The Bundesbank is out with its monthly report, noting that the economy is likely to have grown less than anticipated in Q3 and may face a new inflation spike come September as government subsidies expire. Adding that the energy crisis is marring the outlook and makes for a very distressing economic situation.

For some context, German government subsidies on fuel and rail tickets are set to expire on 31 August.

The German central bank says that „the future development of the energy market is very uncertain, especially with regard to natural gas deliveries from Russia“ and that „the risks for the price outlook are clearly pointing upwards“.

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

• The data convinced me to start rate hike cycle with a bang
• Rate hike is the beginning of a series of similar steps to tame inflation
• It will take a while to get inflation to desired levels

So, now 25 bps is back in play for September? What is going on..

The minute forward guidance goes out the window, everything is just turning into a massive mess right now. And just a day after starting their rate hike cycle, we are already seeing fresh recession indicators from the PMI data today. It goes to show how the ECB has really dropped the ball on this one.

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

Headlines:

• Dollar turns to gains after early stumble
• Gas deliveries reportedly to have resumed via Nord Stream 1 pipeline
• Italian prime minister Draghi: I will resign
• Italian bonds slump hard amid political upheaval
• It is shaping up to be another stinging day for oil
• BOJ’s Kuroda: Will not hesitate to ease monetary policy further if necessary
• BOJ’s Kuroda: A large rate hike would be needed to stop yen weakness

Markets:

• EUR leads, NZD lags on the day
• European equities lower; S&P 500 futures down 0.2%
• US 10-year yields up 2 bps to 3.056%
• Gold down 0.8% to $1,683.33
• WTI crude down 4.6% to $95.23
• Bitcoin down 2.6% to $22,646

It is a big morning in Europe with two out of three key risk events having played out. The Nord Stream 1 pipeline saw gas flows restart and return back to capacity prior to the maintenance period i.e. 40% or 67 million cubic metres. That provided some early relief for the euro before Italian prime minister Draghi announced his resignation, as expected.

EUR/USD climbed up from 1.0200 to 1.0230 early on before being pulled back to 1.0170-80 levels at the moment. The dollar was also initially softer before finding a footing as risk sentiment also erred slightly more negatively during the session.

USD/JPY pushed up from 138.30 to 138.70-80 levels as the BOJ stood pat and Kuroda reaffirmed that the central bank isn’t going to be shifting its policy stance any time soon.

GBP/USD hit a high of 1.2003 in the handover from Asia to Europe but settled lower as the dollar came back, falling to 1.1920 and is holding just above that now.

As equities eased lower, the aussie and kiwi also saw early advances turn the other direction with AUD/USD falling from 0.6910 to 0.6870 and NZD/USD from 0.6240 to 0.6190 – keeping at the lows for the day currently.

It is on to the ECB next as the final key risk event for the euro today.

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

If you want some foreshadowing, I’ve got you covered here. As such, let’s get straight into this.

25 bps or 50 bps?

This seems to be the main thing that everyone will be watching first. As the ECB is set to deliver its first rate hike in 11 years, there are still questions surrounding how much the central bank will move. 25 bps was pretty much a given right until early this week, where there were reports suggesting that policymakers could consider moving by 50 bps instead.

The odds coming into today suggest that market pricing is pretty much a coin flip, even if economic estimates are siding with a 25 bps move. That tees up quite a dilemma for the euro and European bond yields in interpreting the immediate decision. A 25 bps move will see the euro fall alongside yields while a 50 bps move will see the opposite reaction.

That said, the latter scenario may see euro gains be short-lived as there are still plenty of economic headwinds for the currency and the region in the months ahead. A 50 bps move today will do little to change those circumstances.

Anti-fragmentation tool announcement

Too little time. That’s my view on the matter as the ECB has rushed things in order to try and appease markets but have found themselves pressured by Italy’s political upheaval at the moment. The thing I fear is that markets will leave disappointed when the ECB offers a lack of details and no strong views on the exact functionalities of the tool, and that could see bond spreads blow up – much more than they already have after Italy’s predicament earlier here.

As I type this, the spread between 10-year Italian and German bond yields has widened to 237 bps on the day.

I would expect Lagarde to exert the notion that the tool will have no limits and no conditionality. It will take the best parts of the other tools from the ECB aimed at dealing with spreads but again, can words really cover it? If it doesn’t and markets are not satisfied, the euro will have to suffer yet another gut punch before the week is over.

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

Most of the rumours swirling have been around late September or early October so this one is a little bit on the earlier side. In any case, it is the only direction that we are headed for and given the recent political fracture in the government coalition, the center-right bloc (Brothers of Italy, Lega, Forza Italia) may be set for a big win.

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

11 years or over 4,000 days (4,032 to be exact). That is the last time when the ECB made the decision to raise interest rates. As much as how inconsequential the actual rate hike today will be, the fact that we are seeing the central bank take up such a decision in itself is a significant one and it will be one for the history books at least.

During Draghi’s tenure as ECB president, he never got the chance to deliver tighter policy and how ironic is it that his name is in the headlines today once again – but for very different reasons. A reminder that Draghi only took over as ECB president in November 2011, after the central bank began to cut rates; less than six months after their last rate hike at the time.

In any case, the ECB is once again in the spotlight today as they are set to raise interest rates for the first time in over 4,000 days. As grand as the occasion is, I’m afraid that the gesture is the only relevance of the decision today.

It doesn’t quite matter all too much how much the ECB chooses to hike – be it 25 bps or 50 bps – because at the end of the day, it won’t convince the big picture outlook that Europe is staring down the barrel of a gun and the central bank is rather helpless to save the economy.

