase by 0.2% and the more important control group is expected to be higher by 0.3% again.
The hurdle doesn’t seem too high but spending might cool a little after the hotter-than-expected July performance. That especially as we are starting to build towards the holiday spending spree in the months ahead.
In any case, it’s not so much about the details of the data at this point. This is a market that is currently trending high on emotions ever since the whole carry trade fiasco at the end of July and start of August.
And in pricing in higher odds of a 50 bps move by the Fed since last week, it looks like traders are very much caught in that again.
As such, I would argue that the risks are asymmetric when it comes to the US retail sales today.
If the report is a poor one, it would just serve to exacerbate calls for a 50 bps rate cut tomorrow. That considering market players are wanting to try and force that on the Fed, or so it would seem.
But if the report is relatively in line with estimates and even perhaps showing that spending is doing fine, markets are likely to take that as a „carry on as you will“ message. There might be some minor adjustments to the current pricing in favour of 25 bps but surely we won’t go as far as to pricing out the possibility of a 50 bps move.
Timiraos‘ report last week certainly threw a curveball to markets. The Fed communique since Jackson Hole has been siding with a 25 bps move. But then now, traders have had to rethink whether 50 bps should still be in the picture.
And when you give traders an inch, they’ll happily take a mile. Even more so if they can lean on the data to back that up.
Either way, a poor report today will certainly make things very, very interesting going into tomorrow. That especially given the current market pricing. It will make this one of the most anticipated and watched Fed meetings in recent times.
This article was written by Justin Low at www.forexlive.com.
Last Thursday, WSJ’s
Timiraos published an article which seemed suggesting that a 50 bps cut was
still being discussed. The market responded by raising 50 bps cut probabilities
to around 40% from 13% before the news.
Nick Timiraos is considered
a Fed “insider”, so the market is attentive to all of his pieces concerning
potential Fed decisions. Since then, the 50 bps camp got more vocal and the
probability for the Fed to cut by 50 bps at the upcoming meeting stands now
around 70% with a total of 120 bps of easing by year-end.
This repricing weakened the
US Dollar across the board as Treasury yields fell further. Once we are done
with the Fed decision though, the focus will switch back to the economic data.
In case we start to see better figures, the market might start to pare back the
aggressive easing expected in 2025 supporting the greenback in the short-term.
For the RBA, the market
sees a 91% probability of no change at the upcoming meeting and a total of 21
bps of easing by year-end. The central bank keeps its fairly hawkish stance as
inflation has been slow to return inside the target range and the labour market
remains resilient.
AUDUSD
Technical Analysis – Daily Timeframe
On the daily chart, we can
see that AUDUSD bounced around the 0.6650 level and eventually rallied back
above the key 0.67 resistance increasing the bullish momentum.
The target for the buyers should now be the 0.68 handle where we can expect the
sellers to step in with a defined risk above the level to position for a drop
back into the 0.67 handle.
AUDUSD Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can
see that the bullish momentum increase as the price broke above the 0.67 resistance
and the trendline
as more buyers piled in while the sellers squared their positions. There’s not
much else to glean from this timeframe, so we need to zoom in to see some more
details.
AUDUSD Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, we can
see that we have an upward trendline defining the current bullish momentum. The
buyers will likely keep on leaning on the trendline to position for more
upside, while the sellers will look for a break lower to pile in for a drop
back into the 0.67 level. The red lines define the average daily range for today.
Upcoming
Catalysts
Today we get the US Retail Sales and the US Industrial Production data.
Tomorrow, we have the FOMC Rate Decision. On Thursday, we get the Australian Labour
Market report and the latest US Jobless Claims figures.
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.
The changes among the day remain light, with dollar pairs all holding within 10 pips change currently. It’s just one of those days where even if there are any moves, one shouldn’t look too much into it. At this point, it’s all about the Fed tomorrow.
USD/JPY was a bit more volatile in Asia, trading up to 141.25 but is now flat at 140.60. Meanwhile, EUR/USD saw a light extension of its range earlier to 1.1146 but is now flat again around 1.1135. So, there’s not really a whole lot to talk about in terms of the movement today.
In the equities space though, US futures are pushing higher with tech shares seen rebounding. S&P 500 futures are up 0.4% with Nasdaq futures up 0.6% currently. In the bond market, 2-year yields remain on edge at 3.556% and 10-year yields down marginally on the day at 3.614%.
As for Fed pricing, traders are still seeing ~67% odds of a 50 bps rate cut currently.
This article was written by Justin Low at www.forexlive.com.
Markets:
There weren’t any headlines that really stood out on the session but that didn’t stop traders from kick starting the week with a bit of action.
It was all about positioning flows as the dollar lagged across the board, falling against the rest of the major currencies bloc. USD/JPY in particular dipped to a low of 139.57 during the session, its lowest since July last year. That before returning back to hover in and around the 140.00 mark.
The drop in the dollar comes as yields stay pressured, with 2-year Treasury yields in particular continuing to flirt with the 2023 low near 3.55%.
EUR/USD nudged higher to 1.1120 levels while GBP/USD is contesting the 1.3200 mark, up 0.5% on the day. Meanwhile, AUD/USD and NZD/USD are both up 0.6% to 0.6745 and 0.6190 respectively. That despite risk sentiment being more tentative during the session.
European indices are a little mixed after a slightly softer start, with US futures also keeping little changed overall.
In the commodities space, gold is holding up after the break to fresh record highs last week. The precious metal is up another 0.2% to $2,581 and hoping to continue that form into the Fed later this week.
It’s all about the major central bank meetings this week and the Fed is the one most anticipated. That will keep markets on edge with positioning flows set to dominate proceedings in the run up to the meeting.
For now, it looks like traders are looking for a more dovish Fed at least.
This article was written by Justin Low at www.forexlive.com.