• The new tool should be different as circumstances are not the same
• It will be different from PEPP, APP or OMT programmes

The OMT was designed to cater more towards a crisis of solvency a decade ago and that isn’t exactly the main challenge that the ECB is facing right now. It is arguably the tool that has the closest set of characteristics desired by the central bank to counter fragmentation but it offers up a lot of political challenges as well. Don’t expect Italy to sign up for any of that.

Ideally, the new tool should come with the right kind of economic components offered up from the OMT but without the political stipulations. It is going to be hard to do that while having to navigate backlash from its own members, especially Germany. So, we’ll have to see how creative policymakers can be in the weeks/months ahead.

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

The speed bump from jawboning by Japanese officials and market concern about a BOJ policy pivot slowed down the USD/JPY surge in the past week but now that we’ve cleared the latter, it is looking like buyers are taking charge again. The pair is now running up to 135.96, its highest since October 1998.

The technical dominoes continue to fall by every 500 pips for USD/JPY since breaking the 120.00 mark and there is little resistance from hereon until we get towards 140.00 potentially. That will be the next big psychological level as to whether we might see firmer intervention by Japanese officials.

Otherwise, the continued policy divergence and lack of buying conviction in bonds amid continued central bank tightening and surging inflation will just continue to present headwinds for the Japanese yen.

Another pair which I have been rather fond of since last week has been CHF/JPY and it is up for a fourth consecutive day, trading to 140.40 – up 500 pips since the SNB policy pivot.

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

The German network regulator reiterates its call to save as much gas as possible as the country faces a shortage emergency amid a cut in supplies from Russia. The country is turning to coal-fired power plants again to ensure electricity continuity and is a serious blow to ambitions reduce coal usage by the turn of the decade.

It’s not just Germany that is being affected by this at the moment. Italy, Austria, and the Netherlands are all facing a similar predicament.

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

• Prior 26

UK industrial order books slip in June but the good news is that price expectations also eased to a 9-month low. It is a bit contrasting with rising consumer inflation but CBI notes that this could be „the first signs that weaker activity is beginning to slow the pace of price increases in the sector“.

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

Equities are reflecting a more risk-on mood so far on the day and that is translating to a softer dollar in European morning trade. The greenback and the yen are the two weakest performers, as European stocks are seeing solid gains on the session alongside US futures. Here’s a snapshot of the equities space before we get to some dollar charts:

• Eurostoxx +1.3%
• Germany DAX +1.1%
• France CAC 40 +1.7%
• UK FTSE +0.8%
• S&P 500 futures +1.9%*
• Nasdaq futures +2.0%*
• Dow futures +1.7%*

*relative to Friday levels

The euro is among the better performers so far with EUR/USD climbing from 1.0520 to 1.0580 on the session, helped by continued hawkish remarks by ECB policymakers.

The high last week near 1.0600 will offer up some minor resistance with the daily close one to watch as to whether buyers can keep a hold above the 50.0 Fib retracement level at 1.0566. For now, the near-term bias is more bullish upon the push above the 200-hour moving average (blue line) earlier in the day.

Meanwhile, GBP/USD has also managed to climb above 1.2300 and is up 0.5% on the day currently:

The 1.2400 level will still offer sterner resistance with traders continuing to try and sort out the divergence story in the pair.

Elsewhere, USD/CAD is pinned near the lows and is down 0.5% to 1.2910 amid a double-top pattern being formed just above 1.3050:

The better risk appetite and higher oil prices (WTI crude up 2% to $111.85) are both also contributing to a stronger loonie on the day.

Looking at other commodity currencies, the gains are more measured with AUD/USD up 0.4% to 0.6975 and still keeping below 0.7000 and its 200-hour moving average at 0.6996. NZD/USD is up 0.3% to 0.6355 with the Friday high at 0.6395 keeping a lid on any upside push for the time being.

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

Well, market odds have already priced in at least 75 bps for both July and September combined. It is now down to the ECB to deliver on that as such. ECB policymaker Kažimír is also out saying that negative rates „should be a thing of history“ by September.

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

Headlines:

• Reminder: It is a US holiday today
• Swiss franc continues to pace its advance after SNB policy pivot
• ECB’s Kazaks says would support 25 bps hike in July, 50 bps hike in September
• ECB’s Kazaks: We do not target specific spread levels
• ECB’s Centeno: There is a great determination to deal with fragmentation risk
• BOJ’s Kuroda: Important for exchange rate to move stably reflecting economic fundamentals
• Germany May PPI +1.6% vs +1.5% m/m expected
• SNB total sight deposits w.e. 17 June CHF 751.8 bn vs CHF 753.1 bn prior

Markets:

• AUD and NZD lead, USD lags on the day
• European equities higher; S&P 500 futures up 0.8%
• Gold down 0.1% to $1,837.62
• WTI crude up 0.7% to $110.30
• Bitcoin up 1.6% to $20,875

With it being a long weekend in the US, markets are seeing less appetite to stray away from Friday’s bit-part relief.

Equities are trading a little higher after a dreadful escapade last week, with European indices holding decent gains with US futures also ticking higher. The dollar is seeing a bit of a retreat across the board as such amid the calmer risk tones.

EUR/USD was steady during the session around 1.0510-30 after advancing in Asia from its opening gap lower around 1.0475. Meanwhile, GBP/USD also recovered some ground in a push from 1.2230 to test its 200-hour moving average at 1.2281.

USD/JPY was little changed but retreated from 135.10 to 134.80-90 levels as the yen keeps pace with the dollar at the back of the group.

Elsewhere, AUD/USD and NZD/USD are both up 0.9% on the day to 0.6990 and 0.6360 respectively while the franc continues to push for gains after the SNB policy pivot last week. USD/CHF is down 0.5% to 0.9650 with the low earlier touching 0.9620.

It’s going to be a quiet one in the session ahead with Wall Street out for the day but there will be a couple of ECB and Fed speakers to keep things moving along as the new week gets underway.

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

Steady as she goes for the Swiss franc as it continues to creep higher after the SNB policy pivot last week.

The downside push in USD/CHF ran into trendline support before stalling at the end of last week and that is the key area being tested once again currently. That said, the double-top pattern just above 1.0000 is an ominous technical signal when you couple it with the change in the narrative at the SNB.

A push below the trendline support will bring into focus the late May and early June lows around 0.9545-56 next.

Elsewhere, EUR/CHF is also down 0.4% to 1.0135 as the pair continues to look towards parity. Meanwhile, CHF/JPY is making a run for it above 140.00 – touching fresh highs since 1980 upon the break higher from the end of last week.

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

• Inflation would need to surprise on the low side for it not to be 50 bps in September
• But investors should not think that 50 bps rate hikes are the new default
• Market expectation of the terminal rate shot up quite dramatically last week
• One should be careful about the speed, not get carried away

Well, if they’re concerned about markets getting carried away then they should have done a better job in terms of communicating their policy outlook from the get-go. Their first mistake was sticking with the ‚transitory‘ narrative for too long. Things have just been snowballing from there ever since.

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

• But we try to ensure proper transmission
• The increase in spreads has been very fast
• Fundamentals are unlikely to have changed that fast

Sure, sure. But that’s not what Visco said last week here. In any case, they continue to talk up the „fundamentals“ but again how can you really talk about that without addressing the fact that there are risks related to fragmentation and markets are well within their means to look to price that in. *cries in Italian debt*

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