Inflation pressures are soaring. The Russia-Ukraine conflict continues to weigh on sentiment and squeeze energy and commodity prices. A gas crisis is looming large and the heatwave this summer hasn’t helped one bit. To call the ECB being behind the curve would be an understatement. Coming into today, they are still tied with the BOJ as being the only major central banks not to have adjusted interest rates this year.

For all the talk, it has taken so many months before we will finally see some action today. But that seems to be typical of how things are in Europe when it comes to policy decisions, no?

In any case, the immediate reaction today will be looking towards whether the ECB will hike by 25 bps or 50 bps. The euro will be swung either way as the odds are roughly a coin flip despite estimates siding with the former. But when the dust settles, I reckon it will be hard for the euro to maintain a bullish rhetoric when there is so much else going wrong for the currency from an economic perspective.

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

In just two days, oil has pretty much erased its recent recovery as we see another $4 drop today to below $96 currently:

Large doses of volatility have not been foreign to oil since the Russia-Ukraine conflict but there has been a bit of a habit of heavy selling in the past few weeks. Today seems to be one of those stinging episodes for oil prices as we see a pattern of lower highs, lower lows start to develop more clearly.

The latest retreat comes after an attempted push higher, which threatened the daily trendline resistance since June (white line) but failure to breach the 8 to 11 July highs near $105 is seeing prices turn tail and run the other direction.

The drop today brings into focus key support near $95 again with the 200-day moving average (blue line) at $94.58 a major support level to watch. That alongside daily support around $93.56 helped buyers to salvage the technical picture last week and those levels will be ones to watch again as prices come under pressure.

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

• Prior -1.7%
• Market index 281.1 vs 300.0 prior
• Purchase index 208.0 vs 224.3 prior
• Refinancing index 655.7 vs 685.3 prior
• 30-year mortgage rate 5.82% vs 5.74% prior

Ouch. That’s another steep drop in mortgage activity as both purchases and refinancing activity declined strongly in the past week. For some context, the purchase index is now ~19% lower than the same week a year ago while the refinancing index is down ~80% as compared to that same period. It’s not a good look on housing market activity with MBA noting that:

“Mortgage applications declined for the third week in a row, reaching the lowest level since 2000. Similarly, with most mortgage rates more than two percentage points higher than a year ago, demand for refinances continues to plummet, with MBA’s refinance index also falling to a 22-year low.

“Purchase activity declined for both conventional and government loans, as the weakening economic outlook, high inflation, and persistent affordability challenges are impacting buyer demand. The decline in recent purchase applications aligns with slower homebuilding activity due to reduced buyer traffic and ongoing building material shortages and higher costs.”

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

There is a bit more of a push and pull feel now on the session as the dollar finds a bit of a footing as risk sentiment turns the other way around. EUR/USD fell to a low of 1.0175 quickly before trading back to near 1.0200 currently. Buyers are still in near-term control though but it highlights some nerves going into the ECB policy decision tomorrow.

Elsewhere, GBP/USD has also fallen back below 1.2000 and AUD/USD has seen earlier gains trimmed with a drop from 0.6930 to 0.6900 near the lows for the day.

As much as the dollar was softer earlier in the week, the moves are largely viewed as a retracement still. It is tough to bet on a major turnaround in sentiment for the greenback unless something changes at the FOMC meeting next week.

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

While no investor can
be considered the perfect investor, many have
proven themselves to be the smart ones. Different investors use different
strategies for specific reasons. Still, some investment advice can be helpful
to every type of investor, and here are a few of them.

Understand that Some
Losing Investments Should Be Let GoLosses are a normal
part of investing, whether you’re doing it short-term or long-term.

Buy-and-hold investors
sometimes incur losses that may be unrecoverable. And even if they managed to
return to the green territory in the future, the cost of waiting for that
bounce back may not be worth their time and resources.

Smart investors
understand that it’s better to let go of some losing investments than continue
holding on to them in hopes that they will recuperate losses.

While dealing with a
capital loss is not what you initially planned to do, there are still a few
instances when having losses can help you. For example, you can use your
capital loss to reduce any capital gains tax you owe.

Invest in Index Funds

Index funds are created
to reflect the performance of a certain market index. This type of investment
vehicle makes for an excellent choice as it can quickly diversify your
portfolio since it is a fund holding stocks of a range of companies. By
investing in one, you’re immediately betting on different businesses.

Take index funds that
follow the S&P 500 index as an example. Putting your money into such a fund
provides you access to hundreds of well-known companies in the market, and it
only requires you to make one investment.

Remember to Utilize
Compounding

The earlier you learn
about the benefit of compound returns in investing, the more profit the money from
your investments can generate on itself. You just need enough time, and
compounding will take care of the rest of the work on your behalf.

Let’s say you invested
$10,000 in a fund with an annual return rate of 10%. If you let compounding
work on it for two decades, your money would grow to over $67,000. If you let
it compound for three decades, that $10,000 would be worth around $174,000.

That is why time is
crucial to compounding. The longer you keep the money invested and allow
compounding to work its magic, the higher the value can reach over the long
term. The total amount climbs every year as the money earning the return
increases.

Learn About the Fees
Involved

While some brokerages
offer free trading services, you still
need to know the fees associated with the investment product or service used. Mutual
funds and exchange-traded funds (ETFs), for example, charge investors an
expense ratio annually for portfolio management and other related services.

Expense ratios are
usually charged as a percentage of the investment’s overall amount. So, a 20%
expense ratio means you must make a yearly payment of $20 for every $1,000 you
invest in the fund.

The differences in
percentages may not be a lot between funds, but they can accumulate over time
and reduce your gains.

This article was written by ForexLive at www.forexlive.com.